2022 IP Outlook Report: The Developments Shaping Trademark Law [VIDEO]

KEY TAKEAWAYS AND OUTLOOK FOR 2022

While Gen Z taught us all on TikTok how not to be “cheugy,” or out of touch with pop culture, similarly, trademark law in 2021 ushered in new and changed regulations, provided further guidance on traditional legal concepts and gave us a peek into how brands may help shape the future in the “metaverse”—and beyond. Trademarks (like Gen Z), keeping us all hip.

After another year of uncertainty marked by an ongoing pandemic, environmental strains, fights for social justice and a growing understanding of what it means to be truly equitable and inclusive, we expect that brands will continue to serve as cultural beacons, consumer protection tools and drivers of change in 2022. Developments to watch include:

NEW STRATEGIES AND TOOLS FOR ADDRESSING FRAUD

We anticipate that brand owners will take advantage of the Trademark Modernization Act of 2020 (TMA)—which went into effect on December 18, 2021—and other legal guidance to tackle fraud, remove “deadwood” from the federal trademark register and streamline prosecution and enforcement strategies.

FIRST AMENDMENT PROTECTIONS IN HIGH-PROFILE TRADEMARK INFRINGEMENT CASES

Last year saw rapper sensation Lil Nas X and popular brands Nike and Jack Daniel’s mired in legal disputes that hinged on the First Amendment’s dictums. Artists and creatives will undoubtedly continue to push and define the metes and bounds of trademark law in the face of the First Amendment.

ONGOING EFFORTS TO EFFECTIVELY COMBAT COUNTERFEITING

While everyone watches for legislation in 2022 thatwill address the problem that is counterfeiting, brand owners should take steps to maintain a vigilant enforcement system, involving ecommerce platforms, established protocols created by US Customs and Border Protection and possibly the International Trade Commission (ITC) itself for disputes and exclusion orders.

HOW TRADEMARKS (AND BUDGETS) WILL FIT INTO AN EVER-GROWING VIRTUAL WORLD

Following last year’s metaverse launch, which featured Facebook’s ubiquitous Meta rebrand, Nike and Converse’s trendsetting trademark applications for “downloadable virtual goods,” and applications for pricey non-fungible tokens (NFTs), courts and the US Patent and Trademark Office (PTO) will be forced to grapple with whether a trademark registration covering traditional goods can be equally extrapolated to virtual goods. Brand owners will have to contend with how much customization and control they are willing—or legally able—to relinquish to their valued consumers and communities.

WHETHER ATTENTION ON BEER AND HAND SANITIZER WILL IMPACT THE COURT ACCESS ISSUE

When Brooklyn Brewery Corp. attempted to prevent a competitor from registering a rival trademark in relation to hand sanitizer, it was denied by the US Court of Appeals for the Federal Circuit. The forthright criticism following that 2021 ruling may lead to further review or comment in 2022, keeping court access a live issue for trademark plaintiffs—and the business of beer, fluid.

We will continue to watch as brands dip their virtual toes (or sneakers) into the metaverse, as well as other developments impacting your trademark universe, in 2022.

DEVELOPMENTS SHAPING TRADEMARK LAW

TMA & OTHER LEVELED-UP PTO MEASURES TO COMBAT FRAUD

In 2020, US Congress enacted the TMA. Some of its changes merely codify the existing practice of the PTO, such as the letter of protest. Others, notably two new ex parte proceedings (i.e., expungement and reexamination), were designed to assist with the PTO’s initiatives to clear the US trademark register of fraudulent registrations and applications, as well as “deadwood” or trademarks no longer in use.

As outlined in the PTO’s final rules implementing TMA provisions, most changes went into effect on December 18, 2021, including:

On December 1, 2022, changes to the office action response timeline will go into effect. Previously, applicants/registrants had six months to respond to office actions. Under the new provisions, this timeframe will be shortened to three months (for most applications), with the option for a one-time three-month extension upon payment of a $125 fee.

Fraud, Sanctions and Cancellations

The TMA is just one of many steps being taken to address fraudulent filings. Concerned that some US lawyers were assisting non-US applicants without conducting proper diligence as to the authenticity and veracity of information included in trademark applications, the PTO began investigating parties who were lodging suspiciously large numbers of trademark filings on behalf of overseas applicants. The PTO has since issued several sanction orders where it found evidence of fraudulent applications and violations of the PTO Rules of Professional Conduct. The sanctions for at least two US lawyers who assisted Chinese applicants with illegitimate applications included a 12-month probationary period and mandatory classes on ethics and trademark law. The PTO also sanctioned a Chinese trademark agency, terminating more than 15,000 application proceedings involving the agency and barring the agency from all further correspondence or submission to the PTO, noting that the agency is “not and never w[as] authorized or recognized to practice before the USPTO in trademark matters.”

In keeping with the concentrated effort of the PTO and the TMA to clear “deadwood” clutter from the registry, the Federal Circuit and the Trademark Trial & Appeal Board (TTAB) provided clarification on—and arguably lowered—the standard for proving fraud. Notably, in Chutter, Inc. v. Great Management Group, LLC and Chutter, Inc. v. Great Concepts, LLC, 2021 USPQ2d 1001 (TTAB 2021), the TTAB held that “reckless disregard” for the truth can satisfy the “intent to deceive” requirement for fraud set forth in the seminal case, In Re Bose Corp., 91 USPQ2d 1938 (Fed. Cir. 2009). In Chutter, Inc., the TTAB granted a petition to cancel a registration for DANTANNA’S, finding that the defendant’s conduct (i.e., filing a Combined Declaration of Use and Incontestability under Sections 8 and 15 of the Trademark Act that declared, incorrectly, that there was no pending proceeding involving the relevant mark) constituted reckless disregard for the truth and, therefore, demonstrated an intent to deceive the PTO—sufficient evidence for a finding of fraud.

Additionally, in Galperti, Inc. v. Galperti S.R.L., Case No. 21-1011 (Fed. Cir. Nov. 12, 2021), the Federal Circuit (for the second time) held that the TTAB erred in dismissing a petition to cancel for fraud based on the applicant’s statement of “substantially exclusive” use of its mark for five years, which the applicant submitted in support of its claim of acquired distinctiveness under Section 2(f) of the Trademark Act. Specifically, the Federal Circuit held that, as a matter of law (and contrary to the TTAB’s assertions otherwise), (1) a party challenging a Section 2(f) claim based on substantially exclusive use of that trademark does not need to have acquired distinctiveness in its own mark in order for the challenger’s use to undercut the applicant’s claim of substantially exclusive use; and (2) use of the mark by any party, regardless of its relationship to the challenger, is relevant to the assessment of the applicant’s claims of substantially exclusive use.

Both Chutter, Inc. and Galperti, Inc. helped lessen the burden for parties seeking to cancel certain registrations based on fraud. These decisions, in conjunction with the efforts of Congress and the PTO, should help to address fraudulent filings cluttering the register.

TRADEMARK LAW AND THE FIRST AMENDMENT

The First Amendment’s right to free speech is a hot button issue in trademark law, with cases involving parody and other speech continuing to adjust the metes and bounds for the types of marks granted protection for associated goods and services. Last year saw Nike and Jack Daniel’s mired in legal disputes that hinged on the amendment’s dictums.

Brooklyn-Based Brand and Rapper Dance with the Devil

So, who won the dance off? While Nike vigilantly protected its brand, it didn’t necessarily disrupt art and sneaker culture, particularly for customers willing to spend over $1,000 on designer sneakers.

In a case that garnered attention far beyond legal circles, the US District Court for the Eastern District of New York took a crack at deciding the extent to which the First Amendment would protect the MSCHF/Lil Nas X “Satan Shoe” against claims of trademark infringement and dilution in Nike, Inc. v. MSCHF Product Studio, Inc., case 1:21-cv-01679, (EDNY March 29, 2021). Lil Nas X is an American rapper and singer who first found fame with the release of the country rap song “Old Town Road” and its remix featuring country music and pop culture icon Billy Ray Cyrus. MSCHF is an art collective in Brooklyn, New York that produces a wide variety of artwork—including designer apparel and footwear—known for challenging traditional brand concepts and intellectual property law.

MSCHF partnered with Lil Nas X to produce a modified Nike Air Max 97 sneaker designed with an upside down cross, a pentagram and human blood injected into the soles with the subtle name, “Satan Shoes.” Nike quickly sued for trademark infringement and other claims after public outcry over the shoes. MSCHF argued several theories in defense, including an argument centered around the protection provided by the First Amendment’s right to free speech. MSCHF attempted to rely on prior parody cases involving artistic relevance where use of a third-party trademark was considered either non-misleading or noncommercial. Nike countered those defenses by arguing that the 666 pairs of shoes that were produced should not be given the same protection as a single work of art or a standalone satirical article. Nike further argued that the artistic relevance of MSCHF’s shoes was not only irrelevant to Nike’s trademark, but the shoes did not need to incorporate Nike’s trademark as prevalently as they did, namely, the signature NIKE SWOOSH logo.

Before the case eventually settled, the court found Nike’s arguments to be convincing and determined that Nike was likely to succeed on the merits of its infringement and dilution claims. Thus, the court issued an order and barred MSCHF from selling the shoe. By that time, however, 665 of the 666 pairs of shoes were already purchased for over $1,000 each, and the order did not include a mandatory recall. The agreed-to settlement included MSCHF issuing a voluntary recall to customers, allowing them to return the shoes if desired but also allowing for no recourse from Nike should there be any issues with the shoes. The settlement and voluntary recall were an arguable win for Nike—demonstrating its vigilant protection of its brands, while at the same time, not necessarily disrupting art and sneaker culture.

Whiskey with a Shot of Humor

In January 2021, the Supreme Court of the United States denied Jack Daniel’s petition to review the Court of Appeals for the Ninth Circuit’s decision allowing for humorous messages on products to qualify for the same First Amendment protections provided to expressive works.

Jack Daniel’s sued VIP Products for making a dog toy that resembled a Jack Daniel’s bottle with the name “Bad Spaniels” on it, along with several other humorous quips, including “Old No. 2 on your Tennessee Carpet” and “100% smelly.” The district court first found in favor of the brand owner for trademark infringement and dilution. The district court originally determined that VIP’s parody defense should be disregarded and denied VIP Products from receiving heightened First Amendment protection under Rogers v. Grimaldi. It reasoned that VIP’s toy did not contain the “artistic expression” as required under Rogers. (See: VIP Prods., LLC v. Jack Daniel’s Props., 2016 Dist. LEXIS 13387 (D. Ariz. Sept. 27, 2016).)

On appeal to the Ninth Circuit, it was determined that the dog toy was an “expressive work,” which entitled it to the heightened protections afforded by the First Amendment. The Ninth Circuit reasoned that although it was no Mona Lisa, the chew toy still conveyed a “humorous message” deserving of protection. (See: VIP Prods. LLC v. Jack Daniel’s Props., 953 F.3d 1170 (9th Cir. 2020).)

With the Supreme Court’s denial of case review in January 2021, the Ninth Circuit’s decision is precedential. This sets up, not only a tougher legal climate for brand owners, but also a jurisdictional split with respect to the defense of parody in cases involving trademark infringement. The Ninth Circuit now applies Rogers, while many other circuits—including the Second, Fourth, Fifth, Seventh, Eighth and Tenth—still do not, and sticks with the traditional likelihood of confusion test. Other jurisdictions, including the First, Third, Sixth and Eleventh Circuits, have yet to address this issue, so it remains to be seen which direction various circuit courts will take in future disputes over claims of parody.

TACKLING COUNTERFEIT DANGERS AS ONLINE SHOPPING PROMOTES ECONOMIC BOOM

It’s no surprise that during another year of pandemic living, ecommerce is booming. Consumers, avoiding crowded stores, take to the internet to buy even everyday items, such as toilet paper, groceries, hand sanitizer, prescriptions and, of course, protective facial masks. Unfortunately, shopping online, especially from online marketplaces, is rife with counterfeit goods.

Counterfeit products present real dangers for consumers, particularly goods that may impact consumer health and safety. 3M, which makes disposable respirator marks, undertook a massive campaign to combat counterfeit products, setting up a fraud hotline and instituting dozens of lawsuits. The PTO, hoping to educate the public about the dangers of counterfeit goods, teamed up with the National Crime Prevention Council and McGruff the Crime Dog for a nationwide PSA campaign, warning consumers that “counterfeits [] are cheating consumers and causing serious injuries and death, hurting U.S. businesses, and funding organized crime.”

Congress is also considering legislation that would address the issue, including the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-commerce Act (SHOP SAFE Act) and the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers Act (INFORM Consumers Act). The latter, which has the support of certain online marketplaces, would direct online marketplaces to take steps to verify the identity of high-volume third-party sellers. The SHOP SAFE Act, however, would open online marketplaces to potential contributory liability if they do not implement certain “best practices,” such as using technology to screen goods for counterfeits before they appear in the marketplace, prohibiting repeat offenders from selling goods on the platform and screening to ensure that terminated sellers cannot rejoin.

Brand owners, frustrated by the proliferation of counterfeit goods, also sought to hold contributory infringers liable in court:

Effectively combatting counterfeiting will require significant effort by the PTO, the US government and brand owners. Brand owners should take steps to maintain a vigilant enforcement system by working with ecommerce platforms where possible to remove counterfeit goods, working with established protocols created by Customs and Border Protection and possibly utilizing the ITC for disputes and exclusion orders relating to counterfeits. In the meantime, all parties will be watching to see what, if any, legislative changes are made in 2022 to help address the problem.

TERRESTRIAL BRANDING TAKES ON THE VIRTUAL WORLD

Nearly 30 years after the 1992 dystopic novel “Snow Crash” arguably coined the term “the metaverse,” the seemingly futuristic era is officially here, and brands are expanding their presence into the virtual world. Even if you didn’t read the ‘90s novel, it would be difficult to ignore the growing virtual world that is the metaverse. This is especially so following Facebook’s October 2021 announcement that it rebranded as “Meta,” jumpstarting a mainstream foray into all things virtual. The metaverse is a quickly growing space that combines virtual reality, digital art and commerce, online gaming, cryptocurrencies and decentralized technologies into a shared community that is challenging our terrestrial norms.

In the days following Meta’s announcement, around 50,000 new online domain names containing the term “meta” were acquired, many of which incorporated well-known company names and trademarks. However, domain names are not the only trademark-related asset dominating the metaverse obsession. Brands such as Nike made headlines after filing intent-to-use trademark applications for many of its famous trademarks—including its signature SWOOSH logo—for use on various virtual goods and services. Following in Nike’s footsteps, Converse filed several trademark applications for “downloadable virtual goods” in a variety of international classes. Numerous other brands also proceeded to file trademarks for downloadable and hosted virtual goods, including Urban Outfitters, Abercrombie & Fitch, Limited Brands and others. Some brands, including Fashion Nova, filed trademarks for downloadable virtual goods as well as for NFTs, another growing market in the digital space.

Following its trademark applications, Nike proceeded to launch a roblox.com hosted NIKELAND showroom that provides a collection of virtual shoes, clothes and accessories. adidas is also moving into the virtual world with the adiVerse. Sportswear brands are not the only ones making moves into the metaverse, however. Luxury brand Balenciaga has shown interest, and vacuum giant Dyson opened a virtual reality showroom (for the yet unsolved dilemma of metaverse dust bunnies.)

As the virtual world continues to grow, brand protection strategies will be paramount but also evolving. Brands will need to strike a balance between strict enforcement protocols and the risk of naked licensing with the community ethos of decentralization. Courts and the PTO will be forced to grapple with whether a trademark registration covering traditional goods can be equally extrapolated to virtual goods. If a consumer owns an NFT for a one-of-a-kind pair of sneakers, who is liable when a dupe shows up in a virtual store? Will there be a metaverse PTO? Not to mention, what happens when you lose those secret words for your digital wallet?

PROCEDURE AND TRADEMARKS IN 2021

Closing the Courthouse Door on Trademark Plaintiffs

Court access has been a major issue for trademark plaintiffs this year. Invoking procedural gatekeeping rules, federal courts have closed the courthouse door on trademark plaintiffs before they had a chance to be heard on the merits.

Conflicting Guidance on Aesthetic Functionality

In 2021, the aesthetic functionality doctrine was top of mind among the higher courts, which provided conflicting guidance on when a design feature is functional, and, thus, does not serve as a source-identifying trademark.

Both the Second and Ninth Circuits made clear that the prevailing test for aesthetic functionality, which considers a design feature’s essentiality, effect on cost or quality and effect on competition, applies in those circuits. The US Court of Appeals for the Third Circuit took a different approach and focused on the usefulness—rather than the essentiality—of the design feature.

Despite the conflict among the circuits, the Supreme Court denied certiorari in Ezaki Glico, leaving the circuit-split alive for another day.