Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

Can Trademark Abuse Constitute Monopolization?

English: Trademark

Trademark (Photo credit: Wikipedia)

As far as antitrust law is concerned, trademarks are the unwanted stepchildren of intellectual property. The conventional wisdom is that trademarks – whose exclusionary effect is very attenuated, if it exists at all – do not confer market power, so their use (or refusal to license) can’t support a Sherman Section 2 claim. But is there an argument against the conventional wisdom?

The answer may be: “yes, in unusual circumstances.”(*)

Fraudulently obtaining a trademark

Let’s start by considering other types of IP that present clearer issues.  When a patentee obtains a patent through fraud on the PTO, it engages in exclusionary conduct.  See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965).  Of course if the patentee never enforces his patent, there is likely no injury; the injury occurs when the patentee enforces or attempts to enforce a fraudulently-obtained patent.

Courts have extended the reasoning of Walker Process to the fraudulent procurement of copyrights.  See, e.g., Knickerbocker Toy Co. v. Winterbrook Corp., 554 F. Supp. 1309, 1321 (D.N.H. 1982).  See also Michael Anthony Jewelers v. Peacock Jewelry, Inc., 795 F. Supp. 639, 647-48 (S.D.N.Y. 1992) (allegations of enforcement of fraudulently-obtained copyright and other conduct were sufficient to support a monopolization claim).

Fraudulent procurement of a trademark also might be exclusionary.  See, e.g., Northwestern Corp. v. Gabriel Mfg. Co., 1996 U.S. Dist. LEXIS 19275 (N.D. Ill. 1996) at *19 (“Trademark monopolization or attempted monopolization claims often fall into one of two general categories.  The first involves the use of an illegally obtained trademark and focuses on the power of the trademarked product to monopolize a relevant economic market solely as a consequence of its illegal registration.”); Caplan v. Am. Baby, Inc., 582 F. Supp. 869, 871 (S.D.N.Y. 1984) (denying motion to dismiss attempted monopolization counterclaim challenging an attempt to register an unenforceable trademark and to enjoin others from its use despite its cancellation).  See also G. Heileman Brewing Co. v. Anheuser-Busch, Inc., 676 F. Supp. 1436, 1473 (E.D. Wis. 1987) (test to be applied in determining whether a particular trademark constitutes a Section 2 violation is the same as in any other case where an unlawful monopoly or attempt to monopolize is alleged; Section 2 is violated only when the trademark owner’s “actions have led to or resulted in a dangerous probability that it will gain a monopoly over the relevant market”), aff’d, 873 F.2d 985 (7th Cir. 1989).

Note that fraud on the PTO is not itself actionable under the Sherman Act; a plaintiff must still plead and prove all the other elements of a Section 2 violation.  That is particularly true after Illinois Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 42-43 (2006), where the Supreme Court held that even patents do not presumptively confer market power.  Plaintiffs therefore cannot rely on the existence of IP to establish market power.  Nor does fraud on the PTO itself establish antitrust injury (i.e., harm to competition).  Nevertheless, PTO fraud can constitute the core of a Section 2 claim.

Market power?

That leaves the question of whether trademarks can confer market power. As a general rule, “[b]ecause trademarks, unlike patents, do not confer exclusionary power over products or services, excluding others from the use of a trademark will not support an attempt to monopolize claim.”  II Antitrust Law Developments (7th ed. 2012) at 1131. Still, as one court wrote:

There is no controlling case law addressing whether the attempted enforcement of a trademark can constitute an antitrust violation, but there is persuasive precedent which indicates that if a plaintiff could demonstrate the other elements of a violation of Section 2 of the Sherman Act, then the attempted enforcement of a trademark may constitute an antitrust violation. Specifically, Justice Blackmun noted in his concurring opinion in Vendo Co. v. Lektro-Vend Corp., that “the enforcement of restrictive provisions in a license to use . . . a trademark may violate the Sherman Act.”  Moreover, even the case upon which SnoWizard relies, Car-Freshner Corp. v. Auto Aid Mfg. Corp., states [“[t]here is no doubt that a trademark may be utilized in such a manner as to constitute a violation of antitrust laws,” and “trademark laws may not be used to monopolize with respect to a certain product.”  Although it is equally clear that the nature of a trademark, which does not in any way represent a monopoly conferred upon a particular product, will make it particularly difficult to establish that “the plaintiffs’ actions have led to or resulted in a dangerous probability that it will gain a monopoly over the product in issue.”  Nonetheless, such a claim is possible as a matter of law.

Southern Snow Mfg. Co. v. SnoWizard Holdings, Inc., 2013 U.S. Dist. LEXIS 22157 (E.D. La. Feb. 18, 2013) at *17-18 (footnotes omit.).

The question is whether a fraudulently-obtained trademark protects just the mark itself or some functional aspect of the product. (The PTO shouldn’t issue trademarks that cover the latter.) For example, in RJ Machine Co. v. Canada Pipeline Accessories Co., Case No. 1:13-cv-00579-SS (W.D. Tex. Nov. 22, 2013), the court dismissed antitrust claims predicated upon alleged trademark misuse – but left the door open to future claims based on similar conduct.  RJ Machine Co. involved flow conditioners in oil pipelines. The defendant had a patent on a type of flow conditioner which expired in 2011. The defendant also obtained a trademark registration for the terms “50E” and “CPA-50E” for certain flow conditioners. Additionally, the defendant allegedly claimed the design of its 50E flow conditioner comprised non-functional, distinctive, and protectable trade dress.

The plaintiff (a potential market entrant) claimed that the defendant threatened to sue if the plaintiff advertised or marketed a flow conditioner using the design taught in the expired patent or used the term “50E” to identify its flow conditioner, and brought antitrust and other claims. The court dismissed the antitrust claims because the defendant was allegedly enforcing registered trademarks, and the exercise and enforcement of those marks could not be a “sham” or in “bad faith” under a Noerr-Pennington (petitioning immunity) type analysis.  However, the court did not entirely agree with the defendant that enforcement of trademarks and claimed trade dress can never be considered an antitrust injury because the plaintiff “in order to escape the clutches of an alleged trademark monopoly” can just market its product under a different name. The court noted that

RJ Machine contends the term “50E”, based on the history and development of the market for this product, is the only term consumers associate with this flow conditioner. In addition, according to RJ Machine’s allegations, Canada Pipeline has been able to “lock in” consumers of 50E conditioners because they can only be replaced by flow conditioners with the same 50E design. The anticompetitive argument is even more persuasive when it comes to trade dress. If the 50E design is as functional as RJ Machine alleges, it would be difficult, if not impossible, for RJ Machine to compete in the flow conditioner market without using the same functional design Canada Pipeline is claiming to be its trade dress.

Id. at 7.

See also General Physiotherapy, Inc. v. Sybaritic, Inc., 2006 U.S. Dist. LEXIS 3796 (E.D. Mo. Feb. 1, 2006):

While the configurations of the massage head/applicators have always been represented to the public as functional, they were represented to the Patent and Trademark Office (“PTO”) as non-functional.  Defendants also claim Muchisky provided other false and/or misleading information to the PTO.  This, Defendants contend, indicates the trademark registrations were issued by the PTO based on Muchisky’s fraud and that the trademark registrations are not, and were never, entitled to trademark protection.  Defendants argue this evidence, and the evidence of Muchisky’s bullying tactics and intent to monopolize the market, supports a finding that antitrust laws have been violated and creates a genuine issue of material fact regarding General and Muchisky’s claim that they acted in good faith in asserting trademark rights. This Court agrees.  General and Muchisky’s motion for summary judgment on this ground will be denied.

Id. at *12 (footnote omit). Consider also the scenario where a fraudulently-obtained trademark is actually an important search term on the Internet.

So – there might be circumstances where a fraudulently-obtained trademark could be used in a way that violates Section 2. But proving a Section 2 violation based on trademark abuse may in practice be difficult to do.

(*) These are just some thoughts. There are responses and rejoinders. My disclaimer is: feel free to read, but I’m not necessarily endorsing this train of thought.

Pay-for-delay and the Rule of Reason

Last week, I co-authored an article in the Los Angeles/San Francisco Daily Journal on the California Supreme Court's recent decision in the Cipro Cases.  There, the Court held that so-called "reverse payment" patent settlements are evaluated under a … [Continue reading]

Can Computers Conspire to Fix Prices?

Strange as it sounds, maybe we're getting closer to the day we have to seriously consider liability for computer conspiracies. On April 6, David Topkins, a former executive of an e-commerce seller of posters, prints and framed art agreed to plead … [Continue reading]

SCOTUS Holds Natural Gas Act Does Not Preempt State Law Antitrust Claims

In Oneok, Inc. v. Learjet, Inc., Case No. 13-271 (Apr. 21, 2015), the U.S. Supreme Court held that the Natural Gas Act did not preempt retail customers’ state law antitrust claims against interstate gas pipeline operators for price … [Continue reading]

Why It’s Hard to Tell Good Monopolies From Bad

Marketplace.org has the story.  A nice little summary of the new Google case and the principle that while "[h]aving a big market share by itself is OK," "the problem is when companies abuse that market share by taking anticompetitive actions that … [Continue reading]

Sixth Circuit Applies Cost Screen to Tying by Differential Pricing

In Collins Inkjet Corp. v. Eastman Kodak Co., No. 14-3306 (6th Cir. March 16, 2015), the U.S. Court of Appeals for the Sixth Circuit held that differential pricing – charging more for one product when the customer does not also purchase a second … [Continue reading]

Return of Robinson-Patman Act and Resale Price Maintenance Litigation?

A quick note on a few recent developments suggesting that RP and RPM litigation is not yet dead. First, on February 2, 2015, a court refused to dismiss claims against Clorox arising from its refusal to sell a small regional grocery chain the same … [Continue reading]

San Jose Strikes Out in Baseball Antitrust Challenge

“Baseball? It’s just a game — as simple as a ball and a bat. Yet, as complex as the American spirit it symbolizes. It’s a sport, business — and sometimes even religion.” Ernie Harwell, "The Game for All America," 1955. In City of San Jose v. … [Continue reading]

Can the State Seek Restitution After a Class Action Settlement?

In The People of the State of California v. IntelliGender, LLC, 771 F.3d 1169 (9th Cir. Nov. 7, 2014) (Wardlaw, J.), the Ninth Circuit said the answer is “no.”  A federal court had approved a class action settlement involving false advertising and … [Continue reading]

Motorola’s FTAIA Quest Ends With a Whimper in the Seventh Circuit

On November 26, 2014, the Seventh Circuit (Posner, J.) issued its order upon rehearing of Motorola Mobility LLC v. AU Optronics Corp. (Case No. 14-8003). Motorola still effectively lost the appeal, but the Court’s more circumspect reasoning means … [Continue reading]

Optimization WordPress Plugins & Solutions by W3 EDGE
%d bloggers like this: