Distribution, Competition, and Antitrust / IP Law

Archives for November 2013

Trademark Misuse Is ^Almost^ Never an Antitrust Injury

Trademarks are commonly thought to convey no market power. In RJ Machine Co. v. Canada Pipeline Accessories Co., Case No. 1:13-cv-00579-SS (W.D. Tex. Nov. 22, 2013) (Sparks, J.), the court dismissed antitrust claims predicated upon alleged trademark misuse – but interestingly left the door (slightly) open to future claims based on similar conduct.

The case involves 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 claims the design of its 50E flow conditioner comprises 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 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.

The decision thus leaves open the theoretical possibility that in certain unusual situations, trademark assertion or misuse could lead to antitrust injury.

Injunctive Relief, but not Damages Class, Certified in NCAA Student-Athlete Litigation

English: National Collegiate Athletic Associat...

(Photo credit: Wikipedia)

In In re NCAA Student-Athlete Name & Likeness Licensing Litigation, 2013 U.S. Dist. LEXIS 160739 (N.D. Cal. Nov. 8, 2013) (Wilken, J.)., the Court certified a class of current and former student-athletes seeking injunctive relief, but declined to certify a damages class. The case illustrates the importance for plaintiffs of tying a theory of harm to damages to all purported class members – or for defendants, the importance of finding a disconnect between the two.

The plaintiffs were or are NCAA Division I football and basketball student-athletes. They allege that the NCAA misappropriated their names, images, and likenesses in violation of their statutory and common law rights of publicity. Some of the named plaintiffs also allege that the NCAA violated federal antitrust law by conspiring with Electronic Arts and the marketing firm Collegiate Licensing Company to restraint competition in the market for the commercial use of their names, images, and likenesses.

Plaintiffs allege a market for the acquisition of group licensing rights for the use of names, images and likenesses in the broadcasts or rebroadcasts of Division I basketball and football games and in videogames featuring Division I basketball and football. Plaintiffs challenge the NCAA’s rules, which allegedly prohibit student-athletes from receiving compensation for the commercial use of their names, images, and likenesses. Plaintiffs also seek monetary damages as a result of the NCAA’s alleged plan to fix at zero the price of student-athletes’ group licensing rights.

The Northern District of California had little difficulty in certifying a class of plaintiffs seeking injunctive relief against the NCAA. However, the Court declined to certify a Rule 23(b)(3) damages subclass, for several reasons.

First, in the Court’s view, the Plaintiffs had failed to satisfy the manageability requirement because they did not identify a feasible way to determine which members of the damages subclass were actually harmed by the NCAA’s allegedly anticompetitive conduct. In the Court’s view, the Plaintiffs did not address or overcome the “substitution effect” – i.e., the fact that if athletes had stayed in college because the NCAA’s rules were different, they would have displaced other student-athletes on their respective teams. Those displaced student-athletes would have either been forced to play for other Division I teams or simply lost the opportunity to play in Division I altogether. In either case, they would not have suffered injuries as members of the teams for which they actually played.

Second, the Court concluded that Plaintiffs had not adequately proposed a method to determine which student-athletes were actually depicted in videogames during the relevant class period, or which student-athletes appeared in game footage during the relevant time period.

These sorts of substitution effects occur with some frequency, and require careful attention.

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