How to stop a Trademark or Copyright Bully exceeding the scope of their intellectual property rights.
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2020 Strike 3 Holdings (Copyright Litigation - BitTorrent File Sharing) update on Declaratory Judgement for non-infringement. John Doe Defendant is granted motion for summary judgment and awarded:
"Defendant is DECLARED as a matter of law not to have engaged in copyright infringement with respect to any of plaintiff's motion pictures listed on Exhibit A to the Complaint and/or Amended Complaint. Defendant is AWARDED, as the prevailing party in an action brought under the Copyright Act, see 17 U.S.C. § 505, reasonable attorney's fees in the amount of $40,501.63, and costs in the amount of $7,275.63. Interest shall accrue at the annual rate set forth in 28 U.S.C. § 1961 from the date of judgment until paid in full. All other claims and/or counterclaims in this matter have been dismissed."
Strike 3 has filed notice of appeal. This shows you, these cases can be fought. If they don't have the evidence and you did not infringement, perhaps giving in to their settlement demands is not for you. Call us for a consultation if you received an notice for early discovery from your ISP. (877) 276-5084 or email us through our contact form.
Case citation: 2:17-cv-01731 - United States District Court of Washington, Western Division.
The reason why you might want to consider filing an answer and seek declaratory judgment of non-copyright-infringement is because if the Plaintiff learns they do not have the evidence and were not able to get you into a settlement, they may try to "cut and run" (for lack of a better phrase) and seek to voluntarily dismiss their action against the John Doe Defendant. But, with this pending claim, John Doe can seek summary judgment and seek to have Plaintiff pay their attorney fees and costs as the prevailing party in litigation.
There is probably nothing worse than trying to run and grow your business and then you receive the CEASE AND DESIST or TAKE DOWN LETTER from some company you have never heard of claiming you are infringing their trademark or federal copyrights. Another annoying example is receiving a software audit demand letter from trade organizations such as the software alliance or SIIA or other publishers such as Microsoft or Autodesk, when in fact you are properly licensed and in compliance with federal copyright laws, and with the terms of the licensing agreement. Nevertheless, these companies may DEMAND that you submit to a “voluntary audit” and provide audit results whether you are compliant or not. This frustrates many small business owners.
While our firm respects and helps companies protect their own trademarks and enforce legitimate intellectual property rights, we also help protect the rights of small and medium sized business owners who are literally being BULLIED by over-zealous corporations and their IP attorneys who are policing their trademarks and copyrights but seeking to demonize companies that are legitimately running their business and validly using their tradenames, logos, software and in trademark circumstances may have even been the first to use the name in commerce (which provides “common law” rights in the mark and the right to continue to use the mark at issue.
In trademark cases, sometimes the company that receives the notice of trademark infringement is in a completely different business (different trade channels / different types of customers) and there is absolutely no possibility of “consumer confusion” (which is required to show trademark infringement).
If you are feeling bullied in your business, pressured, forced to engage in software licensing reviews, call us at (877) 276-5084 to discuss a response strategy to these types of issues. We can help, and discuss whether or not filing a federal declaratory judgement action may be the best move for you. This blog will touch on this topic generally.
The Declaratory Judgment Act [28 U.S.C. 2201(a)]
The law states:
"In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986, a proceeding under section 505 or 1146 of title 11, or in any civil action involving an antidumping or countervailing duty proceeding regarding a class or kind of merchandise of a free trade area country (as defined in section 516A(f)(9) of the Tariff Act of 1930), as determined by the administering authority, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such."
An actual controversy exists if the declaratory action if a party has a real and reasonable apprehension that he will be subject to a suit. See Societe de Conditionnement en Aluminium v. Hunter Engineering Co., 655 F.2d 938, 944 (9th Cir. 1981).
Watch Attorney Steve explain Declaratory Judgment in Intellectual Property cases
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Declaratory Judgment in the 9th Circuit [factors courts consider]
The federal courts in California and Arizona will look to several factors in deciding whether or not to exercise discretion to hear a Declaratory Judgment complaint. A key case in this area is the State Farm case which noted:
"Under the Declaratory Judgment Act, a district court may "declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a); Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1222 (9th Cir. 1998) (en banc). So long as the court's exercise of jurisdiction over the suit "passes constitutional and statutory muster," the district court has discretion to determine whether maintaining jurisdiction over the declaratory action would be appropriate. Dizol, 133 F.3d at 1223. In making such a determination, a district court is to consider a variety of factors, including whether retaining jurisdiction would:
(1) involve the needless determination of state law issues;
(2) encourage the filing of declaratory actions as a means of forum shopping;
(3) risk duplicative litigation;
(4) resolve all aspects of the controversy in a single proceeding;
(5) serve a useful purpose in clarifying the legal relations at issue;
(6) permit one party to obtain an unjust res judicata advantage;
(7) risk entangling federal and state court systems;
(8) jeopardize the convenience of the parties. Id. at 1225 & n.5.
Because the district court "is in the best position to assess how judicial economy, comity and federalism are affected in a given case, Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1107 (9th Cir. 2011)
TRADEMARKS – is my mark infringing if I am in a completely different business?
Probably not. For example, if you have a federally registered trademark for the name “Sedona Brewery” and your business involves selling craft beer you cannot likely be infringing a trademark of another company who has a registered mark for the name “Sedona Brewers” which might be the name of a local minor league baseball team. The simple point is that there is no likelihood of consumer confusion (unless of course the channels of business somehow become crossed).
What if my company was using the trademark first, do I have legal rights?
Yes. If you were the first company to use a trademark in your area, you have “common law rights” (ex. under state law) to continue to use the mark. In other words, if you started in a software company in 1999 called “San Francisco Software Co.” and another company was formed in 2012 called “San Fran Open Source Software” they cannot just come in an bully you are around and force you to stop using your company name. Your company would have “prior use rights” and you would likely have to stand up to defend the right to use your own company name and stop this trademark bully, even if they have acquired a federal trademark. As the old saying goes “sometimes you have to stand for something or you will fall for anything.”
What is the “likelihood of consumer confusion test?”
This is the test that federal courts will use to determine whether or not consumers are likely to be confused by the use of your mark vs. the other companies mark. If consumers are likely to be confused as to which company is the source of the goods or service, then you could be deemed an “infringer” (thus justifying your business receiving the cease and desist letter). Here are the 8 factors the Courts will look at. Each factor is weighed according to one of the main cases – AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979) which noted:
In determining whether confusion between related goods is likely, the following factors are relevant:
1. strength of the mark;
2. proximity of the goods;
3. similarity of the marks;
4. evidence of actual confusion;
5. marketing channels used;
6. type of goods and the degree of care likely to be exercised by the purchaser;
7. defendant's intent in selecting the mark; and
8. likelihood of expansion of the product lines.
See also Sleeper Lounge Co. v. Bell Manufacturing Co., 253 F.2d at 722; Restatement of Torts section 731 (1938). So the Courts will look at each of the factors, and this is the same test we will look at in determining what your legal rights may be when you are accused of infringement by a law firm. So keep in mind, the opposite above my proposition above is also true. Meaning, if there is NO LIKELIHOOD OF CONSUMER CONFUSION (“confusingly similar” test), then you should stand up and take on the trademark bully and their intellectual property counsel.
As one court noted in Brookfield Commc'ns, Inc. v. W. Coast Entm't Corp., 174 F.3d 1036, 1046 (9th Cir. 1999):
“To establish a trademark infringement claim under section 32 of the Lanham Act or an unfair competition claim under section 43(a) of the Lanham Act, Brookfield must establish that West Coast is using a mark confusingly similar to a valid, protectable trademark of Brookfield's. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348 (9th Cir.1979).”
COPYRIGHTS – being bullied by a photographer, music or movie company (such as Malibu Media, London Has Fallen, or Flava Works), software company or other copyright holder
Copyright lawsuits appear to be on the rise. Copyrights provide serious legal protection for copyright holders, especially those who have registered their copyrights. With the rise of Torrent websites and social media, its has become common that copyright holders and their IP law firms are getting aggressive in enforcing and policing their rights. This is natural, and it is understandable why, however, when a small business owner or individual gets trapped in an investigation, or receives a notice of copyright infringement or a notice from their ISP that they name is being sought in a subpoena, things can heat up. In these cases, a lawsuit may have been filed, or is being threatened to be filed, and settlement attorneys know how to extract the maximum settlement possible, often times through scare tactics and the realization that being involved in a federal lawsuit is a scary proposition. In these cases, individuals and businesses need protection. We can help.
How does the demand for declaratory judgement work?
So what does all the above analysis mean? It means in trademark and copyright cases, if you have done nothing wrong, but are being bullied anyway, you may need to resort to filing a federal declaratory relief action and seeking your attorney fees (see discussion below).
For example, in a trademark case, if your use of a trademark would not “confuse a consumer” as to the source of the goods or service then you are not infringing anyones trademark. One approach you might want to take in this situation, and in responding to the legal demand letter is to inform opposing counsel that you will be filing a civil action for declaratory relief unless they drop their claims and pay your attorney fees. Legal precedent for this approach exists. For example in Rhoades v. Avon Products, Inc., 504 F.3d 1151, 1157 (9th Cir. 2007) the Northern District of California noted:
“An action for a declaratory judgment that a patent [or trademark] is invalid, or that the plaintiff is not infringing, [presents] a case or controversy if the plaintiff has a real and reasonable apprehension that he will be subject to liability if he continues to manufacture his product…….In applying this standard, we focus upon the position and perceptions of the plaintiff, declining to identify specific acts or intentions of the defendant that would automatically constitute a threat of litigation. The acts of the defendant are instead to be examined in view of their likely impact on competition and the risks imposed upon the plaintiff, to determine if the threat perceived by the plaintiff were real and reasonable.”
As noted in this case and in Chesebrough–Pond's, Inc. v. Faberge, Inc., 666 F.2d 393, 396 (9th Cir.1982); and also 6 J. Thomas McCarthy, Trademarks and Unfair Competition § 32.51 (4th ed.2007) (“an actual controversy or threat of infringement does not have to be said in so many words. It can be expressed in the attitude of the defendant as expressed, for example, in ‘circumspect language in a letter.” As the Court noted, the Defendant in the Rhoades case did sufficiently allege the requisite “reasonable apprehension” test and:
“if the declaratory plaintiff has in fact been threatened with litigation for infringement it should be allowed to bring an action for declaratory judgment to determine non-infringement, and join with it a claim of invalidity of the mark and a prayer for cancellation of the declaratory defendant's federal registration.”
COPYRIGHTS / SOFTWARE: The same holds true in copyright bully cases. For example, we have had architects, engineers and designers accused of pirating software and not having the proper licensing. When we ask to see the proof they have, the attorneys for the software companies usually say something like “we don't have to show you” or “its our policy not to tell you” or “just get me the audit results.” In other words, they will literally force you to interrupt your business, audit all your computers, fill out a detailed software audit spreadsheet and locate all proofs of purchase. If you don't do this, they will likely bully and implicitly threaten to sue your company for willful copyright infringement.
They may also try to force you to sign a “certificate of compliance” under penalty of perjury EVEN THOUGH THEY HAVE NEVER SHOWN YOU A SMUDGE OF EVIDENCE OF WRONGDOING OR A LICENSING AGREEMENT CONTRACTUALLY COMPELLING YOU TO ENGAGE IN A SOFTWARE AUDIT. This conduct can seem over the top, aggressive, and unethical. Some of my clients have referred to this as “extortion.” Regardless, life is not perfect and these companies know their “information” (often an alleged unnamed informant) are not perfect, and they will NOT say they are sorry in most cases when they get it wrong. Likewise, they will NOT pay your attorney fees for the unwarranted intrusion. In these circumstances when you can stand behind your software asset management practices, a Declaration judgment action remains one option to consider.
More case law:
The Declaratory Judgement Act provides that federal courts “may declare the rights and other legal relations of any interested party.” 28 U.S.C. § 2201. The Act is intended to permit an “uncertain party to gain relief from the insecurity caused by a potential suit waiting in the wings.” United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 494 (4th Cir. 1998).
“The Fourth Circuit has explained that a declaratory judgment action is appropriate ‘when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and . . . when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the 43 proceeding.'” Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir. 1996) (quoting Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937)).
In short, “declaratory judgments are designed to declare rights so that parties can conform their conduct to avoid future litigation.” Hipage Co. v. Access2Go, Inc., 589 F. Supp. 2d 602, 615 (E.D. Va. 2008) (citing Volvo Constr. Equip. N. Am., Inc. v. CLM Equip. Co., 386 F.3d 581, 593–94 (4th Cir. 2004))
The Declaratory Judgment Act provides federal courts with the discretion to "declare the rights and other legal relations of any interested party seeking such declaration...." 28 U.S.C. § 2201(a). But Courts routinely "dismiss declaratory judgment [claims] as redundant when the [declaratory judgment claim] would be rendered moot by the adjudication of corresponding claims in the complaint." Hardiman v. McKeen, No. 19-12949, 2020 WL 1821025, at *4 (E.D. Mich. Apr. 10, 2020) (citing Malibu Media, LLC v. Ricupero, 705 F. App'x 402 405-06 (6th Cir. 2017)). I would argue that in copyright infringement actions, where a "John Doe" defendant is being accused of infringement, if a Plaintiff is allowed to merely dismiss their claim voluntarily, this means Defendant is left holding the bag as to the issue of whether or not they were an infringer (probably, they were not) and whether or not they are entitled to attorney fees under the copyright statute.
ALSO NOTE: If you file a copyright infringement declaratory action (ex. over an issue of abandonment of copyright into the public domain), the prevailing party may be able to recover attorney fees even if the actual scope of he copyright was not at issue. So, you need to make sure you have a good case or if you lose you could be paying their attorney fees. See Doc's Dream case.
So there is certainly federal legal authority to file a declaratory relief action where:
1. Plaintiff has a reasonable apprehension of being sued for federal trademark infringement (this is viewed from the Plaintiff's perspective which is more of an objective, rather than subjective standard);
2. Plaintiff is confident there is no infringement and no likelihood of consumer confusion (apply the 8-factor test above);
3. There is an ‘actual controversy' (as opposed to an imagined one);
This also means you may be able to raise this legal defense in copyright infringement allegations (ex. where a software publisher such as Microsoft, Adobe, IBM, SAP, Oracle, Autodesk or other company is wrongfully accusing your business of being a software pirate and demanding that you submit to a “voluntary” audit).
Attorney Steve Tip: Some of the kinds of things that can help insure there is an actual controversy are (1) defendant threatening litigation or (2) demanding that the accused infringer stop using the disputed mark, or (3) sending a cease and desist letter, coupled with initiating an opposition or cancellation proceeding based on likelihood of confusion or dilution. Another one may be(4) claiming that the accused infringer's use of a mark constitutes infringement or dilution would also seem to create a controversy. These are often considered “hard letters.”
On the other hand, received a “soft letter” for example one which invites the receiving party to call to try to work out or negotiate an amicable resolution (accompanied with a more controlled or cordial tone), could result in a finding that there was no controversy sufficient to support filing a declaratory judgment action to protect your trademark.
The statutory authority for this approach can be cited in your complaint as follows:
A. Declaratory Judgment of Non-infringement of Trademarks pursuant to 15 U.S.C. § 1051 et seq. and 15 U.S.C. 1125(a);
B. The United States Copyright Act of 1976, 17 U.S.C. § 101 et. seq. (the “Copyright Act”);
C. 28 U.S.C. §§ 2201 and 2202 (the Declaratory Judgment Act).
Section 2201 states:
(a) In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986, a proceeding under section 505 or 1146 of title 11, or in any civil action involving an antidumping or countervailing duty proceeding regarding a class or kind of merchandise of a free trade area country (as defined in section 516A(f)(10) of the Tariff Act of 1930), as determined by the administering authority, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
Section 2202 states:
Further necessary or proper relief based on a declaratory judgment or decree may be granted, after reasonable notice and hearing, against any adverse party whose rights have been determined by such judgment.
Can you recover attorney fees in a Declaratory Judgement case?
Possibly. One 9th Circuit federal court case discusses the “American Rule” and how litigants normally have to pay their own way:
“One of the distinguishing features of our country's judicial system is the rule that each party generally pays its own attorney fees, regardless of the outcome of the case. See, e.g. Alyeska Pipeline Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975) (noting that our country's approach to attorney fees is “deeply rooted in our history and in congressional policy”); see also Donovan v. Burlington N., Inc., 781 F.2d 680, 682 (9th Cir.1986) (“In this country, ‘ the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys‘ fee from the loser.” ') (quoting Alyeska, 421 U.S. at 247, 95 S.Ct. 1612). This fundamental legal tenet, referred to as the American Rule, is designed to stop “losing litigants [from] being unfairly saddled with exorbitant fees for the victor's attorneys[.]” Alyeska, 421 U.S. at 251, 95 S.Ct. 1612. It thus encourages parties to vindicate their rights, while relieving the courts of the burden of having to constantly determine what constitutes reasonable attorney fees. See Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967). The case continued to note:
“Of course, Congress can create statutory exceptions to the American Rule. A prevailing plaintiff can recover attorney fees if there are “specific and explicit provisions for the allowance of attorneys‘ fees under selected statutes granting or protecting various federal rights.” Alyeska, 421 U.S. at 260, 95 S.Ct. 1612. But absent a clear statutory command, courts lack the “roving authority” to award attorney fees. Id. at 260–62, 95 S.Ct. 1612 (“[T]he circumstances under which attorneys‘ fees are to be awarded and the range of discretion of the courts in making those awards are matters for Congress to determine,”); see also Home Sav. Bank, F.S.B. by Resolution Trust Corp. v. Gillam, 952 F.2d 1152, 1163 (9th Cir.1991) (“Absent Congress's explicit provision for the recovery of fees, courts are not free to pick and choose which statutes are worthy of special enforcement incentives and rewards.”). Courts may, however, award fees as part of their inherent power to sanction a party for bad faith conduct. See Alyeska, 421 U.S. at 257–59, 95 S.Ct. 1612 (courts may award fees if the losing party acted “in bad faith, vexatiously, wantonly, or for oppressive reasons”). See Nat'l Merch. Ctr., Inc. v. MediaNet Grp. Techs., Inc., 893 F. Supp. 2d 1054, 1056–57 (C.D. Cal. 2012).
As such, I would argue, if a person found themselves being unjustifiably bullied when they have literally done nothing wrong, (especially after repeated requests to know the reason for the software audit or illegal movie download investigation are ignored) that this could amount to “bad faith” and amount to something the Court's have the inherent power to award attorney fees for. Keep in mind, at least in Bittorent movie download cases the copyright holder at least has the decency to show you the evidence they have, which is often times outlined in the complaint. Software audits are different however.
That being said, it does not appear you would have a “right” to recover attorney fees as a matter of right, so the decision to pursue a declaratory judgement action needs to be closely considered by your copyright counsel before making that jump to file suit. Keep in mind, however, that under the Federal Copyright law, the party alleged to be the infringer and the software company must be treated evenly where a federal copyright lawsuit is actually filed, and this is set forth in section 505 of the Copyright law:
“In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney's fee to the prevailing party as part of the costs. See 17 U.S.C. § 505.
Courts have also recognized this principle of fairness as to awards for attorney fees:
“Prevailing plaintiffs and prevailing defendants must be treated alike under § 505; attorney's fees are to be awarded to prevailing parties only as a matter of the court's discretion.” See Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S. Ct. 1023, 1025, 127 L. Ed. 2d 455 (1994)
So the argument could be that in a declaratory relief action, where a software publisher is threatening litigation if done in bad faith (ex. with no evidence and refusing to explain why the company was being “held up”) following repeated requests to produce evidence of wrongdoing, that this is unjustified, and if a declaratory relief action is required, and the judge sides with the small business owner, or Torrent downloader, that the court should exercise its discretion and inherent powers to deter this conduct in the future and to award the moving party their attorney fees. This is only an argument, and it is best to discuss this with your intellectual property lawyer before making any rash decisions.
What happens if they file their own lawsuit in another court or in an other state after you file for declaratory relief?
There is a rule in federal court known as the “ first-filed” rule. Here is a short look at that and what could happen in this situation. “Federal courts universally recognize the “first-filed” rule. See Manuel v. Convergys Corp., 430 F.3d 1132, 1135 (11th Cir. 2005) (“[T]here is a strong presumption across the federal circuits that favors the forum of the first-filed suit under the first-filed rule” (citing Church of Scientology of Cal. v. U.S. Dep't of Army, 611 F.2d 738, 749 (9th Cir. 1979)).
This rule is one of comity. It permits a district court presiding over a second-filed case to decline jurisdiction over a matter pending before another court. Church of Scientology, 611 F.2d at 749. Under the first-filed rule, when a district court presiding over a second-filed suit determines that the two suits likely are to substantially overlap, it can dismiss the suit pending before it, transfer the case to another district court or stay the second-filed suit. See Ruckus Wireless, Inc. v. Harris Corp., 2012 (N.D. Cal. Feb. 22, 2012);
Resources and sample pleadings
1. Here is one sample Declaratory Judgment lawsuit that was filed.
Contact a federal copyright & trademark lawyer
We can help companies, business and creative organizations and entrepreneurs in enforcing and defending copyrights and trademark and we can review your case and determine if seeking declaratory judgment makes sense in your case.
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