Internet Trademark Case Summaries

Australian Gold, Inc. v. Hatfield

436 F.3d 1228 (10th Cir. 2006)

Three of the plaintiffs made and sold indoor tanning lotions under the marks AUSTRALIAN GOLD, CARIBBEAN GOLD, and SWEDISH BEAUTY, respectively.  Plaintiff ETS distributed these products under an exclusive distribution agreement and authorized its distributors to sell plaintiffs’ products only to certain types of tanning salons and prohibited them from selling the products on the Internet.  Defendants resold plaintiffs’ products along with competitive products on various websites.  Defendants typically obtained the products under false pretenses by stating or making it appear from business names that they operated tanning salons.  Defendants’ websites depicted plaintiffs’ products and trademarks.  Defendants used plaintiffs’ trademarks in the metatags of their websites, and purchased the marks “Australian Gold” and “Swedish Beauty” as search keywords.  The plaintiff-manufacturers sued for trademark infringement, false advertising, and unfair competition, and plaintiff ETS sued for interference with its distribution contracts.  After a trial, the jury returned a verdict in favor of plaintiffs on trademark infringement and false advertising.  The jury awarded: (1) plaintiffs Australian Gold and Advanced Technology Systems damages of $325,000 and $125,000, respectively, for infringement, and $35,000 and $15,000, respectively, for false advertising; (2) damages of $500,000 to ETS for its tortious interference claim, and (3) punitive damages to ETS of more than $4,000,000 on its tortious interference/conspiracy claims.  The court enjoined defendants from selling plaintiffs’ products over the Internet or to the general public, displaying plaintiffs’ trademarks on the Internet, using plaintiffs’ trademarks as metatags or in html code on their websites, and displaying any false or misleading statements on their websites.  The injunction did not address the purchase of keywords.

On appeal, the Tenth Circuit affirmed the jury’s decision and the court’s injunction on the Lanham Act claims.  The appeals court rejected defendants’ argument that plaintiffs did not present evidence of a likelihood of consumer confusion.  Initially, the court recognized the doctrine of initial-interest confusion.  Here, the court noted that defendants’ use of plaintiffs’ marks on their websites, in their metatags, and in the purchase of keywords could “lure” consumers to the lotions from plaintiffs’ competitors.  The court held that five of the six prongs of the test for initial-interest confusion favored plaintiffs: (1) the marks were identical, (2) defendants deliberately used plaintiffs’ marks to divert traffic to defendants’ sites to sell both plaintiffs’ and competitors’ products, (3) the products were the same or similar, (4) the degree of care taken by consumers favored plaintiffs because these “low-cost products were subject to impulse purchases,” and (5) plaintiffs’ trademarks were strong.  Plaintiffs’ failure to offer any evidence of actual confusion did not overcome these factors.  Moreover, the court held that defendants’ disclaimers on their websites were “inadequate” because they did “not tie particular trademarks to particular holders.”  Nor could defendants’ disclaimers “prevent the damage of initial interest confusion,” which already occurred when consumers looking for plaintiffs’ sites were misdirected to defendants’ sites.  The court then held that the first-sale doctrine did not shield defendants’ actions because it did “not protect resellers who use other entities’ trademarks to give the impression that they are favored or authorized dealers for a product when in fact they are not.”  Here, defendants did more with plaintiff’s marks than “merely displaying and stocking trademarked items.” Instead, defendants’ actions indicated “an intent to cause consumer confusion.”  Regarding defendant’s challenge to the damages awarded under the Lanham Act, the Tenth Circuit held that plaintiffs “clearly suffered damages as a result of [d]efendants’ actions because:  (1) plaintiffs lost opportunities for “up-selling” that would have been present with sales direct to salons, (2) some consumers looking for plaintiffs’ products undoubtedly purchased competitors’ products from defendants’ sites, and (3) plaintiffs “faced the potential for lawsuits and dimunition of [their products’] reputation” because the products sold online did not come with use or safety instructions.  And although plaintiffs presented sparse evidence of the amount of actual damages, the evidence of the value of defendants’ sales of plaintiffs’ products and defendant’s sales prices provided enough evidence for a jury to assess plaintiff’s lost “upselling possibilities.”  Finally, the Tenth Circuit held that the district court did not grant “overly broad” injunctive relief and that defendants’ use of disclaimers did not adequately remedy any possible confusion.