Internet Trademark Case Summaries
Internet Specialties West, Inc. v. Milon-DiGiorgio Enters., Inc.
559 F.3d 985 (9th Cir. 2009)
Plaintiff Internet Specialties West (“IS West”) is a regional ISP founded in southern California in 1996. IS West marketed its Internet services, including nationwide Internet access through dial-up, DSL, and T-1 connections, web hosting, and email, through its website at www.iswest.com. Starting in July 1998, Defendant Milon-DiGiorgio Enterprises (“MDE”) began providing dial-up Internet access to customers in Southern California under the name ISPWest and through its website at www.ispwest.com. Although IS West learned of the existence of MDE in late 1998, it did not contact MDE at that time. Rather, IS West decided that MDE’s regional service offerings were not equal to IS West’s nationwide service and that the “volatile” market for Internet start-ups left most smaller start-ups expected to eventually go out of business. Despite IS West’s dour expectations, MDE grew and eventually expanded to offer nationwide dial-up service in 2002, followed by high-speed DSL service in 2004. Following this unexpected growth, IS West sent MDE a cease-and-desist letter in 2005, demanding that MDE cease use of the ISPWest name. When MDE refused, IS West sued for trademark infringement. The jury returned a verdict in favor of IS West, but awarded no damages. The district court then rejected MDE’s affirmative defense of laches and enjoined MDE from further use of the ISPWest trademark and domain name.
MDE appealed, seeking to overturn both the jury’s verdict and the district court’s decision regarding laches. In a 2-1 majority decision, the Seventh Circuit affirmed the district court’s decision. Regarding the jury verdict, MDE questioned a jury instruction that provided greater weight to the “Internet Trinity” likelihood-of-confusion factors. The jury instructions cited these factors—similarity of the marks, relatedness of the services, and simultaneous use of the Internet as a marketing channel—“to be of greatest importance” in Internet cases and that if all three factors favored IS West, then likelihood of confusion should be found unless the remaining factors weighed strongly in MDE’s favor. The Ninth Circuit found these instructions to be “an accurate reflection of the law of our circuit,” based on their use in previous cases. Turning to the district court’s laches decision, MDE questioned the court’s decision that the four-year statute of limitations period started with MDE’s offering of DSL services in 2004, rather than in 1998 when IS West first learned of MDE’s existence. The court analyzed the two-part test for laches: (1) was the plaintiff’s delay in bringing the suit unreasonable, and (2) was the defendant prejudiced by the unreasonable delay. The Ninth Circuit disagreed with the district court’s ruling on the first prong, finding that IS West’s delay was unreasonable based on when it first knew about MDE’s ISPWest business. California’s four-year statute-of-limitations period begins “when the plaintiff knew or should have known about its potential cause of action.” The district court determined that because MDE did not offer competing high-speed DSL service in 1998, there was no likelihood of confusion between MDE’s service and those of IS West. The Ninth Circuit instead found that a likelihood of confusion had in fact existed in 1998 because both companies offered Internet access, email, and web-hosting services in the same geographic area under “remarkably similar business names.” The court determined that “[IS West] was not entitled to wait until MDE’s business grew large enough to constitute a real threat” before suing for trademark infringement. Accordingly, IS West’s seven-year delay in bringing its trademark infringement claim was not reasonable. However, the Ninth Circuit agreed with the district court that MDE was not prejudiced by IS West’s unreasonable delay in taking action. The court defined prejudice as something more than “mere[ ] . . . expenditures in promoting an infringed name.” Rather, laches is meant to protect a defendant’s “efforts . . . aimed at build[ing] a valuable business around its trademark” and “an important reliance on the publicity of [its] mark,” which represents “investment in the mark ISPWest as the identity of the business in the minds of the public.” The Ninth Circuit affirmed the district court’s decision on this issue, finding that MDE did not sufficiently “develop [the] brand recognition of its mark,” as the vast majority of MDE’s advertising consisted of pay-per-click advertisements that only “funneled” potential customers to MDE’s website. Because these pay-per-click ads typically did not even include the name ISPWest in the ad text, these ads created “little to no brand awareness” and did not create a “public association” between ISPWest and MDE. Although an injunction would force 13,000 of MDE’s customers to change e-mail addresses, the district court found that MDE would not have to spend significant amounts of money to advertise a new name, especially since MDE had successfully changed its name in the past and it was common for ISPs to change their names due to mergers and consolidations. The Ninth Circuit believed that its decision was consistent with its prior decisions. In Jarrow Formulas v. Nutrition Now, the court held that plaintiff’s false-advertising claims were barred by laches due to defendant’s prominent display of the disputed claims on all of its product labels and its use of the claims as a “central part of its extensive marketing campaign” in which it had invested “enormous resources in [tying] it’s product’s identity to the challenged claims.” Additionally, in Grupo Gigante S.A. de C.V. v. Dallo & Co., the court upheld a laches defense based on the defendant “proving that it has continued to build a valuable business around its trademark during the time that the plaintiff delayed the exercise of its legal rights, ” including that it had operated two grocery stores for four years that displayed the infringing name prominently at each store’s entrance. In contrast to these cases, the Ninth Circuit found here that “MDE failed to show at trial that its identity had much at all to do with the mark ISPWest, inasmuch as MDE did not rely on its mark to attract customers.” Accordingly, the appeals court affirmed both the lower court’s ruling denying MDE’s laches defense and the resulting injunction barring MDE from any use of the ISPWest.com name, including in its customers’ email addresses. Judge Kleinfeld dissented from the majority’s ruling regarding prejudice to MDE, finding that MDE had presented sufficient proof of prejudice to support its laches defense. For example, MDE had realized “exponential increases in business and business-building expenses around [its] trademark (438% increase in general business expenses and a 14,931% increase in advertising expenses)” during IS West’s period of delay; MDE realized an increase of nearly 9,000 customers during the period of delay; and the 6-year delay was “well in excess of the analogous statute of limitations period.” The dissent also distinguished this case from those cited by the majority. For example, it found that the Grupo Gigante case “cannot be reconciled” with the majority’s opinion, as “[t]he majority seems to be saying the brand name of a grocery store means more than the domain name of an Internet provider.” Indeed, the ISPWest mark also appeared in the e-mail address of all of its customers. Finally, the dissent also rejected the scope of the injunction issued against MDE, finding that the burden of changing email addresses on 13,000 customers and the inconvenience it would cause to others who communicated with those customers by e-mail were against the public interest.