May 2010 Issue

Civil Cases

Franklin Mint Co. v. Manatt, Phelps & Phillips, LLP,
2010 WL 1744635 (Cal. Ct. App. May 3, 2010)

ABSTRACT
The California Superior Court had entered judgment against Franklin Mint on its malicious prosecution claim against Manatt, Phelps & Phillips, LLP, finding that the law firm had probable cause to assert its client’s federal trademark dilution and false advertising claims in a 1998 federal lawsuit.  The California Court of Appeal reversed, however, finding that no reasonable attorney would think either claim tenable after Manatt failed to provide virtually any evidence that the name “Princess Diana” had been used as a trademark or achieved secondary meaning for charitable services, or that Franklin Mint’s advertisements were false or deceived a substantial segment of their audience.   The appeals court remanded on the issues of malice and damages.

CASE SUMMARY

FACTS
After Princess Diana’s death in 1997, collectibles maker Franklin Mint Co. (“Franklin Mint”) sought to design a new line of Princess Diana products with authorization from The Diana, Princess of Wales Memorial Fund (the “Fund”), a charitable trust established by the Princess’s estate.  When the Fund declined to provide authorization, Franklin Mint manufactured and sold a line of Diana products with advertising stating that “[a]ll proceeds to go to Diana, Princess of Wales’ favorite charities” or “100% of your purchase price will be donated to Diana, Princess of Wales’ favorite charities.”

In May 1998, the Fund, through its attorneys at Manatt, Phelps & Phillips, LLP (the “Firm”), brought suit against Franklin Mint in the Central District of California, alleging trademark infringement, dilution, and false advertising under the Lanham Act and California law, and right of publicity infringement.

The federal district court dismissed the right of publicity claim after applying British law, which did not recognize such a right.   The court granted summary judgment for Franklin Mint on the dilution and false advertising claims, finding that the Fund had failed to demonstrate that the name Princess Diana had acquired secondary meaning for charitable services, a necessary element of the dilution claim, and that the “all proceeds” advertisements were literally true.   Finally, the court awarded Franklin Mint attorneys’ fees of more than $1.6 million in connection with the Lanham Act claims, finding that the Fund’s dilution and false advertising claims were groundless and unreasonable based on the evidence presented.   The Ninth Circuit affirmed on all counts in June 2002.

In November 2002, Franklin Mint sued the Firm and the Fund for malicious prosecution of the federal trademark dilution and false advertising claims in the Superior Court for Los Angeles County.   The Fund settled, but the Firm moved for summary judgment on the ground that there was probable cause for both claims.   Following the grant of summary judgment to the Firm by the trial court, Franklin Mint appealed.

ANALYSIS
In reversing the decision of the trial court, the California Court of Appeal held that no reasonable attorney would have considered either of the dilution or false advertising claims tenable.   In California, to succeed on a malicious prosecution claim, a plaintiff must prove the underlying action was
(1) terminated in the plaintiff’s favor, (2) prosecuted without probable cause, and (3) initiated with malice.  Regarding probable cause, the plaintiff must show that the defendant relied upon facts which he had no reasonable cause to believe were true, or sought recovery upon a legal theory which no reasonable attorney would have thought tenable.

Applying this standard to the federal dilution claim, the court found that there was no legally tenable argument that Princess Diana or the Fund ever used “Diana, Princess of Wales” as a trademark.   The court acknowledged that Princess Diana supported many charities and promoted them through personal appearances, but found there was no evidence that she used her name or likeness as a trademark in connection with providing any services.  The court distinguished cases in which the names or images of other celebrities had been protected under trademark law, finding those individuals achieved public recognition in connection with their provision of services, while Princess Diana did not.  Indeed, the very items submitted in support of the dilution claim contained textual references to Princess Diana only as an individual, and did not identify any services offered by her, demonstrating the widespread and primary use of her name as an individual.  Thus, according to the appeals court, no reasonable attorney would have thought that Princess Diana had used her name or likeness as a trademark, much less that her name had acquired the level of secondary meaning necessary to support a dilution claim.  The court rejected the Firm’s defense that the uniqueness and complexity of the issues and the lack of directly controlling authority excused its prosecution of the claim, finding that a proper understanding of trademark principles and their application to the facts of this case was neither “difficult nor mysterious.”

The court also found that the false advertising claim was not tenable.  To support the false advertising claim, the Firm alleged that Franklin Mint literally advertised that all proceeds from all Princess Diana merchandise would be donated to all of Princess Diana’s charities.  The court found, however, that the “all proceeds” advertisements attached to the Fund’s complaint clearly did not make those representations, and no reasonable attorney would think they did.   The court then examined the Firm’s second theory, namely, that some of the advertisements misleadingly suggested that Franklin Mint was donating to charity a portion of the proceeds from the specific product depicted in each ad, when in fact Franklin Mint was not doing so.  The court found, however, that even if the ads were contextually deceptive, the Firm had failed to show a significant number of customers were deceived by the ads.  Instead, the Firm provided only one statement from one customer that supported this theory, while the other customer statements showed only that they were confused about the Fund’s association with the products, which was irrelevant to this claim.   Accordingly, the appeals court found that no reasonable attorney would think that the false advertising theories were tenable.

Because the appeals court found that the Firm had no probable cause to prosecute either claim, it remanded the case to the trial court on the malice and damages issues.

Associate Justice Richard Mosk issued a vigorous dissent, arguing that the court mistakenly shifted the burden of production and persuasion to the Firm, that Franklin Mint had failed to establish a lack of probable cause, and that even so, the Firm had submitted volumes of evidence in support of its claims during the federal trial (which Franklin Mint should have, but did not, submit).  Mosk wrote, “[O]ne can sympathize with any party that is sued and prevails . . . . [but] that does not mean that the lawyers who represented the losing party should be fair game.  I hope there is not a diminishing appreciation by the judiciary for the increasing hazards and pitfalls faced by those in private legal practice.”   Further, noting the potential chilling effect of the ruling, Mosk explained that “[a]n attorney who asserts claims on behalf of a client should not be exposed to a malicious prosecution claim just because those claims do not fall within the four corners of established case precedent or the specific words of a statute.”

CONCLUSION
This decision sets a surprisingly low standard for malicious prosecution of federal trademark dilution and false advertising claims in California.  Practitioners pursuing novel or unorthodox legal theories in California, in particular, should be aware of this decision and its implications.