ignorance 8 ways to avoid liaBility
not
your Best defense is a good offense
in plain language … wHy it matters 3) Do your due diligence. Make sure your
Intellectual property consists of mental cre- Why should a distributor be concerned about sources are credible and reputable and make
ations such as inventions, literary works, artis- contributory infringement? Because the mon- sure all third-party trademark use in the
tic works, names, symbols, designs and images etary damages can be significant. A trade- promotional products has been authorized in
that are intended for commercial use. Though mark owner can collect the infringer’s profits, writing from the trademark owner.
is
the term “intellectual property” encompasses any actual damages the owner sustains (such 4) Do not use trademarks that too closely
patents, copyrights and individuals’ publicity/ as lost business where potential customers resemble the mark of another.
privacy rights, it’s really the fourth segment, have been diverted to the infringer’s items in 5) Maintain good records. Make sure you
trademarks, that most frequently affects the lieu of the trademark owner’s product) and maintain files containing written authoriza-
promotional products industry. costs of the action. tions for use of others’ trademarks. Keep these
A trademark is a name, word, symbol or This means you may be required to disgorge files until long after the statutes of limitations
design used with goods or services to identify your profit from the sale of the fake Movados for potential claims have expired. Statutes of
the source of a product or service and allows to Good Flight. Your profits from that sale limitations for certain actions vary per state.
Bliss
consumers to answer the questions “Who were $450,000 ($450 x 1,000 watches). In You should consult with your lawyer to deter-
makes this product?” and “Who provides addition, Movado proves that it lost sales of mine how long you should maintain records.
this service?” Trade dress, another form of its watches from Good Flight’s frequent fliers 6) Develop and implement policies for
trademark, is the overall image or impression in the amount of $300,000. Thus, you may your company against intellectual property
of a product as well as the way it is packaged/ be required to pay Movado a minimum of infringement. The policies should include,
presented to customers (i.e. Crayola’s green- $750,000. among other things, provisions prohibiting
and-yellow cardboard crayon boxes). To make matters worse, if the infringement use of others’ trademarks without written
As marks are used over time (through involves a counterfeit, a trademark owner may authorization.
advertising and marketing) and consumers recover up to three times the infringer’s prof- 7) Obtain indemnification agreements from
become familiar with particular incarnations, its or the trademark holder’s damages, which- your sources. If you have a contract with your
they may acquire “secondary meaning” as ever is greater, plus attorneys’ fees incurred in suppliers, include a provision in the con-
indicators of quality. For this reason, well- the action. Thus, in this example, Movado tract that provides for your indemnification if
By lisa a. lori, esq. known marks are valuable business assets.
In the simplest of terms, trademark infringe-
may be entitled to damages in the amount of
$1,350,000 ($450,000 x 3) plus the attorneys’
claims are asserted by third parties for intel-
lectual property infringement. Remember, the
ment is using another's trademark in com- fees that Movado incurred in prosecuting the indemnification is only as good as the source
merce without permission. Counterfeiting, action. Alternatively, a trademark holder may providing indemnification.
another form of trademark infringement, elect to recover statutory damages, which can 8) Have a good commercial liability insur-
refers to selling an imitation of a genuine range from $500 to $1,000,000 per mark. ance policy in place that provides coverage
product. In our example, both Movado and The trademark owner has the right to make for advertising injuries. Not all insurance poli-
Boeing can claim trademark infringement, such an election prior to trial. Often, if actual cies provide coverage for trademark infringe-
H
and the Movado watches are considered damages or profits are difficult to prove or the ment claims. However, it is worth speaking
counterfeit goods. counterfeiter’s financial records are suspect, with your insurance company to obtain a
ere's the trademark owners will elect to recover statu- proper policy.
hypothetical: You How to land in Hot water tory damages. Note that this is just Movado’s
just got a call from a cus- You may wonder how is it that a distribu- claim in the above example, and doesn’t These steps certainly are not exhaustive
tomer, Good Flight Airlines. tor can be liable for trademark infringement include the damages Boeing could seek. and there never can be a 100 percent guar-
when it did not mislabel any product or antee against liability. Your safest course of
Good Flight places an order with
deceive anyone. The answer lies in a legal eigHt ways to play it safe action is to consult an experienced lawyer.
you for 1,000 Movado watches to doctrine called contributory infringement. As you can see, the potential liability to a dis- But being aware of the issues can help avoid
give to its frequent-flyer customers. The airline tells you Under this doctrine, a distributor may be tributor for contributory trademark infringe- potential pitfalls.
it wants Boeing’s name and logo on the watches as well as liable if it supplies the “ammunition” that ment can be significant. There are steps you
its own logo, and you subsequently place the order with a facilitates the infringement. Thus, in our can take to avoid or minimize liability. Some
source in China. Typically, these watches sell for at least $500 hypothetical, the distributor who provides of these steps are as follows: Lisa A. Lori is a
the counterfeit Movado watches to Good 1) Do not use trademarks or the names or partner in the liti-
each, but your source tells you that you can have them for $150
Flight may be named as a defendant in likenesses of others without written permis- gation department
each if you place the order now. You will sell the watches to Good Boeing’s and Movado’s lawsuits against the sion from those sources. at Klehr, Harrison,
Flight for $600. airline. 2) Anything that sounds too good to be true Harvey, Branzburg
Before placing the order, you asked Good Flight if it had Boeing’s In determining liability of the distributor, probably is. In the opening hypothetical, a & Ellers LLP. Lori
permission to use its name and logo. They say, “Of course.” You make the focus is on the distributor’s knowledge. price of $150 for $500 Movado watches is too represents clients in a
no further inquiries. What you don’t know, however, is Boeing did not If a distributor induces another to infringe good to be true. That’s because the watches full range of complex
a trademark or if the distributor continues are counterfeit. As a general rule, if any price commercial litigation
give permission to use its name or logo, and your source in China is actu-
to supply a product he has reason to know seems exceptionally low for no good reason, matters, including
ally selling you one of its best-quality Movado knockoffs. is engaging in trademark infringement, the the products are likely to be counterfeit (or copyright and trade-
You just walked into an intellectual property minefield that could cost distributor may be responsible for the harm knockoffs). You may be deemed to have mark disputes and general business torts. Lori
you dearly. Unfortunately, the penalties for trademark infringement are not done. The key words here are “has reason to knowledge that the product you are acquiring also counsels clients on a variety of matters,
limited to those who actually place the trademark on the product. The burden know,” which basically means the distributor is a counterfeit (i.e., you should have known including advertising, marketing, branding
of liability can extend to distributors as well, and damages can be hefty. Being should have known better and chose to turn that the product was a counterfeit even if you and regulatory compliance. Contact Lisa Lori
a blind eye. did not have actual knowledge). at llori@klehr.com.
forewarned about these concepts is being forearmed.
84 June 2008 promo marketing • www.promomarketing.com promo marketing • www.promomarketing.com June 2008 85