Friday, February 17, 2006

2d Circuit decision on "loss" requirement in Computer Fraud and Abuse Act action

I usually don't bother commenting on unpublished circuit court decisions, particularly in circuits like the Second Circuit where you can't even mention them as precedent, but this one is worth noting.

In Nexans Wires S.A. v. Sark-USA, Inc., No. 05-3820-cv (2d Cir. Feb. 13, 2006), the Second Circuit issued an unpublished opinion (they call them "summary orders") affirming summary judgment against a plaintiff on its claim under the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. 1030 et seq. The CFAA is a neat little criminal statute, with an express but limited civil right of action, aimed generally at unauthorized access to protected computers with the intent to defraud or cause damage.

The key issue was whether the damage claimed by the plaintiff caused a qualifying "loss," as that term is specifically defined in the CFAA, of over $5,000 in any 1 year period. The plaintiffs claimed that the defendants misappropriated confidential data from their computers that caused the plaintiffs to lose over $10 million in profits. Well over the statutory threshold, right? Not so fast, said the court.

The CFAA defines loss as "any reasonable cost to any victim . . . and any revenue lost . . . because of interruption of service" from the unauthorized computer access. It was this last limitation on causation that did in the plaintiff. The court held that there was no evidence that the lost alleged $10 million in lost revenue was due to any "interruption of service." The plaintiffs' "Plan B" argument was that they spent $8000 to fly their German execs over to the US to investigate the defendants' misappropriation, but the court said there was no evidence that the German execs actually performed any computer investigation or repair, or any other type of preventative security measures, for that matter. Rather, the evidence was that they were in the US solely to assess the business loss associated with the misappropriation.

The moral is, remember this important limitation on the $5,000 loss threshold when assessing potential CFAA claims.

Friday, February 10, 2006

10th Circuit decision on unauthorized sales of genuine goods

The 10th Circuit recently issued an opinion in an interesting case involving issues of (1) unauthorized sales of genuine products and (2) use of the trademark holder's mark on the Internet in various ways.

In Australian Gold, Inc. v. Hatfield, No. 03-6218 (10th Cir. Feb. 7, 2006), the appeals court affirmed a jury verdict in which the plaintiffs were awarded a total of $550,000 in damages on their trademark infringement claims (and much more money for compensatory and punitive damages on their state law non-trademark claims).

The plaintiffs sold tanning products through authorized distributors to tanning salons who then sold to consumers. Distributors signed agreements that required them to undergo training sessions about the proper use of the products (which might not work properly or could even injure people if misused) so that the distributors could train their salon customers, and the distribution agreements also prohibited selling to anyone but real salons. The defendants, who were not salons, bought from rogue distributors who did not adhere to the re-sale restrictions, and the defendants in turn re-sold the products to anyone over the Internet. In connection with defendants' Internet sales, defendants used the trademarks on their websites, in their metatags, and in connection with a key word program run by search engine through which the defendants paid for enhanced search listings when users typed in plaintiffs' marks.

The defendants raised a number of defenses, but chief among them, at least as to the product sales themselves, was "first sale doctrine" -- the principle that it's OK for someone who buys the trademark holders' goods to simply re-sell them. The 10th Circuit rejected the first sale doctrine defense, however, because in its view the defendants went further than simply re-selling: they used the trademark on their website in a way that made it seem like they were authorized dealers when they actually weren't.

As to the use of the marks on defendants' websites, the 10th Circuit held that this created a likelihood of "initial interest confusion" because these trademark uses were an attempt to divert traffic seeking plaintiffs' products to defendants' websites. According to the court, this hurt the plaintiffs in several ways: First, since defendants also sold other companies' tanning products, the plaintiffs may have lost sales to competitors. Second, the plaintiffs lost opportunities for additional or upgraded sales that frequently occur when authorized tanning salon professionals handle the sales. Third, there was the potential for damage to plaintiffs' goodwill (or even lawsuits) if the products were misused due to lack of instruction from authorized tanning salon re-sellers.

As to the $$ amount of the damages, the court noted that it's really hard to quantify trademark damages, but held that the jury was within its rights to link the quantum of damages to the amount of money that the defendants had received in revenue for their unauthorized sales.

There are many other interesting issues in the court's discussion, but those are the highlights that jump out at me concerning the trademark issues.

Thursday, February 02, 2006

1st Circuit decision on reverse confusion

In a pretty plain vanilla decision, the First Circuit recently affirmed a jury verdict of infringement in a reverse confusion case. In Attrezzi, LLC v. Maytag Corp., No. 05-2098, -2181 (Jan. 27, 2006), the court affirmed the jury's determination that Maytag's use of ATTREZZI (which is Italian for "tools") on its Jenn-Air line of small kitchen appliances infringed the plaintiff's prior use of ATTREZZI for a single location store for upscale kitchen products and services, including small kitchen appliances. The pivotal facts, based on the court's discussion, seemed to be: (1) that there were several instances of actual confusion (although the court characterized them as "limited"); and (2) Maytag's in-house counsel initially opined that the plaintiff's mark, which showed up in a pre-adoption search, was "a problem," but later changed his mind when company execs told him to "take another look" at the issue (nudge nudge, wink wink).

There was nothing earth-shattering in the decision, although other noteworthy aspects of the court's opinion include:

  • noting that a defendant's use of its well-known house mark in conjunction with the accused mark in a reverse confusion case actually exacerbates, not diminishes, the likelihood of confusion; and
  • holding that attorney's fees expended by the plaintiff in initially fighting the defendant's ITU before the plaintiff sued was a compensable item of actual damage.

Because of the way the First Circuit's website is set up, I can't link directly to the opinion, but here's the link to the home page of the First Circuit website. Use the docket number to search for the opinion.

UPDATE: A nice anonymous comment provided me the static link to the opinion: It's this.