What makes a fee-worthy dilution claim?

General Steel Domestic Sales, LLC v. Chumley, 2014 WL 793090,  No. 10-cv-01398 (D. Colo. Feb. 27, 2014)

Some of the more recent opinions from this hard-fought case in which plaintiff won its false advertising claims but lost trademark claims.  We can take as given that there’s some cross-contamination from the false advertising claims here, but still, fame is doing zero work as a constraint on filing bogus dilution claims. If an award of attorney’s fees on the dilution claim is inappropriate in this case, where the plaintiff fully lost the trademark aspects of its case and where it was laughable to allege federal dilution of the mark “General Steel,” when could it ever be?

General Steel moved for attorney’s fees on the false advertising aspects of the case.  An exceptional case is where the false advertising (or infringement, from whence the governing caselaw comes) is “malicious, fraudulent, deliberate, or willful.”  Absence of actual damages is also a factor, though such absence doesn’t preclude a fee award.  Here, though the court had found that the Lanham Act violations were willful, and though they continued even after the close of discovery, it declined to award fees.  The court had already ordered disgorgement of defendants’ profits even in the absence of evidence of lost sales.  Given that General Steel prevailed on only one of its claims, based on a “limited number” of false statements on defendants’ website, that it failed to show damages, and that it had already recovered defendants’ profits, the court declined to award fees as well.

Defendants sought fees on the federal dilution/false designation of origin claims (as well as the state law consumer protection claim).  For defendants, an infringement suit can be exceptional if it’s unfounded, brought in bad faith, or prosecuted in an unusually vexatious and oppressive manner.  Both objective merits and subjective motivations are relevant. 

The court found that General Steel had established two elements of its claim: that it had a protectable mark in “General Steel” and that defendants used the phrase in commerce without its permission.  In addition (and indeed, overlapping with these), the court found that four of the six relevant confusion factors favored General Steel, though none were dispositive.  The court ultimately found that the uses weren’t likely to confuse and that “many of the actual uses of the keywords ‘general steel’ in website text occurred either in the context of a clear comparison or in a context that, while puzzling, was unlikely to confuse consumers as to source.”  Under the circumstances, the court declined to find that the claim was maintained in bad faith or that its prosecution was so lacking as to be exceptional.

This seems right, but then, dilution: General Steel voluntarily dismissed its dilution claim after defendants’ motion to dismiss.  General Steel initially alleged that its mark was not merely descriptive or generic, that it had spent millions of dollars on advertising, that “General Steel is the third most searched term in the steel building industry,” that “[c]ustomers throughout the nation know the name General Steel” and that General Steel had “achieved a national reputation.”  It did not plead (nor could I imagine how it could ethically have done so) that its mark was “famous” or “widely recognized by the general consuming public.”  Nonetheless, the court concluded that given what General Steel did allege, the argument that the complaint was so lacking as to be exceptional failed.  Because the initial complaint contained factual allegations “regarding public awareness of General Steel’s mark,” it was not so defective as to evidence bad faith or improper purpose.  But federal dilution isn’t about “public awareness.”  It’s about fame. 

On the state law claims under the Colorado Consumer Protection Act, defendants argued that they were entitled to a fee award because of General Steel’s failure to show actual damages, and because General Steel used its CCPA claim to obtain documents from defendants in order to contact their customers and forward negative information about Armstrong to the Colorado Attorney General.  A CCPA action found by a court to be groundless and in bad faith, or brought for the purpose of harassment, requires a fee award.  A claim is groundless if “the allegations of the complaint, although sufficient to survive a motion to dismiss for failure to state a claim, are not supported by any credible evidence” or if the “proponent has a valid legal theory, but can offer little or no evidence to support the claim.”  Pursuing a claim despite knowing that it lacks admissible evidence can lead to a fee award.

While General Steel identified a theory of recovery (disgorgement), it didn’t show any credible evidence of actual harm, which was a key element of its CCPA claim, and thus the claim was groundless.  However, the court did not find bad faith or intent to harass, also a prerequisite.  Defendants submitted an email from a customer complaining about a telephone call purportedly from the Colorado Attorney General’s office disparaging defendants that the Assistant AG denied making, and a transcription of a voicemail message that the Assistant AG left for a defense attorney requesting the number of this case because he “got a call from [a General Steel attorney]” and “[b]oth sides have raised allegations.”

This evidence would only allow an inference that an entity other than the Colorado AG’s Office made at least one disparaging phone call to a customer, and that the AG’s Office was looking into the particulars of the instant case. But that didn’t support the conclusion that General Steel used its CCPA claim to get negative documents and send them to the AG or to contact defendants’ customers. Nor did the court find that General Steel’s “evidence and argument were so feckless or irrational that [the] continued pursuit of [its] CCPA claim must have been motivated by bad faith or a purpose to harass.”
This entry was posted in consumer protection, dilution, fees, http://schemas.google.com/blogger/2008/kind#post, trademark. Bookmark the permalink.

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