Territoriality is no bar to keeping up with the Kardashians in Kroma dispute

Kroma Makeup EU, Ltd. v. Boldface Licensing Branding, Inc., No.
6:14–cv–1551, 2015 WL 1708757 (M.D. Fla. Apr. 15, 2015)
 
A foreign licensee of a US trademark sued US citizens for
alleged infringement abroad, and sued its licensor for refusing to share in the
proceeds of a settlement in a separate lawsuit about the infringement.  The court here found that it had subject
matter jurisdiction and that the foreign licensee could state a Lanham Act
claim. Plus, the licensee could proceed against its licensor under a breach of
contract theory.
 
Defendant Tillett owns a registration for Kroma for makeup,
used for a premium, all-natural makeup brand. “Kroma products sell from between
$19 and $100 and have been featured at high-profile fashion events throughout
the United States and the world, including the Oscars and the Emmys.”
 
According to the complaint, Plaintiff Kroma EU had an
exclusive license from Tillett to import and sell Kroma products in the EU,
with a guarantee from Tillett that it owned the Kroma mark.  This was a thriving business by late 2012,
with Kroma EU negotiating to place Kroma products in a number of upscale
British and European retail stores.
 
Enter Khroma, a new makeup line backed by defendants Kim
Kardashian, Kourtney Kardashian, and Khloe Kardashian and defendant Boldface.
The new line was released in the US and Europe in late 2012, priced between $6
and $20.  It was of inferior quality
compared to Kroma, and Kroma suffered severe consumer confusion.  Boldface sued Tillett for a declaration of
noninfringement.  Tillett counterclaimed,
and in 2013, the district court preliminarily enjoined Khroma.  Tillett and the other defendants eventually
settled.  Prior to the settlement,
Tillett allegedly promised to seek damages on Kroma EU’s behalf and sought information
from Kroma EU regarding its claimed damages. 
However, after winning the motion for a preliminary injunction, Tillett
allegedly abandoned Kroma EU’s interests, and the ultimate settlement didn’t
include a release of Kroma EU’s claims.
 
Thus, Kroma EU sued everybody, alleging trademark claims
against Boldface and the Kardashian defendants, and promissory estoppel against
Tillett. Boldface defaulted.
 
The Kardashian defendants suggested that Kroma EU lacked
standing to bring vicarious trademark infringement claims because Tillett was
the registrant and owner of Kroma in the US, and because Kroma EU couldn’t
enforce either a registered or unregistered foreign mark.
 
Although a licensee doesn’t own the mark it licenses, §43(a)
doesn’t require a “registrant,” but speaks of “any person who believes that he
or she is or is likely to be damaged.” Thus, ownership is irrelevant, and “courts
frequently find non-owners—such as manufacturers, competitors, distributors,
and others—to have standing under § 43(a).” 
Lexmark required “statutory
standing”—what the court here characterized as “more of a refinement to what
federal courts have called ‘prudential standing’ over the years.” (Of course
Justice Scalia insisted that he wasn’t engaged in a “standing” inquiry at all,
but this court, like many others, isn’t interested in changing the label.)
 
A plaintiff must demonstrate a cognizable “commercial
interest in reputation or sales” to fall within § 43(a)’s zone of interest, and
show that its injuries were proximately caused by the defendant’s wrongful
conduct. Kroma EU was not trying to enforce a foreign trademark in a US court,
but rather a domestic trademark.  (That
skips over territoriality completely. 
Kroma EU doesn’t have any rights to sell Kroma in the US, according to
the description of the license.  The mark
may have originated in the US, but when used in the EU it’s an EU mark.)  Kroma sufficiently satisfied the zone of
interests tests because of its commercial interest in selling Kroma. “Kroma EU
is exactly the type of commercial actor who § 43(a) of the Lanham Act envisions
protecting.”  And Kroma EU alleged
proximate cause: consumer confusion that cost it significant business and
revenue.
 
Nor did res judicata bar Kroma EU’s claims, since Kroma EU
was never a party to the prior litigation.
 
But did the Lanham Act reach the Kardashians’ conduct
abroad? Steele v. Bulova Watch Co., 344 U.S. 280 (1952), held that the Lanham
Act regulates not only domestic conduct, but also foreign conduct of U.S.
citizens where the conduct involves U.S. commerce and does not otherwise
interfere with the rights of foreign nationals in their own countries. Relevant
factors: (1) whether the defendant is a U.S. citizen, (2) whether the foreign
conduct had a substantial effect on U.S. commerce, and (3) whether adjudicating
the claim would interfere with another nation’s sovereignty.
 
Because all the alleged conduct occurred outside the US, the
Kardashians argued that there was no substantial effect on US commerce, and
also they contended that allowing Kroma EU to proceed would interfere with the
sovereignty of the United Kingdom and the European Union, as Kroma EU’s
trademark interests are based under the laws of each entity and all of the
alleged infringement occurred within these entities’ respective territorial
boundaries.
 
U.S. citizens should not be allowed to “evade the thrust of
the laws of the United States in a privileged sanctuary beyond our borders.”  Some courts call this the paramount
factor. 
 
Moreover, Kroma EU alleged conduct with a substantial effect
on US commerce.  If foreign conduct
creates confusion among American consumers, there can be little doubt of a
substantial effect on US commerce. This usually occurs when there’s intentional
importation of infringing goods into the US, or when infringing goods seep into
the US via third parties. In addition, the Eleventh Circuit also holds that the
Lanham Act also protects non-American consumers from confusion created by
American infringers. Babbit Electronics, Inc. v. Dynascan Corp., 38 F.3d 1161
(11th Cir.1994) (per curiam) (affirming extraterritorial application of the
Lanham Act where a U.S. corporation purchased infringing products to sell
exclusively to consumers in South America). Nonetheless, “global consumer
confusion is insufficient by itself to sustain a finding of a substantial
effect; there must be other connections to U.S. commerce.” Another connection
can be found through a defendant’s significant commercial activity within the US
to advance its infringing conduct abroad.
 
Kroma EU “more than adequately” alleged global consumer
confusion, including failed negotiations with a high end retailer that stated
that it didn’t want to be associated with the Kardashians or to be perceived as
selling discount or inferior-quality products, along with other confused
customers.  The court also inferred that
Kroma EU suffered confusion in the US too. 
(Except that it didn’t have any rights in the US!) “Because of Khroma’s
pervasive Internet presence around the world, the Court can reasonably infer
that some American consumers intending to purchase Kroma products were confused
into purchasing deeply discounted European Khroma products through the European
websites and that … these infringing makeup products seeped back into the
United States.”  (But, had Kroma EU tried
to sell back into the US, it would likely have violated its licensing
agreement.) 
 
Plus, Kroma EU alleged significant
commercial conduct by the Kardashians within the US to further their infringing
activities in Europe. They engaged Boldface to make the Khroma line and exerted
control over all aspects of the brand from within the US, chose the Khroma
name, marketed the brand through their personal celebrity, etc. Given the
policies underlying the Lanham Act—protecting consumers and securing the
rewards of trademark—it was appropriate to find a substantial effect on US
commerce. Given the defendants’ awareness of the Kroma mark, “U.S. trademark
law has a considerable interest in protecting U.S. trademarks regardless of
where an American infringer’s conduct occurs.”
 
Nor would enforcing Kroma EU’s interest interfere with the
sovereignty of another nation, which generally occurs “where the parties are
engaged in parallel litigation within the foreign nation or where the foreign
nation takes action against the interest which the plaintiff seeks to assert in
the United States court.” There’s no parallel litigation or foreign action
against the marks here. Because Kroma EU is the licensee of a US mark, the US
had the greatest interest in enforcing the mark.
 
As to the promisory estoppel claim, Kroma EU would need to
show: (1) the plaintiff relied to its detriment on a promise made by the
defendant, (2) the defendant should have reasonably expected the plaintiff to
rely on the promise, and (3) injustice can be avoided only by enforcing the
promise. However, promissory estoppel is unavailable where a written contract
governs the parties’ relations. 
 
All exclusive trademark licensing contracts provide as a
matter of law that the licensor is “under an implied good faith obligation not
to do anything that would impair or destroy the value of [the] exclusive
licensee’s rights.” The Eleventh Circuit has specifically held that a licensor must
share its proceeds from the settlement of a trademark infringement action with
its exclusive licensee where the exclusive licensee can show its damages. Thus,
contract law could adequately fashion an appropriate remedy, making promissory
estoppel unavailable.
 
But the plaintiff’s label for its claim was not dispositive.
Kroma EU’s factual allegations clearly set forth a claim for breach of contract
against Tillett.

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