Lexmark gives some non-TM owners standing to sue for infringement

Innovation Ventures, LLC v. NVE, Inc., 2016 WL 266396, No.
08-11867 (E.D. Mich. Jan. 21, 2016)
 
This long-lived dispute goes another round of various
motions in limine.  Innovation sued NVE
for trademark infringement; NVE counterclaimed for false advertising.  Here, the court applies Lexmark to resolve disputed questions around trademark ownership, and
decides that the jury will hear all the evidence and render an advisory verdict
about the equitable issues, because the false advertising counterclaim and
unclean hands defense to trademark infringement are so intertwined.
 
NVE sought to present its unclean hands defense to the jury;
Innovation sought to prevent NVE from presenting evidence about unclean hands
to the jury and to bifurcate the trial. 
The unclean hands evidence was: (1) Innovation’s allegedly improper
registration of domain names using NVE’s 6 Hour POWER name, including
http://www.sixhourpower.com and http://www.6hourpower.com; (2) Innovation’s alleged efforts
to keep NVE’s products off the retail shelves; (3) Innovation’s alleged opposition
to NVE’s application to register “6 Hour POWER” with the PTO; and (4) Innovation’s
publication and distribution of a “Legal Notice” which NVE claims mislead
retailers into removing NVE’s products from the shelves because it over-broadly
identified the products against which Innovation had obtained an injunction. (Similarly named products from a different producer.)
 
Innovation wanted to try its trademark infringement claim to
the jury first, without allowing the jury to hear any evidence about false
advertising or unclean hands.  Innovation
argued that the false advertising claim would be moot if Innovation won because
NVE would have had no legal right to sell an infringing 6 Hour POWER product in
the first place. And if Innovation lost, any 
unclean hands evidence would be irrelevant, though a second trial could
be held on false advertising.  NVE
pointed out that this would let Innovation put its best case forward, and not
allow NVE to provide a full defense. 
 
The court decided that all the legal and equitable issues
would be presented to the same jury, and the jury would be instructed to return
advisory verdicts on the factual questions related to the equitable claims,
with the final decision on the equitable issues being reserved to the Court.  While Innovation argued that unclean hands
evidence would be unduly prejudicial, many factual questions were common to the
legal and equitable claims, requiring their presentation to the jury.  The unclean hands evidence largely overlapped
with the false advertising counterclaim. 
Moreover, the jury would be aided by a “full presentation of the real
circumstances that surrounded how these parties acted in competition with one
another.” Evidence of Innovation’s alleged efforts to get retailers to remove NVE’s
products from store shelves “could indicate a concerted effort on behalf of
Plaintiff to drive Defendant out of the market.”
 
Innovation’s concerns about prejudice were not dispositive
because some of the evidence—that relevant to false advertising—“is rightfully
before the jury and prejudice arising therefrom cannot be considered unfair
prejudice.” Any additional risk of prejudice from the less serious unclean
hands evidence could be avoided by carefully instructing the jury, and didn’t
outweigh NVE’s right to a jury trial and the needs of judicial efficiency.
 
Innovation did win confirmation of its standing.  Previously, NVE argued that Innovation didn’t
own the underlying trademark when it sued. 
NVE argued that it learned during discovery that a separate company may
have owned the 5 Hour ENERGY trademark when the case was filed, and the court
agreed that it appeared that, at some point in time, this separate entity was
in fact the owner, and Innovation had only a nonexclusive license.
 
However, Innovation sued under §43(a), and argued that it
didn’t need to own a mark to pursue its claims as long as it showed it was
likely to be harmed by infringement.  (It
also argued that, by subsequent agreement with the third party, it became the
owner nunc pro tunc of the trademark, but the court didn’t reach that argument.)  The court agreed that Innovation adequately
alleged sufficient commercial interest in the mark to have standing under Lexmark. 
(Sorry, Justice Scalia. Until you give us another simple name for it,
it’s standing.)
 
Under § 43(a), “any person who believes that he or she is or
is likely to be damaged” may bring a claim for infringement resulting from
false association or false advertising, “without regard to any ownership
interest the plaintiff may have in the trademark.”  This means that manufacturers, competitors,
distributors, and others may have standing if they satisfy Lexmark, which the court characterized as setting the standard for
“whether a non-owner plaintiff has standing to raise a claim under § 43(a).” 
 
Innovation fell within the zone of interests protected by
the Lanham Act—its interests were those of a person engaged in commerce, with
commercial interests in reputation or sales at stake, and not those of a mere
deceived consumer.  NVE couldn’t defend
by arguing that a third party had superior rights; such a jus tertii defense is
disfavored in trademark law.  Moreover,
Innovation alleged proximate cause: that the introduction of NVE’s allegedly
infringing product resulted in lost sales and association with a competing
product.

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