Trademark defendant wins rare unclean hands defense to injunction

Cochran Firm, P.C. v. Cochran Firm Los Angeles LLP, —
Fed.Appx. —, 2016 WL 770129, No. 15–55816 (9th Cir. Feb. 29, 2016)
A rare unclean hands win for a trademark defendant!  The Cochran Firm appealed the district court’s
order dissolving a preliminary injunction against Randy H. McMurray, P.C. and McMurray
individually.  The majority found that
the trial court implicitly made a finding of bad faith by the Firm, and
considered “evidence of actual deception of consumers, such as when a former
client attempted to obtain a judgment against the Firm.”  Moreover, the district court considered
whether the Firm’s misconduct had an “immediate and necessary relation to the
equity [it] seeks.”  In previous
proceedings, the court of appeals had noted, “The structure of [the Firm’s]
business is important in assessing whether [the Firm] has unclean hands.
Specifically, [the Firm] may be misusing the trademark to deceive the public
into believing it is a single, national firm, when in fact it is a network of
separate partnerships.”  Indeed, the
majority said in a footnote,
The Firm’s marketing of itself and
its regional offices as a “single” law firm is likely to bear an “immediate and
necessary relation” to the equity the Firm seeks. Given the singular form of
the noun “firm,” “The Cochran Firm” trademark suggests that all practices
bearing that mark are part of a single firm.
Nor did the district court abuse its discretion in using
California’s Rules of Professional Conduct’s definition of a law firm or expert
testimony to guide its findings.
Finally, McMurray’s own unclean hands didn’t bar him from
raising the defense.  The district court
didn’t abuse its discretion in finding that there was insufficient evidence to
support the Firm’s unclean hands argument, and even if there were sufficient
evidence, that the Firm was more culpable than McMurray.
Judge Callahan dissented, reasoning that unclean hands
findings should be rare in trademark cases. “The Firm’s marketing is not
misleading and has little to do with the trademark at stake.”  Worse, “[m]ulti-office businesses will be
surprised to learn that they are misleading the public by advertising
themselves as ‘single’ and ‘national’ in stature, and thus may not protect any
right they hold to their company’s name.” 
The dissent complained that the district court had wrongly federalized
the definition of a “law firm.”
Initially, the dissent emphasized the “increasingly limited
scope” of unclean hands in trademark infringement suits (as Mark McKenna might
say, tracking the shift from a business to a consumer protection focus of the
overall cause of action, given the dissent’s concession that unclean hands is
an “established defense”).  A defendant
must demonstrate by “clear, convincing evidence” that (1) plaintiff’s conduct
is inequitable and (2) the misconduct relates to the subject matter of
plaintiff’s trademark infringement claim.   Inequitable conduct requires a showing that
the plaintiff used the trademark to deceive consumers. “[E]ven where bad intent
is demonstrated, an appreciable number of consumers must also have actually
been deceived for the defense to succeed.”  Then, the defendant must show that the
plaintiff’s “misdeeds … have an immediate and necessary relation to the
equity that [the plaintiff] seeks in respect of the matter in litigation,”
generally requiring the trademark itself to be misleading or the plaintiff to
have acquired its rights with unclean hands. 
Using the mark as part of misleading advertising is much less likely to
have the requisite relation.
The district court’s findings that the Firm had
misrepresented (1) that it was “national” and (2) that its offices were part of
a “single” law firm were insufficient to the dissent.  First, the district court didn’t explicitly
find that the Firm acted in bad faith in advertising itself as a single,
national law firm, or any actual deception. 
Second, the district court didn’t find that the Firm’s marketing had an
“immediate and necessary relation” to the relief it sought—which was to stop McMurray
from trading on the Firm’s goodwill and deceiving the public into believing
that he is still a part of The Cochran Firm.
The “single firm” advertising wasn’t sufficiently
inequitable to bar relief.  There was no
survey evidence of deception, and the trademark itself wasn’t clearly
misleading, so “courts should demand at least some comparable evidence of
consumer deception.”  (Indeed, the
dissent said, surveys should rarely be necessary, because only egregiously
misleading marketing featuring the trademark should support an unclean hands
defense.)  The evidence cited by the
majority was that “a lawyer for a former client’s conservator named the Firm as
a defendant in a lawsuit seeking to recover a judgment”; the dissent dismissed
this as a mere litigation tactic, which didn’t show that the former client
herself was misled. 
The dissent would also have found that the district court
erred in relying on California’s Rules of Professional Conduct for lawyers to
inform its understanding of how the public understands the term “law firm.”  Even if the public did follow that
understanding, the dissent argued that the Firm’s “hub and spoke” structure
wasn’t contrary to any rule.  An ABA
opinion expressly condones, “at least from the ethical point of view,” the
franchise-like “licensing” of a law firm’s name “to create a national network
of firms, all of which will use the original firm’s name under a licensing
agreement by which the original firm will provide all marketing for the firms
in the network.”
The California Practice Guide to Professional Responsibility
similarly provides that franchising of a law firm’s name is permissible where
“the franchisor is in a partnership with each franchisee.” The dissent noted that
the Firm complied with this guidance, and also highlighted the district court’s
findings that the Firm had nationwide “prestige”; coordinated across offices on
class actions and multi-district litigation; had numerous nation-wide
standardized resources and procedures; required regional offices to carry
liability insurance; vetted employees and ensured “that the regional offices
are managed by a managing partner that Johnnie Cochran knew”; and exerted a
degree of “control over the regional offices.”
Thus, neither the “single” nor “national” branding was
inequitable, and “national” had no immediate and necessary relation to the trademark.
The dissent closed by warning that many law firms use a
similar structure.  “The closeness of
bonds between the offices that comprise a firm varies significantly by office
and firm. It does not follow that regional offices that operate more
independently mislead the public or violate rules of professional conduct by
holding themselves out as part of a larger, single law firm.”

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