43(a)(1)(A) claims are hard to win against a TM registrant

Zamfir v. CasperLabs, LLC, 2021 WL 1164985, No. 21cv474-GPC(AHG)
(S.D. Cal. Mar. 26, 2021)

Zamfir is a researcher in the field of cryptoeconomics and
distributed systems; he and Vitalik Buterin are allegedly the two lead
researchers of the proof-of-stake blockchain protocols known as Casper (name adopted
around 2015). Zamfir’s branch of this research, carried out in the US, became
known as “CBC Casper,” aka “Casper.”

CasperLabs was founded in October 2018 under that name. The
parties soon discussed collaborating on the research and development of a new
blockchain adopting a version of Plaintiff’s CBC Casper PoS protocol. Though
they entered into a limited agreement, Zamfir alleged that that soon after he
began working with CasperLabs, he became concerned that it was misappropriating
his name and leveraging his reputation to mislead investors. Their agreements
terminated in late 2019.

By August 2020, CasperLabs had begun referring to its
blockchain protocol and forthcoming token as “Casper.” According to CasperLabs,
Zamfir was well-aware of its intent to use the Casper name as early as June
2019. It filed an application to register CASPER as a trademark in connection
with blockchain technology; the registration issued in November 2020. Zamfir
alleged that CasperLabs had agreed to register the marks on his behalf and to
transfer the marks to him, but didn’t do so; CasperLabs denied any such agreement.
Zamfir alleged that the resulting confusion harmed his reputation, made it more
difficult to market the genuine products of his research, and gave the false
impression that his research is being financed by a relationship with CasperLabs,
which made it harder for him to secure sponsorship. CasperLabs, meanwhile, alleged
that “Casper” and “CasperLabs” had become widely recognized on social media to
refer to its network.

Without assessing whether Zamfir owned any valid interest, reasoning
that ownership of a valid mark is not a requirement under §43(a), the court jumped
straight to the Sleekcraft factors. [This is the worst of both worlds
from an unfair competition perspective: plaintiffs neither have to show that they
have a mark nor are they bound by the extra proof requirements that used to
apply for unfair competition claims, like intent and real harm.]

(1) The marks were identical. (2) Though they didn’t compete,
the marks were both used in connection with blockchain tech and “the fact that
Defendant’s product purportedly built on the CBC Casper protocol confirms that
consumers may see the ‘products’—Plaintiff’s research and Defendant’s token and
network—as related.” (3) Actual confusion: Zamfir submitted evidence from an
online forum and a newspaper article “suggesting that some in the blockchain
community mistakenly believe he is associated with Defendant’s network and
token launch.” But some of that confusion might stem from the fact that he was
associated with it in the past.

(4) Strength: Casper is conceptually strong, but Zamfir didn’t
clearly show “either that he has used the mark in a commercial manner, or that the
mark is strongly associated with him among potential cryptocurrency consumers,
which may be broader than those who are familiar with the underlying
technology.”

(5) Intent: could go either way. Though it apparently chose Casper
to suggest association with the CBC Casper protocol, it used that name throughout
its working relationship with Zamfir without objection and “it is difficult for
the Court to conclude, based on the sparse record regarding the purported
agreement, that Defendant agreed to transfer the trademark to Plaintiff without
any expectation that it would retain any right to use the Casper name at all.”

So Zamfir didn’t show likely success on the merits.

Then and only then, somewhat puzzlingly, the court proceeded
to analyze whether Zamfir had a protectable interest; he didn’t need to use a
mark in US commerce to bring a §43(a) claim, following Belmora, but he
might not be able to prevail if CasperLabs had a valid registration. The
registration was prima facie evidence of the registrant’s right to use the
mark, and “a party using a mark that they are lawfully permitted to use cannot
make a false designation by using that mark in a permitted manner.” Thus, to
prevail, Zamfir would need to rebut the presumptions created by the
registration, and he didn’t.

At the very least, the existence of the registration “would
factor into the likelihood of confusion” by “weaken[ing] the commercial
strength of the mark in connection to Plaintiff” [what] and complicating the
question of intent.

“Ultimately, given the Lanham Act’s intent to provide some
modest protections to holders of registered trademarks, the Court finds that
Plaintiff would only be likely to succeed on his false designation of origin
claim were he to overcome Defendant’s prima facie evidence that it has the
right to use the mark, whether by showing that the mark was fraudulently
registered, that Plaintiff is the owner of the mark, or otherwise demonstrating
the trademark registration is invalid or that Defendant lacks the right to use
the trademark.”

Without likely success on the merits, Zamfir wasn’t entitled
to a presumption of irreparable harm, and he couldn’t show such harm using the
sliding scale approach that applies when there are “serious questions” on the
merits (to which Herb Reed still applies even after the TMA). “A
plaintiff must present case-specific evidence of irreparable harm, rather than
relying on generic factors that are present whenever a trademark is infringed.”
Comments indicating confusion did little to “demonstrate any actual or
threatened damage to his business reputation, difficulty marketing the products
of his research, or difficulty securing sponsoring for his research.” Given the
duration of the use, he should have been able to come up with some extrinsic
evidence if it existed. “Although the question is close [why?], the Court is
doubtful that Plaintiff’s declaration alone, generally alluding to potential
reputational effects, suffices to establish that he will experience irreparable
harm absent an injunction.” Plus, he delayed seeking an injunction until less
than a week before the network launch and its token sale were set to begin, even
though he knew about it for at least seven months.

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