Rebecca Tushnet

Kickstarter infringement dispute, which as a side note raises interesting questions of responsibility for third-party structuring of tools.  Plaintiffs Barrett Purdum, Michael Armenta, and Michael Maher are the co-owners and founders of an established San Francisco men’s clothing company, Taylor Stitch. They joined forces with defendant David Wolfe to develop Olivers Apparel, LLC, a San Francisco start-up specializing in the manufacture and retail of high-end men’s shorts.

The facts of Olivers’ founding are disputed, but the parties agreed to run a Kickstarter campaign to raise capital for the venture.  The Kickstarter video featured each of the four founders and represented to investors that the founders have “five years experience running a tailored men’s wear company.”  “The campaign was an enormous success, and in thirty days, Olivers raised $271,043 from 3,307 individuals. Maher had advertised Olivers to Taylor Stitch’s database of customers, and according to Maher, many of the investors were Taylor Stitch customers.” 

This unexpected success came with a relationship breakdown.  After plaintiffs demanded to split with Wolfe and keep the company/its IP assets, Wolfe changed the passwords to the Kickstarter page, all of Olivers’ social media pages, and Olivers’ bank accounts containing the $270,000 in Kickstarter funds. Wolfe did not disclose these changes to the approximately 3,300 Kickstarter investors, but rather continued to communicate with investors on the Kickstarter page using the name “David W, Barrett P, Mike M, Mike A.”  In a footnote, the court noted Wolfe’s assertion that he tried to remove plaintiffs’ names from the Kickstarter page, “but pursuant to Kickstarter policy, the names in the ‘project by’ section cannot be altered following the launch of a campaign.” (Should that matter?  Why not say that means he has to terminate the project, if it’s now conveying a false message?)  Wolfe didn’t otherwise try to communicate to investors that the plaintiffs’ involvement in Olivers stopped in September 2013.

In state court, Wolfe secured a TRO against plaintiffs’ and Taylor Stitch’s interference with Olivers’ supply contracts; the case was removed and was pending at the time of the court’s opinion.  Here, the court addressed plaintiffs’ request for an order 1) enjoining Wolfe from selling any shorts manufactured without plaintiffs’ assistance; 2) ordering Wolfe to turn over the passwords to Olivers’ social media and bank accounts; 3) enjoining Wolfe from using photographs copyrighted by Armenta; and 4) enjoining the use of the Olivers trademarks.

The court found that plaintiffs hadn’t shown likely success on the merits of their breach of contract claim (or unfairness UCL claim) given the disputed factual issues about the partnership, which I will not recount.

The court characterized plaintiffs’ trademark claim as an unusual one: they didn’t explicitly claim to own a valid, infringed mark.  Instead, they argued that trademark law is supposed to protect consumers from confusion and ensure that the public “will get the product which it asks for and wants to get.” They argued that the Olivers goodwill was based, at least in part, on their five years of experience in menswear with Taylor Stitch, given Olivers’ emphasis on this fact in the Kickstarter campaign.  But that experience is now gone from Olivers.  “Plaintiffs’ position appears to be that trademark infringement occurs when an element of the goodwill associated with the trademark has been altered or no longer exists.” Wolfe rejoined that, as founder of Olivers and the individual running the business, he could not be infringing anything. The court agreed.  First, there was little evidence that Olivers’ goodwill was based on plaintiffs’ experience with Taylor Stitch—they lacked an actual number of Kickstarter supporters who were also Taylor Stitch customers or other evidence of reliance on plaintiffs’ participation. Plus, “this type of alleged change in a mark’s goodwill” wasn’t the same as a transfer in gross that causes consumer confusion; here, there was no sale or assignment to a third party.  The court declined to address the novel theory that Wolfe’s conduct amounted to an infringing “assignment” of the mark because of the factual thinness of the record.

The court also found Intel Corporation v. Terabyte International, Inc., 6 F.3d 614 (9th Cir.1993), inapposite.  There, defendant relabeled legitimate Intel chips from slow to faster, more expensive ones.  Terabyte argued that there was no confusion as to source, only as to capability. The Ninth Circuit found that this ignored the “good will, reputation, and consumer protection functions associated with a particular trademark.” Intel didn’t establish that “infringement of a trademark occurs when an alleged element of the goodwill associated with the trademark has been altered or no longer exists, especially since Plaintiffs have not established the existence of the goodwill that they claim is associated with the mark.”

The copyright infringement claims weren’t a basis for a preliminary injunction because Wolfe removed the contested photos from the website and there was no reason to think they’d reappear.

Separately, the court found plaintiffs failed to show likely irreparable harm.  The theory was that Wolfe’s manufacture of shorts without the benefit of plaintiffs’ expertise would hurt their reputation, because consumers who receive shoddily manufactured shorts would believe that plaintiffs were involved with their production.  But plaintiffs didn’t provide any evidence of shoddy manufacturing, making their theory of irreparable harm “purely speculative.”  (Paging Mark McKenna! This “risk of crappy products” theory is a huge part of the theory that losing control of a mark is itself inherently injurious, and it’s significant that courts are picking up on the cautions of Herb Reed Enterprises, LLC v. Florida Entertainment Management, Inc., 736 F.3d 1239 (9th Cir. 2013).)