The realm of intellectual property is filled with traps for unsuspecting business owners and creators in addition to "dog-eat-dog" competition. As in any race, being first grants a person substantial advantage over their adversaries, and fortunately, such rules favor both large and small businesses equally. On April 20, 2021, Ironhawk Technologies, Inc., a data transfer software company, scored a key victory against the well-known cloud storage company, Dropbox, Inc. in a decision before the 9th Circuit Court of Appeals.
Ironhawk originally brought a trademark action concerning Dropbox's use of the term “Smart Sync” alleging that such use infringes on "SmartSync" a registered trademark for Ironhawk’s data transfer software since 2007. The owner of a trademark has the virtually exclusive right to use the mark with respect to certain goods or services. (15 U.S.C. Sec. 1051) Additionally, infringing on a business's intellectual property likely constitutes an unfair or deceptive business practice subjecting the infringer to further penalties. (Cal. Bus. & Prof. Code Sec. 17200 et seq.) The district court granted Dropbox's motion for summary judgment leading Ironhawk to appeal to the 9th Circuit. Upon registration of a trademark, constructive notice is established on the public of your rights in the ownership and use of such trademarks. Registration also creates a presumption that the mark is “distinct” and therefore should be afforded protection. Trademark infringement claims are dependent upon a showing that the “imitating mark is similar enough to ‘cause confusion, or to cause mistake, or to deceive.” (See Surfvivor Media Inc. v. Survivor Productions, 406 F.3d 625 at 630 (9th Cir. 2005) citing KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111, 117 (2004))
Confusion can occur both "forward" and "reverse" meaning a consumer could either mistake the infringer and their product as being sponsored by the trademark owner (forward), or believe the trademark owner itself is a subsidiary sponsored by the infringer (reverse). Potential damages from “reverse confusion” include foreclosure of expansion into related markets and misappropriation of the holder’s goodwill. Put simply, the trademark owner “loses the value of the trademark” essentially swallowing up the senior mark’s business reputation.
The 9th Circuit previously established a list of factors for consideration when determining whether a likelihood of confusion exists. (AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348 (9th Cir. 1979)) The Sleekcraft Factors consist of: (1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels; (6) type of goods and the degree likely to be exercised by the purchaser; (7) defendant’s intent in selecting the mark; and (8) likelihood of expansion of the product lines. However, the court must identify the “relevant consuming public” before applying these factors. (Rearden LLC v. Rearden Com., Inc., 683 F.3d 1190 (9th Cir. 2012)) When Dropbox moved for summary judgment, the district court applied Sleekcraft and granted its motion.
Dropbox asserted that confusion among Ironhawk’s consumers was unlikely based on the grounds that Ironhawk currently has only one client, the United States Navy. In opposition, Ironhawk submitted evidence of attempts to contract with commercial consumers as well as a prior transaction with one such company. The evidence also revealed that the targeted commercial consumers are in fact competitors of Dropbox and Dropbox had contemplated acquiring Ironhawk at some point. Therefore the court determined that the potential confusion among Ironhawk’s targeted consumers must also be included.
Furthermore, the 9th Circuit determined that the district court erroneously found against Ironhawk in applying the Sleekcraft factors. The 9th Circuit found that a “highly factual inquiry” remains as to material issues of fact concerning said factors. Accordingly, the grant of summary judgment against Ironhawk was reversed, vacated, and remanded to the district court affording the “little guy” an opportunity to fight another day.