Novel Theories And Legal Fixes: Trademark Law During The Pandemic

As with most crises, the COVID-19 pandemic attracted its share of unscrupulous opportunists. One company’s alleged attempt at price-gouging resulted in a novel application of trademark law. 

Add to this the passage of new trademark legislation, and it becomes clear the pandemic period has been an interesting one for intellectual property attorneys who specialize in this area.

N95 Masks, 3M, and Price Gouging

In April 2020, the 3M Company sued Performance Supply, LLC — a reseller of N95 masks — in the U.S. District Court for the Southern District of New York. 3M was seeking relief for federal trademark infringement under Section 32 of the Lanham Act (15 U.S.C. § 1114), plus a few state law claims. Other allegations under the Lanham Act included false association, false endorsement, federal trademark dilution and false advertising. 

But this case did not involve the sale of counterfeit masks stamped with the 3M mark, although there were plenty of those lawsuits during the pandemic. This case involved Performance Supply’s attempted sale of legitimate masks (the court calls them respirators) to a government entity at “exorbitant” prices, according to the court’s May 4, 2020, opinion granting a preliminary injunction.

Trademark infringement claims involving price gouging are not typical. 

“I’m not aware of any before the pandemic,” said Bruce Ewing, co-chair of Dorsey & Whitney LLP’s Intellectual Property Litigation Practice Group and faculty chairperson for the Practising Law Institute’s Understanding the Intellectual Property License program.

This case represents a novel application of the Lanham Act by 3M. Among other things, the court found that the defendant acted in bad faith, which is not surprising considering the company was trying to capitalize on a deadly international emergency. Performance Supply’s bad faith was stark against the behavior of 3M, which ramped up production after the crisis as well as pledged it would not raise its prices at all, according to the opinion.

Central to the case is a quote the defendant sent to New York City’s procurement office offering to sell N95 masks — authentic ones — for five times the normal price. In this quote, “The Defendant reproduced 3M’s marks nine times and referenced 3M’s headquarters in St. Paul, Minnesota, seeking to imply a connection with 3M that does not exist,” the opinion said.

As it evaluated the offer, New York City described the defendant as a 3M vendor, even though it was no such thing, the opinion said. This specific type of confusion, among other things, led to the finding of trademark infringement even though the case was not the usual instance of one company using the registered trademark — or something resembling it — of another company on its own goods.

Although a wary procurement officer’s call to 3M prevented the city from purchasing the masks at the inflated price, the court saw fit to issue a preliminary injunction and temporary restraining order. “Absent injunctive relief . . . there is nothing to prevent Defendant from making similar offers to other government or healthcare entities around the United States,” the opinion said.

A party must show irreparable harm to obtain an injunction. The court found 3M was likely to suffer such harm “in two respects, namely: (i) quality and (ii) reputation.”

Regarding quality, the court found that 3M could not monitor the state of goods sold outside its authorized sales channels, which the defendant most decidedly was not, despite its rampant use of the 3M trademark on its price quote.

As for reputation, the court said, “No amount of money could repair the damage to 3M’s brand and reputation if it is associated with the crime of price-gouging at the expense of healthcare workers and other first responders in the midst of the COVID-19 crisis.”

The court noted that harm to the public may be taken into account when ordering a preliminary injunction. It also found that 3M satisfied the other two prongs of the test for determining whether an activity should be enjoined: 3M was likely to succeed on the merits, and the balance of hardships tipped in its favor.

The Trademark Modernization Act

Although the Trademark Modernization Act had nothing per se to do with the pandemic, it was passed as part of the Consolidated Appropriations Act in December 2020 that included another $900 billion in Covid relief. The TMA, among other things, streamlines the process for canceling registered trademarks that are not being used for commercial purposes as required, according to the Federal Register.

Much of the new law is still being implemented. 

“The trademark office only recently promulgated rules about clearing out deadweight,” Ewing said, referring to the unused trademarks.

From Ewing’s perspective, the most significant portion of the TMA “is an addition to the Lanham Act of a rebuttable presumption of irreparable harm when seeking equitable relief on a trademark litigation claim.” 

The language of Section 6 of the TMA is clear. It directs the insertion of the following statement into Section 34(a) of the Lanham Act: “A plaintiff seeking any such injunction shall be entitled to a rebuttable presumption of irreparable harm upon a finding of a violation identified in this subsection in the case of a motion for a permanent injunction or upon a finding of likelihood of success on the merits for a violation identified in this subsection in the case of a motion for a preliminary injunction or temporary restraining order.”

The violation to which the statement refers is trademark infringement.

This measure became necessary because of a Supreme Court decision, Ewing explained. 

“It used to be the law that if you established the element of likely confusion then irreparable harm was presumed,” he said. “Unfortunately, when the Supreme Court decided the eBay case . . . it rejected the presumption of irreparable harm.”

Ewing is referring to eBay Inc. et al. v. MercExchange L.L.C., a patent case decided in 2006 that involved a business method developed by MercExchange. The district court found that the patent was valid but declined to grant an injunction.

“In reversing, the Federal Circuit [Court of Appeals] applied its ‘general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances,’” the case syllabus said.

On appeal to the Supreme Court, eBay and the other petitioners argued that the traditional four-factor test for whether to grant an injunction applies to disputes arising under the Patent Act, and that the Federal Circuit erred when it said courts will issue injunctions in all but exceptional circumstances.

“We agree and, accordingly, vacate the judgment of the Court of Appeals,” the Supreme Court opinion said.

“Many courts held that the eBay case applies to cases of trademark infringement,” Ewing said. “It certainly caused difficulty. The TMA has rectified the situation.”

Many believe the eBay case was decided correctly, Ewing said, adding that its application by other courts to trademark cases wasn’t necessarily inappropriate because of similarities in the wording of the Patent Act and the Lanham Act. He thinks it’s proper to apply the two statutes the same way in limited respects, when their provisions are similar.

The rebuttable presumption of harm is a different matter. 

“I think there are reasonable arguments why you would not assume harm in a patent case or a copyright case, but trademark is different,” Ewing said. “Trademarks serve to protect the public. If you establish confusion, the harm should be considered irreparable. You can’t ‘unconfuse’ the public.”

For the latest on intellectual property, visit PLI’s Understanding the Intellectual Property License program. Click here for additional programs.

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Elizabeth M. Bennett was a business reporter who moved into legal journalism when she covered the Delaware courts, a beat that inspired her to go to law school. After a few years as a practicing attorney in the Philadelphia region, she decamped to the Pacific Northwest and returned to freelance reporting and editing.