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Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc

Deconstructed

Last Updated July 15, 2010
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James D. Aronowitz, who refers to himself as Associate General Counsel at CLC, bases his latest attacks upon the 9th Circuit's 2010 ruling Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc., 08-16005 (decided May 6, 2010) . This case first revolved around an issue called "aesthetic functuality" in 2006. A fancy name for something being practical. The courts have rules that a trademark cannot stop someone else from using it as an aspect of the trademark if it is essential to the product's use or if it affects the cost or quality of the article.

Part of Auto-Gold's argument, which the lower court erroneously accepted, was the two logos in question were "functional" because that was the only reason people would buy them. That was never part of court rulings on functionality. The court of appeals reversed the ruling stating that Volkswagen and Audi had established a prima facie case with respect to infringement. The second trial resulted in Auto Gold relying upon the first sale doctrine because they were putting Volkwagon hood ornaments and reusing them. The 9th Court of Appeals hold that the "first sale" doctrine did not provide a defense because Auto Gold's marquee license plates create a likelihood of confusion as to their origin

In fashioning this conclusion, the 9th Circuit went in the back door of logic to reach the decision they wanted. Instead of dealing with the defense of the "first sale doctrine" the 9th Circuit shaped their reasoning around "post sale confusion" which gave them the verdict they desired. The proper route was to deal with the defense first.

Auto Gold argues that because it purchased actual VW badges from a Volkswagen dealer for use on the marquee license plates, the "first sale" doctrine protects the sale of the plates. We hold that the "first sale" doctrine does not provide a defense because the plates create a likelihood of confusion as to their origin. We do not base our holding on a likelihood of confusion among purchasers of the plates. Rather, we base it on the likelihood of post-purchase confusion among observers who see the plates on purchasers' cars.

This line of reasoning is idiotic. To begin with, post-sale confusion was invented by the courts as an unstated extenstion of trademark law. Extremely few, if any, persons looking at the license plate holders would care if they were authorized or not. The courts are artifically instilling into the consumer attention to detail and awareness that simply does not exist. And while doing this, the 9th Circuit is creating law where there was none before. People look at the license plate hold and think, "Cute" and then go one their merry way. However, the judges must find a way to make their mark for posterity, however stupid that mark may be. And the Supreme Court has already stated that some consumer confusion is acceptable in trademark cases.

After making the above statement, the 9th Circuit painstakingly cites case after case where consumer confusion was linked to the first sale doctrine in other cases. What the 9th Circuit does not note is that these connections to consumer confusion being linked to the first sale doctrine were made AFTER the first sale arguments were decided, not BEFORE.

As for disclaimers, the 9th Circuit off-handedly refers to them as being inneffective once the product has been sold and the disclaimer has been removed. Very distorted logic. "The disclaimers do nothing to dispel post-purchase confusion." The 8th Circuit wants to make the decision about post-sale confusion and not about the rights of the alleged infringer. That is bass-ackward. In a reasonable economic marketplace, post-sale confusion is inenevitable.

[6] Post-purchase confusion creates a free-rider problem. Auto Gold contends that in "first sale" cases "the element of `free-riding' present in other post-purchase confusion cases disappears because the producer has paid the price asked by the trademark owner for the `ride.'" This contention misses the point. When a producer purchases a trademarked product, that producer is not purchasing the trademark. Rather, the producer is purchasing a product that has been trademarked. If a producer profits from a trademark because of post-purchase confusion about the product's origin, the producer is, to that degree, a free-rider.

For example, a producer may purchase non-functioning Rolex watches and refurbish them with non-Rolex parts, leaving only the original casing. Even if the producer adequately explains the nature of the refurbished watches to purchasers, the producer nonetheless infringes on Rolex's trademarks by profiting from the Rolex name. In such a case, the purchasers buy the watches in order to make others think that they have bought a true Rolex watch. See Rolex Watch, 179 F.3d at 707-10. The same holds true for new but relatively cheap products that prominently display a well-known trademark. If the producer purchases such a trademarked product and uses that product to create post-purchase confusion as to the source of a new product, the producer is free-riding even though it has paid for the trademarked product.

The problem with this argument is that it attempts to establish that a purchaser cannot buy a trademarked item and make a profit by using that trademarked item to make something else from it. This runs directly contrary to numerous decisions in other circuits that state otherwise:
  • Scarves By Vera, Inc. v. American Handbags, Inc, 188 F. Supp. 255 - US: Dist. Court, SD New York 1960
    Vera markets a line of women's products and accessories. American Handbags began using her towels with her logos on them to make handbags. Vera sued. The court dismissed her claims but did require American Handbags to include a better disclaimer because the items were being sold in stores.
  • CM Paula v Logan, 355 F.Supp. 189 (ND TX 1973)
    Logan was buying cards sold by Paula and removing the images and tranferring those images onto cermaic tiles. Since Logan was using one purchased card per tile, the court concluded there was no copying. However the court did require Logan to begin using a disclaimer.
  • Precious Moments v La Infantil, 971 F. Supp. 66 (D.P.R. 1997).
    Precious Moments sues to stop La Infantil from making and selling bedding from copyrighted, licensed fabric. Court ruled bedding items manufactured with lawfully acquired, authentic fabric with copyrighted design were not infringing derivative works, Court did require La Infantil to attach a notice with a disclaimer. Precious Moments lost because of the First Sale Doctrine.
  • Lee v. Deck the Walls, Inc, 925 F.Supp. 576 (N.D.Ill.1996).
    Deck the Walls buys cards and has A.R.T. Co mount them on tile. Lee sues claiming the tiles are copyright infringement because they are derivatives. Court rejects Mirage and Lee's claims while stating derivatives must show originality and be copyrightable. Rules Deck the Walls is protected by the first sale doctrine.
  • LEE v A.R.T. Company, 125 F.3d 580 (7th Cir. 1997).
    A.R.T. Co buys cards and mounts them on tile. Lee sues claiming the tiles are copyright infringement because they are derivatives. Court rejects Mirage and Lee's claims while stating derivatives must show originality and be copyrightable.
  • Allison v Vintage Sports, 136 F.3d 1443 (11 Cir. 1998)
    Vintage Sports bought trading cards and mounted them on plaques to sell. Elisa Allison, the widow of race car driver Clifford Allison, sued claiming right of publicity. District court held the first sale doctrine superceded any rights of publicity. Court of appeals affirmed.
In fact, the only circuit that has ruled against the first sale doctrine is cases like this is the 9th Circuit in Mirage Editions, Inc. v. Albuquerque A.R.T. Co, 856 F.2d 1341 (9th Cir. 1988), cert. denied, 489 U.S. 1018 (1989). This decision has been openly criticised by other courts and legal scholars. They do not refer to the 9th Circuit as the 9th Circus for nothing. It is overturned by the Supreme Court twice as often as any other circuit.

The example of using a Rolex watch distorts the reasoning. Auto Gold is not refurbishing anything. The emblem is virtually unaltered before being attacheched to the license plate holder. There is no material difference bewteen the emblem as purchased and the emblem as sold. A material alteration has always been required in trademark cases before the first sale doctrine was negated. That is not the case here even though 9th Circuit decisions have claimed it is so. From Softman Products v Adobe Systems, 171 F. Supp. 2d 1075 (C.D. Cal. 2001)

Clearly, not just any difference will cause consumer confusion. A material difference is one that consumers consider, on average, relevant to a decision about whether to purchase a product. See Martin's Herend Imps., Inc. v. Diamond & Gem Trading USA, Co., 112 F.3d 1296 (5th Cir. 1997).

In some cases, removing expiration dates or batch codes have been deemed material alterations. Only in the 9th Circuit has the simple act of mounting a card on a tile or mounting an emblem on a license plate holder consider to be a material difference. In one of the cases cited by the 9th Circuit as being supportive of this decision, Sebastian v Longs Drug Stores, 53 F.3d 1073 (9th Cir 1994), the 9th Circuit Court of Appeals stated:

The "first sale" rule is not rendered inapplicable merely because consumers erroneously believe the reseller is affiliated with or authorized by the producer. It is the essence of the "first sale" doctrine that a purchaser who does no more than stock, display, and resell a producer's product under the producer's trademark violates no right conferred upon the producer by the Lanham Act. When a purchaser resells a trademarked article under the producer's trademark, and nothing more, there is no actionable misrepresentation under the statute.

But the product must be altered in some way as well before the first sale doctrine is invalidated. But now, the good news about this decision. This decision is only binding upon courts in the 9th Circuit which emcompasses Alaska, Arizona, California, Guam, Hawaii, Nevada, Oregon and Washington. No where else in the United Staes or the world. Regardless of what James D. Aronowitz or any other shit-for-brains loser lawyer at some university might tell you, such as Deborah J. Gabaree at Notre Dame.

Speaking of Deborah J. Gabaree at Notre Dame, she recently sent a demand letter to someone who was using the licensed fabric of the University of Notre Dame. In her letter, she embraces the idiotic notion that the 9th Circuit decision will be applied should the University go into federal court. Notre Dame is in Indiana as is the alleged infringer. This means the case will be heard by the same 7th Circuit that upheld LEE v A.R.T. Company, 125 F.3d 580 (7th Cir. 1997) where mounting cards on tile was not infringing. Sounds very similar to what Auto Gold was doing, does it not?

Click here for our recomended response to her demand letter.

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