With gratitude to Heloise Morle for her contributions to this post.
In a modern world of celebrity and influencer endorsements, there is arguably one endorsement that still trumps others: the Royal Warrant.
The granting of an English monarch’s royal seals of approval dates back to 1155 – when King Henry II granted the Weavers’ Company (makers of clothes and castle hangings) a royal charter. The endorsement was formalised in 1476 when Edward IV granted the first royal warrant to printer, William Caxton; and subsequent monarchs have continued to award warrants to their favoured suppliers.
To prevent fraudulent claims of royal patronage, the Royal Warrant Holders Association was established in 1840. Today, having a royal warrant is no longer a guarantee that the holder is an exclusive supplier to the crown, merely that they are a preferred supplier.
The prestige that comes with providing goods and services to the sovereign has boosted business for centuries. A warrant is seen as a guarantee that a supplier has the highest standards of service, quality and excellence, the products are quite literally ‘Fit for a King’ no less.
However, following the death of the late Queen Elizabeth II, questions have been asked as to what happens to the warrants she granted during her lifetime?
One of the threshold requirements for obtaining a patent under U.S. law is that the invention is a “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof…” In other words, the subject matter of the invention must be eligible for patenting. Many courts have used this requirement as a threshold test in litigation, with early dismissal of cases that fail the test. A recent Federal Circuit decision suggests such decisions may not withstand scrutiny.
Background
In 2014, the Supreme Court held in Alice Corp. v. CLS Bank that “[l]aws of nature, natural phenomena, and abstract ideas” are not eligible for patent protection. The patentability analysis thus turns on whether one is seeking to patent the “building blocks of human ingenuity” versus “integrat[ing] the building blocks into something more.” The Court translated this concept into a two-step test whereby at step one, it is determined whether the claim is directed to a “patent-ineligible concept” (e.g., an abstract idea) and, at step two, the elements of the claim are analyzed to determine if it contains an “inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.”
The concept of Metaverse as an online framework for economic interoperability was born in and around 2020. Since then, giant companies all over the world ― especially in the IT, entertainment and fashion businesses ― have begun to launch products and solutions related to the ever developing Metaverse. Fashion brands, artists and entertainers, among others, have started focusing on producing digital work that is revolutionizing the way we perceive art, through the creation of NFTs and commodities. The latter, in particular, are assuming the form of non-physical goods that can be transacted and used in this totally immersive internet through Virtual Reality and Augmented Reality tools and devices, and many consumer brands are entering the Metaverse through gaming, social networks and virtual commerce.
In order to safely and effectively enjoy the economic benefits deriving from the use of their brands’ goodwill and product reputation in the Metaverse, businesses need to secure the appropriate IP rights. Fashion brands, for example, are filing trademark applications in the US, Japan and the EU to secure protection for the use of their brands on digital projections of their apparel, shoes and accessories that are transacted in the Metaverse. Other countries are lagging behind. China in particular, struggles in adapting and coping with the ever increasing need of both foreign and Chinese brands to obtain suitable trademark protection. The Chinese trademark system is in fact characterized by first-to-file and strict formalism in the selection and classification of goods and services. Without a formal update of the Chinese classification of goods and services that incorporates goods and service standards specifically aimed at the Metaverse, it is difficult for right holders to be able to create a trademark portfolio consistent with their global filings in the other major jurisdictions, where changes have already occurred to accommodate the needs surrounding the Metaverse. We have specifically covered this topic in a previous blog.
While trademarks protect the brands used in the metaverse and copyright protects NFTs as intellectual works, what about the protection of the shape, patterns and colors characterizing the non-physical commodities in the metaverse? Are they protectable by design patents? In this post we will analyze the availability of design patents for digital commodities and how it compares with other Asian countries like Japan, South Korea and Singapore.
Back in 2020, the famous Chinese brew company Tsingtao Beer filed an administrative complaint for trademark infringement against a smaller Chinese competitor for the use of recycled Tsingtao beer bottles. The smaller brewery was filling legitimately recycled Tsingtao bottles with their own beer. The recycled bottles did not bear the Tsingtao labels and marks, which had been replaced by the label and trademarks of the smaller brewery. However, the words Tsingtao Beer, embossed on the bottlers’ neck, was still visible when the recycled bottles were commercialized. The case was adjudicated in 2022 by the Weihai Market Supervision and Administration Bureau of Shandong Province in favor of Tsingtao Brewery and has been selected as a model trademark enforcement case by the State Administration for Market Regulation.
Is this however a case of trademark infringement? Is the use and function of the words Tsingtao Beer on the bottles’ neck a “trademark use”? Or should this be rather a case of trade dress infringement under the Unfair Competition Law? And, why is this important?
Trademark or Unfair Competition?
Let’s begin with answering the question of why it is important for a right holder in China to determine whether this is a case of trademark rather than trade dress infringement.
Within seven months[1] of the UK regulator, the Competition and Markets Authority (“CMA“), announcing its review of green claims in the fashion retail sector, it has opened an investigation into such environmental claims made by various fashion businesses, including ASOS and George at Asda. This comes less than a year after all businesses were put on notice by the CMA to ensure their green claims were legally compliant.
The investigation will analyse each businesses’ environmental claims in light of the CMA’s Green Claims Code (for further discussion see our previous post here) and UK consumer protection law. Notably, the CMA has not yet reached a conclusion as to whether the retailers are in breach of the law.
Last month, in an important ruling for Internet service providers, and anonymous users alike, a new defense is taking shape to subpoenas issued pursuant to the “unmasking” provisions of the Digital Millennium Copyright Act (“DMCA”). Specifically, in In re DMCA § 512(h) Subpoena to Twitter, Inc., N.D. Cal. Case No. 20-mc-80214, district judge Vince Chhabria held that subpoenas issued pursuant to 17 U.S.C. § 512(h) may be subject to First Amendment scrutiny. This requires that the subject of the subpoena must be notified of the subpoena and given a chance to be heard. It also requires that the plaintiff seeking the disclosure will need to disclose why it wants to unmask the user to demonstrate why its rights are superior to the anonymous speaker’s First Amendment rights.
In this case, Twitter received a DMCA takedown request by Bayside Advisory LLC concerning tweets by the pseudonymous Twitter account, MrMoneyBags, @CallMeMoneyBags criticizing Brian Sheth, a private equity billionaire. Twitter complied and removed the images (although, left the text of the tweets). Then, Bayside, pursuant to 17 U.S.C. § 512(h), issued a subpoena seeking to compel Twitter to disclose the identity of MoneyBags.
E-commerce platforms are full of Chinese traders selling foreign cosmetic products they purchased at a lower price outside China. These branded goods are sold without the trademark owner’s consent for a much lower price than that of the official retailer. The consequences of such so-called “parallel imports” are well-known: the foreign brand and its official Chinese distributor suffer economic losses and the brand is diluted by cheap sales of parallel imports. The latter problem is particularly acute if the foreign brand markets itself in the luxury segment.
The Relevant Law on Parallel Import of Cosmetic Products into China
Online sales of parallel imports constitute an especially difficult problem in China. E-Commerce platforms do not have takedown tools against parallel import as they do against counterfeit sales and offer for sales. E-commerce platforms’ takedown systems are in fact limited to trademark infringement cases. However, according to the Chinese law, parallel import into China of genuine products purchased abroad does not violate the Chinese trademark law. The first legitimate sale of the genuine product abroad exhausts the rights of the trademark holder in China. Therefore, takedown actions for the e-commerce in such cases lack legal ground and will be rejected.
However, parallel import of cosmetics may still be illegal if it violates one the many complex cosmetic registration and labeling regulations of the People’s Republic of China.
Alternative Legal Avenues against Imported Foreign Cosmetics
China allows the sale of imported cosmetics — without need of registration with the China FDA — but only if the products are sold to Chinese consumers (not B2B) through designated Chinese e-commerce platforms like Tmall (Alibaba) and JD.com (JingDong). The products, coming directly from outside China, are exempt from any licensing and recordation requirements with China FDA. However, only the legitimate holder of the trademark rights over the imported cosmetics or its licensees can register and sell products on these platforms. In fact, Tmall and JD.com always request proof of trademark registration from the seller before allowing it to open a shop on their platform.
The Metaverse trademark hype is on. Companies are increasingly focusing their attention on developing Metaverses, and big brands are entering the Metaverse through gaming, social networks and virtual commerce. They need to also secure the appropriate IP rights to protect their brands in this emerging new virtual market place. Fashion brands are thus filing trademark applications in the US and the EU to secure protection for the digital projection of their shoes and accessories. Their goal is to position themselves and secure IP rights in time to reap the economic benefits of this virtual commerce space.
While the technological and commercial developments around the Metaverse are moving at a fast pace, the law is lagging. The trademark systems of the US and the EU are somewhat malleable to adaptation, allowing new filings to cover the exact goods and services to be offered and protected in Metaverse, but China struggles to cope with change. The reason is all in the DNA of the Chinese filing system. The Chinese trademark system is characterized by first-to-file and strict formalism in the selection and designation of goods and services from a classes/sub-classes structure with rigid descriptions. This formalistic system does not provide room for quick adaptation. Filing trademarks in China for the Metaverse can therefore be very challenging, because there are no goods or service descriptions that clearly suit the purpose.
This blog post highlights some of the challenges, strategies and goals of foreign fashion brands seeking protection of their trademarks in the Metaverse in China.
The conflict in Ukraine on 24 February prompted a number of European measures in many fields, including intellectual property. The Russian government responded by taking initiatives in this area as well. What are these measures and their consequences?
In a potentially industry-changing ruling, Judge Gilliam of the Northern District of California ruled that amendments to click-wrap agreements, like Dropbox’s terms of use, are invalid unless the user had to manifest assent through some act more than continued use of the service:
Defendant essentially argues that it contracted for the right to change the terms at will because the 2011 TOS contains a provision stating that Defendant “may revise these Terms from time to time” and that continuing to use the service constitutes agreement to any revised terms. Defendant’s argument misses the point. Given the complete lack of evidence of notice within Defendant’s service itself, Plaintiff’s ongoing use of the service is irrelevant to determining whether he had actual or constructive notice of the post-2011 terms of service.
The case is Sifuentes v. Dropbox, Inc., 2022 WL 2673080, *4 (N.D. Cal. June 29, 2022).
The Case
In Sifuentes, the plaintiff (proceeding pro se) filed suit against Dropbox over alleged harm resulting from a 2012 data breach. Dropbox moved to compel arbitration arguing that under its amended terms of use, the claim had to be arbitrated. Dropbox explained that its terms of service, to which plaintiff had agreed by a “click-wrap” style agreement, allowed Dropbox to periodically amend the terms. In 2014, Dropbox modified its terms of use to include an arbitration requirement and notified its users by email, which included explicit notice of the change and an opportunity to opt out of arbitration. Plaintiff claimed to have never read nor seen these emails and that he was allowed to continue to use Dropbox’s services without having to do anything with regard to the terms of service.
The court found Dropbox’s evidence of notice unpersuasive. Regarding actual notice, the court found that “there is nothing in the record to suggest that Plaintiff saw or read the email, such as a read receipt reflecting that Plaintiff opened the email.”
Regarding inquiry notice, the court found that the binding terms of the click-wrap agreement, allowing Dropbox to periodically change its terms, did not amount to inquiry notice. The court found that “there is nothing in the record to suggest that Plaintiff could not use the service until he indicated his assent, that he would have been advised of new terms and conditions while using Defendant’s services, or that Defendant ever tracked whether Plaintiff had opened its email.” The court threw considerable water on any argument that the email notices alone would be sufficient notice if the customer continued to use the service: “Even if the email alone could be considered ‘reasonably conspicuous notice,’ Plaintiff took no action to unambiguously manifest his assent.”
The court accordingly denied Dropbox’s motion to compel arbitration.
Implications
Sifuentes has the potential to require an overhaul of many service providers’ approach to updating their terms of service with end-users. Many service providers include, and rely on, their ability to modify terms of service in the future, with customers manifesting assent through continued use. The approach has allowed service providers to update and modify their terms without the need for messy, clunky pop-up windows that can interfere with users’ experiences. The Sifuentes court’s decision merits attention because the Northern District of California covers both San Francisco and Silicon Valley, the home region to many of the country’s technology companies and online service providers. For that reason alone, online service providers should reexamine how they are binding users to terms of service. Those using an app-based or web-based interface in particular would be well advised to alter the manner by which they update their terms of use to require an on-screen notice of the new terms combined with a requirement that the customer “do something” (e.g., close a window or click a box) before being able to use the service.
