reverse confusion

Whether you are a regular reader of our newsletter or not, you should be familiar with the concept of  “trademark infringement.” That’s when a business uses a trademark that is the same as or similar to that of another business, which causes confusion among consumers over the source of the goods or services. Typically, this involves the senior user of the trademark, that is the party who uses the trademark first, complaining that the infringer (the junior user) is taking advantage of the goodwill embodied in the trademark and paid for by the senior user.

To take a concrete example, if you are selling chocolate bars under the name “Trader Joe”, you will surely receive a cease-and-desist letter from Trader Joe’s (the senior user) alleging that you (the junior user) are taking advantage of the goodwill created by Trader Joe’s in its own products. The result is that the consuming public would confuse your chocolate with those sold by Trader Joe’s.

But what happens if the junior user is so dominant in the marketplace that consumers using the senior user’s product, believes that the source of the goods or service is the junior user? This is known as “reverse confusion.” Taking the previous example, it would be as if consumers buying Trader Joe’s chocolate bars believe, because of your dominance in the marketplace, that the source of the chocolate was you, not Trader Joe’s. As unlikely as this may seem, it can be a real problem. Take for example a recent reported case, Ironhawk Technologies, Inc. versus Dropbox, Inc., decided by the United States Court of Appeals for the Ninth Circuit.

In this case, Ironhawk developed a software product named “SmartSync”, used for data compression and replication. In 2007, it obtained a trademark registration for the name. In 2017, Dropbox Inc. developed a product called “Smart Sync” that “allows users to see and access files in their Dropbox cloud storage accounts.” In this situation, Ironhawk – – whoever heard of them – – was the senior user of the trademark but Dropbox, who is the junior user, was more dominant in the marketplace. Ironhawk sued Dropbox for trademark infringement under a theory of “reverse confusion.”

The trial court granted summary judgment in favor of DropBox by considering a list of factors known in the Ninth Circuit as the Sleekcraft factors, which entails an analysis of:

(1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) defendant’s intent in selecting the mark; and (8) likelihood of expansion of the product lines.

Based on its analysis, the lower Court held:

[t]he overwhelming balance of the Sleekcraft factors weighs against a likelihood of confusion” such that “a reasonable trier of fact could not conclude that Dropbox’s use of Smart Sync is likely to cause consumer confusion.

The Court of Appeals reversed.  The court noted that while it may be advantageous to be associated with a well-known brand, reverse confusion may have serious consequences by foreclosing the senior user from expanding its business and by placing its goodwill in the “hands of the junior user.” The court wrote that ‘the senior user loses the value of the trademark—its product identity, corporate identity, control over its goodwill and reputation, and ability to move into new markets.”

The court of appeals essentially revised the SleekCraft analysis and came out in favor of Ironhawk, concluding that there was sufficient evidence that a reasonable jury could conclude that Ironhawk was subject to reverse confusion. Although a detailed analysis of the opinion is beyond the scope of this short article, it is noteworthy to point out that the court was particularly persuaded by the evidence that Ironhawk, even though its current market was limited to the military, was attempting to expand its market and would thereby be at a disadvantage created by the confusion caused by DropBox’s trademark.

The case was remanded back to the trial court for further proceedings. Ironhawk is now in a good place.

— Adam G. Garson, Esq