September 23, 2016 - Intellectual Property Group News: The Underwear Heist - A Tale of Intellectual Property Theft
On September 20, 2016, Intimateco, LLC filed suit against Bliss Lingerie Corp., its founder – the former Intimateco Vice President of Operations – and related parties for trademark and copyright infringement, and related claims, misappropriation of trade secrets, conversion of business records, identity theft, tortious interference with business expectations and other common law claims.
According to the complaint, in connection with its products, Intimateco has, since 2010, been continuously using and advertising the mark FINALLY PANTIES THAT FIT YOUR ACTIVE LIFESTYLE PERFECTLY. QUALITY. COMFORT. CONFIDENCE. Defendant Albert Mizrahi served as Intimateco’s Vice President of Operations from February 2011 until August 2013. However, in October 2012, he set up a limited liability company, Bliss, to sell underwear and lingerie in competition with Intimateco. After leaving Intimateco, Mizrahi set up a second corporation, Bliss Lingerie NYC, also to sell underwear and lingerie. The complaint alleges that Mizrahi copied and stole the trademarks referenced above and improperly copied and stole Intimateco’s packaging design. Defendant Kidz World, Inc. is alleged to have violated Intimateco’s trademark rights by importing, shipping and selling Bliss’ infringing underwear products.
The complaint further alleges that Mizrahi copied and used Intimateco’s customer names and customer relationships, information relating to all QuickBooks, recorded information relating to costs, sales, profits, inventory, overhead style numbers, factory information, pricing and thousands of copyrightable product designs and pictures of thousands of products and styles being sold. While employed at Intimateco, Mizrahi contacted one of its Chinese manufacturing vendors to do work for him and emailed confidential inventory and product list information to his personal email address.
Once having set up his "copycat" business, the complaint alleges that Mizrahi contacted Intimateco’s suppliers claiming that Intimateco was "a very bad company" and that the owner "is a THIEF and NOT [an] honest person." In urging Chinese manufacturers to discontinue doing business with Intimateco, Mizrahi stated that they could start placing new orders with Bliss. As a result of Bliss’ interference, the U.S. Customs and Borders Protection seized two containers of Intimateco’s underwear products, with a total value of $248,486, according to the complaint.
The complaint is a litany of Federal and state statutory and common law claims a company can make to challenge theft of its intellectual property (IP) - chief among those being claims of trademark violations and misappropriation of trade secrets. The facts of the case illustrate steps that companies can take - but Intimateco failed to take - to first reduce the risk of theft of its IP, and then in the event of a theft, to reduce the time it takes to discover the transgressions.
Intimateco did not file for either Federal trademark or copyright protection until after it discovered Bliss’s alleged misdeeds. Instead, Intimateco relied on its common law trademarks and copyrights. Intimateco does have common law protections, as would any company through its "use" of a mark in commerce or when it fixes its work of authorship, copyrightable material, in a tangible medium. Nonetheless, filing for Federal trademark and copyright protection would have eased the burden of proof and provided a much broader range of remedies. Perhaps more importantly, the transgressor would not have been emboldened to take the action that he took had the company spent the time and money to file for the protections provided by Federal law.
If Intimateco had filed to register its trademark with the United States Patent and Trademark Office (USPTO) in 2010, it would almost certainly have prevented Bliss from registering the mark first. The USPTO likely would have cited Intimateco’s previously registered mark in refusing to grant a subsequent application for the same mark by Bliss. Moreover, under the Federal trademark law, earlier registration by Intimateco would have provided evidence of its exclusive rights to the mark and an easier case to prove at trial. As a prior user, but later filer for Federal trademark registration, Intimateco will have to provide evidence of the dates and geographic locations of use to establish earlier rights in those locations.
To preserve its right to statutory damages and attorney’s fees under Federal copyright law, both of which are strong incentives for a copyright infringer to cease and desist and/or reach a settlement with a copyright owner, Intimateco would have had to register its copyright within three months after it first published or used the copyrighted packaging. Because Intimateco waited over four years after the first publication of its work before registering with the Copyright Office, it is not eligible for statutory damages or attorney’s fees under the statute.
As part of a more comprehensive IP strategy, many companies subscribe to trademark watch services to monitor potential infringement of company marks, competitor trademark filings, and filings made by former key employees. When such an activity occurs, the company is immediately notified. Had Intimateco filed for and received one or more Federal trademarks and subsequently subscribed to a watch service for those marks, it would have been alerted to Bliss’s Federal trademark filing on or about May 31, 2016. Upon receiving such an alert, it could have investigated and likely prevented much of the damaging actions that allegedly occurred after the date of the filing.
It is alarming that Mizrahi would have stolen so much intellectual property while employed by Intimateco and presumably receiving a hefty salary as its Vice President of Operations. It is also disconcerting that he could have downloaded vast amounts of confidential business information without detection. Regrettably, in today’s business environment, companies must be constantly on-guard for internal theft of information and must have a thorough, ongoing program to reduce the risks of employee malfeasance.
1. Do not rely on common law trademarks and copyrights. In addition to providing for a faster path to enforcing such IP rights, the modest costs of filing for trademarks and copyrights provide protection against the theft of IP in the first instance.
2. Proactively filing for Federal trademarks and copyrights should be part of a comprehensive IP strategy. This strategy should also include subsequent monitoring of company marks.
3. Conduct periodic IP audits and IP audits after the occurrence of certain events, for example, after a merger or purchase of assets, etc. An IP audit should also be conducted when developing a comprehensive IP strategy. Stay tuned - an upcoming Murtha Cullina newsletter will focus on best practices for conducting an IP audit.
4. Trade Secret protection requires diligence in protecting from disclosure the information claimed as "secret". This includes limiting access to information, monitoring usage and a thorough-going exit interview process, which includes return and review of the electronic devices used by the departing employee. This vetting is of increasing importance the more the departing employee has been exposed to the company’s "secrets."
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