Marketing and the Law

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"Me" prefix marks and FE's "Mac" marks, each of which included a stylized eagle ... despite McDonald's reputation in the fast-food business, there was nothing inherently ... filx (e,g,, iPod, iTunes, iChat from Apple), the primary strategy in all ...
Marketing and the Law Ann Morales Olazábal, Anita Cava, and René Sacasas, Editors University of Miami

Seeking Exclusivity Over a Brand Naming System? The McDonald's Experience DOI: 10.1177/0092070305283686

McDonald's Corp v. Future Enterprises Pte Ltd, [2004] SGCA 50 (Singapore Court of Appeal) Brands are valuable symbols that reflect the images and benefits with which marketers imbue them. Over the years, McDonald's Corporation ("McDonald's") has vigilantly sought protection worldwide for its "McLanguage" brand naming system. In that effort, McDonald's has been successful in some proceedings opposing third parties' applications to register marks involving the "Mac/Me" prefix, but it has failed in others. A recent illustrative decision in Asia denied McDonald's exclusive rights over the use and registration of its "Mac/ Me" prefix marks. The legal battle between McDonald's and a small Singapore company called Future Enterprises Pte Ltd (FE) lasted almost a decade, finally coming to an end in November 2004. In July 1995, FE applied to register the marks "MacChocolate," "MacTea," and "MacNoodles" as trademarks in Singapore in relation to its instant cocoa mix, instant tea, and instant noodles. McDonald's opposed the registrations on the grounds that FE had copied McDonald's "Mac" mark and the "McLanguage" system of naming products. On appeal, Singapore's highest court ruled unanimously against McDonald's, finding that no deception or confusion between McDonald's family of "Me" prefix marks and FE's "Mac" marks, each of which included a stylized eagle device, was likely to arise.' The following were important considerations for the Singapore court. First, FE was in the package food business sold through supermarkets, whereas McDonald's is in the fast-food restaurant business. Therefore, the court concluded that supermarket shoppers picking up the "MacTea" product were unlikely to believe that just because of the "Mac/Me" prefix, the tea was somehow connected with McDonald's. Next, FE was not seeking to register as its trademarks simply the word marks Journal of the Academy of Marketing Science. Volume 34, No. 1, pages 84-88. Copyright © 2006 by Academy of Marketing Science.

"MacChocolate," "MacTea," and "MacNoodles." Instead, the application marks were composite marks with an integrated design of the "Mac" prefix word mark and an eagle device in close proximity. Comparing the rival marks side by side, the court found them to be strikingly dissimilar and that FE's marks were certainly not substantially identical to McDonald's family of "Me" prefix marks. Finally, in the Singapore court's view, reputation alone in the absence of confusion or deception was not enough to confer property rights in marketing ideas per se. Ironically, while the court acknowledged the ubiquitous nature of McDonald's brand, marketers should note that McDonald's widespread reputation was also the very reason the Singapore court found confusion or deception unlikely to arise. FE's trademark registrations were made under the Trade Marks Act 1939, which was repealed by Singapore's new Trade Marks Act 1998. And, as a result of the 2003 United States-Singapore Free Trade Agreement, Singapore's trademark laws were further amended so as to align Singapore's intellectual property laws more closely with those of the United States. These new laws do not apply to FE's three "Mac/Me" prefix marks, and the Singapore court case is conclusive as to the parties. However, looking forward, the new laws will afford owners of wellknown marks like McDonald's stronger potential protection of their marks. On home ground, for example, McDonald's has successfully objected to the marks "McBagel"^ and "McPretzel." In both instances, the courts were satisfied, based on market survey evidence, that the third parties' "Me" prefix marks were likely to cause confusion. An important consideration in each of these cases was that the third parties' business models were similar to that of McDonald's: "McBagel" was the mark of a restaurant, and "McPretzel" marketed cold soft pretzels in bulk at the wholesale level. In neighboring Canada, Coffee Hut Stores sought to register the mark "McBeans" for its gourmet coffee and tea products. The Canadian Federal Court held that despite McDonald's reputation in the fast-food business, there was nothing inherently distinctive about the McDonald's marks once they were viewed outside of the McDonald's business model or area. Hence, McDonald's was not

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allowed to claim exclusivity over the use of the "Mac/Me" prefix. In the Utiited Kingdotn, McDonald's has had mixed resiilts, Iti 1996, it succeeded iti preventing registratioti of the mark "Mclndiatis," where the third party registrant soldi not only Indian food but also fried chicken, french fries, and burgers—items typically sold in McDonald's fast-food restaurants. By contrast, in a 2001 case involving the mark McChina, McDonald's failed in its effort to exert exclusivity. Of relevance was that the McChina restaurant sola only Chinese food, which McDonald's does not offer. The Australian Trade Mark Office has held that the marks "McSalad" and "McFresh" were deceptively similar to McDonald's family of "Me" prefixes. On the other hatid, when it came to "McMint" for confectionary and "McVeg" for vegetable-based burgers, the Australian Trade Mark Office reached the opposite conclusion. In the case of "McMint," the hearing officer ruled that few customers would expect McMint confectionary to be associated with McDonald's, as the nature of the two businesses was very different. Perhaps the case of "McVeg" is most difficult to reconcile as it could be argued that vegetarian burgers are potentially likely to be sold in a McDonald's restaurant. Nevertheless, the hearing officer in "McVeg" held that "the practical risk of deception or confusion is completely negligible," The following three factors appear to be the common fundamental considerations in the various McDonald's decisions: (a) common fields of business activities, (b) the degree of similarity of the rival marks taken as a whole instead of just the naming system per se, and finally, (c) any evidence of confusion or deception of the public. When viewed in total, the McDonald's international trademark protection experience holds a number of important implications for international marketing. First, marketers who face naming decisions for new products, subbrands, and brand extensions should carefully consider the wisdom of selecting prefixes commonly found across diverse types of businesses and in different countries, for example, the potential exclusivity of terms like "bio-," "micro-," and "best-," as well as alphabet prefixes such as "J^-" and "X-," Second, while there is no denying the advantages of "family" product-naming systems in terms of transfer of brand associations, marketers need to be well aware that the naming system can also act as an Achilles' heel in that it is open to imitators from other types of businesses. Third, the fact that the courts have looked to core businesses to base their decisions in the McDonald's trademark cases implies the need for marketers to concentrate on creating a high level of product name awareness in their promotional strategies. For established brands that are already naming products as extensions of a common prefilx (e,g,, iPod, iTunes, iChat from Apple), the primary strategy in all international markets should be to guard the brand's system of naming and its family of product names at least in the brand's core business area.

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NOTES 1, McDonald's Corp. v. Future Enterprises Pte Ltd. [2004] SGCA 50 (copy on file with Marketing & the Law editorial board). 2, McDonald's Corp. v. McBagel's Inc., 649 F, Supp, 1268 (S,D.N.Y, 1986), 3.J&J Snack Foods Corp. v. McDonald's Corp.,932E2á 1460 (Fed, Cir, 1991), 4, McDonald's Corp. v. Coffee Hut Stores Ltd., [1994] 3 C.F.F 44; 1994C.F.FLEXIS364;upheldonappeal,[1996]3C.F.F 15, 1996 C.F.F LEXIS 431. 5, Both cases are described in Yuen v. McDonald's Corp., 2001 WL 1422899 (U.K, High Court of Justice, Chancery Division), 6, McDonald's Corp. v. Macri Fruit Distributors Pty Ltd. (2000) AIPC 91-583, cited and discussed in Tommy Hilfiger Licensing. Inc. v. Tan. 60 l.PR. 137 (Aust, 2002) and Johnson & Johnson v. Virhac (Aust) Pty Ltd. 51 l.PR. 182 (Aust. 2000), 7, "Decision of a delegate of the Trademark Registrar in re Opposition by McDonald's Corp. to the registration of trademark application number 616513 in the name of Mark Euvrard" ( 1997) (copy on file with Marketing & the Law editorial board). 8, "Decision of a delegate of the Trademark Registrar in re Opposition by McDonald's Corp, to the registration of trademark application number 646102 in the name of Sandy Gaye Cowley" (1997) (copy on file with Marketing & the Law editorial board).

Susanna H. S. Leong National University of Singapore May O. Lwin Nanyan Technological Institute

The Hunt for Online Trademark Infringers: The Internet, Gray Markets, and the Law Collide DOI: 10.1177/0092070305283687

Philip Morris USA, Inc. v. Otamedia Ltd., 331 F. Supp. 2d 228 (S.D.N.Y. 2004) In what appears to be a case of first impression, a foreign company has been ordered to transfer its U,S,-registered and hosted Internet domain names to a domestic corporation, Phillip Morris USA, It is unusual, except in divorces, for a court to require the property of one party be transferred to the other party. This is an unusual case, though; one that offers a glimpse into the marketing dilemmas of the future. The scenario involves the purchase of trademarked products in international markets and subsequent unauthorized distribution in the United States via the Web, Otamedia (recently renamed Yesmoke SA) is incorporated in Belize; has its principal place of business in Switzerland; and has no offices, operations, or physical property in the United States, Doing business as "Yespeedy Ltd,," Otamedia is not an authorized distributor of Philip Morris USA's products, and its business is not subject to

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Phillip Morris's control. Yet, Otamedia sold Philip Morris cigarettes—including Marlboro, the world's leading brand—through its U.S.-registered Internet domain names yesmoke.com and yessmoke.com, using logos and images deceptively similar to Philip Morris's trademarks. According to the suit, Otamedia obtained the cigarettes outside the country, by way of bulk purchases from dutyfree airport retailers and clearinghouses, and also by buying production surplus directly from some Philip Morris factories outside the United States (Dunai 2004). Philip Morris sued, alleging that it had not granted Otamedia the right to sell its cigarette brands or to use its logo, trademark, or related property in this country. Asserting unfair business practices and trademark infringement claims, Phillip Morris sought an order that Otamedia halt all such activities. After initially responding through counsel, Otamedia declined to participate further in the case, apparently believing that any resulting court order could not be enforced against it. Otamedia's failure to participate in the case required the court to treat Philip Morris's allegations as proven fact, and the court therefore issued its order requiring Otamedia to cease selling Philip Morris brands through its U.S.-registered and hosted Web sites. Otamedia ignored the court order. After 6 months of noncompliance, Philip Morris asked the court to enforce the prior order by transferring ownership of Otamedia's two U.S.-registered domain names to Philip Morris. Otamedia contested this request, with the arguments of both parties focusing on whether a forced transfer of Otamedia's Web sites to Philip Morris would be equitable. Faced with the need to balance harm versus remedy, courts are understandably reluctant to enter orders and injunctions that may have an impact significantly greater than the competitive injury. The percentage of Otamedia's sales that consisted of Philip Morris brands, therefore, was key. If Philip Morris brands were only a small percentage of Otamedia's total revenues from the two Web sites, transferring the domain names to Philip Morris would be an excessive remedy. Otamedia submitted evidence to the effect that Philip Morris brands constituted less than 5 percent of Otamedia's total Internet sales. On the other hand, Philip Morris's evidence supported the conclusion that the majority of Otamedia's sales were Philip Morris brands, these sold predominantly to American customers. The court characterized Otamedia's evidence as "highly incredible," bordering on perjury. The court further found it highly unlikely that Otamedia would voluntarily comply with the previously issued injunction, noting that Otamedia seemed intent on continuing to sell Philip Morris brands. Negatively impressed by Otamedia's conduct and evidence, and finding no alternative viable means of enforcing Phillip Morris's rights, the court ordered yesmoke.com and yessmoke.com transferred to Philip Morris.

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A single, outwardly simple legal principle animates all facets of this case—the principle ofjurisdiction. Generally speaking, governments have authority over all persons, things, and events only within their political boundaries. Otamedia did not defend itself in the New York court because it and its operations are outside U.S. authority. However, Otamedia did have two Internet Web sites registered and hosted here for the purpose of reaching American consumers. A complicating factor is the courts' seemingly contradictory stance on gray market goods. Although exporting U.S.-trademarked products to the United States from outside the country in violation of the trademark owner's rights apparently does not violate our law and may be beyond the scope of our courts' jurisdiction, the importation of these products is illegal. So while Otamedia's conduct was arguably beyond the reach of the court, its buyers—U.S. residents purchasing Philip Morris brand cigarettes from Otamedia—are subject to the U.S. courts' jurisdiction, and Philip Morris could have sought judgments against them. The court recognized that this avenue for stopping Otamedia's infringing sales would be inefficient, to say the least. The court therefore believed that depriving Otamedia of its two Web sites was the only action within its power that could impede Otamedia's sales to U.S. consumers. It is noteworthy that Otamedia's efforts to prevent the transfer were not too strenuous. This may be because although the two Web sites no doubt benefited Otamedia, they were not critical to its business since potential U.S. buyers can easily access Internet sites hosted and registered anywhere else in the world. Indeed, shortly after Philip Morris filed its transfer request with the court, Otamedia registered the domain name yesmoke.ch in Switzerland and established links from its U.S.-registered sites. Even after yesmoke .com and yessmoke.com were ordered transferred to Philip Morris, anyone searching for the sites would easily find yesmoke.ch through most search engines. And as the registrar of Swiss domain names is beyond American courts' jurisdictional boundaries, obviously it cannot be ordered by American courts to transfer yessmoke.ch to Philip Morris. The court's decision in the Otamedia case does not serve as precedent that would bind other courts. But the suit makes it clear that taking legal action against unofficial distributors registered outside the United States can be a losing proposition for U.S. cigarette manufacturers, particularly with the phenomenal growth of Internet retailing sites. Although Internet tobacco sales were $750 million in 2002—accounting for only 2 percent of total tobacco sales—sales are predicted to reach $5 billion in 2005 (Bymes and France 2002). Presumably the need to keep track of offending Internet vendors and to pursue legal actions will increase exponentially. With the ease and low cost of registering similar foreign domain names, the

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beniîfits to U.S. companies may not be worth the costs of shutting gray marketers down. As Philip Morris learned, elinjiinating one Web site has limited utility when a multitude of essentially identical ones are available. The problem is not limited to cigarette sales. The global reach of the Internet, parcel delivery services, and credit card processing challenge trademark owners that have actual, or hoped-for, global distribution. In the preInternet era, international trade was the province of large companies and large-volume transactions. The players were fairly easy to identify and the cost-benefit ratio of litigation was reasonable. Now, however, the cost-benefit rati^^o of enforcement litigation is not only reversed, the cost side may be moving toward infinity, while the benefit side may be moving toward infinitesimal.

REFERENCES Dunai, Marton. 2004. "Duty-Free Site's Cigarette Sales Draw Scrutiny," Wall Street Journal, August 5, p. B1. Byiiies, Nanette and Mike France. 2002. "Suddenly, Philip Morris Isn't Smokin'." Business Week, December 2, p. 50.

w lliam Vetter c. Jeanne Hill Prairie View A&M University

The World Wide Reach of the Internet: Can a Company Í*rotect Itself From the Jurisdiction of Foreign Courts? DOI: 10.1177/0092070305283690

Gutnick V. Dow Jones & Company, Inc., 2002 Aust High Court LEXIS 61 (High Court of Australia, December 2002) In a case significant to any business with an Internet presence, the High Court of Australia ruled in late 2002 that a U.S. company was subject to the jurisdiction of the Australian courts when its Web site, which could be accessed in Australia, defamed an Australian businessman. Two questions arise from this decision: (1) What are the factors that trigger jurisdiction in a foreign country when a company's Web site is accessible throughout the wjorld? and (2) If a United States company is susceptible to the jurisdiction of a foreign court, does it necessarily follow that the company must abide by the laws of that foreign country? Mr. Gutnik, an Australian businessman, filed suit in a ictoria, Australia court against Dow Jones & Company, Inc., the owner of an online publication called Barron's Online, alleging that he had been defamed by certain assertions in a Barron's article published on Dow Jones's Web site. Dow Jones objected to the Australian court's assertion of jurisdiction, claiming it would be unfair for it to

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have to respond to lawsuits in every jurisdiction in which its Web site could possibly be viewed. In setting out the factors needed for a proper assertion of jurisdiction, the Australian High Court based its decision on the generally recognized legal principle that the authority of a court to exercise jurisdiction over a nonresident is fair if the defendant has "availed" himself of (taken advantage of) the benefits of the state or country in which the court sits. "Availing" oneself is usually measured by how many times and for what reason(s) the defendant has had contacts with that state or foreign country. Examples of contacts that would show the requisite "availment" include (1) conducting business in the country, (2) maintaining an office or other assets in the country, (3) deriving substantial income from the country, or (4) causing an accident or damages in the country. If a nonresident or noncitizen defendant has one or more of these contacts, it is typically considered fair for the courts of that state or country to exercise jurisdiction over that defendant. In the online environment, various U.S. courts have found that placing information on a Web site does not by itself establish the contacts needed to "avail oneself of the benefits" of another state. However, if a nonresident company interacts with, and derives income from, the citizens of another state by use of its Web site, or particularly if it targets a resident of another state on the Web site, then it may have made the minimum contacts needed to show that it is trying to avail itself of the benefits of that state. Dow Jones argued that it did not have enough contacts with Australia because it had no physical presence in Australia and that it published the allegedly defamatory material only in New Jersey, where the server that hosted the Web site was located. To the contrary, the court concluded that Dow Jones had contracted with subscribers in Australia and knew that the article might be viewed on computers located in Australia and that any alleged damage to Mr. Gutnick's reputation would occur in Australia. Therefore, as Dow Jones had sufficient contacts with Australia, the Australian courts could properly exercise jurisdiction over the company. If a U.S. entity can be sued in a foreign country based on the content of, or activity on, its Web site, the next question is whether that company must abide by foreign law in that regard. For instance, while the United States does recognize defamation law similar to that of Australia's, Internet sites hosted in this country can be accessed in many countries where the law is very different. For instance, in light of our courts' interpretation of the First Amendment as it applies to commercial speech, advertising in this country is robust and wide-open, whereas, in some other countries it is much more regulated. For example, the reader may recall a French judgment rendered against Yahoo! for violating France's prohibitions against the display or sale of any symbols of Nazi ideology, neither of which is illegal in the United States. The items were

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advertised on Yahoo!'s U.S. Web site, which was accessible by French citizens. Other examples of differences in laws abound. German laws would prohibit language on a Web site stating that a company believes that its product is the best on the market, prohibiting the disparagement of competing products, or even identifying the date on which the company was founded. Russian unfair advertising laws prohibit denigrating the dignity or business reputation of a competitor or "improperly comparing" products, all of which might conceivably be done on a Web site. Mexico has very strict food-labeling requirements, thus the use of the term ham to describe "Turkey Ham" would be prohibited in that country. China, Cuba, Iran, and Saudi Arabia have restrictions on the moral or political content of speech. Using the rationale of the Australian case, claims could be brought under the laws of any of these countries if a company's Web site contained language that was politically undesirable or otherwise illegal in those countries. Recognizing these uncertainties posed by doing business on the Web, both domestic and international organizations are attempting to develop policies to deal with Internet jurisdiction issues. While treaties and the case law are developing the world over, businesses may still safeguard themselves in some ways. If a company does find it has substantial traffic from, or sales in, a foreign country via its Web site, the company should become familiar with the relevant laws of that country. If these laws cause particular concern, it would be wise to consider the installation of filters or other blocking devices that would deny citizens of that country access to the site.

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If a country's market is a very important source of revenue, then the company Web site should be brought into compliance with that country's laws and regulations. The firm might consider hosting a separate Web site specifically designed to meet that country's legal restrictions or even forming a separate corporate entity for that country's business. One other major factor to consider is whether the company has any competitors in the foreign country, as many lawsuits of this type are generated by competitor complaints. And, businesses would be well-advised to ensure that the "terms and conditions" to which consumers agree before viewing the Web site include a forum selection clause and a choice of law clause requiring that any potential litigation be filed in U.S. courts and specifying which country's law will govern it. Limitation or exclusion of damage clauses, as well as any disclaimers where appropriate and legal, should be included. Of course, consultation with experienced legal counsel may be prudent to assess specific jurisdictional questions and liability risk. The Gutnick defamation suit against Dow Jones in Australia continues toward a resolution on its merits. In the meantime, it and court cases like it around the world and at home are helping shape best practices for Internet marketing. Robert Viguerie Anne Keaty University of Louisiana at Lafayette Rajesh Srivastava Middle Tennessee State University

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