Lessons from a Judge Order Enjoining a Chinese Company from Selling E-Cigarette Products (ELFBAR)

Industry Insight
Mar.16.2023
Lessons from a Judge Order Enjoining a Chinese Company from Selling E-Cigarette Products (ELFBAR)
ELFBAR has lost a trademark lawsuit in the U.S. and has been ordered to take down all ELFBAR products, which is a warning to e-cigarette companies going international. How can companies avoid these risks in foreign countries? This article was submitted by, Li Guo, a U.S. attorney at the request of 2FIRSTS. As one of the important properties of a business, a trademark is crucial to the business development of a company. This article provides an in-depth analysis and interpretation of the legal di

The recent preliminary injunction order from the Southern District of Florida provides valuable lessons to Chinese companies who are planning to sell products into the U.S. market.

 

As background, VPR, a manufacturer of e-cigarettes with its principal place of business in Florida, has marketed a line of e-cigarettes and accessories under the mark ELF. It sued Shenzhen Weiboli and its U.S. distributors in the Southern District of Florida, alleging, among other claims, trademark infringement for selling products under the name ELFBAR. VPR also moved the court to enter a preliminary injunction order to enjoin Weiboli from selling products under the ELFBAR name. The court granted the motion on February 23, 2023.

 

To obtain preliminary injunctive relief, a party must establish the following elements:
(1) a substantial likelihood of success on the merits; (2) that irreparable injury will be suffered if the relief is not granted; (3) that the threatened injury outweighs the harm the relief would inflict
on the non-movant; and (4) that entry of the relief would serve the public interest.” 

 

At the outset, the Court rejects Weiboli’s lead argument that VPR’s trademark is unenforceable under the “unlawful use doctrine.” Under this doctrine, a mark has to comply with all applicable laws and regulations before a party may claim trademark protection for that mark. According to Weiboli, VPR’s ELF-branded vaporizer and e-cigarette battery qualify as “new tobacco products” for which “premarket review” is required under the law, but VPR did not obtain FDA pre-marketing authorization to sell those ELF-branded products. Therefore, VPR violated the law and the ELF mark became unenforceable.

 

The Court declined to apply the “unlawful use doctrine,” reasoning that the Eleventh Circuit did not adopt the doctrine in the trademark infringement context when given an opportunity to do so, that there are persuasive authorities pointing in the opposite direction, and that the unlawful use doctrine should not be wielded to strip VPR of its trademark property interest without an independent basis to seek cancellation of the mark. Additionally, there is no evidence that the FDA has found Plaintiff’s e-cigarettes to be in violation of the applicable regulations. The Court also noted that the “unlawful use doctrine” appears almost exclusively in the administrative setting, originating in United States Trademark Trial and Appeal Board (“TTAB”) proceedings to oppose trademark applications or cancel registrations.

 

Returning to the preliminary injunction analysis, as to the first element, the court finds that VPR has established a likelihood of success on the merits on its trademark infringement claim. In deciding whether there was a likelihood of confusion, the court analyzed: (1) type/strength of mark; (2) similarity of mark; (3) similarity of products; (4) similarity of retail outlets and customers; (5) similarity of advertising media; (6) Weiboli’s intent; (7) actual confusion.  The court finds that the factors weigh soundly in favor of finding that Weiboli’s use of the ELFBAR mark is likely to cause confusion with Plaintiff’s ELF mark:

 

(1) Regarding the type/strength of the mark, the court finds that the ELF mark is an arbitrary mark and is strong, and arbitrary mark receives greater trademark protection in the strength continuum of marks.

 

(2) Regarding the similarity of the mark, the court finds that the marks appear similar—they both begin with the same three-letter word—ELF. Evidence shows that “bar” is often added to the end of other words to form the names of e-cigarette products.

 

(3) Regarding the similarity of the products, the court finds that the shape and size of the two products are nearly identical, and they are similar such that the public could attribute them to a single source.

 

(4) Regarding the similarity of retail outlets and customers, the court finds that the parties utilize the same retail outlets—smoke shops, vape shops, and convenience stores through wholesale distributors—to sell their products. The parties also sell their products to a similar consumer base, and the main consumer base for both the ELF and ELFBAR products remains a consumer interested in vaping.

 

(5) Regarding the similarity of advertising media, the court finds that both parties utilize similar advertising media—magazines marketed to wholesale distributors—to attract customers, which contributes to a likelihood of confusion about the source of the products.

 

(6) Regarding Weiboli’s intent, the court finds that evidence supports Weiboli’s improper intent because the USPTO rejected Weiboli’s ELFBAR mark application due to a likelihood of confusion with the Plaintiff’s ELF Mark. But Weiboli proceeded to enter the United States market to sell its ELFBAR products. The Court is unpersuaded by the argument that they could not have had an improper intent in adopting the mark in the United States because they have valid registrations for the mark in multiple other countries.

 

(7) Regarding actual confusion, the court finds that though VPR presented a text message suggesting that one of VPR’s distributors had been confused by the origin of the ELFBAR products, that evidence is not sufficiently persuasive to establish actual confusion.

 

As to the second element of irreparable injury, the court finds a substantial threat of irreparable harm, because VPR has shown that Weiboli’s use of the ELFBAR mark has resulted in a loss of trade for their ELF products, and VPR expressed particular concern over the ELFBAR products being marketed with nicotine e-liquid in candy and fruit flavors, which could result in the potential for VPR to lose control over its reputation. On the third element regarding balance of harm (monetary and non-monetary), the court finds that VPR will continue to suffer absent an injunction. On the last element of public interest, the court finds that the public has an interest in the prevention of consumer confusion in the marketplace. 

 

For the issuance of the instant preliminary injunction, the court also requires as a prerequisite that VPR shall post a bond of $500,000. The bond is used as payment of damages to which Weiboli may be entitled in the event it is determined that this injunction is wrongful.

 

Takeaway: before a Chinese company starts selling products in the U.S. market, it is important to conduct a trademark clearance search and to obtain trademark registration for the products. As this case shows, that a mark is registered in other countries does not guarantee the registration in the U.S. In the event the application for registration is refused, companies should consider choosing a different mark to proceed to reduce potential legal risks and cost.  

 

To defeat a preliminary injunction motion, it is important to collect and present all the evidence that can be gathered before the hearing. In this case, the court rejected Weiboli’s motion to reopen evidentiary hearing to add consumer survey testimony to evaluate the likelihood of confusion between the ELF mark and the ELFBAR mark.  One reason is that the motion was filed nearly two months after the hearing. Companies can also consider other strategies. Prevailing on any one of the four factors can defeat a preliminary injunction motion. For example, one strategy that might help is to adopt a different mark immediately that will not infringe, because courts have denied preliminary injunction motion when there was no threat of continued infringement and the lack of future infringement can prevent irreparable injury.

 

About the author: Li’s practice focuses on protecting and defending companies’ intellectual property rights. She has litigated cases from inception through trial in federal district courts, in Section 337 investigations before the US International Trade Commission, and before the Patent Trial and Appeal Board. Li represents clients in all areas of intellectual property law, including patent, trademark, trade secret, and copyright.

Henry Bunsow

*This article is an original article of 2FIRSTS Technology Co., Ltd. The copyright and license rights belong to the company. Any entity or individual shall make link and credit 2FIRSTS when taking actions to copy, reprint or distribute the original article. The company retains the right to pursue its legal responsibility.

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