Lessons from ELFBAR's US Trademark Lawsuit

Editor's Note: In the preliminary ruling of ELFBAR's trademark infringement case in the United States, all its products were ordered to be removed from shelves. This serves as a warning for e-cigarette companies when expanding overseas. How can they avoid intellectual property risks? This article is a guest post by attorney Guo Li from 2FIRSTS, analyzing the legal dispute in depth from a US legal perspective, hoping to provide valuable reference for readers. As one of the important assets of a company, trademarks are crucial for business development.

Li Guo is a practicing lawyer at Bunsow De Mory LLP in California. In 2022, he was named a member of the Legal Diversity Leadership Council's (LCLD) Pathfinder class. He has been recognized several times as a rising star in intellectual property by Super Lawyers. He is also a partner at Beijing Zhong Lun Wen De (Kunming) Law Firm.

Click on "Lessons from a Judge Order Enjoining a Chinese Company from Selling E-Cigarette Products (ELFBAR)" to read the original English article.

Recently, a preliminary injunction order by the Southern District Court of Florida has provided valuable experience for Chinese companies planning to sell products in the U.S. market. To provide background context, VPR is an electronic cigarette manufacturer based in Florida, selling a range of e-cigarettes and accessories under the ELF trademark. It sued Shenzhen Wei Bo Li Company and its U.S. distributor in the Southern District Court of Florida, accusing them of trademark infringement by selling products under the name ELFBAR. VPR also requested a preliminary injunction from the court to prohibit Wei Bo Li from selling products under the ELFBAR name. The motion was approved by the court on February 23, 2023.

To obtain preliminary injunction relief, certain elements must be established by one party.

There is a possibility of a significant victory in terms of rights.

If no assistance is given, irreparable harm will be suffered.

The threat of harm outweighs the potential harm that relief would cause to the non-plaintiff.

Implementing relief measures will be in accordance with the public interest.

The court has rejected Weybly's claim that the VPR trademark cannot be enforced. According to the principle of "unlawful use" (note 2), a trademark must comply with all applicable laws and regulations before claiming trademark protection. Weybly believes that VPR's ELF-branded electronic cigarettes and batteries were identified as "new tobacco products" (note 4) requiring "pre-market review" (note 3) under the law, but VPR did not obtain FDA pre-market authorization to sell these ELF products. Therefore, VPR violated the law and the ELF trademark cannot be enforced.

The court rejected the application of the "illegitimate use doctrine," citing that the 11th Circuit Court of Appeals did not adopt this principle in trademark infringement cases. Prominent authorities oppose this view and argue that the "illegitimate use doctrine" should not be used to strip VPR of its property interest in the trademark unless there is independent factual basis to seek cancellation of the trademark. Additionally, there is no evidence that the FDA considers the plaintiff's e-cigarette to be in violation of applicable regulations. The court also noted that the "illegitimate use doctrine" is almost exclusively used in administrative settings and originated from procedures of the US Trademark Trial and Appeal Board (TTAB) to oppose trademark applications or cancel registrations.

Returning to the analysis of the ban on ELFBAR, with regard to the first factor, the court found that the plaintiff VPR had successfully established the possibility of winning a claim for trademark infringement.

In determining the issue of confusion, the court analyzed the following factors.

Type/Strength of Trademarks.

(2) Similarity of Trademarks

Product similarity

(4) The similarities between retail channels and customers.

The Similarities of Advertising Media

The intention of WeyBoli.

Actual confusion situation" should be translated to "The actual state of confusion".

The court found that the aforementioned factors strongly support the judgement that the use of the ELFBAR trademark by Wei Bo Li would lead to confusion with the plaintiff's ELF trademark.

Regarding trademark types/strength. The court found that the ELF trademark is a highly arbitrary trademark, and arbitrary trademarks receive greater trademark protection in terms of continuity of strength. Regarding trademark similarity. The court found that the trademarks appear similar as they both begin with the same three letters, ELF. Evidence shows that "bar" is often added to the end of other words to form the names of electronic cigarette products. Regarding product similarity. The court found that both products are almost identical in shape and size, making them similar enough that the public may associate them with the same source. Regarding similarity of retail stores and customers. The court found that the parties utilize the same retail stores - smoke shops, vaping product stores, and convenience stores - to sell their products through wholesale distributors. The parties also target similar consumer bases, with the primary consumer group for ELF and ELFBAR products being consumers interested in smoking. Regarding similarity of advertising media. The court found that both parties utilize similar advertising media, targeting magazines for wholesale distributors to attract customers, which contributes to confusion regarding the source of the products. Regarding VPR's intent. The court believes that evidence supports VPR having improper intent, as the US Patent and Trademark Office rejected VPR's application for an ELFBAR trademark due to the possibility of confusion with VPR's ELF trademark, yet VPR continued to sell ELFBAR products in the US market. The court does not believe VPR's defense that they hold valid trademark registration in multiple other countries, therefore using the trademark in the US does not carry improper intent. Regarding actual confusion. The court believes that while VPR provided a text message indicating that one of their distributors was confused about the source of ELFBAR products, this evidence is not sufficient to prove actual confusion.

The second element regarding "irreversible damage" [note 6].

The court determined that substantial and irreversible harm was imminent, as VPR had demonstrated that the use of the ELFBAR trademark by Wei Bo Li had damaged its ELF products in the marketplace. VPR was particularly concerned about the use of the ELFBAR trademark in the promotion of candy and fruit-flavored electronic cigarette liquids, which could pose a potential risk of reputational loss for VPR.

The third element of the balance of interests (economic and non-economic losses) [Note 8] was considered by the court. It determined that without an injunction, VPR would continue to suffer losses. Regarding the final element of the public interest, the court affirmed that the public has the right to prevent consumer confusion in the marketplace.

In order to issue an immediate preliminary injunction, the court has also requested that VPR provide a $500,000 bond. This bond will serve as compensation in the event that VPR is determined to have been wrongfully granted the injunction.

Conclusion: It is crucial for Chinese companies to conduct a thorough clearance search and register their trademarks before entering the US market. As demonstrated in this case, a successful trademark registration in other countries does not guarantee success in the US. If a trademark application is rejected, companies should consider selecting another trademark to reduce potential legal risks and costs.

To overturn the motion for a temporary injunction, it is crucial to gather and submit all possible evidence before the hearing. In this case, the court denied Welbilt Inc.'s motion to reopen the evidence hearing to add consumer survey evidence regarding potential confusion between the ELF and ELFBAR trademarks. One reason for the denial was that the motion was submitted almost two months after the hearing had concluded.

The company could also consider other strategies. Winning in any of the four factors can defeat the motion for a temporary restraining order. For instance, adopting a different trademark that does not infringe immediately could be a useful strategy because the court rejected the motion for a temporary restraining order, which prevented irreparable harm, in the absence of an ongoing threat of infringement and lack of future infringement.

Note:

Preliminary injunctive relief" is a legal remedy that involves a temporary order issued by a court requiring the defendant to take specific actions or cease certain actions during the litigation process or until a final judgment is reached. Its purpose is to protect the plaintiff's rights and prevent the defendant from continuing to infringe upon those rights during the litigation process, as well as to prevent any irreversible harm to the defendant during this time.

The "unlawful use doctrine" is a legal principle in the United States that applies to trademarks and is also known as the "first use doctrine." According to this principle, ownership of a trademark goes to the first person who uses it, not the first person who registers it. If a trademark has been used for a certain period of time, even if it hasn't been registered, the user may still have some legal protection for the trademark.

Premarket review is a process overseen by the FDA that involves evaluating and scrutinizing the ingredients, manufacturing process, effectiveness, and safety of a product before it is allowed to be sold in the market. Only after undergoing a rigorous evaluation and approval can a product be permitted for sale.

New tobacco products refer to tobacco products that are manufactured using new technologies, formulas, or forms, and differ in appearance and composition from traditional cigarettes and tobacco-related products. Examples include electronic cigarettes, heated non-burning tobacco products, and oral tobacco products. These new tobacco products have already garnered the attention of regulatory agencies in some areas and may be subject to strict regulatory restrictions.

Arbitrary mark" is a term in trademark law that refers to a trademark that has no connection or association with the nature of the goods or services it represents. The chosen trademark has no apparent relation to the goods or services themselves. For example, "Apple" as a trademark for computers and electronics has no direct connection to these products, making it a typical arbitrary mark. Arbitrary marks are easier to obtain trademark protection for compared to descriptive or literal trademarks.

Irreparable injury" typically refers to losses or damages in civil litigation that cannot be compensated or repaired through monetary damages or other means. This type of injury is permanent or irreversible, meaning that even if the plaintiff wins the case, the damages cannot be fully compensated through financial compensation or other methods.

Loss of control over reputation" refers to losing control over a company's or brand's reputation. This commonly occurs when a company or brand faces damage to its reputation, leading to negative public perception and subsequent adverse effects on business such as decreased sales, loss of customers, and falling stock prices. In some cases, it can be difficult to recover from reputational damage, so companies must protect their reputation and brand image.

Balance of harm" refers to the evaluation of the damages incurred by parties involved in a legal dispute. In trademark infringement cases, the balance of harm weighs heavily in favor of the plaintiff if irreversible damages have been inflicted on their trademark rights. This evaluation takes into account various factors such as economic losses and damage to reputation. Ultimately, such considerations may influence the court's decision in favor of the plaintiff.

Preliminary injunction motion refers to a request made by one party during legal proceedings for the court to issue a temporary ban on a particular behavior by the defendant, in order to prevent irreparable harm to the plaintiff before a formal ruling is made. This injunction typically takes effect prior to the completion of the full legal process and serves to protect the plaintiff's rights.