Consumer products and IP (Part 6): deriving a copyright for consumer products
Internet Law

Social media, trademark settlement, breach of contract, and “material” violations

Social media, trademark settlement, breach of contract, and “material” violations

If you entered into a trademark settlement agreement where one party agreed not to use your registered trademark and then that party proceeded to use a very similar term on social media, is that a “violation” or a “material violation” of the agreement?  The answer is important because it determines whether you can get summary judgment on your breach of contract claim, according to a federal trial court in Florida.  (PayCargo, LLC v. CargoSprint LLC, Case No. 1:19-CV-22995-LOUIS (S.D. Fla. June 17, 2021 (2021 WL 2481867))

Background

The plaintiff in this case is in the business of providing an electronic payment management system platform in the freight and cargo shipping industry.  The company’s name is PayCargo, and it has three registered trademarks using that term since 2009.  In 2012, although aware of PayCargo, the defendant created a competitor named PayAirCargo.  Over the next few years, customers of one company would contact the other by mistake or out of confusion.  In 2016, PayCargo sent a cease and desist letter to the defendant, and the parties entered into a settlement agreement in December of that year.  The defendant agreed to cease using “PayAirCargo” and to change its name to “CargoSprint.”  The defendant also agreed to cease using the term in all advertising, agreed to stop sending emails from payaircargo.com, and to cease all use of the domain.

In 2018, the plaintiff learned defendant had not ceased use of the “PayAirCargo” name on its invoices but instead added an explanatory note that “PayAirCargo” had “evolved and is now known as” “CargoSprint.” Plaintiff sent a cease and desist letter in 2018, and defendant ceased inclusion of the explanatory note and any use of the infringing name in its invoices. Nevertheless, the defendant continued to send and receive emails at the [email protected] address as late as December of 2018– two years after executing the settlement agreement.  In July of 2019, the plaintiff sent another cease and desist letter, and then filed a complaint in federal court, alleging breach of contract under state law, and trademark infringement and unfair competition under both federal and state law.  The plaintiff moved for summary judgment.

The Ruling

The court found that the plaintiff met the standard for summary judgment for the federal trademark and unfair competition claims, in part because the plaintiff demonstrated ample evidence of customer confusion.

With respect to the breach of contract claim, however, the court denied summary judgment, even though the plaintiff provided “examples of post-settlement use of the infringing name, including use of the domain name on email correspondence and on social media.”  The court stated:  “Notwithstanding this, ‘violation’ is not inherently synonymous with ‘material.’ And it certainly cannot be said that Defendants flagrantly disregarded the terms of the bargain.”  The court summarized its rationale as follows:

Put more simply, the Parties disagree regarding the essence of the Settlement Agreement, with Plaintiff essentially arguing that because Defendants agreed to stop using the name, the fact that they did not ipso facto betrays the heart of the contract. But this oversimplifies the analysis and is too cursory to support a finding of materiality. To find for Plaintiff on this Motion, the evidence would have to be such that no reasonable jury could conclude that the Defendants’ breach was immaterial. Plaintiff has not advanced evidence sufficient to compel that conclusion here, and thus the factual question of materiality will have to be determined at trial.

Takeaways

The first takeaway is to note that, although the plaintiff did not get the summary judgment ruling it sought, it may well be able to provide sufficient facts at trial.  The second takeaway is to remember that settlement agreements, like other agreements, should focus on the items that are particularly important to you:  if prohibiting use of the term on social media is important, state that compliance with that part of the contract is a “material obligation.”  You could also make payment or other obligations “conditioned on” compliance with certain obligations.

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