Ransom litigation: the tech giants taking on 'payday' trademark suits
There’s a new trend in town and it goes by the name of ‘ransom litigation’.
In other words, big tech firms are ‘held to ransom’ by much smaller players over alleged trademark infringement.
Most recently, social media platform TikTok, known for its short-form video content, prevailed after being sued by a small, London-based high-end video-editing company Stitch Editing on the basis of alleged consumer confusion and unfair competition.
But following a seven-day trial in California, the jury found in favour of TikTok, with the judgment handed down on March 14.
As well as ‘ransom litigation’, such lawsuits are also cynically referred to by lawyers as ‘paydays’. But are these slurs justified, or are they examples of smaller companies legitimately enforcing their rights?
Prey
One prominent trademark lawyer told WIPR that large tech companies that are “perceived to have tonnes of money are frequently prey to this kind of ransom litigation, where a company that has a trademark or a claim seeks to cash in”.
“Obviously, if TikTok had lost that case, it would have been inconvenient for them to change. So irrespective of the legal merits, it is often considered good business to actually pay up and buy out the risk.”
But some tech companies are actually fighting these cases in an attempt to show that they're not just “easy targets”.
TikTok achieved that by proving that there was no likelihood of confusion between the two parties—an outcome that the commentator was “not at all” surprised by.
“Judges are human. And I think they realise that cases like that are really unscrupulous attempts to extract large sums of money out of quite rich tech companies. There's no confusion at all.”
Evidential failures
In Stitch Editing v TikTok, the jury found no evidence of a likelihood of confusion between the two, in part due to the parties’ vastly different offerings.
Stitch Editing is a relatively small business that provides editing services for commercials and music videos for the likes of Louis Vuitton, BMW, The Rolling Stones and Lady Gaga. It has even been approached by TikTok itself to perform editing work on its ads.
No introduction needed for TikTok, but suffice to say that it has more than 1 billion users, downloads of its app are in the billions, and had a brand value of more than $440 billion in 2022, according to Statista.
Shortly after TikTok launched its ‘Stitch’ feature, which enables two or more videos to be ‘stitched’ together to make one longer video, London-based Stitch sent two cease-and-desist letters to TikTok in December 2020 and January 2021.
Stitch Editing took issue with TikTok’s use of the name, alleging it infringed its own eponymous trademarks—‘Stitch’ and ‘Stitch Editing’.
TikTok rejected the allegation, and a lawsuit from Stitch followed, in April 2021.
Stitch argued a likelihood of confusion under the Lanham Act, as well as unfair competition. It also claimed it had suffered resulting harm to its reputation, and that TikTok had “enjoyed resulting profits from the confusion”.
Stitch sought $116 million in damages from TikTok, covering reasonable royalties, compensation for corrective advertising, punitive damages and an injunction.
During the trial, Stitch editing's attorneys punctuated their arguments with the phrase, ‘this is the same mark and the same services’—in other words, that both parties’ use of the name ‘Stitch’ relates to video editing services.
And interestingly, Stitch Editing referred to itself as ‘Stitch’ throughout the trial.
However, TikTok argued that it was entitled to fair use of the word ‘Stitch’, maintaining that the two parties don't actually provide the same services or end product with very different customers.
All in a name
The case follows on the heels of another, similar victory for a large tech company, S10 Entertainment & Media v Samsung Electronics, also in March.
In a federal jury trial, Samsung successfully argued that its Galaxy S10 phones do not infringe the trademark rights of a talent-management agency that also uses the same ‘S10’ name.
In Stitch Editing v TikTok, the jury “did not buy Stitch Editing’s repeated mantra of ‘same mark, same services’,” says Jonathan Hyman, a partner at Knobbe Martens in Los Angeles.
“And the retort from TikTok’s attorney to the 'same mark, same service’ mantra was to give examples that sometimes the same mark is used on very different products and no one's confused,” he tells WIPR.
Hyman points out that in the US, you don't have to show actual confusion—you have to show a likelihood of confusion, adding that there are other important factors too.
“Who are the consumers, and what are the channels of trade? Are there overlaps there? How strong is the mark?
“That's where I think Stitch Editing's case got derailed.”
He adds: “TikTok’s attorneys also were able to get Stitch Editing's CEO to admit that the app feature is a very basic editing tool, and it doesn't really reflect everything that goes into one of Stitch Editing's products.”
The value of surveys
The other point on which Stitch failed to win the case was a lack of evidence via the use of surveys, something that is taken into account by US courts.
Hyman points out that surveys can look good on paper, but can play out differently in front of a jury.
While Stitch had two surveys which showed results above the generally accepted threshold of 15% needed to show confusion (32.2% and 23.5%), “the jury did not believe them when put into context of the actual use of the marks and TikTok’s own survey and with the argument that none of Stitch’s actual customers were confused,” he says.
Joyce Liou, co-chair of Morrison Foerster’s Trademark Group, adds that it is “notable” that both sides offered competing survey expert testimony that relied on different methodologies.
The plaintiff presented surveys that showed the parties’ marks side-by-side and asked questions aimed at determining if respondents think there is any affiliation or connection between the two, she points out.
“The defendant argued that this method created bias in respondents, and offered a different survey that showed only one party’s mark, and asked questions designed to elicit any confusion with another company,” she explains.
“Keep in mind that the point of an expert survey is to simulate marketplace conditions and approximate any actual confusion among relevant consumers.”
Liou adds: “If one side presents a survey using a methodology that a jury does not think reflects how a consumer would actually see the mark, the value of that survey becomes debatable.”
It seems that when it comes to ransom litigation, the odds of winning are significantly better if the right kind of persuasive survey—along with other convincing evidence—can be drawn upon.
“In a trademark case,” says Liou, “it is often true that expert surveys tend to cancel each other out, but the type of survey does matter, as this verdict potentially shows.”
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