Cryptocurrency and Trademarks: A Bit of a Challenge
Published: May 15, 2020
Brian Boerman Sheridan Ross
Cryptocurrency has been the subject of considerable investment attention in the last few years. Proponents of the underlying blockchain technology have hailed it as a solution for everything from voting to tracking food supply. Its growing presence makes it likely that every area of law will need to grapple with how to address this technology at some point; this process has already begun in several areas of law, including trademark law. Despite its status as a “revolutionary” technology, courts have had little trouble applying substantive trademark law to blockchain technology. Irrespective of that, blockchain technology has posed and will likely continue to pose practical problems for trademark owners.
Cryptocurrency and Blockchain Technology
Although cryptocurrencies may have various characteristics, the most well-known—such as Bitcoin—are based on decentralized blockchain technology. Duplicate copies of the blockchain (which may also be referred to as a distributed ledger) may be saved in multiple locations, that is, nodes of the network. Transactions may be recorded by adding a new entry identifying the new owner to the blockchain. However, the new entry will be added to the blockchain only if the transaction is validated by the collective agreement of network users. Transactions are generally anonymous (or at least pseudonymous) in that a person looking at the blockchain will not be able to determine the names of the parties to the transactions. Instead, the blockchain includes an address (for example, a string of alphanumeric characters) corresponding to the party (for example, the address of the user’s Bitcoin wallet). However, not all cryptocurrencies and blockchains are the same. For example, some cryptocurrencies use a centralized ledger controlled by a single company rather than a distributed ledger.
Application of Substantive Law in Trademark Cases
Various features of blockchain technology—particularly its distributed nature—may pose challenges in applying substantive law. But courts have thus far been up to the challenge: “Throughout the history of the common law system there have been times when laws are applied to new scenarios,” but “when the principles underlying a law are consistent and clear, they may accommodate new fact patterns.” United States v. Ulbricht, 31 F. Supp. 3d 540, 565‒566 (S.D.N.Y. 2014) (rejecting a criminal defendant’s argument that there could be no criminal liability for operating Silk Road, a website on which cryptocurrency could be exchanged for drugs and hacking software, because such conduct had never previously been found to constitute the charged crimes of participation in a narcotics trafficking conspiracy, a continuing criminal enterprise, a computer hacking conspiracy, and a money laundering conspiracy).
So too have courts applied existing substantive law to cryptocurrency and blockchain technology in trademark infringement actions. For example, in Alibaba Group Holding Ltd. v. Alibabacoin Foundation, e-commerce giant Alibaba sought a preliminary injunction against a company—Alibabacoin Foundation—that was marketing a cryptocurrency called AlibabaCoin in violation of Alibaba’s trademark rights. Alibaba Grp. Holding Ltd. v. Alibabacoin Found., No. 18-CV-2897 (JPO), 2018 U.S. Dist. LEXIS 180884, at *1‒2 (S.D.N.Y. Oct. 22, 2018). To establish personal jurisdiction over Alibabacoin Foundation, Alibaba presented evidence that at least one New York resident had purchased AlibabaCoin on at least three occasions. Id. at *8. In response, Alibabacoin Foundation argued that these transactions did not occur in the United States, but rather at the centralized ledger which was located on a server in Minsk, Belarus. Id. at *8‒9. The court disagreed, analogizing the situation to a more traditional financial transaction:
When an individual uses her debit card to make an online purchase from an out-of-state vendor … it would strain common usage to say that the transaction occurs at the potentially remote location of the servers that process the buyer’s banking activities and not at the location where the buyer clicks the button that commits her to the terms of the sale.
Id. at *9. The court thus rejected the suggestion that the location of the ledger affects the location of the transaction for legal purposes. The court also rejected Alibabacoin Foundation’s argument that Alibaba’s repeated statements that it was not interested in moving into the cryptocurrency space constituted an abandonment of Alibaba’s trademark rights in the cryptocurrency space. Id. at *17 (“Accepting this view of abandonment would render American trademark law largely ineffectual.”). This may be a useful decision for trademark owners that have disclaimed an intention to enter the cryptocurrency market but still want to protect their mark in that space.
Other substantive trademark decisions likewise show that cryptocurrency and blockchain technologies are not being treated as a special category. For example, in Telegram Messenger Inc. v. Lantah, LLC, Telegram was developing a cryptocurrency called GRAM. Telegram Messenger Inc. v. Lantah, LLC, No. 18-cv-02811-CRB, 2018 U.S. Dist. LEXIS 133908, at *2 (N.D. Cal. Aug. 8, 2018). Telegram had entered into purchase agreements with investors for the right to receive an agreed number of GRAMs upon launch. Id. at *3‒4. Lantah subsequently initiated an initial coin offering for a cryptocurrency also called GRAM. Id. at *6. Telegram sought a preliminary injunction. Lantah argued that Telegram had not established priority in the mark because it had not demonstrated a prior use in commerce, characterizing Telegram’s fundraising as “mere ‘intent’ or ‘preparation’ to use the mark in connection with prospective goods or services.” Id. at 10. The court disagreed, finding a ready analogy to past cases involving orders for more familiar goods:
Undeniably, Telegram’s GRAM has not yet issued. No matter. The purchase agreements are not mere agreements to invest some time in the future. Executed, binding purchase agreements “pursuant to which Telegram has already collected over $1.5 billion,” and through which purchasers own vested subscription rights in GRAMS, demonstrate a user in commerce. [ ] Telegram certainly thought it had engaged in commerce when it recorded those sales with the SEC [ ] and the purchasers certainly thought they had engaged in commerce when they sent Telegraph their money. Moreover, the law supports the notion that the taking of orders, even without filling those orders, is a use. See, e.g., Geo. Washington Mint, Inc. v. Washington Mint, Inc., 349 F. Supp. 255, 260 (S.D. N.Y. 1972) (holding that plaintiff’s customers having ordered substantial numbers of plates, even through plaintiff had not yet filled those orders, “makes out a use by the plaintiff of its mark for the purpose of determining priority”); New West Corp. v. NYM Co. of Cal., Inc., 595 F.2d 1194, 1200 (9th Cir. 1979) (noting 13,500 subscribers to magazine without mentioning whether subscription holders’ magazines were in fact delivered).
Telegram, 2018 U.S. Dist. LEXIS 133908, at *14‒15. The court found that Telegram had established priority in the mark and granted the preliminary injunction. Id. at *25‒26, aff’d, 782 Fed. Appx. 528, 530 (9th Cir. 2019) (“Although Telegram ultimately did not provide GRAM to its buyers, the district court’s conclusion that such pre-sales activity demonstrates Telegram’s use in commerce was not illogical, implausible, or without support from the record.”).
Practical Effects of Cryptocurrency on Trademark Rights
The lack of any substantive impact does not mean that the increasing prevalence of cryptocurrency will have no impact on trademark owners’ ability to protect and enforce their marks, however. To the contrary, cryptocurrencies present practical problems that may incentivize bad acts and make it harder for a trademark owner to protect its rights.
The anonymity provided by some cryptocurrencies has provided another way for bad actors to carry out nefarious schemes. No longer does a bad actor need to retrieve funds at a “dead drop,” or secret location, that may be monitored by police (or, in more sophisticated schemes, use a foreign bank account in a country with friendly banking laws). Instead, the bad actor may set up an anonymous Bitcoin wallet for delivery of the proceeds of the extortion with limited risk of exposure.
Such nefarious schemes may involve a bad actor stealing a trademark owner’s website and demanding ransom in the form of cryptocurrency for its return, or operating a website using the trademark owner’s mark for nefarious purposes. Trademark owners may rely on the Anticybersquatting Consumer Protection Act (ACPA) in such situations. For example, in 411Mania.com, LLC v. Doe, an unknown party stole the plaintiff’s website by changing the registration information, and demanded $50,000 of Bitcoin as ransom. 411Mania.com, LLC v. Doe, No. 17-cv-00469 (LMB/IDD), 2017 U.S. Dist. LEXIS 149681, at *9 (E.D. Va. Aug. 24, 2017). The plaintiff sought return of the website under the ACPA. To prevail, the plaintiff was required to show that it possessed a common law trademark in the stolen domain name and that the thief had the bad-faith intent to profit from using the domain name. Id. at *12. The plaintiff was able to easily prove these elements under the facts of the case and recover the domain name.
However, prevailing in an ACPA action is often insufficient to fully restore the victimized party, especially when the use of cryptocurrency for payment is combined with registration under a fake name and a nonexistent address. In the 411Mania.com case, for example, the plaintiff recovered the stolen website but was forced to expend resources on legal fees to do so and, because the perpetrator remained anonymous, was unable to recover these fees. Other cases are more extreme. In Orchid Labs Incorporated v. Unknown Party, No. CV-18-00582-PHX-SMB (D. Ariz.), an unknown party registered the domain sale-orchid.com and set up a clone of the plaintiff’s orchid.com website. Complaint, ECF No. 1. The unknown party received thousands of dollars from the plaintiff’s potential investors in the form of cryptocurrency. Order Granting Plaintiff Orchid Labs, Inc.’s Motion for Default Judgment, ECF No. 41. The court awarded damages in the amount of three times the profits from the stolen funds and also awarded attorney fees, for a total award of more than $600,000. Id. But there was little chance Orchid Labs would ever be able to recover the award in view of the anonymity of the unknown party.
The anonymity offered by some cryptocurrencies may also complicate other aspects of the case and further drive up a trademark owner’s costs. For example, in Cvent, Inc. v. Cventcoin.com, No. 1:18-cv-00406-LO-JFA (E.D. Va.), a trademark owner sued an anonymous party for attempting to launch a cryptocurrency under the name Cventcoin. Complaint, ECF No. 1. The trademark owner was required to publish a notice in the Washington Times or Washington Post because the infringer had provided false information and could not be found to effect service. Order to Publish Notice of this Action, ECF No. 20. Thus, the trademark owner incurred the costs of publishing the notice and the fees for its attorneys to draft the motion asking the court to allow service to be effected in such a manner. While the party in question had not yet sold any Cventcoins, this is yet another example of the additional costs that may be incurred by a trademark owner when the infringer has the ability to remain anonymous.
The distributed nature of cryptocurrencies may also pose practical problems. In West v. 0Daycoins.com, No. 14 CV 250 (S.D.N.Y.), Kanye West sued multiple defendants for trademark infringement based on the development and use of a cryptocurrency called “Coinye.” Complaint, ECF No. 1. One of the members of the development team, a resident of the Netherlands, complained that he had no connection with New York, which the court treated as a motion to dismiss for lack of personal jurisdiction. Order, ECF No. 60. In response, Mr. West argued that the developer was subject to New York’s long-arm statute because he marketed, promoted, and offered the Coinye cryptocurrency for mining in New York. Plaintiff’s Memorandum of Law in Opposition to Motion to Dismiss, ECF No. 65. Although the case settled before the issue was resolved, it demonstrates the potential danger of the distributed network for trademark owners: if most of the users are not subject to jurisdiction in a single location, enforcement of trademark rights may require the filing of several trademark actions, which can significantly drive up costs for trademark owners.
The decisions to date do not necessarily indicate that a court will not end up treating cryptocurrencies as a special case in a way that may impact trademark owners. This has occurred in other areas of law. For example, at least one court has held that Bitcoins are not “money” or “funds” for purposes of a criminal law that prohibits unlicensed money-transferring businesses because those terms require the involvement of a sovereign. United States v. Petix, No. 15-CR-227A, 2016 U.S. Dist. LEXIS 165955, at *18‒20 (W.D.N.Y. Dec. 1, 2016). However, this appears to be a minority view. See, e.g., United States v. Murgio, 209 F. Supp. 3d 698, 707 (S.D.N.Y. 2016). And the cases to date have not raised some of the most difficult questions, particularly with reference to the distributed nature of some cryptocurrencies. But at least so far, the main impact of cryptocurrency and blockchain technology has been the practical problems trademark owners have faced in vindicating their rights.
Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.
© 2020 International Trademark Association
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