Antitrust Law Daily Wrap Up, ADVERTISING—S.D.N.Y.: Claims that test prep company falsely associated services with Kaplan may proceed, (May 2, 2014)

By Jody Coultas, J.D.

Test preparation company Kaplan, Inc. sufficiently alleged Lanham Act false advertising and trademark infringement claims against competitor Manhattan Enterprise Group (MEG), the federal district court in Manhattan has ruled (Kaplan, Inc. v. Yun, April 30, 2014, Koeltl, J.). However, Kaplan’s claims for cybersquatting and deceptive practices under New York state law were dismissed.

Kaplan and MEG compete in the market for standardized test preparation classes. Kaplan offered GMAT courses under the brand "Manhattan GMAT" and courses for other tests under the brand "Manhattan Prep." MEG launched test preparation courses and registered the domain name “manhattaneliteprep.com” in December 2011. Consumers allegedly were confused by MEG’s mark and domain name. Kaplan sent MEG a cease-and desist letter. The company responded by asserting that it had superior trademark rights over Kaplan’s marks and that Kaplan’s "Manhattan Prep" mark was invalid.

False advertising. To state a claim for false advertising under the Lanham Act, a plaintiff must allege either that “the challenged advertisement is literally false” or that “the advertisement, while not literally false, is nevertheless likely to mislead or confuse consumers.”

Kaplan sufficiently pleaded a claim for false advertising under the Lanham Act, according to the court. MEG argued that the alleged material misrepresentations did not involve the nature, characteristics, qualities, or geographic origin of the services, and that the false advertising claims merely repeated the trademark claims. However, Kaplan alleged that MEG promoted its services on the Internet and made knowingly misleading representations to prospective students in promotions. MEG’s marketing, which created a false impression of association between MEG’s services and Kaplan’s services, was actionable under the Lanham Act.

New York state law claims. The New York unfair and deceptive practices claims failed as a matter of law, according to the court. Claims under Section 349 and Section 350 of the General Business Law required Kaplan to show that MEG engaged in materially misleading consumer-oriented conduct that caused Kaplan injury. New York courts have held that trademark claims are outside the scope of Sections 349 and 350. Kaplan’s allegations were based on trademark and therefore were outside the scope of the General Business Law.

Trademark infringement. MEG’s motion to dismiss the trademark infringement claims was denied by the court. To state a claim for trademark infringement under the Lanham Act, a plaintiff must show that it has a valid mark entitled to protection and that the use of its mark is likely to cause confusion. “Manhattan Prep” was a protectable mark only if it acquired secondary meaning before MEG used the mark. There were genuine issues of fact as to whether the mark acquired secondary meaning that precluded summary judgment. The length of time Kaplan used the mark in commerce, which was seven months, could weigh heavily against finding secondary meaning absent extraordinary circumstances. However, discovery was required on Kaplan’s purported use of the “Manhattan Prep” mark during that seven-month period before MEG began using its mark.

Cybersquatting. Kaplan’s cybersquatting claim under the Lanham Act was dismissed for failure to allege facts giving rise to an inference of the competitor’s bad faith intent to profit, according to the court. Kaplan asserted that MEG’s adoption of a domain name that was confusingly similar to its "Manhattan Prep" mark constituted cybersquatting. However, Kaplan failed to plead facts that would support an inference of the requisite "bad faith intent to profit" from adoption of the allegedly infringing domain name.

The case is No. 13 Civ. 1147 (JGK).

Attorneys: Howard Jeffrey Shire (Kenyon & Kenyon LLP) for Kaplan, Inc. and MG Prep, Inc. Arthur M. Peslak (Mandel & Peslak, LLC) for Tracy Yun.

Companies: Kaplan, Inc.; MG Prep, Inc.; Manhattan Enterprise Group, LLC

Cases: Advertising NewYorkNews