IP Law Daily, TRADEMARK—D.D.C.: Preliminary injunction issued over Safex cryptocurrency mark, (Mar 29, 2021)

By Brian Craig, J.D.

Owners of the "Safex" cryptocurrency platform are entitled to a preliminary injunction for trademark infringement involving the "Safex Platinum" mark but not for defamation.

In a trademark infringement and defamation case brought by the owners of the Safex cryptocurrency platform, the federal district court in Washington, D.C. has granted a preliminary injunction enjoining certain defendants from infringing the "Safex" trademark. The court concluded that the owners of the Safex cryptocurrency platform would likely prevail on the merits of the trademark infringement claim, especially where the plaintiffs showed that they were the first to use the contested trademark in commerce, that the "Safex" trademark is inherently distinctive, and that confusion between the "Safex" mark and the defendants’ "Safex Platinum" mark is likely. On the other hand, the owners of the Safex cryptocurrency platform failed to show that they will likely prevail on their defamation claim because the statements about possible criminal activity and that Safex may be an exit scam are entitled to significant First Amendment protection involving a limited purpose public figure (Safex Foundation, Inc. v. Safeth, Ltd., March 26, 2021, Howell, B.).

Daniel Dabek, Safex Foundation, Inc., and Safe Exchange Foundation, LLC develop cryptocurrencies and a cryptocurrency-based e-commerce platform. Safex has launched three separate cryptocurrencies, Safe Exchange Coin, Safex Tokens and Safex Cash. Safex has been using the mark "Safex" on its websites and products since 2015. In late 2019, Safeth Ltd. was established and designed to create a cryptocurrency to compete with Safex’s currencies, which cryptocurrency Safeth called "Safex Platinum." In December 2020, Safeth filed a trademark application at the USPTO for "Safex Platinum" and the Safex Platinum logo, which application remains pending. Safex then filed a USPTO trademark application for the Safex trademark, which is also pending. In January 2021, Safex and Dabek filed suit in federal district court against Safeth and other individual defendants for trademark infringement and defamation. The plaintiffs sought a preliminary injunction to enjoin the defendants from infringing on the Safex trademarks and from disseminating statements that Safex or Dabek are engaged in a scam or any other criminal activity.

Trademark infringement. The court first concluded that the owners the Safex cryptocurrency platform are entitled to a preliminary injunction on the trademark infringement claim, concluding that all four preliminary injunction factors favor granting an injunction. The owners of the Safex cryptocurrency platform showed that they would likely prevail on the merits of the trademark infringement claim. The plaintiffs showed that they will likely be able to prove that they were the firstto use the contested trademark in commerce, that the trademark is inherently distinctive because arbitrary, and that confusion between the Safex trademark and defendants’ trademark is likely.

The plaintiffs also showed that they would suffer irreparable injunction without an injunction. Safex recently launched an e-commerce marketplace and its currencies have not been widely adopted or popular, and do not appear to be especially valuable, at least for now. Given their relative novelty, cryptocurrencies and their related markets and products present a significant opportunity for unscrupulousness and, consequently, many would-be customers are wary of new and unknown products. The court found that the reputation of a cryptocurrency, its marketers, and its development team is crucial for the currency’s success, and reputational harms can cause serious damage to a fledgling cryptocurrency. Thus, the plaintiffs are particularly susceptible to the injury caused by defendants’ alleged trademark infringement.

The balance of equities favors preliminary injunctive relief given the allegations of bad faith and negative comments on social media. The public interest factor also weighs in favor of granting an injunction. A substantial likelihood of confusion exists given the very close similarity between the similar marks used for very similar products in the same market. Preventing this confusion is in the public interest, and the public interest therefore favors an injunction with respect to defendants’ alleged trademark infringement. As all four factors weigh in favor of injunctive relief on the trademark infringement claim, the court granted an injunction to enjoin the defendants’ infringing behavior as to the Safex marks.

Defamation. The court declined, however, to grant a preliminary injunction to bar the defendants from disseminating statements that Safex or Dabek are engaged in a scam or any other criminal activity. The court concluded that Dabek is a limited purpose public figure for the defamation claim. In order to succeed on their defamation claim, the plaintiffs must show that defendants acted with actual malice. Here, the court concluded that the plaintiffs failed to demonstrate that the defendants acted with actual malice. The defendants’ public statements that Safex is a scam and that Safex Marketplace might be used to facilitate illegal commerce are predicated on facts that plaintiffs have conceded as true, revolving around Dabek’s past involvement with Dascoin, another cryptocurrency. Furthermore, the defendants’ statements are not actionable defamation because they do not present a verifiable issue of fact. The court held that the First Amendment is not a blank check to make defamatory statements under the guise of stating an opinion. At the same time, however, the statements at issue here are nonetheless entitled to significant First Amendment protection. Speakers must be given some leeway to offer rational interpretation of ambiguous sources. Because the plaintiffs failed to demonstrate likelihood of success on the merits of the defamation claim, the court denied preliminary injunction request over comments that Safex or Dabek are engaged in a scam or any other criminal activity.

This case is No. 1:21-cv-00161-BAH.

Attorneys: Christopher Whalen (McDermott Will & Emery LLP) for Safex Foundation, Inc. and Safe Exchange Foundation, LLC.

Companies: Safex Foundation, Inc.; Safe Exchange Foundation, LLC; Safeth Ltd.

Cases: Blockchain TechnologyInternet Trademark DistrictofColumbiaNews GCNNews