IP Law Daily, TRADEMARK—S.D. Cal.: Blockchain researcher’s infringement claims proceed; false association and unfair competition claims are out, (Oct 26, 2022)

By Ursula Furi-Perry, J.D., MBA

Researcher sufficiently pleaded trademark infringement by establishing use in commerce of the mark CASPER in the industry and the likelihood of confusion; however, he failed to plead damages adequately.

A blockchain researcher filed suit against a company that allegedly secured and used trademarks for the Casper brand, widely known in the industry, which had resulted from the researcher’s work. The federal district court in San Diego allowed his claims for trademark infringement and cancellation to proceed, holding that the researcher sufficiently pleaded them by establishing use in commerce in the industry. The court, however, granted the defendant’s motion to dismiss the claims for unfair competition, false association, and fraud, holding that while the researcher adequately pleaded likelihood of confusion, he failed to set out his damages (Zamfir v. CasperLabs, LLC, October 25, 2022, Robinson, T.).

Background. A researcher in blockchain technology adopted the name “CBC Casper” for his proof-of-stake blockchain consensus protocol, which refers to CBC software design methodology, currently known and referred to throughout the industry as “Casper.” Having conducted continuous research in the U.S. and internationally since 2015, the researcher uses the CBC Casper and Casper names exclusively when communicating his work on PoS and distributed systems to the wider public, and has used the Casper mark in commerce in connection with distributing downloadable Casper CBC software and specifications under open-source licensing agreements. He has substantially benefitted from use of the Casper name, receiving financial compensation as well as media coverage.

In 2018, CasperLabs asked Zamfir to collaborate on developing a new blockchain, and the two parties entered into research and licensing agreements. Within a few months, the researcher believed that CasperLabs was doing too little to support his research and became concerned that CasperLabs was misappropriating his name and taking advantage of his reputation to mislead investors. In 2019, the researcher terminated the agreements with CasperLabs. However, the company continued to associate CasperLabs’ Casper products and services with the researcher and his Casper products and services.

After several discussions with CasperLabs concerning its use and registration of the Casper mark, the company represented to the researcher that it would register the mark on his behalf, and, accordingly, he never sought registration of the mark. In 2019, however, the company had filed two trademark applications to register the mark in its own name, never informing the researcher despite his continued inquiries into the status of the registration applications that were supposed to be filed on his behalf.

The researcher eventually filed suit against the company in the U.S. District Court for the Southern District of California, alleging claims for false association and unfair competition, trademark infringement, and fraud under the Lanham Act and California state law. The researcher also sought to cancel the company’s two trademarks. The court previously denied the researcher’s request for a temporary restraining order. The company filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which the court reviewed using the plaintiff’s second amended complaint.

False association and unfair competition claims. Reviewing the false association claims under the Lanham Act and California state law, the court found that the “likelihood of confusion” element was adequately pleaded in the second amended complaint, but held that the researcher failed to sufficiently allege he suffered a cognizable harm. The court rejected the defendant’s argument that any confusion arose from its prior relationship with the researcher and not the use of the mark, and also held that the researcher provided facts to support false designation. However, the court found the researcher’s claim for damages generalized, identifying no specific instance in which he had difficulty seeking funding due to the purported association with the defendant or any present impact on the credibility of his research, granting the motion to dismiss these claims.

Trademark infringement claims. The court denied the defendant’s motion to dismiss the claims for trademark infringement, as it had previously in this case. Under the “totality of circumstances” inquiry, the court found that the researcher used the Casper mark in commerce in the open source and blockchain communities prior to CasperLabs, sufficiently establishing use in commerce in the industry. Moreover, the Casper mark was not merely incidental to the researcher’s service, but rather, the core identifier of his service, and he provided ample examples to demonstrate that the mark was used extensively to promote and implement his protocol.

Cancellation of CasperLabs’ trademark. The researcher also requested cancellation of two of CasperLabs’ trademarks, U.S. Trademark Registration Nos. 6202402 and 6131157, under Section 2(d) of the Lanham Act. Using the “likelihood of confusion” standard, the court found that those claims were adequately pleaded to withstand a motion to dismiss. The court also rejected the defendant’s argument that the researcher could not allege ownership of a source-identifying trademark while simultaneously alleging use of the Casper mark to represent his research.

Claim of fraud by intentional misrepresentation. The court granted the motion to dismiss this claim, holding that the researcher did not provide sufficient factual allegations to support his alleged harm and his claim therefore failed to meet Rule 9(b)’s heightened standard. Though he sufficiently proved standing to raise this claim, the researcher faced a heightened pleading standard which required proof with specificity that CasperLabs’ statements were false when made, along with the researcher’s reliance on those statements and resulting damages. It was reasonable to assume that the general counsel for CasperLabs had knowledge of the company’s trademark applications, the court held, and potentially withheld this information from the researcher when he asked about the progress of the trademark application that CasperLabs represented it would be filing on his behalf. Moreover, the researcher adequately alleged that he did not protect his intellectual property in reliance on CasperLabs’ statements and assurances. However, the court again found that the researcher failed to allege damages adequately.

State law claim for unfair competition. The court granted the motion to dismiss this claim as well, holding that the researcher, a Canadian resident, failed to plead any particular connection to California and again failed to show he suffered any injury.

Conclusion. The court granted the motion to dismiss in part and denied it in part.

The case is No. 3:21-cv-00474-TWR-AHG.

Attorneys: Christopher A. Ott (Rothwell, Figg, Ernst & Manbeck, PC) for Vlad Zamfir. David Lee Kirman (O'Melveny & Myers LLP) for CasperLabs, LLC.

Companies: CasperLabs, LLC

Cases: Blockchain TechnologyInternet Trademark CaliforniaNews GCNNews