IP Law Daily Former licensees could have infringed Chicago Mercantile Exchange’s SPAN mark
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Friday, March 6, 2020

Former licensees could have infringed Chicago Mercantile Exchange’s SPAN mark

By Cheryl Beise, J.D.

Jury trial needed to decide merits of CME’s breach of contract and trademark claims against clearinghouse operators, as well as whether CME’s SPAN mark is invalid for genericness or naked licensing.

The federal district court in Chicago has trimmed defenses and counterclaims from a trademark infringement and breach of contract action brought by the Chicago Mercantile Exchange (CME) against former clearinghouse licensees for continued use of CME’s registered SPAN mark following termination of license agreements. The defendants’ trademark misuse defense, fair use defense, and acquiescence for trademark violations occurring after the termination date failed as a matter of law. However, a jury would need to decide the merits of CME’s claims, as well as whether CME acquiesced to the defendants’ use of its mark before suit was filed; whether CME’s registered SPAN mark has become a generic term referring to the calculation of initial margin; and whether CME has abandoned its mark through naked licensing (Chicago Mercantile Exchange Inc. v. ICE Clear US, Inc., March 4, 2020, Kennelly, M.).

CME operates a clearinghouse and provides financial and risk management services to commodity traders. In the 1980s, CME developed a method, called the SPAN framework, for financial institutions to assess the risk of portfolios. The term SPAN is an acronym for "standard portfolio analysis of risk." One aspect of the SPAN framework enables clearinghouses to set initial margins by determining how various scenarios or market conditions might affect an individual portfolio’s profits or losses. CME owns four incontestable trademarks related to the SPAN framework. It licenses the use of its marks to third parties and makes available the licensees’ daily risk array files, which contain data relating to their calculations of initial margins, on its FTP (file sharing) site.

In June and July 2007, CME entered into license agreements with ICE Clear Europe, Ltd. and ICE Clear US, Inc. (collectively, the ICE Licensees) that permitted them to use for 10 years "the name and mark SPAN® ... in connection with a risk evaluation and margin framework." The license agreements prohibited the ICE Licensees from using any mark that was "confusingly similar" to the SPAN mark during the terms of the agreements. The ICE Licensees are indirect subsidiaries of Intercontinental Exchange, Inc. (ICE) and operate clearinghouses.

In 2018, CME sued ICE and the ICE Licensees for breach of contract, trademark counterfeiting, trademark infringement, and unfair competition in violation of the Lanham Act, unfair competition under Illinois common law, and deceptive trade practices in violation of the Illinois Uniform Deceptive Trade Practices Act. The ICE Licensees asserted counterclaims for breach of contract; ICE asserted counterclaims alleging the invalidity of CME’s mark due to genericness and abandonment by naked licensing; and all defendants asserted affirmative defenses to CME’s claims, including trademark misuse, fair use, and implied consent, acquiescence, and/or estoppel by implied license. Before the court were both sides’ summary judgment motions. The court first addressed the affirmative defenses.

Trademark misuse defense. The defendants asserted that CME engaged in trademark misuse by enforcing invalid trademark claims in an attempt to monopolize the financial risk services market and eliminate competition. The court acknowledged that courts have recognized the theoretical possibility of the antitrust misuse-unclean hands defense, but no court has actually refused to enforce a trademark because it was used in violation of antitrust law. Moreover, an essential element of the antitrust misuse defense in a trademark case is proof that the mark itself has been the basic and fundamental vehicle required and used to accomplish the violation. The defendants pointed to no evidence of antitrust violations by CME, let alone evidence that the SPAN mark was "the basic and fundamental vehicle required and used" to accomplish such violations, the court said. The court granted summary judgment in favor of CME on the misuse defense and denied the defendants’ cross-motion for summary judgment.

Fair use defense. CME moved for summary judgment on the ICE Licensees’ affirmative defense of fair use. The ICE Licensees did not contest the motion, so the court granted it.

Acquiescence or implied license defense. The defendants asserted as an affirmative defense that CME permitted, pursuant to implied licenses, any infringing uses of the SPAN mark by the defendants that occurred after the termination of the license agreements. The court noted that the Seventh Circuit applies the same three-part test to determine whether a trademark owner impliedly consented to or acquiesced in another party’s use of its mark. To prevail on either defense, the ICE Licensees were required to show that (1) CME actively represented that it would not assert a right or claim; (2) CME’s delay between the active representation and assertion of the right or claim was not excusable; and (3) the delay caused the defendants undue prejudice.

The court categorically rejected the defense to the extent the defendants contended that CME acquiesced in the ICE Licensees’ uses of the SPAN mark after CME filed suit. The court, however, found that there was a genuine factual dispute regarding whether CME acquiesced to the ICE Licensees’ uses of the SPAN mark after termination of the licenses. A reasonable jury could find that CME’s conduct during negotiations with ICE (including making available on its FTP site the ICE Licenses’ risk array files) served as an active representation that the defendants could use the licenses. One issue the court did decide was that the existence of an interrelationship between ICE and its subsidiaries was such that ICE’s notice of a cease-and-desist letter sent by CME could be imputed to the ICE Licensees.

Trademark-related claims. CME asserted claims for trademark counterfeiting and infringement under 15 U.S.C. § 1114 and unfair competition under 15 U.S.C. § 1125(a), as well as parallel state law claims. ICE raised counterclaims challenging the validity of the SPAN mark on the grounds of genericness and abandonment through naked licensing. The court addressed each defense.

Genericness. ICE contended that SPAN is a generic term referring to the calculation of initial margin. ICE relied on survey results, a financial dictionary’s definition, and uses of the term by CME, its competitors, the media, and academics. Viewing the evidence in the light most favorable to CME, the court found that there was a genuine factual dispute regarding whether SPAN is generic.

A consumer survey conducted by the defendants’ expert found that 69 percent of the respondents who had seen or heard of the term SPAN believed it to be a common name, 29 percent believed it to be a brand name, and two percent did not know whether it was a common or brand name. CME lodged several objections to the survey’s methodology, but the court found that they went to the surveys weight rather than its admissibility. While the term SPAN is not included in standard dictionaries, Investopedia, a website with an online financial dictionary, defined SPAN without referencing CME. On the other hand, another article on Investopedia attributed SPAN methodology to CME. ICE also argued that usage of the term SPAN by CME, its competitors, the media, and academics indicate that the term is generic. Both sides submitted conflicting expert testimony. There was sufficient evidence for a reasonable jury to find for either party o the issue of genericness.

Naked licensing. ICE also moved for summary judgment on its counterclaim that CME’s trademark is invalid because it abandoned its rights in the mark through naked licensing. Abandonment through naked licensing occurs when a trademark owner allows others to use the mark without exercising reasonable control over the nature and quality of the goods, services, or business on which the marks is used by the licensee.

ICE contended that CME provided licensees with few guidelines apart from the obligations set forth in license agreements regarding its standards for their services; had no approval or product accreditation process for licensees’ services; would review licensees’ services only at the start or end of their licenses’ terms; never terminated a license agreement due to a licensee’s quality of services; and never audited any licensee’s services, advertisements, or software codes relating to the SPAN framework. CME countered that it exercised quality control through a six-month onboarding process for licensees and its role in helping to implement and validate licensees’ software. The court concluded that there was a genuine factual dispute regarding whether CME failed to exercise adequate quality control and thereby engaged in naked licensing.

Trademark violations. CME argued that ICE Licensees committed trademark violations after the termination of the license agreements. A licensee violates trademark law if it continues to use a trademark after the termination of a license agreement. Contrary to ISE’s assertion, CME did not have to prove likelihood of confusion. The use of a trademark after a license agreement’s termination by itself establishes a likelihood of confusion, subject to any applicable defenses, the court explained. To the extent the defendants suggested that there was no likelihood of confusion between their uses of the phrase "SPAN for ICE" and the SPAN mark, that argument was unavailing.

CME additionally argued that the ICE Licensees infringed the SPAN mark during the terms of the license agreements by using the phrase "ICE SPAN," a use of the SPAN mark it contends that the agreements did not permit. The court described this allegation as an untimely de facto amendment to CME’s complaint that would cause undue prejudice and delay if allowed to proceed. The court granted summary judgment to ICE on alleged trademark violations during the terms of the licenses.

The court also found that there was a genuine dispute regarding whether the defendants were liable for trademark counterfeiting. The Lanham Act defines a counterfeit mark as "a spurious mark which is identical with, or substantially indistinguishable from, a registered mark." Courts disagree on whether the continued use of a mark by a holdover licensee constitutes counterfeiting. The Seventh Circuit has not directly addressed the issue, but has stated that the aim of the Lanham Act’s counterfeiting provision is to prohibit the use of a trademark on an unauthorized product, not merely to prohibit literal counterfeiting through reproductions or imitations that deceive customers about the source of a product. A reasonable jury could find that that the defendants’ continued use of the SPAN mark indicated that the ICE Licensees used the SPAN framework to calculate initial margins, which would constitute counterfeiting because it entailed the unauthorized use of CME’s mark, the court explained.

Breach of contract. Both sides moved for summary judgment on CME’s breach of contract claim, asserted only against the ICE Licensees. The court observed that the parties’ breach of contract arguments mirrored their trademark infringement arguments. Therefore, CME’s breach claim could proceed only to the extent it alleged that the ICE Licensees breached the license agreements following their termination. The ICE Licensees agreed that following termination, they would "not ... use any mark that is confusingly similar to the SPAN Mark in connection with any other margining system or similar risk calculation." There was a genuine dispute regarding whether the phrase "SPAN for ICE" is confusingly similar to the SPAN mark.

This case is No. 1:18-cv-01376.

Attorneys: Joseph Thomas Kucala, Jr. (Norvell IP LLC) for Chicago Mercantile Exchange Inc. Gina L. Durham (DLA Piper LLP) for ICE Clear US, Inc. and ICE Clear Europe Ltd.

Companies: Chicago Mercantile Exchange Inc.; ICE Clear Europe Ltd.; ICE Clear US, Inc.

MainStory: TopStory Trademark IllinoisNews

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