IP Law Daily Merchandise sellers did not cybersquat on ‘Sturgis’ rally marks
Thursday, April 1, 2021

Merchandise sellers did not cybersquat on ‘Sturgis’ rally marks

By Thomas Long, J.D.

Challenged domain names were not identical or confusingly similar to asserted trademarks; sellers also were awarded over $280,000 for lost sales sustained as a result of an "improvidently" granted preliminary injunction.

In a long-running trademark dispute involving vendors of merchandise related to the famed annual motorcycle rally in Sturgis, South Dakota, the federal district court in Rapid City has determined that defending sellers did not, as a matter of law, violate the Anticybersquatting Consumer Protection Act by registering seven domain names that incorporated the word "Sturgis" and were confusingly similar to marks owned by a licensing entity. The U.S. Court of Appeals in St. Louis had previously declared the standalone work mark STURGIS invalid, and along with that determination, the appellate court vacated a jury’s finding that the defendants had engaged in cybersquatting. With respect to the licensing entity’s marks still in play—STURGIS BIKE WEEK, TAKE THE RIDE TO STURGIS, and a composite design mark—the district court decided that no reasonable juror could find that the challenged domain names were "identical or confusingly similar to" those marks. Nor was there evidence that the defendants had registered their domain names with the bad faith intent to profit from them. In addition, the court decided that the defendants were entitled to over $280,000 in damages incurred as a result of an improperly granted preliminary injunction (Sturgis Motorcycle Rally, Inc. v. Rushmore Photo & Gifts, Inc., March 29, 2021, Viken, J).

Since 1938, the city of Sturgis, South Dakota has held a motorcycle rally, which has become the largest such rally in the world. In 1987, the Sturgis Area Chamber of Commerce debuted a licensing program for composite design mark that included two motorcycles and the word "Sturgis." Design features included stars, a bird of prey, buffalo, and feathers. The Chamber represented that products displaying the mark could be called "officially licensed." The Chamber registered the design mark federally in 1996; in the 2000s, it acquired two-word marks that some rally vendors had also registered federally: "Sturgis Bike Week" and "Take the Ride to Sturgis." These three marks are only some of the many words and designs that vendors have used to associate their goods and services with the rally, which has come to be known by many names, including simply by the word "Sturgis."

Defendants Paul and Carol Niemann, along with their son, defendant Brian Niemann, owned defendant Rushmore Photo & Gifts, Inc. (together, "Rushmore"), a souvenir provider in Rapid City that for years sold goods related to the rally, including some that it previously advertised were "officially licensed," even though they were not. With the sole exception of some postcards it once created that displayed the design mark, Rushmore did not ask the Chamber or SMRI for permission to sell its rally-related products, many of which displayed the word "Sturgis" or the name "Sturgis Motor Classic."

In 2010, the Chamber assigned its rally-related marks to plaintiff Sturgis Motorcycle Rally, Inc. (SMRI), an entity it helped create that year. SMRI's sole purpose is to license its marks to others. On April 24, 2012, plaintiff SMRI filed an amended complaint alleging trademark infringement and violations of the Anticybersquatting Consumer Protection Act (ACPA) against Rushmore and Wal-Mart Stores, Inc. With respect to the ACPA claim, the defendants were accused of registering seven domain names that were confusingly similar to SMRI’s trademarks.

Following a trial, the jury rendered a verdict in favor of SMRI, awarding it $912,500 in damages. The district court denied the defendants’ motion for judgment as a matter of law but held that SMRI was estopped by laches and acquiescence from recovering damages. On February 11, 2016, while the defendants’ post-trial motions were pending, the court entered a preliminary injunction in favor of SMRI and against the defendants. On July 21, 2017, the court entered a permanent injunction. Among other things, the permanent injunction required the defendants to "impound and destroy" certain products and advertisements and to transfer to SMRI the defendants’ domain name registrations.

On November 2, 2018, the U.S. Court of Appeals in St. Louis held that SMRI did not provide the jury with sufficient proof that its unregistered marks were valid marks that acquired secondary meaning, reversing the district court’s judgment that the defendants’ willfully infringed and diluted the marks. The Eighth Circuit, however, affirmed the district court’s judgment of trademark infringement and dilution pertaining to SMRI’s registered "Sturgis Bike Week" mark and the design mark because the marks were entitled to a presumption of validity when the infringing use occurred.

On remand, the parties submitted a joint statement to the district court regarding modifications to the permanent injunction and separate proposed revisions to the permanent injunction. Specifically, SMRI continued to claim ownership of the marks STURGIS, STURGIS RALLY & RACES, and STURGIS MOTORCYCLE RALLY marks despite the Eighth Circuit's ruling that SMRI failed to show infringement. Also, SMRI argued that the defendants will infringe the STURGIS BIKE WEEK® and/ or STURGIS Composite Design® marks by using the terms STURGIS, STURGIS RALLY & RACES, and STURGIS MOTORCYCLE RALLY.

The district court vacated the jury finding that the STURGIS mark registration was not invalid, holding that the mark was indeed invalid and that trademark registrations for STURGIS were void and may be subject to cancellation. Also, the court vacated the jury finding that the defendants infringed the STURGIS mark. However, the jury’s decision that the defendants did not infringe on the TAKE THE RIDE TO STURGIS mark was affirmed. The ruling that the STURGIS BIKE WEEK mark was not invalid was affirmed. Finally, the jury verdict in favor of SMRI on the BLACK HILLS MOTOR CLASSIC STURGIS RALLY & RACES BLACK HILLS S.D. mark (Monahan mark) was affirmed. The STURGIS MOTORCYCLE RALLY mark is invalid, according to the court. Thus, the jury’s finding that the defendants infringed on the STURGIS MOTORCYCLE RALLY mark was vacated. Similarly, the STURGIS RALLY & RACES mark was invalid and the jury finding that the defendants infringed on the STURGIS RALLY & RACES mark was vacated.

The court vacated the jury ruling that the defendants' Sturgis designations were counterfeits of the design mark. Also, the jury verdict in favor of SMRI on the trademark dilution claim and anti-cybersquatting consumer protection act claim were vacated. Portions of a March 10, 2017, order addressing application of the defendants' equitable defenses of acquiescence and laches and granting in part the defendant's motion for application of the equitable defenses were also vacated.

Additionally, the court vacated the permanent injunction and entered an amended preliminary injunction. The amended preliminary injunction enjoined the defendants from using STURGIS BIKE WEEK, BLACK HILLS MOTOR CLASSIC STURGIS RALLY & RACES BLACK HILLS S.D., SMRI’s marks, and the design mark.

In December 2019, the court granted the defendants’ motion to order cancellation of the STURGIS registrations. The court also ordered SMRI to post a $367,539 bond for the amended preliminary injunction the court had granted. Based on SMRI’s failure to post the bond, the amended preliminary injunction was vacated on March 24, 2020.

Now before the district court was another "barrage" of motions, including SMRI’s voluntary motion to dismiss its ACPA claim, the defendants’ motion for summary judgment on the ACPA claim, the defendants’ motion for money damages sustained as a result of the improvidently granted preliminary injunction, and the defendants’ motion for application of equitable defenses to remaining claims.

Voluntary motion to dismiss ACPA claim. SMRI moved to dismiss its ACPA claim, asserting that it no longer needed the equitable remedy of having the domain names returned to it because it had acquired them on the open market after Rushmore had abandoned them. SMRI also asserted that it could not afford to pursue the claim, given the mounting costs associated with the litigation. Rushmore opposed the motion, which asked the court to find both sides responsible for their own costs. According to Rushmore, the motion to dismiss was being used for the improper purpose of avoiding an unfavorable ruling on the claim.

The court sided with Rushmore, noting that initially "SMRI vehemently insisted on engaging in pretrial discovery, including written interrogatories, retaining experts and taking depositions on the ACPA claim," but then did nothing for the next 18 months. Moreover, SMRI did not disclose its purchase of the domain names to the court or to Rushmore, although that purchase took place in April 2019, which was 14 months before it declared its lack of interest in continuing to pursue the ACPA claim. Rushmore incurred expenses in preparation of its defense during this time, including filing a summary judgment motion. Also, SMRI misled the USPTO by asserting the STURGIS mark was not invalid because the decisions of the Eighth Circuit and the district court were merely interlocutory.

Additionally, SMRI’s purported inability to afford pursuing the claim was an insufficient explanation for the need for dismissal, in the court’s view. "It defies logic that a plaintiff would abandon an alleged million dollar claim unless the plaintiff knew it would be defeated at trial," said the court. "Both by the fact a jury would not support pursuit of a claim for adverse use of a domain name when the plaintiff owned the domain names at least two years prior to trial or the fact that one-seventh of a million dollar valued claim was being offered for sale [on the open market] for $6,884."

Rushmore spent nearly two years presenting its defense to the ACPA claim and filed a motion for summary judgment on May 21, 2020, 30 days prior to SMRI’s motion to dismiss. The court found it troubling that SMRI baselessly presumed that its motion to dismiss relieved it of the responsibility to timely respond to the summary judgment motion—that is, within 21 days after the motion was served upon it. "It is clear SMRI filed its motion to dismiss the ACPA claim to avoid an adverse decision on defendants’ motion for summary judgment," the court opined, denying SMRI’s motion to dismiss the ACPA claim.

Motion for summary judgment on ACPA claim. The district court noted that when the Eighth Circuit declared the STURGIS mark invalid, that court vacated the jury’s finding that the defendants engaged in cybersquatting. In addition, at trial, the jury found none of the defendants infringed on SMRI’s TAKE THE RIDE TO STURGIS mark, but it then concluded that the defendants violated the ACPA. Although the district court considered this result inconsistent, it decided to include that mark in its analysis of the ACPA claim. Therefore, based on the jury’s verdict and the Eighth Circuit’s rulings, a new trial would focus only on SMRI’s ACPA claim against Rushmore and Brian Niemann and only as that claim related to STURGIS BIKE WEEK, TAKE THE RIDE TO STURGIS, and the composite design mark.

SMRI had the burden of showing that its marks were distinctive and were confusingly similar to the defendants’ seven domain names. There was no direct evidence—such as consumer testimony or consumer surveys—to demonstrate that the defendants’ domain names were confusingly similar to SMRI’s marks, the court said. Nor did SMRI offer expert testimony to address the confusion that might exist when comparing its marks with the domain names. According to the court, no reasonable juror could find that any of the seven domain names were "identical or confusingly similar to" SMRI’s three marks. Additionally, SMRI presented no evidence to permit a reasonable jury find that either Rushmore or Brian Niemann had the requisite "bad faith intent to profit" from SMRI’s three marks. Therefore, the defendants’ motion for summary judgment was granted, and the ACPA claim was dismissed with prejudice.

Damages for improvidently issued preliminary injunction. Rushmore sought (1) recovery of damages it incurred from the issuance of the amended preliminary injunction of February 15, 2019, which allegedly "improperly enjoined … [the] use of STURGIS MOTOR CLASSIC"; (2) money "damages and an order to show cause as to why SMRI should not be held in contempt of court for its violation of … two 2019 Court orders"; and (3) an order requiring SMRI to pay $17,953.24 in attorney fees as a sanction.

The court agreed that it was improper to grant the preliminary injunction with respect to the STURGIS MOTOR CLASSIC mark because SMRI had no claim to "Sturgis," "Motor," or "Classic." Although SMRI had been ordered to post a security bond upon the issuance of the injunction, it did not do so. During the year that the injunction was in force, Rushmore refrained from using the enjoined mark and argued that it sustained lost-sales damages as a result. Although a court ordinarily lacks the power to award damages sustained as a result of a later-dissolved preliminary injunction in the absence of a bond, in this case the preliminary injunction imposed on SMRI "an obligation to make good to the defendant any damages sustained within its terms in case it was continued in force." According to the court, SMRI "accepted and acted under" the amended preliminary injunction for the better part of 18 months, which obligated it to cover Rushmore’s damages. Based on Rushmore’s submissions and testimony by Brian Niemann, the court concluded that Rushmore was entitled to $282,341 to be paid by SMRI for the damages caused by the wrongfully issued amended preliminary injunction.

As a result of the damages award, Rushmore’s request for a contempt of court ruling was denied as moot. The court also decided that SMRI had not complied with a February 2019 order to pay attorney fees; therefore, the court entered an order to show cause as to why SMRI should not be held in contempt of court for that failure.

Equitable defenses. Rushmore, the Niemanns, and Walmart raised the equitable defenses of acquiescence and laches. With respect to acquiescence, the court said, "There was no evidence presented at trial or now offered by SMRI indicating the reasons, if any, why plaintiff waited 4 years and 10 months to initiate litigation to protect SMRI’s trademark claims." SMRI must have, in the court’s view, been aware of the sales of purportedly infringing products at the bike rally during that time. The defendants had a good faith belief that they had the right to use the "Sturgis" marks, and they sustained significant prejudice as a result of SMRI’s inaction. Therefore, the acquiescence defense was meritorious. The court ruled similarly with respect to the laches defense, pointing to SMRI’s long and unexcused delay in protecting its asserted trademark rights, which caused the defendants to sustain harm.

This case is No. 5:11-cv-05052-JLV.

Attorneys: Michael C. Loos (Clayborne, Loos & Sabers LLP) for Sturgis Motorcycle Rally, Inc. Eric H. Chadwick (Dewitt LLP) for Rushmore Photo & Gifts, Inc. and JRE, Inc.

Companies: Sturgis Motorcycle Rally, Inc.; Rushmore Photo & Gifts, Inc.; JRE, Inc.

MainStory: TopStory TechnologyInternet Trademark SouthDakotaNews GCNNews

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