Wednesday, May 5, 2010

Law Firm Finds Its Head On A Plate: Franklin Mint Wins Malicious Prosecution Appeal in Trademark Dilution and False Advertising Case

On May 3, a California appellate court issued an 50 page decision in favor of the Franklin Mint Co. (Franklin Mint) in its appeal of a trial court's judgment that had dismissed its claim for malicious prosecution. The court found that no reasonable attorney could have found the false advertising claim tenable as it was alleged and litigated in an underlying case, and that no reasonable attorney could have concluded that the trademark claim could satisfy two fundamental, long-standing principles of trademark law. Accordingly, the court reversed the trial court's judgment and remanded the case for trial on malice and damages issues.

The case involved Franklin Mint's lawsuit against the law firm Manatt, Phelps & Phillips LLP and one of its attorneys (Manatt), which had previously filed suit on behalf of Princess Diana's estate, and a related entity, in an attempt to enjoin Franklin Mint's use of the late Princess of Wales' name and likeness on commemorative memorabilia.

The Underlying Lawsuit
The underlying suit was commenced in federal district court in 1998, against Franklin Mint and others on behalf of the executors of the estate of Diana, Princess of Wales and the trustees of The Diana, Princess of Wales Memorial Fund (Fund). That complaint alleged causes of action for infringement of the California statutory right of publicity; trademark dilution, false designation of origin and false advertising under the Lanham Act; and unfair competition and false and misleading advertising under California Business and Professions Code §§ 17200 and 17500.

Franklin Mint moved to dismiss each of the claims, and moved to strike inflammatory language referring to Franklin Mint as “vultures feeding on the dead.” The district court granted the as to the right of publicity claim on the ground that the law of Great Britain applied, and does not recognize a right of publicity. It also granted the motion to strike the inflammatory language. The court subsequently granted summary judgment in favor of Franklin Mint on the trademark dilution and false advertising claims.

The Court explained that a finding of secondary meaning in this case would mean that the words "Diana, Princess of Wales" had acquired secondary meaning, a necessary element to prove trademark dilution. The court observed that to prove such a contention, the Fund would need to prove that the words "Diana, Princess of Wales" no longer primarily identify the individual, Princess Diana, but instead identify the Fund’s charitable activities. The court characterized such a suggestion as "absurd" and explained that, "[a]lthough Princess Diana is certainly well-recognized for her humanitarian work and fund-raising, she is undisputably also well-recognized for her status as a member of the royal family, her role as a mother, and her image as a fashionable princess." Thus, the court awarded Franklin Mint $1,635,000 in attorneys' fees for having to defend the trademark dilution and false advertising claims, which the court found to be groundless and unreasonable. The Fund appealed from the denial of its motion to reinstate the right of publicity claim, the summary adjudication of the false endorsement claim, and the award of attorney fees, but in June 2002, the Ninth Circuit affirmed all three orders.

Franklin Mint's Malicious Prosecution Lawsuit
In 2002, Franklin Mint filed its own complaint against Manatt in the Los Angeles Superior Court, alleging a single cause of action for malicious prosecution of the trademark dilution and false advertising claims based on the allegation that Manatt lacked probable cause for bringing them. Manatt moved for summary judgment on the ground that it had probable cause for asserting both claims but its motion was denied. As to the trademark dilution claim, the court found that Manatt “failed to produce any evidence that Princess Diana’s name is inherently distinctive as opposed to descriptive of the person Princess Diana”; that “[t]he name Diana, Princess of Wales has not acquired a secondary meaning attributable to her charitable activities”; or that the items Manatt submitted to show “Princess Diana’s name being used in conjunction with certain charity events . . . do not mention any services she provided.” With respect to the false advertising claim, it found that Manatt “provided no evidence [Franklin Mint] had misled a substantial segment of its advertising audience regarding [Franklin Mint’s] donation of proceeds to charity. The evidence presented [in the underlying lawsuit], of which [Manatt was] aware, was that [Franklin Mint] had donated a portion of the more than $4 million in sales to one of Princess Diana’s favorite charities and had interpled the balance into district court. The evidence was uncontroverted then and remains so, even in this lawsuit.”

Following a 17 day jury trial and extensive argument, the trial court found that it was "overwhelmingly clear that [Manatt] had probable cause to bring [the] action and indeed confronted by a client seeking a remedy . . . and having consulted with other lawyers to determine whether or not that client’s cause had merit, had he failed to file a cause of action, one would have had a serious question of whether or not he committed malpractice.” The court thus entered judgment in favor of Manatt.

The Appeal
Franklin Mint appealed. On appeal the California Court of Appeal, Second District, reversed the trial court's judgment, finding that there was no probable cause to prosecute the trademark dilution or false advertising claims. As to the trademark dilution claims, the court found that there was no legally tenable argument that Princess Diana used the words "Diana, Princess of Wales" as a trademark, or that those words had acquired secondary meaning. It found that "no reasonable attorney would contend, especially in the immediate aftermath of her death, that the primary significance of 'Diana, Princess of Wales' was to identify the provider of charitable services rather than to identify Princess Diana herself" and thus there was no probable cause to allege those words had acquired secondary meaning.

The appellate court found that Manatt's argument, that it was not required to prove secondary meaning, ignored basic trademark law. The court pointed out that "the fundamental principles of trademark law – a trademark must identify a source of a product or service, and a descriptive mark such as a personal name, must acquire secondary meaning in the minds of the public – were clear and well established, and their application to this case is straightforward and uncomplicated. The complexity of the issues arises only from Manatt's attempts to avoid those fundamental principles." The court went on to find the false advertising claim was not tenable as alleged and prosecuted, reversed the judgment, and remanded it for trial on the issues of malice and damages.

The majority opinion was written by Judge Willhite, with Judge Suzukawa concurring. Judge Mosk dissented. The appellate court's opinion, Franklin Mint Co. v. Manatt, Phelps & Phillips LLP, California Court of Appeal, Second Appellate District, Case No. B190482 (May 3, 2010), is available here.