Supreme Court Strikes 'Immoral or Scandalous' Trademark Bar

• Author: C. Thea Pitzen
• Pages: 22-23

Published in Litigation News Volume 45, Number 3, Spring 20 20. © 2020 by the Ameri can Bar Association. Re produced with per mission. All rights re served. This info rmation or any porti on thereof may not be c opied or disseminated in any

form or by any means or sto red in an electronic da tabase or retrieval sy stem without the ex press writt en consent of the Amer ican Bar Associatio n.

22 | SECTION OF LITIGATIO N

NEWS & ANALYSIS THE LATEST DEVELOPMENTS IN LITI GATION

Court Orders

Clarif‌ication of

Arbitration

By Anthony R. Mc Clure, Litigation

News Associa te Editor

Parties to an arbi tration recently

learned what h appens if their selected

arbitrator fails to is sue a “reasoned

award.” On a motion to vac ate such an

award under the Fed eral Arbitration

Act, a federal di strict court found that

the arbitrator exceed ed his authority.

But instead of vac ating the award, the

court reman ded the case to the arbitra-

tor for clarif‌ication.

In Smarter Tools, In c. v. Chongqing

SENCI Impo rt & Export Trade Co.,

the parties qu arreled over sales by a

Chinese compa ny to a Virginia corpo-

ration of thousan ds of units of a gas-

powered inverter generator. There was

no dispute that the b uyer failed to pay

for some of the deli vered generators.

But the buyer clai med that it required

the generators to b e compliant with

both Environmenta l Protection Agency

(EPA) and California air standards and

that they were not. It al so argued that

the seller unil aterally canceled sever-

al transactio ns. As a result, the buyer

complained it h ad to cease sales of the

generators in th e United States and that

it was f‌ined $507,000 for s elling non-

compliant generators in California.

The purchase ord ers for the gen-

erators provided for arbitration in

New York “under the Inter national

Commercial Dispute Resolution

Proceedings of th e American

Arbitration Ass ociation (AAA).” The

seller comme nced arbitration, and the

buyer counterclai med. There was no

dispute that the par ties had requested

a “reasoned award.”

The arbitrator award ed the seller

approximately $2.4 million, observing

that the seller ’s claim was “well -found-

ed and suppor ted by the evidence.”

The arbitrator sai d little, however,

about the buyer’s counterclaims. The

award “ma[de] no f‌inding as to wheth-

er any generator s provided by [the

seller] were defective or no n-compli-

ant, nor whether [the seller] unilateral-

ly cancelled scheduled deliveries.”

The parties f‌il ed cross-motions

to conf‌irm and to vacate th e arbitra-

tion award in the U.S . District Court for

the Southern Di strict of New York. As

the court obse rved, “Section 10 of the

Federal Arbitra tion Act provides that

a court may vacate an award,” among

other things, if “ the arbitrators exceeded

their powers” or if th e award is “in mani-

fest disregard of th e law or of the terms

of the parties’ re levant agreement.”

“The Secon d Circuit (Court of

Appeals) has held tha t a ‘reasoned

award’ requires some thing more than

a line or two of unexpl ained conclu-

sions,” the cour t noted, “but some-

thing less than f ull f‌indings of fact

and conclusio ns of law.” After review-

ing the arbitrator ’s decision , the court

concluded tha t it did “not meet the

standard for a rea soned award be-

cause it contain [ed] no rationale fo r

rejecting [the bu yer’s] claims.”

Although the buye r argued that

the district cou rt should vacate the

arbitrator’s award un der the Federal

Arbitration Act, th e district court ob-

served that the re medy of vacatur

must be strictly l imited. The court de-

termined that “the proper remedy

[wa]s to remand to the arbitrator for

clarif‌ication of h is f‌indings.” Upon re-

mand, the arb itrator issued a “Final

Amended Award,” i n which he clari-

f‌ied that the counte rclaim was “un-

availing and must b e dismissed.”

“There isn’ t really a hard-and-fast

def‌inition of what a re asoned award

is,” says Betsy A . Hellmann, New

York, NY, cochair of the ABA Sec tion

of Litigation’s Alterna tive Dispute

Resolution Committee.

“All of the circuits seem to be p ret-

ty much the sam e in that they all re-

quire some mini mum level of rea-

soning, but how th ey express that

standard can v ary from circuit to cir-

cuit,” says Hellmann.

Attorneys should “ be very careful”

when draftin g a contract and be “very

specif‌ic about what you are looking

for in an arbitratio n clause—you can’t

always just rely on the bo ilerplate lan-

guage,” says Kare n Aldridge Crawford,

Columbia, S C, cochair of the Section

of Litigation’s Environm ental & Energy

Litigation Commit tee.

Specif‌ically, says Crawford, it ap-

pears as thoug h “the court is infer-

ring that in this cas e, compliance with

EPA and California re gulations on

emissions from these engines was per-

haps the most im portant aspect of the

contract.” And s o “you also have to be

careful in laying o ut your minimum es-

sential require ments for the product

specif‌ications, and you certainly want

to make sure you provide for th e selec-

tion of an arbitrator wh o understands

the regulatory co mpliance scheme and

how importa nt it is,” she adds.

Supreme Court

Strikes “Immoral

or Scandalous”

Trademark Bar

By C. Thea Pitze n, Litigation News

Associa te Editor

Respondent Er ic Brunetti fou nded a

clothing line na med—and usin g the

trademark—FU CT. But the U.S . Patent

and Trademark Oce (PTO) refused

to register the mark b ased on the

Lanham Act ’s prohibition against

registration of im moral or scand alous

marks. So Br unetti brought a facial

challenge to the L anham Act’s so-

called “‘immoral or scandalous’ bar.”

In Iancu v. Brunetti, the U.S. Suprem e

Court found th at the bar indeed vio-

lates the First Ame ndment. Some

ABA Section of Liti gation leader s

opine that the de cision may pave the

way for legislative cha nge.

The Court note d that “just two Terms

ago” in Matal v. Tam, it “declared un con-

stitutional the L anham Act’s ban on reg-

istering marks t hat ‘disparage’ any ‘per-

son[], livin g or dead.” Though the Ta m

Court was divid ed between two opin-

ions, “all the Ju stices agreed on two

propositions”: f‌i rst, that “if a trademark

registration bar i s viewpoint-based, it is

unconstitutional” and, second, that “the

disparagem ent bar [in Tam] was view-

point-based.” Th e Court here likewise

concluded tha t the Lanham Act’s “im-

moral or scandalous” bar was viewpoint-

based and accord ingly violated the First

Amendment and “must be invalidated.”

The Court ’s decision is not surpris-

ing because it “ f‌lows logically from

the Tam decision and just addresses

a dierent par t of the statute,” says

Michael D. Stege r, New York, NY, co-

chair of the Sec tion of Litigation’s