Ninth Circuit: Sales of Equity Can’t Constitute Trademark Infringement

The Ninth Circuit has affirmed a ruling that the advertisement and sale of equity in a company cannot constitute trademark infringement.

The case is LegalForce RAPC Worldwide, P.C. v. LegalForce Inc.

LegalForce RAPC Worldwide, P.C. (“LegalForce USA”), a California corporation that operates legal services websites, sued LegalForce, Inc. (“LegalForce Japan”), a Japanese corporation that provides legal software services, for trademark infringement, alleging that LegalForce Japan’s United States expansion plan, website ownership, and advertising and selling of equity infringed LegalForce USA’s US trademark.

The district court dismissed the claims concerning equity for failure to state a claim for trademark infringement.

On appeal, the court considered the question of

whether using a trademark in connection with the sale of equity constitutes using the mark in connection with “goods or services” within the meaning of the Lanham Act, 15 U.S.C. § 1051 et seq.

LegalForce USA alleged that LegalForce Japan stated its intention to expand into the United States and filed a United States trademark application for the mark “LF.”

LegalForce USA also alleged that LegalForce Japan bought two website domains in the United States: LegalForce-corp.com and LegalForce-cloud.com. LegalForce Japan also created a United States subsidiary.

In 2022, LegalForce Japan used the LEGALFORCE mark to advertise and sell equity shares to investors in California. LegalForce USA alleged that it was talking to the same investors at the same time, but that those investors gave $130 million to LegalForce Japan and nothing to LegalForce USA.

As the court noted, to state a claim for trademark infringement under the Lanham Act, the plaintiff must show that

1. the plaintiff has a protectible ownership interest in the mark, or for some claims, a registered mark;
2. the defendant used the mark “in connection with” goods or services; and
3. that use is likely to cause confusion.

15 U.S.C. §§ 1114(1)(a), 1125(a).

The Ninth Circuit agreed with the district court that LegalForce Japan hadn’t used LegalForce USA’s mark “in connection with” goods or services, and therefore LegalForce USA failed to state a claim for which relief could be granted.

As the court explained,

Equity is not a “good” for purposes of the Lanham Act because it is not a movable or tangible thing. …

Equity is also not a service for purposes of the Lanham Act. Equity is not “performance of labor for the benefit of another,” because there is no “another” involved. The individuals or entities who buy equity in LegalForce Japan are owners of LegalForce Japan; they are thus not legally separate “others.” …

Equity is also not “a different kind of economic activity than what” companies like LegalForce USA and LegalForce Japan “normally provide[].”

LegalForce USA cited three cases for the proposition that “trademark infringement can occur from fundraising activities where there has been no sale of a good or a service.” However, said the court, none of those cases were trademark infringement cases.

The Ninth Circuit also noted that the district court properly held that LegalForce Japan’s services in Japan didn’t satisfy the “in connection with” goods or services requirement under the Lanham Act. Because LegalForce Japan’s services were all outside the United States, the Lanham Act couldn’t apply to them.