The Real Lesson from the Kardashian-Kroma Trademark Dispute
So this is about that trademark case against the Kardashian sisters, which is what has made it newsworthy. However, since most of aren’t Kardashians, and are more likely to be in the position of the other players, I want to focus on why the plaintiff was suing in the first place, and why it pays to be mindful when granting and accepting trademark licenses.
A Transatlantic Alliance Is Formed.
In 2004[ref]Per filings withe USPTO, but Tillett’s own biography says her products were “born in 2000.” Perhaps she didn’t hit up on the KROMA name until later.[/ref], Lee Tillett created and sold a “high-end, all natural” makeup line she called KROMA. After starting a company called “By Lee Tillett” (but we’ll just conflate her with her company and call both “Tillett,” even though she later got married and changed her name), she applied for and obtained a trademark registration for KROMA for cosmetics. In 2010, Tillett found a partner in Europe[ref]Well, in the United Kingdom, which at the time was economically part of “Europe,” but as of this writing, I’m not sure for how longer that will be the case.[/ref] to market and sell the makeup in Europe. This European partner called itself “Kroma Makeup EU,” but let’s call it “Makeup EU” so we don’t lose our minds.
Tillett and Makeup EU entered into an agreement, the terms of which are important here. The terms are pretty standard. In exchange for royalties, Tillett gave Makeup EU an exclusive license to import, sell and distribute Tillett’s makeup in Europe under the KROMA mark, and to use KROMA to market the products. Nobody else in Europe had this right. Tillett maintained ownership of the KROMA mark, and she didn’t license it out to anyone in the United States.
Tillett had an important obligation under the agreement. Not only did she have to maintain the trademark registration, but she had to protect KROMA from “any attempts of illegal use.” This sort of provision is crucial to the licensee. Normally, licensees can’t enforce the trademarks they license, so what happens if someone is infringing the licensed mark, diverting customers away, and weakening the mark? You have to make sure the mark’s owner is ready, willing and obligated to protect the mark.
A Very Kardashian Dispute
Then it happened. In 2012, a company called Boldface Licensing + Branding went public with a deal to manufacture and sell a makeup line called KHROMA BEAUTY BY KOURTNEY, KIM AND KHLOE. Just previous, Boldface filed an “intent to use” application to register KROMA for, essentially, makeup and related goods. The application quickly hit a snag when the examiner brought up the registration for KROMA.
Tillett did her duty. She demanded that Boldface cease its plans to use KHROMA. Boldface demurred and tried to settle. This must have been huge for Boldface. The Kardashians must have presented a once-in-lifetime opportunity. At the same time, this was pretty embarrassing for Boldface’s highly visible partners. “Hey everyone! Makeup by the Kardashians!” “Oh, whoops! We’ve just make them (potential) trademark infringers!” That’ll give you whiplash. Why all that didn’t translate into a non-farcical attempt to clear the mark, one cannot say.
When Tillett wouldn’t settle—or settle as quickly as Boldface required— Boldface sued Tillett. You read that correctly, and this is fairly normal. Boldface wanted a court to declare that KHROMA for cosmetics-y stuff didn’t infringe KROMA for cosmetics. Maybe it really believed there was no likelihood of consumer confusion. Or maybe Boldface believed that, since it was bigger and had the backing of the Kardashians, Tillett would give up.
She didn’t. Instead, she countersued for trademark infringement. When Boldface rolled out its KHROMA products and generally acted as though Tillett didn’t exist, Tillett got the court to stop sales of KHROMA products during the pendency of the case, which is about as big a victory as you can get in this sort of a case. The KHROMA products, having been proudly displayed in major retail outlets, came off the shelves. Boldface staged a tactical retreat by rebranding the makeup as KARDASHIAN BEAUTY.
In moving for the preliminary injunction, Tillett was ably assisted by Makeup EU, which seemed genuinely concerned about the effects of a Kardashian-backed juggernaut smooshing its KROMA business. Apparently, KROMA was doing very well in Europe, and Makeup EU saw Kardashians-inspired brand confusion as a major threat to its business.
In 2014, the case settled. Boldface paid Tillett something, and Tillett didn’t give any of that money to loyal Makeup EU. Makeup EU (must have) felt it had actually lost sales because of what Boldface had done in Europe. If nothing else, Boldface paid money to compensate Tillett for some harm, right? And some of that harm happened in Europe and hurt Makeup EU, right? It was determined to make itself whole. In a new and separate action, it sued Tillett, Boldface and the Kardashians—Tillett for breach of contract and Boldface/Kardashians for trademark infringement.
The trial court granted summary judgment for Boldface and the Kardashians on the unsurprisingly grounds that Makeup EU just couldn’t enforce KROMA. It didn’t own the mark, and its agreement with Tillett didn’t give Makeup EU the power to enforce it.[ref]I want to EMPHASIZE that this statement wouldn’t apply to copyright. I realize that copyright and trademark get lumped together (with some other things) as “intellectual property”—and not everyone agrees they should be—but different forms of intellectual property really differ from each other in terms of “standing” (the right to sue to enforce). For example, in copyright law, an exclusive licensee always has standing to sue BUT the owner can’t give a non-exclusive licensee the right to sue, even by contract.[/ref] If Makeup EU was going to be made whole, it would have to look to Tillett and to its agreement with Tillett. [ref]And even if Makeup EU snuck its trademark claim through, it would have to argue that the damage it suffered was above and beyond the amount Tillett settled for, i.e., Tillett’s settlement didn’t compensate for all the damage done to the mark.[/ref]
How is that part of the case going? Well, it turns out the Tillett-Makeup EU agreement contains an arbitration provision, so we don’t really know.[ref]Not because the arbitration is confidential. You hear that a lot about arbitration, but arbitration isn’t by its own nature confidential. It’s the arbitration provision in the contract that makes it “confidential.” As it happens, this arbitration provision lacks a confidentiality term. Having said all this, nothing prevents Tillett and Makeup EU from agreeing now to make the arbitration proceedings confidential. One thing is certain: the arbitrator must keep mum about the proceedings, no matter how juicy.[/ref] But unless there’s some exotic legal theory at play, it sure looks bad for Makeup EU. There’s nothing in the agreement that would entitle Makeup EU to any share of the settlement, or even that Makeup EU should be reimbursed for its out-of-pocket expenses of supporting Tillett’s lawsuit.
Boldfaced Lawsuit Wasn’t a Kardashian Catastrophe.
Hard to believe, but it could have been far worse for Makeup EU. What if Tillett fell down on the job or, out of fear of the mighty Kardashian empire, just let Boldface infringe the living heck out of KROMA? Makeup EU couldn’t sue to stop it. All it could do is sue Tillett for damages, while watching its sales dissipate. And Tillett probably wouldn’t have had enough to cover Makeup EU’s losses—and that’s assuming she didn’t go bankrupt trying to enforce KROMA. And, no, a court wouldn’t have made Tillett enforce KROMA against her wishes.
Or, what if Tillett settled the case by selling KROMA to Boldface? That was a likely outcome! The agreement explicitly gave Tillett the right to assign away the mark, without any need to seek Makeup EU’s permission and without compensation to Makeup EU. Although Boldface would need to comply with the Tillett-Makeup EU agreement (having stepped into Tillett’s shoes), it would be a difficult, reluctant partner. (At least Boldface wouldn’t be able to use KROMA or KHROMA in Europe, since that would breach the “exclusive” part of the agreement.)
Alas, there was only one way for Makeup EU to avoid the actual problems it experienced and the potential problems it luckily dodged. And that was to provide for these eventualities in the agreement with Tillett. Here are some suggestions:
- The right to enforce KROMA if Tillett, for whatever reason, failed to do so. That’s a pretty common and non-controversial.
- Entitlement to reimbursement out of settlement or judgment money for time and expenses spent supporting Tillett’s enforcement actions.
- A requirement that Tillett maintain a certain reserve of funds to maintain an enforcement action.
- A requirement that Tillett obtain permission before assigning KROMA to someone else. Tillett would’ve been reluctant to agree to this, but she might also have seen the future royalty payments as worth it.
The Tillett-Makeup EU agreement is nothing if not competent. Although it is mostly concerned with the many issues of importing goods into the EU, it does dutifully cover the basics required by trademark law. Most notably, it had that provision requiring Tillett to enforce KROMA (even if the provision wasn’t exactly self-enacting). That’s much better than nothing!
But I also wonder if there was any sort of conversation between the parties about trademarks. What happens if someone starts using something confusing similar to KROMA? What if that someone is really big? Can you handle that? Should we have rights to enforce KROMA? We like you tons, but what if you sell KROMA to someone else?
Trademark is “intellectual property” and, therefore, hopelessly arcane. But it isn’t really. If KROMA products are not only high quality, but have desirable qualities, like being all natural, how do customers know that your products are the ones with those qualities? They don’t know you from Adam. The answer is: the trademark. The trademark is repository of consumers’ feelings and understanding of your products. Most infringement is annoying or manageable[ref]Contrary to what you hear sometimes, there is NO absolute “duty to police” your trademarks. If you let some minor infringement slide, your trademark isn’t going to die. If you let that happen frequently enough, though, it can compromise your ability to enforce your trademark down the line.[/ref], but, as this case shows, it can sometimes blow up in a hurry. Do you have a plan to protect yourself?
Transaction attorneys aren’t just monkey f-ing scribes. They’ve seen things, man. A contract isn’t just some formality to get out of the way so you can get on with the transaction. The contract is in many respects the transaction. The time to have a strategic discussion about the transaction is before you sign or even begin drafting the contract.
Thanks for reading!