[BreachExchange] The Underwear Heist - A Tale of Intellectual Property Theft

[Audrey McNeil]

http://www.lexology.com/library/detail.aspx?g=8fa5ed40-30c1-409a-b885-
6460766f17dc

On September 20, 2016, Intimateco, LLC filed suit against Bliss Lingerie
Corp., its founder – the former Intimateco Vice President of Operations –
and related parties for trademark and copyright infringement, and related
claims, misappropriation of trade secrets, conversion of business records,
identity theft, tortious interference with business expectations and other
common law claims.

According to the complaint, in connection with its products, Intimateco
has, since 2010, been continuously using and advertising the mark FINALLY
PANTIES THAT FIT YOUR ACTIVE LIFESTYLE PERFECTLY. QUALITY. COMFORT.
CONFIDENCE. Defendant Albert Mizrahi served as Intimateco’s Vice President
of Operations from February 2011 until August 2013. However, in October
2012, he set up a limited liability company, Bliss, to sell underwear and
lingerie in competition with Intimateco. After leaving Intimateco, Mizrahi
set up a second corporation, Bliss Lingerie NYC, also to sell underwear and
lingerie. The complaint alleges that Mizrahi copied and stole the
trademarks referenced above and improperly copied and stole Intimateco’s
packaging design. Defendant Kidz World, Inc. is alleged to have violated
Intimateco’s trademark rights by importing, shipping and selling Bliss’
infringing underwear products.

The complaint further alleges that Mizrahi copied and used Intimateco’s
customer names and customer relationships, information relating to all
QuickBooks, recorded information relating to costs, sales, profits,
inventory, overhead style numbers, factory information, pricing and
thousands of copyrightable product designs and pictures of thousands of
products and styles being sold. While employed at Intimateco, Mizrahi
contacted one of its Chinese manufacturing vendors to do work for him and
emailed confidential inventory and product list information to his personal
email address.

Once having set up his "copycat" business, the complaint alleges that
Mizrahi contacted Intimateco’s suppliers claiming that Intimateco was "a
very bad company" and that the owner "is a THIEF and NOT [an] honest
person." In urging Chinese manufacturers to discontinue doing business with
Intimateco, Mizrahi stated that they could start placing new orders with
Bliss. As a result of Bliss’ interference, the U.S. Customs and Borders
Protection seized two containers of Intimateco’s underwear products, with a
total value of $248,486, according to the complaint.

The complaint is a litany of Federal and state statutory and common law
claims a company can make to challenge theft of its intellectual property
(IP) - chief among those being claims of trademark violations and
misappropriation of trade secrets. The facts of the case illustrate steps
that companies can take - but Intimateco failed to take - to first reduce
the risk of theft of its IP, and then in the event of a theft, to reduce
the time it takes to discover the transgressions.

Intimateco did not file for either Federal trademark or copyright
protection until after it discovered Bliss’s alleged misdeeds. Instead,
Intimateco relied on its common law trademarks and copyrights. Intimateco
does have common law protections, as would any company through its "use" of
a mark in commerce or when it fixes its work of authorship, copyrightable
material, in a tangible medium. Nonetheless, filing for Federal trademark
and copyright protection would have eased the burden of proof and provided
a much broader range of remedies. Perhaps more importantly, the
transgressor would not have been emboldened to take the action that he took
had the company spent the time and money to file for the protections
provided by Federal law.

If Intimateco had filed to register its trademark with the United States
Patent and Trademark Office (USPTO) in 2010, it would almost certainly have
prevented Bliss from registering the mark first. The USPTO likely would
have cited Intimateco’s previously registered mark in refusing to grant a
subsequent application for the same mark by Bliss. Moreover, under the
Federal trademark law, earlier registration by Intimateco would have
provided evidence of its exclusive rights to the mark and an easier case to
prove at trial. As a prior user, but later filer for Federal trademark
registration, Intimateco will have to provide evidence of the dates and
geographic locations of use to establish earlier rights in those locations.

To preserve its right to statutory damages and attorney’s fees under
Federal copyright law, both of which are strong incentives for a copyright
infringer to cease and desist and/or reach a settlement with a copyright
owner, Intimateco would have had to register its copyright within three
months after it first published or used the copyrighted packaging. Because
Intimateco waited over four years after the first publication of its work
before registering with the Copyright Office, it is not eligible for
statutory damages or attorney’s fees under the statute.

As part of a more comprehensive IP strategy, many companies subscribe to
trademark watch services to monitor potential infringement of company
marks, competitor trademark filings, and filings made by former key
employees. When such an activity occurs, the company is immediately
notified. Had Intimateco filed for and received one or more Federal
trademarks and subsequently subscribed to a watch service for those marks,
it would have been alerted to Bliss’s Federal trademark filing on or about
May 31, 2016. Upon receiving such an alert, it could have investigated and
likely prevented much of the damaging actions that allegedly occurred after
the date of the filing.

It is alarming that Mizrahi would have stolen so much intellectual property
while employed by Intimateco and presumably receiving a hefty salary as its
Vice President of Operations. It is also disconcerting that he could have
downloaded vast amounts of confidential business information without
detection. Regrettably, in today’s business environment, companies must be
constantly on-guard for internal theft of information and must have a
thorough, ongoing program to reduce the risks of employee malfeasance.

TAKE-AWAYS:

Do not rely on common law trademarks and copyrights. In addition to
providing for a faster path to enforcing such IP rights, the modest costs
of filing for trademarks and copyrights provide protection against the
theft of IP in the first instance.
Do not rely on common law trademarks and copyrights. In addition to
providing for a faster path to enforcing such IP rights, the modest costs
of filing for trademarks and copyrights provide protection against the
theft of IP in the first instance.
Conduct periodic IP audits and IP audits after the occurrence of certain
events, for example, after a merger or purchase of assets, etc. An IP audit
should also be conducted when developing a comprehensive IP strategy. Stay
tuned - an upcoming Murtha Cullina newsletter will focus on best practices
for conducting an IP audit.
Trade Secret protection requires diligence in protecting from disclosure
the information claimed as "secret". This includes limiting access to
information, monitoring usage and a thorough-going exit interview process,
which includes return and review of the electronic devices used by the
departing employee. This vetting is of increasing importance the more the
departing employee has been exposed to the company’s "secrets."
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