In Kroma Makeup EU Ltd., v. Boldface Licensing & Branding, Inc., the Middle District of Florida held that a foreign licensee of a registered U.S. trademark could sue Kim, Kourtney and Khloe Kardashian for their alleged extraterritorial infringement of the trademark and further sue its licensor for refusing to share in the proceeds of a settlement regarding the same infringing conduct. Defendant, By Lee Tillett, Inc. (“Tillett”), is a domestic corporation who owns a registered U.S. trademark for “Kroma” which is used for a premium, all-natural makeup brand. Plaintiff, Kroma Makeup EU, Ltd. (“Kroma EU”) is a United Kingdom corporation. In October 2012 Tillett granted an exclusive license to Kroma EU to import, sell, and distribute Kroma products in the European Union and to use the “Kroma” mark in furtherance of its business.
In 2011, Defendants Kim Kardashian, Kourtney Kardashian and Khloe Kardashian (collectively, the “Kardashian Defendants”) entered into a licensing agreement with Defendant, Boldface Licensing + Branding, Inc. (“Boldface”) to create and develop a makeup brand. Boldface conducted a preliminary trademark search for terms such as “Khroma” and “Kardashian Khroma.” Although aware of the possible conflict with the “Kroma” mark, the Kardashian Defendants filed a trademark registration for “Khroma”. The United States Patent and Trademark Office refused the application, stating that it was likely to create consumer confusion with “Kroma.” In June 2012, Tillett became aware of the “Khroma” makeup line and sent a cease and desist letter to Boldface. Boldface denied any infringement.
In November 2012, Boldface and the Kardashian Defendants released their Khroma makeup line into stores in the United States and Europe. Khroma was also sold globally through various websites. Khroma products were priced between $6 and $20 and were of inferior quality compared to Kroma. As a result, Kroma suffered severe consumer confusion with Khroma, resulting in the perception that Kroma products were associated with the Kardashian Defendants and were of the same inferior quality as Khroma. That same month, Boldface sued Tillett seeking a declaratory judgment that Boldface did not infringe the “Kroma” trademark. Tillett counterclaimed for trademark infringement and filed third party claims against the Kardashian Defendants for vicarious trademark infringement (the “California litigation”).
After the entry of a preliminary injunction against Boldface, Tillett settled with Boldface and the Kardashian Defendants. Kroma EU was not named in the California litigation and did not participate in settlement negotiations. Prior to settlement, Tillett, through its attorney, promised to seek damages on Kroma EU’s behalf. However after winning the preliminary injunction, Tillett informed Kroma EU that any recovery would inure solely to Tillett and ceased all substantive communication with Kroma EU. The settlement of the California litigation did not include a release of any claims of Kroma EU.
In September 2014, Kroma EU filed suit against Tillett, Boldface and the Kardashian Defendants alleging trademark infringement against Boldface, vicarious trademark infringement against the Kardashian Defendants, promissory estoppel against Tillett and tortious interference against Boldface. Boldface defaulted in February 2015. The remaining defendants moved to dismiss. Specifically, the Kardashian Defendants argued that the Lanham Act did not reach extraterritorial infringement.
The Court denied the motion to dismiss. As a threshold matter, the Court held that Kroma EU had standing to bring its vicarious trademark infringement claims. Citing Lexmark International, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377 (2014), the Court found that Kroma EU fell within the zone of interests protected by the Lanham Act. During the period in dispute, Kroma EU held an exclusive license to import and distribute Kroma products in the European Union and engaged in commercial conduct to promote the Kroma brand and product line abroad. Moreover, Kroma EU demonstrated that its injuries were proximately caused by Boldface and the Kardashian Defendants’ infringing conduct.
Second, Kroma EU’s claims were not barred by the doctrine of res judicata. Kroma EU was not a party to the California litigation and the settlement agreement did not settle, waive, or release any claims Kroma EU might have had in the litigation.
Third, the Court found that Kroma EU’s claims of foreign infringing activity were governed by the Lanham Act. In the Eleventh Circuit, when faced with a claim for foreign trademark infringement, the court employs a three part test to determine whether the activity is governed by the Lanham Act: (1) whether the defendant is a U.S. citizen; (2) whether the foreign conduct has a substantial effect on U.S. commerce; and (3) whether adjudicating the claim would interfere with another nation’s sovereignty.
- The first factor weighed in favor of allowing Kroma EU to proceed under the Lanham Act because the Kardashian Defendants are U.S. citizens.
- The second factor was also in Kroma EU’s favor because the Kardashian Defendants’ conduct has had a substantial effect on U.S. commerce. The infringing Khroma products were sold globally through Internet retailers and Khroma’s U.S. and European-based websites. Due to Khroma’s pervasive Internet presence, the Court inferred that some American consumers intending to purchase Kroma products were confused into purchasing deeply-discounted Khroma products through European websites which appeared in U.S. Further, the Kardashian Defendants conducted all infringing business activities regarding the infringing European Khroma products from within the U.S. with the “indispensable and inescapable aid of U.S. commerce.” The Court also noted that the policies underlying the Lanham Act were best served by a finding that the Kardashian Defendants’ foreign conduct had a substantial effect on U.S. commerce because the Kardashian Defendants were aware that the “Khroma” mark would likely cause confusion with “Kroma” and proceeded anyway.
- Finally because Kroma EU was the licensee of a U.S. registered trademark, the United States had the greatest interest in enforcing the mark.
With respect to the claim for promissory estoppel against Tillett based on the failure to share settlement proceeds, the Court dismissed the claim because it was grounded in Kroma EU’s contractual relationship with Tillett. However, because an exclusive trademark license contract contains an implied obligation of good faith on the part of the licensor to share its settlement of an infringement claim, Kroma EU could proceed against Tillett under a breach of contract theory.
This case represents a careful analysis of the extraterritorial reach and impact of the Lanham Act on Internet commerce.