Litigants may sometimes be reluctant to pay for damages experts, especially early in the process. However, quantifying damages is crucial in intellectual property (IP) claims to ensure a strong case. A qualified expert can be a valuable ally in protecting IP rights. This article highlights how a blockchain researcher might have benefited from consulting with a damages expert before filing IP claims with the U.S. District Court for the Southern District of California related to the use of his trademark.
Genesis of the Casper Trademark
A researcher in blockchain technology adopted the name “Casper” for his correct-by-construction (CBC) blockchain consensus protocol. Since March 2015, he has continuously conducted research and development under the Casper name in the United States and abroad, playing a key role in the development of intellectual property related to blockchain technology.
The researcher uses the “CBC Casper” and “Casper” names exclusively when communicating his work to the wider public. By 2017, he was using the Casper trademark in commerce related to distributing downloadable CBC Casper software and specifications under open-source licensing agreements. For example, he’s used the Casper trademark when providing and marketing his consulting services and has been compensated for presentations on Casper.
Case of Confusion
In 2018, CasperLabs asked the researcher to collaborate on developing a new blockchain. He entered a research agreement with the company in 2019 as well as a licensing agreement. The licensing agreement granted CasperLabs limited rights in the use of his name and image to promote the collaboration in exchange for the company helping to fund his work on CBC Casper.
The relationship quickly soured and the researcher terminated both agreements later that year. However, the company continued to associate its Casper products and services with the researcher and his Casper products and services. In addition, CasperLabs filed two trademark applications to register the CASPER trademark in its name for cryptocurrency services, complicating future IP claims. The researcher never sought registration of the CASPER mark because the company had represented that it would register the trademark on his behalf.
The researcher sued CasperLabs, asserting several claims under federal trademark law. He alleged that the company’s use of the Casper name to advertise and market its own blockchain products and services had and continued to cause confusion regarding the source of the products and services. He further claimed that the company’s use of the trademark interfered with his use of the Casper name, making it harder for him to market the genuine products of his research. He said the confusion has made it more difficult to secure funding for additional research, development, and adoption of CBC Casper.
Repeated Rejection
The district court granted CasperLabs’ motion to dismiss and gave the researcher leave to amend his first amended complaint. CasperLabs subsequently filed another motion to dismiss the second amended complaint.
The court previously dismissed the researcher’s false designation of origin claim under the Lanham Act for failure to allege damages. In the second amended complaint, he described several damages:
- He’s had difficulty seeking funding from both an existing client and other potential investors.
- The association has reduced his work’s “marketable value of reputation and goodwill in the industry”.
- He’s been forced to let go of contractors, thereby delaying the production of promised protocols under the Casper name.
The researcher further added two specific instances where he had trouble finding funding from an existing client because of industry confusion.
CasperLabs contended that the researcher’s second amended complaint didn’t cure the defects in the first amended complaint because the only alleged damages were “conclusory labels … [in] generalized terms.” The district court agreed, finding that the researcher’s allegations were generalized. Specifically, he failed to:
- Identify specific instances where he had trouble seeking funding due to the purported association with CasperLabs or explain the impact on the credibility of his research.
- Provide facts about the significance of the loss of investment or enumerate which funding the investors would have provided.
- Quantify the impact of the lessened market value or goodwill in the industry allegedly caused by CasperLabs’ use and registration of the trademark.
The court explained that the Lanham Act’s damages requirements are satisfied when a plaintiff pleads “an injury to a commercial interest in sales or business reputation” proximately caused by the defendant’s conduct. The allegations must be specific. It found that “formulaic recitations” and “naked assertions” with no factual enhancement are insufficient.
Worthwhile Investment
The researcher in Zamfir would likely have benefited from consulting a damages expert when filing his complaints. Involving qualified experts early on can help preempt similar results for your clients.
State Law Claim Dismissed for Failure to Demonstrate Damages
The plaintiff in Zamfir v. Casperlabs, LLC alleged that CasperLabs violated California’s unfair competition law by using a false designation of origin under the Lanham Act. According to that law, he needed to demonstrate that he had suffered injury in fact and lost money or property from the unfair competition.
The plaintiff, a blockchain researcher, cited several cases establishing that lost sales, lost profits, lost market share, and harm to goodwill are sufficient to state a claim. However, the district court found his complaint lacked any non-conclusory allegation that the value of his trademark had decreased. Although a specific measure of the amount of the alleged loss wasn’t required, some detail on the general value of the injury was necessary to allege damages.
If you're facing challenges in quantifying damages or need expert guidance for your IP claims, Meaden & Moore's team of experienced forensic accountants can help you protect your intellectual property and strengthen your case. Contact us today to learn how we can assist with expert analysis and support every step of the way.
Zamfir v. Casperlabs, LLC, No. 21-CV-474 (S.D. Cal. Oct. 25, 2022).
