News from the Flexographic Prepress Platemakers Association

The Trademark Act of 1946 (the “Act”), as amended, applies to situations where trademarks are printed on labels, signs, prints, packages, wrappers, receptacles or advertisements in commerce and in connection with the sale, distribution, or advertising of goods and services in a manner which is likely to cause confusion, mistake or deception. The infringer may subject to damages and injunctive relief. However, what is the liability of those persons who may have unknowingly supplied materials or assisted the infringer is some way?

The Act that where and infringer or violator is engaged solely in the business of printing the mark or violating matter for others and establishes that he or she was an innocent infringer, the owner of the mark is entitled only to injunctive relief against future printing. Similarly, under the Restatement of Unfair Competition a supplier of materials to a third person who is subject to liability will only be subject to injunctive relief if he or she acted without knowledge of the deception on the part of the customer.

For example, ABC Marketing Company enlists Printer Printing Co. to print boxes with a trademark of “Wild Widgets”. Printer Printing Co. contracts with Flexo Platemaking Co. to provide the plates to print the boxes. Flexo later finds out that ABC did not have the right or license to use the trademark “Wild Widgets”. XYZ Company was the true owner of the mark and sues ABC, Printer and Flexo. In absence of evidence that Printer and/or Flexo knew that the materials supplied were likely to deceive or that ABC was not licensed to use the mark then the owner is only entitled to an injunction against future violations.

Possible Protection of Platemakers

The cost to the platemaker to defend an action for injunctive relief can be expensive and time consuming. Proving one’s lack of knowledge is always difficult simply because it requires proof of a negative. The question therefore is how does the platemaker establish evidence of his knowledge and how can he insulate himself from liability.

Know your customer-establishing a relationship with the customer is important in preventing problems.
For new customers ask some basic questions. Does the printer have a contract its customer? If so, ask to review it to determine whether it gives the printer the right to print trademark material. This review protects both parties.
Include an affirmative representation in all confirmation documents that the customer has a license from the owner of any trademarked material and incorporate an indemnification provision.
Review your insurance policies to include coverage of potential liability. Publishers or advertising liability coverage may afford some protection.
Search the Patent & Trademark Office website for the mark if question. If necessary, contact the owner to determine if the customer is licensed to print the trademark.

These suggestions are not all inclusive and there may be others that you have encountered. The key is the relationship between you and your customer.

Platemakers are human! Errors may occur and while every effort is made to reduce, limit, minimize or eliminate them they nonetheless happen but hopefully not often. The question becomes how a platemaker can limit the damages if and when an error does occur.

The scenario is fairly predictable. A customer places the order, proofs are developed, the customer ok’s the proof, the plates and other items then printing commences. Later either during printing or perhaps even afterward an error is discovered. What are the liabilities of the parties?

It is extremely important for a platemaker to establish a process which confirms the order, establishes the terms and conditions including pricing, obligations to inspect and approve, and, in this case, a limitation on damages resulting from errors.

The Uniform Commercial Code codifies agreements between merchants in commercial business dealings. The Code endorses freedom to contract and permits parties to a commercial agreement to agree to specific remedies and damage provisions.

The Code also contains a provision which limits a buyer’s remedies to repair and replacement of “non-conforming goods” except where that remedy fails of “its essential purpose”. The parties may also limit or exclude consequential damages unless it would be unconscionable under the circumstances to do so.

First is the “exclusive remedy” provision. This provision states that the sole remedy the customer may obtain is the replacement of the plates. In the alternative, it may also include a refund of the price paid for the plates.

Second, is a provision waiving consequential damages by the parties. This provision would eliminate exposure to consequential damages (those damages flowing as a consequence of the failure of the product), punitive damages and other costs flowing from the failure of the product.

While the UCC permits these types of provisions in agreements the Courts have struggled with the enforceability issues. Some decisions will void the exclusive remedy provision where it fails of its essential purpose such as where a platemaker is unable to repair or replace the product. Where this occurs the courts are inconsistent in the enforcement of the waiver of consequential damages. A few suggestions may help protect the platemaker.

"Regardless of whether any remedy fails of its essential purpose or otherwise, in no event shall either party be liable for any special, indirect, incidental, punitive or consequential damages arising out of or in connection with this agreement, whether such liability arises from any claim based upon contract, warranty, tort, product liability or otherwise, and whether or not either party has been advised of the possibility of such loss or damage. Neither party shall have any liability to each other with respect to the subject matter of this agreement."

You will notice that the sample provision is in bold type and capitalized letters. This is done so it is conspicuously stated in the agreement.

In June 1998 the Supreme Court issued its decisions in Burlington Industries v Ellerth and Faragher v City of Boca Raton. You may recall the Court ruled that under Title VII an employee who refuses the sexual advances of a supervisor, yet suffers no adverse tangible job consequences, may recover against the employer without showing the employer is negligent or otherwise at fault for the supervisor's actions, but the employer may assert an affirmative defense to the claim.

The employer's defense is comprised of two necessary elements: (1) that the employer exercised reasonable care to prevent and promptly correct any sexually harassing behavior, and (2) that the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise. The defense is not available where a supervisor's harassment results in adverse job action.

The Court's decisions in these cases clearly is intended to require that the employer have a policy and complaint procedure in place for handling these situations and to impose a duty upon the employee to respond reasonably to the employer's remedial action. Recent lower court decisions confirm the safe harbor effect of a clear and effective anti-harassment policy. In addition, the employee-plaintiff's duty to act in a reasonable manner has been affirmed. For example, an employer with an effective policy will not be found liable if the employee takes too long to report the offensive actions or fears repercussions. Such concerns are not enough to excuse an employee from following procedures which are designed to protect him or her.

While the Court's decisions make such cases fact intensive and therefore not easily subject to summary judgment by the employer, it is not impossible. In one of the earliest cases decided following the Supreme Court's decisions, a court in the Northern District of Illinois issued summary judgment where the employer had an effective policy, conducted a prompt investigation of an employee's complaint, and offered remedial action which the employee unreasonably refused to accept.

Thus, employers that demonstrate they have adopted and fairly implemented an anti-harassment policy, giving the victim little opportunity to avoid its use, will have the best opportunity to obtain a favorable outcome.

It is also to be noted that while the above cases involved sexual harassment the same reasoning is applicable to situations involving harassment based upon race, national origin, disability, or religion. Employers are therefore well advised to develop policies prohibiting harassment in general and not just sexual harassment.

Employment discrimination suits are typically filed pursuant to Title VII of the Civil Rights Act. Title VII prohibits employment discrimination on the basis of race, religion, color, national origin and sex.

However, included within the same Civil Rights Act is a separate section (§1981), which provides that “all persons … shall have the same right in every State and Territory to make and enforce contracts…as is enjoyed by white citizens.” This section prohibits racial discrimination in the formation and enforcement of contracts.

The United States Court of Appeals for the Seventh Circuit (Illinois, Indiana, and Wisconsin) recently joined with five other Federal Circuits in holding that this provision of the Civil Rights Act may be utilized by at-will employees to pursue a claim of discrimination based on employment contracts. The court found that although at-will employees may be discharged for good reason, bad reason or no reason at all, the same employees still have a fundamental contractual relationship with their employer. The contractual relationship arises out of the mere fact that an employer, either implicitly or explicitly, offers to pay money for the performance of services and the employee accepts the offer by beginning work. This fundamental contractual relationship is enough to trigger application of the prohibition against discrimination in the enforcement of contracts when an employee alleges that promotion and pay decisions were motivated by the employee’s race.

The differences in filing a lawsuit under §1981 versus Title VII are significant:

The Seventh Circuit case (Walker v. Abbott Laboratories, decided August 18, 2003) involved a complaint of racial discrimination in pay and promotion. The court’s opinion implied that wrongful termination of an at-will employee may not qualify for protection under §1981 because at-will employees do not have a contract that requires continued employment. But other Federal courts have allowed wrongful termination cases to proceed under §1981.

In fact, all of the decisions from the other five Federal Circuits involved employment termination or constructive discharge (where employees claim that they were forced to resign). The other circuits that have allowed employment termination cases under §1981 are:

As of now, no Federal Court of Appeals has rejected a racial discrimination in employment case brought under §1981 simply because the employee was an at-will employee. Until recently, it appeared that the Seventh Circuit was leaning against allowing such lawsuits to proceed. If the Seventh Circuit eventually holds that only pay and promotion cases rather than employment termination cases are covered under §1981 or one of the other six circuits that have not yet decided the issues an opposite ruling , the table will be set for the U.S. Supreme Court to resolve a conflict between the circuits.

For the time being, however, §1981 provides an attractive alternative for many plaintiffs who may seek to allege racial discrimination in employment and avoid the damage caps.

Neil J. Kuenn is a partner with the law firm of Keeley, Kuenn & Reid, practicing in the areas of corporate law, antitrust and trade association law, employment law and regulatory matters. He has written numerous articles on topics such as antitrust compliance, employment law, strategic alliances and other business related matters. He is a frequent presenter at association conferences and serves as the Association's general counsel.

This information was provided during Mr. Kuenn's presentation at the FPPA Management Conference, in November, 2003.