Appeal court ruling outlines how to prove substantial differences between markets

Despite evidence of actual confusion and seemingly similar services, in M Welles & Assocs Inc v Edwell Inc (22-1248; 10th Cir; 31 May 2023) the US Court of Appeals for the 10th Circuit upheld a district court’s noninfringement finding concerning two nearly identical education-related marks because the parties targeted different goods and marketing channels. 

In his dissent, Judge Tymkovich of the appeal court criticised the lower court for characterising the scope of the parties’ services too narrowly and observed that “[a]ny court can find some differences between businesses and markets at a particular level of generality”, warranting re-analysis of the case and its corresponding rulings.

Case background

M Welles & Associates provides classes, seminars and certification workshops in the project management space under the brand name EDWEL (derived from “education done well”). The classes are designed for professionals in various industries, including information technology, healthcare, education and the military.

Welles primarily advertises its services via social media, Google and email, and owns several domain names incorporating both EDWEL and EDWELL. The defendant, Edwell, is a non-profit organisation that provides mental health coaching services to school teachers using the domain name Edwell.org and the brand name EDWELL (derived from “to be an educator and to be well”). Edwell partners with schools to provide its services and currently has partnerships with 10 public schools. It does not target institutions of higher education nor offer its services to corporations.

Welles first learned of Edwell’s services when it received a call from a potential customer asking about classes at Denver North High School that Edwell –  not Welles – offered. Welles sent a cease-and-desist notice to Edwell, which rebranded to “Educator Wellness Project” for a short time before reverting to EDWELL. Welles then sued Edwell for trademark infringement, and the district court found that there was no likelihood of confusion. Welles appealed, raising three arguments:

• the magistrate judge used the wrong legal standard in assessing the likelihood of confusion;
• the 10th Circuit should adopt a presumption of confusion; and
• the magistrate judge clearly erred in its analysis of Edwell’s intent, the similarity of the parties’ services and marketing, the degree of purchaser care and actual confusion.

Welles also moved to supplement the appellate record with new evidence of actual confusion that occurred after the trial.

Supplementation

The 10th Circuit first addressed Welles’s motion, finding no legitimate basis for supplementing the record.

Rule 10(e) of the Federal Rules of Civil Procedure permits a court to modify the appellate record “only to the extent necessary to ‘truly disclose what occurred in the district court’”. Because the new evidence of actual confusion was not before the district court, the 10th Circuit concluded that Rule 10(e) would not permit it to be added to the record.

The court further reasoned that the rare exception to the rule, which permits the court to supplement the record to correct misrepresentations, demonstrate mootness or raise an issue for the first time on appeal, did not apply. The evidence concerned a “minor incident” pertaining to a “single prong of a multi-prong analysis” and did not present a rare case justifying the invocation of the exception.

Consideration of merit

Turning to Welles’s merits arguments, the 10th Circuit first noted that the district court applied the correct standard: similar marks may not generate confusion about their source(s) when the products involved are very different or expensive, and de minimis evidence of confusion does not establish actual confusion.

The court also declined Welles’s request to adopt a presumption of likelihood of confusion when parties “use nearly identical marks online and web addresses in generally related fields”. Such a presumption would bifurcate the likelihood of confusion analysis by only requiring the plaintiff to prove two likelihood of confusion factors – similarity between the marks and similarity between the goods and marketing strategies – before improperly shifting the burden to the defendant to address the remaining factors.

As for the district court’s infringement analysis, the 10th Circuit found that the magistrate judge was correct in finding no likelihood of confusion, and addressed each of the factors.

Intent of the Alleged Infringer

According to the court, it was not an error to conclude that Edwell did not intend to deceive the public when it transitioned from “Educator Wellness Project” to “Edwell” because mere knowledge of a mark does not demonstrate an intent to deceive.

Similarity of the goods, services and marketing

The 10th Circuit also affirmed the district court’s determination that the parties’ goods and marketing channels were dissimilar because Welles markets to universities, large companies and business professionals, whereas Edwell targets public school teachers, administrators and students seeking mental health coaching. The court noted that Welles could have demonstrated market similarity based on plans to expand to the school market, but it did not offer any evidence of an intent to grow.

Degree of care exercised by purchasers

The 10th Circuit agreed with the magistrate judge that consumers would likely conduct substantial due diligence before purchasing either party’s services because each requires a significant investment of time and energy. The court found this to be especially probative to the likelihood-of-confusion finding.

Evidence of actual confusion

The court concluded that it was not an error for the magistrate judge to find Welles’s evidence of actual confusion to be de minimis because there was only a single instance of confusion. Isolated, anecdotal instances of actual confusion may be disregarded in the likelihood-of-confusion analysis.

A noteworthy dissent

Judge Tymkovich, in his dissent, argued that the district court had misapplied three factors: the alleged infringer’s intent, the similarity of services and the degree of care likely to be exercised by purchasers.

Alleged infringer’s intent 

The judge believed that Edwell failed to conduct a trademark search or even perform a simple online search for ‘Edwell’ before adopting its mark and that while indifference may not rise to the level of bad faith, Edwell cannot use its incompetence as a shield.

Similarity of the goods, services and marketing

The judge contended that the district court construed the scope of services too narrowly. From a consumer’s perspective, Welles and Edwell share “considerable overlap: (1) both are in the educational space; (2) both offer training, coaching, and seminars; and (3) both are available online”. Further, he stated that the majority overlooked the likelihood of confusion with regard to affiliation.

Degree of care exercised by purchasers

Finally, Judge Tymkovich claimed that the district court speculated about the degree of care that consumers would exercise without any testimony as to the costs of either party’s services. In his view, the district court also failed to consider the difficulty of sorting through the brands during an online search, which impinges on Welles’s potential customers.