Zamfir v CasperLabs, LLC

The defendant, Casper Labs LLC, in this trademark dispute in U.S. District Court (California) moved for dismissal of eight causes of action from plaintiff Vlad Zamfir’s second amended complaint. The actions dealt primarily with trademark infringement and alleged damages therefrom. The actions also included allegations of fraud and misrepresentation under California law. After analysis of each of the actions, the court granted dismissal of some of the actions and denied dismissal of some of the actions.

Background.

Zamfir is a researcher in blockchain technology. He adopted the name “Casper” for his correct-by-construction (CBC) proof-of-stake (PoS) blockchain consensus protocol. In response to Casper’s actions, beginning in August 2020, using “Casper” to describe their PoS protocol,  CasperLabs filed to register the CASPER mark. Zamfir alleged eight causes of action. The court looked at each of the eight and made decisions on whether to grant or deny them.

“At its core, a blockchain is a distributed protocol that stores transactional records as a chain of ‘blocks.’ Each block contains a cryptographic fingerprint, called a hash, of the previous block; a timestamp; and other data. Certain types of blockchain applications, such as those used for cryptocurrency exchanges, rely on consensus protocols to validate the operation of the transaction.” Much of the research in the industry has been for an alternative consensus mechanism, PoS, to replace Proof of Work, which takes substantial computations and use of energy. Zamir began in 2014 developing a new PoS protocol for blockchain. Zamfir has been conducting research continuously since 2015 under the Casper name. “Zamfir uses the CBC Casper and Casper names exclusively when communicating his work on PoS and distributed systems to the wider public via Twitter, Github, and his personal blogs.” Zamfir had benefited greatly from the CBC Casper software.

In February 2019, Zamfir and his company, Coor Tech, entered into a research agreement with CasperLabs and, on the same day, entered into a licensing agreement with CasperLabs. Within months, Zamfir terminated both agreements believing CasperLabs was taking advantage of him. However, CasperLabs continued to associate their products with Zamfir and his Casper products. “On February 13, 2019, Defendant filed to register the CASPERLABS mark in its own name.” The mark was approved in July 2019. CasperLabs assured Zamfir that it would register the mark on Zamfir’s behalf. Instead, CasperLabs registered two more trademarks for cryptocurrency using the Casper name. It never informed Zamfir of the registrations. In 2021, CasperLabs launched its cryptocurrency. “[D]ue to the confusing use of the CASPER mark, any performance issues in the technology underlying the Casper Network are likely to be falsely associated with Zamfir’s research and life’s work.” People frequently contacted Zamfir, confusing him with CasperLabs. This case dealt with the second amended complaint and CasperLabs motion to dismiss it.

Analysis: Counts 1 and 4: false association under Lanham Act § 43(a) and unfair competition under California common law.

Casper moved to dismiss Zamfir’s claims for false association and unfair competition. Zamfir had to allege five elements under California law adequately in order to sustain the claim for false designation of origin. Casper argued that Zamfir did not meet the final two elements by failing “to establish, (1) any likelihood of confusion, or (2) any actual or likely damages because of CasperLabs’ use of the Casper Name.” While likely confusion was adequately pled, the court agreed with Casper that “Zamfir has failed to sufficiently allege he suffered a cognizable harm.”

False association. The court again found that Zamfir adequately alleged his false association claim. The second amended complaint provided additional information on this subject. Casper cited two cases to support its argument, but the court again noted that those cases were not appropriate in this case. The court once again decided that Zamfir had adequately alleged confusion based on CasperLabs use of the CASPER mark.

Damages. In the second amended complaint, Zamfir described his damages. Casper argued that the second amended complaint did not cure the defects in the first complaint. “Because Zamfir does not provide sufficient factual allegations to support his alleged harm, the Court GRANTS CasperLabs’ Motion to Dismiss Counts 1 and 4.”

Analysis: Counts 2 and 3: trademark infringement under 15 U.S.C. § 1125(a) and California common law.

The court reaffirmed its prior ruling from the first amended complaint and denied Casper’s motion to dismiss Counts 2 and 3. A court had to examine the totality of circumstances to determine whether the protection of the Lanham Act applied. The court had already noted that whether the service is called Casper or not is not the question. “[T]he real inquiry is whether the trademark was used in connection with a sale of goods or services.” Zamfir did offer consulting services using the Casper mark. His use of that mark was the core identifier of his services. He used the mark in commerce prior to CasperLabs. “Zamfir has come to be associated with the term Casper and uses the mark in his consulting services and implementations of his protocol.” The court denied CasperLabs’ motion to dismiss Counts 2 and 3.

Analysis: Counts 5 and 6: cancellation of CasperLabs’ trademarks.

“Here, the Court finds that Zamfir’s cancellation claims are adequately pled under Section 2(d) of the Lanham Act.” The Lanham Act used the same test for trademark registration as for trademark infringement, i.e., “likelihood of confusion.” The court had the authority to cancel any trademark on any ground that would have prevented it from registration in the first place. Zamfir had adequately alleged that confusion exists. His trademark cancellation survived CasperLabs’ motions 5 and 6.

Analysis: Count 7: fraud by intentional misrepresentation under California Civil Code §§ 1709 and 1710.

Zamfir alleged intentional misrepresentation by Casper. Casper argued that Zamfir lacked standing and failed to plead multiple elements of fraud. “The Court finds that Zamfir does not provide sufficient factual allegations to support his alleged harm and his claim therefore fails to meet Rule 9(b)’s heightened standard.”

Zamfir failed to plead the elements of fraud with particularity. Since Zamfir based part of his claims on fraud, he must plead with required specificity including: “(1) that CasperLabs’ statements were false when made, (2) Zamfir’s reliance on those statements, and (3) resulting damages.” The court agreed that the plaintiff failed to sufficiently allege damages from the fraud and thus the claim fell short of the standard. Thus the court grants CasperLabs’ motion to dismiss Count 7. 

Analysis: Count 8: claim under California’s Unfair Competition Law, Business and Professions Code § 17200.

Zamfir claimed that Casper violated California’s Unfair Competition Law (UCL). However, Zamfir failed to show any connection to California and failed to show he suffered any injury. The court agreed with both of these arguments Casper put forth. “Without any allegations suggesting that Defendant’s alleged wrongdoing took place in California, the Court cannot conclude Zamfir adequately alleges standing for his UCL claim.”

Damages. To seek relief under the UCL, Zamfir must show that he “has suffered injury in fact and has lost money or property as a result of the unfair competition.” The second complaint lacked any nonconclusory allegation that the value of the service had decreased. “Although ‘the issue here is only the threshold matter of standing … [and] a specific measure of the amount of [the alleged] loss is not required,” some detail as to the general value of the alleged injury is still necessary to allege damages under a UCL claim.” Zamfir had not done this, and, therefore, Casper’s motion to dismiss Count 8 was granted.

Editor’s Note: One matter of importance to BV professionals in this case is the discussion and decisions on damages. It should point out to attorneys and BV professionals alike that, even at the preliminary level, it is important that there be some clarity on at a minimum a range of damages or demonstration of a process that will determine that there are indeed damages. I have been involved in cases where the attorneys have come to me after the filing of a complaint and asked me to tell them whether there are quantifiable damages. In at least one case, there were not, and the complaint was withdrawn.