Breaking Down Fab's Copycat Claims Against Touch of Modern: Innovate, Don't Copy

By Trevor Gilbert , written on August 16, 2012

From The News Desk

Yesterday, the flash sales site sued one of its competitors, Touch of Modern, alleging copyright infringement, trade dress infringement, and a number of related charges.

PandoDaily has heard exclusively from both Fab CEO and co-founder Jason Goldberg, and Touch of Modern co-founder Dennis Liu. As with most legal cases, there are a lot of moving parts involved, but we’re going to go through it step by step.

There are three issues at play here. The first is the actual act of Touch of Modern allegedly copying Fab’s design, the second is Fab’s claim to copyright and trade dress protection, and the third is the broader impact that this intra-startup lawsuit could have on the ecosystem.

Starting with the actual copying, it does appear that Touch of Modern copied from Fab’s design. “We’ve looked in our logs, and we saw hundreds of visits from the Touch of Modern team that led to the creation of their design,” says Goldberg. “[They] visit 10, 20, 40, 50 times. Then it shows up on their website.” In response, Liu says, "Last I checked, I don't think it was illegal to visit a website."

Then there are the striking similarities between the sites. For example, there is the evidence that Touch of Modern copied Fab’s business of providing a “seal of authenticity,” which shows that Fab has a direct relationship with the vendor and is authorized to sell the merchandise directly. Touch of Modern has a similar seal, which even features a similar design. It’s unlikely that Touch of Modern would have come up with the same design independent of seeing it on Fab’s site.

Fab is also claiming that TOM “mimics the subject matter, font, color and shading of the homepage.” The lawsuit attached two screenshots of the sites, and the resemeblance is striking. The photograph of the apartment in the background is clearly “inspired” by Fab.

Finally, there is the claim that the TOM website “mimics the website’s particular use of bolded and colored text.” The sites share some fonts and colors on pages. Touch of Modern has changed some elements since the original cease and desist letter that Fab sent to the company in April, but there are still very close similarities.

If the evidence holds up, it will be clear that Fab’s website was copied by Touch of Modern. Currently, the back-and-forth over the actual copying is he-said-she-said, but Fab does claim to have hard evidence of copying. Combined with Touch of Modern’s admission that the team visited Fab for “inspiration,” the actual copying shouldn’t be in dispute.

However, while the copying may be initially clear, the bigger question is whether or not Fab actually has a claim to the design elements it is asserting. Goldberg insists that they do, and that they’ve put a tremendous focus on the design of the site. But Liu disagrees, claiming that the design is too broad and widely used to be claimed by Fab.

There are two tracks Fab can pursue to assert its claim of infringement. The first is straight copyright infringement, which will likely be harder to prove as US Copyright law states that protection isn’t extended to “familiar symbols or designs,” or “mere variations of typographic ornamentation, lettering, or coloring.” It’s possible to prove it, but it would be the harder path.

The simpler path would be to assert a claim of trade dress infringement, which follows the overall design and motivation behind a product. There are a few things that Fab needs to prove in order to assert its claim of trade dress infringement.

The company needs to prove that its trade dress claims are ornamental, and not functional. What this means is that Fab can only assert a trademark if the trademarked element of design doesn’t kneecap a competitor’s ability to compete. Then, Fab needs to prove that the trademarked item is distinct.

Both of these factors are based on flimsy legal foundations. There are a few claims in Fab’s lawsuit, including strike-through price tags (showing “Original Price: $399. Current Price: $199) that aren’t ornamental. In fact, strikethrough price tags are a standard tactic in ecommerce used to boost sales. See: Amazon.

Then there is the claim that Touch of Modern mimics Fab’s homepage in content and design. It may be provable on the design side, but on the content side, it’s impossible to imagine a judge that will allow Fab to claim ownership of a homepage with a sign-in/invite form.

After all, there are entire startups (see: Launchrock) devoted to setting up pages that prompt new users for an email address, with a catchy photograph in the background, and a promise for a future invite. Which is exactly what Fab is claiming it owns the rights to.

According to Liu, Touch of Modern doesn’t believe that Fab owns the rights to these elements of design, and that therefore the entire claim is invalid. As he told me, “we used them as references,” but that the company did the same for “all our competitors.”

As Liu put it, despite the similarities, Touch of Modern wants to “build a distinctive brand.” As a part of this, the company is claiming that they are going after a different segment of the market: higher-end, more disposable income.

However, with the key issue of the eligibility of Fab’s claims still undecided pending a settlement or trial, there is still the issue of whether or not Fab should have sued TOM, or whether it is acting like a copyright troll. After all, if the case proceeds to trial, it could have reverberating effects across the flash sales and startup ecosystems.

If Touch of Modern wins the case and continues to maintain a Fab-esque design, it will likely encourage behavior similar to the Samwer brothers. At the same time, if Fab wins, it could end up granting broad legal protection to first-movers in markets.

This part is a bit murky. Touch of Modern is insisting that Fab is just protecting its interests and doesn’t want to innovate or compete, so it is playing hardball. As evidence, the company is citing a run-in with Fab earlier this year, following a cease-and-desist letter sent to the company.

“They talked to all of our vendors and told them not to work with us. Harassing our vendors,” says Liu. “[It was] obvious to us that this is more of a bullying tactic.”

However, Goldberg claims that Fab is pro-innovation, and that the company welcomes competition. But, “if you're going to do something: innovate, don't copy.” Regarding the claim that Fab approached TOM’s vendors, Goldberg says that they were doing the vendors a favor, and that “the last thing designers want is a knockoff.”

Asked if Goldberg and Fab were trying to play hardball in an effort to shut down Touch of Modern, Goldberg says, “Absolutely not. We would love to see them compete. Just innovate and build your own design.”

Continuing that thought, Goldberg says, “If you're going to build a startup, try to have some originality to it.” Of course, there are plenty of people that disagree with him. For example, Y Combinator partner (and Touch of Modern advisor) Garry Tan.

In response to critics like Tan, though, Goldberg says, “What I don't understand is why some people are backing these guys, and they [turn around and] rip into the Samwer brothers.” Goldberg is claiming that what Touch of Modern is doing is very similar to the copycat business model that the Samwer brothers pursue.

Now, moving away from the legal claims, let’s look into the more common sense side of things. It wouldn’t kill Touch of Modern to change some of the elements of its site. After all, does it really need to have a picture of an apartment on the front page of its site? No. And could it change up the typographic styling? Yes. It may not be legally required to, but it would help them avoid a headache and the appearance of wrongdoing.

Now, that doesn’t mean TOM should actively work to be the opposite of Rather, the more obvious similarities -- the seal of authenticity, for one -- could be changed without mass confusion for customers.

At the same time, Fab could back away from some of the more tenuous claims. Like claiming that the design for a signup page was ripped off, a signup page which could appear on any startup’s website belongs to Fab.

If the case goes to trial, it will all come down to the assertion that Fab actually does have exclusive rights to its design and its underlying business model. It’s a risky case, more so when faced with the fact that both companies are still startups, and will need to devote sizable resources towards legal fees pursuing the case in court.