As mentioned briefly in the Introduction trademarks are controlled by both a Federal statute and by state statutory and common law. The law of unfair competition is the mechanism by which states' provide common law protection of trademarks. State statutes obviously differ by jurisdiction but many states have adopted a version of the Model Trademark Bill (MTB) or the Uniform Deceptive Trade Practices Act (UDTPA). The MTB provides for registration of trademarks while the UDTPA does not.
The answer to the question posed above (regarding what law controls) is that it depends under what theory an action is brought. Under a theory of unfair competition state law would control. Under an infringement theory based on the Lanham Act federal law would control. Keep in mind that the Lanham Act was enacted under the powers vested in Congress by the U.S. Constitution's "commerce clause" (see History). Therefore, protection under the Lanham Act only applies when there is some interstate commerce involved. Many (but not all) businesses on the Internet do business nationally, and therefore this requirement is presumably readily met. But, merely having a website wherein goods or services are only sold within a single jurisdiction is probably not sufficient.
Also, keep in mind that a plaintiff must get jurisdiction in order to bring an action. If the plaintiff is in Florida and the prospective defendant is in California then either the "minimum contacts" requirements of International Shoe must be met (see Jurisdiction) or jurisdiction must be obtained, in the alternative, under the federal statute, if applicable (see below). While this is not an insurmountable hurdle, it is always important to consider jurisdictional issues with respect to actions that originate on the Internet. Worst case, in the hypothetical above, the plaintiff could get jurisdiction in California, but this has its own set of problems principally related to various transaction costs. However, under the ACPA (see Internet Implications), which amended the Lanham Act, there are several plaintiff "jurisdiction friendly" provisions that substantially ease this burden.
By and large the two systems of law (i.e. state and federal) are complementary and readily coexist under the historical framework of American intellectual property jurisprudence. However, the complexity goes up significantly when contemplating causes of action that have international implications; most of these are simply out of reach for all but the largest corporations.
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