Addressing the enforceability of a "no-challenge" provision, the U.S. Court of Appeals for the Ninth Circuit has held that a former licensee was not precluded from challenging the validity of a certification mark notwithstanding a provision in the license barring such suits. State of Idaho Potato Commission v. G&T Terminal Packaging, Inc., Case No. 04-35229 (9th Cir. Oct. 7, 2005) (Tashima, J.).
The Idaho Potato Commission (IPC), a state agency, owns several certification marks including the words "Idaho" and "Grown in Idaho." G&T, a potato distributor, licensed the certification marks from IPC, agreeing never to challenge the validity of the marks. When G&T later allegedly violated the terms of the license, IPC sued in the District of Idaho alleging breach of the license and infringement. G&T filed suit in the Southern District of New York to have IPC’s marks declared unenforceable and to have them cancelled. IPC then added a breach of contract claim to the Idaho case based on the license’s no-challenge provision.
On IPC’s motion for summary judgment, the Idaho Court found that G&T’s New York filing breached the license agreement. However, before entry of final judgment in Idaho, the Second Circuit (in a separate case involving IPC and a third party) held the no-challenge provision in IPC’s license agreement was unenforceable. The Idaho court granted G&T’s motion for reconsideration as to the breach of contract claim but ruled in favor of IPC on the infringement claims and awarded it damages.
On appeal, IPC challenged the district court’s finding regarding the unenforceability of the no-challenge provision, and G&T challenged the damages awards.
The Ninth Circuit found that issue preclusion and collateral estoppel did not prevent IPC from raising the no-challenge provision issue. The Court stated that certification marks must be treated differently from trademarks as they protect different public interests: trademarks protect the public against confusion, and certification marks identify a characteristic of a product.
The Ninth Circuit agreed with the Second Circuit that the appropriate analysis can be found in Lear v. Adkins (a patent case) that balances public interests against private contract rights. Applying the balancing test, the Court found the public interest in free competition promoted by certification marks outweighed IPC’s right to enforce its no-challenge contract provision. The Court further held that, because licensees of certification marks are the only groups that have an economic incentive to challenge the owner of a certification mark, no-challenge provisions in licenses would effectively insulate owners of certification marks from most legal challenges. Thus, the Court held, the no-challenge provision in IPC’s license was unenforceable.
While G&T was not precluded from challenging the validity of the mark, the Court did find that G&T made unauthorized use of IPC’s mark, and such use amounted to counterfeiting. As a result, the Court confirmed statutory damages to IPC in the amount of $100,000.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
