In the recent opinion in CreAgri, Inc. v. USANA Health Sciences, Inc., Case No. 05-15305 (9th Cir. Jan. 16, 2007) (Hawkins, J.), the U.S. Court of Appeals for the Ninth Circuit addressed what it called a question of first impression in the circuit, holding that "only lawful use in commerce can give rise to trademark priority", and agreeing with U.S. Patent and Trademark Office policy rejecting priority from unlawful use. The Court affirmed the issuance of a declaratory judgment against the Plaintiff CreAgri’s claims for infringement and unfair competition claims, holding that CreAgri had no lawful prior use of this mark before the Defendant USANA Health Services’ application that resulted in registration and constructive use. The Court likewise affirmed cancellation of CreAgri, Inc.’s trademark registration of OLIVENOL for dietary supplements. The Court held that the OLIVENOL supplements were "misbranded" in violation of the Food, Drug and Cosmetic Act (FDCA), 21 U.S.C. §§331, 343(a), and implementing Food and Drug Administration Regulations, 21 C.F.R. § 101.9(g)(4), inter alia, because CreAgri’s early labeling for the supplement misstated the amount of its active ingredient.
The Ninth Circuit rejected Plaintiff CreAgri’s contention that there was an insufficient nexus between the FDCA non-compliance and its use of the OLIVENOL mark. While neither adopting nor ruling against a nexus requirement here, the Court held that even if a nexus requirement were adopted, CreAgri would not benefit from such a rule, reasoning that the nexus between a misbranded product and that product’s name "is sufficiently close to justify withholding trademark protection for that name until and unless that misbranding is cured". CreAgri’s OLIVENOL registration on the Supplemental Register was also invalidated for failure to have "lawful use in commerce" prior to the date on which it applied for such registration, as expressly required under Section 23 of the Lanham Act, 15 U.S.C. §1091.
The Defendant USANA Health Science’s priority dated from June 2002 when it applied for federal registration of its OLIVOL mark [based on intent to use], and its application ultimately issued to registration. Earlier, in the spring of 2001, CreAgri began sales of its OLIVENOL dietary supplement tablets containing the antioxidant hydroxytyrosol, one type of polyphenol found in water contained in the fruit of olives. The label identified hydroxytyrosol as the primary active ingredient in the supplement. Throughout, the formulation of CreAgri’s OLIVENOL dietary supplements went unchanged. When the product was introduced, the labeling for OLIVENOL incorrectly overstated the contents of the tablets, declaring that they contained 25mg of hydroxytyrosol. In response to a complaint received at a trade show, CreAgri in March 2003 changed its labels to state that the OLIVENOL tablets, and its just introduced capsules and liquid, each contained 5 mg of hydroxytyrosol in one serving. Again this overstated the actual contents of this ingredient. Later and admittedly more accurate tests conducted during the course of the litigation showed that Olivenol contains at least 2.5-3 mg of hydoxytyrosol per tablet. In February 2004 accordingly changed its labels to state that CreAgri’s OLIVENOL supplements contained 5 mg of polyphenols, a broader class of compounds, thus avoiding a measurement of the one hydroxytyrosol active ingredient.
The Ninth Circuit rejected the contention that there was no available standardized measurement method to determine the amount of hydroxytyrosol in the supplement at the time. The Court pointed to the fact that CreAgri was required to apply to the FDA for an exemption for the applicable labeling requirements if they were impracticable under the circumstances, under 21 CFR §101.36(f)(2). Without adopting CreAgri’s suggestion that immaterial violations should fail to invalidate priority, the Court held that this violation could not be considered collateral or immaterial because of the existence of the required application procedure for exemption which CreAgri had not utilized. Additionally, CreAgri’s March 2002 labeling implied that accurate measurement could be made by stating that its measurements were "HPLC Certified", HPLC or high performance liquid chromatographic equipment being a type of sensitive laboratory analysis.
While the Ninth Circuit’s ruling may appear extreme, there is certainly district court and USPTO authority for invalidating prior use on the basis of unlawfulness. See, 2 McCarthy on Trademarks and Unfair Competition 19:124; Gilson, Trademark Protection and Practice, 3.02[7]; "’Unclean Hands’ and ‘Unlawful Use in Commerce’: Trademarks Adrift on the Regulatory Tide", 71 TMR 38 (Jan-Feb 1981)(criticizing). However, the statutory basis for this is far from indisputable. While the statutory provisions applicable to the Supplemental Register in Section 23, 14 U.S.C. 1091, do require "lawful use", the Lanham Act does not refer to "lawful use" or an equivalent term in the statutory provisions on priority in Section 2(d), 15 U.S.C. 1052(d). The priority provision in Section 2(d) merely states that the confusingly similar mark be "previously used in the United States by another and not abandoned". Later in the same section, the narrow provision on concurrent use registrations does refer to "lawful concurrent use" Likewise, the statutory provisions for use based applications on the Principal Register, in Section 1(a), 15 U.S.C. §1051(a), do not refer to lawful use. The statutory provisions on use-based claims on the Principal Register refer to a mark "used in commerce" and requires verification that the mark "is in use in commerce", without referring to "lawful" use per se.
The Federal Circuit has recently emphasized that the statutory priority provisions do not even require "use in commerce" for priority under Section 2(d). First Niagra Ins. Brokers, Inc. v. First Niagra Financial Group, Inc., Appeal No. 06-1202 (Fed. Cir. January 9, 2007). Since use in commerce is not a requirement for priority under Section 2(d), the "lawful use" requirement for priority cannot be implicit in the statutory "use in commerce" requirements.
Apart from the fact that the case involved a registration on the Supplemental, not Principal, Register, the general denial of priority where the use is non-compliant with federal regulatory labeling provisions leads to broader questions for further legal analysis: where is the statutory basis for the interjection of other federal regulatory requirements into the Lanham Trademark Act? The Ninth Circuit referred to Trademark Trial and Appeal Board "policy" on this issue. Is it just good policy or is it a statutory requirement? Is it just a debatable and case by case implication from the early equitable roots of the common law of trademarks? And if lawful use indeed is required for priority, which violations make the trademark use unlawful beyond this case’s conclusion that misbranding of the active ingredient in a dietary supplement sufficiently affects a product mark for that supplement? Will this approach spawn case by case rulings that judges just have to "know it when they see it" without readily predictable outcomes? If this is just a matter of policy that has not been consistently enacted into federal trademark law, then Congress should be called upon to make appropriate amendments adding provisions expressly requiring that the use be lawful for registration on the Principal Register, and to enjoy priority of use.
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