United States: Supreme Court Lets Stand Court Of Appeals Ruling That Owner Of A Foreign Trademark May Sue Under The Lanham Act For Conduct In The United States

In early March, the United States Supreme Court declined to hear an appeal in a significant trademark and unfair competition case decided in 2016 by the United States Court of Appeals for the Fourth Circuit, which addressed the territorial limits of trademark rights and the standing of a foreign trademark owner to assert claims based on conduct in the United States. The Fourth Circuit's decision held that the owner of a foreign trademark could assert claims against a US trademark owner under Sections 14(3) and 43(a) of the Lanham Act for false association, false advertising, and cancellation of a US trademark registration—even though the foreign trademark owner had never used its mark in United States commerce. Belmora LLC v. Bayer Consumer Care AG, 819 F.3d 697 (4th Cir. 2016), cert. denied, 2017 WL 737826 (U.S. Feb. 27, 2017).1

Background

For several decades, Bayer Consumer Care AG has sold an over-the-counter analgesic in Mexico under the mark FLANAX. Although the product is popular in Mexico—it is the top-selling pain reliever in Mexico, according to Bayer's court filings—it has never been marketed or sold in the United States. A Bayer affiliate sells a product in the United States with the same active ingredient (naproxen sodium) under the brand name ALEVE.

In 2004, Belmora LLC began selling a FLANAX-branded product in the United States in packaging that was "virtually identical" to the packaging used by Bayer in Mexico for its FLANAX product, "including a similar color scheme, font size and typeface." There was also evidence that Belmora was deliberately marketing its product to suggest a connection between its FLANAX products in the US and Bayer's FLANAX product in Mexico. Belmora received a federal trademark registration for FLANAX in 2005.

The Trademark Registration Proceeding

Bayer filed a petition with the Trademark Trial and Appeal Board (TTAB) to cancel Belmora's mark on various grounds, including a claim for misrepresentation under Lanham Act Section 14(3). Although the TTAB dismissed certain of Bayer's claims (including one for likelihood of confusion with Bayer's Mexico-based mark), the TTAB held that Bayer had standing to pursue its Section 14(3) claim because it "has an interest in protecting its Mexican FLANAX mark." Because "the reputation of the Mexican FLANAX mark does not stop at the Mexican border," Belmora's actions meant that Bayer would lose control over its reputation and, as a result, would suffer damage sufficient to confer standing. The TTAB also held in favor of Bayer on the merits of the Section 14(3) claim and ordered Belmora's mark to be canceled.

The District Court's Decision

Belmora sought review of the TTAB's cancellation decision in federal district court. The action was consolidated with a separate suit filed by Bayer, which alleged claims for false advertising and false designation of origin under Section 43(a) of the Lanham Act. Belmora moved to dismiss Bayer's claims and sought judgment on the pleadings on its appeal from the TTAB cancellation proceeding.

The district court applied the "zone of interests" test for Lanham Act standing established by the Supreme Court in Lexmark Int'l v. Static Control Components, Inc., 134 S. Ct. 1377 (2014). The district court concluded that Bayer was not within the zone of interests that Congress intended to protect because (relying on the principle that trademarks are territorial) Bayer had no legal interest in the FLANAX mark in the US. In addition, the district court held that any reputational injury suffered by Bayer was not proximately caused by Belmora's actions, because Bayer did not plead facts sufficient to show that it has a protectable interest in a US mark. Given Bayer's lack of standing, the district court dismissed Bayer's Lanham Act claims and reversed the TTAB's decision to cancel Belmora's mark.

The Fourth Circuit's Decision

On appeal, the Fourth Circuit reached the opposite conclusion. The court noted that while Lanham Act Section 32 expressly required that a claim be brought by the owner of a registered mark, Section 43(a) contained no such limitation. The court also noted that the ownership of a valid mark has not been viewed as a prerequisite to suits for unfair competition, citing cases where parties whose own marks became generic were held to have standing to challenge usages that created confusion as to the source of the defendant's product. See, e.g., Kellogg Co. v. Nat'l Biscuit Co., 305 U.S. 111 (1938).

As did the district court, the Fourth Circuit looked to the zone of interests test established by Lexmark to determine whether Bayer could assert its Lanham Act claims. The court concluded that Bayer's allegation that it was losing sales revenue in Mexico as a result of Belmora's alleged deceptive and misleading use of the FLANAX mark in the US was sufficient to put it within the zone of interests protected by Section 43(a) of the Lanham Act, as was the allegation of a Bayer affiliate (also a party to the action) that it was losing sales of ALEVE in the United States. The court similarly held that Bayer fell within the zone of interests protected by Section 14(3) of the Lanham Act because that provision generally seeks to prohibit the same type of conduct—deceptive and misleading use of a mark—as Section 43(a)'s false association prong.

The Supreme Court Declines to Hear the Case

In October 2016, Belmora filed a petition for a writ of certiorari, arguing that the decision abrogated the longstanding principal that trademark rights are territorial in nature. Belmora also argued that the decision deepened a pre-Lexmark split among the circuits as to whether entities that own famous foreign trademarks may assert trademark rights in the United States. Bayer opposed the petition, arguing that there was no circuit split and that the Fourth Circuit's opinion was the first post-Lexmark court to address the issue of whether use of a mark in US commerce is a prerequisite to a suit under the Lanham Act. On February 27, 2017, the Supreme Court denied Belmora's petition without comment. As a result, the Fourth Circuit's decision remains good law, and owners of foreign trademarks can argue that their foreign trademark rights provide standing to assert at least some claims under the Lanham Act, including claims to cancel registrations of marks that are deceptive and misleading, and claims for false advertising and unfair competition arising from the use in the US of a mark confusingly similar to a foreign mark. 

Footnotes

1 Arnold & Porter Kaye Scholer represents certain corporate affiliates of Bayer Consumer Care AG on other matters, but was not involved in the litigation discussed in this alert.

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