United States: A Big Year For Trademarks: Part 1

A lot happened in 2016, including in the world of trademark jurisprudence. Last year brought several important decisions that will change the way companies and litigants approach trademark enforcement and protection—particularly as e-commerce and cross-border transactions bring ur world closer together. In this first installment of two articles, we discuss four cases that address foreign activities and the Lanham Act, the level of sales to establish "use in commerce," and the standard for awarding attorneys' fees.

Foreign Activities

Non-Use of a Mark in the U.S.
In Belmora LLC v. Bayer Consumer Care AG,1 the Fourth Circuit held that a foreign trademark owner who has not used its trademark in the U.S. may pursue false-association, false-advertising, and trademark-cancellation claims against the owner of the same mark in the U.S.

Bayer Consumer Care AG owns the trademark FLANAX in Mexico and has sold pain relievers there under that mark since the 1970s. Bayer's FLANAX brand is well known in Mexico, but Bayer never marketed or sold its FLANAX products in the U.S. Belmora LLC owns the FLANAX mark for pain relievers in the U.S. and used it there since 2004. Belmora's packaging closely mimicked Bayer's Mexican packaging. Belmora also made various statements in marketing materials implying that its FLANAX brand was the same product sold by Bayer in Mexico, such as, "Flanax products have been used [for] many, many years in Mexico" and are "now being produced in the United States by Belmora LLC".

Bayer produced evidence showing that such statements caused Belmora's distributors, vendors, and marketers to believe that Belmora's FLANAX product was the same as, or was affiliated with, Bayer's FLANAX product.

Bayer successfully petitioned the TTAB to cancel Belmora's U.S. registration. Belmora appealed, and Bayer filed an additional suit in federal court alleging false association and false advertising claims. The cases were consolidated and, on Belmora's motion to dismiss, the court ruled for Belmora on all counts.

The court concluded that: (1) Bayer's claims fell outside the Lanham Act's "zone of interests" because Bayer did not possess a protectable interest in the FLANAX mark in the U.S.; and (2) a cognisable economic loss under the Lanham Act cannot exist as to a "mark that was not used in United States commerce."

The Fourth Circuit disagreed and vacated the district court's judgment. The court emphasised that, "this is an unfair competition case, not a trademark infringement case." Though Belmora owns the FLANAX mark in the U.S., "trademark rights do not include using the mark to deceive customers as a form of unfair competition, as is alleged here."

According to the Fourth Circuit, the plain language of the Lanham Act's Section 43(a) does not require that a plaintiff possess or have used the trademark in U.S. commerce. "Under § 43(a), it is the defendant's use in commerce—whether of an offending 'word, term, name, symbol or device' or of a 'false or misleading description [or representation] of fact'—that creates the injury under the terms of the statute."

Here, the "offending word, term, name, symbol or device" was Belmora's FLANAX mark. The Fourth Circuit noted that "courts must be careful not to import requirements into this analysis that Congress has not included in the statute."

Therefore, to plead a Section 43(a) claim: (1) it must fall within the "zone of interests" protected by the statute; and (2) the plaintiff's injury must be proximately caused by violations of the statute. The Fourth Circuit found Bayer's false association and false advertising claims satisfied these elements. To come within the "zone of interests" in a suit under Section 43(a), a plaintiff must allege an injury to a commercial interest in reputation or sales. Here, Bayer alleged that Belmora's misleading association with Bayer's FLANAX mark caused Bayer's customers to buy the Belmora FLANAX product in the U.S. instead of Mexico, resulting in a loss of revenue for Bayer.

For reasons that largely overlapped with this analysis, the court found that the district court also erred in overturning the TTAB's cancellation decision.

The significance of this decision should not be underestimated; it arms trademark owners with a significant tool for stopping others from seeking a free ride on their international reputation— even absent direct sales in the U.S.

Use of a Mark Outside the U.S. Can Infringe

The Ninth Circuit also addressed the extraterritorial reach of the Lanham Act this year, holding in Trader Joe's Company v. Hallatt,2 that a U.S. trademark holder can pursue a Lanham Act claim against activity that occurred mainly in Canada.

The defendant, Michael Hallatt, was a lawful permanent resident of the U.S. and was thus allowed to live and work there. Hallatt purchased Trader Joe's-branded goods in Washington state, transported them to Canada, and resold them in his "Pirate Joe's" store. Hallatt used Trader Joe's trademarks in his Canadian advertising, used a font similar to the Trader Joe's insignia for his "Pirate Joe's" sign, and sold perishable goods that were not transported or stored in accordance with Trader Joe's strict quality control standards. Trader Joe's received at least one complaint from a customer who became sick after eating a Trader Joe's branded product purchased from Pirate Joe's.

Trader Joe's sued Hallat in the U.S. The district court dismissed the case for lack of subject matter jurisdiction, concluding that the Lanham Act did not apply to Hallat's activities in Canada. Trader Joe's appealed.

To determine whether the Lanham Act could reach Hallatt's conduct in Canada, the Ninth Circuit examined two questions: (1) is the extraterritorial application of the Lanham Act an issue that implicates federal courts' subject-matter jurisdiction; and (2) were Trader Joe's allegations that Hallat's conduct impacted U.S. commerce sufficient to invoke the Lanham Act's protections?

On the first question, the Ninth Circuit held that the extraterritorial reach of the Lanham Act is a merits question concerning the court's power to hear a case. The Lanham Act's "use in commerce" element and its broad definition of "commerce" give the statute its extraterritorial reach, and these elements derive from Congress's power to regulate interstate and foreign commerce under the Commerce Clause. Because the "use in commerce" element of the Lanham Act is not connected to its jurisdictional grant in 15 USC 1121(a), that element is not a jurisdictional requirement.

On the second question, the court applied a three-part test. The Lanham Act can apply extraterritorially if: (1) the alleged violations create some effect on U.S. foreign commerce; (2) the effect is sufficiently great to present a cognisable injury under the Lanham Act; and (3) the interests of and links to U.S. foreign commerce are sufficiently strong in relation to those of the foreign jurisdiction to justify the assertion of extraterritorial authority. Trader Joe's allegations met all elements.

Trader Joe's satisfied the first two elements because it sufficiently alleged a nexus between Hallatt's foreign conduct and U.S. commerce. Its Lanham Act claim was based, in part, on the allegation that Hallatt transported and sold Trader Joe's products without using the proper quality control measures.

Further, Hallatt's infringing scheme including sourcing his inventory entirely from the U.S. The court observed, "There is nothing implausible about the concern that Trader Joe's will suffer a tarnished reputation and resultant monetary harm in the United States from contaminated goods sold in Canada."

Trader Joe's satisfied the third element even though most of Hallatt's infringing activity occurred in Canada because Trader Joe's alleged, among other things, that (1) Hallatt subjected himself to U.S. law by his permanent resident status, (2) the harm to Trader Joe's was foreseeable, and (3) Trader Joe's trademarks are well-known in Canada.

In June 2017, the parties settled. Trader Joe's agreed to drop the lawsuit, and Hallat agreed to shut down Pirate Joe's.

As the world of international commerce grows smaller each day, this case arms trademark owners with another potent tool to fight non-U.S. piracy. Brand owners should be cognisant, however, that this case involved a series of activities commencing in the U.S. (including the purchase of goods here by someone with permanent resident status) that impacted U.S. commerce.

Use in Commerce; One Sale Can Be Enough

In Christian Faith Fellowship v. Adidas AG,3 the Federal Circuit held that a single sale of two hats is sufficient to meet the Lanham Act's "use in commerce" requirement for trademark registration, potentially contravening longstanding jurisprudence on "token use".

Christian Faith Fellowship Church began selling caps and shirts emblazoned with the phrase "Add A Zero" in January 2005. In February of the same year, the Church made one sale of two ADD A ZERO-marked hats to an out-of-state resident, and in March, the Church applied for federal registration of the ADD A ZERO mark.

In 2009, Adidas sought a clothing trademark for ADIZERO, but the USPTO refused its application based on the Church's ADD A ZERO marks. Adidas then sought to cancel the Church's marks arguing, among other things, that the Church had failed to use the marks in commerce before registration. The board agreed, finding the Church's February 2005 sale de minimus and not sufficient to satisfy the Lanham Act's "use in commerce" standard. The Federal Circuit reversed. It held that the question turned on whether the Church made a sale of marked goods in commerce regulable by Congress.

The court noted that Congress's power under the Commerce Clause is broad. In a 1942 case involving a farmer who grew wheat for commercial sale (but also for personal and farm use), and who argued that his wheat harvesting was local in nature and had only a trivial effect on interstate commerce, the Supreme Court stated, "[The farmer's] own contribution to the demand for wheat may be trivial by itself is not enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, is far from trivial."

Under the "substantial effects" doctrine, when "a general regulatory statute bears a substantial relation to commerce, the de minimus character of individual instances arising under that statute is of no consequence." The court noted that the Lanham Act is a comprehensive scheme for regulating economic activity, and that the Federal Circuit's past Lanham Act "use in commerce" cases similarly reflect the broad scope of Congress's Commerce Clause powers.

Consequently, the court found it indisputable that the private sale of goods to an out-of-state resident is "quintessentially economic," concluding: "[T]he Church's sale of two 'ADD A ZERO'-marked hats to an out-of-state resident is regulable by Congress under the Commerce Clause and, therefore, constitutes 'use in commerce' under the Lanham Act.'" According to the court, this transaction, taken in the aggregate, would cause a substantial effect on interstate commerce; the Church did not need to present evidence to that effect. The court therefore reversed and remanded to the board to address Adidas's other cancellation grounds.

This decision has significant implications both offensively and defensively. No longer must one wait to prove an actual impact on commerce to support a federal registration. And, when read with the Belmora and Trader Joe's cases, this case should alter the way parties approach the enforcement of their brands.

Attorneys' Fees; Whether a Case is "Exceptional"

In SunEarth, Inc v. Sun Earth Solar Power,4 the Ninth Circuit became the latest court to hold that the Supreme Court's 2014 decision
in Octane Fitness, LLC v. ICON Health & Fitness, Inc., which outlined the standard for finding a case "exceptional" in patent feeshifting
disputes, applies to the Lanham Act.

Both the Lanham Act and the Patent Act provide that "the court in exceptional cases may award reasonable attorney fees to the prevailing party." In Octane, the Supreme Court overturned the Federal Circuit's existing standard for awarding attorneys' fees under the Patent Act, holding that a district court should look to the "totality of the circumstances" to determine if a case is exceptional.

The court explained that an "exceptional" case is one that stands out from others with respect to: (1) "the substantive strength of a party's litigation positions (considering both the governing law and the facts of the case)"; or (2) "the unreasonable manner in which the case was litigated." Factors for courts to consider include frivolousness, motivation, factual or legal unreasonableness, and "the need in particular circumstances to advance considerations of compensation and deterrence." Further, the court lowered the burden of proof, holding a party's entitlement to fees must be proven by a preponderance of the evidence.

In May, a three-judge panel in the Ninth Circuit rejected the applicability of Octane, applying instead the prior Ninth Circuit standard, requiring "malicious, fraudulent, deliberate, or willful" infringement. On rehearing, however, the en banc panel joined the Third, Fourth, Fifth, and Sixth Circuits and held that the Supreme Court's decision changed the standard for fee-shifting disputes under the Lanham Act. Noting that only the Second and Seventh Circuits have continued to apply pre-Octane Fitness case law, the court stated that the fee-shifting provisions in the Patent Act and the Lanham Act are "parallel and identical" and should be interpreted in tandem.

The trend to follow Octane in trademark cases is likely to continue among the remaining circuits. As a result, fee awards should increase as they have in patent cases. And given the high cost of U.S. litigation, this will impact how parties conduct themselves in litigation—particularly with litigation misconduct as now part of the analysis.

Key Takeaways

  • Once you have sufficient activity to establish an impact on U.S. commerce (which we now know can come from a single sale), promptly seek to federally register your important marks.
  • Consider asserting your rights against copycats seeking to trade off your goodwill—even if you have not used your mark in the U.S., or the infringing conduct occurs outside the U.S.
  • Be mindful of the lower standard for awarding attorneys' fees in U.S. litigation, particularly the impact that litigation misconduct can have in assessing such an award.

Footnotes

1 819 F.3d 697 (4th Cir 2016).

2 835 F.3d 960 (9th Cir 2016).

3 841 F.3d 986 (Fed Cir 2016).

4 2016 WL 6777328 (9th Cir 2016).

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
24 Jul 2018, Webinar, Washington, DC, United States

The program will consider arguments that have worked to avoid a finding of inequitable conduct or unclean hands and those that have not been successful.

9 Aug 2018, Webinar, Washington, DC, United States

As part of Strafford Publications’ webinar series, Finnegan partners Shana Cyr and Barbara Rudolph will discuss best practices for patent counsel navigating the 30-month stay in Hatch-Waxman Act litigation.

5 Sep 2018, Webinar, Washington, DC, United States

Finnegan’s 2018 webinar series addresses challenges across the IP landscape in the United States. The series starts with one of the fundamentals—proving or disproving obviousness. The panelists will address what works and what doesn’t before U.S. Patent and Trademark Office (USPTO) examiners, before the Patent Trial and Appeal Board (PTAB), and before the courts.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions