Death
of a Sales Mark, or How the Third and Ninth Circuits Are Redefining “Use” in
Acquisition of Trademark Rights
Eric A. Priest*
Introduction
Long before the Lanham Act
was enacted in 1946 to govern federal trademark registration,[1]
state laws and judge-made common law held that trademark rights vested only
when a mark was “used in trade.”[2] The term “use,” of course, was laden with
ambiguity,[3]
but it was widely agreed that use in trade meant actual sale of goods or
services associated with the mark.[4]
So, the moment of first
actual sale was the single most important moment in the life of a mark. The user who made that first sale of goods
with the mark attached could claim priority in the mark over any subsequent
user.[5]
While this rule has generally served trademark law well, there has been
friction around the edges. Who should
claim priority in a mark, for example, when someone accepts a large number of
orders for a new product, but before those orders have been filled someone else
makes a complete sale of a product bearing the same mark?[6] Yet, even after federal trademark law all
but eviscerated common law trademarks, the substance of the common law actual
use requirement remained.[7] And a corollary rule developed that
advertising or promotional activities alone, however extensive, do not
constitute a use in commerce.[8]
Two recent decisions,[9]
however, have signaled a shift away from the traditional rule, adopting new
standards that allow advertising and promotional activities to suffice as uses
in commerce well before the goods or services are available on the market. This
Note examines this trend and concludes that a blanket rule that allows
advertising and similar pre-sales activity to satisfy much or all of the use
requirement could undermine several important trademark law principles.
Part I of this Note provides an overview of the law
regarding the definition of “use.” Part
II examines two recent cases that have threatened a significant shift in the
use-in-commerce requirement. Part III
considers possible reasons for this shift, and the impact this shift could have
on the future of trademark law. It
concludes that the shift could undermine trademark law principles by obscuring
the traditional “bright-line” use-in-commerce rule and by favoring wealthier
users with more marketplace “muscle.”
I. “Use in Commerce”
In order to obtain common law rights in a
trademark, the prospective rights holder must establish that it actually used
the mark;[10] unlike many civil law systems, US
law does not grant trademark rights based on registration.[11]
The theory is that actual use provides conclusive evidence that a mark has made
an impact on the relevant purchasing public.[12] This reflects the broader, prevailing[13] theory of trademark law that
protecting trademarks is a way of protecting consumer expectations regarding
the source of goods bearing a particular mark.[14] Thus, exclusive trademark rights are granted
largely because a proliferation of similar marks would lead to consumer confusion. Indeed, under federal trademark law today
the vital criterion for infringement of a trademark is the likelihood that
consumers will confuse two similar marks.[15] Accordingly, a showing of first actual use
gives a trademark holder priority in the mark over any subsequent user of that
mark.[16]
Federal registration under the Lanham Act
does not obliterate the prior existing common law rights of an unregistered
trademark user, nor does it supplant the common law actual use requirement.[17] Actual use of a mark in commerce is a
prerequisite to federal registration also.[18] However, one may effectively reserve a mark
prior to actual use by filing an intent-to-use (“ITU”) application in the US
Patent and Trademark Office (“PTO”), provided that the applicant actually uses
the mark within a specified period of time.[19]
It is worth pausing to note that the Lanham
Act requires that the mark be use “in commerce” to be eligible for federal
registration.[20] The Commerce Clause of the Constitution[21]
is the source of the term “commerce”; requiring that the use be in commerce
enabled Congress enact the statute under its federal commerce power.[22] Thus, the origins of the use-in-commerce
requirement were traditionally quite distinct from the common-law use-in-trade”
requirement for acquisition of trademark rights, and the cases and the Act now
incorporate into the term “use in commerce” both the use-in-commerce
requirement and the traditional use-in-trade requirement.[23]
Because use is a prerequisite to owning
trademark rights, the question of what constitutes use is paramount. For a period of time before the 1970s,
courts allowed “token” use of a mark to fulfill the use requirement.[24] That is, even nominal use, such as making a
few sales of a product in one location in order to reserve the mark, or sending
samples of the product to an affiliate in another state, would satisfy the use
requirement.[25] That trend, however, gave way to the now
universally held view that there must be a “bona fide use” in commerce in order
to establish the use requirement for acquiring rights.[26]
The case law has given only the most
general guidance regarding what currently constitutes use in commerce. Use in commerce must involve more than a
nominal number of bona fide transactions with the relevant customer base.[27] It is not clear how many transactions are
required before the sales are considered not nominal, nor is it always clear
who comprises the relevant customer base.
Courts have held, however, that even a single bona fide sale to
consumers is sufficient to satisfy the use requirement.[28] Most likely, a single standard cannot apply
to all situations, and these issues will always be determined case by case.
Certainly, however, literal adherence to
the first-use-in-commerce rule opens the door to some difficult problems. Consider a situation in which a large
company publicly announces a forthcoming product months before the product is
actually available for sale.[29] Assume further that the company has failed
to file a federal ITU application.
Another person could satisfy the use requirement by hearing the
announcement and then quickly affixing the announced product name onto a
product of his own and immediately placing that product into the stream of
commerce.[30] Note that the bona fide use requirement
(which developed in case law until it was incorporated into the Lanham Act in
1989)[31]
refers to actual sales in commerce as opposed to token use, and not to whether
the mark itself was acquired in bad faith.
Courts have developed the doctrine of
analogous use in cases where strict adherence to the first use rule would lead
to a result that is unfair or contravenes fundamental trademark principles.[32] The doctrine allows limited protection for
pre-sales activity that falls short of actual use sufficient for federal
registration but that has already created an association in the public’s mind
between the goods and the source. Thus, while courts have routinely held that advertising
alone does not constitute a use in commerce,[33]
advertising may be sufficient to oppose subsequent users if the public
associates the initial user with the mark.[34]
II.
Stretching
“Use” Too Far?: Lucent and Pac-Tel
Two fairly recent federal
court decisions, Lucent Information
Management, Inc. v. Lucent Technologies, Inc.[35]
and Chance v. Pac-Tel,[36]
appear to expand the use requirement well beyond traditional notions.[37] In essence, these cases have opened the door
for advertising and promotion to become proxies for actual use in commerce.
A. The Third Circuit’s Decision in Lucent
During the summer of 1995, the plaintiff in Lucent formed a
small corporation called Lucent Information Management ("LIM") to
sell software and hardware used in document imaging and management. In September 1995, LIM sent a one-page
letter to approximately fifty people announcing the creation of LIM and
describing the services offered. In
October 1995, LIM made its first sale, for which it earned $323.50, when it
installed a modem for a customer, using the name Lucent Information Management
on the invoice and listing the corporate address. During the rest of 1995 and
the beginning of 1996, LIM attempted to attract new customers by making twelve
sales presentations in several states.
On February 16th, 1996, LIM made a second sale by entering into a
service agreement with a bank.[38]
Meanwhile,
on November 30, 1995, AT&T spin-off Lucent Technologies, Inc. (“LTI”) filed
an ITU application with the PTO for the mark “Lucent” in connection with
telecommunications and computer-related goods and services. LTI filed this application even in light of
the fact that in November 1995 its trademark attorney had conducted searches
that located companies using a mark identical or similar to “Lucent,” including
LIM. On February 5, 1996, AT&T announced the creation of LTI in a national
media campaign, and around that time mailed out more than 1 million
announcements to potential customers. On April 29th, 1996, LIM applied to the
PTO to register the name “Lucent” in connection with office and
computer-related services.[39]
LIM sued LTI for infringement of its trademark, and the district
court granted summary judgment in favor of LTI.[40]
The Third Circuit held on appeal that LTI had not infringed because LIM never
engaged in a use of the mark that was sufficient to establish common-law
trademark rights. In reaching this decision, the court imported a four-factor
“market penetration test” that it had previously developed in order to
determine the territorial limits of trademark rights (the ownership of which
had already been established). The four factors that the court considered were
(1) the volume of sales of the trademark product; (2) the growth trends (both
positive and negative) in the area; (3) the number of persons actually
purchasing the product in relation to the potential number of customers; and
(4) the amount of product advertising in the area.[41]
The court
held that LIM’s trademark activity prior to LTI's application for registration
with the PTO failed to satisfy any of the four factors. LIM failed the first
factor because the sale of a single modem was de minimus and not “‘sufficiently
public to identify or distinguish the marked goods in an appropriate segment of
the public mind as those of the adopter of the mark.’”[42] After determining that LIM had not satisfied
the first factor, it declined to consider the second factor because it could
not analyze growth trends based on a single sale. Regarding the third factor, the court held that the one sale is
minute when compared with the potential customers on either a local or national
scale. The court noted with regard to
the fourth factor that LIM had existed on the market for only a few months
prior to LTI’s registration, had made only one sale, and had not advertised
extensively in the regional or national markets. In effect, the court said, “LIM wants to protect its intention to create goodwill and a
successful business, and not the goodwill and business itself.”[43]
Lucent has been criticized for raising the
bar of the use requirement because it held that a single use is not sufficient.[44] A district court could also interpret Lucent, however, in a way that lowers
the use requirement because the court gives no indication about how the test’s
four factors should be weighed. Thus,
if a mark user had zero sales in the first factor but a large amount of
advertising activity and expenditure in factor four, a district court could
find that there was still sufficient market penetration to constitute use under
the test.
B. The Ninth Circuit’s Decision in Chance
In Chance, the Ninth Circuit held that a
mark user could acquire rights in the mark prior to any actual sales if the
“totality of the circumstances” establish that the mark belongs to the user.[45] In mid-1989, defendant Chance developed a
lost-and-found service, which he called TeleTrak, that used identifier tags
containing unique serial numbers. A tag
would be affixed to an item, and if that item was lost the tag would instruct
the finder to call a toll-free number and report the serial number on the tag.[46]
By late
summer 1989, Chance had obtained a toll-free number and a mail drop, and had
developed a business plan. In October
1989, Chance paid to have a postcard advertising his TeleTrak service included
in a bulk mailing sent to thirty-five thousand locksmiths nationwide. This mailing produced 128 inquiries from
locksmiths about the service, but no sales resulted.[47]
A year
earlier, in October 1988, plaintiff Pac–Tel began field testing a service that
used radio signals to track lost or stolen vehicles; in June 1989, it chose the
name Teletrac. In July 1989, Pac–Tel
began a major public relations campaign designed to promote Teletrac, though it
did not yet offer the service. This
campaign involved distributing press releases and giving interviews in major
publications, as well as making presentations to prospective customers. Pac–Tel made its first sale of the service
in April 1990, although that customer did not pay for the service until
December of that year.[48]
Chance
heard about Pac–Tel’s service in January 1991. In February 1990, Chance
claimed, he sold a TeleTrak tag to a long-time friend. Chance produced at trial a typewritten
registration form, dated February 23, 1990, that he had prepared for his friend
in connection with the sale. But
neither Chance nor his friend could provide any specifics about how the friend
paid for the tag, how much he paid for the tag, or when he paid for the tag. In
December 1990, Chance filed applications with the PTO claiming exclusive
service mark rights in the name “Teletrak.”[49]
In 1992,
Pac-Tel challenged Chance’s registration, claiming priority in the mark because
Pac-Tel had used the mark in ways analogous to trademark use before Chance’s
first claimed use (the October 1989 mailer).[50] The Trademark Trial and Appeal Board
(“TTAB”) granted summary judgment in Pac-Tel's favor because evidence of
Pac-Tel’s pre–October 1989 promotional activities established that Pac-Tel’s
use of the Teletrac mark was analogous to trademark use, giving Pac-Tel senior
rights in the mark.[51] On appeal, the Federal Circuit overturned
the TTAB's entry of summary judgment,[52]
finding that the facts did not support TTAB’s conclusion of analogous use
because Pac-Tel had failed to show that its pre–October 1989 promotional
activities sufficiently impacted the relevant public.[53] After the Federal Circuit remanded the
proceedings, Chance moved to suspend the proceedings and instituted an
infringement action in the Central District of California.[54]
The district court granted summary judgment in
favor of Pac-Tel. The court concluded
that Chance’s sale in February 1990 was not a bona fide use in commerce, and
that Pac-Tel’s first use occurred with its first sale in April 1990.[55] Interestingly, the district court did not
decide the case based on analogous use, which was the primary issue in the
Federal Circuit appeal. Instead, the
court decided that Pac-Tel had made first actual
use of the mark.[56]
On appeal, the Ninth Circuit also expressly decided
the case based on first use rather than analogous use.[57] Using a “totality of the circumstances
test,”[58]
the Ninth Circuit went a step further than the district court and held that
Pac-Tel’s pre-sales promotional
activities, taken cumulatively, constituted actual first use of the mark.[59] The court stated that a significant number
of cases[60] stand for
the proposition that a use that creates in the public eye a significant
association between a mark and the source of the goods is sufficient to satisfy
the Lanham Act’s use-in-commerce requirement.[61] Indeed, the court supplanted with the
totality of the circumstances test all other standards for determining first
use:
[W]e hold that the totality of the circumstances
must be employed to determine whether a service mark has been adequately used
in commerce so as to gain the protection of the Lanham Act. In applying this
approach, the district courts should be guided in their consideration of
non-sales activities by factors we have discussed, such as the genuineness and
commercial character of the activity, the determination of whether the mark was
sufficiently public to identify or distinguish the marked service in an
appropriate segment of the public mind as those of the holder of the mark, the
scope of the non-sales activity relative to what would be a commercially
reasonable attempt to market the service, the degree of ongoing activity of the
holder to conduct the business using the mark, the amount of business
transacted, and other similar factors which might distinguish whether a service
has actually been “rendered in commerce”.[62]
III. Lucent,
Chance, and the Future of Use in
Commerce
Lucent and Chance portend
a problematic departure from the traditional rule that ownership rights in a
mark vest only when the mark is used in connection with the actual sale of
goods or rendering of services.
Although the Lucent and Chance tests[63]
are not substantially the same,[64]
they both open the door to a set of problems that potentially undermine some
fundamental tenets of trademark law.
First, the tests defeat the bright-line use rule in favor of murkier
standards that, ironically, give judges less discretion than the traditional
rule. Second, by making the threshold
of use coterminous with a mark’s market impact (regardless of first actual
sale), these tests ensure that the wealthier user with greater resources will
usually beat out the smaller user.
A. Obscuring the Bright Line
There are compelling reasons why the actual first
sale of goods or services in connection with a mark should establish
ownership—or “senior user”—rights in that mark. Perhaps most important of these is that the traditional first
sale doctrine establishes a common denominator—a bright-line event that courts
and prospective users can look to to determine when, and in whom, ownership
rights have vested.
The question of whether the Lucent and Chance
decisions are positive or negative developments in trademark law really comes
down to whether society is best served by a use requirement determined by
application of a rule or a standard.
Rules, like the traditional bright-line first-use-in-commerce rule, are
generally lower in administrative and decision costs.[65] That is, once the first sale date has been
established, parties know which rights they have (or do not have) and can
easily establish those rights conclusively.
The fact finder in a dispute (which in the case of federally registered
trademarks would be the PTO or a federal court) could in most cases determine
easily when and in whom rights vested.
Standards, on the other hand, rely greatly on the context of a given
circumstance, often resulting in less ex ante predictability and higher
decision costs.[66]
A frequently mentioned downside to rules is that
they are over- and underinclusive and are therefore more inflexible than
standards.[67]
Inflexibility sometimes leads to inequities, so rules require exceptions
to avoid inequitable results. A rule that works most of the time, coupled with
a back-door exception for rare cases in which inequities could result, sometimes
allows for more judicial discretion than a standard.[68]
In the trademark context, a fairly workable
exception to the bright-line use-in-commerce rule already exists: the doctrine
of analogous use. If the court believes on a given set of facts that the actual
first sale is a legitimate determinant of priority, it will apply the general
rule. But the judge can consider
pre-sale activities in the very rare case in which a user rushes a product onto
the market to usurp a competitor’s pre-sale promotional activities,[69] or where two users almost
simultaneously enter the market using the same or similar mark.[70]
After Chance,
however, the analogous use doctrine is all but buried in the Ninth
Circuit. The Chance court relied heavily on New
West Corp. v. NYM Co. of California in forging its rule that promotional
activities alone can constitute a first use, stating that “In New West Corp. . . . we
determined that, although mere advertising by itself may not establish priority
of use, advertising combined with other non-sales activity is sufficient to
establish use in commerce.”[71] While the Chance court seems to consider its newly
enunciated totality of the circumstances test a logical extension of the New West rule, the test actually is a
significant departure from precedent.
The New West rule is
discretionary; it stands merely for the proposition that on a particularly
difficult set of facts a court need not be bound by a rigid first-sale rule.[72] Thus, New
West represents the epitome of analogous use.[73]
The Chance
totality of the circumstances test, on the other hand, mandates that market
impact factors (namely pre-sale advertising) always be considered when determining use in commerce.[74] Judges are bereft of discretion and could
easily be compelled in close cases[75]
to find that comprehensive pre-sales advertising campaigns trump users of a
mark who have made substantial sales of goods or services in connection with
the mark.
The Lucent market penetration test
particularly suffers from the lack of a bright-line rule. Because the Third Circuit gave no guidance
as to how the factors should be weighted or applied, courts could derive myriad
results from the same set of facts.
Moreover, because the market penetration test includes pre-sales
activity as one of its factors,[76]
it essentially preempts analogous use in the Third Circuit, as well.
Employing a bright-line rule for trademark use also
advances the policy traditionally considered the most important reason for
trademark protection—that protecting marks protects consumer expectations about
the source and quality of a product. In
order to more efficiently identify a product and the
source of its quality and thereby avoid confusion, the public usually is
best served by identifying a mark with a product or service that exists and is
available in the marketplace (as against a competitor’s mark whose product is
not yet available).[77]
A final, ancillary
consideration regarding the complicated question of whether a rule or standard
is most appropriate for the use-in-commerce requirement is one of institutional
enforcement. As Professor Kaplow notes,
how well rules and standards work in a given context can depend on what
institution is promulgating and enforcing them.[78] While only decisions by the Federal Circuit
are technically binding on the PTO,[79]
the PTO must consider trademark decisions by other federal circuits as those
decisions impact rights appurtenant to federally registered marks.[80] The Federal Circuit has held that a bona
fide single sale or shipment of a product, followed by activities that indicate
an intent to continue use in commerce, is enough to satisfy the federal
registration requirement.[81]
A concern, however, is that the Third and Ninth
Circuit tests might influence the TTAB or a trademark examiner when looking for
guidance as to what constitutes proper use.
If so, will PTO officials have the information and resources available
to engage in the kinds of balancing tests adopted by the Third and Ninth
Circuits? It seems that in the context
of PTO review, the traditional bright line first use rule of priority is
preferable for the PTO and for applicants because it provides a more
predictability and efficiency in decision making in the vast majority of
cases. In the few TTAB cases where
inequities would result from applying the rule, the doctrine of analogous use
is available to yield an equitable result.[82]
B. The Early Bird vs. the Eight-Hundred Pound
Gorilla
A second problem with the market penetration and
totality of the circumstances tests is that they favor users with the resources
and funds to make a big market impact in a short time through costly
advertising and promotion. The Third
and Ninth Circuits undoubtedly embraced the theory that the public is best
served, and confusion about the mark’s source is least likely to result, if the
user who has made the greatest public impact is awarded ownership. This kind of consumer confusion is a
concern, but is adequately addressed by the doctrine of analogous use. Establishing a blanket rule that market
impact determines ownership rights actually encourages consumer confusion by
enabling junior users with more marketing muscle to usurp the small but real
market gains of start-up senior users.
Lucent provides an example of this phenomenon. While the court seemed unimpressed that LIM
used the mark “Lucent” for at least three months before LTI filed for
registration of the mark,[83]
LIM made significant strides during that time to promote its services. LIM sent fifty letters to business contacts
promoting its services, made several presentations in different states, and
made a bona fide sale, all during those three months.[84] The numbers are not earth shattering, but
they probably are within the range of what a four-employee start-up can
reasonably be expected to do in its first few months.
Furthermore, the court seemed unfazed that LTI
adopted the “Lucent” mark after it had learned that LIM was using the mark in
connection with similar services.[85] It is true that trademark rights are awarded
largely to prevent consumer confusion, and not to protect the creation of the
mark’s inventor. But the court refused
to consider that LTI’s having uncovered LIM in one of its trademark searches[86]
might be evidence that LIM had already appeared on the relevant market
“radar.” LIM also offered other
evidence that the start-up had established a presence, albeit small, in the
marketplace and that LTI’s subsequent use of the mark created confusion.[87]
Chance is an admittedly less-compelling example of this
problem on its facts. The defendant’s
case was exceedingly flimsy at best (one sale to a friend, for which payment
could not be found), and dishonest and in bad faith at worst (the sale could
have been fabricated after the fact to improve the defendant’s case). One certainly can imagine, however, a
defendant with a stronger case still loosing under the totality of the
circumstances test. For example,
applying the totality of the circumstances test to the facts of Lucent, a court could be rather
compelled to find that LIM’s earlier single sale and twelve presentations paled
in comparison to the AT&T spin-off’s later, larger advertising
campaign. Ultimately, both of these
tests potentially undermine trademark law principles by encouraging powerful
junior users to move in on small but established marks, leaving consumer
confusion in their wake.
C.
Lucent, Chance and the Changing Face of Trademark Law
Over the last decade, views about the inherent
value of trademarks have changed.[88]
While the Lucent and Chance decisions appear to be creating new
rules to adhere to an old principle (protecting the consumer from confusion),
perhaps they really indicate that the old principle has lost some luster. As Professor Litman argues, trademarks now
must be seen to have an intrinsic value that transcends their function as a
symbol of the source of goods.[89] Thus, whether a mark is offered in
connection with goods or services probably is increasingly irrelevant;[90]
a famous mark has value that is worth protecting on its own merits.[91] Quite possibly, the Lucent and Chance courts
have gradually been acclimated to this shift in attitude, hence their
preoccupation with market impact evidence, which really suggests whose personal
stake in the mark is more valuable.
If the Lucent
and Chance tests were a reflection of
the kind of increasing economic value in trademarks that Professor Litman talks
about, the courts were almost certainly doing it unconsciously. For it could be just as easily argued that
the Chance and Lucent tests reassert the traditional function of marks—protecting
against consumer confusion—by trying to award ownership to the user with whom
the public most closely associates the mark.
Furthermore these tests do address the difficult problem in trademark
law of what to do when a junior user with mass market potential encounters a
senior user with a real but very limited market.[92] Even so, the Chance and Lucent courts
and their resulting tests seem too willing to discount as de minimis the market
activities of “little guys” who have made a market impact relative to their
size.
Acquiring priority via first use still seems
appropriate and relevant regardless what theory of trademark law prevails. It protects consumers by ensuring the mark
indicates the same source of the goods as it did when they first appeared on
the market. It protects mark holders in
the vast majority of cases by awarding rights in goods that the mark holder was
the first to bring to market. And the
analogous use exception gives judges the discretion to undo inequities in the
rare case where the first use rule fails.
Conclusion
We should give pause before stretching the
use-in-commerce requirement too thinly when the equities of a particular case
seem to justify it. It was designed to
limit the rights we grant to mark holders; broadening that requirement may be
selling out important protections built into the system. Professor Lemley discussed this in the
context of trademarks and domain-name cybersquatting cases, but his comments
are equally pertinent to priority of use:
[T]here is something troubling about the erosion of the commercial
use and use in commerce requirements.
We may find that extending trademark protection to cover noncommercial
uses of a mark, however compelling the instant case, sets a dangerous precedent
for the law. Indeed, we need not look
too far. The cybersquatter precedents
are already being used by trademark owners to take domain names away from
arguably legitimate users, such as people who want to register their last names
as Internet domains and those who build a “gripe site” to complain about a
specific product or company.[93]
By placing a premium on advertising and market impact, we could be
selling out the bedrock trademark principles that the public should be
protected from confusion of marks, and the entrepreneur should feel secure that
a mark, once affixed to goods sold, belongs to her alone.
* J.D., Chicago-Kent College of Law, 2002. B.A., University of Minnesota, 1999. I would like to thank Professor Harold Krent
for his advice and patience throughout the writing process, and Professor
Richard Renner, without whose valuable advice this Note would not have been
possible.
[1] See Trademark Act of 1946, Pub.
L. No. 79-489, ch. 540 (1946) (codified as amended at 15 U.S.C. § 1051–1127).
[2] See Menendez v. Holt, 128 U.S. 514 (1888).
[3] See Id. (considering whether use existed where a mark was attached
to a product that was sold in small quantities and then not sold for twenty
years; the court held it did not).
[4] See, e.g., Trade-mark Cases, 100 U.S. 82,
94 (1879); Kathreiner’s Malzkafee v. Pastor Kneipp Medicine Co., 82 F. 321 (7th
Cir. 1879).
[5] J.
Thomas McCarthy, McCarthy on
Trademarks, § 16:1 (17th ed. 2001).
[6] See, e.g., Geo. Washington Mint, Inc. v. Washington Mint, Inc., 349
F. Supp. 255 (S.D.N.Y. 1972).
[7] See Blue Bell, Inc. v. Farah Manufacturing Co., 508 F.2d 1260 (5th
Cir. 1975); Allard Enters. Inc. v. Advanced Programming Res., Inc., 146 F.3d
350 (6th Cir. 1998).
[8] Allard Enters. Inc. v. Advanced
Programming Res., Inc., 146 F.3d 350 (6th Cir. 1998).
[9] Lucent Info. Mgmt., Inc. v.
Lucent Techs., Inc., 186 F.3d 311 (3d Cir. 1999); Chance v. Pac-Tel Teletrac,
Inc., 242 F.3d 1151 (9th Cir. 2001).
[10] McCarthy,
supra note 5, § 16:1.
[11] Id. § 16:4.
[12] Id.
[13] Arthur
R. Miller & Michael H. Davis, Intellectual Property: Patents, Trademarks,
and Copyright 155–56 (3d Ed. 2000).
Miller and Davis note that while trademarks have traditionally been an
indication of source, there are also important competing rationales for trademark
protection in US law, including their value to the owner as a marketing and
advertising device. Id.
[14] See id.
[15] Id. at 260.
[16] McCarthy,
supra note 5, § 16:4.
[17] Miller
& Davis, supra note 13, at 231–32.
[18] 15 U.S.C. § 1051 (2001).
[19] The “use” associated with an ITU
application is referred to as “constructive use.” Miller & Davis, supra note 13, at 225.
[20] 15 U.S.C. § 1051.
[21] U.S.
Const. art. I, § 8, cl. 3.
[22] Miller
& Davis, supra note 13, at 231–32.
[23] Id.
[24] See id. at 230.
[25] See id.
[26] See Blue Bell, Inc. v. Farah Mfg. Co., 508 F.2d 1260 (5th Cir.
1975); McCarthy, supra note 5, § 16:7.
[27] McQuay-Norris Mfg. Co. v. H-P
Tool Mfg. Corp., 141 U.S.P.Q. 405 (T.T.A.B. 1964).
[28] See, e.g., Hydro-Dynamics
Inc. v. George Putnam & Co., 811 F.2d 1470, 1472–74 (Fed. Cir. 1987).
[29] See, e.g., Johnny Blastoff, Inc. v. Los Angeles Rams Football Co.,
188 F.3d 427 (7th Cir. 1999).
[30] Id. In Los Angeles Rams, the Los Angeles Rams football team announced publicly in January 1995 that it planned to
move to St. Louis. The team did not
make use of or file a federal application for the mark “St. Louis Rams” until
April. In the meantime, an entrepreneur
in Wisconsin filed an ITU application for the mark. The Seventh Circuit held that the team had priority because
although it had not filed or used the mark first, after the January
announcement the public associated the source of the mark as being the team
rather than the Wisconsin entrepreneur.
Id.
[31] See Chance v. Pac-Tel Teletrac, Inc., 242 F.3d 1151, 1157 (9th Cir.
2001) (citing 15 U.S.C. § 1127).
[32] See, e.g., Shalom Children’s Wear, Inc. v. In-Wear A/S, 26
U.S.P.Q.2d 1516 (T.T.A.B. 1993).
[33] Buti v. Impressa Perosa, S.A.,
139 F.3d 98 (2d Cir. 1998).
[34] Nat’l Cable Television Ass’n,
Inc. v. Am. Cinema Editors, Inc. 937 F.2d 1572 (Fed. Cir. 1991).
[35] 186 F.3d 311 (3d Cir. 1999).
[36] 242 F.3d 1151 (9th Cir. 2001).
[37] Lucent is generally seen (and criticized) as “raising the bar” as
to the type and level of use required for acquiring common law trademark
rights. See McCarthy, supra note 5, § 16:6. Chance, on the other hand, can be seen
as opening the door to the converse problem (with which this Note is primarily
concerned): lowering the standard of acceptable use to include mere advertising
and promotional activities without connection to any actual sale of goods. By adopting a “market penetration” test that
considers a mark’s impact on the relevant market in order to determine whether
a trademark has been used in commerce, however, the Third Circuit has at once
lowered and raised the “use” bar. See infra Section III.B.
[38] Lucent Info. Mgmt., Inc.,186 F.3d
at 313–15.
[39] Id.
[40] Lucent Info. Mgmt., Inc. v.
Lucent Techs., Inc., 986 F. Supp. 263 (D. Del. 1997).
[41] Id. at 317.
[42] Id. (quoting Blue Bell, Inc. v. Farah Manufacturing Co., 508 F.2d
1260, 1266 (5th Cir. 1975)).
[43] Id. at 318 (emphasis added).
[44] See McCarthy, supra
note 5, § 16:6.
[45] Chance v. Pac-Tel Teletrac, Inc.,
242 F.3d 1151 (9th Cir. 2001).
[46] Id. at 1154–55.
[47] Id.
[48] Id.
[49] Id. at 1155.
[50] Id.
[51] Pac–Tel Teletrac v. T.A.B. Sys.,
32 U.S.P.Q.2d (BNA) 1668 (TTAB 1994).
[52] T.A.B. Sys. V. Pac-Tel Teletrac,
77 F.3d 1372 (Fed. Cir. 1996).
[53]Id. The
Federal Circuit enunciated a two-part test for determining whether evidence
supports a finding of use analogous to trademark use. According to the Federal Circuit, the promotional activities (1)
must reach more than a negligible share of potential customers; and (2) must
have been sufficient to have a substantial impact on the purchasing public. Id. at 1376.
[54] Chance, 242 F.3d at 1155–56.
[55] Id. at 1160 n.5.
[56] See Id.
[57] Id.
[58] Id. at 1159.
[59] Id. at 1159-60.
[60] The court cited the following
cases (among others): West Florida
Seafood, Inc. v. Jet Restaurants, 31 F.3d 1122 (Fed. Cir. 1993) (“[O]ne
should look at the evidence as a whole, as if each piece of evidence were part
of a puzzle which, when fitted together establishes prior use."); New West Corp. v. NYM Co. of California,
595 F.2d 1194 (9th Cir. 1979) (standing for the proposition that “although mere
advertising by itself may not establish priority of use, advertising combined
with other non-sales activity is sufficient to establish use in commerce”); and
Brookfield Communications, Inc. v.
Westcoast Entertainment Corp., 174 F.3d 1036 (9th Cir. 1999) (“[T]rademark
rights can vest even before any goods or services are actually sold if 'the
totality of [one's] prior actions, taken together, [can] establish a right to
use the trademark.”).
[61] Id. at 1159.
[62] Id.
[63] I.e., the market penetration test
and the totality of the circumstances test, respectively.
[64] The difference between the two
tests can be summed up as follows: whereas the market penetration test sets a
threshold level of impact on a market that a user must have made before a first
“use in commerce” has occurred, the totality of the circumstances test
considers a number of sales and pre-sales activities, including impact on the
market, to determine that the overall circumstances indicate a first use has
occurred.
[65] For a general discussion of rules
versus standards, see Roundtable
Discussion: Corporate Governance, 77 Chi.-Kent L. Rev. 235, 258–60 (2001) (discussing rules
versus standards generally as well as in the corporate law context).
[66] See id.
[67] See id. But see Louis Kaplow, Rules Versus Standards: An Economic Analysis,
42 Duke L.J. 557, 565 (1992) (arguing that the suggestion that rules are over-
and underinclusive can be misleading because both rules and standards “can in
fact be quite simple or highly detailed in their operation”).
[68] See Kaplow, supra note 67.
[69] See, e.g., New West Corp. v. NYM Co. of Cal., 595 F.2d 1194 (9th
Cir. 1979). In New West, two competing magazine publishers each intended to market
a new magazine titled “New West.” The
defendant announced its intention to publish the magazine in a press release,
sent sample issues to potential advertisers, and sent approximately 430,000
fliers using the mark to potential subscribers. It also took 14,000 subscription orders. Shortly thereafter, in an attempt to
establish priority rights in the mark, the plaintiff rushed 500 “preview”
issues (which were originally sample issues) bearing the mark “New West” to
store shelves. Four days later, the
defendant sold 10,000 copies of its “New West” magazine. Id. at
1196–97. The court held that the
plaintiff’s preview edition was not a real issue, and that the defendant’s
promotional efforts established first use.
Id. at 1200.
[70] See Geo. Washington Mint, Inc. v. Washington Mint, Inc., 349 F. Supp.
255 (S.D.N.Y. 1972), in which the two parties unwittingly adopted similar marks
for similar goods, and entered the marketplace almost simultaneously. The defendant made a shipment of goods to a
customer twenty-eight days before, but the plaintiff was first to solicit
orders, receive binding orders, and advertise its products. The court held that the plaintiff had
established priority in the mark by soliciting and accepting orders first. Id. at
262–64.
Note that the reasoning in Geo. Washington Mint is significantly different from that in Chance.
The Geo. Washington Mint court
found most persuasive the fact that the plaintiff had actually solicited and
received binding orders for the product associated with its mark. Id.
at 260 (“[T]he taking of orders made contracts of
sale and the use of ‘The Geo. Washington Mint’ was an integral part of the
process of sale.”). Thus, while
the court acknowledged that it applied an exception to the general rule, the
exception it carved was intentionally slight because the activity it held to be
use was integrally related to sales transactions. In Chance, by contrast,
the court was persuaded almost exclusively by the amount of advertising Pac-Tel
had put into the Teltrac mark before Chance had his first alleged use in
commerce. Chance, 242 F.3d at 1160 (listing the factors for finding Pac–Tel
satisfied the use-in-commerce standard as “a public relations campaign using
the mark to introduce its new service, . . . [sending] out
brochures to potential customers, . . . conduct[ing] interviews
with major newspapers, . . . [and] market[ing] to potential
customers who managed large vehicle fleets through a slide presentation using
the mark”).
[71] Chance v. Pac-Tel Teletrac, Inc.,
242 F.3d 1151, 1158 (9th Cir. 2001). After Chance,
it seems the Ninth Circuit has, at least implicitly, abandoned the portion of
the New West rule that advertising
alone cannot constitute use in commerce.
[72] See Unisplay S.A. v. American Elec. Sign Co., 28 U.S.P.Q.2d 1721,
1729 (E.D. Wash. 1993).
[73] And although the New West court did not use the term
“analogous use,” the case falls directly in line with cases that expressly deal
with analogous use. See, for example, T.A.B. Systems v. Pac-Tel Teletrac, 77
F.3d 1372 (Fed. Cir. 1996), in which the Federal Circuit adopted as its
analogous use test the two-part test used in New West ((1) adoption of the
mark; and (2) use in a way sufficiently public to identify or distinguish the
marked goods in an appropriate segment of the public mind).
New
West cited New England Duplicating
Co. Inc. v. Mendes, 190 F.2d 415, 417 (1st Cir. 1951), for the proposition
that courts have long allowed use to be found where there was no actual
sale. While the court in Mendes did indeed hold that there need
not have been an actual sale in order to find use, it was interpreting the
Lanham Act’s language that a “use in commerce” requires that the goods be sold
or transported in commerce. Mendes,
190 F.2d at 417 (citing 15 U.S.C. § 1051).
That case involved goods that were transported across state lines but
not sold. Id. The court held that the
transportation satisfied the statute’s use in commerce requirement. Id. The Mendes
holding was rooted in the express language of the statute, and did not suggest
that pre-sales advertising or market penetration could constitute actual use.
[74] Chance, 242 F.3d at 1159 (“[W]e hold that the totality of the
circumstances must be employed to
determine whether a service mark has been adequately used in commerce so as to
gain the protection of the Lanham Act.” (emphasis added)).
[75] Chance was not a close case, at least on the question of whether
Chance acquired priority through first sale.
All the evidence pointed to the conclusion that Chance’s single sale in
February 1990 was a token use of the mark.
See id. at 1155. This highlights an ironic and unfortunate
aspect of the Chance holding: Chance was a prime example of a case
where the first use rule would have provided a clean and equitable result. The court could have reasoned that because
Chance’s only “sale” was a token use, he never made the first sale and
consequently never acquired rights in the mark. Pac–tel’s rights would have vested in its first sale in April
1990. By applying the totality of the
circumstances test to this situation, however, the court strengthened Chance’s
argument for first use because the court was required to consider the 35,000
mailings that promoted Chance’s Tele-Trak.
And the court considerably weakened Pac-Tel’s cause by having to sew
together a string of pre-sale Pac–Tel promotional activities, even feeling
compelled to refer to an arcane use of the term Teletrac by Pac–Tel Teletrac’s
predecessor in interest. Chance, 242 F.3d at 1160.
[76] Lucent Info. Mgmt., Inc. v. Lucent
Techs., Inc., 186 F.3d 311 (3d Cir. 1999).
[77] Mark A. Lemley, The Modern Lanham
Act and the Death of Common Sense, 108
Yale L.J. 1687, 1695
(1999).
[78] Kaplow, supra note 67, at 608–11.
[79] See William Burnham,
Introduction to the Legal System of the United States 172 (1999).
[80] For example, Section 37 of the
Lanham Act gives federal district courts the power to cancel registrations,
restore cancelled registrations, and otherwise “rectify the register.” 15 U.S.C. § 1119 (2001). Thus, a court can examine questions of use
and priority in connection with registrations, and rectify them according to
the rules in its circuit. If that
decision goes up for appeal, the PTO must abide by the circuit court’s holding.
[81] Hydro-Dynamics Inc. v. George
Putnam & Co., 811 F.2d 1470, 1472–74 (Fed. Cir. 1987).
[82] The Federal Circuit has expressly
approved the doctrine of analogous use.
See Nat’l Cable Television
Ass’n, Inc. v. Am. Cinema Editors, Inc. 937 F.2d 1572 (Fed. Cir. 1991).
[83] Lucent Info. Mgmt., Inc. v.
Lucent Techs., Inc., 186 F.3d 311, 317 (3d Cir. 1999) (“[T]he fact remains that
LIM existed for only about three months before LTI filed its
ITU. . . .”).
[84] Id. at 317.
[85] After mentioning this fact in the
background section, the court did not consider it until section III.B of its
analysis, where it had to specifically address LIM’s claim that LTI adopted the
mark in bad faith. The court declined
(in a bout of rather circuitous logic) to decide the question of whether LTI
adopted the mark in bad faith because the court had already determined that LIM
had never “used” the name before LTI filed for registration. Id. at
318.
[86] The court stated that “In
November 1995, AT&T obtained a trademark name search and two trademark
search reports, all of which located companies using the mark LUCENT or
variants of it. One of the three search
results included a reference to LIM.” Id. at 313.
[87] Id. at 317–18. The court
noted that “LIM offers evidence of confusion generated by LTI's launch, such as
phone calls intended for LTI coming to its office or people wondering whether
it stole the mark from LTI.” Id. at 317. The court summarily dismissed this evidence, however, stating
that “LTI is correct when it stresses that LIM wants to protect its intention
to create goodwill and a successful business, and not the goodwill and business
itself.” Id. at 317–18.
[88] See Jessica Litman, Breakfast
with Batman: The Public Interest in the Advertising Age, 108 Yale L.J. 1717
(1999) (“[T]he descriptive proposition that trade
symbols have no intrinsic value has come to seem demonstrably inaccurate. The use
of trademarks on promotional products has evolved from an advertising device
for the underlying product line to an independent justification for bringing a
so-called underlying product to market.”).
[89] Id.
[90] Id. at 1726–27.
[91] Id.
[92] Consider, for example, a situation
where a small town microbrewery has been brewing Yellow Dog Beer for years and
selling it to a very small but devoted group of neighborhood customers. If a major national brewery decides to
market beer under the Yellow Dog mark, it will have junior rights in the mark,
at least in the other user’s geographic area.
Of course, the national brewery could be awarded concurrent rights in
the mark everywhere in the US except for the small town where Yellow Dog is already
a well-known mark for beer. See Miller
& Davis, supra note 13, at 208. Such
geographic carve-out arrangements, however, are increasingly unrealistic in our
national economy.
[93] Lemley, supra note 77, at 1703.