Friday, August 29, 2008

Las Vegas’ “Heavy Hitter” Glen Lerner Files Declaratory Judgment Action Against Owner of “Heavy Hitters” service mark


Most cities probably have at least one personal injury lawyer who is recognized by the public simply from the attorney’s extensive TV advertisements promoting the lawyer’s legal services. In Las Vegas, that attorney is Glen Lerner. Lerner, who established his practice in Nevada in 1991, is well recognized for his somewhat cheesy low-budget TV commercials advertising his personal injury legal services which have been gracing the Las Vegas airways for many years and have made him a mini-celebrity here (I suspect that he keeps his ads intentionally cheesy at this point because while he can certainly afford more polished ads, the cheesiness of his commercials have become another one of his signatures). You can check out some of his greatest hits on YouTube (here as well as his famous Super Bowl – pardon me, “Big Game” ad here.

But if you ask Las Vegas locals to describe Lerner in 3 words or less, most likely you will hear them refer to Lerner as “The Heavy Hitter.” Sometime in 2001, Lerner began promoting himself as “The Heavy Hitter.” While the ad campaign certainly grabbed the attention of the Las Vegas public, it also got the attention of the State Bar of Nevada, who told Lerner that calling himself “The” Heavy Hitter was false and misleading because it’s a statement that he is the only heavy hitter. Instead, the Nevada Bar told Lerner that he could only be “a” heavy hitter. Click here for a Las Vegas Review Journal article on the “heavy hitter” dispute between Lerner and the State Bar of Nevada.


Now Lerner finds himself in the midst of another dispute over the “heavy hitter” moniker – but this time it’s a trademark dispute with a company with which Lerner (apparently up until recently) had a licensing arrangement to use the name HEAVY HITTER. Lerner has apparently refused to pay the agreed-upon licensing fee and is now challenging the company’s trademark rights in court.

On August 22, 2008, Lerner filed a declaratory judgment action against Richard Sackett, LawCo USA, PLLC (“LawCo”), and Group Matrix, Inc. (“Group Matrix”) (collectively, the “Defendants”) in the U.S. District Court for the District of Nevada. See Lerner v. Sackett et al, Case No. 08-cv-01123 (D. Nev.). A copy of the complaint can be downloaded here.

According to the complaint, LawCo and Group Matrix are both advertising agencies purportedly owned and operated by Sackett. LawCo is the named registrant of the registered trademark HEAVY HITTERS for legal services, which it filed on April 3, 2001 as an intent-to-use application and registered on February 1, 2005. Several months after this first application was filed, Sackett himself on August 22, 2001 filed an intent-to-use trademark application for the mark HEAVY HITTERS for advertising, management, and marketing of legal services (later amended to business management, marketing, and advertising services specifically for the legal services of others). The application has been allowed, but no Statement of Use has yet been filed by Sackett.

At first, without knowing anything about LawCo or Sackett, one might think that the two applications and applicants were completely unrelated. Indeed, the attorney of record for Sackett’s application in the Office Action Response filed June 11, 2002 had to argue no likelihood of confusion in response to the PTO’s citation to LawCo’s then pending application. But after the PTO maintained its likelihood of confusion rejection over LawCo’s HEAVY HITTERS mark after it registered, Sackett’s counsel submitted a Declaration stating that Sackett is the “general manager and controls the activities of LawCo USA, P.L.L.C. Corporation.” As such, this makes LawCo and Sackett “related entities” and therefore, the PTO withdrew the likelihood of confusion rejection.

Lerner’s lawsuit seeks a declaratory judgment that his use of the HEAVY HITTER and HEAVY HITTERS marks for legal services does not infringe Defendants’ trademark rights in its Heavy Hitter Marks.

According to Lerner’s complaint, sometime in 2002, Lerner entered into some kind of license agreement with the Defendants to allow Lerner to use the mark HEAVY HITTER in the advertising and promotion of Lerner’s legal practice. [Note: The complaint states that Lerner “attempted” to enter into an agreement, but other parts of the complaint, notably those asking for the agreement to be rescinded, suggest that an actual agreement was indeed entered into by the parties.] At the time, the Defendants claimed trademark rights to the marks HEAVY HITTER and HEAVY HITTERS for use in connection with legal services was based on the above trademark applications. The Defendants have apparently entered into other license agreements with other third party legal service providers to use its Heavy Hitter Marks.

Lerner argues that the Defendants fraudulently induced him to enter into the agreement based upon a misrepresentation that Defendants held legitimate trademark rights in the Heavy Hitter Marks. [Comment—An intent-to-use application by an applicant with a bona fide intent to use the mark does provide the applicant with legitimate inchoate trademark rights]. Lerner further argues that the Defendants do not provide legal services in connection with the Heavy Hitter Marks nor can they provide such services because they are not licensed attorneys capable of providing legal services. [Comment—“legal services” is a pretty broad category and doesn’t necessarily mean the “practice of law” and Defendants controlled license of the marks constitutes use].

Lerner also claims that Defendants lost their trademark rights by not exercising any quality control over Lerner’s legal services or over any legal services offered by another other third party licensees of the Heavy Hitter Marks. [Comment—My favorite defense – the “naked license”].

Lerner apparently received a cease and desist letter from the Defendants on or around August 14, 2008, threatening suit if he did not stop using the Heavy Hitter Marks, thereby leading to Lerner’s reasonable apprehension that Defendants will file legal action against him and the basis for his seeking declaratory relief.

Based on Defendants’ fraud and naked license, Lerner argues that Defendants have no trademark rights in the Heavy Hitter Marks and thus his use of the marks HEAVY HITTER and HEAVY HITTERS cannot constitute federal or state trademark infringement or unfair competition. Lerner seeks a declaration that his use of the mark HEAVY HITTER or HEAVY HITTERS does not infringe Defendant’s registered trademark, is not likely to cause confusion as to source, origin or affiliation or otherwise constitute unfair competition with Defendants trademark rights, and does not constitute trademark infringement or unfair competition under Nevada state law.

For good measure, Lerner also seeks cancellation of Defendant’s registered HEAVY HITTER mark on the grounds of abandonment and fraud on the USPTO. Lerner argues that the Defendants have abandoned the mark because they have not used the mark in commerce in connection with legal services since the application was filed in 2001. [Comment—what about use by a licensee, such as Lerner?] While not stated very clearly, the complaint also seems to be alleging that since the Defendant never used the mark in commerce, then the Defendants committed fraud on the USPTO when it claimed in its Statement of Use filed August 18, 2003 that it began using the mark at least as early as January 5, 1999. [Practice Pointer: Allegations of fraud on the PTO should be specifically identified. If you want to play the “fraud” card, make sure your complaint specifically identifies the false statement of material fact that the trademark applicant knew or should have known was false at the time and make sure you allege that the PTO relied upon such false statement in issuing the trademark registration.]

Finally, Lerner throws in a claim of common law fraud based on Defendants’ false representation that the Defendants had legitimate rights to the Heavy Hitter Marks, knowledge that its representation was false (i.e., Defendants knew that they were not offering legal services in connection with the Heavy Hitter Marks or were not exercising any quality control over any licensees of such marks), and detrimental reliance on the part of Lerner with respect to those false representations (but for the false representation, he would not have entered into the license agreement with the Defendants). Lerner requests that the “agreement” be rescinded by the court, and thus, Lerner’s use of the Heavy Hitter or Heavy Hitters mark could not be a breach of contract.

The prosecution history of the registered trademark application for HEAVY HITTER would give any reasonable person grounds for questioning the legitimacy of the trademark rights thereunder. After filing the application as an intent-to-use application on April 3, 2001, the application sailed through and received a Notice of Allowance on March 5, 2002. All LawCo had to do was file a Statement of Use or Extension of Time within six months. But for reasons unknown, the due date (September 5, 2002) passed. On October 10, 2002, LawCo filed the Extension Request along with a Petition to Revive the application (having missed the due date for filing such Extension Request). After the Extension Request was granted, LawCo had until March 5, 2003 to file a Statement of Use or additional Extension Request. So what happened? The due date once again came and went without any timely filing. On March 27, 2003, the applicant once again filed the Extension Request that should have been filed along with a second Petition to Revive. This extended the time for LawCo to file a Statement of Use or additional Extension Request to September 5, 2003.

On August 18, 2003, Lawco finally submitted its Statement of Use, but oddly claiming first use as early as January 5, 1999, and attaching a telephone lawyer advertisement for a personal injury law firm in Rochester, NY named Alexander & Catalano which boldly proclaimed “Call The Heavy Hitters!” [Query—If the mark had really been in use since January 5, 1999, how come LawCo couldn’t come up with a specimen of use in a timely manner – and how come LawCo had to file the application originally as intent-to-use?]

Because the drawing of the mark submitted with the application is for HEAVY HITTERS and the specimen showed “Call The Heavy Hitters!” the PTO rejected the specimen and demanded a substitute specimen showing the mark as depicted in the drawing. In response, LawCo apparently provided a CD of “‘Heavy Hitter’ commercials” that were in use prior to the date the Statement of Use was filed and argued that they reflected use of the “HEAVY HITTERS” mark as an “attention-getting symbol” which would be recognized as a service mark.

Well, based on the PTO’s final action in response to the CD, the ads apparently showed the mark HEAVY HITTER and THE HEAVY HITTER [Ed.-Hmmm, I wonder whose ads those were?] which still differed from the original drawing of the mark HEAVY HITTERS submitted with the application. The Examining Attorney allowed LawCo to amend the drawing to HEAVY HITTER so that it conformed to the specimen (apparently not finding such a change to be a material alteration of the essence or character of the mark). And with that, LawCo finally got its service mark registration.

Vegas™Esq. Comments:
As questionable as the prosecution of the application appears to be, there may not be enough of a false statement of material fact in the Statement of Use to kill the registration on the basis of fraud (the stated dates of use, while certainly questionable, will not be deemed material so long as the mark was used in connection with the services as of the date the Statement of Use was filed). Lerner could try to argue that the Defendants never had a bona fide intent to use the mark in commerce, but that may be difficult given the licensing arrangement entered into between the Defendants and Lerner in 2002.

As for abandonment, ownership rights in a trademark or service mark may be acquired and maintained through the use of the mark by a controlled licensee even when the only use of the mark has been made, and is being made, by the licensee. See Turner v. HMH Publishing Co., Inc., 380 F.2d 224, 229, 154 USPQ 330, 334 (5th Cir. 1967), cert. denied, 389 U.S. 1006, 156 USPQ 720 (1967).

Of course, the key word in the above is “controlled” licensee, which comes back to what may be the best argument for Lerner’s abandonment defense -- the apparent “naked license.” If Lerner can show evidence that Defendants have not, nor have they ever, taken any reasonable steps to monitor the quality of the services rendered by Lerner and other licensees, then such failure to ensure quality control can result in the trademark ceasing to function as a symbol of quality and a controlled source in which case the trademark will be deemed to have been abandoned and the Defendants would be estopped from asserting rights to the mark.

For what it’s worth, when I think of the “Heavy Hitter,” only one “source” comes to mind.



Wednesday, August 27, 2008

The guessing game for the new Oklahoma City NBA franchise begins at the USPTO

There are several reports out today (here and here) that the name of the Oklahoma City’s new NBA franchise will be announced next week. The NBA team formerly known as the Seattle SuperSonics will have a new name, colors, and logo.

The first clues of the proposed name for the new team came from several intent-to-use trademark applications filed by The Professional Basketball Club, LLC on July 25, 2008 for each of the names being considered (one application for various services related to basketball exhibitions and the second for clothing):


Thunder is reportedly the favorite.

Sportsline has a thread of recommended names from fans with good senses of humor. One that I particularly liked and which fits with my tornado theme above – Oklahoma City Cyclones.

I guess no one considered the Oklahoma City Okies.

Monday, August 25, 2008

Privé Nightclub Files Libel Lawsuit Against Vegas Blogger Under the Guise of Trademark Infringement

On August 20, 2008, Privé Vegas, LLC (“Privé”), Justin Levine, and Frank Tucker filed a defamation lawsuit against Michael Politz and various unnamed individuals and businesses in the U.S. District Court for the District of Nevada under the pretext of a trademark infringement/dilution-by-tarnishment lawsuit. See Privé Vegas LLC et al v. Politz et al, Case No. 08-cv-01104 (D. Nev.). A copy of the complaint can be downloaded here.

Privé owns and operates the Privé nightclub at the Planet Hollywood Resort and Casino in Las Vegas, Nevada, which first opened December 31, 2007. Levine is a Managing Partner and Tucker is Managing Director. Politz is the publisher of his own blog located at http://www.thevegaseye.com/, where he posts comments and other content relating to Las Vegas businesses and entertainment.

According to the complaint, after Politz was denied entry into the Privé club sometime in January, he posted some negative comments about the club on his blog and allegedly threatened to publish negative content regarding Tucker as well as supposedly contacted Levine and requested cash payment to be on his “good side.” The complaint also alleges that Politz sometime in March 2008 contacted another member of Privé management and admitted to posting negative content in exchange for a cash payment.

Between April and June 2008, four former hosts of Privé quit their employment with Privé and went to work for a competing club. On June 23, 2008, Privé filed a lawsuit against these four former employees for breaching a covenant not to compete and, for one of the hosts, stealing an using a supposedly confidential, proprietary customer list to solicit customers.

Around July 23, 2008, Defendant Politz published a blog post titled “IS THE PRIVÉ SHIP STARTING TO SINK?” which described the lawsuit filed by Privé against the four former employees, but then goes on to read as follows:

The question is WHY is all this energy being expended to shake these folks senseless? Does anyone really know? WE do. These four have information that Privé Management doesn't want getting out to anyone. And it has nothing to do with their client list. Something bizarre is boiling up beneath the surface at Privé. For instance what’s this we’re told about employees being shaken down for tip money by someone called “The Tax Man?” “The Tax Man” is apparently a Privé higher-up who uses the merest infractions – being late to meetings, wearing White after Labor Day-- as excuses to levy fines against employees as high as $500 a pop. The purloined tips go to feed something called “The Slush Fund.” Whatever that is. It's a mess. The winds of change are blowing at Privé, folks. We’ll batten down the hatches and keep our eyes peeled for the scoop, But don’t say you weren’t warned. Wear your seatbelts.

Privé’s complaint argues that this post contains factually false and damaging content. In addition, Privé notes that the top of this particular post is adorned with the Privé trademark (pictured below):


On August 12, 2008, Defendant Politz wrote another blog post entitled “Privé Exposed” which included a copy of an anonymous letter addressed to the Gaming Control Board. Plaintiffs argue that the content of the letter was libelous and defamatory. The Complaint cites many supposed false statements of fact in the letter, including accusations that Privé employees face continual harassment and a hostile and threatening work environment, hourly employees working overtime without pay, drug use on the premises, drug sales by management, minors being served alcohol, servers being screamed at when refusing to serve alcohol to minors, management sneaking underage girls into Privé, and tip money being taken from employees by management and never declared.

So what does all of this have to do with trademarks? After detailing all of the supposed false statements in the letter, the Complaint goes on to note that the title for this content on Defendant Politz’s TheVegasEye.com contained the Privé name with a red slash across it (pictured below), suggesting that the factually inaccurate and libelous statements within the Letter were in fact true, and separately tarnishing/disparaging Privé’s trademark. [Comment—I guess one person’s infringement/tarnishment is another person’s nominative fair use/free speech commentary? And I doubt that most people when seeing a red slash in this context will interpret such use to suggest that the statements within the letter are in fact true.]

Politz’s blog post was subsequently updated by him to make clear that he doesn’t “endorse the anonymous letter or anything that is stated within the letter. The publishing of this letter does not reflect the opinions of anyone working here. We simply put the letter up for our readers to read and judge for themselves.” Politz was then contacted by Privé’s attorneys demanding a retraction and apology for posting the letter. Politz states that he was willing to retract on the condition that Privé release him from any liability for posting the letter, but would not apologize for the “contents of an unsolicited anonymous letter that we happened to receive and had absolutely nothing to do with.”

What the complaint does not note (but Politz is happy to point out on his own blog post) is that on August 18, 2008, a picture showing (allegedly) a Privé staff member wearing a hat the makes its own possibly defamatory statement about Politz:

Who has a claim for defamation now?


In essence, Privé is alleging that Politz, as part of some alleged modus operandi of “extorting” businesses, is the source behind the anonymous letter – either having written it himself or working in conjunction with unknown individuals (i.e. the former Privé hosts now being sued by their own boss) – and thus he is responsible for the libelous content regarding the Plaintiffs as well as the tarnishment to Privé’s trademark.

While the primary causes of action are the state common law claims for Defamation Per Se, Commercial Defamation Per Se, Intentional Interference with Existing Business Relations, Intentional Interference with Prospective Business, and Extortion, the Complaint’s first cause of action is for trademark infringement/dilution by tarnishment. [Comment--I guess Privé believes its name is already famous after only eight months of use]. Of course, this particular cause of action is important because it is the sole basis for the federal court’s original jurisdiction. The court’s jurisdiction for the state law claims is based solely on the court’s supplemental jurisdiction.

So in addition to this being a fascinating story about the Las Vegas night club scene, it also demonstrates using a questionable trademark cause of action as a jurisdictional hook in order to get state law claims heard in a federal court.

The basis for a federal court having supplemental jurisdiction is 28 U.S.C. §1367(a), which states “In any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy . . .” Claims are so related as to form the “same case or controversy” when such claims are derived from a common nucleus of operative fact. Thus, a federal court only has supplemental jurisdiction over state law claims if they form part of the same “case or controversy” as the claim upon which original jurisdiction is based.

So Privé is relying on its “trademark infringement” claim to carry the day for its five state causes of action. Of course, it is a bit of stretch to say that the five state causes of action form part of the same “case or controversy” as the claim for trademark infringement given that the facts necessary to resolve those state claims are not likely to relate to the facts necessary to resolve a claim for trademark infringement (basically, ownership of a mark and likelihood of confusion)

In addition, courts may decline to exercise supplemental jurisdiction over claims if the state claims substantially predominate over the claim on which the district court has original jurisdiction in terms of proof, the scope of the issues raised, or the comprehensiveness of the remedy sought. See 28 U.S.C. § 1367(c)(2).

Here, the allegations predominantly relate to the false statements of fact about the Plaintiffs in the letter posted by Politz – the allegations of trademark infringement/dilution by tarnishment appear to rely primarily on Politz’s posting of the Privé trademark with a red slash across it in connection with Politz’s posting of the letter. Privé's argument is that this posting of Privé trademark in connection with Politz’s comments and posting of the letter irreparably infringed upon, disparaged, diluted and tarnished, damaged and reduced the value of the “Privé” trademark under §43(a) and (c) of the Lanham Act (15 U.S.C. §1125(a) (c)): “The infringement upon, dilution, tarnishment and disparagement of the ‘Privé’ trademark suggested that the factually inaccurate and libelous statements within the Letter were in fact true and further irreparably damaged Plaintiffs individually and collectively.”

To put it mildly, Privé’s case for trademark infringement is a little weak (nominative fair use anyone? ) and the case for dilution-by-tarnishment is even weaker (again, famous after eight months?). Some courts have found that a weak federal claim is an additional factor for courts to consider in determining if state law claims substantially predominate in a complaint. As such, I would think that a federal court judge would opt to decline to exercise supplemental jurisdiction over the state law claims in this case. Of course, whether that happens will ultimately be up to Politz to decide because if Politz decides to file a motion to dismiss the state law claims for lack of supplemental jurisdiction and the court chooses to decline to exercise supplemental jurisdiction over the state law claims, Privé could turn right around and file the same claims in state court, in which case Politz would then be faced with two concurrent lawsuits. Even though the court probably should not exercise supplemental jurisdiction over the claims, sometimes it’s better to fight the battle on one front rather than two.


[Update: Sam Bayard over at the Citizen Media Law Project (link
here) provides his own take on the merits of the lawsuit along with some great legal analysis and has even added it to their database of cases that the group is monitoring -- see Privé Vegas, LLC v. Politz.]

Wednesday, August 20, 2008

The Girls of Glitter Gulch go after Unauthorized “Glitter Gulch” Website


On August 18, 2008, Granite Gaming Group II, LLC (“Granite”) filed a lawsuit against Primal Ventures, Inc., STRIPCLUBNETWORK.COM, Cybertech Internet Solutions and Paul J. Brown (collectively, the Defendants). See Granite Gaming Group II, LLC v. Primal Ventures, Inc. et al. A copy of the complaint can be downloaded here.

Since 2006, Granite has been the owner of the famed “gentleman’s club” known as the “Girls of Glitter Gulch” located on Fremont Street in downtown Las Vegas. According to the complaint, Granite and its predecessors in interest have used the mark GLITTER GULCH in connection with its “gentleman’s club” since at least 1993. Granite holds a Nevada state trade name registration for the name GIRLS OF GLITTER GULCH (TN00260375) for “entertainment-tavern services” filed in June 1993 and claiming date of first use on 1/1/1991.

Poster available at Allposters.com


Of course, “Glitter Gulch” is also the famed nickname for the particular area of “Fremont Street” where the club is located. For many years before the dominance of “The Strip,” this area of town – the westernmost end of “Fremont Street” – was the epitome of the famed Las Vegas lights and neon signage and, as such, was often referred to as “Glitter Gulch” (see above). Now it is home of The Fremont Street Experience (a different kind of glitter gulch). For some more nice pictures of this area at night, check out the pictures taken by Paul Bauke posted here.

In January 2003, Defendant Primal Ventures registered the domain name http://www.glittergulchlv.com/. Visitors to the website (which I admit I had to visit in order to do research for this post) find a website which at first appears to be an “official” website for the club – containing the club’s address, providing a “virtual tour” of the club (having never been inside, I’ll take their word for it), and the following welcome message “Welcome to Glitter Gulch, Las Vegas' world class topless club. Located in the heart of Las Vegas, Glitter Gulch is the ultimate destination for 24 hour adult entertainment.” However, when users take advantage of the opportunity to “Join Us Now,” the user is directed to the website http://www.stripclubnetwork.com/ (also owned by Primal Ventures) and then presented with a myriad of strip club related links as well as some advertisements for adult oriented website subscriptions. Both websites are hosted by Cybertech Internet Solutions, which is also owned by Primal Ventures.

Granite alleges that the Defendants, through their false association with Granite’s The Girls of Glitter Gulch, is trading on Granite’s goodwill and unfairly deriving revenue from such false association. Granite’s causes of action are (1) Cybersquatting under 15 U.S.C. §1125(d), (2) Unfair Competition under 15 U.S.C. §1125(a), (3) Nevada State Trademark Infringement under N.R.S. § 600.420, (4) Nevada State Trademark Dilution under N.R.S. § 600.435, (5) Common Law Trademark Infringement, (6) Deceptive Trade Practices under N.R.S. § 598.0903, et seq., and (7) Intentional Interference with Prospective Economic Advantage.

Vegas™Esq. Comments:
If the Defendants were simply advertising other strip clubs – and not trying to pass itself off as the official website for the “Girls of Glitter Gulch” club – they would have been in a much stronger position to defend against Granite’s allegations of infringement and cybersquatting. After all, the Defendants could have argued that the term “Glitter Gulch” in the domain name “glittergulchlv” is a reference to the famed nickname for that part of town – and not a reference to the “Girls of Glitter Gulch” club. Unfortunately for the Defendants, their infringement is much more blatant and intentional, and thus Granite is very likely to get the preliminary and permanent injunctive relief it seeks.

[09/06/08 Update: The Las Vegas Review Journal had an interesting (albeit unrelated to trademarks) article (link here) about the likely-doomed attempt by the “Girls of Glitter Gulch” club to convince the Nevada Gaming Control Board that it should be allowed to have a license to have slot machines on its premises. Apparently, Board agents visited the property on two occasions in February and were asked if they wanted to buy illegal drugs and solicited for prostitution. The article mentions the recent lawsuit filed by Granite against the above website, which the Board actually cited against Granite as evidence of Granite's links to questionable businesses.]

Monday, August 18, 2008

Fifth Circuit finds Urgent Care to be generic for providers of urgent care medical services

The Fifth Circuit Court of Appeals reversed a lower court’s decision granting a preliminary injunction enjoining an urgent care medical provider from using the term “Urgent Care.” See Urgent Care, Inc. et al v. South Mississippi Urgent Care, Inc. et al, 2008 U.S. App. LEXIS 17411, Case No. 08-60155 (5th Cir. Aug. 13, 2008) (unpublished)

Lydia King Rayner began operating Urgent Care, Inc. in Mississippi in 1985 and registered the name “Urgent Care, Inc” as a servicemark with the Mississippi Secretary of State in 2001, but not with the United States Patent and Trademark Office (“USPTO”). Rayner later formed “Urgicare, Inc” and registered the mark mark “UrgiCare” with both the Mississippi Secretary of State and the USPTO.

Rayner filed suit against two companies that started up medical clinics using the name Urgent Care (Apple Urgent Care Occupational Clinic and South Mississippi Urgent Care, Inc.) claiming infringement of the above state and federal registrations. The district court granted Rayner’s Motion for Preliminary Injunction against South Mississippi Urgent Care after determining that Rayner had established the required elements for preliminary injunctive relief, including substantial likelihood of success on the merits due to a likelihood of confusion between each of the parties’ marks and implicitly finding that the marks were protectable in the first place (i.e., not generic and that they had acquired a secondary meaning if descriptive).

In finding that the the district court had erred in its determination, the Court analyzed each of the marks at issue. With respect to the mark “Urgent Care,” the Court of Appeals concluded that the term had not become distinctive of Rayner’s goods and indeed was generic and therefore not entitled to any trademark protection. The court focused on the number of other medical providers that have adopted the word “Urgent Care” in their name as well as a definition of “Urgent Care Medicine” by the American Academy of Urgent Care Medicine. Such extensive use by others shows that others are equally entitled to use such nondistintive words to identify their own services. Finding the “Urgent Care” mark to be generic, the Court of Appeals found the district court’s injunction to be in error and an abuse of discretion.

As for Rayner’s other claimed mark for “UrgiCare,” Rayner’s argument for likelihood of confusion was that because “UrgiCare” sounds like the phrase “urgent care,” the use of the phrase “urgent care” infringed the “UrgiCare” mark. Having found the term “Urgent Care” to be generic, the Court rejected this argument stating that Raynor cannot prevent companies from using a generic term by obtaining a registration on a similar-sounding, but differently spelled mark. The Court further found that “South Mississippi Urgent Care” is sufficiently distinct from UrgiCare that Rayner’s trademark rights were not infringed. As such, the Court reversed the district court’s preliminary injunction with respect to the “UrgiCare” mark as well.

Friday, August 15, 2008

Sprinkles Cupcakes claims trademark infringement over its cupcake dot


The news outlets were abuzz today about the trademark infringement lawsuit filed by California cupcake maker Sprinkles Cupcakes against rival cupcake maker Famous Cupcakes (Reuters news report here).

The lawsuit, filed on Thursday, claims that Famous has appropriated Sprinkles’ signature “nested circle design” trademark into its packaging, store décor, and website.

Sprinkles sells a wide variety of cupcakes each of which are topped with a signature dot that functions as an indication of the particular flavor of the cupcake. Sprinkles’ flavor card showing which dots correspond with which flavor can be viewed here.


However, Sprinkles was able to overcome the PTO’s two refusals to register the design on the Principal Register (a non-distinct configuration refusal and an ornamental refusal) by changing the basis of the application to Section 2(f) and providing evidence that the mark had acquired distinctiveness (i.e., customers had come to associate the dot design with Sprinkles). Sprinkles’ "nested circle design" for "bakery goods" was registered April 3, 2007.

While a quick view of Famous’ website didn’t reveal any particular appropriation of Sprinkles’ “dots” that I could see, Famous, which has its own unique group of flavors (here), does offer its customers the choice of various “toppers” on their cupcake. Is Sprinkles claiming that no other cupcake makers can put any kind of candy heart or other design in the center of a cupcake?

Famous Cupcake's Toppers

Tuesday, August 12, 2008

Britney Spears’ Stint at “Rehab” Leads to Trademark Infringement Lawsuit Against the Hard Rock Hotel & Casino


On August 8, 2008, Jimmy Daniel Alexander, a member of the rock band “Rehab,” filed a trademark infringement lawsuit in the U.S. District Court for the District of Nevada against the owners of the Hard Rock Hotel & Casino (“Hard Rock”) in Las Vegas. See Alexander v. Hard Rock Hotel, Inc. et al, Case No. 08-cv-01035 (D. Nev). A copy of the complaint can be downloaded here.

According to the complaint, Alexander, along with two other musicians, formed “Rehab” in the late 1990s in Atlanta, Georgia (see also Wikipedia write-up). The band has released 5 albums to date (its major label debut “Southern Discomfort” was released in 2000 and sold over 170,000 albums). The band even played in Las Vegas as recently as August 5, 2008 (The Las Vegas Weekly here even noted that "It's not Hard Rock's Rehab but they do rock hard").


CD cover of Rehab's 2005 "Graffiti The World" Album


Alexander also currently owns a federal trademark registration for the mark REHAB for music (August 31, 1999 first use date) and clothing (September 2000 first use date) which he acquired by assignment from Destiny Music, Inc. on January 31, 2005. You can see the “Rehab” clothing line here. Alexander also has an application pending for the mark REHAB for live performances by a musical band.

A REHAB hoodie.

Sometime in 2004, the Hard Rock began hosting Sunday afternoon pool parties under the name “Rehab.” (For those with high-speed modems, click here to check out the Hard Rock’s interactive view into the world of “Rehab” – complete with its own “movie trailer”).


The Hard Rock, through its IP Holding company, HRHH IP, LLC, also holds its own trademark registrations for the design marks REHAB RX and REHAB RX SUNDAYS AT THE POOL -- both for "seasonal poolside party held weekly with food, drinks and entertainment" with first use dates of April 5, 2004. In addition to hosting these parties, the Hard Rock also sells clothing (t-shirts, hats, etc.) ornamentally displaying its Rehab marks.



According to the complaint, sometime in March 2006, a fan of the band “Rehab” forwarded a photo of Britney Spears wearing a “Rehab” shirt thinking that it was referring to the band, but in actuality it was a shirt from the Hard Rock’s “Rehab” party.

Possibly the photo that sparked it all?

On April 7, 2006, Alexander’s attorney at the time contacted the Hard Rock's legal counsel regarding its “infringing use” of Alexander’s REHAB mark. Hard Rock's counsel supposedly told Alexander’s attorney that all infringing merchandise had been removed and offered a $7500 settlement (claiming that the Hard Rock had never grossed more than $13,000 from the sale of such merchandise). The attorneys supposedly reached an agreement on the terms of a settlement involving a $10,000 payment along with an agreement for the Hard Rock to sell Alexander’s “Rehab” merchandise through the Hard Rock’s retail outlet, but the agreement had to be approved by the Hard Rock.

This settlement, however, was apparently never approved and finalized before the Hard Rock was sold to Morgan Hotel Group in 2007. Afterwards, Alexander's attorney was put in touch with Mr. Phillip Shahala, the newly appointed Vice President of Marketing, and the two came to some kind of “agreement” through a series of e-mails whereby Alexander would allow the Hard Rock to continue to use the name “Rehab” in exchange for a $13,000 payment to Alexander, a percentage of all clothing sales from the Hard Rock “Rehab” pool parties, space for Alexander’s “Rehab” clothing to be sold at the retail store located at the Hard Rock, and a promise to schedule 3 performances for the band to play at the Hard Rock’s concert venues.

It is not clear from the complaint whether an agreement was actually reached (and subsequently breached) by the Hard Rock or whether the parties were still in the negotiation phase. While Alexander claims to have acted pursuant to the terms of this “settlement agreement” with Shahala by not pursuing any action to stop the Hard Rock from using the “Rehab” name, it appears that Alexander was never paid the $13,000 nor was there any final written agreement memorializing the terms of any such settlement. [Ed. – Wouldn’t you have been a little suspicious when the Hard Rock didn’t at least pay the $13,000? Is there really an enforceable settlement agreement here if there are only e-mail exchanges negotiating terms of a settlement? Did Shahala have authority to enter into such an agreement? And why didn't Shahala turn the matter over to Hard Rock's legal counsel?] The Hard Rock apparently broke off contact with Alexander and did not take any actions consistent with the supposed terms of settlement.

Alexander claims that the Hard Rock’s use of its “Rehab” mark is likely to cause confusion with its own REHAB mark. Alexander’s causes of action are for registered trademark infringement (15 U.S.C. § 1114), federal unfair competition (15 U.S.C. § 1125(a)), common law trademark infringement, breach of contract, and unjust enrichment.

Alexander seeks an injunction to stop the Hard Rock from using the name “Rehab” (and the request is not limited to just the use on clothing but appears to cover use by the Hard Rock of the name "Rehab" for pool parties as well). Alexander also seeks an accounting of Hard Rock’s profits from any infringement [Query—profits just from the sale of clothing or from the pool parties as well, which is where the real money is likely to be] as well as damages for the “breach” of the settlement agreement, which Alexander values at in excess of $1,000,000 because of the promotional value to the band of the promised concert appearances.

Vegas™Esq. Comments:
With all of the talk these days about celebrities going to “rehab,” I don’t think the mark, at least with respect to clothing goods, is especially strong given that the word "rehab" is well recognized to be short for "rehabilition." In addition, the word “Rehab” appears on the clothing as more of an ornamental feature and not necessarily functioning as a source identifier and it's arguable whether it would even be recognized by consumers as an indicator of secondary source or sponsorship (i.e., recognizing “Rehab” to be a reference to the band “Rehab”) although the PTO was apparently satisfied with the specimens submitted with the application and even with the most recent Statement of Use filed in 2007.

The primary goods/services at issue (pool party entertainment versus rock band music CDs) are different enough that it will probably be enough for Hard Rock to prevail on a likelihood of confusion analysis. After all, the PTO didn't seem to find the marks to be confusingly similar. The Hard Rock's use of the term "rehab" is most likely to be recognized as a suggestive play on "rehabilitation" (i.e., going to the Hard Rock's pool party is like going to rehab) and not likely to be recognized as the official pool party of the band Rehab. But then again, Alexander could play up the rock & roll connection between his band and the Hard Rock.

As for the Hard Rock’s sale of clothing bearing the Hard Rock’s own “Rehab” mark, this may be more of a challenge for the Hard Rock given the similarity of the marks, similarity of the goods, similar marketing channels, low degree of consumer care regarding purchases of clothing, and evidence of actual confusion (however weak), all of which tend to favor Alexander. Of course, given that the Hard Rock's use of the word “Rehab” on clothing is likely to be recognized more as ornamental or as an indicator of secondary source or sponsorship and not as a trademark for such clothing, the Hard Rock may end up having to rely on a more fundamental argument that its use of the word "Rehab" on its clothing does not even constitute "use in commerce" under the Lanham Act. See 15 U.S.C. § 1127.

Friday, August 8, 2008

KRED faces Opposition by Kellogg’s


On August 7, 2008, Kellogg North American Company (“Kellogg”) filed a Notice of Opposition against a company named Sunshine City, LLC (“Sunshine”), which hosts a website called Ghetto University. See Kellogg North American Company v. Sunshine City, LLC, Opposition No. 91185683 (TTAB August 7, 2008).

Kellogg's, the maker of such well-known cereals as Special K, Frosted Flakes, Froot Loops and Rice Krispies, holds a plethora of trademark registrations for the marks KELLOGG’S, the letter “K”, and SPECIAL K.

Ghetto University’s Motto is Knowledge, Respect, and Diversity. From that concept came the mark KReD. On January 30, 2007, Sunshine filed an intent-to-use trademark application for the design mark KRED for various clothing items.


The heart of Kellogg’s Opposition is that because no color is claimed as a feature of the mark, the letter “K” in the KRED logo could be displayed in Red (as pictured above), and thus likely to be confused with Kellogg’s famous “K” logo. Kellogg’s further argues that because “of the jumbled appearance of the lettering and the likelihood that ‘KRED’ has no meaning to consumers, it could be understood by consumers as representing the phrase ‘K RED,’ which would trigger a connection with Kellogg and its famous ‘Red K’ equity.”


Kellogg’s maintains that that the use of the KRED mark in connection with goods that are directly competitive with or closely related to Kellogg’s goods [Ed. – Kellogg’s does sell various clothing items displaying its famous logos here] is likely to cause consumers to be confused as to origin and sponsorship of Sunshine’s clothing goods or misled into believe that such goods are approved of by Kellogg’s. Kellogg’s also argues that the KRED mark is likely to dilute the distinctiveness of Kellogg’s famous K mark.


All of the other cyclists will be green with envy when
you're riding in your cool Apple Jacks® Cycle Jersey

If Sunshine opts not to fight this opposition and wants to choose an alternative slogan, what would Kellogg's think about “Ghetto University. It’s GUR-R-REAT!”

THEY'RE GR-R-REAT!

Wednesday, August 6, 2008

Cartier Sues Donna Karen Over TANK Watches

A Cartier Tank American Ladies Watch
Retail Price $32,900

Several news outlets (here and here) reported on the trademark infringement lawsuit filed by Cartier against Donna Karen over the mark TANK for watches.

The “Tank” watch was created by Louis Cartier in 1917, who was supposedly inspired by the Renault tanks that Cartier saw during World War I. Cartier has a trademark registration for the mark TANK for watches (claiming first date of use at least as early as 1918) as well as two other registrations on the same mark for eyeglasses and jewelry.


A Renault FT 17 Tank

The lawsuit alleges that Donna Karen infringed Cartier’s trademark by selling it own line of “Tank” watches. Cartier, which sells its TANK watches and other jewelry for thousands of dollars, does not like the fact that Donna Karen is selling a “DKNY Women's Ion-Plated Tank Watch” for $115.

DKNY Women's Ion-Plated Tank Watch

The lawsuit adds that Donna Karen in 2001 stopped a similar use of the mark Tank on watches after receiving a cease and desist letter from Cartier.

Tuesday, August 5, 2008

H&R Block Sues American Express Over “I got people”

H&R Block last week filed a trademark infringement lawsuit against American Express over its trademark “I got people.” News stories here and here.

H&R Block points to what it calls its “My people” ad campaign where customers are depicted relying on H&R Block’s “people” to handle not just their taxes but other routine personal assistant tasks. H&R Block claims that its extensive radio and TV ads, print ads, billboards and online ads have made the public come to identify the phrase “I got people” with H&R Block.

H&R Block maintains that American Express, through one of its ads running as part of American Express’ own "Are you a card member?" campaign, infringed H&R Block’s trademark rights. The specific ad at issue (YouTube link here) features Ellen DeGeneres and Beyonce Knowles where Beyonce tells DeGeneres to "have your people call my people" and DeGeneres walks around trying to figure out who her “people” are -- ultimately realizing that she can rely on American Express for her needs. The lawsuit states that during the 60 minute ad, the word “people” is used 12 times, the concept of having “people” is used for times, and “my people” is used six times. [Ed. – so?]

H&R Block’s causes of action are for trademark infringement, unfair competition, and trademark dilution.

Vegas™Esq. Comments:
It is somewhat coincidental that the American Express ad first ran on April 28th – thirteen days after H&R BLOCK obtained a federal trademark registration for the mark I GOT PEOPLE (for tax preparation services for others). H&R Block is also seeking to register WE'VE GOT PEOPLE, I'VE GOT PEOPLE, and YOU'VE GOT PEOPLE for similar services.

However, as “famous” as H&R Block may think its slogan has become (I have a vague recollection of seeing one TV commercial), I doubt that anyone is likely to believe that there is an affiliate or connection between H&R Block’s “I Got People” tax preparation services and American Express’ use of the “people” phrase to advertise its credit card services (where the reference to people is used in a comical manner to allude to the idea that all Hollywood celebrities have “people” to handle their affairs and not necessarily as a source identifier).



Two for Tuesday: Check out Michael Atkins’ Seattle Trademark Lawyer blog post here reminding the public of how trademarks, when used properly, emphasize a particular company’s proprietary “brand” and not a common word that stands for a type of good. I often tell clients that one way to tell if a word serves as a trademark or service mark is to incorporate the word “brand” followed by the common word for a good or service. Of course, the advice works better for 1 to 2 word marks and less so for slogans (as noted below by anonymous). After all, will you be using H&R Block’s I GOT PEOPLE brand of tax preparation services next year?

Friday, August 1, 2008

Hobbit Travel Successfully Asserts Laches Defense Against Tolkien Enterprises’s Trademark Infringement Lawsuit




Saul Zaentz Company d/b/a Tolkien Enterprises (“Tolkien”), which owns the rights to use and license others to use marks and other intellectual property related to novelist J.R.R. Tolkien's books, including The Hobbit, was defeated in its attempt to stop a Minnesota-based travel agency, Wozniak Travel, Inc. (“Wozniak Travel”), from operating under the name “Hobbit Travel.” See The Saul Zaentz Company d/b/a Tolkien Enterprises v. Wozniak Travel, Inc., 2008 U.S. Dist. LEXIS 57285, Case No. 06-5421 (N.D. Cal. July 2008).




The decision, written by U.S. District Court Judge Marilyn Hall Patel, granted Wozniak Travel’s motion for summary judgment on whether the affirmative defense of laches bars Tolkien’s trademark infringement related claims.

The court first provided some background on the origin of the term “Hobbit” – the race of fictional three-foot tall, human-like creatures who inhabit the mythical world of Middle Earth in which the late J.R.R. Tolkien’s novels The Hobbit and The Lord of the Rings trilogy are set – as well as a detailed history on the commercialization efforts by the owners of the rights to J.R.R. Tolkien's works during the 70s, 80s, and 90s up to and including the recent The Lord of the Rings movies released by New Line Cinema. The court notes that Tolkien or its licensees have even marketed travel-related goods and services, including an agreement with Air New Zealand in 2002 to market the carrier as “Airline to Middle-earth” and to allow Hobbit characters to be painted on the jets. Tolkien owns over one hundred trademark registrations for various marks associated with Tolkien’s books, including five current HOBBIT marks (although none are for use in connection with travel goods and services).

George Wozniak, the owner/founder of Wozniak Travel, opened Hobbit Travel in 1976 under the name Wozniak’s Hobbit Travel in partnership with a Chicago-based travel agency, Hobbit International, which also did business under the name Hobbit Travel. He later dropped the surname because of customer difficult in spelling and pronunciation. Hobbit Travel does not use any other signs, ads, or logos which invoke Tolkien’s novels or their characters although Hobbit Travel has adopted some recognizable Tokien terms in his business (e.g., a 401(k) name "Tolkien Trust" and the company packages its wholesale packages under the name “Trilogy Tours.”). Wozniak Travel has steadily grown into one of the largest travel agencies in Minnesota, and since 1996, has offered its services online at http://www.hobbittravel.com/.

Tolkien first claimed to have learned about Wozniak Travel in November 2003 because of the company’s growing internet presence. In 2004, New Line Cinema sent a cease-and-desist letter, but Wozniak Travel continued to operate as Hobbit Travel. In 2005, Wozniak Travel filed an application with the United States Patent and Trademark Office to register the mark HOBBIT TRAVEL for travel agency services (although the application was later voluntarily withdrawn before a decision was rendered in this litigation, which had put on hold the pending TTAB opposition that Tolkien had filed against registration of the mark). Tolkien filed suit against Wozniak Travel in 2006 alleging five causes of action: trademark infringement (15 U.S.C. § 1114), unfair competition and false designation of origin (15 U.S.C. § 1125(a)), trademark dilution under 15 U.S.C. § 1125(c), trademark dilution under California law (Cal. Bus. & Prof. Code § 14330), and unfair competition under California law (Cal. Bus. & Prof. Code § 17200 et seq.). Wozniak Travel moved for summary judgment on the grounds that Tolkien’s claims are barred by laches.

In order to assert the defense of laches, Wozniak Travel had to show that Tolkien’s delay in filing suit was unreasonable and that Wozniak Travel would suffer prejudice caused by the delay if the lawsuit were to continue. The factors used by Ninth Circuit in deciding whether a plaintiff's delay was unreasonable are: “(1) strength and value of the trademark rights asserted; (2) plaintiff's diligence in enforcing mark; (3) harm to senior user if relief is denied; (4) good faith ignorance by junior user; (5) competition between senior and junior users; and (6) extent of harm suffered by the junior user because of senior user's delay.” See E-Systems, Inc. v. Monitek, Inc., 720 F.2d 604, 607 (9th Cir. 1983); Tillamook Country Smoker, Inc. v. Tillamook County Creamery Ass'n, 465 F.3d 1102, 1108 (9th Cir. 2006).

Unreasonable Delay
The two step process for determining whether a party exercised unreasonable delay in filing a lawsuit is first, the court must assess the length of delay, measured from the time the plaintiff knew (had actual notice) or should have known (had constructive notice) about its potential cause of action, and second, the court then must determine whether such a delay was unreasonable. See Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 838 (9th Cir. 2002).

In this case, the evidence showed that Tolkien had been made aware of Wozniak Travel’s “Hobbit Travel” name since at least 1988 (18 years before Tolkien filed suit) when the name appeared one of Tolkien’s trademark search reports. A subsequent report provided to Tolkien in 1992 (fourteen years before filing suit) by AT&T (as part of a litigation) again disclosed Hobbit Travel. Finally, Tolkien’s counsel in 2000 (six year before filing suit) ordered a search report that again disclosed Hobbit Travel.

Despite having these reports disclosing Wozniak Travel’s open, continuous, and not insignificant use of the Hobbit Travel name, Tolkien did not take any action. In addition, the court noted that Hobbit Travel since its inception had been receiving a growing amount of publicity (spending more than $10 million in advertising and receiving media coverage on Oprah), and thus Hobbit Travel would have been easily discovered had Tolkien acted as a reasonably prudent person and conducted further research upon seeing the name in the search reports. The court determined that Tolkien had constructive notice of Hobbit Travel as least as early as 1988.

Reasonableness of Delay
In determining whether a plaintiff’s delay may be excused as reasonable, the court considers the relevant statute of limitations for the causes of action at issue as well as any legitimate excuse by a plaintiff for the delay.

Because the Lanham Act does not contain an explicit statute of limitations, the Ninth Circuit presumes that Congress intended to “borrow” the statute of limitations for the analogous state causes of action. Under California law, the statute of limitations for the analogous state causes of action is either three or four years (depending on the state law action relied upon) – the court did not bother determining which since Tolkien’s delay of 18 years is far beyond either limitations period. Furthermore, the court rejected Tolkien’s excuse for delay (“defendant's subjective ignorance and lack of curiosity prior to 2003 are not valid excuses since plaintiff is charged with constructive knowledge as of 1988.”).

Tolkien tried to argue that the doctrine of progressive encroachment justified its delay. Under this doctrine, a trademark owner is not obligate to file suit over de minimis infringement but instead is obligated only when the junior user redirects or expands its business into different regions or markets bringing it into direct competition with the trademark owner. The court noted, however, that a junior user’s growth of its existing business and the concomitant increase in its use of the mark do not constitute progressive encroachment.

In this case, Wozniak Travel’s use of Hobbit Travel was certainly not de minimis (the company generated over $1 billion in travel sales over its 30 year history). As the court stated, “Had plaintiff chosen to examine Hobbit Travel, Hobbit Travel would not have been difficult to find.”

While Tolkien attempted to argue that Wozniak Travel’s expansion into internet sales brought the company into a new market and squarely into competition with Tolkien, the court rejected such argument on the basis that expansion into internet sales represented natural business growth for a company with an already growing national customer base (i.e., going online is a natural expansion of such a company’s existing business). The court also noted that Wozniak Travel was not really in direct competition with Tolkien, thus further making progressive encroachment an improper grounds for delay (“Tolkien's trademarks cover consumer goods and merchandise such as games, clothing, jewelry and collectibles, and Wozniak's business involves only travel services. . . . Wozniak has always sold travel services and travel services only, and at no point in time has it sought to expand the type of services it sells, or use its mark in a significantly different way.”)

The court further noted that while senior users of a strong mark can prevent others from using a similar mark in an area of business that represents a “natural zone of expansion” of the senior user’s business, in this case, the natural expansion of Tolkien's Hobbit mark did not extend to travel services at the time Wozniak opened Hobbit Travel and Tolkien’s involvement in travel-related services was minimal throughout the 1970s, 1980s and 1990s when defendant's travel agency was growing increasingly large in size.

Not until 2002 did Tolkien begin to enter into licensing agreements for licensees to use its marks in connection with travel related services. As the court stated,

This late and sporadic foray into the travel services market does not aid Tolkien in countering laches. As Judge Hand explained, “The owner's rights in . . . appendant markets are easily lost; they must be asserted early lest they be made the means of reaping a harvest which others have sown.” Tillamook Country Smoker, Inc. v. Tillamook County Creamery Ass'n (“Country Smoker”), 311 F. Supp. 2d 1023, 1033 (D. Or. 2004) (quoting Dwinell-Wright Co. v. White House Milk Co., 132 F.2d 822, 825 (2d Cir. 1943)); see also E-Systems, Inc., 720 F.2d at 607

Finally, the court rejected as “specious” Tolkien’s argument that its claim for trademark dilution, based on a likelihood of dilution, could not be brought until Congress passed the Trademark Dilution Revision Act of 2006, which amended the federal trademark dilution statute to make likelihood of dilution the necessary showing. [Ed. – Is Tolkien acknowledging that there is no likelihood of confusion . . . why else the need to rely on likelihood of dilution?] Tolkien stated that it brought its dilution claim at the earliest possible time shortly after Congress passed the TDRA, but the court rejected Tolkien’s argument. First, Tokien’s dilution claims pled “actual dilution.” Second, trademark dilution has existed at the federal level since 1995 and state level (in California) since 1967. And most importantly, before the Supreme Court's decision in Moseley v. V Secret Catalogue, Inc., 537 U.S. 418 (2003) requiring a showing of actual dilution, the Ninth Circuit applied a “likelihood of dilution” standard to claims brought under the prior law. [Ed. – Oops!]

The court concluded that Tolkien’s delay of at least eighteen years was unreasonable, and since such delay far exceeds the statute of limitations period a presumption of laches applies and none of Tolkien’s excuses for its delay overcomes this presumption:

Plaintiff brought this action in 2006 to enjoin defendant's use of the mark Hobbit Travel, thirty years after defendant had adopted that mark, and eighteen years after plaintiff received the first of multiple trademark search reports informing it of defendant's potentially unlawful use. Despite having constructive notice of defendant's use, plaintiff did nothing about it--no communications were made, no letters were written, and no lawsuits were filed against defendant or any of the other entities operating travel agencies under the Hobbit mark.

Prejudice to Defendant
However, such unreasonable delay is not by itself sufficient to invoke laches – the court must also consider whether the defendant has suffered prejudice by plaintiff’s undue delay in bringing suit.

The two types of prejudice are 1) “expectations-based prejudice or “economic prejudice” (prejudice derived from taking actions, such as investing time, labor, and capital to build up a business based on presumed rights, or suffering consequences, such as the loss of such investment, that the defendant would not have suffered had the plaintiff filed suit promptly) and 2) evidentiary-based prejudice (prejudice suffered by a defendant when relevant records or witnesses are unavailable due to the natural passage of time since the time the cause of action accrued).

In this case, the court found the economic prejudice to Wozniak Travel’s business to be severe if it lost the right to use the name Hobbit Travel. The court found that the tens of millions of dollars on advertising and the substantial time on promotional efforts spent by Wozniak Travel during its thirty years in business in an effort to build up name recognition and goodwill demonstrated that Wozniak Travel would now suffer economic prejudice if it were enjoined from operating under the name Hobbit Travel.

While the court gave a passing mention to the evidentiary prejudice to Wozniak Travel (i.e., the likely loss of relevant records or death of witnesses due to the passage of time), when considered along with the “overwhelming economic prejudice,” the court found that the overall prejudice to Wozniak Travel to be substantial.

Naked License Counter-defense to the Defense of Laches
Tolkien then attempted to argue make the “creative argument” that prejudice cannot be established by Wozniak Travel for laches purposes because Wozniak Travel abandoned its mark through naked licensing (which is more often cited as an affirmative defense to infringement). The concept of naked licensing is as follows:

Abandonment through naked licensing occurs when a trademark owner fails to take the reasonable steps necessary to monitor the quality of goods produced by a licensee. First Interstate Bancorp v. Stenquist, 1990 U.S. Dist. LEXIS 19426, 1990 WL 300321, at *3 (N.D. Cal. July 13, 1990) (Patel, J.). This failure to ensure quality control “may result in the trademark ceasing to function as a symbol of quality and controlled source.” 3 McCarthy § 18:48. As a result, “a court may find that the trademark owner has abandoned the trademark, in which case the owner would be estopped from asserting rights to the trademark.” Barcamerica Int'l USA Trust v. Tyfield Importers, Inc., 289 F.3d 589, 596 (9th Cir. 2002) (citing Moore Bus. Forms, Inc. v. Ryu, 960 F.2d 486, 489 (5th Cir. 1992)).


In this case, the “naked license” at issue was to a Wisconsin-based travel agency name Friedman's Hobbit Travel and later to a joint advertising campaign which listed its former partner, Hobbit International, as Hobbit Travel Tolkien argues that Wozniak Travel, by allowing Friedman's Hobbit Travel and Hobbit International to use the name Hobbit Travel without any kind of quality control restrictions on its use, granted a naked license. Thus, Tolkien argues, Wozniak Travel abandoned its right to use the name Hobbit Travel on account of these naked licenses, and therefore cannot suffer the prejudice required to invoke laches. [Ed. – So, in other words, because other people were using the mark as well without restriction, that makes Tolkien’s delay in suing Wozniak Travel suddenly non-prejudicial?]

In this sense, Tolkien is relying upon abandonment (through naked licensing) not as a defense to infringement, but instead to negate the prejudice element of Wozniak Travel’s laches defense. The court found no cases applying naked licensing to bar a party from defending an infringement claim on the basis of laches.

Tolkien’s supporting case law cites, which focused on language in those cases regarding how naked licensing is inherently deceptive and constitutes abandonment of any rights to the trademark, overlooked the context of those cases which, upon closer analysis, stood more for the proposition that a claimant may not advance an infringement claim after granting a naked license to his mark. If anything, Wozniak Travel’s naked licensing could mean that the company may face an abandonment defense should it attempt to exclude others from using the name Hobbit Travel at a later date – but as Wozniak Travel has not asserted an infringement counterclaim against Tolkien, the right to exclude is not at issue. The court stated, “Abandonment through naked licensing has never been applied in a case like this where a defendant asserts only the right to continue its use of a mark, and not its right to exclude use by another. The court declines to adopt such a rule today.” [Ed. – I smell a Ninth Circuit appeal already].

The court added that “To preclude laches based on the alleged naked licensing would depart too widely from precedent and work unfairness in what should be an equitable doctrine designed to achieve a just outcome. As a result, the court concludes that defendant has suffered both economic and evidentiary prejudice as a result of plaintiff's delay, and that defendant's conduct and relationships with respect to Friedman's Hobbit Travel and Hobbit International, allegedly a “naked license,” do not defeat defendant's showing of prejudice.”

With that, the court granted Wozniak Travel’s motion for summary judgment on the basis of laches.

The One Ring