The owner of that popsicle is Monte…Del Monte.

Rebecca Tushnet managed to combine two of my favorite topics—naked licensing and James Bond—into a single post about Del Monte’s attempts to distance itself from one of it's popsicles rembling the naked torso of current JAMES BOND 007 actor Daniel Craig.

Scene from "Casino Royale"
(Most of the women I know would prefer to lick the real thing)

“Heavy Hitter” Socks Trademark Infringer with Attorneys Fees Award

Michael Atkins’ Seattle Trademark Lawyer blog posted today (link here) about a trademark infringement victory for Las Vegas’ favorite personal injury lawyer, Glen Lerner.

The Ninth Circuit Court of Appeals affirmed a Nevada District Court decision awarding Lerner $124,375 in attorney’s fees for the willful infringement of Lerner’s “ONE CALL. THAT’S ALL” slogan as well as infringement of Lerner’s copyrights. See Invision Production & Media Services, Inc. v. Glen J. Lerner Legal Services, No. 07-15778 (9th Cir. March 24, 2009) (unpublished).

While the Ninth Circuit previously affirmed the fees under copyright law, the Ninth Circuit remanded the case back to the district court for additional explanation by the court of the fees awarded under trademark law as well as a breakdown of what fees were for copyright infringement and what were for trademark infringement. The district court, on remand, was much more specific about its conclusion that the case was “exceptional” for purposes of award attorneys fees under the Lanham Act (15 U.S.C. 1117(a)). The district court also allocated 60 percent of the fees to the trademark issues and 40 percent to the copyright issue.

Those attorneys fees should come in handy in Lerner’s other trademark battle over his other well-known slogan “HEAVY HITTER” (previously blogged here). One interesting parallel between Lerner’s battle with Invision over “ONE CALL. THAT’S ALL” and his battle with Richard Sackett and LawCo USA, PLLC over “HEAVY HITTER” is the “naked license” argument. Invision had tried to argue that Lerner’s use of the “ONE CALL-THAT’S ALL” mark pursuant to a license agreement with the prior owner of the mark (before it was assigned to Invision) inured to Invision’s benefit – an argument that Invision lost because Invision could not show that it exerted any control over the quality of services provided under the mark – a prerequisite for a licensee’s use of a mark to inure to the licensor’s benefit. See Bancamerica Int’l USA Trust v. Tyfield Importers, Inc., 289 F.3d 589, 595 (9th Cir. 2002). In Lerner’s lawsuit against Sackett and LawCo, Lerner also argued that the license agreement he had with the owner of the “Heavy Hitters” mark was a naked license because the licensor failed to exercise any control over the quality of Lerner’s legal services.

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.

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

A trademark dispute over Cheesecake

On February 13, 2008, Cheesecake Factory, Inc., a New Mexico corporation doing business in New Mexico as “Dee’s Cheesecake Factory” (“Dee’s Cheesecake”), filed a lawsuit against The Cheesecake Factory, Incorporated (“TCFI”), the owner of the restaurant chain “The Cheesecake Factory,” in the U.S. District Court for the District of New Mexico. See Cheesecake Factory, Inc. v. The Cheesecake Factory, Incorporated, Case. No. 08-CV-00167 (D. N.M.). A copy of the complaint can be downloaded here.

Dee’s Cheesecake Factory started in 1973 as a wholesale bakery and restaurant. Today, Dee’s Cheesecake is one of the largest producers of cheesecakes in the U.S. – distributing its cheesecakes both nationally and internationally. The company obtained a federal registration for the mark DEE'S FAMOUS CHEESECAKE EMPORIUM (for restaurant services) on October 11, 1988 (although first use in commerce was claimed on August 6, 1986, first use in another form was claimed back to 1973).

The Cheesecake Factory got its start in 1972 with the opening a wholesale bakery and a small retail component in Los Angeles. The company opened its first restaurant in 1978 in Beverly Hills, and today has over 120 locations throughout the U.S. TCFI, through its trademark holding company The Cheesecake Factory Assets Co. LLC, holds numerous trademark registrations on THE CHEESECAKE FACTORY mark (and variations thereon) with many others registration applications pending.

The current lawsuit stems from a trademark infringement lawsuit previously filed by Dee’s Cheesecake in 1997 over TCFI’s use of the name “Cheesecake Factory.”

According to the current complaint, a court decision in the 1997 case found that Dee’s Cheesecake held prior user rights to the CHEESECAKE FACTORY name in “certain parts” of the United States and that the marks DEE’S CHEESECAKE FACTORY and THE CHEESECAKE FACTORY were confusingly similar. The parties subsequently entered into a settlement agreement (which notably was not attached to the complaint) whereby Dee’s Cheesecake sold for cash its right in the CHEESECAKE FACTORY name to TCFI, but with Dee’s Cheesecake retaining an exclusive right to use DEE’S CHEESECAKE FACTORY as the name of her New Mexico-based restaurant and bakery and to use the DEE’S CHEESECAKE FACTORY name worldwide to designate wholesale bakery services (including mail order services). The settlement agreement apparently prohibited TCFI from using the CHEESECAKE FACTORY name in connection with a restaurant in New Mexico.

The complaint also states that the parties entered into a “license agreement” as part of the settlement agreement; however, the complaint characterizes this a “naked license” because TCFI has exercised no quality control over Dee’s Cheesecake’s services, and thus argues that TCFI has forfeited any trademark rights to the CHEESECAKE FACTORY name.

The complaint appears to be going after four particular trademark registrations held by TCFI:

• THE CHEESECAKE FACTORY BAKERY (stylized) (for food products);
• THE CHEESECAKE FACTORY BAKERY CAFE (word mark) (for restaurant services);
• THE CHEESECAKE FACTORY BAKERY CAFÉ (stylized and design) (for restaurant services); and
• THE CHEESECAKE FACTORY EXPRESS (word mark) (for restaurant services).

Dee’s Cheesecake asserts in its complaint that TCFI a) never disclosed to the USPTO the settlement agreement that existed between Dee’s Cheesecake and TCFI, and specifically, that TCFI did not have right to use the name CHEESECAKE FACTORY in New Mexico, and b) falsely claimed in each respective application that it had the rights to use the above marks throughout the United States without restriction (Dee’s Cheesecake notes that two of the applications were filed in September 1997 at the very same time that the parties were completing the settlement agreement).

Dee’s Cheesecake argues that had TCFI properly disclosed the settlement agreement to the USPTO, the agency would not have issued registrations – at least not without some kind of geographic scope restriction. As such, Dee’s Cheesecake seeks a declaratory judgment that TCFI committed fraud against the PTO in obtaining the above registered marks, and an order cancelling such marks

Dee’s Cheesecake also alleges breach of contract – specifically, that TCFI, through its conduct in obtaining the above registrations, breached the parties’ settlement agreement. Finally, Dee’s Cheesecake states a claim for unfair competition under New Mexico’s Deceptive Trade Practices Act (N.M.S.A. §57-12-1 et. seq.).

In addition to seeking a court order cancelling the above registrations, Dee’s Cheesecake also requests an order enjoining TCFI from selling its gift cards anywhere in New Mexico. Although the complaint is not entirely clear as to the basis for this injunction, it is likely based on the assertion that TCFI is prohibited from using CHEESECAKE FACTORY in connection with restaurant services anywhere in New Mexico.

Without seeing either the license agreement or the settlement agreement, it is difficult to comment on the merits of Dee’s Cheesecake’s lawsuit. This appears to be the beginning of yet another battle in the so-called “Cheesecake Wars” (as Dee’s Cheesecake describes on its own website (link here)).

What is a Naked License?
While the Dee’s Cheesecake complaint does not go into details regarding TCFI’s alleged “naked license” as a grounds for cancelling the above registrations, the issue is an important one that deserves special mention.

A trademark holder who “licenses” a trademark to another party without maintaining some kind of control over the quality of the goods/services sold under the trademark may be engaging in the “naked licensing” of such trademark, in which case the holder’s rights to the trademark may be deemed abandoned (and any registration on such trademark cancelled). See Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002) (registration for “Da Vinci” for wine was cancelled because licensing agreement that did not contain any quality control provisions was a “naked license” and the mark was thus deemed abandoned).

The rationale behind why “naked licensing” is an abandonment of a party’s trademark rights derives from the notion that trademarks are meant to serve as unique identifiers of the source and origin of goods or services for the benefit of the consuming public. The consuming public relies upon trademarks (and the goodwill and reputation attached thereto) to distinguish one party’s goods and services from those offered by another. As such, a party’s failure to exercise any kind of quality control over the use by others of the party’s trademark may result in the trademark no longer being recognized by consumers as a unique identifier of that party’s goods and services in which case the trademark rights associated thereto are deemed abandoned by the trademark holder.