The Material Girl’s Battle For MATERIAL GIRL

The trademark lawsuit story du jour was the complaint filed by L.A. Triumph, Inc. (“LA Triumph”) against Madonna and her company, Material Girl Brand, LLC, over the trademark MATERIAL GIRL in connection with clothing. See L.A. Triumph, Inc. v. Material Girl Brand, LLC et al, Case No. 10-cv-6195 (C.D. Cal. Filed August 19, 2010). Complaint can be viewed here (via Courthousenews). Multiple news outlets, blogs and gossip sources ran stories about the suit today (ABC News, Fox News, Huffington Post, RadarOnline, and TMZ)

In short, the complaint alleges that a California company named OC Mercantile Corporation started selling a line of MATERIAL GIRL clothes in 1997 – and even registered the name as a trademark with the California Secretary of State that same year (Reg. No. 102808 for women’s apparel). In 2003, LA Triumph became the successor-in-interest to OC Mercantile and purportedly has continued using the mark in connection with the sale of clothing items to the present day and claims that its clothing line has received national exposure. [Interestingly, LA Triumph does not appear to have any online presence where it sells its clothing goods – Google search results only came back with the published stories about this lawsuit. Of course, LA Triumph might argue that MGB’s recent nationwide marketing blitz have overwhelmed LA Triumph’s use of the mark – so called, reversed confusion.]

The complaint goes on to state that sometime in 2010, LA Triumph became aware that the Defendants were going to start selling a line of young women’s clothing using the MATERIAL GIRL mark. The website promoting Madonna’s brand is found at http://www.materialgirlcollection.com/ (as opposed to the website promoting LA Triumph’s clothing which is found . . . umm, anybody have any idea where LA Triumph’s MATERIAL GIRL clothing is promoted online? The closest I could come – based on the fact that L.A. Triumph, Inc. does business in California under the name MedGear – is a website http://www.medgear.com/ which sells clothing for hospital and medical industry workers, but I did not see anything using the mark MATERIAL GIRL.)

LA Triumph also alleges that MGB improperly filed to register the mark MATERIAL GIRL with the United State Patent and Trademark Office (“USPTO”). Interestingly, MGB’s current application (the one cited in the case) was not the first application in line to register the mark MATERIAL GIRL. On May 11, 2009, Audigier Brand Management Group, LLC filed a trademark application for MATERIAL GIRL (covering 7 different classes of goods including clothing). The USPTO initially refused registration in a non-final office action dated August 13, 2009, but only because the description needed some clarification and not based on a Section 2(d) likelihood of confusion refusal.

Subsequently, the Audigier application was assigned to MGB on December 1, 2009. And within days of this assignment, MGB then filed its own intent-to-use application for the mark MATERIAL GIRL (for 4 classes of goods including clothing) on December 4, 2009. This explains why MGB did not file a timely response to the PTO’s office action in the “Audigier” application, which went abandoned on March 26, 2010.

So why, you ask, would MGB file a new intent-to-use application for MATERIAL GIRL when Audigier’s earlier filed MATERIAL GIRL application had already been assigned to MGB? Most likely because the Audigier application was an intent-to-use application and MGB was not really the successor to any kind of ongoing and existing business by Audigier to which the applied-for mark pertained. Under §10 of the Trademark Act (15 U.S.C. § 1060), an application filed under §1(b) (intent-to-use) may not be assigned before a statement of use has been filed except to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing. See 15 U.S.C. §1060(a)(1). The law is quite clear that the assignment of a §1(b) application to an entity that is not the successor to the applicant’s business, before filing an allegation of use, renders the application and any resulting registration void. See The Clorox Co. v. Chem. Bank, 40 USPQ2d 1098 (TTAB 1996). By MGB filing a brand new application, MGB could start fresh without having to be concerned about any resulting registration being deemed void on the basis of improper assignment of a §1(b) application.

Of course, once MGB’s own application was published for opposition on July 20, 2010, LA Triumph timely filed an opposition – filed the same day that LA Triumph’s district court lawsuit was filed. See L.A. Triumph, Inc. v. Material Girl Brand, LLC, Opposition No. 91196172 (T.T.A.B. Filed August 19, 2010). [As a sidenote, another party, Rwachsberg Holdings Inc., filed an Extension of Time to oppose registration of MGB’s mark. Rwachsberg owns the mark MATERIAL GIRLS for cosmetic products and nutritional food products. ]

But the real question is this – why didn’t either OC Mercantile or even LA Triumph seek to register the mark MATERIAL GIRL in connection with clothing with the USPTO?

While one could speculate that neither company bothered to register because they weren’t actively using the mark on clothing and thus the instant lawsuit would be an attempt by LA Triumph to claim trademark rights that were likely minimal at best and/or long since abandoned, another very likely answer was that the mark could not have been registered by either company with the USPTO because there was already an existing trademark registration for the identical mark for the identical goods. A Canadian company name Les Ventes Universelles S.H. Inc. had a trademark registration for MATERIAL GIRL in connection with clothing (registered July 8, 1997) based on the company’s foreign registration of the same mark (dating back to May 1990). The company filed the necessary Section 8 Declaration of Use at the 5 year mark, but did not renew the mark by the 10 year renewal deadline and the mark was canceled April 12, 2008.

So the natural follow-up question is this – why didn’t LA Triumph run out right away and seek to file a federal trademark application to register the mark once Les Ventes’ registration was canceled – during the window between April 12, 2008 and May 11, 2009 (when Audigier filed its first application)? Again, perhaps it was because LA Triumph was not really actively using the mark in connection with clothing, and thus the instant lawsuit would be an attempt by LA Triumph to claim trademark rights that were likely minimal at best and/or long since abandoned – but again that would be just pure speculation. [Did I neglect to mention that according to the California Secretary of State’s records the state registration for MATERIAL GIRL expired August 9, 2007?]

So where can I buy LA Triumph’s MATERIAL GIRL clothing again?

What’s in a name? Ask Roscoe and Patsy.

It was quite a week for restaurant name trademark disputes.

Earlier this week, I wrote (link here) about a North Carolina pancake house that was doing business under the name “It’s Hop’n” that was sued for trademark infringement by IHOP

On Thursday, the big story (here and here) was about the Los Angeles-based chicken and waffles chain “Roscoe's House of Chicken 'n Waffles” (“Roscoe’s”) The restaurant chain filed a trademark infringement lawsuit against the owner of “Rosscoe's House of Chicken and Waffles” (“Rosscoe’s”) in Chicago (two “S”’s and the word “and” instead of an ampersand), for infringement of its service mark ROSCOE'S HOUSE OF CHICKEN N WAFFLES (pictured below). See East Coast Foods, Inc. v. VFJ Enterprises, Inc. et al, Case No. 08-cv-01990 (N.D. Ill. April 8, 2008).

At the court’s hearing on Roscoe’s motion for a temporary restraining order, it was announced that the parties had reached an agreement as to a temporary restraining order. Rosscoe’s agreed to remove the name from all signs and menus by next Wednesday and change the name to Chicago's House of Chicken and Waffles. Meanwhile, attorneys for Roscoe's are indicating that they still plan to seek damages for Rosscoe’s infringement of its trademark. At the conclusion of the hearing, U.S. District Judge Samuel Der-Yeghiayan was quoted as saying: "I see that both parties understand the issues and facts of life and none of the parties are waffling on the issue."

One interesting aspect of the case is that Roscoe's apparently allowed Rosscoe's to operate a “Rosscoe's House of Chicken and Waffles” in New York for eight years without any claims of infringement. Roscoe's founder and long-time owner, Herb Hudson, was quoted as saying that he had no plans to expand to the New York market, and thus did not have a problem with the New York Rosscoe’s. But Hudson did have plans to open in Chicago next year, thus the reason behind the lawsuit to stop Rosscoe's this time.

One wonders whether Roscoe's considered the consequences of not enforcing its trademark rights throughout the entire U.S. Roscoe's lack of enforcement with respect to a confusingly similar mark in New York ultimately diminishes the ability of the mark to serve as a unique source identifier, and thus it value as a service mark. The story below demonstrates what can happen to a prior user’s trademark rights when an owner does not take steps to vigorously enforce such rights.

The dueling "Patsy's"

On Friday, the trademark news story of the day (link here) was about a jury verdict in an ongoing trademark battle in the New York city area over the name “Patsy’s” between Patsy's Italian Restaurant and Patsy's Pizzeria (background articles here, here, here, and here). Patsy's Italian Restaurant filed this particular trademark infringement lawsuit against the owners of Patsy's Pizzeria in October 2006. See Patsy's Italian Restaurant, Inc. v. Banas et al, Case No. 06-cv-05857 (E.D.N.Y. October 30, 2006).

Patsy's Italian Restaurant, located in Manhattan's theater district, was founded in 1944 by Pasquale "Patsy" Scognamillo and claims to have been patronized by celebrities from Frank Sinatra and Tony Bennett to Jennifer Lopez and George Clooney. Patsy's Pizzeria, on the other hand, opened up in Syosset, New York in 2006, after obtaining a license to use the name from the owner of the original Patsy's Pizzeria located in East Harlem which was founded in 1933 by Patsy Lancieri. In 1991, Lancieri's widow sold Patsy's Pizzeria, and the new owner soon after began expanding the pizzeria chain to six locations in Manhattan, one in Long Island, and then to Syosset.

While the jury found that there was a likelihood of confusion between the two restaurant names, the court did not yet order an injunction stopping Patsy's Pizzeria from using the name nor has the issue of damages been determined. A hearing on Patsy's Italian Restaurant’s request for injunctive relief is set for sometime in August.

This dispute between the two “Patsy’s” restaurants goes back almost ten years, and has quite an interesting procedural posture both in federal court and at the Trademark Trial and Appeal Board (“TTAB”). For a detailed background on one part of the dispute, read the published decision Patsy’s Brand, Inc. v. I.O.B. Realty, Inc., 317 F.3d 209, 65 USPQ2d 1442 (2d Cir. 2003).

The two businesses coexisted for nearly half a century. In 1993, the owners of Patsy's Italian Restaurant decided to begin selling pasta sauces in jars for retail distribution and formed Patsy's Brand Inc. (“PBI”), which filed an intent-to-use application to register its mark PATSY’S PR SINCE 1944 (stylized) for sauces. The mark was registered January 17, 1995 (with Patsy’s claiming first use in February 1994). Meanwhile, Patsy’s Pizzeria, through I.O.B. Realty, Inc. (“IOB”), had received two registrations for the marks PATSY’S and PATSY’S PIZZERIA (both for restaurant services) registered in May 21, 1996 and December 29, 1998, respectively.

On October 9, 1998, IOB filed a petition to cancel PBI’s registration for sauces alleging likelihood of confusion over its registrations. See I.O.B. Realty, Inc. v. Patsy's Brand, Inc., Cancellation No. 92028142 (TTAB October 9, 1998). Not only did PBI deny the allegations and assert the affirmative defense of estoppel, laches, and acquiescence, PBI turned around and filed its own petition to cancel IOB’s two registrations based on likelihood of confusion over its registered mark as well as fraud on the part of IOB. See Patsy's Brand, Inc. v. I.O.B. Realty, Inc., Cancellation No. 92029614 (TTAB October 28, 1999).

Theses cancellation proceedings were suspended sua sponte by the TTAB on June 21, 2000, when the TTAB was informed of a lawsuit filed by PBI on September 30, 1999 in the U.S. District Court for the Southern District of New York, alleging inter alia, trademark infringement, seeking cancellation of IOB’s registered mark PATSY’S, and seeking an order withdrawing IOB’s cancellation petition. See Patsy's Italian Restaurant, Inc. v. IOB Realty et al, Case No. 99-cv-10175 (JSM) (S.D.N.Y.). The district court in that case granted PBI’s motion for summary judgment, finding infringement, entered an injunction, and ordered the PTO to cancel IOB’s PATSY’S registration.

On appeal to the Second Circuit, the court affirmed the district court’s decision regarding likelihood of confusion. The court also held that while IOB may have originally had priority with respect to the name PATSY’S, its long-standing tolerance of the use by Patsy’s Italian Restaurant prevented IOB from stopping Patsy’s Italian Restaurant from using the name for restaurant services. Because the parties’ rights to use the PATSY’S name for restaurant services was equal, IOB had no grounds for objecting to Patsy’s Italian Restaurant's expansion into the “related market” for sauces. The Court of Appeals, however, did find the district court exceeded the scope of the litigation by restricting IOB’s use of the mark PATSY’S in connection with restaurant services and modified the district court’s injunction to remove the order to the PTO to cancel IOB’s PATSY’S registration.

Unfortunately, PBI, soon after the district court’s decision but before IOB had filed its appeal, filed a motion with the TTAB on October 18, 2001, to resume the cancellation proceeding. PBI did not notify the TTAB of IOB’s appeal to the Second Circuit. Because IOB did not file a response to PBI’s motion, the TTAB granted PBI's motion and granted PBI's petition to cancel IOB’s PATSY’S registration and dimissed with prejudice IOB’s cancellation proceeding against PBI.

On March 28, 2003, the TTAB sua sponte issued an order to IOB to show cause why judgment should not be entered against IOB on the PATSY’S PIZZERIA registration, which was also part of PBI’s original cancellation petition. By this time, the Second Circuit decision had been rendered, and IOB informed the TTAB of the decision by the Court of Appeals reversing the district court’s order to cancel IOB’s registration. PBI continued to maintain that IOB’s registrations should be canceled because IOB “had lost interest” and because of IOB’s false statement that it had exclusive right to use the mark, when the Second Circuit had held that both parties have an equal claim to the name.

Unfortunately for IOB, on May 27, 2003, the Commissioner for Trademarks went ahead and ordered the cancellation of both of IOB’s registrations because the TTAB had erroneously prepared and forwarded an order for the Commissioner to sign – even though the TTAB’s original order did not formally order IOB’s PATSY’S PIZZERIA registration to be canceled.

Further complicating matters is that when PBI filed its lawsuit against IOB, PBI also filed a new application to register the mark PATSY’S PR (stylized) for restaurant services and for PATSY’S (for restaurant services not including pizza). While these applications were at first rejected as likely to be confused with IOB’s registrations, when those registrations were prematurely canceled, the PTO withdrew its rejections and allowed PBI’s marks to be published and subsequently registered on November 1, 2005.

On that same day, IOB filed another application to register the mark PATSY’S PIZZERIA for (restaurant services, namely, take-out restaurant services). That application was rejected by the PTO on grounds of likelihood of confusion over the above two registrations held by PBI for restaurant services as well as two additional pending applicaitons filed by PBI (PATSY'S OF NEW YORK for restaurant services and PATSY'S for frozen eggplant parmigiana). Perhaps because of the PTO's rejections, on January 9, 2007, I.O.B. Realty filed two petitions to cancel each of PBI’s new registered marks. See I.O.B. Realty, Inc. v. Patsy’s Italian Restaurant, Cancellation Nos. 92046912 and 92046867 (TTAB Jan. 9, 2007). Of course, these cancellations were subsequently suspended once they became the subject matter of the federal district court lawsuit filed by Patsy’s Italian Restaurant. Interestingly, the Examining Attorney, in a subsequent non-final office action, maintained the 2(d) refusal to register IOB's mark, but only citing the PATSY'S OF NEW YORK and PATSY'S (eggplant parmigiana) registrations. Further proceedings on this particular application were suspended December 30, 2007.

To add insult to IOB’s injury, the TTAB, on June 28, 2007, upon reviewing and recounting the “tortured procedural history” of the case (link here), cancelled IOB’s registrations under §8. After PBI noted that IOB had not made the required filings under §8 (declaration of use) of the Lanham Act, the TTAB ordered the register to be corrected to reflect that IOB’s registrations were canceled on such basis – even though such a filing would not have been approved given its cancelled status. The TTAB refused IOB’s request for reconsideration.

On August 28, 2007, the judge in the above district court case ordered the PATSY’S PIZZERIA registration restored under §37 of the Lanham Act (15 USC §1119), but no action has been taken until such time as the court’s order is final (the court was unwilling to certify the order as final to allow IOB to pursue an immediate appeal).

Only time will tell if the most recent jury verdict will start to bring some order to the "procedural morass" (the TTAB's own words) in this case. Given the long-running nature of the dispute, however, one highly doubts that this dispute will end at the district court level.

Royal trademark battle over who will be the reigning WINE KING of New Jersey

The “Real” Wine King?
(Photo Credit: Will Bullas)

(used with permission)

Last Monday, a New Jersey district court judge denied a motion for preliminary injunction brought by the owner of three Northern New Jersey liquor stores named “Wine King” against a Southern New Jersey liquor store that is also using the name “Wine King.” See MNI Management, Inc. v. Wine King, LLC, et al., Case No. 07-6111 (D. N.J. March 10, 2008). A brief background article can be read here. A copy of the decision is available upon request.

The case is an illustration of what can happen when a business does not seek federal registration of its business’ trademarks and service marks, and instead must rely on the rules protecting unregistered trademarks. In addition, while most people recognize that “likelihood of confusion” is an important part of demonstrating infringement, this case also illustrates that such confusion actually comes in two forms – direct confusion and reverse confusion.

The plaintiff, MNI Management, Inc. (“MNI”), operates three liquor stores in Northern New Jersey under the trade name WINE KING (two in Bergen County and one in Morris County) with a combined sales volume over $10 million per year. MNI’s predecessor-in-interest began using the trade name WINE KING in 1998 to identify its retail liquor store and began using the mark as a service mark in 2001 (the “First Mark”) with the opening of its second and third locations. MNI affixed the First Mark to its store signage in 2001 and promoted the mark in its print ads and flier inserts (the web page http://www.thewineking.com/ was not functional as of the date of the decision). MNI also offers a frequent buyer program in which over 13,000 customers from New Jersey and other nearby states have enrolled. MNI filed a Section 1(a) use-in-commerce application for the mark WINE KING on November 19, 2007, for, inter alia, retail store services in the field of alcoholic and non-alcoholic beverages and wine accessories (with a first use in commerce date of 2001) . The application is scheduled to be published for opposition on April 8, 2008.

The defendant, Wine King, LLC, is the company established by defendant Venkata G.R. Indukuri (“Indukuri” and together with Wine King, LLC, the “defendants”) to own and operate a retail wine and liquor store. In March 2006, Indukuri asked his accountant to investigate forming an LLC under the name Wine King, LLC. When the accountant informed Indukuri that no other corporations or LLCs were named “Wine King” and that “Wine King” was not a registered trademark, Indukuri instructed his accountant to form Wine King, LLC. The defendants signed a lease for a retail store location in Southern New Jersey (Monmouth County) in June 2007. In October 2007, defendants filed an application to register the WINE KING mark (the “Second Mark”) with the state of New Jersey – defendants maintain that they did not know about MNI’s retail stores at that time. While the state application was initially rejected because proper specimens and a proper description were not included, defendants refiled and were issued the Second Mark on November 26, 2007. Defendants opened their retail store on November 16, 2007. Defendants are advertising their retail stores through a highway billboard, on radio and TV ads in the Monmouth County area, in newspapers, and online (http://www.wine-king.com/).

MNI apparently discovered defendants' use of the WINE KING mark around November 16, 2007. A cease and desist letter was sent on November 21, 2007, but the defendants refused to comply with MNI’s demands. On December 26, 2007, MNI filed its trademark infringement complaint alleging trademark infringement and unfair competition under the Lanham Act and New Jersey common law along with a motion for a preliminary injunction to enjoin the defendants from infringing the mark WINE KING.

In the court’s memorandum opinion, the district court concluded that MNI had not proven all of the elements necessary to obtain a preliminary injunction. In particular, the court found that the MNI had not shown a reasonable probability of success on the merits with respect to its claims

Preliminary Injunction
For a moving party to be granted the “extraordinary remedy” of injunctive relief, the court must consider whether (1) the movant has shown a reasonable probability of success on the merits, (2) the movant will be irreparably injured by denial of the relief, (3) granting the preliminary relief will result in even greater harm to the nonmoving party, and (4) granting the preliminary relief is in the public interest. ACLU of N.J. v. Black Horse Pike Reg'l Bd. of Educ., 84 F.3d 1471, 1477 n.2 (3d Cir. 1996); see also AT&T Co. v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994). The court grants the preliminary injunction only if the moving party has produced sufficient evidence to convince the court that all four factors favor the preliminary injunction.

Reasonable Probability of Success
In demonstrating the first factor -- reasonable probability of success on the merits – the party seeking the injunction has the burden to make a prima facie case showing a reasonable probability that it will prevail on the merits. Oburn v. Shapp, 521 F.2d 142, 148 (3d Cir. 1975).

Because the service mark in this case was not registered on the federal register, relief is found under Section 43(a) of the Lanham Act. In order for a plaintiff to prevail on a trademark infringement claim for an unregistered mark under federal law (as well as New Jersey law), such plaintiff must show that (1) the mark is valid and legally protectable, (2) the plaintiff is the legal owner of the mark, and (3) the defendant's use of a similar mark is likely to create confusion concerning the origin of the plaintiff's goods or services. Freedom Card, Inc. v. J.P. Morgan Chase & Co., 432 F.3d 463, 470 (3d Cir. 2005);

Valid and Legally Protectable
The district court concluded that MNI’s mark was valid and legally protectable on the basis that it is inherently distinctive. The court found that the mark was suggestive in that it suggests rather than describes the characteristics of MNI’s services and it is not immediately apparent from the combination of “Wine” and “King” what services MNI provides. The court also found that even it were merely descriptive, the First Mark was protectable because it had acquired secondary meaning in MNI’s geographic area (through MNI’s marketing efforts) at the time and place that the defendants began using the Second Mark.

Ownership
Regarding the second factor for proving trademark infringement, a plaintiff must show ownership of the mark at issue. In order for a court to determine ownership of an unregistered trademark, the court considers (1) priority of use and (2) market penetration.

Normally, priority of use is determined by the first party to use a mark – the senior user is the first to use the mark anywhere in the United States while the junior user is the second user of a mark regardless of whether the junior user adopts and uses a mark in a geographically remote location. To the extent that two users of the same mark are competing in the same market, the trademark rights of the senior user will trump those of the junior user.

However, where the two users of the same mark are operating in geographically remote markets, priority is not legally relevant. Because trademark rights grow out of use (and not mere adoption), a senior user cannot stop the use of mark in a market into which the senior user has not somehow reached and where the mark may already represent the source of origin of some other party. A senior user of an unregistered trademark enters a new market subject to the trademark rights already acquired in good faith by another user. This is known as the “Tea Rose-Rectanus” doctrine. See ACCU Personnel, Inc. v. Accustaff, Inc., 846 F.Supp. 1191, 1205 (D. Del. 1994).

Therefore, for a senior user to claim trademark rights in a particular market, the senior user must show evidence of (1) market penetration in a particular market, (2) reputation in a particular market, or (3) a “zone of natural expansion” extending into a particular market. Laurel Capital Group, Inc. v. BT Fin. Corp., 45 F.Supp.2d 469, 482 (W.D. Pa. 1999). [Note: While the Third Circuit Court of Appeals has neither expressly embraced nor rejected the reputation theory and the zone of natural expansion theory to show market penetration, other district courts within the Third Circuit have endorsed both theories while others have noted that whether a senior user is entitled to protection is to be decided only under four factors of the market penetration theory.]

The market penetration of the senior user's trademark must be significant enough to pose a real likelihood of confusion among the consumers in that area, and is analyzed under four factors as of the time the junior user first adopted and began using the trademark: (1) volume of sales; (2) positive and negative growth trends in the area; (3) the number of actual customers in relation to the potential number of customers; and (4) the amount of advertising in the area. Natural Footwear Ltd. v. Hart, Schaffner & Marx, 760 F.2d 1383, 1398-99 (3d Cir. 1985).

As for reputation, the court analyzes whether a senior user's reputation has penetrated a particular market area prior to the junior user's first use of the mark.

Furthermore, to the extent the senior user has failed to establish market penetration in a particular market, the court can also look at whether the senior user is entitled to a “zone of natural expansion” through evidence of constant expansion and a small distance between the two users’ markets and conclude that the senior user is reasonably expected to expand in the junior user’s market. The mere hope of expansion is not sufficient to establish a zone of natural expansion. Instead, the court considers several factors as of the date the junior user adopted and began the mark:

Rather, when determining whether a junior user falls within the senior user's zone of natural expansion, the Court considers, as of the date the junior user adopted and used the mark, (1) the geographic distance from the senior user's actual location to the perimeter of the claimed zone, (2) the nature of the business and the size of the senior user's zones of market penetration and reputation, (3) the history of the senior user's expansion and assessment as to when the senior user could potentially reach the zone the senior user claims, and (4) whether it would take a “great leap forward” for the senior user to enter the zone; that is, whether expansion into the claimed zone is the next logical step. Laurel Capital Group, Inc., 45 F.Supp.2d at 493 (quotation and citations omitted); ACCU Personnel, Inc., 846 F.Supp. at 1209

2008 U.S. Dist. LEXIS 18091 at *26-27.

Finally, if a senior user cannot prove entitlement to trademark protection under one of the above three theories, a junior user is entitled to trademark protection in the junior user's market so long as the mark was adopted and used in good faith. And, at least in the Third Circuit, a user's prior knowledge of the senior user's trademark is not enough, by itself, to compel a finding of bad faith, and instead is only probative of the question whether the junior user acted in bad faith.

Likelihood of Confusion
If a senior user shows superior rights in the mark in the relevant geographic area, then the senior user must demonstrate that the junior user's use of the mark is likely to cause confusion as to the source and origin of the goods or services

The district court goes on to describe the two specific types of “likelihood of confusion” that a plaintiff can assert -- likelihood of “direct confusion” or likelihood of “reverse confusion.” Direct confusion is where the junior user of a mark attempts to free-ride on the reputation and goodwill of the senior user by adopting a confusingly similar or identical mark. Reverse confusion, however, involves the situation where junior user begins using the mark of a senior user in such a way that the junior user’s use of the mark overwhelms the senior user’s use such that the public will assume that the senior user’s goods and services are those of the junior user. In effect, reverse confusion causes the senior user to lose the product identity and goodwill that the senior user has built up with respect to its mark.

The same “likelihood of confusion” factors are analyzed for each type of confusion. Because the district court is in the Third Circuit, the factors are the ten “Lapp” factors:

(1) the degree of similarity between the senior user's mark and the alleged infringing mark, (2) the conceptual and commercial strength of the senior user's mark, (3) the price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase, (4) the length of time the junior user has used the mark without evidence of actual confusion arising, (5) the intent of the junior user in adopting the mark to “ride on the goodwill of the senior user's mark”, (6) the evidence of actual confusion, (7) whether the goods, competing or not competing, are marketed through the same channels of trade and advertised through the same media, (8) the extent to which the targets of the parties' sales efforts are the same, (9) the relationship of the goods in the minds of consumers, whether because of the near-identity of the products, the similarity of function, or other factors, and (10) other facts suggesting that the consuming public might expect the senior user to (i) manufacture both products, (ii) manufacture a product in the junior user's market, or (iii) expand into the junior user's market.

Id. at *29; see also Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 463 (3d Cir. 1983); A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 237 F.3d 198, 215 (3d Cir. 2000).

However, with respect to “reverse confusion,” some of the factors are analyzed slightly differently. For example, analysis of the strength of the two marks focuses on the commercial strength of the junior user's mark and the conceptual strength of the senior user's mark. In addition, the intent of the junior user in adopting the mark focuses on intent to exploit confusion in order to push the senior user out of the market. Furthermore, evidence of actual confusion may involve evidence that the public thought that the junior user was the source of the senior user's product or that the public would expect the larger junior user to be the manufacturer of both user’s products.

Likelihood of Direct Confusion
Because neither party in this case had registered its mark federally or with New Jersey by the time the defendants began using the Second Mark (i.e., the date the defendants opened their store for business), the initial question of ownership first had to be determined by analyzing each user’s territorial rights under the “Tea Rose-Rectanus” doctrine.

While MNI is the senior user (having first used its mark in 2001) in this case, such prior use does not resolve ownership because the parties used their marks in different geographic areas within New Jersey.

The court found that MNI could not show that it had penetrated defendant’s geographic market or that its reputation extended into defendant’s geographic market. With MNI’s stores located solely in Northern New Jersey, MNI could not show any actual retail sales in defendants' market. Furthermore, MNI had no concrete plans to expand into defendant’s geographic market. With most of MNI’s customers in Northern New Jersey, MNI could not show a large number of actual and potential customers in the defendants’ geographic market. MNI’s did not show that it had engaged in any advertising in defendants' market and conceded that most of its advertising was on its own stores. Moreover, the mere fact that some customers residing in defendants' market happen to have patronized MNI’s stores was insufficient to prove that MNI’s reputation zone encompasses the towns or counties in which such customers reside.

MNI also failed to show that it is entitled to a “zone of natural expansion” into defendants' market. The two markets are approx. 70 miles apart and MNI’s market penetration and reputation focused on Northern New Jersey and MNI’s limited expansion efforts have only been in the Northern New Jersey area. The mere hope of expansion is not enough to establish a zone of natural expansion, and indeed MNI had no concrete plans to expand into defendants' market.

Finally, the court found that MNI had failed to provide sufficient evidence showing that the defendants lacked good faith when they adopted and began using the Second Mark.

As such, the court concluded that MNI had not established the necessary market penetration of the First Mark in defendants' geographic area to allow MNI to claim to be the legal owner of such unregistered mark in the defendants' market. Because MNI could not establish legal ownership of such mark in the defendants' market, it could not meet the second element necessary for a plaintiff to prevail on a trademark infringement claim for an unregistered mark.

Likelihood of Reverse Confusion
The court then went on to find that MNI had not established a likelihood of reverse confusion in its market either.

As previously discussed, the First Mark was found to be valid and protectable. Furthermore, with respect to market penetration, the defendants did not dispute that MNI had penetrated its own geographic market, and therefore was the legal owner of the mark in MNI’s market. Therefore, having determined validity and ownership, the court went on to apply the “Lapp” factors to determine likelihood of reverse confusion.

The degree of similarity favored MNI because both parties are using the identical mark WINE KING, which have the same overall commercial impression, and thus reverse confusion is likely if defendants are permitted to use the Second Mark in MNI’s geographic market. The degree of care exercised by consumers favored MNI because consumers typically do not exercise a high degree of care when purchasing a relatively low cost item such as a bottle of alcohol. Regarding similar trade channels and similar customers, the court found that there were some similarities between the type of marketing campaigns run by each party (signage, print ads, online websites) which are directed to the same type of customers, namely purchasers of alcohol and alcohol-related products, in each party’s market (which may then frequent the other party’s stores while traveling in New Jersey). As such, the court found this factor to favor a finding of reverse confusion. Regarding the relationship of the goods in the minds of consumers, the court found that this factor also favored a finding of reverse confusion because of the similarity of the services offered by each party.

Regarding actual confusion, however, while MNI showed evidence of three instances of actual confusion on the part of MNI’s suppliers, MNI did not offer any evidence of actual confusion on the part of MNI’s customers (e.g., customers mistakenly assuming that defendants' store is connected to MNI’s stores) or defendants' customers (e.g., customers mistakenly assuming MNI’s stores are connected to defendants' store). While recognizing that the defendants just started using the mark in November 2007 and that evidence of actual confusion may still arise, the court held that this factor presently favored the defendants.

In addition, with respect to defendants’ intent to confuse, the issue becomes defendants’ intent to cause reverse confusion (i.e. to push the senior user out of the market); however, the court found that MNI had not provided any evidence of any such intent on the part of the defendants when the defendants adopted and began using the Second Mark. The court noted that a search for a federal or state registration of the mark at the time defendants adopted and began using the Second Mark would not have even revealed anything because MNI’s trademark was unregistered at the time. As such, while there was evidence that the defendants may have been careless in their search regarding the name WINE KING (i.e., defendants may not have looked hard enough to see if anyone else was using the name), such evidence by itself is not enough to show that the defendants had the requisite intent to push MNI out of its market.

What appears to have been the most important factor in the court’s decision, however, is with respect to the strength of the two marks, which the court found does not indicate that reverse confusion is likely. In a reverse confusion context, the conceptual strength of the First Mark is compared to the commercial strength of the Second Mark; and in order to determine the latter, the court compares the commercial strength of the Second Mark with that of the First Mark and determines whether the defendants have employed a marketing or advertising campaign in MNI’s market that has saturated public awareness of the defendants' mark. See Freedom Card, Inc. v. J.P. Morgan Chase & Co., 432 F.3d 463, 473 (3d Cir. 2005). In order for this factor to favor MNI, MNI must show that while the First Mark is conceptually strong, the Second Mark, though the defendants’ aggressive marketing efforts, has become commercially stronger in MNI’s market.

The court agreed that the First Mark is conceptually strong (based on the aforementioned “suggestive” nature). However, the court also found that the First Mark is commercially strong in MNI’s Northern New Jersey geographic market based on MNI’s large customer base, sales volume, and advertising efforts. The defendants do not operate a store in either one of the counties in which MNI currently operates. In addition, the court found that defendants’ newspaper, television, and radio advertising primarily occurred in the Southern New Jersey area. The court rejected the minimal amount of advertising that may have occurred either in MNI’s market or online – finding that such efforts do not establish that the defendants' use of the Second Mark has saturated MNI’s market with awareness of that mark. Therefore, while the First Mark is conceptually strong, the commercial strength of the First Mark compared to the commercial strength of the Second Mark in MNI’s market does not suggest that a likelihood of reverse confusion.

On balance, the court found that the MNI had not established that the defendants’ use of the Second Mark is likely to create reverse confusion in MNI’s market concerning the origin of MNI’s services. Because MNI had not established a likelihood of confusion, it could not meet the third element necessary for a plaintiff to prevail on a trademark infringement claim for an unregistered mark.

Irreparable Injury
Regarding the second factor for deciding to grant a preliminary injunction (irreparable harm), because MNI could not demonstrate a likelihood of direct or reverse confusion, the court would not presume that MNI would be irreparably harmed by defendants’ continued use of the Second Mark. Furthermore, in response to MNI’s argument that the injunction was necessary to prevent loss of control of reputation, loss of trade, and loss of goodwill, the court noted that MNI, as discussed above, has not shown that either MNI or the defendants have penetrated the others’ market such that the defendants' use of the Second Mark is likely to affect MNI’s reputation, goodwill, or trade.

Harm to Defendants
Regarding the third factor for deciding to grant a preliminary injunction (greater harm to nonmoving party), the court found that the defendants would be irreparably harmed if injunctive relief were granted because they would likely have to change their name in order to continue their services and would lose the goodwill behind that name that they have been building (even though only for a short amount of time). The court added that an injunction would be a particularly extraordinary remedy in this case given that MNI has not presented a compelling case of infringement. On balance, the court concluded that granting the injunction would harm defendants more than denying the injunction would harm MNI.

The Public Interest
Regarding the final factor for deciding to grant a preliminary injunction (the public interest), the court reiterated that the basic public interest implicated in nearly all Lanham Act infringement cases is “the interest in prevention of confusion, particularly as it affects the public interest in truth and accuracy.” However, since the court concluded that the defendants' continued use of the Second Mark does not create a likelihood of confusion with respect to the First Mark, the public interest would not be served by the granting of a preliminary injunction, and indeed, the public interest in free competition would be better served by allowing the defendants to continue operating. Thus, the public interest factor weighs in favor of denying MNI’s claim for injunctive relief.

Conclusion
This case serves as a good illustration to those who may not appreciate the potential downside of not applying for federal registration of their trademarks and service marks. If MNI had sought and received a federal registration for its WINE KING mark back when it first began using it as a service mark in 2001, MNI would have been in a much stronger position to make its current case for trademark infringement (and more likely, the defendants would not have even chosen the name once their representative had uncovered that the name was already being used as a service mark for liquor stores).

Two of the primary benefits of federal registration is that the certificate of registration serves as prima facie evidence of the registrant’s ownership of the mark and registrant’s exclusive right to use the registered mark in commerce on or in connection with the goods or services specified in the certificate (see §7(b) of the Lanham Act, 15 U.S.C. §1057(b)) and provides constructive nationwide notice to the public of the registrant's claim of ownership of the mark (see §22 of the Lanham Act, 15 U.S.C. §1072).

MNI was unable to make its case for likelihood of direct confusion given the court’s conclusion that MNI was not even the owner of such mark in defendants' geographic area. MNI’s geographically limited use of the mark would not have been a factor had MNI obtained a federal registration. In addition, if MNI had registered the First Mark, then the defendants could not have maintained that they did not know about the mark when they began using the Second Mark. The defendants would be deemed to have been put on constructive notice of MNI’s mark and of MNI's prima facie exclusive right to use the registered mark in commerce on or in connection with the goods or services specified in the certificate.

While the court’s opinion is merely a decision on MNI’s motion for preliminary injunction, the court’s analysis of MNI’s case for likelihood of confusion does not bode well for MNI. Unless the parties work out some kind of agreement, it looks like there may be two reigning WINE KINGs in New Jersey.

One possibility that similarly situated parties often pursue is for MNI and the defendants to enter into a non-royalty license agreement whereby the defendants license the WINE KING mark from MNI. This way, MNI benefits from the use of its mark in another part of New Jersey (and can proclaim itself the sole WINE KING of the State) and the defendants can continue to use the mark without interruption and without additional cost (although subject to the terms set forth in the license agreement such as quality control).

Meanwhile, with MNI’s federal service mark application on its way to registration (assuming no party attempts to oppose it), MNI may soon be able to proclaim itself the WINE KING of the U.S. Once MNI has its federal registration, then MNI can at least prevent the defendants from expanding the use of the WINE KING beyond the defendants’ current little fiefdom in Southern New Jersey.