Wake Forest Law Review

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By: Mikhail Petrov

On March 23, 2016, in the published civil case of Belmora LLC v. Bayer Consumer Care AG, the Fourth Circuit considered whether the Lanham Act permits the owner of a foreign trademark to pursue false association, false advertising, and trademark cancellation claims against the owner of the same mark in the United States. Bayer Consumer Care AG (“BCC”) owns the trademark “FLANAX” in Mexico and has sold naproxen sodium pain relievers under that mark in Mexico since the 1970s. Belmora LLC owns the FLANAX trademark in the United States and has used it in the United State since 2004 in the sale of its naproxen sodium pain relievers. BCC and its U.S. sister company Bayer HealthCare LLC (which is licensed to sell naproxen sodium pain relievers in the United States under the brand name ALEVE) contend that Belmora used the FLANAX mark to deliberately deceive Mexican-American consumers into thinking they were purchasing BCC’s product.

Facts

BCC registered the trademark FLANAX in Mexico for pharmaceutical products, analgesics, and anti-inflammatories. It has sold naproxen sodium tablets under the FLANAX brand in Mexico since 1976. BCC’s FLANAX brand is well known in Mexico and other Latin American countries, as well as to Mexican-Americans and other Hispanics in the United States. Belmora LLC began selling naproxen sodium tablets in the United States as FLANAX in 2004. The following year, Belmora registered the FLANAX mark in the United States. Belmora’s early FLANAX packaging closely mimicked BCC’s Mexican FLANAX packaging, displaying a similar color scheme, font size, and typeface. In addition to using similar packaging, Belmora made statements implying that its FLANAX brand was the same FLANAX product sold by BCC in Mexico. BCC points to evidence that the similarities resulted in Belmora’s distributors, vendors, and marketers believing that its FLANAX was the same as or affiliated with BCC’s FLANAX.

Procedural History

BCC successfully petitioned the U.S. Trademark Trial and Appeal Board (“TTAB”) to cancel Belmora’s registration for the FLANAX mark based on deceptive use. Belmora appealed the TTAB’s decision to the district court. In the meantime, BCC filed a separate complaint for false association against Belmora under § 43 of the Lanham Act, and in conjunction with BHC, a claim for false advertising. After the two cases were consolidated, the district court reversed the TTAB’s cancellation order and dismissed the false association and false advertising claims.

Although the district acknowledged that Belmora’s FLANAX has a similar trade dress to BCC’s FLANAX and is marketed in such a way that capitalizes on the goodwill of BCC’s FLANAX, it nonetheless concluded that the Lehman Act does not allow the owner of a foreign mark that is not registered in the United States, and has never been used in the United States, to assert priority rights over a mark that is registered in the United States by another party and used in United States Commerce. BCC appealed the decision.

Rule of the Case

The plain language of § 43(a) of the Lahman Act does not require, as an element of the cause of action, that a plaintiff possess or have used a trademark in U.S. commerce. Under § 43(a), it is the defendant’s use in commerce — whether of an offending “word, term, name, symbol, or device” or of a “false or misleading description [or representation] of fact” that creates the injury under the terms of the statute.

What § 43(a) requires is that BCC was “likely to be damaged” by Belmora’s “use in commerce” of its FLANAX mark and related advertisements. The Supreme Court recently considered the breadth of this “likely to be damaged” language in Lexmark International, Inc. v. Static Control Components, Inc., (a false advertising case arising from a dispute in the used printer-cartridge market). The Court concluded that § 43(a)’s broad authorization is framed by two background principles. First, a plaintiff’s claim must fall within the “zone of interests” protected by the statute, defined in §45 of the Lanham Act. Second, a statutory cause of action is limited to plaintiffs whose injuries are proximately caused by violations of the statute.

Reasoning of the Fourth Circuit

The Fourth Circuit first addressed the position, pressed by Belmora and adopted by the district court, that a plaintiff must have initially used its own mark in commerce within the United States as a condition precedent to a § 43(a) claim. The Fourth Circuit found that the district court erred in requiring BCC, as the plaintiff, to have pleaded its prior use of its own mark in U.S. commerce when it is the defendant’s use of a mark or misrepresentation that underlies the § 43(a) unfair competition cause of action.

Although the plaintiffs’ use of a mark in U.S. commerce was a fact in common in the foregoing cases, substantial precedent reflects that § 43(a) unfair competition claims come within the statute’s protectable zone of interests without the U.S. commerce precondition. The Supreme Court has pointed out that § 43(a) goes beyond trademark protection, is cases of generic mark and reverse passing off. See Dastar Corp. v. Twentieth Century Fox Film Corp 539 U.S. 23, 29 (2003). These cases illustrate that § 43(a) actions do not require, implicitly or otherwise, that a plaintiff have first used its own mark in United States commerce. If such a use were a condition precedent to bringing a § 43(a) action, the generic mark and reverse passing off cases could not exist. Additionally, the plain language of § 43(a) makes no reference to U.S. commerce. Therefore, neither the Supreme Court in Lexman nor the Lanham Act’s plain language contain an unstated requirement that plaintiff have used a U.S. trademark in U.S. commerce to bring a Lanham Act unfair competition claim.

The Fourth Circuit then examined Lexmark’s two fold inquiry to determine whether BCC can make a § 43(a) claim. The first inquiry is whether the alleged acts of unfair competition fall within the Lanham Act’s protected zone of interests? If so, the second inquiry is whether BCC pleaded proximate causation of a cognizable injury.

BCC adequately pleaded a § 43(a) false association claim for purposes of the zone of interests prong. Lexmark advises that most of the Lanham Act’s enumerated purposes are relevant to false association cases. One such enumerated purpose is making actionable the deceptive and misleading use of marks. Here, BCC lost sales revenue because Belmora’s deceptive and misleading use of FLANAX conveyed to consumers a false association with BCC’s product. Further, by deceiving distributors and vendors, Belmora makes its FLANAX more available to consumers, which exacerbated BCC’s losses.

The Fourth Circuit then turned to Lexmark’s second prong, and concluded that BCC may plausibly have been damaged economically and in its reputation by Belmora’s alleged deceptive use of the FLANAX mark. Therefore, there was enough to conclude that BCC’s injuries were proximately caused by Belmora’s violations of the false association statute.

Holding

The Fourth Circuit conclude that BCC is entitled to bring its unfair competition claims under Lanham Act § 43(a) and its cancellation claim under § 14(3). The district court’s judgment was vacated and the case remanded for further proceedings consistent with this opinion.

 By Chad M. Zimlich

In a published civil opinion handed down on Tuesday, March 31, 2015, the Fourth Circuit in vonRosenberg v. Lawrence took on an action in the District Court for the District of South Carolina involving two bishops of The Protestant Episcopal Church in the Diocese of South Carolina (“The Church”).

The Leader of a Church, Trademark, and a Pending State Court Decision

The case centered on a dispute between two clergymen, both claiming to be the head of The Church. Bishop Charles G. vonRosenberg filed an action against Bishop Mark J. Lawrence, alleging two Lanham Act violations and seeking declaratory and nondeclaratory relief. In response, Bishop Lawrence asked the district court to abstain pending state court proceedings. Relying on the abstention doctrine and broad discretion articulated in Brillhart v. Excess Insurance Co. of America, and Wilton v. Seven Falls Co., the district court stayed the action.

A Power Struggle

Bishop vonRosenberg claimed that in December 2012, the Disciplinary Board of The Protestant Episcopal Church in the United States removed Bishop Lawrence from his position. Following this, a Convention of the Diocese elected and installed vonRosenberg as Lawrence’s replacement. He further claimed that Bishop Lawrence has improperly continued to use the Church’s service marks and falsely advertised himself as the leader of the Church.

Bishop Lawrence asserted that he was never actually removed from office, but that Bishop vonRosenberg was the leader of an “unincorporated Episcopal association created to supplant the Diocese.” As each party asserted they were the head of the Church, each felt entitled to use the Church’s trademarks.

On January 4, 2013, prior to the lawsuit in the district court, a faction of Bishop Lawrence’s supporters filed suit in state court against the Episcopal Church. In the suit, the supporters alleged “service mark infringement” and “improper use of names, styles, and emblems” all under South Carolina state law. The state court responded by issuing a temporary restraining order preventing anyone other than Bishop Lawrence and those under his direction from using these service marks and names.

Bishop vonRosenberg then filed against Bishop Lawrence in district court seeking declaratory and injunctive relief for two violations of the Lanham Act, 15 U.S.C. § 1114 and § 1125(a)(1)(A) (2012). He alleged that Bishop Lawrence violated the Lanham Act by the unauthorized use of four service marks belonging to the Diocese of South Carolina, as well as by falsely advertising himself as the real Bishop. Bishop Lawrence then filed to dismiss the federal action for lack of standing or, in the alternative, for the court to abstain and stay this action pending resolution of the state court case.

The district court granted Bishop Lawrence’s motion to abstain, finding that, while Bishop vonRosenberg had standing, the court had broad discretion to abstain and to decline to grant declaratory relief under Brillhart and Wilton. This appeal followed that decision.

The District Court Should Have Used Colorado River, and, Thus, Was In Error

The Fourth Circuit noted that, as the decision to abstain was a legal question, their review was de novo. Bishop vonRosenberg’s contention on appeal was that the district court should have applied Colorado River Water Conservation District v. United States, rather than Brillhart or Wilton.

Under Colorado River, a federal court may abstain from deciding non-frivolous, nondeclaratory claims in favor of a parallel state suit for reasons of “wise judicial administration” only in “exceptional” circumstances. The Court explained that a federal court has a duty to decide federal claims, and thus the decision to abstain due to “administrative reasons” was much more limited. Additionally, a court is to balance several factors, with the balance heavily against abstention. The district court, however, did not consider any factors, and instead relied solely on the Brillhart/Wilton standard.

The Fourth Circuit noted that, while they had never spoken to the issue of standards in regards to complaints asserting claims for declaratory and nondeclaratory relief, it has held that when a court must deal with a nondeclaratory claim, it is cannot abstain from the declaratory claim, making it an all-or-nothing deal.

The Court noted that “Colorado River permits a court to abstain only in the rare circumstance” where judicial administration was so “pressing” that it overrides the natural obligation of the court. Brillhart and Wilson’s broad discretion, however, flowed from the Declaratory Judgment Act, which runs contrary to circumstances where a court must exercise jurisdiction.

The Fourth Circuit concluded by stating that Colorado River “must guide a court’s decision to abstain from adjudicating mixed complaints alleging claims for both declaratory and nondeclaratory relief.”

Furthermore, the Colorado River standard would apply to all mixed claims, even those where the claims are ancillary to the request for declaratory relief. The only exception would be a case where the injunctive relief is frivolous or to attempt to forum shop.

Applied to This Case, Colorado River Means a Higher Standard and a New Review

Because the district court did not apply the Colorado River standard, the Court vacated the stay order and remanded the case to the district court to make a determination of whether, under the circumstances, the “exceptional” standard was met.

 

By Ashley Escoe

On Monday March 30, 2015, the Fourth Circuit released a published opinion regarding the civil case of Georgia-Pacific Consumer Products v. Von Drehle Corporation. In its opinion, the court agreed with von Drehle Corporation (“von Drehle”) and vacated the district court’s injunction and award of attorneys fees and also reversed the increase in damages and the award of prejudgment interest–all of which had been in favor of Georgia-Pacific Consumer Products (“Georgia-Pacific”).

Georgia-Pacific’s Claim of Trademark Infringement

Georgia-Pacific brought this trademark infringement case against von Drehle for designing and selling ten-inch paper-towels specifically for use in Georgia-Pacific’s “enMotion” motion sensor towel dispensers. Georgia-Pacific owns the trademark “enMotion” and alleged that von Drehle had violated the Lanham Act, 15 U.S.C. § 1114(1)(a), for contributory trademark infringement because the von Drehle towels were “likely to cause confusion and . . . deceive End-User Customers.”

Georgia-Pacific brought three separate actions against von Drehle for selling these ten-inch paper-towels: in the Western District of Arkansas, the Northern District of Ohio, and the Eastern District of North Carolina. The first to rule on this issue was Arkansas, which concluded that von Drehle towels made for use in an enMotion dispenser were not likely to cause confusion, and therefore not an instance of trademark infringement. The Eighth Circuit affirmed. The district court in Ohio then ruled against Georgia-Pacific as well, holding that Georgia-Pacific was precluded from litigating the same issue; the Sixth Circuit affirmed.

The Eastern District of North Carolina initially ruled against Georgia-Pacific based on von Drehle’s affirmative defense of claim and issue preclusion. However, on appeal the Fourth Circuit reversed this decision, concluding that von Derhle waived those defenses by failing to raise them in a timely manner. A jury awarded Georgia-Pacific the $791,431 in profits von Drehle made from the paper-towel sales. The district court trebled the jury verdict and awarded attorneys’ fees as well as prejudgment interest–totaling $4,887,283.51. The district court also granted Georgia-Pacific a permanent, nationwide injunction prohibiting von Drehle from selling its paper-towels.

On appeal, von Drehle challenged the geographical scope of the injunction and the monetary awards.

The Scope of the District Court’s Injunction Was Too Broad

The Fourth Circuit determined that the district court abused its discretion by granting a nationwide injunction. Generally, a district court has the authority to issue a nationwide injunction prohibiting trademark infringement. 15 U.S.C § 1116(a). In this instance, however, for the sake of inter-circuit comity, the court determined that the injunction should be limited to the states in the Fourth Circuit. The Sixth and Eighth Circuits have already ruled that von Drehle was not prohibited from selling its ten-inch paper towels, and the other Circuit courts that have not yet ruled on the issue should be free to resolve this matter for their jurisdictions. The Fourth Circuit vacated the district court’s injunction and remanded the issue.

Trebling the Damages Award Was Inappropriate

The Fourth Circuit concluded that the district court’s reliance on Larsen v. Terk Techs. Corp. was an erroneous conflation of 15 U.S.C. § 1117(a) and § 1117(b). In Larsen, the issue was the use of a counterfeit mark and thus was governed by § 1117(b), which mandates treble damages for willful and intentional infringement. The instant case does not concern counterfeit marks, but rather is a general trademark infringement case governed by § 1117(a). Section 1117(a) does allow a court to adjust a jury award, but only if the award was inadequate or excessive and never solely to punish the defendant. Georgia-Pacific only requested an award of von Drehle’s profits, and that is precisely what the jury awarded; therefore, there was no basis for the district court to find the award inadequate. The Fourth Circuit reversed the increase in the damages award and ordered the jury award be reinstated.

A New Standard for “Exceptional” in Regard to Attorneys Fees

The district court granted attorneys’ fees to Georgia-Pacific, finding the case to be “exceptional” because von Drehle purposefully and willfully sold its towels to be used in Georgia-Pacific’s dispensers. However the Fourth Circuit noted that the district court failed to distinguish between willfully performing an act one believes to be lawful and willfully breaking the law. Further, after the district court made its ruling, the Supreme Court issued its decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc. Though this decision did not define “exceptional” in the attorneys’ fees provision of § 1117(a), it defined an “exceptional case” in an identical provision of the Patent Act. The Supreme Court held that a district court may determine a case is exceptional by looking at the totality of the circumstances. The Fourth Circuit vacated the award of attorneys’ fees and remanded the issue for the district court to determine in light of the Octane Fitness standard.

Congress Did Not Intend for Prejudgment Interest in This Circumstance

Section 1117 is particular about what types of monetary relief are available for trademark infringement in specified circumstances. The Fourth Circuit concluded that if Congress did not include a certain type of monetary relief in a specified circumstance, then it was Congress’ intention that it not be available. Section 1117(a) does not provide for prejudgment interest in cases concerning recovery of a defendant’s profits. The court noted that it may be possible to recover prejudgment interest under § 1117(a) as an element of damages, but Georgia-Pacific only claimed von Drehle’s profits, not damages. Therefore the Fourth Circuit reversed the district court’s award of prejudgment interest.

The Fourth Circuit Vacated, Reversed in Part, and Remanded in Part the District Court’s Decision

The Fourth Circuit vacated the district court’s injunction and award of attorneys fees’ and remanded on these issues. It also reversed the increase in the damages award and the award of prejudgment interest.

Judge Shedd Disagrees with Limiting the Scope of the Injunction

Judge Shedd wrote separately, concurring in part and dissenting in part. Judge Shedd only disagreed with the decision to restrict the injunction to the Fourth Circuit. On appeal, injunctions are reviewed for abuse of discretion. Judge Shedd points out that the district court “applied the correct injunction standard, did not rely on a clearly erroneous finding of material fact, and did not misapprehend the law with respect to the underlying issues of this case.” The district court did not abuse its discretion, and the Fourth Circuit should affirm the injunction. Instead the majority of the panel relied on the doctrine of comity in determining that the nationwide scope of the injunction was too broad. The doctrine of comity is not a rule of law, but just a courtesy; and, according to Judge Shedd, relying on comity was not appropriate in this situation.