Count the circuit splits in this nonfamous foreign marks case

Paleteria La Michoacana, Inc. v. Productos Lacteos Tocumbo S.A. De C.V., 2014 WL 4759945,  No. 11–1623 (D.D.C. Sept. 25, 2014)
For different versions of the background story, you can see this Wharton article (which confuses trademark and copyright, and favors the US company in its take on the “orphan” status of the relevant marks in Mexico) and this reprint from the WSJ (which favors the foreign claimant, at least in its rhetoric).  Also for background: “Michoacán” is the name of a Mexican state, and home to many Purépecha Indian people, whose traditional dress for women commonly consists of hair braids on each side, a white blouse, a pink skirt, and sandals.
Paleteria La Michoacana (PLM) sued Productos Lacteos Tocumbo (PROLACTO), challenging a TTAB decision regarding various registered and unregistered trademarks used to sell “Mexican-style” ice cream bars, called paletas, and other frozen ice cream treats. PROLACTO counterclaimed for violation of the Lanham Act and DC law.
PROLACTO is a family-owned company founded in Mexico in 1992. The founding family had a long history of operating ice cream stores (“paleterias”) in cities and towns throughout Mexico since the 1940s. Its use and ownership of the marks in Mexico is hotly disputed (see first link above) and “mostly irrelevant to the legal issues at hand,” but starting in 1995 it did successfully register many marks in Mexico, including LA MICHOACANA NATURAL. A few years later, it began licensing close family members of the founding directors in the US to use some of the marks.  Its US use is only through licensing.
PROLACTO’s first license was in 1999, when Rigoberto Fernandez opened a paleteria called LA MICHOACANA in Homestead, Florida. “In April 2001, Fernandez and his sister, Mary Fernandez, opened a second paleteria under the same name in West Palm Beach, Florida, where they used PROLACTO’s Mexican marks for the sale of ice cream products.” In October 2002, Mary Fernandez opened a paleteria under the name Michoacana Natural Ice Cream in Rosenberg, Texas, a suburb of Houston. Mary Fernandez opened additional stores in Houston over the next few years.  And in July 2009, PROLACTO licensed a Michoacana Natural Ice Cream store in Sonoma, California.
PLM began in 1991 as an informal partnership between two brothers, an ice cream business called Paleteria Michoacana in Turlock (northern California); this eventually became PLM. PLM’s products are distributed throughout various parts of the country and sold in “large club stores like Costco, supermarkets like Wal–Mart, Hispanic grocery stores like El Super and Vallarta, drug stores like Walgreens, and a variety of other retail outlets.”  PLM hasn’t made direct sales in Florida. 
Neither party’s products are sold in DC.  The parties’ products (treating PROLACTO’s licensee like PROLACTO for these purposes) only cross paths in “limited geographical areas,” in Texas and northern California, where the parties’ goods are sold in the same general area and in at least one instance at the same store.  (Pause to note that “Texas and northern California” is an awful lot of America.)  The products are relatively inexpensive (from $0.89 to $2 each for a single serve bar) and typically bought on impulse.
The central marks at issue were the “Indian Girl” design and marks using various forms of the word “Michoacán”:

PROLACTO filed a successful petition to cancel PLM’s mark No. 3,210,304 for LA INDITA MICHOACANA and design, shown above, for use on ice cream and fruit products.  PLM sought reversal of the TTAB decision; declaratory judgment of no likelihood of confusion between its mark and PROLACTO’s one registered mark; a finding of infringement against PROLACTO for its use of the Indian Girl design with LA INDITA MICHOACANA and separate use of the Indian Girl mark standing alone; and cancellation of PROLACTO’s registered mark No. 3,249,113.  PROLACTO understandably counterclaimed for violations of the Lanham Act (and DC common law) and further cancellations.
On summary judgment, the court resolved a number of issues in PLM’s favor, a few in PROLACTO’s, and found numerous other issues reamining for trial.
TTAB cancellation: A district court reviews the TTAB’s findings of fact deferentially under the substantial evidence standard, and also can consider new evidence.  To win, PLM had to raise a new issue or show that the TTAB’s findings were unsupported by substantial evidence or contrary to new evidence carrying “thorough conviction.” The TTAB found that PROLACTO had priority based on a number of marks.  PLM filed its registration application on June 28, 2005, claiming first use anywhere and in commerce as of February 21, 2005.  The TTAB determined that PROLACTO, through its licensees, began using the Indian Girl design in April 2001.  Then it determined that confusion between the parties’ marks was likely given the similarity of goods, marks, and channels of trade plus the low care exercised by consumers.
However, PLM presented new evidence that it used a version of the Indian Girl design since at least the mid-1990s, and argued that it should be allowed to tack those earlier uses to gain priority. Tacking requires that the earlier mark is “the legal equivalent of the mark in question or indistinguishable therefrom” such that consumers “consider both as the same mark.” Confusing similarity isn’t enough; the marks sought to be tacked must create the same continuing “commercial impression.” (1) Whether this is a question of law or of fact for a jury is the subject of a split (one that the Supreme Court is set to resolve).  Consumer opinion of the similarity of the prior and subsequent marks is the critical issue, and a court’s speculation about what consumers would think is both inappropriate and inconsistent with the likely confusion standard (a question of fact for the jury).  The evidence here created a genuine dispute of material fact over tacking; a jury could find prior use and a continued commercial impression, or it could go the other way.  Summary judgment denied.
Next issue: The TTAB ruled that PROLACTO’s mark No. 3,249,113 for the LA FLOR DE MICHOACAN and design wasn’t sufficiently similar to PLM’s registered mark No. 3,210,304 to cause consumer confusion and require cancellation. (2) PROLACTO wanted reversal on the likely confusion determination, thus triggering the second issue the Supreme Court is going to decide this term: the court would review the TTAB’s findings of fact under the substantial evidence standard, but the legal conclusions de novo.  The TTAB found that the parties’ marks were used on the same products in the normal channels of trade; that the products are impulse purchases and consumers don’t use much care before buying; that LA FLOR DE MICHOACAN translates to “the blossom of Michoacán,” while LA INDITA MICHOACANA translates to “the Indian girl or woman from Michoacán.” The TTAB concluded that PROLACTO’s mark created a different “commercial impression” than PLM’s mark which “outweigh[ed] any similarities caused by the inclusion of the word ‘Michoacán.’”  The district court agreed.

The TTAB didn’t use the same multifactor test as the district court, which would use the judicial standard (viewing the marks in the marketplace, not side by side in a vacuum).  Here, no reasonable jury could find likely confusion between the marks at issue.  Some of the factors weighed in favor of PROLACTO or were neutral (there’s some direct competition; these are impulse purchases, though PROLACTO offered expert testimony that quality differences existed, which would decrease the likelihood of confusion). But PROLACTO didn’t provide a survey or other evidence of actual confusion between the two specific marks at issue.
The court was most persuaded by the lack of visual resemblance between the marks.  The shared use of “Michoacán” wasn’t enough; other factors in the mark could distinguish the two. Here, the design elements were quite different: PROLACTO’s mark featured a swirl surrounding an orange popsicle, while PLM’s mark featured pink and black coloring with a drawing of a little girl holding an ice cream cone with words above and below her image. The different meanings of the phrases and the commercial impressions outweighed similarities in the word “Michoacán” and in the products.  No cancellation and no infringement.
Next counterclaim: PROLACTO alleged that PLM infringed on PROLACTO’s rights in its LA MICHOACANA and the Indian Girl design through its use of registered marks Nos. 3,210,304; 2,905,172; and 2,968,652.  PROLACTO sought to use the famous mark doctrine to establish nationwide priority. 
In the US, rights are established by use, and foreign use creates no rights within the US.  (3) “There is, however, a narrow yet divisive disturbance to the force of the territoriality principle,” aka the well-known marks/famous marks doctrine, where even in the absence of use “the territoriality principle is disregarded and priority is established through reputation rather than actual use in the United States.”  But this is only law in the Ninth Circuit, which based its ruling on fraud-prevention grounds.  The Second Circuit has rejected the doctrine as a matter of federal law.  The court here recognized powerful arguments on both sides, but didn’t have to resolve the issue because PROLACTO didn’t show the necessary fame in the US.  Fame in Mexico is irrelevent “except insofar as that familiarity actually permeates into the United States at such a critical level that it qualifies for legal protection.”  The Ninth Circuit’s Grupo Gigante decision says that such fame will exist when a “substantial percentage” of consumers recognize the foreign mark, but provides little guidance about what that is. The concurrence said it was 50% consumer awareness, but the majority didn’t use an explicit “majority” standard.  Nonetheless, to prevent the exception from swallowing the rule, the threshold should be “somewhere below, but still very close to, 50% of consumers in the relevant market.”  PROLACTO didn’t show that in any relevant US market, much less the entire country.  No reasonable jury could find nationwide fame, and there also wasn’t enough evidence for individual markets within the US.  Scattered media references to individual licensees’ stores weren’t enough.
As a result, PROLACTO’s rights were dependent on use, and without a registration, the rights were limited to the geographic areas where there was use (and a zone of “natural expansion”).  Here, only Sonoma, California; Houston, Texas; and Florida were potentially at issue, given PROLACTO’s limited commercial use of its marks.  There was also a genuine issue of whether PROLACTO abandoned its rights through naked licensing, particularly given that PROLACTO apparently relied only on oral licenses for many years.
There couldn’t be a fight in Florida, because PLM never sold or distributed its products there. PLM’s hosting of a booth at a trade convention in Florida was insufficient, because PLM didn’t sell its wares there; the convention was closed to the public; and most participants were not based in Florida.  As for northern California, PROLACTO licensed a store in Sonoma in July 2009, while PLM started a business in Turlock in 1991, and registered two Indian Girl marks in 2004-2005, with more thereafter.  Since federal registration provides nationwide priority except for §33(b) remote users, “the undisputed facts show that PLM has priority in the market.”  There was a genuine dispute of material fact about who got to Houston first.
PROLACTO argued that the court should deny PLM any rights because of its allegedly deliberate copying.  But awareness of foreign marks does not constitute bad faith in the US as a matter of law.  However, to the extent that PLM’s adoption of the marks in a given market was based on PROLACTO’s prior use elsewhere in the US, that might not be “good faith,” as the court interpreted the Theodore Rectanusline of cases to require for remote users.  In addition, there was a factual dispute over whether PLM intended to copy PROLACTO’s marks, or whether “PLM merely sought to associate its products with marks that it believed – rightly or wrongly –were used indiscriminately by a variety of companies without any one, recognized source.”  PLM argued that the marks in question were used by “countless companies” in Mexico and the US for paletas.  (In which case how are its “marks” valid?  Sufficient to the day …)  If that was true, PROLACTO might not have protectable rights in many of the marks at issue, which would be fatal to most if not all of its claims.  And finally, the exact contours of the Houston market had to be determined at trial.
Priority isn’t enough; distinctiveness is also required.  The parties apparently agreed that the marks were geographically descriptive.  There was also a factual question over PROLACTO had achieved secondary meaning.  The scale of ads in the US by its licensees wasn’t clear, but appeared to be “limited and sporadic at best.”  PROLACTO had some evidence, including consumer declarations, of consumer perception, as well as an expert report from Jacob Jacoby, but the court found this not probative of whether consumers thought there was a single source for the goods. The court declined to exclude Dr. Jacoby’s report about his confusion survey at this time, but commented that many of the questions were leading “and others demonstrated little more than respondents’ ability to read and comprehend the stimuli.”  A jury would have to rule on secondary meaning.
All this meant that there couldn’t be summary judgment on the related unfair competition etc. claims, with the only truly distinct one remaining being false advertising.  PROLACTO alleged that PLM made numerous false claims on its packaging and website, including using the name “LA INDITA MICHOACANA” and the Indian Girl design; using indicia of Mexico, including pictures of places in Mexico, a PROLACTO-affiliated store in Mexico, a statute in the town of Tocumbo, Mexico, and maps of Mexico in its websites and catalogs; claiming to share its name with, and otherwise implying that it is affiliated with, 15,000–20,000 stores in Mexico; and including on packaging pictures that don’t accurately represent the products inside.
PLM discontinued use of the claim: “La Indita Michoacana is a family company founded in Tocumbo Michoacán in the 1940’s. Since then we’ve continued to make premium ice cream, fruit bars and drinks that give the flavor and tradition of Mexico. Distinguish us by our logo.” Because PROLACTO didn’t submit evidence that would justify a damages award, the only possible relief would be moot as to that claim.
PLM argued that the false advertising claim was barred by laches. The court first found that DC’s three-year fraud statute applied to Lanham Act false advertising claims.  PLM didn’t indicate which ads appeared when, or when PROLACTO knew or should have known of them; thus the court couldn’t evaluate whether laches had been triggered, or whether there’d been prejudice to PLM because of the delay.
PLM also argued that PROLACTO lacked standing.  Under Lexmark, PROLACTO provided sufficient evidence of commercial injury.  Here, that was evidence that it “possesses a business reputation and goodwill within the United States that PLM allegedly attempts to usurp for its own benefit, as well as the possibility of lost sales and customers.” A reasonable jury could conclude that those injuries, if proven, were proximately caused by PLM’s ads.
In addition, PROLACTO won summary judgment on literal falsity and misleadingness of the statements, since PLM didn’t dispute that.  As for materiality, PLM argued that the statements on the packaging were on the back and consumers therefore didn’t read them before purchase.  Even if they did, PLM argued that there was insufficient evidence of an effect on decisions, given that these are inexpensive impulse buys.  But PROLACTO wasn’t required to prove actual influence, only likely effects.  ((4) The court declined to follow the courts that presume materiality from literal falsity.)  There was a genuine dispute of material fact, as materiality often is a question for the jury.  Even the statements on PLM’s website, though less likely to be material “given their attenuated position compared to being placed directly on the product itself,” might be.
The court also accepted PROLACTO’s theory of likely injury to its reputation or goodwill stemming from confusion due to PLM’s advertising.  The products are of different quality.  PROLACTO sells “a more traditional, handmade form of paletas” and PLM sells “a water-based product more similar to a Popsicle.” Given these difference, there was some reason to think that PROLACTO’s goodwill and potential sales could be harmed if consumers were misled by PLM into believing that they were buying PROLACTO’s fruit-based, handmade product.  However, PROLACTO largely relied on affidavits “describing” customers who were confused by and disappointed with PLM’s products.  The court found these to be mainly hearsay.  (To the extent that they report a consumer’s state of mind, they’re not really being submitted for their truth.)  The nonhearsay portions were at least probative of injury, though, by suggesting that consumers were conflating the brands, which could hurt PROLACTO.
PROLACTO’s trademark infringement claim under DC common law was dismissed because it doesn’t operate in DC and showed no plans to do so in the near future.  PROLACTO’s counterclaim for federal dilution was dismissed because, of course, it isn’t famous. In a footnote, the court commented that “the level of fame required for a dilution claim appears to be greater than that required to establish that a mark is sufficiently well-known for the famous mark doctrine to apply.”  Dilution requires nationwide fame, while the famous marks doctrine only looks to the relevant consumer market. McCarthy recommends 75% recognition for federal fame, but survey evidence isn’t the only relevant evidence; the amount of money spent on ads and length of use count too.
PROLACTO’s counterclaims for cancellation of PLM’s registrations based on fraud failed because PROLACTO couldn’t meet the clear and convincing standard for proving that PLM knowingly made false, material misrepresentations with intent to deceive the PTO.  Because use in Mexico confers no rights, even if PLM knew PROLACTO was using the designs in Mexico, its knowledge of commercial use in a foreign country was insufficient to establish fraud on the trademark office as a matter of law.  “Because foreign use cannot create priority – perhaps with exception of the narrow and largely unfollowed famous mark doctrine, which itself still requires meaningful reputational impact in the United States – the fact that a similar mark was used in another country is immaterial to the decision about whether to grant an application.”

This entry was posted in dilution,, trademark. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s