Incontestability challenge raised too late, court rules

Paleteria La Michoacana, Inc. v. Productos Lacteos Tocumbo
S.A., No. 11-1623 (D.D.C. Mar. 30, 2017)
Some mention of my previous blogging on the issue, but that
doesn’t matter to the ultimate result (though the court at least notices the
incontestability problem). PLM and Prolacto sell “paletas” and other frozen
treats under similar marks. “Paletas are a style of ice cream bars and popsicles originating in
Mexico that are traditionally made from fruit, spices, and nuts.” The parties
sharply disputed first use and good/bad faith. 
The Court found that PROLACTO had the better side of that argument,
finding that “PROLACTO has demonstrated that it used its Indian Girl mark
before PLM used its LA INDITA MICHOACANA mark.” PLM argued that, through
tacking, the priority date of PLM’s LA INDITA MICHOACANA mark should be
advanced to the date that PLM first used any Indian Girl mark. PROLACTO
prevailed after the Court found that, “particularly without any evidence of
consumers’ perceptions, the Court cannot find that PLM’s LA INDITA MICHOACANA
mark meets the ‘exceedingly strict’ standard for tacking.” PROLACTO’s
unregistered Indian Girl design was confusingly similar to, and thus infringed,
PLM’s earlier, registered Indian Girl marks, but PROLACTO’s mark had priority
over LA INDITA MICHOACANA and the registration of LA INDITA MICHOACANA had to
be cancelled.
In the motion to reconsider, PLM tried to provide a legal basis
to deny PROLACTO’s cancellation petition: an equitable defense known as the “Morehouse defense” or the “prior
registration” defense.” Under this defense, the party seeking cancellation of a
mark cannot be damaged if the registrant already “owns an existing registration
for the same or substantially identically mark for the same or substantially
identical goods.”  PLM argued that this
was a standing issue, and that because PROLACTO couldn’t be damaged by the
registration of the LA INDITA MICHOACANA mark, PROLACTO lacked standing, which
was an issue not subject to waiver. “The problem with PLM’s clever argument is
that it incorrectly conflates the constitutional ‘case or controversy’
requirement with the standing requirement found in the Lanham Act.” PROLACTO
had standing under the “generous standard” of the Lanham Act, anyway—a “real
interest” in the proceedings and a “reasonable basis” for a belief of damage
(ignoring Lexmark).  PLM hadn’t preserved an argument based on the Morehouse defense.
PROLACTO also moved to amend the Court’s findings and to amend
the judgment, specifically its finding that two of PLM’s Indian Girl marks were
incontestable.  The court again found
waiver of this argument; it’s been a while since I’ve had any occasion to
consider the waiver standard, but I do think what happened reflects (1)
unfamiliarity with incontestability by courts and defendants alike and (2) the
really unfortunate consequences of failure to have better procedures on
incontestability.  I can’t know the souls
of the PLM filers, but it’s possible that really clear requirements to attest
that they were unaware of any pending cases challenging the validity of the
mark might have prevented this plainly wrong Section 15 filing.  Query: should the PTO act on its own accord
to withdraw the Section 15 acknowledgements, if it now knows the truth?
Previously, the court found that the relevant PLM Indian
Girl registrations “became ‘incontestable’ pursuant to 15 U.S.C. § 1065 on
December 12, 2014 upon PLM’s filing of Section 15 affidavits with the USPTO.”
PROLACTO didn’t assert any of the enumerated defenses to incontestability [I
think that the court means that there was nothing incontestability-specific,
because PROLACTO did seek cancellation on grounds of fraud and
abandonment].  But, the very day that PLM
filed the affidavits (which state, among other things, that there is “no
proceeding involving said rights pending and not disposed of either in the
United States Patent and Trademark Office or in a court”), there was a status
conference on this case, in which there was a challenge to the registrability
of the marks.  PLM unpersuasively argued
that “at the time PLM filed the affidavits of incontestability, there was no
pending counterclaim challenging PLM’s Indian Girl With Paleta and Indian Girl
With Cone registrations because this Court had entered summary judgment on
those claims in PLM’s favor,” even though nothing about the “proceeding” was
final, but luckily for PLM the court didn’t reach the merits because of its
waiver finding.
The court acknowledged that there is no substantive
examination of Section 15 filings, and that the TMEP states that “[t]he
question of whether the registration is incontestable arises and is determined
by a court if there is a proceeding involving the mark.”  Still, PLM repeatedly raised the incontestability
of the marks, and nowhere in this “drawn-out litigation” did it challenge the
incontestability.  A Rule 52(b) motion is
not a second bite at the apple.
PROLACTO also moved for a new trial based on newly
discovered evidence of PLM’s registration and use of the domain name
“laflordemichoacan.com.”  But its core
argument was that this registration was evidence of bad faith, given that PLM
was well aware of PROLACTO’s two marks that included the words “La Flor De
Michoacan” because of the then-pending TTAB proceeding.  However, a court should not grant a new trial
because of new evidence that is “merely cumulative or impeaching,” and PROLACTO
was arguing that the domain name made PLM’s witnesses less credible in their
testimony of good faith.  Also, this
evidence wouldn’t change the outcome.  As
the court previously ruled, if it was “to hold that PLM was not entitled to any
rights in its marks on the basis of bad faith, despite the fact that it was
first to use its marks in the United States, it would appear that the Court
would be the first to do so in the history of American trademark law.”  [Query what result should occur under Belmora.]  Even assuming that this bad faith theory was
legally valid, it concluded that PROLACTO failed to show its application to the
present facts.
Here’s the court’s explanation of the theory, which sounds a
lot like the theory blessed by Belmora:
[I]f a party adopts a mark in the
United States that has been previously used in a foreign country and engages in
various forms of advertising with the intention of benefitting from the foreign
user’s goodwill and reputation by deceiving consumers as to the true origin of
its products—even if the foreign user has never used the mark in commerce in
the United States and even if the foreign mark does not meet the requisite
level of “fame” under the famous mark doctrine—then the party cannot obtain
rights to the mark.
However, the court found that here, PLM adopted the name “La
Michoacana” because they had seen the name in Mexico, but they did not believe
that the term denoted a single source of product in Mexico. PROLACTO’s legal
theory would still be inapplicable even with the newly discovered domain name
evidence.  “Crucially, PLM did not
register the domain name ‘laflordemichoacan.com’ until after the TTAB
proceeding that preceded this action.” The registration of the domain name
occurred long after PLM’s initial decisions.

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