I Know Nothing! In the Ninth Circuit, Only Good Faith Users of a Registered Trademark Who Have No Knowledge of the Senior User’s Prior Use May Hang Onto Their Brand

In August 2017, the Ninth Circuit weighed in on an active circuit split in trademark law when it held that the junior user of a mark may not raise the Tea Rose-Rectanus doctrine as an affirmative defense to infringement if the junior user had knowledge of the senior user’s prior use of that mark.  Stone Creek, Inc. v. Omnia Italian Design, Inc., 875 F.3d 426, 436-39 (9th Cir. 2017).  This article takes a another look at the availability of the Tea Rose-Rectanus defense in the Ninth Circuit now that the U.S. Supreme Court has denied certiorari on that issue.

The Stone Creek decision involves a timeless theme in trademark litigation: geographically separate use.  Senior user Stone Creek manufactured and sold furniture in Phoenix, Arizona under its registered “Stone Creek” brand.  Junior user Omnia was licensed by Stone Creek to manufacture furniture bearing the Stone Creek mark.  Omnia subsequently contracted with retailer Bon-Ton Stores, Inc. (“Bon-Ton”) to sell “Stone Creek”-branded furniture through Bon-Ton locations in the Midwest without Stone Creek’s permission.  Thereafter, Stone Creek obtained federal registration of its “Stone Creek” brand.  Litigation ensured after confused customers inquired about what they believed were Stone Creek locations in the Midwest when, in fact, there were none.

The Ninth Circuit began by reversing the district court’s finding of non-infringement through a fresh exposition of the Sleekcraft likelihood of confusion test.  And it concluded its opinion on the merits by confirming (on another issue that has split circuit courts) that a trademark plaintiff seeking disgorgement of profits must still show “willfulness” on the part of the infringer.

In between, the Ninth Circuit tackled the lower court’s refusal to excuse any infringement by Omnia under the Tea Rose-Rectanus doctrine.  That doctrine has its roots in two early-twentieth century Supreme Court cases holding “that common-law trademark rights extend only to the territory where a mark is known and recognized, so a later user may sometimes acquire rights in pockets geographically remote from the first user’s territory.”  875 F.3d at 436.  Thus, when a senior user obtains federal trademark protection, he does so subject to the common law rights of others obtained in good faith prior to registration.  Id.

As applied to the case at hand, “Omnia’s common-law rights [in the Stone Creek trademark], if they exist, are not wiped out merely because Stone Creek later filed a federal registration.”  Id.  However, because Omnia adopted the “Stone Creek” brand with knowledge of Stone Creek’s prior use of it, it could not be a good faith user of the mark and, thus, the district court correctly held that the Tea Rose-Rectanus defense was unavailable to Omnia.  Id. at 440.

That holding saw the Ninth Circuit side with the Seventh Circuit, Eighth Circuit, and the Trademark Trials and Appeals Board in ruling that mere knowledge of a senior user’s prior use destroys the junior user’s ability to claim “good faith” as part of a Tea Rose-Rectanus defense.  In so doing the Court rejected the narrower standard applied by the Fifth Circuit and Tenth Circuit that looks to whether the junior user had the intent to benefit from the reputation or goodwill of the senior user.

In November 2017, Omnia filed a writ of certiorari asking the Supreme Court to decide whether “mere knowledge by a junior user of a senior user’s common law trademark destroy[s] good faith under the Tea Rose-Rectanus doctrine, or can a lack of good faith be found only if the junior user acted with a ‘design inimical’ to the senior user’s interests?”  (Petition for Writ of Certiorari, __ U.S. __ (No. 17-731).)  The high court, however, declined to settle the circuit courts’ differing applications of the Tea Rose-Rectanus defense when it denied certiorari without opinion on May 14, 2018.  “Mere knowledge” thus remains the standard junior users must surpass when asserting good faith prior use as a defense to allegations of trademark infringement.

Justin Donner is an associate who practices in the areas of business litigation and intellectual property.  Shane Smith is a federal litigator who specializes in patent, trademark, trade secrets, and copyright law.

This Intellectual Property Client Update is a publication of McCormick Barstow LLP.  It is intended to notify our clients and friends of changes and updates to the law and provide general information about intellectual property law matters.  This Client Update is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship.

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