U.S. Federal Circuit Court Provides Valuable Guidance on What Constitutes Use of a Trademark in Interstate Commerce

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U.S. Federal Circuit Court Provides Valuable Guidance on What Constitutes Use of a Trademark in Interstate Commerce

On November 14, 2016, the Federal Circuit handed a small but important victory to a small Illinois church in its trademark saga dispute with adidas AG, a sport apparel giant, reversing the Trademark Trial and Appeal Board’s (TTAB) decision in adidas AG v. Christian Faith Fellowship Church, Cancellation No. 92053314 (September 14, 2015) [not precedential].

In the underlying TTAB proceeding, adidas sought to cancel the Church’s ADD A ZERO trademark registrations on three grounds and prevailed on one of them. The Church was selling hats and t-shirts out of its bookstore located in the basement. The Board held that the Church’s documented sale of two marked hats to an out-of-state resident were de minimis and therefore did not constitute use of the marks in commerce under the Lanham Act. “Use in commerce” is a prerequisite for U.S. federal registration of a trademark for a domestic applicant. The Church is located only several miles from the Illinois-Wisconsin border, the Church’s parishioners include both Illinois and Wisconsin residents. The Board cancelled the Church’s registrations. The Church appealed.
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The Court of Appeals of the Federal Circuit (CAFC or Court) reversed that decision, because “the Lanham Act defines ‘commerce’ as all activity regulable by Congress, and because the Church’s sale to an out-of-state resident fell within Congress’s power to regulate under the Commerce Clause.” “The de minimis character of individual instances arising under that statute is of no consequence," the Court noted and remand the cases to the Board for further proceedings.Christian Faith Fellowship Church v. adidas AG, Appeal No. 2016-1296 (Fed. Cir. November 14, 2016) [precedential].

It’s interesting what triggered this case. Adidas was seeking to register its trademark ADIZERO (Serial Number 77822018) for footwear, shirts, singlets, jackets, shorts, tights, bottoms. But the US Patent and Trademark Office (USPTO) refused adidas’s application claiming that it conflicted with the Church’s ADD A ZERO registrations. Indeed, the parties’ marks sound similar, if not the same, when pronounced. Similarity in one element—here, a phonetic similarity—sometimes is sufficient, even though the marks might look different and mean different things, as they obviously do in this case.

The USPTO examining attorney also apparently did not give much weight to differences in the parties’ respective targeted customer bases. The Church used the slogan for its fund-raising efforts by selling hats and t-shirts. Adidas uses its ADIZERO brand for a super lightweight line of performance sneakers.

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The USPTO examiner only looked at the descriptions of the parties’ respective products on paper and found them related, if not overlapping. Adidas tried hard to convince the Examiner but to no avail. So, adidas decided to remove the obstacle in its way, that it to cancel the cited registrations in a formal proceeding before the TTAB. It is unclear from the CAFC’s decision whether or not adidas reached out to the Church to obtain its written consent to its registration. This is normally what you do. If it did, the Church probably asked for too many zeros to get compensated for a hassle. The TTAB Cancellation proceedings ensued.

At the TTAB’s level, while there were some evidentiary issues whether the Church could prove that the sale of two hats was made to an out-of-state purchaser, the issue was whether such sporadic sale in fact is sufficient to constitute sale in the “ordinary course of business” as the Law defines “use in commerce.” Adidas argued that the sale was de minimis and thus was not sufficient to trigger the Commerce Clause of the U.S. Constitution. Going down the constitutional path turned out to be unfortunate for adidas. The CAFC ruled that the Church’s sale of two hats was sufficient to satisfy the U.S. Constitution requirement for interstate commerce.

This whole dispute raises several questions. First, why would adidas go to the Board to resolve this dispute? There were surely ways to get this resolved outside formal proceedings. Adidas’s decision to litigate this case certainly added many zeros to its legal budget. Of course, the question also remains how the Church found resources to fight this assault by a sports apparel giant, not just at the USPTO’s TTAB level, but also at the appeals level. It is possible the attorneys representing the Church could have taken on this case on a pro bono basis.

Second, the Federal Circuit’s decision has many consequences for registration practice in general for all us, trademark practitioners and brand owners. The TTABLOG’s author John L. Welch has noted:

After this decision, is there any "use" of a trademark or services mark that does not satisfy the "use in commerce" requirement? Is the old "interstate/intrastate" dichotomy dead, as far as "use" goes?

This Blog tends to agree with this comment. The Court’s decision certainly lowered the threshold for the amount of use necessary to satisfy the “use in commerce” condition for registration of the mark. Also, doesn’t it look like the Court is all but potentially did away with the rule against token use of the mark? The Law generally prohibits the practice of “token use,” or use made solely to reserve rights in a mark.

Notably, the Court has not addressed other issues raised in adidas’s petition cancellation, namely two other grounds for cancellation (abandonment and failure-to-function), because the Board itself has not addressed them. It is possible adidas could prevail on at least one of these grounds unless, of course, the parties settle. We will continue to monitor this very curious case.

Text © Maxim A. Voltchenko 2016
* This piece is not intended to be a review of U.S. law. This posting may not necessarily represent the views of the author’s employing law firm. Although every effort has been made to verify the accuracy of items in the Sputnik Blog®, readers are urged to check independently on matters of specific concern or interest.