First Circuit Rules in Battle Between Owner of Incontestable Trademark Registration and Senior Common Law User | Practical Law

First Circuit Rules in Battle Between Owner of Incontestable Trademark Registration and Senior Common Law User | Practical Law

In Dorpan, S.L. v. Hotel Melia, Inc., the US Court of Appeals for the First Circuit vacated the district court's grant of summary judgment to the plaintiff on its action seeking a declaration of non-infringement.   The First Circuit found that under the facts of the case the defendant's senior common law use in Puerto Rico could limit the rights afforded to the plaintiff from its incontestable trademark registration, with the scope of the limitation dependent on the scope of the defendant's trade area.

First Circuit Rules in Battle Between Owner of Incontestable Trademark Registration and Senior Common Law User

by Practical Law Intellectual Property & Technology
Published on 03 Sep 2013 • USA (National/Federal)
In Dorpan, S.L. v. Hotel Melia, Inc., the US Court of Appeals for the First Circuit vacated the district court's grant of summary judgment to the plaintiff on its action seeking a declaration of non-infringement. The First Circuit found that under the facts of the case the defendant's senior common law use in Puerto Rico could limit the rights afforded to the plaintiff from its incontestable trademark registration, with the scope of the limitation dependent on the scope of the defendant's trade area.

Key Litigated Issue

The key litigated issue in Dorpan, S.L. v. Hotel Meliá, Inc. was whether the district court erred in granting summary judgment to plaintiff Dorpan on its action for a declaration that it was entitled to exclusive use of the Meliá mark throughout Puerto Rico, with the possible exception of Ponce, based on the district court's findings that:
  • Defendant HMI was entitled to use the Meliá mark only in Ponce, while Dorpan was entitled to use the mark throughout the rest of Puerto Rico and the United States.
  • The parties' marks could coexist in their respective territories without causing substantial confusion to the reasonable consumer.

Background

Since the late 1990s, plaintiff Dorpan had used several trademarks using the mark "Meliá" in the hotel industry. These marks were federally registered and the registrations were incontestable. Dorpan held these marks on behalf of Sol Meliá, a public Spanish company that operates the largest hotel chain in Spain and the third largest in Europe. In 2007, Dorpan started using the Meliá mark in connection with the Gran Meliá hotel in Coco Beach, Puerto Rico.
Defendant HMI had operated one hotel, Hotel Meliá, in Ponce, Puerto Rico since the 1890s. HMI had never expanded beyond that single location and did not have any plans to do so. HMI never registered the Meliá mark with either the Puerto Rico Department of State or the USPTO. HMI's Hotel Meliá in Ponce is located about 80 miles from Dorpan's Gran Meliá hotel in Coco Beach.
In early 2007, Dorpan filed a petition to register the mark "Gran Meliá" with the Puerto Rico Department of State. HMI filed a letter opposing the registration. Dorpan withdrew its request to register but still continued to use the mark.
In late 2008, HMI filed a complaint in the Superior Court of Puerto Rico asserting it was the senior user of the Meliá mark and had the exclusive right to use the mark in connection with hotel and restaurant services in Puerto Rico. Dorpan filed a complaint against HMI in the US District Court for the District of Puerto Rico seeking a declaration that:
  • It had the exclusive right to use the mark in Puerto Rico.
  • To the extent that HMI had the right to use the mark, the right was limited to Ponce.
Dorpan removed HMI's complaint to federal district court and the district court consolidated the two cases. The district court granted Dorpan's motion for summary judgment, concluding initially that no reasonable jury could find a likelihood of confusion between the marks Hotel Meliá and Gran Meliá because:
  • Although several facts supported an inference of a likelihood of confusion, neither party accused the other of subjectively attempting to profit from the other's goodwill.
  • The marks were both strong in different geographic areas. HMI's was strong in Ponce and Dorpan's was strong internationally.
The district court then assessed the territorial limits on each party's use of its mark, concluding that:
  • When Dorpan registered its mark, it "froze" HMI, limiting HMI's rights to Ponce.
  • Dorpan could use the mark through the rest of Puerto Rico (with the exception of Ponce) and the United States.
HMI appealed the district court's decision to the First Circuit.

Outcome

In its August 28, 2013 opinion, the First Circuit vacated and remanded the district court's grant of Dorpan's summary judgment motion.

Territorial Limits of the Parties' Trademark Rights

On appeal Dorpan argued that HMI had no claim to exclusive use within Puerto Rico since Dorpan's federal registration for the Gran Meliá mark had achieved incontestable status under Section 15 of the Lanham Act. The court noted that while incontestability creates a presumption that the registrant has the exclusive use of the mark throughout the United States, under Section 15 of the Lanham Act, that right can be limited by superior common law trademark rights acquired by another party through use of the mark before the regsistrant's constructive use date afforded by the registration. The court found that state law (in this case Puerto Rico) governs the assessment of the extent to which a pre-existing unregistered state law trademark limits Lanham Act rights. The court noted that some courts apply federal common law to make this assessment but that since the common law of most states is essentially identical to federal common law, the choice of law is "a distinction without a difference."
The parties agreed that HMI was the senior user of the mark in Puerto Rico. Therefore, the court found that Dorpan's rights conveyed under the Lanham Act were limited by the extent of any rights HMI acquired under Puerto Rico law before Dorpan's federal registration. The court then determined that, under Puerto Rico law, HMI was entitled to exclusive use of the mark in the area where it currently conducted business. The court noted that this area would coincide with the area where the use of the similar mark would create a likelihood of confusion. The court therefore combined the analysis of the geographic scope of HMI's rights with the likelihood of confusion assessment. The court stated that if Dorpan's use of a similar mark in Coco Beach created a likelihood of confusion then HMI's trade area extended at least that far and Dorpan's use would infringe HMI's rights.

Likelihood of Confusion

The court assessed whether there was a genuine issue of material fact regarding likelihood of confusion under its multi-factor test set out in Pignons S.A. de Mecanique de Precision v. Polaroid Corp. (657 F.2d 482 (1st Cir. 1981)). The court examined:
The similarity of the marks
The court found that the marks "Hotel Meliá" and "Gran Meliá" are essentially identical because both have "Meliá" as their dominant word, supporting confusion.
The similarity of the services and customers
The court found that this factor also supported a likelihood of confusion finding since both parties were large, full-service hotels operating in Puerto Rico.
The similarity of advertising and channels of trade
The court noted that both hotels advertised and solicited customers in substantially similar manners, including through trade shows, relationships with travel agents, direct advertising to consumers and accepting reservations though Internet booking sites, weighing in favor of confusion.
Actual confusion
HMI introduced a few incidents of alleged actual confusion including evidence that:
  • A wholesaler approached HMI's manager at a trade show to discuss Dorpan's hotel.
  • Guests occasionally thought the hotels were associated with each other.
  • Domino's Pizza mistakenly attempted delivering a pizza to HMI that was intended for Gran Meliá.
The court found that, while the evidence was not overwhelming, HMI demonstrated at least some level of actual confusion.
Dorpan's intent
The court noted that was no evidence that Dorpan intended to cause market confusion or exploit Hotel Meliá's reputation and goodwill, which weighed against a likelihood of confusion.
Strength of the marks
The court found that the parties had developed little evidence on this factor and that therefore genuine issues of material fact remained.
Balancing the factors
The First Circuit disagreed with the district court's likelihood of confusion analysis, finding it erred by:
  • Giving too little weight to evidence of actual confusion. The court noted that, even without evidence of actual confusion, the evidence of the substantial similarity between the marks, services, customers and advertising might be sufficient to create at least a reasonable inference of a substantial likelihood of confusion.
  • Giving too much weight to its conclusion that Dorpan had not acted in bad faith.
  • Emphasizing the physical locale of the parties because the relevant inquiry is the area where the mark is used in commerce, which for hotels, is a much larger area than the particular city in which the hotel operates.
  • Taking an impermissibly narrow view of confusion by focussing entirely on potential diversion of sales and not damage to the mark owner's goodwill and reputation.
Finding genuine issues of material fact and the district court's erroneous analysis regarding likelihood of confusion, the First Circuit vacated the district court's summary judgment ruling and remanded for further proceedings.

Practical Implications

This decision is noteworthy for trademark litigants as it shows how in certain circumstances senior common law use of a mark can limit the rights that flow from a registration, even where the registration is incontestable. Depending on the facts, the registrant may not only be precluded from entering into the other party's trade area but may also be subject to an infringement claim by the other party. Before initiating trademark litigation counsel should carefully assess whether there may be any territorial limitations on the plaintiff’s rights.

Court Document