Second Circuit Limits Famous Foreign Trademark Protection Without Domestic Use

The Second Circuit recently ruled that, in the absence of specific Congressional legislation, owners of famous foreign trademarks must show use within the United States to avail themselves of the protections offered by American federal law. The Court of Appeals also certified questions to the district court as to whether New York common law protects a famous foreign trademark that only has been used in a foreign country. The case is an instructive overview of the law of trademark abandonment and the famous marks doctrine.

On March 28, 2007, the Second Circuit ruled in favor of defendants Punchgini, Inc., Bukhara Grill, II, Inc., and several named individuals ('Defendants') who had contested plaintiffs ITC Limited's and ITC Hotels Limited's ('ITC') claims of trademark infringement, unfair competition, and false advertising. ITC sought protection of its 'famous mark' for restaurant services based on continuing international use. The Second Circuit upheld the district court's findings that ITC had stopped using the mark domestically for more than three years. ITC's domestic abandonment was the death knell of its claims.

Factual Record

The factual record demonstrated ITC's use and abandonment of its trademark. ITC had run a chain of Indian restaurants called 'Bukhara' in India and several other international locations. ITC operated restaurants in Manhattan and Chicago from 1986 through 1997. It registered the mark with the USPTO in 1986 in connection with restaurant services. More than three years passed during which ITC did not demonstrate any usage of the trademark. In 2001, ITC tried to revive the mark by commissioning a study on the viability of a frozen food business under the 'Bukhara' trademark and filing an application with the USPTO to register 'Dal Bukhara' in connection with packaged, ready-to-serve foods. In 2003, ITC sold packaged food products to two distributors and exhibited at a food show in New York City. No other facts existed in the record to support ITC's continued usage of the trademark.

Two years after ITC ceased its restaurant operations, in 1999, the Defendants, who included former employees of ITC's New York restaurant, opened Indian restaurants in New York City under the name 'Bukhara Grill.' They used ITC's name and incorporated logos and d'cor that were remarkably similar to ITC's original restaurant. ITC filed its lawsuit in February 2003, after Defendants' attorneys rejected ITC's cease and desist letters, asserting abandonment.

Second Circuit Decision

The Second Circuit upheld the district court's findings of abandonment, thus defeating ITC's claims of trademark infringement under both federal and state law and allowing the Court of Appeals to uphold the lower court's finding of summary judgment and cancellation of ITC's trademark registration. The prima facie evidence of abandonment, according to the Second Circuit, was ITC's nonuse of the mark for at least three consecutive years.

The Second Circuit also found that ITC could not defeat the presumption of abandonment by showing an intention to resume use of its registered mark within the reasonably foreseeable future. There simply were not enough facts 'to permit a reasonable jury to infer that it had not abandoned the mark.' The court was unpersuaded by ITC's continued use of the Bukhara mark for restaurants internationally or its post-abandonment efforts to develop and market a line of packaged food or identify potential restaurant franchisees. The court similarly did not agree that external factors such as Indian regulations or a hospitality market decline forced ITC to suspend its use of the Bukhara mark in the United States from 1997 to 2000.

ITC also sought to invoke a famous marks doctrine to bolster its unfair competition claim under '43(a)(1)(A) of the Lanham Act. The Second Circuit soundly rejected this argument as well. The court explained: 'absent some use of its mark in the United States, a foreign mark holder generally may not assert priority rights under federal law, even if a United States competitor has knowingly appropriated that mark for his own use ' ITC urges us to recognize an exception to the territoriality principle for those foreign marks that, even if not used in the United States by their owners, have achieved a certain measure of fame within this country.'

The Second Circuit gave an historical overview of the famous marks doctrine. It noted its origins in the 1925 addition of Article 6bis to the Paris Convention for the Protection of Industrial Property. In addition, the doctrine was first recognized at common law in New York. In Maison Prunier v. Prunier's Rest. & Caf', 159 Misc. 551, 557-58, 288 N.Y.S. 529, 535-36 (N.Y. Sup. Ct. 1936), a French corporation sought relief for the unauthorized use of its name and mark as unfair competition under New York common law. The court upheld the foreign corporation's claim, first citing the right to sue under the Paris Convention and then noting that the French plaintiff's mark was famous and the defendants' actions demonstrated bad faith. See also Vaudable v. Montmartre, Inc., 20 Misc. 2d 757, 193 N.Y.S.2d 332 (N.Y. Sup. Ct. 1959) (trial court granted injunctive relief to French restaurant 'Maxim's' against a New York City restaurant, noting the French restaurant's priority based on uninterrupted use of the mark abroad and the fame of the mark in New York City).

Turning to the federal law's view of the famous marks doctrine, the Second Circuit was not persuaded by numerous U.S. Trademark Trial and Appeal Board cases, because such cases relied on state law's recognition of the famous marks doctrine. In addition, while the Ninth Circuit Court of Appeals recognized the famous marks doctrine as a matter of federal law in Grupo Gigante S.A. de C.V. v. Dallo & Co., 391 F.3d 1088 (9th Cir. 2004), it did so based on policy rather than statute. The Second Circuit Court of Appeals, itself, had not ruled on whether the famous rights doctrine was recognized under federal law. The district courts in the circuit had not made any conclusive statements either, but the Second Circuit was particularly influenced by Almacenes Exito S.A. v. El Gallo Meat Market, Inc., 381 F. Supp. 2d 324, 328 (S.D.N.Y. 2005). In that decision, the court refused to recognize a famous marks exception to the Lanham Act, saying 'such a radical change in basic federal trademark law [could] only be made by Congress, not by the courts.'

Indeed, the Court of Appeals examined the treaties protecting famous marks (6bis of the Paris Convention and Article 16(s) of the Agreement on Trade-Related Aspects of Intellectual Property Rights ('TRIPS') and noted first that they are not self-executing and second, that Congress has no implemented legislation to enact them. While Congress did enact the Federal Trademark Dilution Act of 1995 to conform U.S. law with Article 16(3) of TRIPS and extend anti-dilution protection to famous marks, no such legislation exists for Article 16(2).

The Second Circuit noted that while McCarthy argues in his trademark law treatise for protection of famous foreign marks from unfair competition under the Lanham Act Section 44b and h, the court firmly disagreed and found that 'no famous marks rights are independently afforded by the Lanham Act.' The court concluded by openly asking Congress to 'express its intent more clearly' rather than interpreting the Lanham Act to include 'such a significant departure from the principle of territoriality.' The opinion hinted that there might be persuasive policy reasons to protect famous foreign marks under federal law, but the court refused to rule, deferring to Congress to create new legislation.

Finally, the court examined ITC's claims for unfair competition under New York state common law. It certified two questions back to the New York Court of Appeals to clarify New York common law: Does New York common law protect a famous foreign trademark if the only use has been in a foreign country? If so, how famous must the foreign mark be to sustain a claim for unfair competition under New York common law?

Conclusion

This case is important because it challenges Congress to expand formally the famous marks doctrine so American law can keep pace with the global marketplace. The Second Circuit implied that borders should not prevent a famous trademark
from being protected in the United States. Should Congress accept the challenge, it could fundamentally alter American trademark law, whose cornerstone is use in the domestic marketplace.

The Second Circuit recently ruled that, in the absence of specific Congressional legislation, owners of famous foreign trademarks must show use within the United States to avail themselves of the protections offered by American federal law. The Court of Appeals also certified questions to the district court as to whether New York common law protects a famous foreign trademark that only has been used in a foreign country. The case is an instructive overview of the law of trademark abandonment and the famous marks doctrine.

On March 28, 2007, the Second Circuit ruled in favor of defendants Punchgini, Inc., Bukhara Grill, II, Inc., and several named individuals ('Defendants') who had contested plaintiffs ITC Limited's and ITC Hotels Limited's ('ITC') claims of trademark infringement, unfair competition, and false advertising. ITC sought protection of its 'famous mark' for restaurant services based on continuing international use. The Second Circuit upheld the district court's findings that ITC had stopped using the mark domestically for more than three years. ITC's domestic abandonment was the death knell of its claims.

Factual Record

The factual record demonstrated ITC's use and abandonment of its trademark. ITC had run a chain of Indian restaurants called 'Bukhara' in India and several other international locations. ITC operated restaurants in Manhattan and Chicago from 1986 through 1997. It registered the mark with the USPTO in 1986 in connection with restaurant services. More than three years passed during which ITC did not demonstrate any usage of the trademark. In 2001, ITC tried to revive the mark by commissioning a study on the viability of a frozen food business under the 'Bukhara' trademark and filing an application with the USPTO to register 'Dal Bukhara' in connection with packaged, ready-to-serve foods. In 2003, ITC sold packaged food products to two distributors and exhibited at a food show in New York City. No other facts existed in the record to support ITC's continued usage of the trademark.

Two years after ITC ceased its restaurant operations, in 1999, the Defendants, who included former employees of ITC's New York restaurant, opened Indian restaurants in New York City under the name 'Bukhara Grill.' They used ITC's name and incorporated logos and d'cor that were remarkably similar to ITC's original restaurant. ITC filed its lawsuit in February 2003, after Defendants' attorneys rejected ITC's cease and desist letters, asserting abandonment.

Second Circuit Decision

The Second Circuit upheld the district court's findings of abandonment, thus defeating ITC's claims of trademark infringement under both federal and state law and allowing the Court of Appeals to uphold the lower court's finding of summary judgment and cancellation of ITC's trademark registration. The prima facie evidence of abandonment, according to the Second Circuit, was ITC's nonuse of the mark for at least three consecutive years.

The Second Circuit also found that ITC could not defeat the presumption of abandonment by showing an intention to resume use of its registered mark within the reasonably foreseeable future. There simply were not enough facts 'to permit a reasonable jury to infer that it had not abandoned the mark.' The court was unpersuaded by ITC's continued use of the Bukhara mark for restaurants internationally or its post-abandonment efforts to develop and market a line of packaged food or identify potential restaurant franchisees. The court similarly did not agree that external factors such as Indian regulations or a hospitality market decline forced ITC to suspend its use of the Bukhara mark in the United States from 1997 to 2000.

ITC also sought to invoke a famous marks doctrine to bolster its unfair competition claim under '43(a)(1)(A) of the Lanham Act. The Second Circuit soundly rejected this argument as well. The court explained: 'absent some use of its mark in the United States, a foreign mark holder generally may not assert priority rights under federal law, even if a United States competitor has knowingly appropriated that mark for his own use ' ITC urges us to recognize an exception to the territoriality principle for those foreign marks that, even if not used in the United States by their owners, have achieved a certain measure of fame within this country.'

The Second Circuit gave an historical overview of the famous marks doctrine. It noted its origins in the 1925 addition of Article 6bis to the Paris Convention for the Protection of Industrial Property. In addition, the doctrine was first recognized at common law in New York. In Maison Prunier v. Prunier's Rest. & Caf' , 159 Misc. 551, 557-58, 288 N.Y.S. 529, 535-36 (N.Y. Sup. Ct. 1936), a French corporation sought relief for the unauthorized use of its name and mark as unfair competition under New York common law. The court upheld the foreign corporation's claim, first citing the right to sue under the Paris Convention and then noting that the French plaintiff's mark was famous and the defendants' actions demonstrated bad faith. See also Vaudable v. Montmartre, Inc. , 20 Misc. 2d 757, 193 N.Y.S.2d 332 (N.Y. Sup. Ct. 1959) (trial court granted injunctive relief to French restaurant 'Maxim's' against a New York City restaurant, noting the French restaurant's priority based on uninterrupted use of the mark abroad and the fame of the mark in New York City).

Turning to the federal law's view of the famous marks doctrine, the Second Circuit was not persuaded by numerous U.S. Trademark Trial and Appeal Board cases, because such cases relied on state law's recognition of the famous marks doctrine. In addition, while the Ninth Circuit Court of Appeals recognized the famous marks doctrine as a matter of federal law in Grupo Gigante S.A. de C.V. v. Dallo & Co. , 391 F.3d 1088 (9th Cir. 2004), it did so based on policy rather than statute. The Second Circuit Court of Appeals, itself, had not ruled on whether the famous rights doctrine was recognized under federal law. The district courts in the circuit had not made any conclusive statements either, but the Second Circuit was particularly influenced by Almacenes Exito S.A. v. El Gallo Meat Market, Inc. , 381 F. Supp. 2d 324, 328 (S.D.N.Y. 2005). In that decision, the court refused to recognize a famous marks exception to the Lanham Act, saying 'such a radical change in basic federal trademark law [could] only be made by Congress, not by the courts.'

Indeed, the Court of Appeals examined the treaties protecting famous marks (6bis of the Paris Convention and Article 16(s) of the Agreement on Trade-Related Aspects of Intellectual Property Rights ('TRIPS') and noted first that they are not self-executing and second, that Congress has no implemented legislation to enact them. While Congress did enact the Federal Trademark Dilution Act of 1995 to conform U.S. law with Article 16(3) of TRIPS and extend anti-dilution protection to famous marks, no such legislation exists for Article 16(2).

The Second Circuit noted that while McCarthy argues in his trademark law treatise for protection of famous foreign marks from unfair competition under the Lanham Act Section 44b and h, the court firmly disagreed and found that 'no famous marks rights are independently afforded by the Lanham Act.' The court concluded by openly asking Congress to 'express its intent more clearly' rather than interpreting the Lanham Act to include 'such a significant departure from the principle of territoriality.' The opinion hinted that there might be persuasive policy reasons to protect famous foreign marks under federal law, but the court refused to rule, deferring to Congress to create new legislation.

Finally, the court examined ITC's claims for unfair competition under New York state common law. It certified two questions back to the New York Court of Appeals to clarify New York common law: Does New York common law protect a famous foreign trademark if the only use has been in a foreign country? If so, how famous must the foreign mark be to sustain a claim for unfair competition under New York common law?

Conclusion

This case is important because it challenges Congress to expand formally the famous marks doctrine so American law can keep pace with the global marketplace. The Second Circuit implied that borders should not prevent a famous trademark
from being protected in the United States. Should Congress accept the challenge, it could fundamentally alter American trademark law, whose cornerstone is use in the domestic marketplace.