Paleteria La Michoacana, Inc. v. Productos Lacteos Tocumbo S.A. De C.V., 2016 WL 3034150, No. 11–1623 (D.D.C. May 27, 2016)
Help me out here: it seems to me that the court here cancels a registration based on a claim of senior common-law rights in a mark that the court then finds to be infringing, and enjoins, based on an even earlier registration by the same registrant. Does that make any sense?
Previous summary judgment ruling discussed here, concerning the parties’ respective U.S. rights in various marks for ice cream and frozen treats—especially paletas, traditionally made from fruit, spices, and nuts. PLM sued Prolacto, challenging the TTAB’s cancellation of one of PLM’s registrations and seeking other relief on various infringement-related theories. Prolacto counterclaimed for trademark infringement and false advertising-related claims.
Prolacto is a Mexican company founded in 1992, which traces its origin to paleterias in a city in the Mexican state of Michoacán in the 1940s; Prolacto’s principals claim family ties with the alleged originator of the association between Michoacán and paletas. Prolacto primarily does business in the United States through licensing agreements with individual paleterias in Florida, Texas, Northern California, and North Carolina. Prolacto first used an “Indian Girl” logo in the US in 2000.
PLM traces to at least 1991 in Northern California, operating under the name “La Michoacana,” which literally means, in Spanish, “the woman from the state of Michoacán.” Its founders chose the name because they’d seen it used for paleterias in Mexico, but didn’t believe it indicated a single source (given the date of PLM’s founding, they couldn’t have been aware of Prolacto at that time, though they’d seen the Indian Girl design in Mexico when they adopted it in the US). PLM products are sold at large-scale retailers such as Costco, Wal-Mart, and Walgreens, as well as Hispanic grocery stores such as El Super and Vallarta and a variety of other retail outlets, in about 30 states.
The TTAB granted Prolacto’s petition for cancellation of PLM’s LA INDITA MICHOACANA mark based on Prolacto’s priority of use and likelihood of confusion with respect to several of its asserted, unregistered marks, including its own Indian Girl design, as well as its LA MICHOACANA (words only), LA MICHOACANA NATURAL (words only), and LA MICHOACANA NATURAL marks.
The court first held that its review of the TTAB’s factual findings was de novo under § 1071(b), following the logic of Kappos v. Hyatt, 132 S. Ct. 1690 (2012) (“the proper means for the district court to accord respect to decisions of the PTO is through the court’s broad discretion over the weight to be given to evidence newly adduced in the § 145 proceedings”), and B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015) (stating that Congress “authorized de novo challenges for those ‘dissatisfied’ with TTAB decisions” in § 1071(b)). Here, because the TTAB, “in many respects, considered a ‘different set of facts’ than has been presented here, the Court finds itself largely unable to ‘meaningfully defer’ to the TTAB’s factual findings, despite the TTAB’s expertise on trademark issues.”
PLM has also used various marks over time that incorporate the Indian Girl image along with the words “LA MICHOACANA ES NATURAL” in different variations:
The “es natural” slanted oval version was used on packages from summer 2001-late 2002 or early 2003, and on business cards as early as June 1999. Later versions were used on packages, cups, etc. PLM started using LA INDITA MICHOACANA on packaging in February 21, 2005. A third party in Arizona had threatened to challenge its use of “La Michoacana” on its products, so PLM agreed to use the LA INDITA MICHOACANA mark on all of the products that it distributed in Arizona and Nevada. Since 2007 or 2008, PLM also used a similar design, in which “La Indita” appears to the side and in small, upper and lowercase letters, “MICHOACANA” appears in large, all capital letters at the top, and an Indian Girl appears to the side.
And, since at least 2012, PLM used a hybrid mark with “La Indita” to the side of the Indian Girl and “MICHOCANA” on top, with “ES NATURAL” on bottom.
The court found that tacking didn’t advance PLM’s priority date for LA INDITA MICHAOCANA mark, because the mark didn’t create the same continuing commercial impression as its earlier Indian Girl marks. PLM didn’t present actual consumer testimony, but instead relied essentially on visual similarity.
PLM argued that the Indian Girl was always the same, and the addition of the words didn’t matter, because in Spanish they were descriptive of the Indian Girl. But the court didn’t think its own perception was evidence of whether consumers would see the marks as functionally the same. In most cases permitting tacking, especially the modern cases, the wording on the marks remained consistent. Without more evidence than visual similarity, the court was unpersuaded. (Stray remarks in the course of this case also didn’t count.) Further, PLM’s own intentions in changing the mark were “telling”; PLM wasn’t trying to modernize or update its mark, but rather to change it enough to avoid litigation. “As a matter of logic, PLM’s intention was to create a mark that was distinguishable from its prior mark.” Moreover, PLM used LA INDITA MICHOACANA on certain types of products and LA MICHOACANA ES NATURAL on others, even where these products were sold in the same market, and a key witness referred to the former as a separate “brand,” whose SKU was separately tracked. Nor did PLM try the tacking argument before the TTAB—“[S]eparate registration of the marks is some evidence that the owner does not regard them as a continuum or mere modification or modernization.”
On some promotional materials and packaging, PLM claimed that “La Indita Michoacana is a family company founded in Tocumbo, Michoacan in the 1940’s. Since then we’ve continued to make premium ice cream, fruit bars and drinks that give the flavor and tradition of Mexico. Distinguish us by our logo.” (And an identical statement using “La Michoacana” as the company name, and also in Spanish.) But PLM was neither founded in the 1940s nor founded in Tocumbo, Michoacán, and when it used those statements, it didn’t make drinks. PLM used these statements because he’d seen similar language on containers in various Mexican “La Michoacana” palaterias; he believed that various, separately-owned paleterias in Mexico used the language on their product packaging even though it was not literally true as applied to each of them. For some time, PLM instead used, “La Michoacana is a tradition that was born in Tocumbo, Mochoacan in the 1940’s. The Gutierrez family continues with the tradition introducing La Michoacana to the United States.”
The court found that there was no credible evidence that these statements influenced or were likely to influence an average potential consumer; there was little evidence that consumers even saw these statements, since these are “relatively inexpensive treats typically purchased on impulse.” Prolacto’s survey expert, Jacob Jacoby, tested for deceptiveness, but not for materiality—his survey asked consumers about what they understood the statement to mean, but it didn’t “replicate the marketplace experience and determine whether, for example, any consumers would actually take the time to study PLM’s product packaging and read about its purported history before deciding whether to make a purchase.” For the same reason that evidence of materiality was lacking, so was evidence of injury to Prolacto.
Some of PLM’s packages also contained images of paletas and ice cream bars that had been digitally enhanced to indicate that the paletas and bars contain chunks of fruit. The court found, however, that they did contain chunks of fruit. In addition, the court found immaterial and harmless images of white sand beaches and the claim: “Discover the wonderful rich taste and flavors of La Indita Michoacana. Our creamy, full-flavored ice cream and delicious fresh fruits are in the old world tradition of Latin American paletas and ice cream that’s the perfect blend of the best ingredients available.” Likewise with PLM’s website, which contained generic images of Mexico and Michoacán, including maps, flags, and photo; statements that PLM shared its name with over 20,000 or 15,000 ice cream parlors in Mexico; a statement that “La Michoacana ice cream is the essence and flavor of Mexico”; and a statement that “[t]hey are determined to make the best paletas in the world.” There was no credible evidence showing that any consumers were likely to visit PLM’s website before deciding whether to buy its products.
In the U.S., Prolacto only operated in Florida, Texas, California, and North Carolina. Prolacto’s founders traced their family origins in the paleta business to the 1940s. Sometime between 1992 and 1995, Prolacto began using an Indian Girl design in some of its stores and licensees’ stores in Mexico.
Prolacto’s paleterias in Mexico didn’t and don’t use all the same trademarks. Some used the words “La Michoacana” alone, others “La Michoacana Natural” or “La Flor de Michoacan.” Some have used designs containing an Indian Girl, others a design of a butterfly or no design at all. “The differences in uses between paleterias may be so great that it is difficult to recognize the stores as being affiliated with each other.” Moreover, there are “innumerable” paleterias throughout Mexico named “La Michoacana” or that have a name that incorporates the term “Michoacana,” and “at least a significant portion of them” weren’t affiliated with Prolacto. Nor was Prolacto an exclusive user of an Indian Girl in Mexico. Prolacto does have Mexican trademark registrations for the Indian Girl mark and other marks, and has pursued infringement claims in Mexico.
In its application for a design mark for LA FLOR DE MICHOACAN, with a swirl design, paleta, and butterfly, Prolacto submitted images of cups as specimens, but the marks were electronically added after the photos were taken; the photos were the same ones that Prolacto later used as part of its application to register the Indian Girl mark. There was no evidence that PROLACTO or its licensees ever used these cups, as they appear in the specimens, in the United States or Mexico.
Prolacto also applied to register several other Indian Girl/Natural marks. The Indian Girl application was suspended in light of this case; in addition to the cup photo, Prolacto submitted a similarly doctored wrapper sample as a specimen of use.
Likewise, as part of its suspended application for LA MICHOACANA as a standard character mark, Prolacto submitted an altered image of a truck; again, there was no evidence that the truck as it appeared was ever used in the U.S. or Mexico.
However, by March 2000, a Prolacto licensee began operating a paleteria in Homestead, Florida, and used the Indian Girl mark previously used in Mexico surrounded by the words “LA MICHOACANA es ... natural” throughout the store. The PTO had concluded that the start date was April 2001. PLM disputed whether, even if this Florida use occurred, it had done so under Prolacto’s authority until 2001, the date on a licensing agreement between Prolacto and the Homestead business. However, the court concluded that, based on the (informal) way Prolacto does business and the longstanding connections between the store operator and the people behind Prolacto, the store did have Prolacto’s “permission.”
From March 2000 to the present, then, the Homestead store continuously used an Indian Girl mark surrounded by the words “LA MICHOACANA ES NATURAL.” A number of other Prolacto licensees followed in various parts of Florida, using butterfly/swirl marks; they only used an Indian Girl after July 2012.
There are also licensees in Houston, Texas (using LA MICHOACANA as early as July 2003, but not using the Indian Girl or LA MICHOACANA NATURAL until after PLM entered the Houston market in 2005). One licensee operated a store inside a Houston supermarket for which she used an Indian Girl design; PLM’s products were sold at the same supermarket, in close proximity, and the licensee testified that consumers were confused over the products’ origin.
One Prolacto licensee operated in California, specifically Sonoma and Novato. The Sonoma location opened in 2009, using an Indian Girl mark and the words “MICHOACANA NATURAL ICE CREAM.”
Sometime before fall of 2012, the sign changed to look more like the specific Indian Girl mark Prolacto claimed:
In the fall of 2012, probably about when she executed her first written licensing agreement with Prolacto, Prolacto representatives visited the store for the first time, though the store had been open since 2009. When she opened her Sonoma store, the licensee was aware of PLM’s Indian Girl mark and its use of the words LA MICHOACANA, as well as its LA INDITA MICHOACANA mark. She ignored C&D letters, and she testified that she’d received numerous calls from people apparently attempting to reach PLM about shipments and deliveries.
Prolacto’s licensee also opened a North Carolina paleteria by August 2014, using “Michoacana Natural Ice Cream” and an Indian Girl surrounded by the words “La Michoacana es Natural.”
In terms of the meaning of the claimed marks, the court found no material difference between the terms “MICHOACANA,” “LA MICHOACANA,” and “LA MICHOACANA NATURAL” when used in connection with selling ice cream and other frozen treats. The terms were descriptive of a type of product, and not primarily associated with Prolacto or any single source, thus lacking in secondary meaning in the U.S. The scale of advertising was “minimal at best.” While there was clear evidence of actual confusion, there was no indication that the confusion related to the name, rather than the use of the Indian Girl or some other visual element. The family behind Prolacto might have been responsible for popularizing the term in Mexico. “But this does not mean that consumers in the United States identify the term with any one manufacturer of the product, any more than they do not primarily identify a ‘Waldorf salad’ with The Waldorf-Astoria Hotel in New York or a ‘Philly cheesesteak’ with Pat’s King of Steaks in Philadelphia.”
Legal analysis: the court concluded that PLM adopted its marks in good faith. The court noted the territorial nature of U.S. trademark law; even if the Ninth Circuit’s famous marks doctrine applied, it wouldn’t apply to Prolacto, which didn’t come close to the requisite level of fame in the U.S. Here, PLM was the national senior user of “La Michoacana” and an Indian Girl. Prolacto argued that a bad faith intent to appropriate Prolacto’s goodwill and deceive consumers, as indicated by its statements about its 1940s/Mexican heritage, deprived PLM of the right to rely on its earlier use. Though the majority view is that knowledge of the other user’s mark defeats a good faith defense, a growing body of case law indicates that the junior user’s knowledge is just one part of a bad faith inquiry. The ultimate question is whether the adopter acted “with intention of benefitting from the reputation and goodwill of the prior user.”
However, the court here couldn’t identify any case in which a national senior user was denied rights because it knew about prior use outside the U.S. In general, even intentional imitation is allowed in such situations, though some cases suggest that bad faith would be possible if the foreign mark was famous or if the use was nominal and made solely to block the foreign user’s planned expansion. West Indian Sea Island Cotton Ass’n Inc. v. Threadtex, Inc., 761 F. Supp. 1041 (S.D.N.Y. 1991), also allowed §43(a) claims to proceed where the record permitted the inference that “defendants purposefully have acted to deceive the public as to the quality and origin of their products” by adopting a foreign mark along with words telling consumers that they should “[b]eware of impostors!”
The court, though doubting that it ought to be the first court in the history of American trademark law to rule that a senior U.S. user wasn’t entitled to any rights on the basis of bad faith with respect to a nonfamous mark, proceeded to assess whether PLM acted in bad faith. Fortunately for the court, PLM did not. PLM chose the name “La Michoacana” because its founders had seen it in Mexico, but they did not believe that the term denoted a single source of product in Mexico, and it didn’t denote a single source in the U.S. either. Similarly, PLM copied the Indian Girl from similar marks, but its founders didn’t believe that it indicated a single source, and it also believed that various, separately-owned paleterias in Mexico used the 1940s/heritage language on their product packaging even though it was not literally true as applied to each of them. The court also noted the lack of materiality of those statements. “No matter how unethical PLM’s actions may seem to an outside observer, as the Federal Circuit recognized in Person’s, the Lanham Act does not regulate all aspects of business morality.”
The next overarching issue was whether Prolacto engaged in naked licensing in the U.S., thus abandoning any U.S. rights. It’s very hard to show naked licensing, and so here, even though Prolacto’s quality control efforts “certainly leave much to be desired,” using only a verbal or implied license (until, it seems, this litigation spurred written agreements. The licenses for the U.S. businesses generally say they’re “fully-paid and royalty-free,” and it’s not clear from the court’s description what acts Prolacto could take if the licensees don’t follow its quality standards, though it does have the right to inspect for compliance with them. Prolacto’s quality control inspections “are infrequent and irregular, and it seems to provide its licensees fairly wide latitude in determining the visual appearance of their stores,” though the litigation seemed to have induced it to do more work.
But none of this was fatal: Prolacto exercised the “minimal” level of control necessary to avoid abandonment via naked licensing, because it had “the authority to control the quality of its licensees’ products” and “it has exercised that authority in various ways,” for example by permitting Prolacto to conduct unannounced inspeactions. Licensees also purchased their inventory, “including employee uniforms displaying the marks at issue in this case and equipment for making and serving paletas to customers,” directly from Prolacto. Most importantly, the licensees were closely related to Prolacto’s directors and owners; they were members of a family who regarded their businesses “as being part of a family tradition that stretches back generations. The licensees testified that they had grown up visiting their family members’ paleterias and learning their trade.” With these types of relationships, the normally required formal quality control standards should be relaxed, as long as the public isn’t being deceived. Here, there was little, if any, evidence of differing quality across licensees.
With all that out of the way, the court turned to PLM’s challenge to the PTO’s cancellation of its registrations. PLM argued that Prolacto was estopped from challenging PLM’s registration of its LA INDITA MICHOCANA mark based on likelihood of confusion because, in connection with its application to register its own Indian Girl mark in December 2006, it said there wouldn’t be confusion. But estoppel was inappropriate, because the PTO didn’t accept Prolacto’s argument.
PLM then argued that Prolacto had unclean hands, based on its fraud on the PTO with respect to its specimens and its launch of California and North Carolina stores while this dispute was pending. However, PLM didn’t show that Prolacto acted knowingly and intentionally in doctoring the photos; PLM didn’t provide evidence about who was responsible for the images or what they were thinking in submitting the images to the USPTO. As for the new stores, the court didn’t consider that significant enough to bar Prolacto’s claims.
Who bears the burden of proof in a challenge to a successful TTAB cancellation? PLM argued that the burden remained on Prolacto, while Prolacto argued that PLM wasn’t entitled to any presumption of validity because the registration had already been cancelled. PLM was correct, because this was a de novo action. A party seeking review of a TTAB decision in district court “ha[s] the burden of going forward, that is, of submitting to the court evidence or argument to counter the decision of the TTAB,” but the party that had the burden of proof before the TTAB “must bear the burden of persuasion in district court.”
The TTAB cancelled PLM’s LA INDITA MICHOACANA mark on the grounds that PROLACTO had established priority of use and likelihood of confusion with respect to its own Indian Girl design, as well as its LA MICHOACANA (words only), LA MICHOACANA NATURAL (words only), and LA MICHOACANA NATURAL and design marks.
By March 2000, a Prolacto licensee was using the Indian Girl mark in Homestead, Florida, and other Florida licensees began using the LA MICHOACANA NATURAL mark in April 2001. PLM’s priority date was Feb. 21, 2005, because its earlier use of Indian Girl with Paleta/Indian Girl with Cone, both prior to 2000, couldn’t be tacked. Thus, Prolacto had priority for its Indian Girl and LA MICHOACANA NATURAL marks. But the latter couldn’t support a confusion claim because it was descriptive and unprotectable, which the court (somewhat confusingly) characterized as “strongly counsel[ing] against a finding of likelihood of confusion.” But the likelihood of confusion between the parties’ Indian Girl marks was patently obvious. (I’m not sure how consistent this is with the tacking holding; if the Indian Girl is the key and the words are all descriptive, why wouldn’t that make the commercial impression depend on the Indian Girl?)
PLM also sought a declaratory judgment that confusion was unlikely between PLM’s LA INDITA MICHOACANA mark and three of Prolacto’s marks containing the term “MICHOACANA” due to the overlap of the term. Prolacto argued that PLM had the burden of proof of showing that confusion was unlikely, but the rule is that the person claiming IP rights has the burden to prove infringement. PLM got its declaratory judgment.
PLM also claimed infringement of its Indian Girl marks. PLM was the registered owner of the Indian Girl with Paleta, Indian Girl with Cone, and LA INDITA MICHAOCANA marks, the first two of which were incontestable and the third of which had just been cancelled. Prolacto argued that PLM’s use of the marks on shipping boxes was insufficient to establish priority, because “no evidence was ever offered that would suggest that any consumer of any of the PLM entities[’] goods would ever come into contact with or otherwise observe its outer corrugated cardboard boxes used for packaging and shipping their products.” But Prolacto’s own witness testified that he saw the Indian Girl mark on a PLM shipping box in the marketplace.
The likely confusion factors mostly “strongly” favored PLM; the court noted that the visual similarity between the parties’ marks was “striking.” Thus, Prolacto’s use was infringing. (Um, ok, but then … how could Prolacto have priority over PLM's later-registered mark with an infringing use? I, like purchasers of paletas, am confused.)
Prolacto’s counterclaim under §43(a) asserted that PLM’s Indian Girl with Paleta, Indian Girl with Cone, and LA INDITA MICHOACANA marks because those marks infringed on Prolacto’s unregistered marks containing an Indian Girl (and LA MICHOACANA).
Because the marks claimed by Prolacto were unregistered, only Florida; Sonoma, California; and Houston, Texas were at issue. There was no evidence PLM was using the mark in Florida, and there was no dispute that PLM used the marks in Northern California first. Given the facts found above, only LA MICHOACANA was in use by Prolacto prior to PLM’s entry into the market, and that’s not a mark.
These results also disposed of Prolacto’s unfair competition counterclaim. In a footnote, the court addressed Belmora, which allowed a somewhat similar claim to proceed under §43(a), reasoning that § 43(a) “does not require that a plaintiff possess or have used a trademark in U.S. commerce as an element of the cause of action.” Even assuming that the court here were to follow Belmora, it distinguished that case on two grounds. First, Belmora involved non-use in the U.S., rather than a priority contest in the U.S. “The Court does not read the Fourth Circuit’s analysis to suggest that an infringing junior user of a mark in the United States can pursue a false association claim against a mark’s senior user based on consumer confusion resulting from the infringing use.” Since Prolacto’s Indian Girl mark was infringing, Prolacto couldn’t pursue a false association claim in Houston or elsewhere. (So why could it pursue a cancellation proceeding?) Second, even if “an owner of a foreign mark can maintain a false association claim based solely on the party’s wholly-foreign use of the mark,” it would still have to show a commercial injury to reputation or sales, and Prolacto didn’t show any injury to its business in Mexico. It didn’t show that any customers bought PLM’s products in the U.S. in lieu of Prolacto products in Mexico, or that the customers crossed over, or anything else.
Prolacto also counterclaimed for false advertising based on the 1940s/Mexican origin/making drinks statements; use of MICHOACANA and the Indian Girl design; use of indicia of Mexico;
claiming to make “traditional old world paletas of Latin American influences” and “ice cream in the style and type made famous in Michoacán”; and claiming that its products are “the best paletas in the world” and use “the perfect blend of the best ingredients available.”
On summary judgment, PLM didn’t contest falsity (even on the puffing statements), but there were issues about materiality and “statutory standing.” On summary judgment, Prolacto had provided sufficient evidence that it could suffer potential injuries in the form of a damaged reputation and loss of sales and customers and that those injuries, “if proven at trial to exist, were proximately caused by PLM’s advertisements.” But it didn’t meet its burden at trial, so it lost under Lexmark.
Remedies: PLM’s LA INDITA MICHOACANA mark was cancelled, and (!) PLM was entitled to a permanent injunction against Prolacto’s use of infringing marks. The high degree of confusion, including demonstrated instances of actual confusion, established irreparable harm. “Indeed, the injury here is not primarily monetary; it is reputational, and given PLM’s natural growth, as evidenced by it expanding its range from just one state in 1991 to now over 30 states, will only grow accordingly over time absent an injunction.” The balance of hardships weighed in PLM’s favor because Prolacto had been able to operate and grow even without use of the Indian Girl mark, while PLM used the Indian Girl on all its products and made it a central part of its identity. (Wait, so won’t the marks that caused the cancellation of the PLM mark be abandoned? I guess PLM can re-register, with a different priority date?)
Prolacto was barred from using an Indian Girl, but not from using the term “Michoacana.” The injunction was clearly appropriate for Northern California and Houston, where PLM operated. But what about Florida and North Carolina, where PLM doesn’t currently operate, and other markets where neither party currently operates? Dawn Donut says that an injunctive remedy isn’t ripe until the registrant shows likely entry into the disputed territory. The court found that PLM hadn’t shown a likelihood of entering North Carolina and Florida; a naked assertion of its readiness to begin sales in new markets wasn’t enough to overcome the Dawn Donut rule. Thus, the injunction would be geographically limited to the two areas in which infringement was occurring.
PLM also asked the court to enjoin Prolacto’s U.S. licensees, in addition to Prolacto, under FRCP 65, which provides that an injunction binds (A) the parties; (B) the parties’ officers, agents, servants, employees, and attorneys; and (C) other persons who are in active concert or participation with anyone described in [(A) or (B)]” who have actual notice. The court didn’t agree that it had jurisdiction to do so. Whether a particular individual or entity falls within the ambit of Rule 65(d) “is a decision that may be made only after the person in question is given notice and an opportunity to be heard.” The injunction will apply to others, to the extent that they fall within the ambit of Rule 65(d), and those individuals or entities “act at their peril if they disregard the commands of the injunction, for, if the [Court] ultimately determines that they are in concert with [Prolacto], then they will be [held] in contempt of court. But that is an issue for another day ....” (That day may be soon, given that the relevant licensees testified and presumably will swiftly receive actual notice.)
The court took no position on whether the USPTO could or should take the Court’s findings of fact and conclusions of law in this case into consideration when determining the outcome of Prolacto’s pending applications for registration, though under B&B it’s hard to see why preclusion wouldn’t apply if/when the ruling becomes final.