Paleteria La Michoacana, Inc. v. Productos Lacteos Tocumbo
S.A. De C.V., 2014 WL 4759945, No.
11–1623 (D.D.C. Sept. 25, 2014)
For different versions of the background story, you can see
this
Wharton article (which confuses trademark and copyright, and favors the US
company in its take on the “orphan” status of the relevant marks in Mexico) and
this
reprint
from the WSJ (which favors the foreign claimant, at least in its rhetoric).
Also for background: “Michoacán” is the name
of a Mexican state, and home to many Purépecha Indian people, whose traditional
dress for women commonly consists of hair braids on each side, a white blouse,
a pink skirt, and sandals.
Paleteria La Michoacana (PLM) sued Productos Lacteos Tocumbo
(PROLACTO), challenging a TTAB decision regarding various registered and
unregistered trademarks used to sell “Mexican-style” ice cream bars, called
paletas, and other frozen ice cream treats. PROLACTO counterclaimed for
violation of the Lanham Act and DC law.
PROLACTO is a family-owned company founded in Mexico in
1992. The founding family had a long history of operating ice cream stores
(“paleterias”) in cities and towns throughout Mexico since the 1940s. Its use
and ownership of the marks in Mexico is hotly disputed (see first link above)
and “mostly irrelevant to the legal issues at hand,” but starting in 1995 it
did successfully register many marks in Mexico, including LA MICHOACANA
NATURAL. A few years later, it began licensing close family members of the
founding directors in the US to use some of the marks. Its US use is only through licensing.
PROLACTO’s first license was in 1999, when Rigoberto
Fernandez opened a paleteria called LA MICHOACANA in Homestead, Florida. “In
April 2001, Fernandez and his sister, Mary Fernandez, opened a second paleteria
under the same name in West Palm Beach, Florida, where they used PROLACTO’s
Mexican marks for the sale of ice cream products.” In October 2002, Mary
Fernandez opened a paleteria under the name Michoacana Natural Ice Cream in
Rosenberg, Texas, a suburb of Houston. Mary Fernandez opened additional stores
in Houston over the next few years. And
in July 2009, PROLACTO licensed a Michoacana Natural Ice Cream store in Sonoma,
California.
PLM began in 1991 as an informal partnership between two
brothers, an ice cream business called Paleteria Michoacana in Turlock
(northern California); this eventually became PLM. PLM’s products are
distributed throughout various parts of the country and sold in “large club
stores like Costco, supermarkets like Wal–Mart, Hispanic grocery stores like El
Super and Vallarta, drug stores like Walgreens, and a variety of other retail
outlets.” PLM hasn’t made direct sales
in Florida.
Neither party’s products are sold in DC. The parties’ products (treating PROLACTO’s
licensee like PROLACTO for these purposes) only cross paths in “limited
geographical areas,” in Texas and northern California, where the parties’ goods
are sold in the same general area and in at least one instance at the same
store. (Pause to note that “Texas and
northern California” is an awful lot of America.) The products are relatively inexpensive (from
$0.89 to $2 each for a single serve bar) and typically bought on impulse.
The central marks at issue were the “Indian Girl” design and
marks using various forms of the word “Michoacán”:
PROLACTO filed a successful petition to cancel PLM’s mark No.
3,210,304 for LA INDITA MICHOACANA and design, shown above, for use on ice
cream and fruit products. PLM sought
reversal of the TTAB decision; declaratory judgment of no likelihood of
confusion between its mark and PROLACTO’s one registered mark; a finding of
infringement against PROLACTO for its use of the Indian Girl design with LA
INDITA MICHOACANA and separate use of the Indian Girl mark standing alone; and cancellation
of PROLACTO’s registered mark No. 3,249,113.
PROLACTO understandably counterclaimed for violations of the Lanham Act
(and DC common law) and further cancellations.
On summary judgment, the court resolved a number of issues
in PLM’s favor, a few in PROLACTO’s, and found numerous other issues reamining
for trial.
TTAB cancellation: A district court reviews the TTAB’s
findings of fact deferentially under the substantial evidence standard, and
also can consider new evidence. To win,
PLM had to raise a new issue or show that the TTAB’s findings were unsupported
by substantial evidence or contrary to new evidence carrying “thorough
conviction.” The TTAB found that PROLACTO had priority based on a number of
marks. PLM filed its registration
application on June 28, 2005, claiming first use anywhere and in commerce as of
February 21, 2005. The TTAB determined
that PROLACTO, through its licensees, began using the Indian Girl design in
April 2001. Then it determined that
confusion between the parties’ marks was likely given the similarity of goods,
marks, and channels of trade plus the low care exercised by consumers.
However, PLM presented new evidence that it used a version
of the Indian Girl design since at least the mid-1990s, and argued that it
should be allowed to tack those earlier uses to gain priority. Tacking requires
that the earlier mark is “the legal equivalent of the mark in question or
indistinguishable therefrom” such that consumers “consider both as the same
mark.” Confusing similarity isn’t enough; the marks sought to be tacked must
create the same continuing “commercial impression.” (1) Whether this is a question of law or of fact
for a jury is the subject of a split (one that the Supreme Court is set to
resolve). Consumer opinion of the
similarity of the prior and subsequent marks is the critical issue, and a
court’s speculation about what consumers would think is both inappropriate and
inconsistent with the likely confusion standard (a question of fact for the
jury). The evidence here created a
genuine dispute of material fact over tacking; a jury could find prior use and
a continued commercial impression, or it could go the other way. Summary judgment denied.
Next issue: The TTAB ruled that PROLACTO’s mark No.
3,249,113 for the LA FLOR DE MICHOACAN and design wasn’t sufficiently similar
to PLM’s registered mark No. 3,210,304 to cause consumer confusion and require
cancellation. (2) PROLACTO wanted reversal on the likely confusion determination,
thus triggering the second issue the
Supreme Court is going to decide this term: the court would review the TTAB’s
findings of fact under the substantial evidence standard, but the legal
conclusions de novo. The TTAB found that
the parties’ marks were used on the same products in the normal channels of
trade; that the products are impulse purchases and consumers don’t use much
care before buying; that LA FLOR DE MICHOACAN translates to “the blossom of
Michoacán,” while LA INDITA MICHOACANA translates to “the Indian girl or woman
from Michoacán.” The TTAB concluded that PROLACTO’s mark created a different
“commercial impression” than PLM’s mark which “outweigh[ed] any similarities
caused by the inclusion of the word ‘Michoacán.’” The district court agreed.
The TTAB didn’t use the same multifactor test as the
district court, which would use the judicial standard (viewing the marks in the
marketplace, not side by side in a vacuum).
Here, no reasonable jury could find likely confusion between the marks
at issue. Some of the factors weighed in
favor of PROLACTO or were neutral (there’s some direct competition; these are
impulse purchases, though PROLACTO offered expert testimony that quality
differences existed, which would decrease the likelihood of confusion). But
PROLACTO didn’t provide a survey or other evidence of actual confusion between
the two specific marks at issue.
The court was most persuaded by the lack of visual
resemblance between the marks. The
shared use of “Michoacán” wasn’t enough; other factors in the mark could
distinguish the two. Here, the design elements were quite different: PROLACTO’s
mark featured a swirl surrounding an orange popsicle, while PLM’s mark featured
pink and black coloring with a drawing of a little girl holding an ice cream
cone with words above and below her image. The different meanings of the phrases
and the commercial impressions outweighed similarities in the word “Michoacán”
and in the products. No cancellation and
no infringement.
Next counterclaim: PROLACTO alleged that PLM infringed on
PROLACTO’s rights in its LA MICHOACANA and the Indian Girl design through its
use of registered marks Nos. 3,210,304; 2,905,172; and 2,968,652. PROLACTO sought to use the famous mark
doctrine to establish nationwide priority.
In the US, rights are established by use, and foreign use
creates no rights within the US. (3) “There
is, however, a narrow yet divisive disturbance to the force of the
territoriality principle,” aka the well-known marks/famous marks doctrine,
where even in the absence of use “the territoriality principle is disregarded
and priority is established through reputation rather than actual use in the
United States.” But this is only law in
the Ninth Circuit, which based its ruling on fraud-prevention grounds. The Second Circuit has rejected the doctrine
as a matter of federal law. The court
here recognized powerful arguments on both sides, but didn’t have to resolve
the issue because PROLACTO didn’t show the necessary fame in the US. Fame in Mexico is irrelevent “except insofar
as that familiarity actually permeates into the United States at such a
critical level that it qualifies for legal protection.” The Ninth Circuit’s Grupo Gigante decision says that such fame will exist when a
“substantial percentage” of consumers recognize the foreign mark, but provides
little guidance about what that is. The concurrence said it was 50% consumer
awareness, but the majority didn’t use an explicit “majority” standard. Nonetheless, to prevent the exception from
swallowing the rule, the threshold should be “somewhere below, but still very
close to, 50% of consumers in the relevant market.” PROLACTO didn’t show that in any relevant US
market, much less the entire country. No
reasonable jury could find nationwide fame, and there also wasn’t enough
evidence for individual markets within the US.
Scattered media references to individual licensees’ stores weren’t
enough.
As a result, PROLACTO’s rights were dependent on use, and
without a registration, the rights were limited to the geographic areas where
there was use (and a zone of “natural expansion”). Here, only Sonoma, California; Houston,
Texas; and Florida were potentially at issue, given PROLACTO’s limited
commercial use of its marks. There was
also a genuine issue of whether PROLACTO abandoned its rights through naked
licensing, particularly given that PROLACTO apparently relied only on oral
licenses for many years.
There couldn’t be a fight in Florida, because PLM never sold
or distributed its products there. PLM’s hosting of a booth at a trade
convention in Florida was insufficient, because PLM didn’t sell its wares
there; the convention was closed to the public; and most participants were not
based in Florida. As for northern
California, PROLACTO licensed a store in Sonoma in July 2009, while PLM started
a business in Turlock in 1991, and registered two Indian Girl marks in
2004-2005, with more thereafter. Since
federal registration provides nationwide priority except for §33(b) remote
users, “the undisputed facts show that PLM has priority in the market.” There was a genuine dispute of material fact
about who got to Houston first.
PROLACTO argued that the court should deny PLM any rights
because of its allegedly deliberate copying.
But awareness of foreign marks does not constitute bad faith in the US
as a matter of law. However, to the
extent that PLM’s adoption of the marks in a given market was based on PROLACTO’s
prior use elsewhere in the US, that might not be “good faith,” as the court
interpreted the Theodore Rectanus
line of cases to require for remote users.
In addition, there was a factual dispute over whether PLM intended to
copy PROLACTO’s marks, or whether “PLM merely sought to associate its products
with marks that it believed – rightly or wrongly –were used indiscriminately by
a variety of companies without any one, recognized source.” PLM argued that the marks in question were
used by “countless companies” in Mexico and the US for paletas. (In which case how are its “marks”
valid? Sufficient to the day …) If that was true, PROLACTO might not have
protectable rights in many of the marks at issue, which would be fatal to most
if not all of its claims. And finally, the
exact contours of the Houston market had to be determined at trial.
Priority isn’t enough; distinctiveness is also
required. The parties apparently agreed
that the marks were geographically descriptive. There was also a factual question over
PROLACTO had achieved secondary meaning.
The scale of ads in the US by its licensees wasn’t clear, but appeared
to be “limited and sporadic at best.” PROLACTO had some evidence, including consumer
declarations, of consumer perception, as well as an expert report from Jacob
Jacoby, but the court found this not probative of whether consumers thought
there was a single source for the goods. The court declined to exclude Dr.
Jacoby’s report about his confusion survey at this time, but commented that
many of the questions were leading “and others demonstrated little more than
respondents’ ability to read and comprehend the stimuli.” A jury would have to rule on secondary
meaning.
All this meant that there couldn’t be summary judgment on
the related unfair competition etc. claims, with the only truly distinct one
remaining being false advertising.
PROLACTO alleged that PLM made numerous false claims on its packaging
and website, including using the name “LA INDITA MICHOACANA” and the Indian
Girl design; using indicia of Mexico, including pictures of places in Mexico, a
PROLACTO-affiliated store in Mexico, a statute in the town of Tocumbo, Mexico,
and maps of Mexico in its websites and catalogs; claiming to share its name
with, and otherwise implying that it is affiliated with, 15,000–20,000 stores
in Mexico; and including on packaging pictures that don’t accurately represent
the products inside.
PLM discontinued use of the claim: “La Indita Michoacana is
a family company founded in Tocumbo Michoacán 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.” Because PROLACTO didn’t
submit evidence that would justify a damages award, the only possible relief
would be moot as to that claim.
PLM argued that the false advertising claim was barred by
laches. The court first found that DC’s three-year fraud statute applied to
Lanham Act false advertising claims. PLM
didn’t indicate which ads appeared when, or when PROLACTO knew or should have
known of them; thus the court couldn’t evaluate whether laches had been
triggered, or whether there’d been prejudice to PLM because of the delay.
PLM also argued that PROLACTO lacked standing. Under Lexmark,
PROLACTO provided sufficient evidence of commercial injury. Here, that was evidence that it “possesses a
business reputation and goodwill within the United States that PLM allegedly
attempts to usurp for its own benefit, as well as the possibility of lost sales
and customers.” A reasonable jury could conclude that those injuries, if
proven, were proximately caused by PLM’s ads.
In addition, PROLACTO won summary judgment on literal
falsity and misleadingness of the statements, since PLM didn’t dispute that. As for materiality, PLM argued that the
statements on the packaging were on the back and consumers therefore didn’t
read them before purchase. Even if they
did, PLM argued that there was insufficient evidence of an effect on decisions,
given that these are inexpensive impulse buys.
But PROLACTO wasn’t required to prove actual influence, only likely
effects. ((4) The court declined to follow
the courts that presume materiality from literal falsity.) There was a genuine dispute of material fact,
as materiality often is a question for the jury. Even the statements on PLM’s website, though
less likely to be material “given their attenuated position compared to being
placed directly on the product itself,” might be.
The court also accepted PROLACTO’s theory of likely injury
to its reputation or goodwill stemming from confusion due to PLM’s
advertising. The products are of
different quality. PROLACTO sells “a
more traditional, handmade form of paletas” and PLM sells “a water-based
product more similar to a Popsicle.” Given these difference, there was some
reason to think that PROLACTO’s goodwill and potential sales could be harmed if
consumers were misled by PLM into believing that they were buying PROLACTO’s
fruit-based, handmade product. However,
PROLACTO largely relied on affidavits “describing” customers who were confused
by and disappointed with PLM’s products. The court found these to be mainly
hearsay. (To the extent that they report
a consumer’s state of mind, they’re not really being submitted for their
truth.) The nonhearsay portions were at
least probative of injury, though, by suggesting that consumers were conflating
the brands, which could hurt PROLACTO.
PROLACTO’s trademark infringement claim under DC common law
was dismissed because it doesn’t operate in DC and showed no plans to do so in
the near future. PROLACTO’s counterclaim
for federal dilution was dismissed because, of course, it isn’t famous. In a
footnote, the court commented that “the level of fame required for a dilution
claim appears to be greater than that required to establish that a mark is
sufficiently well-known for the famous mark doctrine to apply.” Dilution requires nationwide fame, while the
famous marks doctrine only looks to the relevant consumer market. McCarthy
recommends 75% recognition for federal fame, but survey evidence isn’t the only
relevant evidence; the amount of money spent on ads and length of use count
too.
PROLACTO’s counterclaims for cancellation of PLM’s
registrations based on fraud failed because PROLACTO couldn’t meet the clear
and convincing standard for proving that PLM knowingly made false, material
misrepresentations with intent to deceive the PTO. Because use in Mexico confers no rights, even
if PLM knew PROLACTO was using the designs in Mexico, its knowledge of commercial
use in a foreign country was insufficient to establish fraud on the trademark
office as a matter of law. “Because
foreign use cannot create priority – perhaps with exception of the narrow and
largely unfollowed famous mark doctrine, which itself still requires meaningful
reputational impact in the United States – the fact that a similar mark was
used in another country is immaterial to the decision about whether to grant an
application.”
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