Incontestability challenge raised too late, court rules

Paleteria La Michoacana, Inc. v. Productos Lacteos Tocumbo S.A., No. 11-1623 (D.D.C. Mar. 30, 2017)

Some mention of my previous blogging on the issue, but that doesn’t matter to the ultimate result (though the court at least notices the incontestability problem). PLM and Prolacto sell “paletas” and other frozen treats under similar marks. “Paletas are a style of ice cream bars and popsicles originating in Mexico that are traditionally made from fruit, spices, and nuts.” The parties sharply disputed first use and good/bad faith.  The Court found that PROLACTO had the better side of that argument, finding that “PROLACTO has demonstrated that it used its Indian Girl mark before PLM used its LA INDITA MICHOACANA mark.” PLM argued that, through tacking, the priority date of PLM’s LA INDITA MICHOACANA mark should be advanced to the date that PLM first used any Indian Girl mark. PROLACTO prevailed after the Court found that, “particularly without any evidence of consumers’ perceptions, the Court cannot find that PLM’s LA INDITA MICHOACANA mark meets the ‘exceedingly strict’ standard for tacking.” PROLACTO’s unregistered Indian Girl design was confusingly similar to, and thus infringed, PLM’s earlier, registered Indian Girl marks, but PROLACTO’s mark had priority over LA INDITA MICHOACANA and the registration of LA INDITA MICHOACANA had to be cancelled.

In the motion to reconsider, PLM tried to provide a legal basis to deny PROLACTO’s cancellation petition: an equitable defense known as the “Morehouse defense” or the “prior registration” defense.” Under this defense, the party seeking cancellation of a mark cannot be damaged if the registrant already “owns an existing registration for the same or substantially identically mark for the same or substantially identical goods.”  PLM argued that this was a standing issue, and that because PROLACTO couldn’t be damaged by the registration of the LA INDITA MICHOACANA mark, PROLACTO lacked standing, which was an issue not subject to waiver. “The problem with PLM’s clever argument is that it incorrectly conflates the constitutional ‘case or controversy’ requirement with the standing requirement found in the Lanham Act.” PROLACTO had standing under the “generous standard” of the Lanham Act, anyway—a “real interest” in the proceedings and a “reasonable basis” for a belief of damage (ignoring Lexmark).  PLM hadn’t preserved an argument based on the Morehouse defense.

PROLACTO also moved to amend the Court’s findings and to amend the judgment, specifically its finding that two of PLM’s Indian Girl marks were incontestable.  The court again found waiver of this argument; it’s been a while since I’ve had any occasion to consider the waiver standard, but I do think what happened reflects (1) unfamiliarity with incontestability by courts and defendants alike and (2) the really unfortunate consequences of failure to have better procedures on incontestability.  I can’t know the souls of the PLM filers, but it’s possible that really clear requirements to attest that they were unaware of any pending cases challenging the validity of the mark might have prevented this plainly wrong Section 15 filing.  Query: should the PTO act on its own accord to withdraw the Section 15 acknowledgements, if it now knows the truth?

Previously, the court found that the relevant PLM Indian Girl registrations “became ‘incontestable’ pursuant to 15 U.S.C. § 1065 on December 12, 2014 upon PLM’s filing of Section 15 affidavits with the USPTO.” PROLACTO didn’t assert any of the enumerated defenses to incontestability [I think that the court means that there was nothing incontestability-specific, because PROLACTO did seek cancellation on grounds of fraud and abandonment].  But, the very day that PLM filed the affidavits (which state, among other things, that there is “no proceeding involving said rights pending and not disposed of either in the United States Patent and Trademark Office or in a court”), there was a status conference on this case, in which there was a challenge to the registrability of the marks.  PLM unpersuasively argued that “at the time PLM filed the affidavits of incontestability, there was no pending counterclaim challenging PLM’s Indian Girl With Paleta and Indian Girl With Cone registrations because this Court had entered summary judgment on those claims in PLM’s favor,” even though nothing about the “proceeding” was final, but luckily for PLM the court didn’t reach the merits because of its waiver finding.

The court acknowledged that there is no substantive examination of Section 15 filings, and that the TMEP states that “[t]he question of whether the registration is incontestable arises and is determined by a court if there is a proceeding involving the mark.”  Still, PLM repeatedly raised the incontestability of the marks, and nowhere in this “drawn-out litigation” did it challenge the incontestability.  A Rule 52(b) motion is not a second bite at the apple.

PROLACTO also moved for a new trial based on newly discovered evidence of PLM’s registration and use of the domain name “laflordemichoacan.com.”  But its core argument was that this registration was evidence of bad faith, given that PLM was well aware of PROLACTO’s two marks that included the words “La Flor De Michoacan” because of the then-pending TTAB proceeding.  However, a court should not grant a new trial because of new evidence that is “merely cumulative or impeaching,” and PROLACTO was arguing that the domain name made PLM’s witnesses less credible in their testimony of good faith.  Also, this evidence wouldn’t change the outcome.  As the court previously ruled, if it was “to hold that PLM was not entitled to any rights in its marks on the basis of bad faith, despite the fact that it was first to use its marks in the United States, it would appear that the Court would be the first to do so in the history of American trademark law.”  [Query what result should occur under Belmora.]  Even assuming that this bad faith theory was legally valid, it concluded that PROLACTO failed to show its application to the present facts.

Here’s the court’s explanation of the theory, which sounds a lot like the theory blessed by Belmora:

[I]f a party adopts a mark in the United States that has been previously used in a foreign country and engages in various forms of advertising with the intention of benefitting from the foreign user’s goodwill and reputation by deceiving consumers as to the true origin of its products—even if the foreign user has never used the mark in commerce in the United States and even if the foreign mark does not meet the requisite level of “fame” under the famous mark doctrine—then the party cannot obtain rights to the mark.

However, the court found that here, PLM adopted the name “La Michoacana” because they had seen the name in Mexico, but they did not believe that the term denoted a single source of product in Mexico. PROLACTO’s legal theory would still be inapplicable even with the newly discovered domain name evidence.  “Crucially, PLM did not register the domain name ‘laflordemichoacan.com’ until after the TTAB proceeding that preceded this action.” The registration of the domain name occurred long after PLM’s initial decisions.