Monday, August 20, 2018

DC Circuit dodges incontestability, finds little-noticed statements immaterial in dueling desserts case

Paleteria La Michoacana, Inc. v. Productos Lacteos Tocumbo S.A. de C.V., 2018 WL 3894587, No. 17-7075 (D.C. Cir. Aug. 10, 2018)

The facts are a mess, but basically PLM and Prolacto both make paletas, Mexican frozen desserts, using nearly the same marks, “La Michoacana” and an “Indian girl” design, which the district court found to be descriptive because of their extensive use by unaffiliated entities in Mexico for the same products.  [And here’s an interesting point: the court finds that these terms are descriptive because of their meaning in Mexico; trademark rights are territorial, but maybe meaning is not so territorial, and finding non-trademark meaning from foreign uses doesn’t create the same conflicts with territoriality as finding trademark meaning from foreign uses.  The district court’s reasoning makes sense for the same reason that the doctrine of foreign equivalents does.]  Prolacto, a Mexican corporation, was founded in 1992; PLM advertised its products with the following statement or its equivalent: “La 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.” However, this wasn’t true; PLM was also a more recent market entrant.  Nonetheless, the district court found that PLM was the senior user of the marks in parts of the US (but upheld the cancellation of one of PLM’s marks because of Prolacto’s prior US regional use) and thus that Prolacto had infringed.

The court of appeals upheld the district court’s rulings.  Without trademark status in the US, Prolacto couldn’t make out a claim for false association based on PLM’s use of “La Michoacana” (the record didn’t support a famous foreign marks argument).

The false advertising issue was more clear-cut, but still not a winner for Prolacto, which didn’t prove materiality or injury.  Primarily, there was little evidence that consumers even saw one of the allegedly false advertising statements, let alone that they factored the statement into their purchase decisions.  A paletas expert testified that he had read the “small print” on PLM’s paleta wrappers (which at certain times included the challenged Tocumbo statement), but could not recall what it said; he was far more attentive than the average consumer, so his lack of memory reinforced the district court’s conclusion. Prolacto’s consumer survey also failed to show injury because it only asked consumers to read and interpret the statement, but didn’t test materiality or to “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.” Thus, evidence of injury was lacking.

In response to Prolacto’s appeal of the infringement finding against it, the court stated that “PLM sufficiently established its ownership by offering evidence of the marks’ registration. And because proof of registration is prima facie evidence of ownership, we need not consider the merits of Prolacto’s challenge to the marks’ ‘incontestability’ under 15 U.S.C. § 1065. Regardless of whether that ownership is incontestable, the evidence does not rebut the presumption of PLM’s ownership.”  

And here’s where it gets weird: as I wrote previously, the district court relied on (erroneously granted at PLM’s behest) incontestability to give PLM rights in the marks, and then declined to reconsider because the challenge to incontestability came too late.  However, the court of appeals doesn’t rule on waiver.  Instead, it says that even if the incontestability went away the ownership would stay because the registration is prima facie evidence of ownership.  But that won’t work in this scenario, because the district court also found that the symbols at issue were descriptive. That is, in the absence of secondary meaning, they aren’t owned.  The evidence here rebutted the prima facie evidence of ownership by showing descriptiveness.  On these facts I can’t see how the court of appeals can claim that ownership was unrebutted.  If the relevant symbols had gained secondary meaning for PLM anywhere in the US when the application/s matured into a registration, then I can see letting this ruling stand, but frankly I’m confused by the underlying timeline so I don’t know how the district court saw that part of the case.

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