Rally 'round the difference between valid and merely descriptive: 8th Circuit gives claimants much to ponder

Sturgis Motorcycle Rally, Inc. v. Rushmore Photo & Gifts, Inc., --- F.3d ----, 2018 WL 5726690 2018 WL 5726690, No. 17-1762, No. 17-1869, No. 17-2712, No. 17-2731 (8th Cir. Nov. 2, 2018)

The court says some very interesting things about descriptiveness, the legitimacy of non-trademark claimants' use of descriptive terms for a well-known event, and the standard for finding infringement based only on visual inspection.

“Since 1938, a motorcycle rally has occurred almost every August in and around the City of Sturgis, South Dakota…. In 1986, Tom Monahan, a local artist and vendor, donated a composite mark for the rally to the Sturgis Area Chamber of Commerce, which had recently accepted a central role in promoting the rally ….” Next year, the Chamber began licensing the mark, which included the shape of a circle horizontally bisected by two motorcycles and the word “Sturgis.”  Other elements include the words “Black Hills Motor Classic,” “Rally & Races Black Hills S.D.,” ten stars, the head of a bird of prey in profile, six buffalo walking, and a couple of feathers.  [Nothing exceeds like excess!] The Chamber advertised that products displaying the mark could be called “officially licensed.” The Chamber registered the mark in 1996 and, in the 2000s, acquired two registered word marks from rally vendors: “Sturgis Bike Week” and “Take the Ride to Sturgis.” Vendors have used many names to associate their goods and services with the rally, which itself has been referred to by many names, including just “Sturgis.”  “The Sturgis motorcycle rally is now the largest such rally in the world, bringing several hundred thousand people and many millions of dollars into the region each year.” 

The Chamber’s marks are now licensed by plaintiff SMRI.  Read this description and guess what might happen to SMRI’s most expansive claims: SMRI’s sales pitch is that profits from the licensing support the City; the chamber “used that sales pitch for decades to convince vendors to buy a license to display the Monahan mark on their rally-related goods. Today, however, the licensing program seeks to control virtually all rally-related merchandise, asserting that if a vendor wants to sell an item using the geographic terms ‘Sturgis’ or ‘Black Hills’ in conjunction with the rally, he must first apply for and receive a license from SMRI that will cost him about eight percent of the wholesale price of each item sold.”

Rushmore Photo & Gifts, Inc., a souvenir provider in Rapid City, South Dakota, sold goods related to the rally, including some that it used to advertise were “officially licensed” even though they were not. Many of the products used the word “Sturgis” or the name “Sturgis Motor Classic.” In 2011, after it got a registration for the word mark “Sturgis” for goods and services related to the rally, SMRI sued Rushmore and other defendants.

A jury returned a verdict in favor of SMRI, awarding it $912,500 in damages, but the district court held that SMRI was estopped by laches and acquiescence from recovering damages from the remaining defendants. It also entered a permanent injunction and awarded SMRI costs, but not fees.

SMRI argued that Rushmore’s prior licensing of the Monahan mark from the Chamber should estop it from challenging the validity of the marks. But Rushmore licensed only the Monahan mark, not the terms whose validity as marks it challenged. The license’s preamble claimed rights in “the protected language ‘Black Hills Motor Classic’, ‘Sturgis Rally & Races’ and ‘Black Hills Motorcycle Rally & Races.’” But estoppel at most covers only the mark that the licensee has agreed “to use,” and even then the assumption that licensing recognizes validity is “problematic because there are many reasons someone might seek to license a property the validity of which he doubts: It may, for example, be more economically efficient to agree to a license in the short term than to litigate the mark’s validity immediately.” (Citing Campbell v. Acuff-Rose.) “It would be antithetical in any event to the pro-competitive purposes of trademark law to allow a licensor to lay claim to marks that its licensees have not used by inserting superfluous language into its licensing agreements.”

The jury found that the defendants as a whole infringed five of SMRI’s marks: its federally registered “Sturgis” and “Sturgis Bike Week” word marks, its federally registered Monahan mark, and its unregistered “Sturgis Motorcycle Rally” and “Sturgis Rally & Races” marks.  The Sturgis mark was registered under §2(f), which operated as a concession that the mark wasn’t inherently distinctive; nor was the registration incontestable.  The registration provided a rebuttable presumption of validity, but not as against a purported infringer who started to infringe before the registration date (2011); here infringement was alleged at least as early as 2006.  The court of appeals thus found that there was insufficient evidence to allow a reasonable jury to find that the Sturgis mark was valid.

SMRI did not present any direct evidence of secondary meaning such as consumer testimony and surveys. SMRI argued that it and the Chamber had used the mark in relation to the rally since 1987; and that consumers associate the mark with the rally, which the Chamber “hosted.” Many of the historical uses to which SMRI pointed “cannot reasonably be viewed as uses of the word as its mark.” SMRI presumed that any use of the word “Sturgis” to refer to either the rally or the City of Sturgis was use as a mark. “But if the word was being used descriptively (e.g., to refer to ‘Sturgis’ the city or ‘Sturgis’ the rally), it was not being used primarily to identify a specific source of rally-related products and services.” SMRI’s own testimony was that it wasn’t until around 2000 that the Chamber decided that Sturgis was the “magic” word behind all its marks.  Given that fact, “we do not see how the jury could reasonably infer from any earlier uses of the word ‘Sturgis’ that consumers had started to associate it with one of the many sources of ‘Sturgis’ goods and services existing at the time.”

SMRI pointed to use of the word “Sturgis” in its other marks, including the Monahan and “Sturgis Bike Week” marks. But that was apparently a descriptive component of those marks, referring to either the rally or the city, not Sturgis the brand, and SMRI didn’t explain why consumers would “view those uses of the word inside of another mark as a distinct mark.”

Nor could SMRI tack all uses of “Sturgis” on rally-related goods or services by someone who subsequently became its licensee, as it tried to do. For example, one vendor made yearly patches using “Sturgis” and the date on his souvenirs since the late 1970s, but he didn’t take a license until 2001. That license didn’t retroactively turn all of his pre-2001 uses into (1) uses as a mark or (2) uses as SMRI’s mark. “The very fact that McNenny had independently used the word ‘Sturgis’ on his own rally-related goods for decades indicates that consumers had no reason to think that the word’s presence on such goods indicated that they all came from a single source.” Indeed, that vendor’s reasons for taking a license for “Sturgis” showed why the jury couldn’t infer validity from licensing. Like other vendors, including the primary licensee, he said they were licensees “because they like giving back to their community and selling customers on the idea that their purchases also give back to it.  But in that case, “the jury had no basis to infer from their licenses and sales that consumers associate SMRI’s marks with a single source of rally-related goods and services.”

Though the Chamber’s then-president submitted an affidavit in 2001 claiming “continuous and substantially exclusive” use of the mark “in connection with the marketing and promotion of the Rally since ... July 1, 1987,” the evidence showed that he “purposely and categorically excluded from his assessment relevant third-party uses of the mark” by defining only Chamber-approved uses as uses in connection with the rally. This logic “was so incoherent and self-serving that no reasonable jury could accept it. If there were two shirts that said ‘Sturgis 2000,’ but only one of them was produced through the Chamber, there were still two rally-related shirts displaying the word ‘Sturgis.’”  Whether the unaffiliated product was using “Sturgis” as a mark or descriptively, either way it prevented the Chamber/SMRI from claiming substantially exclusive use.

Since the jury could not reasonably have found that the Chamber/SMRI were substantially exclusive users of the “Sturgis” mark for the rally or rally-related products and services, there was no way the jury could have found that the mark had “become so associated in the public mind with [the Chamber’s and SMRI’s] goods that the mark serves to identify the source of the goods and to distinguish them from those of others.” Without evidence of the effect on consumers, the jury could not have found secondary meaning on this record.

Nor was “Sturgis” distinctive because consumers associate it with the rally. “Everyone could know of the rally as ‘Sturgis’ and find that the City is now synonymous with the rally without also associating the word ‘Sturgis’ with only one of the many sources of rally-related products and services.”  [This is one of the points we made in our Honey Badger amicus, too.  The Statue of Liberty is famous; it’s not famous as a mark for something else.] Indeed, even if the record had showed that SMRI had a valid service mark for the word “Sturgis” in relation to the organizing and conducting of the rally (which it did not), it would still have needed to show that the word operated as its mark in other contexts. Owners of a mark “have no right in gross.”   

As a result, the court reversed the jury’s finding of dilution of the “Sturgis” mark and vacated its holding that the defendants engaged in cybersquatting; this claim was submitted to the jury based in part on the theory that “Sturgis” was a valid mark.

What about the unregistered marks “Sturgis Motorcycle Rally” and “Sturgis Rally & Races”? They had the same problems of proof of validity. The evidence indicated that these were names used to describe the rally in the 70s, but that weighed against validity as marks. “Evidence indicating that one of the marks had acquired secondary meaning does not necessarily show that any other mark had acquired it as well.” The ads in the record “rarely use the words in the unregistered marks as a mark. They instead use ‘Sturgis Motorcycle Rally’ mostly to refer to the rally itself and only use ‘Rally & Races’ as part of the Monahan mark, the federal registration for which disclaims the exclusive right to use ‘Motor Classic’ or ‘Rally & Races.’” Most of the products in the record likewise didn’t use the purported marks as standalone marks, but rather as part of a more elaborate name or mark. The jury could not reasonably infer from such uses “that consumers had latched onto those words and now associate them primarily with a specific source of rally-related goods and services.”  Nor was there any direct evidence of consumer perception, and without that, the fact that these terms were common names for the rally itself precluded protection. “If consumers view SMRI’s marks simply as indicating ‘an association with’ the rally, then they are not viewing them as identifying a specific ‘brand’ of rally-related things and thus are not viewing them as a mark.” [This is an example of “association” which is not trademark association—again the Statue of Liberty provides a good example for most goods and services.]

At some point, SMRI/the Chamber used “Sturgis Motorcycle Rally” and “Sturgis Rally & Races” on hangtags with ownership claims. At some point, the Chamber also distributed shopping bags to vendors that told consumers to “Look for the Tag!” But the evidence about the scope of these programs was minimal, and didn’t indicate any effect on actual consumer perceptions.

Then, the court turned to SMRI’s six federal registrations for “Sturgis Bike Week,” none of which were registered under 2(f); SMRI was thus entitled to a presumption that the mark was valid even if the alleged infringement began before the mark’s date of registration.  That seems weird and the defendants contested it, but the registrations “constituted prima facie evidence of the mark’s validity” and the evidence that “Sturgis Bike Week” was a common name for the rally was not overwhelming. The evidence supported a finding that the first registrant used the phrase as a mark for t-shirts for decades and ultimately assigned it to SMRI. Nor did the defendants prove genericity so strongly that no reasonable jury could refuse to accept that conclusion; at most they showed descriptiveness.

The defendants accepted the validity of the Monahan composite mark, but challenged the sufficiency of the evidence of infringement/counterfeiting. It was certainly not the case that any uses of “Sturgis,” “Sturgis Rally,” or “Sturgis Motor Classic” on a product could reasonably have been found to infringe. The dominance of “Sturgis” in the marks/terms didn’t make them all similar, especially given the descriptiveness of the word for the rally. Only one product that did more was identified: a shot glass with the words “Genuine Article-Accept No Substitutes” on the top, with “Quality” below on the far left and “Brand” on the far right. In the middle was a broad horseshoe on which “Sturgis Motor Classic™” is written in an arc. “Within the horseshoe is a bird of prey facing right in three-quarter view in front of a billowing U.S. flag on which ten stars can be seen. Under the bird and the flag, right between the horseshoe’s heels, is a motorcycle. A feather-shaped leaf rises next to each heel.” “1938” was under the motorcycle, and then “South Dakota.” The bottom left said “Founder ‘Pappy’ Hoel,” and on its bottom right, “Oldest & The Biggest.”

In some cases, “visual inspection, without any corroboration from consumer surveys or examples of actual confusion,” can prove likelihood of confusion: “If, for example, the purportedly infringing mark appears confusing or deceptive on its face, and relevant consumers do not bring to their purchasing decisions atypical or specialized knowledge, a visual inspection might represent a bare-bones way of proving likely confusion. Otherwise, it would appear beyond the ken of a jury to deduce from a visual examination that has not been informed by direct evidence of consumer associations that a challenged use would likely confuse or deceive the ordinary, prudent consumer” (emphasis added).

Nonetheless, the jury found not just infringement, but willful and intentional infringement. The definition used by the jury for “willful” required “the conscious intent to benefit from the goodwill or reputation of SMRI’s trademark.” This would also necessarily be intentional. And the evidence supported the finding that the defendants’ infringement of the composite mark on the shot glass was willful and intentional. The Monahan mark was widely used in connection with the rally since the mid-1980s and some consider it, whether rightly or wrongly, the “official” logo of the rally; Rushmore knew about the mark, as evidenced by its 1999 license to use the mark for a year on postcards. “The many similarities between the dominant design on the shot glass and the longstanding Monahan mark also provided the jury with a reason to conclude that Rushmore had consciously intended its glass to benefit from the goodwill that consumers may associate with the Chamber’s and now SMRI’s civic-minded mission statements.” Along with the image similarities, the use of the words “Genuine Article-Accept No Substitutes” allowed the jury to infer that Rushmore consciously intended consumers to confuse the dominant design on the glass with the closely similar “official” Monahan mark.

Was this also counterfeiting? “A counterfeit is thus far more similar to the registered mark than a mark that barely infringes it, and so an infringing mark is not necessarily also a counterfeit.” The shotglass was the only item infringing the Monahan mark, and (this will warm Mark McKenna’s heart) nothing on it “could be reasonably viewed as substantially indistinguishable from the Monahan mark.” The words on top were different, in different fonts, and the images showed different animals in different configurations. The differences were too obvious to allow the jury to find counterfeiting.

The court turned to the related claims for deceptive trade practices, false advertising, and unfair competition. South Dakota allowed SMRI to recover only actual damages suffered as a result of deceptive acts and practices. The record clearly supported a finding of such actual damages, because rom around 2006 to 2011 Rushmore advertised that its rally-related goods were “Officially Licensed Sturgis,” and there was evidence that Rushmore put that slogan on its products’ hangtags alongside the phrase, “Look For The Tag!,” mimicking the Chamber’s ad campaign. Rushmore’s co-owner admitted that their goods were neither official nor licensed, and that no one other than SMRI and Rushmore had designated its rally-related products as officially licensed. At least one person was misled: the manager of the apparel department at a local Wal-Mart called SMRI’s licensing agent to ask whether Rushmore’s products were actually “official Sturgis Motorcycle Rally products.” That was the first year that the record showed Wal-Mart carrying Rushmore products, and the jury could have inferred that SMRI lost those sales to Rushmore.

Nor did the invalidity of most of the marks above matter to this conclusion, which didn’t depend on the validity of the marks.

However, after the jury’s verdict, the district court ruled on defendants’ equitable defenses, finding that SMRI was estopped by laches and by its acquiescence from recovering damages. SMRI argued that it had a Seventh Amendment right to have a jury decide those defenses, but it didn’t.  SMRI also argued that the jury’s finding of willful infringement constituted unclean hands, precluding equitable relief.  To bind the court’s equity powers, a jury’s findings have to be on a common issue; otherwise the findings are merely advisory.  But willfulness “is a multifarious concept like causation or intent: The definition of willfulness that the district court gave the jury was only one of the many that courts have used.” The equitable and statutory definitions of willfulness can vary even though they use the same word.  The district court found that the defendants used “Sturgis” in the good faith belief that SMRI’s “Sturgis” word mark was invalid. This isn’t necessarily in conflict with the jury’s finding that the defendants’ use of the word was willful in the sense that they had acted with “the conscious intent to benefit from the goodwill or reputation” associated with that word. “A defendant … can intend to benefit from the goodwill associated with a word—'Sturgis,’ for example, as a fun and memorable motorcycle rally—without intending to infringe a valid mark based on the word.” Thus, some courts have held that, when a party “uses an intellectual property in the face of disputed title,” the party’s use of it, if in good faith, does not constitute “willful infringement.”

Anyway, even if willfulness was a common issue, the district court’s findings still might not have conflicted with the jury’s finding of willful infringement of the Monahan mark and the “Sturgis Bike Week” mark. First, the district court still has discretion over the application of the unclean hands doctrine. For unclean hands, it “might not be sufficient that the wrongdoing was willful if it was not also substantial to an appropriate degree…. Equity demands flexibility and eschews mechanical rules.”  Second, though the district court largely denied defendants’ motion for judgment as a matter of law, it later held that SMRI did not carry “its burden of proving that [defendants] subjectively and knowingly intended to use [their marks] for purpose of deriving benefit from [SMRI’s] goodwill,” which might be a finding about the record.  Though the record supported the jury’s finding that the defendants willfully infringed the Monahan mark, the court of appeals didn’t opine on “Sturgis Bike Week.”

Remand was appropriate here, however, because the district court’s order granting the equitable defenses relied in part on its findings that Rushmore had sold rally-related products bearing the word “Sturgis” to both the Chamber and its agents, so they knew about the conduct at issue. But since rally-related products using the word “Sturgis” were not infringing (even though SMRI argued that they were), it was no longer clear whether acquiescence and laches would apply. On remand, if the district court still thought so, it should clearly say which claims were covered (not just the Lanham Act claims) and why.

The injunctive relief would also have to be revisited.  SMRI wanted the defendants enjoined from selling anything that uses the word “Sturgis,” “including presumably a state map,” but that’s not going to happen. Instead, a revised order would have to account for the invalidations above.