Overreaching and delay lead to defeat of TM owner's claims

Sturgis Motorcycle Rally, Inc. v. Rushmore Photo & Gifts, Inc., 2021 WL 1176242, No. CIV. 11-5052-JLV (D.S.D. Mar. 29, 2021)

This is part of a long-running trademark case, now over 10 years old. After a jury verdict for SMRI and a partial reversal thereof by the court of appeals, the status is this: STURGIS and STURGIS MOTORCYCLE RALLY for motorcycle rallies (etc.) were invalid; defendants didn’t infringe on TAKE THE RIDE TO STURGIS mark; STURGIS BIKE WEEK and BLACK HILLS MOTOR CLASSIC STURGIS RALLY & RACES BLACK HILLS S.D. were valid and infringed, but the latter wasn’t counterfeited; SMRI’s dilution victory was vacated, but not its victories on deceptive trade practices, ACPA, false advertising, and unfair competition.

Here the court considers acquiescence and laches. For example (the details vary a little depending on defendant, but you get the picture): The STURGIS BIKE WEEK registration dates to 1997; defendants’ “Sturgis Motor Classic” came from 1997-98. SMRI’s predecessor in interest did business with the relevant defendants from at least 1999-2009; resold products bearing “Sturgis Motor Classic” in its own retail store; and never complained about the use of “Sturgis” or “Sturgis Motor Classic” on rally products. During this period, defendants continued to grow and develop their inventory and marketed “Sturgis” and “Sturgis Motor Classic” rally products. SMRI ultimately sent one C&D in August 2006, and filed suit in June 2011.

One defendant’s principal testified that it “specifically tried very hard to differentiate” its products with a disclaimer expressly disavowing any affiliation with SMRI and a separate color scheme on its tags, which SMRI copied. After the complaint was filed, that defendant permitted its state trademark applications and domain name registrations to lapse and abandoned its federal trademark application for “Sturgis Motorcycle Classic.” It also stopped using “Officially Licensed Sturgis,” “Licensed Sturgis,” and “Authentic Sturgis.”  

Acquiescence requires (1) knowledge by SMRI or its predecessors in interest of the defendant’s use; (2) implied or express consent to that use; (3) defendant’s change in position in reliance on that conduct.

Since the jury made no relevant findings of fact, the court was free to make findings. It doesn’t start well for SMRI:

While the 2006 cease and desist letter’s statement [that SMRI had a registered mark] was true as it relates to the Composite Design Mark [the long one above + design], SMRI’s suggestion that registration for STURGIS had been approved was not true and was deceptive. … The Composite Design Mark registration specifically acknowledged that it made “no claim ... to the exclusive right to use ‘MOTOR CLASSIC’ or ‘RALLY & RACES BLACK HILLS S.D.’ apart from the mark as shown.”

Also:

It is incomprehensible that for over 10 years no one at [the predecessor] would have knowledge of these rally products being purchased at wholesale from [defendant] RP&G and then being resold at retail in its own store. By purchasing “Sturgis” and “Sturgis Motor Classic” items from RP&G and then reselling them through its own retail locations, [the predecessor] expressly or impliedly represented that it would not assert a right or exclusive claim to use those terms.

Even after the first transfer, to the Sturgis Chamber of Commerce, the Chamber did the same thing back into the 1990s, buying these products and reselling them at its own store. There was acquiescence, and the defendants changed their position in reliance on it by continuing to build their Sturgis product line, which they likely wouldn’t have done had SMRI or its predecessors acted earlier, as they showed by scaling back various activities when the suit began.

Laches: This is about passive consent, not active consent as with acquiescence. It requires inexcusable delay and prejudice. The laches defense is not available “when the defendant knew that the plaintiff objected to the use of the mark,” as “[a]ny acts after receiving a cease and desist letter are at the defendant’s own risk.” Also: “When a defendant has invested generally in an industry, and not a particular product, the likelihood of prejudicial reliance decreases in proportion to the particular product’s role in the business.”

This is basically the same; SMRI didn’t explain why it waited 4 years and 10 months to sue. Even after the C&D, the RP&G defendants continued to sell “Sturgis” rally products in the good-faith belief that the term “Sturgis” was generic, a belief validated by the Eighth Circuit’s endorsement. It expanded its employee workforce and invested millions of dollars in its Sturgis-related rally products. Thus, defendants also established laches.

Laches also applied to the state law deceptive trade practices claim.

What about unclean hands? The RP&G defendants “willfully and intentionally infringed the Composite Design mark” on a single product, a shot glass. But, “the differences between the glass’s design and the [SMRI] mark are so obvious,” the Eighth Circuit ruled “the jury did not have any basis in the record [to support a] finding [the shot glass was] a counterfeit.” When the RP&G Defendants used “Sturgis” and “STURGIS MOTOR CLASSIC,” they did so “in the face of [SMRI’s] disputed title” and they did so in good faith. They used their own labels and tags to differentiate their products, and disclaimed affiliation with SMRI. Thus, “[t]he record ... fails to reveal the subjective and knowing bad faith necessary to foreclose the equitable defenses.” Even if they did have unclean hands, it wasn’t particularly egregious and the court would decline to apply the doctrine.

Wal-Mart, which carried RP&G products, was also not a willful infringer. The first year it carried them, a manager observed the RP&G Defendants’ tags disclaiming any relationship with SMRI but proclaiming the products to be “official Sturgis Motorcycle Rally products.” The manager called SMRI’s licensing agent and learned the RP&G products were not officially licensed by SMRI. “While this may have been bad business judgment on the part of Wal-Mart, the conduct does not rise to the level of ‘subjective ... bad faith,’ or ‘particularly egregious conduct.”

What about SMRI’s own conduct? In 2001, an examiner rejected the Sturgis Chamber’s attempt to register STURGIS as primarily geographically descriptive. The Chamber fought back, and there were oppositions by other local motorcycle/rally-related users. SMRI, as successor, eventually bought two major opponents off. “In exchange for Sturgis Motorcycle’s withdrawal of its opposition to the Chamber’s original TM application, SMRI agreed Sturgis Motorcycle could use the STURGIS mark without any licensing agreement with either the Chamber or SMRI. Another company owner agreed to dismiss his company’s opposition and become the exclusive licensee of SMRI’s trademarks, while he became a member of SMRI’s board of directors.  Its application was then successful.

The jury, applying a clear and convincing evidence standard, concluded SMRI had not obtained the STURGIS trademark registration fraudulently. But the Eighth Circuit said:

The only way that [the Chamber’s declarant] Martin was able to assert that the Chamber had substantially exclusively used the word “Sturgis” for decades to promote the rally was by denying that virtually anyone else promoted it when they independently used the word to sell their own rally-related goods and services.... Although it was patently unreasonable for Martin to think that only Chamber-approved uses of the mark counted as rally-related uses, it was this logic that enabled him to tell the Trademark Office that the word “Sturgis” had become distinctive through the Chamber’s substantially exclusive use of it in connection with the marketing and promotion of the rally.

Martin’s logic was so incoherent and self-serving that no reasonable jury could accept it.... The fact that non-Chamber-affiliated producers were using the word [“Sturgis”] on their rally-related products was directly relevant to whether the Chamber was its substantially exclusive user. Martin, however, ignored those third-party uses since he believed that only the Chamber actually promoted the rally. But he had no right to declare that by fiat.... It is irrelevant to our conclusion here that the jury also found that Martin did not “knowingly” lie in his affidavit: A person can be indisputably, but sincerely, wrong.

Despite the Eighth Circuit’s holding that the STURGIS mark was invalid, “SMRI continues to irrationally assert its STURGIS marks are valid,” including in PTO proceedings. The trial court’s cancellation order was not an interlocutory decision, as SMRI told the PTO it was. Nonetheless, through the August 2020 rally and beyond, SMRI continued to hold itself out as the owner of “Sturgis®,” “Sturgis® Motorcycle Rally™,” and “Sturgis Rally & Races™.” It continued to sell STURGIS® products. “SMRI’s website intimidates or at least impliedly intimidates Sturgis Rally venders to ‘Apply to Become a Sturgis® Licensee.” This was a continuing “calculated attempt to confuse ... the public about the STURGIS Registrations.” Courts don’t like defiance! “[T]hose three marks were invalided by the Eighth Circuit in 2018. The public has an interest in respect for court orders and a ‘right not to be deceived or confused’ by SMRI’s misrepresentations about its marks.”

SMRI had unclean hands. It was thus barred from equitable relief for its trademark infringement, false advertising, and state deceptive trade practices claims.

Separately, the court considered whether various other defendants could assert acquiescence and laches, and found that they could. Money judgments against them were vacated.