Proprietary interest is not required in seeking cancellation of a trademark registration
| August 31, 2020
Australian Therapeutic Supplies Pty. Ltd. v. Naked TM, LLC
July 27, 2020
O’Malley, Reyna, Wallach (Opinion by Reyna; Dissent by Wallach)
Summary
The Trademark Trial and Appeal Board (the “TTAB”) determined that Australian Therapeutic Supplies Pty. Ltd. (“Australian”) lacked standing to bring a cancellation proceeding against a trademark registration of Naked TM, LLC (“Naked”), because Australian lacked proprietary rights in its unregistered marks. The United States Court of Appeals for the Federal Circuit (the “CAFC”) reversed and remanded, holding that proprietary interest is not required in seeking cancellation of a trademark registration. By demonstrating real interest in the cancellation proceeding and a reasonable belief of damage, statutory requirement to bring a cancellation proceeding under 15 U.S.C. § 1064 is satisfied.
Details
Australian started using the mark NAKED and NAKED CONDOM for condoms in Australia in early 2000. Australian then began advertising, selling, and shipping the goods bearing the marks to customers in the United States starting as early as April 2003.
Naked owns U.S. Trademark Registration No. 3,325,577 for the mark NAKED for condoms. In 2005, Australian became aware of the trademark application filed on September 22, 2003 by Naked’s predecessor-in-interest. On July 26, 2006, Australian contacted Naked, claiming its rights in its unregistered mark. From July 26, 2006 to early 2007, Australian and Naked engaged in settlement negotiations over email. Naked asserts that the email communications resulted in a settlement, whereby Australian would discontinue use of its unregistered mark in the United States, and Australian consents to Naked’s use and registration of its NAKED mark in the United States. Australian asserts the parties failed to agree on the final terms of a settlement, and no agreement exists.
In 2006, Australian filed a petition to cancel registration of he NAKED mark, asserting Australian’s prior use of the mark, seeking cancellation on the grounds of fraud, likelihood of confusion, false suggestion of a connection, and lack of bona fide intent to use the mark. Naked responded, denying the allegations and asserting affirmative defenses, one of which was that Australian lacked standing, as Australian was contractually and equitably estopped from pursuing the cancellation.
Following trial, on December 21, 2018, the Board concluded that Australian lacked standing to bring the cancellation proceeding, reasoning that Australian failed to establish proprietary rights in its unregistered mark and therefore, lacked standing. The Board found that while no formal written agreement existed, through email communications and parties’ actions, the Board found that Australian led Naked to reasonably believe that Australian had abandoned its rights to the NAKED mark in the United States in connection with condoms. While the Board made no finding on whether Australian agreed not to challenge Naked’s use and registration of the NAKED mark, the Board concluded that Australian lacked standing because it could not establish real interest in the cancellation or a reasonably basis to believe it would suffer damage from Naked’s continued registration of the mark NAKED.
The statutory requirements to bring a cancellation proceeding under 15 U.S.C. § 1064 are 1) demonstration of a real interest in the proceeding; and 2) a reasonable belief of damage. The CAFC held that the Board erred by concluding that Australian lacked standing because it had no proprietary rights in its unregistered mark. Australian contracting away its rights to use the NAKED mark in the United States could bar Australian from proving actual damage, the CAFC clarified that 15 U.S.C. § 1064 requires only a belief of damage. In sum, establishing proprietary rights is not a requirement for demonstrating a real interest in the proceeding and a belief of damage.
Next, the CAFC considered whether Australian has a real interest and reasonable belief of damage such that is has a cause of action under 15 U.S.C. § 1064. Here, Australian demonstrates a real interest because it had twice attempted to register its mark in 2005 and 2012, but was refused registration based on a likelihood of confusion with Naked’s registered mark. The USPTO has suspended prosecution of Australian’s later-filed application, pending termination of the cancellation proceeding, which further demonstrates a belief of damage.
Naked argued that Australian’s applications do not support a cause of action because Australian abandoned its first application. It also argued that ownership of a pending application does not provide standing.
With regard to the first point, the CAFC stated that abandoning prosecution does not signify abandoning of its rights in a mark. As for the second point, Australian’s advertising and sales in the United States since April 2003, supported by substantial evidence, demonstrate a real interest and reasonable belief of damage.
While Naked questions the sufficiency of Australian’s commercial activity, the CAFC stated that minimum threshold of commercial activity is not imposed by 15 U.S.C. § 1064.
Therefore, the CAFC held that the Board erred by requiring proprietary rights in order to establish a cause of action under 15 U.S.C. § 1064. The CAFC also held that based on the facts before the Board, Australian had real interest and a reasonable belief of damage; the statutory requirements for seeking a cancellation proceeding is thereby satisfied. The CAFC reversed and remanded the case to the Board for further proceedings.
Dissenting Opinion
While Judge Wallach, in his dissenting opinion agreed that proprietary interest is not required, he disagreed with the majority’s finding that Australian met its burden of proving a real interest and a reasonable belief in damages. In this case, any “legitimate commercial interest” in the NAKED mark was contracted away, as was any “reasonable belief in damages”.
Takeaway
Proprietary interest is not required in seeking cancellation of a trademark registration. Statutory requirement to bring a cancellation proceeding under 15 U.S.C. § 1064 is satisfied by demonstrating real interest in the cancellation proceeding and a reasonable belief of damage.
