IP Law Daily Appellate court vacates judgment of validity of ‘Sturgis’ mark
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Monday, November 5, 2018

Appellate court vacates judgment of validity of ‘Sturgis’ mark

By Joseph Arshawsky, J.D.

Plaintiff Sturgis Motorcycle Rally, Inc. ("SMRI") did not provide the jury with sufficient proof that its unregistered marks "Sturgis," "Sturgis Motorcycle Rally," and "Sturgis Rally & Races" marks were valid marks that acquired secondary meaning, the United States Court of Appeals for the Eighth Circuit has ruled, reversing a district court’s judgment that a gift shop and three individuals willfully infringed and diluted the marks. Although SMRI subsequently obtained registration of the mark "Strugis" in 2011, the presumption of validity did not apply at the time of the defendants’ alleged infringement and SMRI failed to offer sufficient proof for the jury to find secondary meaning. The Eighth Circuit, however, affirmed the district court’s judgment of trademark infringement and dilution pertaining to SMRI’s registered "Sturgis Bike Week" mark and its registered "Monahan" design mark for the rally because the marks were entitled to a presumption of validity when the infringing use occurred (Sturgis Motorcycle Rally, Inc. v. Rushmore Photo & Gifts, Inc., November 2, 2018, Arnold, M.).

The marks. Since 1938, a motorcycle rally has occurred in Sturgis, South Dakota. In 1987, the Sturgis Area Chamber of Commerce ("Chamber") debuted a licensing program for the "Monahan" mark, named after the artist who donated it to the Chamber. The mark includes two motorcycles and the word "Sturgis." There are stars, a bird of prey, buffalo, and feathers in the mark. The Chamber advertised that products displaying the mark could be called "officially licensed." The Chamber registered the Monahan mark federally in 1996 and, in the 2000s, acquired two-word marks that some rally vendors had also registered federally: "Sturgis Bike Week" and "Take the Ride to Sturgis." These three marks are only some of the many words and designs that vendors have used to associate their goods and services with the rally, which has come to be known by many names, including just "Sturgis."

Litigation in the district court. Defendants Paul and Carol Niemann, along with their son defendant Brian Niemann, owned defendant Rushmore Photo & Gifts, Inc. (collectively, the "defendants"), a souvenir provider in Rapid City that for years sold goods related to the rally, including some that it previously advertised were "officially licensed," even though they were not. With the sole exception of some postcards it once created that displayed the Monahan mark, Rushmore did not ask the Chamber or SMRI for permission to sell its rally-related products, many of which displayed the word "Sturgis" or the name "Sturgis Motor Classic." Following a trial, the jury rendered a verdict in favor of SMRI, awarding it $912,500 in damages. The district court largely denied the defendants' motion for judgment as a matter of law but granted it as to JRE since JRE was a dissolved corporation without any assets. The district court also held that SMRI was estopped by laches and acquiescence from recovering damages from the defendants. The district court entered a permanent injunction against the remaining defendants.

The "Sturgis" mark. The only certificate of record for the "Sturgis" mark stated that it was registered on February 22, 2011. SMRI alleged that Rushmore had been infringing the mark since at least August 2006, but SMRI was not entitled to a presumption that the mark was valid prior to 2011. The Eighth Circuit concluded that the record did not support a jury finding that SMRI’s "Sturgis" mark was valid.

The word "Sturgis" 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. The very fact that one vendor who testified at trial 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. The Eighth Circuit concluded that a jury could not simply infer from a current licensee’s past, independent uses of the word "Sturgis" that the relevant class of consumers had started to associate it with a particular source of rally-related goods and services.

Several vendors testified that they were licensees of SMRI because they liked giving back to their community and selling customers on the idea that their purchases also give back to it, so the jury could not infer from the fact that SMRI had successfully licensed its marks that consumers thus viewed them primarily as identifying a particular brand of rally-related goods and services.

SMRI and its witnesses were not credible as a matter of law when they told the jury that it and its predecessors-in-interest had been the substantially exclusive users of the word. "The record, in any event, does not support a finding that the Chamber has historically hosted the rally or is presently the organizer, promoter, and sponsor of the rally," the court said. The jury had no basis to find that the Chamber was the only entity promoting the rally. The trial record did not support that SMRI owned the rally or its intellectual property, that SMRI and the Chamber before it had been the substantially exclusive users of the word "Sturgis" in relation to either the rally or rally-related goods and services, or that relevant consumers associated the word "Sturgis" with a single source of goods and services in any context. Therefore, the Eighth Circuit found that the "Sturgis" mark was not shown to be valid. The court reversed the jury’s finding that the defendants diluted the "Sturgis" mark and vacated the jury's finding that the defendants engaged in cybersquatting by registering domain names using that mark.

"Sturgis Motorcycle Rally" and "Sturgis Rally & Races" marks. Although two of SMRI's trademarks were unregistered, they still were entitled to protection if they served to identify "a particular source of a product." The Eighth Circuit agreed that defendants should have been granted judgment as a matter of law on the infringement claims relating to SMRI’s unregistered marks, "Sturgis Motorcycle Rally" and "Sturgis Rally & Races," because the jury was not presented with sufficient evidence to find that the marks had acquired secondary meaning. The same difficulties that led the Eighth Circuit to hold that the record did not support a finding that the "Sturgis" word mark was valid occurred here as well. The fact that those names were popular names for the rally indicated that they do not identify one of the many sources of rally-related goods and services. The jury had no basis to find that the trial testimony demonstrated that the unregistered marks had acquired secondary meaning. The terms were not associated by consumers with a specific source of rally-related goods and services. "SMRI's fundamental difficulty here was that these unregistered word marks, like some of its registered marks, were common names for the rally itself." The jury was not presented with sufficient proof to conclude that SMRI's unlicensed marks, "Sturgis Motorcycle Rally" and "Sturgis Rally & Races," were valid and protected.

"Sturgis Bike Week" marks. SMRI held six federal registrations for its "Sturgis Bike Week" word mark, and certificates of registration for each of them were admitted into evidence. Since none of those registrations was entered in the Principal Register under Section 2(f) of the Lanham Act, SMRI was entitled to a presumption that the mark was valid even if the alleged infringement began before the mark’s date of registration. The only proof of invalidity that the defendants cited was the testimony of three lay witnesses that "Sturgis Bike Week" was another common name for the rally. That was not overwhelming evidence, especially since the evidence supported a finding that the artist who first registered the mark federally has been using it on rally-related t-shirts for decades, that it has long identified her as the source of those t-shirts, and that she ultimately assigned the mark and its goodwill to SMRI. Although there was no direct evidence that consumers considered the mark distinctive, the jury was entitled to find that the presumption of validity that the certificates of registration created had not been rebutted. The court held only that the evidence at trial supported the jury's finding that the mark was valid.

The Monahan composite mark. The defendants did not challenge the validity of the Monahan composite mark—only whether the jury had sufficient evidence to conclude that they both infringed it willfully and intentionally and also counterfeited it. The Eighth Circuit held that the trial evidence supported the jury's finding that the defendants’ infringement of the Monahan composite mark was willful and intentional. The many similarities between the dominant design on a shot glass sold by the defendants 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." However, the court also concluded that the differences between the glass's design and the Monahan mark were so obvious that the jury did not have any basis in the record for its finding of a counterfeit.

Equitable defenses. After the verdict, the district court ruled that SMRI was estopped by laches and by its acquiescence from recovering damages from the defendants. Even if the defendants engaged in "willful acts concerning the cause of action which rightfully can be said to transgress equitable standards of conduct," the district court could still have the discretion not to apply the doctrine of unclean hands. Second, the district court could conclude that the jury's willfulness findings did not have record support. The Eighth Circuit thus vacated the district court’s order granting those defenses. On remand, the district court must modify its order providing SMRI with permanent injunctive relief to account for the fact that the appellate court reversed the jury's findings that SMRI's "Sturgis" mark and its unregistered marks were valid.

The case is Nos. 17-1762, 17-1869, 17-2712, and 17-2731.

Attorneys: Courtney R. Clayborne (Clayborne Loos & Sabers LLP) and Megan E. Sorokes (Sneed PLLC) for Sturgis Motorcycle Rally, Inc. Michael Steven Beardsley (Beardsley, Jensen & Lee, LLC) and Eric H. Chadwick (Patterson & Thuente) for Rushmore Photo & Gifts, Inc., JRE, Inc. and Walmart, Inc.

Companies: Sturgis Motorcycle Rally, Inc.; Rushmore Photo & Gifts, Inc.; JRE, Inc.; Walmart, Inc.

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