IP Law Daily Cancellation of BLUE EMU mark denied on appeal
Wednesday, July 20, 2016

Cancellation of BLUE EMU mark denied on appeal

By Robert Margolis, J.D.

Progressive Emu Inc. ("Pro Emu") failed to show that Nutrition and Fitness Inc. ("NFI") committed fraud in its trademark application for BLUE EMU, the U.S. Court of Appeals in Atlanta has held. The appellate court affirmed the district court’s grant of summary judgment to defendant NFI on Pro Emu’s trademark cancellation claim, but reversed and remanded a grant of summary judgment to NFI on Pro Emu’s claims for unpaid royalties (Progressive Emu Inc. v. Nutrition & Fitness, Inc., July 19, 2016, Carnes, J.).

The cancellation claim arose in the context of a larger contractual dispute between Pro Emu, a company that raises and slaughters emus for their fat, and NFI, which specializes in the marketing of health products. Emu oil purportedly has anti-inflammatory and soothing properties when used as a sports-rub and pain-relief cream.

Pro Emu began developing its emu-oil pain cream in 2000 and contracted with NFI to purchase the oil from Pro Emu and sell it to the public. On May 3, 2002, NFI placed its first order for "Super-Strength Blue Emu" with Pro Emu. On the same day, NFI filed an application with the United States Patent and Trademark Office (USPTO) for a trademark for BLUE EMU, for use in connection with a product described as "topical ointment for use in relieving joint or muscle pain." The USPTO registered the BLUE EMU mark in September 2005.

The parties signed a Letter of Intent in mid-May 2002. The letter included the parties’ agreement to "jointly own" trademarks of products containing Pro Emu’s oil. A 2003 Sales, Marketing, and Operating Agreement superseded the Letter of Intent, however, but the agreement was notably silent on trademark ownership. The parties’ relationship began to unravel in 2011, ultimately leading to Pro Emu filing a complaint in Alabama state court. The state court action asserted claims for breach of contract, declaratory judgment, and an accounting. That lawsuit was removed to federal court and consolidated with a lawsuit NFI had filed in the Eastern District of North Carolina.

In a preliminary order, the district court held that Pro Emu had no contractual claim to the disputed trademark. Pro Emu then amended its complaint to assert that NFI’s registered mark should be cancelled because it was procured by fraud.

In June 2014, the district court granted summary judgment to NFI on Pro Emu’s breach of contract and trademark cancellation claims, and the parties appealed several of the court’s rulings.

Trademark cancellation. While a petition to cancel a mark may be filed with the USPTO’s Trademark Trial and Appeal Board at any time if the mark was obtained by fraud, 15 U.S.C. §1064(3), courts have concurrent jurisdiction to cancel a registration in a lawsuit involving a registered mark. 15 U.S.C. §1119. Pro Emu sought cancellation based on the alleged fraud of NFI’s chairman, Richard Guy, who averred in NFI’s trademark application that "to the best of his[] knowledge and belief no other [party] ha[d] the right to use the [Blue Emu] mark in commerce."

Pro Emu argued that an issue of fact was present as to Guy’s fraud, based on his alleged knowledge of Pro Emu’s "superior claim to the mark." That "superiority" arose, according to Pro Emu, from its invention of the Blue Emu formula and name, its disclosure of the formula and name to NFI under a confidentiality agreement, its sale of thousands of units of the cream to NFI, and the fact that Pro Emu controlled the manufacturing of the product at the time of NFI’s trademark application. NFI, on the other hand, contended that Guy’s averment on the application could not have been knowingly false because Pro Emu had not used the Blue Emu mark in commerce at the time of the application.

Though the Eleventh Circuit ultimately affirmed the district court’s decision to dismiss Pro Emu’s cancellation claim, it was "unpersuaded by the district court’s analysis." It criticized the district court’s reliance on: (1) an "inapt" Ninth Circuit decision and (2) facts arising after NFI filed its application, calling those facts "irrelevant to the question of whether [NFI] perpetrated a fraud in its application." The Eleventh Circuit also rejected the district court’s conclusion that, because NFI "has" the superior claim to ownership of the mark, Pro Emu cannot establish NFI’s fraud. "[A] present superior claim to ownership is not the test for evaluating a claim that there was fraud in a trademark application," the court explained.

Despite rejecting the district court’s approach, the Eleventh Circuit upheld the court’s ultimate conclusion—that the trademark cancellation claim should be dismissed. A trademark applicant commits fraud by knowingly making false, material representations of fact, the court noted, and a party claiming fraud had to establish it by clear and convincing evidence. Thus, Pro Emu had to produce clear and convincing evidence that, at the time of the application’s filing, Guy "knew or believed that another organization had a right to use the mark." This, the Eleventh Circuit held, Pro Emu failed to do.

First, Pro Emu could not establish a contractual right to use the mark. As the court noted, the only evidence of such a right, the Letter of Intent, was not signed until one week after the application was filed. Nor could Pro Emu establish a common law right to the Blue Emu mark, since it could not establish "actual prior use in commerce." Crystal Ent’t & Filmworks, Inc. v. Jurado, 643 F.3d 1313, 1321 (11th Cir. 2011). The Eleventh Circuit’s "actual prior use" test requires use in a way that is "sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind as those of the adopter of the mark." Id.This requires "widespread" distribution. Since Pro Emu’s only sale at the time of the application was to NFI, which occurred on the day of filing, the Eleventh Circuit held that Pro Emu failed to establish this factor.

The case is No. 14-13485.

Attorneys: Deanna L. Weidner (Anderson Weidner LLC) for Progressive Emu Inc. Charles A. Burke (Womble, Carlyle, Sandridge & Rice, LLP) for Nutrition & Fitness, Inc.

Companies: Progressive Emu Inc.; Nutrition & Fitness, Inc.

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