IP Law Daily Petitioner had standing to seek mark cancellation; entry of default judgment as discovery sanction warranted
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Tuesday, October 27, 2020

Petitioner had standing to seek mark cancellation; entry of default judgment as discovery sanction warranted

By Cheryl Beise, J.D.

The TTAB erred by not applying the Supreme Court’s two-part Lexmark test in analyzing standing under 15 U.S.C. § 1064 but nevertheless reached the correct result because the Empresa Cubana standard used by the Board was substantially similar to Lexmark.

The Trademark Trial and Appeal Board correctly determined that a company that owns federal registrations for SPROUTS trademarks in connection with retail grocery store services had standing to seek cancellation of a federal trademark registration for SPROUT for vending machine services, the U.S. Court of Appeals for the Federal Circuit has held. While the Board erred by not adopting the Supreme Court’s two-part Lexmark test in analyzing the petitioner’s standing, it nevertheless reached the correct result because there is no meaningful, substantive difference between the Lexmark test and the Empresa Cubana test applied by the Board. The Board also did not abuse its discretion by granting the petitioner’s motion for entry of default judgment and cancellation of the respondent’s SPROUT registration as a sanction for repeated discovery abuses (Corcamore, LLC v. SFM, LLC, October 27, 2020, Reyna, J.).

SFM LLC owns federal registrations for SPROUTS and other SPROUTS nominative trademarks for use in connection with retail grocery store services. The SPROUTS mark was first used in commerce at least as early as April 15, 2002.

Corcamore LLC owns a federal trademark registration for SPROUT for use in connection with vending machine services. The registration claims a first use date of May 1, 2008. Corcamore’s SPROUT mark is used by its affiliate, Sprout Retail, Inc., in combination with a cashless payment card, the "Sprout OneCard," and an associated SPROUT-branded loyalty program for consumers that buy food and beverages at certain vending machines.

SFM filed a petition with the TTAB to cancel Corcamore’s registration for SPROUT, based on priority of use and likelihood of confusion. Citing Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014), Corcamore moved to dismiss SFM’s petition for lack of standing under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Board, however, determined that Lexmark was limited to civil actions involving false designation of origin (referred to as false advertising) under 15 U.S.C. § 1125(a) and does not extend to cancellation of registered marks under 15 U.S.C. § 1064. The Board instead applied the Federal Circuit’s standing analysis in Empresa Cubana del Tabaco v. General Cigar Co., 753 F.3d 1270 (Fed. Cir. 2014), and concluded that SFM had standing because it sufficiently alleged a real interest in the cancellation proceeding and a reasonable belief of damage, as required under 15 U.S.C. § 1064. On December 21, 2018, Board entered default judgment as a sanction against Corcamore, which resulted in the cancellation of Corcamore’s trademark registration for SPROUT. Despite repeated warnings and orders from the Board, Corcamore continued to file frivolous and procedurally improper motions, resulting in years of delay, taxing of Board resources, and frustrating the petitioner’s prosecution of the case. Corcamore appealed.

Standingto seek cancellation. On appeal, Corcamore argued that SFM lacked standing to bring a petition under Section 1064 for cancellation of a registered trademark. According to Corcamore, the Board erred as a matter of law when it applied Empresa Cubana instead of the analytical framework established by the Supreme Court in Lexmark.The Federal Circuit first clarified that this case did not implicate the traditional legal notions of Article III standing. Instead, the appeal involved the requirements that a party must satisfy to bring or maintain a statutory cause of action, such as a petition to cancel a registered trademark under 15 U.S.C. § 1064. Section 1064 grants to "any person" the right to petition for cancellation of a registered mark if that person "believes that he is or will be damaged by the registration of a mark on the principal register."

The court next addressed the Board’s conclusion that the Lexmark framework does not apply to a cancellation action under Section 1064 because Lexmark involved false advertising under Section 1125(a), a different statutory provision. The Federal Circuit described the Board’s interpretation of Lexmark as "unduly narrow." "Lexmark established the analytical framework to be used for determining eligibility requirements for all statutory causes of action, including under § 1064, absent contrary Congressional intent," the court said. "Like all lower tribunals, we are obligated to apply that framework where applicable. We thus hold that the Lexmark zone-of-interests and proximate-causation requirements control the statutory cause of action analysis under § 1064."

While the Board applied the incorrect legal framework in this case, it nevertheless reached the correct result, according to the court, "because there is no meaningful, substantive difference in the analysis used in Lexmark and Empresa Cubana." Lexmark’s zone-of-interests requirement and Empressa Cubana’s real-interest requirement share a similar purpose and application. The purpose of both tests is to foreclose suit by mere intermeddlers or plaintiffs with only marginally related interests. Under both standards, a petitioner can satisfy the real-interest test by demonstrating a commercial interest. "Given those similarities in purpose and application, a party that demonstrates a real interest in cancelling a trademark under § 1064 has demonstrated an interest falling within the zone of interests protected by § 1064," the court said. "Similarly, a party that demonstrates a reasonable belief of damage by the registration of a trademark demonstrates proximate causation within the context of § 1064."

Applying Lexmark’s analytical framework to the facts of this case, the Federal Circuit found that SFM pleaded allegations sufficient to demonstrate the right to challenge Corcamore’s registered mark under Section 1064. SFM alleged that because the goods sold under SFM’s SPROUTS trademarks and Corcamore’s SPROUT trademark were substantially similar, purchasers would believe that Corcamore’s use of SPROUT was sponsored by SFM. This allegation identified a real interest falling within the zone of interests protected by Section 1064, the court said. SFM also alleged that consumers would mistakenly believe that SFM’s goods and Corcamore’s goods originated from the same source. This allegation sufficed to establish proximate cause.

The Board correctly held that SFM was entitled under Section 1064 to petition for cancellation of Corcamore’s SPROUT registration.

Sanctions. Corcamore maintained that the Board abused its discretion in granting default judgment as a discovery sanction. According to Corcamore, the Board abused its discretion by (1) entering default judgment without ever having addressed Corcamore’s motion to compel discovery; (2) conducting an ex parte teleconference with SFM and, thereafter, denying Corcamore’s motion for a protective order to delay a Rule 30(b)(6) deposition; and (3) finding that SFM did not receive Corcamore’s discovery responses mandated by a Board order.

None of Corcamore’s arguments were persuasive. Corcamore’s argument regarding its motion to compel was immaterial because, even if true, discovery misconduct by one party does not excuse the discovery misconduct of another party. The record did not support Corcamore’s allegation regarding ex parte communications because the Board explained that it "terminated the telephone conference" when Corcamore failed to appear. Finally, Corcamore failed to follow Rule 2.119 and provided no written explanation for why it failed to effect email service, as required by the Board and under 37 C.F.R. § 2.119(b)(4).

The Federal Circuit concluded that the Board’s entry of default judgment as a sanction was not an abuse of discretion.

The case is No. 2019-1526.

Attorneys: Charles L. Thomason (Thomason Law Office) for Corcamore, LLC. Johanna Wilbert (Quarles & Brady LLP) for SFM, LLC.

Companies: Corcamore, LLC; SFM, LLC

MainStory: TopStory Trademark GCNNews FedCirNews

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