IP Law Daily TTAB erred in holding that two sales were de minimis and not use in commerce
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Monday, November 14, 2016

TTAB erred in holding that two sales were de minimis and not use in commerce

By Peter Reap, J.D., LL.M.

The Trademark Trial and Appeal Board erred in ruling that the Christian Faith Fellowship Church’s documented sale of two marked hats to an out-of-state resident were de minimis and therefore did not constitute use of the marks in commerce under the Lanham Act, the U.S. Court of Appeals for the Federal Circuit has determined. Because the Lanham Act defines commerce as all activity regulable by Congress, and because the Church’s sale to an out-of-state resident fell within Congress’s power to regulate under the Commerce Clause, the Board’s cancellation of the Church’s trademarks on this basis was reversed. The dispute between the Church and adidas AG ("Adidas"), who filed a petition seeking cancellation of those marks, was remanded for further proceedings (Christian Faith Fellowship Church v. Adidas AG, November 14, 2016, Stoll, K.).

Christian Faith Fellowship Church, located in Zion, Illinois, began in 2005 selling apparel, both caps and shirts, emblazoned with the phrase "ADD A ZERO." The Church sold the "ADD A ZERO"-marked apparel as part of a fundraising campaign to pay off the debt on its church facility and the associated 40-acre tract of land.

The Church sought a federal trademark for the "ADD A ZERO" mark at the USPTO in March 2005. The Church filed two clothing-based trademark applications, one for use of "ADD A ZERO" in standard characters and another for a stylized design of the phrase. The Church’s applications relied on actual use of the marks in commerce, not intent to use the marks in commerce. The Office granted the Church’s applications and registered the marks as U.S. Registration Nos. 3,173,207 and 3,173,208.

In 2009, adidas AG ("Adidas") sought a clothing trademark for the phrase "ADIZERO," but the Office refused the application for likelihood of confusion with the Church’s "ADD A ZERO" marks. Adidas brought an action before the Board to cancel the Church’s marks. The Board considered the Church’s proffered evidence—over Adidas’s hearsay and authentication objections—of a cancelled check for the sale of two "ADD A ZERO"-marked hats for $38.34 in February 2005, before the Church applied for its marks. The check’s drawer was Charlotte Howard, who had a Wisconsin home address pre-printed on her check.

The Board disagreed with the Church that the sale to Ms. Howard evidenced the requisite "use in commerce" under the Lanham Act. The Board concluded: "[T]he sale of two ADD A ZERO caps at a minimal cost within the state of Illinois to Ms. Howard, who resides outside the state, does not affect commerce that Congress can regulate such that the transaction would constitute use in commerce for purposes of registration. . . . This sale is de minimis and, under the circumstances shown here, is insufficient to show use that affects interstate commerce."

The dispute between the parties in this case is limited to whether the Church, which filed its applications under Section 1051(a)’s "use in commerce" subsection, made a sale of marked goods in commerce regulable by Congress before applying for its marks.

Admission of check into evidence. As a threshold matter, the Federal Circuit addressed whether the Board erred in admitting Ms. Howard’s check into evidence and in finding that Ms. Howard resided in Wisconsin. Adidas argued that the pre-printed address on the check had nothing to do with Church business, and therefore, the check should not have been admissible under the business records exception. The court disagreed.

The Board did not abuse its discretion in determining that the Church relied on the check, a bank-issued negotiable instrument, as accurate and trustworthy, the appellate court held. The check is self-authenticating as commercial paper under Federal Rule of Evidence 902(9), the court also held.

Based on the admitted check and a Church pastor’s testimony that many Church parishioners reside in Wisconsin, the Board found that Ms. Howard resided in Wisconsin. Adidas argued that this factual conclusion was unsupported. To the contrary, the admitted check and the Church pastor’s testimony constituted substantial evidence to support the Board’s determination regarding Ms. Howard’s residence, the court found.

Use in commerce. Having resolved that the Board properly admitted the Church’s evidence of an intrastate sale to an out-of-state resident, the court turned to consider whether such a sale is regulable by Congress, satisfying the Lanham Act Section 1051(a) "use in commerce" requirement.

Beginning in the modern era with Wickard v. Filburn, the Supreme Court has interpreted the Commerce Clause as vesting in Congress the power to regulate activities that have a substantial effect on interstate commerce. There, a farmer challenged the statute’s application to him as exceeding Congress’s Commerce Clause powers, claiming his wheat harvesting was local in nature and had, at most, only an indirect effect on interstate commerce. The Court disagreed with the farmer’s arguments, holding that the activity must be viewed not in isolation, but in the aggregate: "That [the farmer’s] own contribution to the demand for wheat may be trivial by itself is not enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, is far from trivial." Id. at 127–28.

The Supreme Court reaffirmed Wickard’s "substantial effects" doctrine in Gonzales v. Raich, in which one of the parties grew marijuana on her property for personal, medicinal use and did not sell or transport the drug. 545 U.S. 1, 6–8 (2005). Thus, the Court held that when "a general regulatory statute bears a substantial relation to commerce, the de minimis character of individual instances arising under that statute is of no consequence" and Congress has the power to regulate it under the Commerce Clause. Id. at 17.

Moving to the facts of this case, it was clear in light of the foregoing precedent that the Church’s sale of two "ADD A ZERO"-marked hats to an out-of-state resident is regulable by Congress under the Commerce Clause and, therefore, constitutes "use in commerce" under the Lanham Act, the Federal Circuit ruled. This conclusion was reached without defining the outer contours of Congress’s Commerce Clause powers because the transaction at issue fell comfortably within the bounds of those powers already sketched out by the Supreme Court, the court noted.

The Lanham Act is a comprehensive scheme for regulating economic activity—namely the marking of commercial goods—and the "use in commerce" pre-registration requirement is an essential part of the Act. Further, it cannot be doubted that the transaction at issue—the private sale of goods, particularly apparel, to an out-of-state resident—is "quintessentially economic." Raich, 545 U.S. at 25.

The Board’s rationale that the sale to Ms. Howard was "de minimis" and thus "insufficient to show use that affects interstate commerce" was squarely at odds with the Wickard progeny of Commerce Clause cases. Adidas’s argument that the Church must present actual proof that its sale to Ms. Howard directly affected commerce also contradicted precedent.

Finally, the Board erred by not properly applying Federal Circuit holdings in Larry Harmon and Silenus Wines, which bear on the Lanham Act’s "use in commerce" requirement specifically rather than on the Commerce Clause in the abstract. Larry Harmon Pictures Corp. v. Williams Rest. Corp., 929 F.2d 662 (Fed. Cir. 1991); In re Silenus Wines, Inc., 557 F.2d 806 (CCPA 1977). Had it done so, it would not have concluded that a sale it characterized as de minimis was therefore insufficient to satisfy the "use in commerce" requirement.

The Board also erred to the extent it relied on In re Cook, United, Inc., 188 U.S.P.Q. 284 (T.T.A.B. 1975), and In re The Bagel Factory, Inc., 183 U.S.P.Q. 553 (T.T.A.B. 1974), for the proposition that an intrastate sale of goods can never be a sale "in commerce" without the trademark applicant doing something more, such as knowingly directing the movement of goods across state lines. To the extent Cook and Bagel Factory assert that the Lanham Act requires commercial activity, whether for goods or services, beyond that which is sufficient for Congress to regulate commercial activity under the Commerce Clause, they are incorrect, the appellate court observed. Because one need not direct goods across state lines for Congress to regulate the activity under the Commerce Clause, there is likewise no such per se condition for satisfying the Lanham Act’s "use in commerce" requirement.

The case is No. 2016-1296.

Attorneys: Richard W. Young (Quarles & Brady, LLP) for Christian Faith Fellowship Church. John Zaccaria (Notaro, Michalos & Zaccaria P.C.) for adidas AG.

Companies: Christian Faith Fellowship Church; adidas AG

MainStory: TopStory Trademark FedCirNews

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