Second Circuit: Famous marks doctrine doesn’t support NY unfair competition claimMarch 5, 2008

In a recent decision, the Second Circuit decided the one outstanding issue from a case it had previously decided in March 2007 (previously blogged here), namely whether the "famous marks" doctrine the court held Congress has not yet incorporated into federal trademark law might support a New York common law claim for unfair competition. The Second Circuit certified two questions to the New York Court of Appeals before resolving the issue. With the answers back, the court affirmed the district court grant of summary judgment to the defendants in its entirety.With the case now fully decided by the Second Circuit, the way is now clear for a possible appeal to the Supreme Court, as this case conflicts with the Ninth Circuit's 2004 decision in Grupo Gigante S.A. de C.V. v. Dallo & Co., which recognized the "famous marks" doctrine rejected by the Second Circuit in this case.More detail of ITC Ltd. v. Punchgini, Inc. after the jump.In the Second Circuit's 2007 decision, the court affirmed the grant of summary judgment on ITC's federal and state trademark infringement claims on the basis that ITC had abandoned its BUKHARA mark for restaurant services in the United States. The court held that under federal law, a trademark holder who has abandoned use of its mark in the United States cannot prevent others from using the mark solely because the mark is famous in the United States based on use in a foreign country. The court left open the question of whether this concept, referred to as the "famous marks" doctrine, might be applicable to a common law unfair competition claim under New York State law. After New York's highest court issued a ruling on this issue, the case came before the Second Circuit once again, resulting in a grant of summary judgment in favor of the defendants on all counts of ITC's complaint. As a brief summary, ITC sued the defendants on federal and state claims of trademark infringement, unfair competition, and false advertising in connection with the mark BUKHARA and related trade dress for use in restaurant services even though ITC had not used the mark in the United States since 1997. In 1999, the defendants, who had worked at two of ITC's Bukhara restaurants, opened an Indian restaurant named Bukhara Grill in New York. In 2003, about the time it began selling packaged food under a similar mark, DAL BUKHARA, ITC filed a Complaint in the Southern District of New York arguing that its BUKHARA mark qualified for protection in the U.S. under the "famous mark" doctrine based on the fame of the Bukhara name for restaurants services in the U.S. even though ITC's current use was outside the U.S. The district court granted summary judgment in favor of the defendants on all claims.

In the Second Circuit's 2007 decision, , the court affirmed the grant of summary judgment on ITC's federal and state trademark infringement claims on the basis that ITC had abandoned its Bukhara mark for restaurant services in the United States. The Second Circuit also affirmed the grant of summary judgment on ITC's federal unfair competition claims because this claim depended on the "famous marks" doctrine, which the court found was not recognized under current federal trademark law. This decision, however, was not the end of the case because the Second Circuit recognized the possibility that the "famous marks" doctrine might support ITC's state unfair competition claim under New York common law, and certified two question to New York's highest court, the New York Court of Appeals (NYCA): (1) "Does New York common law permit the owner of a federal mark or trade dress to assert property rights therein by virtue of the owner's prior use of the mark or dress in a foreign country?"; and (2) "If so, how famous must a foreign mark be to permit a foreign mark owner to bring a claim for unfair competition?"The NYCA rendered its decision in late December 2007 answering the first question in a qualified affirmative. Specifically, the court held that its ruling stems not from the "famous marks" doctrine, but rather the language in New York's unfair competition law stating that "when a business, through renown in New York, possesses goodwill constituting property or commercial advantage in this state, that goodwill is protected from misappropriation under New York unfair competition law. This is so whether the business is domestic or foreign." (emphasis added). With respect to the second question, the NYCA held that the mark must be such that consumers of goods or services provided there under "primarily associate the mark with the foreign plaintiff" and identified several relevant factors for evaluation including "evidence that the defendant intentionally associated its goods with those of the foreign plaintiff in the minds of the public, such as public statements or advertising stating or implying a connection with the foreign plaintiff; direct evidence, such as consumer surveys, indicating that consumers of defendant's goods or services believe them to be associated with the plaintiff; and evidence of actual overlap between customers of the New York defendant and the foreign plaintiff." After consideration of the NYCA decision, the Second Circuit affirmed the district court's award of summary judgment in its entirety (including the New York state unfair competition claim). It held that although ITC had provided sufficient evidence of deliberate copying, it failed to establish a triable issue as to the existence of secondary meaning in the New York market in which the defendants operated. In other words, the court held that ITC failed to set forth sufficient evidence to prove that consumers of goods or services provided under the BUKHARA mark "primarily associate the mark" with ITC.

Perhaps the most interesting issue to arise from this case is the Circuit split on the applicability of the "famous marks" doctrine under federal law. Notably, the "famous marks" doctrine, first described in Article 6bis to the Paris Convention for Protection of Industrial Property in 1925 is recognized as an exception to the "territoriality principle" whereby priority of U.S. trademark rights depends on priority of use in the U.S., not use anywhere else. Under the "famous marks" doctrine, a trademark owner not currently using a mark in the U.S. can nonetheless stop any infringing use in the U.S. if the mark at issue is famous or has acquired secondary meaning within the U.S. The Second Circuit's decision to reject the "famous marks" doctrine conflicts with the Ninth Circuit's 2004 decision in Grupo Gigante S.A. de C.V. v. Dallo & Co., which recognized the "famous marks" doctrine with respect to federal trademark rights. The decision also goes against noted trademark treatise author J. Thomas McCarthy, author of McCarthy on Trademarks and Unfair Competition. This circuit conflict alone leads some to believe that a petition for certiorari to the Supreme Court is in the future. We will keep you posted. To read the full decision in ITC Ltd. v. Punchgini, Inc., click here.

Read Vegas Trademark Attorney's take on the decision here.