HOBBIT slept on its rights, says court

In The Saul Zaentz Company d/b/a Tolkien Enterprises v Wozniak Travel Inc (Case 06-5421, July 2008), the US District Court for the Northern District of California has granted the defendant’s motion for summary judgment on the basis that the affirmative defence of laches barred the plaintiff’s claims.
Wozniak Travel Inc founded Hobbit Travel in 1976. During its 30-year history, Hobbit Travel grew to become the largest travel agency in Minnesota, booking trips for 2.5 million passengers and grossing $1 billion in sales. Over this period, Wozniak spent $10 million in advertising and engaged in a robust national marketing campaign that included two visits to the Oprah Winfrey show in the early 1990s. In 1996 Wozniak registered the domain name 'hobbittravel.com'; it continues to operate the site for online travel sales. It was admitted that the name Hobbit was initially selected so that consumers, who were primarily students having read JRR Tolkien’s books, would identify with the name. 
Tolkien Enterprises licenses the rights associated with Tolkien’s popular books, including The Hobbit and the series The Lord of the Rings, which were written in the mid-1950s and became popular through a variety of media. Notably, the recent Lord of the Rings films grossed more than $1 billion in the United States alone. Although Tolkien Enterprises owns over 100 registrations for various Tolkien-related trademarks, none of these marks are registered for use in connection with travel goods or services.  
Tolkien Enterprises claimed that it learned of Hobbit Travel in 2003 due to Wozniak’s growing internet presence. In 2004 Tolkien Enterprises sent a cease and desist letter to Wozniak, objecting to the use of the word 'hobbit' in relation to travel services. Approximately two years later, Tolkien Enterprises filed the present suit against Wozniak, alleging trademark infringement, unfair competition and dilution of the HOBBIT mark.
Wozniak moved for summary judgment. In its defence, Wozniak claimed, among other things, that the suit was barred by laches. Laches is an equitable time limitation on a party’s right to bring suit, resting on the maxim that “one who seeks the help of a court of equity must not sleep on their rights”. A party asserting the defence of laches must show that:
  • the plaintiff’s delay in bringing suit was unreasonable; and
  • the delay caused the defendant prejudice.
To evaluate whether the delay was unreasonable, the court first reviewed when Tolkien Enterprises knew or should have known of its claims against Wozniak. Relying on both the existence of multiple trademark and business name search reports (dating back to 1988) identifying Hobbit Travel in Tolkien Enterprises' possession, as well as Wozniak’s open and continuous use of the Hobbit Travel name, the court found that Tolkien Enterprises knew or should have known of its claims against Wozniak 18 years before it ultimately filed suit in 2006.
Tolkien Enterprises' argument that summary judgment should not be granted because its outside trademark counsel attested that she did not know of Hobbit Travel until 2003 when she reviewed a search report ordered from an internet domain name watch service was not persuasive. According to the court, “Ninth Circuit precedent is clear that [...] laches can be based on either constructive or actual knowledge”. The court concluded that:
  • Tolkien Enterprises had consecutive notice of Hobbit Travel based on the search report hits; and
  • actual knowledge was not required.
The court went on to determine whether the 18-year delay was unreasonable by evaluating the relevant statutes of limitations and any legitimate excuse for delay. To this end, the court found that the relevant statute of limitations was between three and four years, depending on the specific claim. As such, the court found that the 18-year delay constituted an unreasonable delay, as it was three times the longest applicable statute of limitations.
The court also rejected Tolkien Enterprises' proffered excuses for the delay (eg, progressive encroachment) by noting that:
  • Wozniak’s business has been substantial for many years; and
  • during that period, use of the name Hobbit Travel was not de minimis.   
Lastly, the court easily determined that Wozniak had suffered prejudice based on the investment in, and longstanding use of, the name Hobbit Travel. In doing so, the court rejected the 'creative' argument that Wozniak’s alleged naked licensing of the HOBBIT mark through its business dealings had constituted abandonment, which Tolkien had argued would negate an element of the laches defence. Accordingly, the court granted Wozniak’s motion for summary judgment and dismissed Tolkien Enterprises' case in its entirety.
Susan M Natland and Jeffrey H Larson, Knobbe Martens Olson & Bear LLP, Irvine

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