Prior use must be lawful, says Ninth Circuit

In CreAgri Inc v USANA Health Sciences Inc, the US Court of Appeals for the Ninth Circuit has ruled that the plaintiff could not establish that it had prior trademark rights to maintain an infringement claim against the defendant because the plaintiff's use of its asserted mark was not a lawful use in commerce.

On its face, the court's decision stands for a simple and logical proposition: use in commerce is not enough to establish trademark rights - a use in commerce creates trademark rights only when it is lawful. It is unclear, however, just how this ruling may apply in situations not completely analogous to the factual scenario in CreAgri, but which involve other activities of a mark owner considered unlawful for one reason or another.

In the CreAgri Case, plaintiff CreAgri Inc, which had been selling a dietary supplement allegedly containing hydroxytyrosol under the mark OLIVENOL since 2001, sued USANA Health Sciences Inc for trademark infringement when USANA began selling a competing dietary supplement under the mark OLIVOL in 2002. The court denied CreAgri's trademark infringement claim because CreAgri's use of OLIVENOL that occurred prior to USANA's use of OLIVOL was on a product that bore a label that misidentified the amount of hydroxytyrosol actually contained in CreAgri's supplement. As such, the court found that, at all times prior to USANA's priority date for OLIVOL, CreAgri's use of OLIVENOL was in violation of the Federal Food, Drug and Cosmetic Act's labelling regulations. Thus, CreAgri could not establish any valid trademark rights prior to the party it had sued. The court also cancelled CreAgri's US trademark registration for OLIVENOL for lack of lawful use.

The court's stated rationale for its finding was twofold. First, the court reasoned that it would be absurd to have the government grant trademark protection to a seller based on actions that the seller took in violation of that government's own laws. Second, the court did not want to "reward the hasty at the expense of the diligent" by awarding trademark priority to a seller who rushes to market without taking care to comply with the relevant regulations.

These rationales are compelling and seem to suggest that a wide variety of legal violations committed by a mark owner could result in invalidation of trademark rights. Other than the specific labelling violation addressed in the case, however, CreAgri does not generally define what constitutes unlawful use of a mark sufficient to invalidate trademark rights. One can imagine a wide variety of activities that a business, either intentionally or unintentionally, may engage in that do not comply with a local or federal laws and regulations, but it is not clear whether all such activities could invalidate rights in the marks used by that business. What if a company is using a mark in connection with distribution of a product or service which is lawful in one state but not in another? What if a company has not paid appropriate taxes on licensing fees earned from the licensing of mark? The CreAgri Case makes it clear that businesses which are not completely compliant with laws and regulations may suffer more than the penalty regularly associated with such a violation - the business may also suffer invalidation of valuable trademark rights. However, the CreAgri Case arguably raises more questions than it answers in terms of the precise types of activities that could subject a mark owner to invalidation of rights.

Gina Durham, DLA Piper, Chicago