Precedential No. 29: Finding Applicant's Period of Nonuse Excusable, TTAB Dismisses EUCALIN Opposition for Failure to Prove Priority

Finding Applicant Salud Natural Mexicana's long period of nonuse of its mark EUCALIN for nutritional supplements to be excusable, the Board dismissed this Section 2(d) opposition because Opposer ARSA Distributing was unable to prove priority. Salud, deemed a Specially Designated Narcotics Trafficker (SDNT), was banned from doing business in the United States from 2008 to 2015. Although it did not resume use of the mark for another seven years, Salud commenced TTAB litigation with ARSA in 2016 regarding ownership of the mark. The Board ruled that Salue's nonuse during the ban was excusable and further that Salud maintained an intent to resume use after 2016, negating the presumption of abandonment arising from its nonuse during that period. ARSA Distributing, Inc. v. Salud Natural Mexicana S.A. de C.V., 2022 USPQ2d 887 (TTAB 2022) [precedential] (Opinion by Judge Christen M. English).

Opposer ARSA claimed prior common law rights in the mark EUCALIN for dietary and nutritional supplements, but Salud asserted that ARSA's was its U.S. distributor and therefore the goodwill generated by use of the mark went to Salud as the supplier of the product. ARSA argued that there was no distribution agreement, and in any case that Salud had abandoned the mark because it stopped selling product from 2008 to 2015 and failed to produce any evidence of an intent to resume use during that period. Therefore, ARSA claimed, it had priority of use dating back to 2008.

The Board found that Salud began selling its EUCALIN product in the United States in 1999. The packaging stated that the product was made by Salud in Mexico and distributed in the United States by ARSA. There was conflicting testimony regarding the distribution agreement, and so the Board found that "there was no clear agreement between the parties."

Salud created the mark and the product, while ARSA was responsible for building up the business in the United States. ARSA solicited customers and fielded customer inquiries. ARSA's website address and telephone number were printed on the packaging.

When Salud was banned as an SDNT in October 2008, ARSA found a new manufacturer for the EUCALIN product, but under a different formulation, since ARSA did not have access to the original formulation. That same month, ARSA filed its application to register the mark EUCALIN, and obtained a registration in 2010, which was subsequently cancelled for failure to file the required Section 8 declaration of use.

In May 2015, Salud was removed from the SDNT list. In October 2015 it filed an application to register its EUCALIN mark. In 2016 it petitioned the Mexican Institute of Industrial Property ("IMPI") for administrative statements of infringement against ARSA's label and syrup suppliers.  In July 2016, Salud petitioned to cancel ARSA's registration, and in 2017 it applied to register its EUCALIN word-and-design mark.

Who Owned the Mark?: The Board first considered the issue of ownership of the EUCALIN mark. It observed that there is a legal presumption that Salud, the manufacturer, owned the mark, but the presumption may be rebutted. In determining ownership between a manufacturer and distributor, the Board considers the following factors:

1. which party created and first affixed the mark to the product;
2. which party’s name appeared with the trademark on packaging and promotional materials; 
3. which party maintained the quality and uniformity of the product, including technical changes; 
4. which party does the consuming public believe stands behind the product, e.g., to whom customers direct complaints and turn to for correction of defective products; 
5. which party paid for advertising; and 
6. what a party represents to others about the source or origin of the product. 

The Board found that the first, second, third, and sixth factors favored Salud, while the second and fifth favored ARSA, and it concluded that "[o]n balance, the factors favor Applicant." Therefore,  ARSA did not rebut the presumption that its use of the EUCALIN mark from 1999 to October 2008 inured to the benefit of Salud as owner of the mark.

Abandonment: The question, then, was whether Salud had abandoned its rights in the EUCALIN mark. Abandonment required nonuse coupled with an intent not to resume use. ARSA established a presumptive prima facie case of abandonment based on Salud's admitted nonuse of the mark during any three-year period between 2008 and 2015. The burden of production shifted to Salud to prove an intent to resume use.

Salud argued that, in view of the ban from conducting business in the United States, its nonuse of the mark from 2008 to 2015 was excusable. Furthermore, its intent to resume use was demonstrated by its prompt filing of an application to register the mark in October 2015, the infringement actions filed in Mexico, and its petition for cancellation of ARSA's registration. The Board sided with Salud:

This is not a case where Applicant decided to cease use of its mark for business reasons. Rather, Applicant had no choice but to cease use of its mark because its use was prohibited by government sanctions banning it from doing business in the United States for the period it was identified as a SDNT.

The Board found that Salud "maintained an intent to resume use of the EUCALIN mark during its period of compulsory nonuse and beyond."

ARSA contended that, since Salud did not resume actual use of the mark until nearly seven years after the ban was lifted in 2015, it did not maintain an intent to resume use. The Board was unmoved. Since 2016, Salud was engaged in litigation before the Board regarding the EUCALIN mark. Its "vigorous defense" of the instant opposition also supported a finding that it maintained an intent to resume use throughout the litigation. The Board found that Salud's nonuse during the period of litigation was excusable, "negating the inference of abandonment."

Conclusion: Because ARSA failed to prove priority, the Board dismissed its Section 2(d) claim.

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TTABlogger comment: Salud was named an SDNT by the U.S. Treasury Department's Office of Foreign Assets Control, under the Kingpin Act. The government claimed that a number of Mexican pharmaceutical companies participated in a network that made and distributed methamphetamines.

Text Copyright John L. Welch 2022.