Wednesday, November 16, 2016

CAFC Reverses TTAB: In-State Sale of Two Hats to Out-of-State Resident Constitutes Use of Mark in Commerce

The CAFC reversed the TTAB's decision in adidas AG v. Christian Faith Fellowship Church, Cancellation No. 92053314 (September 14, 2015) [not precedential], ruling that the sale of two hats at the Church's bookstore to an out-of-state resident constituted use in commerce of applicant's mark ADD A ZERO. The Board had granted the petition of adidas AG for cancellation of two registrations owned by the Christian Faith Fellowship Church for the mark ADD A ZERO, in standard character and design form, for "clothing, namely shirts and caps," finding that these sales were de minimis and insufficient to show use that affects interstate commerce. Christian Faith Fellowship Church v. adidas AG, 120 USPQ2d 1640 (Fed. Cir. 2016) [precedential].

Section 1(a) of the Lanham Act provides that "[t]he owner of a trademark used in commerce may request registration of its trademark." "Commerce" is defined as "all commerce which may lawfully be regulated by Congress." To register a mark based on use in commerce, "one must sell or transport goods bearing the mark such that the sale or transport would be subject to Congress’s power under the Commerce Clause, which includes its power to regulate interstate commerce."

In this case, the question was whether the Church made a sale of goods bearing the mark, in commerce regulable by Congress, before it applied to register its marks. The TTAB's interpretation of the Lanham Act and the "legal tests it applies in measuring registrability" are subject to de novo review by the CAFC.

Congress has broad power under the Commerce Clause. The Supreme Court's has ruled that Congress may regulate activities that have a "substantial effect" on interstate commerce.

In considering whether an activity has a substantial effect on commerce, one must consider the nature of the statutory scheme involved, regardless of whether the particular activity at issue is local or de minimis in nature. Wickard v. Filburn, 317 U.S. 111 (1942).

“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. at127–28.

"[W[hen 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. Gonzalez v. Raich, 545 U.S. 1, 17 (2005), quoting United States v. Lopez, 514 U.S. 549, 558 (1995).

The CAFC observed that its prior rulings in "use in commerce" cases reflect the broad scope of Congress’s Commerce Clause powers. For example, in Larry Harmon, the court argued that the Lanham Act’s requirement could be satisfied by a single-location restaurant and it refused to adopt a de minimis test for the "use in commerce" requirement. 929 F.2d at 663. In Silenus Wines, the CAFC held that the intrastate sale of imported French wine constituted "use in commerce." 557 F.2d at 809.

In the case at hand, the Court found it clear in light of those precedents 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.

We reach this conclusion without defining the outer contours of Congress’s Commerce Clause powers because the transaction at issue falls comfortably within the bounds of those powers already sketched for us by the Supreme Court. 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.

The CAFC pointed out that the Church was not required to present evidence of "an actual and specific effect that its sale of hats to an out-of-state resident had on interstate commerce. Nor did it need to make a particularized showing that the hats themselves were destined to travel out of state."

Adidas’s argument that the Church must present actual proof that its sale to Ms. Howard directly affected commerce also contradicts precedent. "[P]roof that the defendant’s conduct in and of itself affected or threatened commerce is not needed. All that is needed is proof that the defendant’s conduct fell within a category of conduct that, in the aggregate, had the requisite effect." quoting Taylor v. United States, 136 S.Ct. 2074, 2080 (2016)

The appellate court pointed out that the definition of "commerce" in the Lanham Act means "all commerce that may be lawfully regulated by Congress." It concluded that 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."

And so the CAFC reversed the TTAB's decision and remanded the case to the Board for consideration of  adidas’s other grounds for cancellation (abandonment-and failure-to-function).

Read comments and post your comment here.

TTABlog comment: Following the court's reasoning, is there any "use" of a trademark or service mark that does not satisfy the "use in commerce" requirement? Is the old "interstate/intrastate" dichotomy dead, as far as "use" goes?

In other words, for application purposes are "first use" and "first use in commerce" now the same thing?

Text Copyright John L. Welch 2016.


At 7:31 AM, Anonymous Joe Dreitler said...

The answer to your question is that your local shoe repairman is now operating in interstate commerce if he re-soles your shoes and you get on an airplane. Do we really want the Principal Register clogged with purely local businesses?
Not exactly on point but relevant is that the Trademark Law Revision Act was in part a negative reaction to the CAFC's horrible decision in On-Cor. Token use was to be eliminated and the new definition of "use" being bona fide and in the ordinary course of trade was supposed to stop fake registrations. Selling 2 hats to someone from out of state is getting awfully close to token use.

At 7:48 AM, Blogger Brad Salai said...

While this case is pretty close to the edge, I think that Interstate commerce still means something. There was after all proof of purchase by an out-of-state customer and essentially the case said there's no requirement that the effect on commerce be other than diminimus.
While the case may make it difficult to show that any sale of goods doesn't qualify, I would think that at least some purely local services say cutting the lawn, probably wouldn't qualify.

At 12:04 PM, Anonymous Anonymous said...

I think any criticism should be directed at Commerce Clause precedent and not the Trademark Act. It is that precedent which makes "de minimis" sales into interstate commerce. "Token use" seems to me to be more about intent than quantity of use. If these sales were in the ordinary course of business and not made for the purpose of supporting trademark registration, then their transformation into something Congress can regulate is by operation of this precedent.

Use in commerce is "bona fide use of a mark in the ordinary course of trade" and the commerce is "all commerce which may be regulated by Congress." If we assume the first part, then the second part is interpreted through Commerce Clause precedent.

Ever since reading Wickard and its progeny in law school I have thought the Supreme Court's stretching of the Commerce Clause defies common sense, but this is what allowed the federal government to regulate so much of intrastate activity. I'm not sure that we can carve out "trademark use" from the larger body of Commerce Clause law. I agree with the result in this case, but Mr. Dreitler's concern about the clogging of the register is well taken. The USPTO is taking steps to address some of this stuff, but a cheaper and faster method for cancelling registrations where the mark is not in use (such has been discussed by the PTO and others, possibly modeled on a Canadian procedure) might be necessary to seriously address the "dead wood."

At 3:16 PM, Anonymous GKB said...

I think they could have also successfully argued that In Silenus Wines was applicable here as well. If the hats were manufactured in China (very likely), or even another state, this would also arguably meet the use in commerce requirement as per Silenus Wines.

At 3:18 PM, Blogger R J-M said...

With token use there was an intent, to secure rights before the actual product was ready for commercial distribution. Two hats in a gift shop seems to be classic token use, unless there were a lot more hats available in the shop and this was simply the first of ongoing sales.

At 3:31 PM, Anonymous Anonymous said...

Prior to the TTAB's initial decision in this case, I would have said that "interstate commerce" pretty much just meant "commerce", so I'm glad to see we're back in the world I thought we inhabited.

I think that once you define "use in commerce" as "one must sell or transport goods bearing the mark such that the sale or transport would be subject to Congress’s power under the Commerce Clause", that's pretty much the ballgame (and you can eliminate everything after 'bearing the mark'), given how ludicrously broad we now interpret the Commerce Clause.

I would tend to argue that "clogging the Principal Register" isn't an insurmountable problem, given the existence of concurrent use proceedings, and that this is far less an issue than foreign registrations with absurdly broad IDs that aren't being used in the U.S. at all.

At 4:45 PM, Blogger John L. Welch said...

The hats were supplied by an "Illinois-based" company. Doesn't say where manufactured. Seemingly irrelevant anyway. Even and in-state sale to an in-state customer of goods made in-state would probably be "in commerce" under the CAFC's view.

At 9:21 PM, Blogger DougW said...

To answer your question, no, in my opinion, there is no sale-type use (except perhaps the sale of something so truly bizarrely local as to be de minimus) that does not satisfy the "use in commerce" requirement, so long as said sale is bona fide and made to an out-of-state customer - and I have always believed that to be true.

The federal cases have almost universally held that virtually any commerce may be regulated by Congress if there is just the smallest connection to federal interests, while the Board has been an outlier. The Lanham Act was drafted to encompass not just presently regulated commerce but also all commerce that "may lawfully be regulated" in the future - taking such language directly from said expansive federal precedents.

The only exception, as best I can recall, was a Supreme Court holding that the draining of a private swamp that had no outlet to a waterway could not be regulated under the commerce clause. However, there was no sale there and the swamp, I believe, was entirely surrounded by the private owner's other land.

At 10:17 PM, Anonymous Anonymous said...

What about an instate customer, but they swipe a credit card on a sale?

Under Fair Labor Standards Act it would clearly qualify:

Employees are covered by the Fair Labor Standards Act (FLSA) when they are engaged in interstate or foreign commerce. Examples include:

- An employee who unloads goods which came from an out of state supplier.

- An employee such as a cashier or waitress who uses an electronic device which authorizes a credit card purchase. (since that involves the interstate banking and finance systems).

At 9:40 AM, Blogger Jonathan said...

John were did my submission go? Jonathan

At 6:12 PM, Anonymous Anonymous said...

Does this case now collapse use anywhere and use in commerce into same thing? Does this case also basically thwart any third-party challenge based on token use to the extent that you do not have a smoking gun email that says this sale is for the sake of maintaining my registration: Is this Bose II?

At 11:37 PM, Anonymous Tom McCarthy said...

I have a vivid memory of giving a talk in Washington D.C. in the early 1980s and mentioning that the 1977 Silenus case seemed to change the “traditional view” (that a sale must cross a state line) at least to the extent that a merchant who orders trademarked goods produced for it in another state and then sells those goods in one state, qualifies for federal registration of that trademark. At a break, an examiner from the USPTO came up and said something to this effect: “Yes, Prof, McCarthy, we know what the CCPA said in Silenus, but that’s not the rule we follow in the examining operation. We require a sale across a state line.”

Tom McCarthy

At 11:10 AM, Anonymous Johnathan said...

Since Lopez and Morrison it is clear that there is a jurisdictional element to the scope of the Commerce Clause. A jurisdictional-element requirement in a statute ensures a nexus between the regulated activity and interstate commerce. The jurisdictional element usually requires that some person or good that is subject to the regulation is "affecting interstate commerce.” Sometimes, depending on the federal statute, the jurisdictional element explicitly requires the transportation of a person or good across state lines in connection with the regulated activity. In the Lanham Act it is the statutory specific jurisdictional (and Supreme Court endorsed) requirement of trademark “use.” The significance of the jurisdictional element is that its presence in a statute must lead courts to engage in an analysis of the (i) purpose of the federal a statute at hand and (ii) whether the regulated activity accomplishes the indented purpose of the federal statute. In other words: when a federal statute includes a jurisdictional element - such as the requirement in the Lanham act of trademark use - courts should analyze the statute under Congress's power central question: does the regulated activity protect the channels and instrumentalities of interstate commerce; in our case, whether the single sale of two caps for a total of $38.34 is sufficient trademark use to invoke Lanham Act protection based on the Commerce Clause and such sale accomplishes the Lanham Act's statutory purpose.

The problem with the status quo is that today a state-line crossing requirement does not impose meaningful limits on congressional regulation. The jurisdictional element should be revised to impose more meaningful limits on Congress's Commerce Clause power. A long time ago, the Court solved much of this confusion/lack of clarity regarding how tight the nexus (the jurisdictional requirement) must be to interstate commerce, when it considered the jurisdictional element in United States v. Bass and Scarborough v. United States. Today the Roberts Court's general failure to employ meaningful limits on the jurisdictional element leads to this confusing opinion. Although, the FC reached the correct result for the wrong reasons.

At 1:53 PM, Blogger Wayne Carroll (Practicing Trademark Attorney) said...

Is there any commerce that has no federal regulation? My view is that if there is any type of federal regulation on a product or service, then selling that product or service, regardless of crossing state lines is interstate commerce. For example all clothing has flamability regulation, See
If this regulation receives its authority under the commerce clause then any sale of clothing affects interstate commerce becuase it is regulated at the federal level.

Do you think that that the CAFC would disagree with this analysis?


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