Tuesday, September 17, 2013

Register Your Trademarks Early ... Or Else!

Dorpan, S.L. v. Hotel Melia, Inc., No. 12-1679 (1st Cir., Aug. 28, 2013)

A recent case from the First Circuit Court of Appeals, the federal court whose rulings  cover Maine, New Hampshire, Massachusetts, Rhode Island and Puerto Rico, demonstrates how important it is for business owners to register their trademarks as early as possible, and the consequences of not doing so.

The case involves a dispute between two hotels over the right to use the mark “Meliá” in Puerto Rico.   Hotel Meliá, Inc. (HMI) has operated the Hotel Meliá in Ponce, Puerto Rico, at the same location without interruption since 1895.  The hotel has achieved some reknown, and has attracted many famous guests over the years, including President Theodore Roosevelt.  Although HMI claims that the Hotel Meliá is the oldest continuously operating hotel in Puerto Rico, HMI never registered its name as a trademark with either the Puerto Rico Department of State, or the U.S. Patent and Trademark Office.

Sol Meliá, a public Spanish company, owns and operates the largest hotel chain in Spain and the third largest in Europe, as well as several hotels in North America using variations of the Meliá mark.  Since the late 1990’s, Sol Meliá and its affiliated company Dorpan, S.L. (collectively, Dorpan), have registered 11 variations of trademarks containing Meliá with the U.S. Patent and Trademark Office for their hotel and resort services.  In 2007, Sol Meliá renovated and reopened a luxury beach resort in Coco Beach, Puerto Rico, called “Gran Meliá,” about 80 mles from Ponce.  HMI predictably objected, negotiations between the two companies broke down, and the dispute moved to court in 2008.  The district court granted summary judgment for Dorpan, finding that “these two marks can co-exist within Puerto Rico without causing substantial confusion to the reasonable consumer.”  HMI appealed.

On appeal, the First Circuit noted that, in the United States, trademark rights derive from use of the mark, not from registration, and analyzed the contours of Dorpan’s trademark rights under federal law and HMI’s trademark rights under common law.  Dorpan’s trademark registrations had become “incontestable” under Section 15 of the Lanham Act, which creates a presumption that the holder of the mark is entitled to exclusive use of the mark throughout the United States if certain conditions are met.  In this case, however, HMI raised a so-called “Section 15 defense.”  Section 15 explicitly limits the incontestable right of a federal trademark holder to the extent, if any, to which use of a mark infringes a valid common law or state trademark right acquired by continuous use of a mark from a date prior to the date of Dorpan’s registration.  As a result, Dorpan’s rights under federal law are limited to the extent of any rights HMI acquired under Puerto Rico common law before Dorpan’s federal registration issued.

In analyzing HMI’s rights under common law, the First Circuit correctly noted that HMI, as the senior user, does not automatically acquire exclusive right to use the mark throughout Puerto Rico.  Rather, HMI is entitled to exclusive use of the mark in the area where it “currently do[es] business” using the mark.  The First Circuit equated this area to the “one in which the use of a similar mark would create a likelihood of confusion.”  As a result, the First Circuit treated the inquiry into the scope of HMI’s pre-existing common law trademark rights and the likelihood of confusion analysis between HMI’s and Dorpan’s marks as one and the same.
The First Circuit next undertook a traditional multi-factor likelihood of confusion analysis, and, with one exception, reached the same conclusion as the district court on the factors.  The only factor where the First Circuit and the district court reached a different conclusion was on the strength of the marks.  Here, the First Circuit found errors in the district court’s analysis.  The court felt there were genuine issues of material fact on the relative strength of the two competing marks.  The court noted that a reasonable jury could find that Dorpan would be able to use its greater financial strength to flood the market with advertising, thereby causing HMI to lose control over its brand and reputation.  The court also noted that, on the other hand, a reasonable jury could conclude that “Hotel Meliá” was so strongly associated with historic downtown Ponce that consumers are unlikely to associate it with a hotel in Coco Beach.  As a result, the court vacated the summary judgment ruling, and remanded the case for further factual determinations on the issue of likelihood of confusion.

The case is instructive for several reasons:

·         It serves as a reminder that trademark owners should file trademark applications as early as possible.  If HMI had filed its applications prior to the time Dorpan filed its U.S. applications in the 1990’s, Dorpan probably would not have been able to obtain U.S. registrations, and the position of the litigation would have been much different.  The modest cost of obtaining a U.S. registration is far, far less than the amounts HMI must have spent litigating this issue in the federal courts.

·         By not registering its trademarks before Dorpan, and by not petitioning to cancel Dorpan’s registrations before they became “incontestable,” HMI’s use of its MELIÁ  mark is limited to use where it “did business” prior to the date of Dorpan’s Certificate of Registration.   The First Circuit noted that, for a hotel, this area is much larger than the city in which it operates.  Unlike other service providers, hotels seek to attract customers physically distant from the point of service, so HMI’s rights even may extend outside of Puerto Rico.  But for most service providers, the area in which it “does business” is going to be limited. 

·         The decision also reminds us that the first user of a trademark can never be stopped from using its mark, even by a junior user who obtains an incontestable U.S. registration, at least to the extent the mark was in use on the date that the junior user obtains its U.S. Certificate of Registration.

·         The scope of the senior user’s common law rights are more or less co-extensive with the area in which there is likelihood of confusion. In other words, if there is likelihood of confusion in an area, then the senior user has trademark rights there.  In an actual dispute, survey evidence would probably be required to demonstrate likelihood of confusion.