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A financial institution that altered its logo in 2009 to make it more closely resemble a competitor's trade dress may be enjoined from using marks that it has used for decades due to the doctrine of progressive encroachment, the U.S. Court of Appeals for the Fourth Circuit held Oct. 18 (Oriental Financial Group Inc. v. Cooperativa De Ahorro y Credito Oriental, 1st Cir., No. 11-1473, 10/18/12).
Although the underlying marks used by the parties had both been in use since the 1960s, the defendant's recent changes to its logo, coupled with the defendant's geographic expansion into territory in which the plaintiff had an established commercial presence, gave the plaintiff an actionable claim of infringement, the court said. Thus it held that the doctrine of progressive encroachment barred the defendant's laches defense. It accordingly remanded the case and instructed the district court to determine if a broad injunction should issue to prevent the defendant from using both its new marks, and marks that it has used for decades.
Oriental Financial Group Inc. and its subsidiaries, Oriental Financial Services Corp. and Oriental Bank and Trust, have used the “Oriental” mark to promote their financial services in Puerto Rico since 1964.
Until the 1980s Oriental's business was exclusive to southeastern Puerto Rico, where it opened its first branch in the city of Humacao in 1964. In the 1990s Oriental began to expand and by 2010 it had 43 branches located throughout the island.
Cooperativa De Ahorro y Creditor “Oriental (“Cooperativa”) is a non-profit credit union that opened its first branch in Humacao in 1966. Cooperativa has used the word Oriental in its mark since it opened, and it has used the mark “Coop Oriental” since 1995.
Cooperativa began opening branches in other regions of the island in 2008. Cooperativa also launched a new advertising campaign that corresponded with its geographic expansion. Pursuant to its marketing blitz, Cooperativa altered its Coop Oriental logo in 2009. The new logo emphasized the term “Oriental” more than the term “Coop,” which represented a break from its previous logos that had placed more emphasis on “Coop.” The new logo also contained orange trade dress, which made it more similar to Oriental's orange trade dress. Moreover, Cooperativa began advertising in mediums that it had previously not used, such as cable television and billboards.
Oriental sent Cooperativa a cease-and-desist letter in December 2009 demanding Cooperativa immediately stop “the unauthorized use of the ORIENTAL mark or any variant or derivative thereof as part of its corporate or commercial name, services or the domain name of its website.” Cooperativa did not alter its use of the mark.
(i) the term ORIENTAL, including stylized depictions thereof; (ii) any composite trademark that includes the term ORIENTAL; or (iii) any composite trademark, including design marks and slogans, that comprises the term ORIENTAL.
Cooperativa argued that the claims were barred by laches.
Judge José A. Fusté of the U.S. District Court for the District of Puerto Rico, after holding a permanent injunction hearing, issued a limited injunction against Cooperativa. The court determined that Cooperativa's new logo was infringing, and thus it enjoined any further use of the new design. The court never reached the merits of Cooperativa's laches defense as it instead determined that Cooperativa's pre-2009 logo was not infringing. The district court thus permitted Cooperativa to use the marks that it had used for decades.
In January 2011, Oriental filed a motion seeking a expansion of the injunction to prohibit Cooperativa's use of any mark containing either the term “Coop Oriental” or “Cooperativa Oriental.” The court declined to broarden the injunction after it determined that Oriental had not demonstrated that Cooperativa's use of the Coop Oriental mark had resulted in actual confusion.
Both parties appealed. On appeal, Oriental renewed its request for a broader injunction, and Cooperativa argued that Oriental was barred by laches from seeking to enjoin Cooperativa's use of the Coop Oriental and the Cooperativa Oriental marks.
The district court erred when it refused to expand the injunction based solely on its determination that there was no actual confusion, the appeals court said.
“[T]he fact that there was no pre-2009 evidence of actual confusion is not dispositive of Oriental's challenge to Cooperativa's use of the COOP ORIENTAL mark (though, as we note below, this lack of pre-2009 evidence should be considered by the district court in its likelihood of confusion analysis),” Judge Timothy B. Dyk of the U.S. Court of Appeals for the Federal Circuit, sitting by designation, said.
When determining if a plaintiff's service mark has been infringed in violation of Section 43(a) of the Lanham Act, a district court should apply the entire eight factor likelihood of confusion test set forth in Beacon Mutual Insurance Co. v. OneBeacon Insurance Group, 376 F.3d 8, 71 USPQ2d 1641 (1st Cir. 2004) (135 PTD, 7/15/04), the court said.
(1) the similarity of the marks; (2) the similarity of the goods; (3) the relationship between the parties' channels of trade; (4) the relationship between the parties' advertising; (5) the classes of prospective purchasers; (6) evidence of actual confusion; (7) the defendant's intent in adopting its mark; and (8) the strength of the plaintiff's mark.
The appeals court noted that the district court applied the eight factors only with respect to Cooperativa's new logo. “However, many of the findings made by the district court are not specific to the orange trade dress contained in the 2009 logo, and thus are equally relevant in assessing Cooperativa's use of the COOP ORIENTAL mark standing alone,” the court said.
Specifically, the district court's finding that the goods were similar and traveled through similar channels was as relevant to Oriental's attempt to enjoin use of all Coop Oriental marks as it was to Oriental's attempt to enjoin just the new logo, the appeals court said.
Moreover, the district court's determination that the fourth and the fifth factors weighed in favor of a finding of infringement with respect to the new logo was applicable to all uses of the Coop Oriental mark, the court said.
Finally, the district court's determination that Oriental's mark was strong weighed in favor of infringement, the appeals court said. Accordingly, the court criticized the lower court for ignoring these factors and instead putting too much weight on its determination on the sixth factor. But even that factor was improperly analyzed, the court said.
“[E]ven though not required, Oriental presented evidence of post-2009 actual confusion arguably attributable to use of the COOP ORIENTAL mark standing alone,” the court said. It pointed out that Oriental in fact introduced numerous instances of actual infringement. For example, one of Oriental's branch managers testified that customers frequently try to cash Cooperativa checks at Oriental branches. The manager also claimed that some Cooperativa customers have tried to deposit money into their Cooperativa accounts at Oriental branches. Moreover, there was also evidence of phone calls to Oriental by customers who were confused over the relationship between Oriental and Cooperativa.
“Each of these instances of actual confusion appeared to be attributable to the use of the name COOP ORIENTAL without the logo,” the appeals court said.
Furthermore, the district court specifically found that Cooperativa's decision to incorporate orange into its new logo indicated a bad faith intent to profit from Oriental's popularity. “A similar inference might also be drawn based upon Cooperativa's use of the COOP ORIENTAL mark standing alone,” the court said.
The court thus remanded the case. On remand, it instructed the district court to determine whether Cooperativa's use of the Coop Oriental mark creates a likelihood of confusion that would entitle Oriental to broader injunctive relief.
The court noted that there were no findings below as to whether Cooperativa's use of the Cooperativa Oriental mark was infringing. On remand the district court was instructed to apply the likelihood of confusion factors to determine if Oriental was entitled to an injunction prohibiting Cooperativa's use of that mark.
The court next addressed Cooperativa's cross-appeal. Cooperativa did not take issue with the district court's injunction preventing it from using the new logo, but rather claimed that Oriental's claim for an extended injunction is barred by laches.
Laches, the court noted, is an equitable defense that prevents a plaintiff from profiting after it has failed to assert its rights for an unreasonable amount of time. The court further noted that there was a circuit split as to whether laches can be asserted to defend against a request for an injunction. Ultimately, the court determined that it need not decided whether laches can defend against an injunction because, in this case, laches is not an available defense.
A defendant asserting a laches defense must demonstrate both that the plaintiff failed to diligently enforce its rights, and that the plaintiff's delay prejudiced the defendant, the court said. “However, laches applies only where the plaintiff knew or should have known of the infringing conduct,” it added.
Cooperativa argued that Oriental knew, or should have known, that it has been using the Coop Oriental mark since 1966, and the Cooperativa Oriental mark since 1995. But the court said that it need not determine whether Oriental should have known of Cooperativa's use of the marks, or whether Oriental's failure to enforce its rights prejudiced Cooperativa because “the laches defense is barred by the doctrine of progressive encroachment.”
As a general rule the progressive encroachment doctrine requires proof that (1) during the period of the delay the plaintiff could reasonably conclude that it should not bring suit to challenge the allegedly infringing activity; (2) the defendant materially altered its infringing activities; and (3) suit was not unreasonably delayed after the alteration in infringing activity.
The court went on to note that a number of its sister circuits have found the doctrine of progressive encroachment to bar a laches defense in certain trademark cases. Specifically, the court found guidance inKellogg Co. v. Exxon Corp., 209 F.3d 562, 54 USPQ2d 1413 (6th Cir. 2000); Champagne Louis Roederer v. J. Garcia Carrion S.A., 569 F.3d 855, 91 USPQ2d 1214 (8th Cir. 2009) (130 PTD, 7/10/09); Tillamook Country Smoker Inc. v. Tillamook County Creamery Association, 465 F.3d 1102, 80 USPQ2d 1460 (9th Cir. 2006) (199 PTD, 10/16/06);Chattanoga Manufacturing Inc. v. Nike Inc., 301 F.3d 789, 64 USPQ2d 1140 (7th Cir. 2002); andKason Industries Inc. v. Component Hardware Group Inc., 120 F.3d 1199, 43 USPQ2d 1831 (11th Cir. 1997).
“We join our sister circuits in holding that the doctrine of progressive encroachment can bar the laches defense in a trademark case, and we conclude that, based on the undisputed facts, this doctrine is applicable here,” the court said.
The appeals court noted that only the first factor of the progressive encroachment doctrine was in dispute as the parties generally agreed that Oriental brought suit shortly after Cooperativa altered its logo and began expanding the geographic scope of its operations. The relevant question was thus whether Oriental's decision not to challenge Cooperativa's pre-2009 operations was reasonable. The court determined that it was.
“[T]he progressive encroachment doctrine allows the plaintiff to 'wait until the likelihood of confusion looms large to bring the action,' ” the court said, quoting Kellogg.
In this case, although Cooperativa had purchased a few advertisements that used the Coop Oriental mark between 1995 and 1998, “all but one of these advertisements were from a single newspaper in the Humacao region, and the one exception appeared in another regional newspaper,” the court said. Furthermore, prior to the geographic expansion of its services in 2008, nearly all of Cooperativa's advertising materials used the company's entire corporate business name, and not the Coop Oriental mark, the court found. It concluded:
Given the national scope of Oriental's business, the limited geographic scope of Cooperativa's business, and the limited scope of the allegedly infringing uses, we conclude that the allegedly infringing activity was de minimis before 2009 and that the doctrine of progressive encroachment applies. Thus, it was reasonable as a matter of law for Oriental to delay bringing suit against Cooperativa with respect to the COOP ORIENTAL mark and similar marks.
Accordingly, on remand Cooperativa will not be permitted to raise its laches defense, the court said.
The opinion was joined by Judges Michael Boudin and Bruce M. Selya.
Oriental was represented by Robert C. Quinones-Rivera of McConnell Valdes, Hato Rey, Puerto Rico. Cooperativa was represented by James W. McCartney of Cancio, Nadal, Rivera & Diaz, San Juan, Puerto Rico.
Opinion at http://pub.bna.com/ptcj/111473Oct1812.pdf
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