Hotel Dispute Gets An Extended Stay in Puerto Rico: First Circuit Case Illustrates the Limits of an Incontestable Registration

Gran-Melia2
Melia

In the U.S., a senior user of a trademark can block a junior user within the geographic area of prior use, even if the junior user is the party with an incontestable U.S. federal registration.  This is perfectly illustrated in a recent First Circuit decision.

The Dispute

Hotel Meliá, Inc. (HMI), the defendant-appellant in the case, has been operating Hotel Meliá in Ponce, Puerto Rico for over a century, but with no federal registration.  The plaintiff-appellees were various affiliates of Sol Meliá, S.A., a public Spanish company, which owns and operates one of the largest hotel chains in Europe, along with several hotels in the U.S., all using the name Meliá.  Sol Meliá obtained several MELIA-formative trademark registrations in the U.S. in the 1990s.

In 2007, Sol Meliá renamed a large, luxury resort  it operated in Coco Beach, Puerto Rico from “Paradisus” to the “Gran Meliá.”  Countering lawsuits followed, and eventually a federal district court judge in Puerto Rico granted a motion for summary judgment filed by Sol Meliá.  Even though many of the traditional likelihood of confusion factors favored HMI, the district court held that the two marks could “co-exist within Puerto Rico without causing substantial confusion to the reasonable consumer.”  He concluded that HMI would continue to use the Meliá mark, but only within Ponce, and that Sol Meliá was free to use the mark everywhere in Puerto Rico (and elsewhere throughout the U.S.) except for Ponce.

The First Circuit Ruling

The First Circuit reversed this ruling, holding that there were genuine issues of fact regarding the scope of HMI’s prior rights.  The court noted that “[t]he reputation of an upscale hotel that has been attracting guests for more than a century is unlikely to be limited only to the city where it is located.”  The court noted that the record in the case was “sparse,” and hinted strongly that the district court should re-open discovery before trial.

“Incontestable” Registrations

As this case illustrates, the term “incontestable” can be a bit of a misnomer, or at least convey a false sense of security.  An incontestable registration does indeed create a presumption that the holder is entitled to exclusive use of the mark throughout the U.S., and severely limits the ability of another party to cancel, contest or otherwise challenge the registration.  However, Section 15 of the Trademark Act (15 U.S.C. § 1065) also provides that the holder’s rights are limited “to the extent, if any, to which [its] use . . . infringes a valid right acquired under the law of any State or Territory by use of a mark or trade name continuing from a date prior to the date of registration.”  This is why HMI’s rights prevailed.

Prior Common Law Rights

This case also illustrates the perils of expanding into a new territory for companies with well-established international brands.  Both the district court and circuit court opinions are consistent with Sol Meliá having engaged in a gradual expansion of a well-known international brand, with no ill intentions whatsoever; but this messy and no doubt expensive litigation will continue, with HMI now having increased leverage as a result of the First Circuit’s analysis.

One interesting question is whether Sol Meliá’s counsel conducted a full, common-law trademark search before assessing the risks of re-naming its Puerto Rican luxury facility in 2007.  Such searches cost more than searches of federal and state registries, but they can avoid the risk of a protracted litigation such as this.

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