Decades of Delay Are OK: First Circuit Rejects Laches Defense Based on “Doctrine of Progressive Encroachment”

orientalIn a case on appeal from the District of Puerto Rico, the First Circuit held that the “doctrine of progressive encroachment” defeated a junior user’s laches defense, despite the fact that the junior user had been co-existing with the senior user for decades.

This case involved two banks, both started in the 1960s and both using the mark ORIENTAL. (Banks, it may be said, have become to the Lanham Act as railroads were to the Commerce Clause a century ago.) After the bank with junior rights (“Cooperativa”) greatly expanded its advertising in 2009 and changed its mark to include an orange trade dress similar to the senior user’s (“Oriental Financial’s”) trade dress, the senior user brought suit. The district court enjoined use of the new mark, but gave somewhat ambiguous orders as to whether it was also enjoining the non-orange mark that had been used prior to 2009.

The district court’s order regarding Cooperativa’s new mark was apparently not in serious dispute on appeal. Regarding the Cooperativa’s former marks, however, the First Circuit held that the plaintiff had preserved the issue and that a broader injunction should be reconsidered on remand.

This outcome raised the issue of Cooperativa’s laches defense. On that point, the First Circuit held as a matter of law that the defense was barred because (1) during the period of delay Oriental Financial could have reasonably concluded it should not bring suit; (2) Cooperativa materially altered its infringing activities; and (3) Cooperativa did not unreasonably delay filing suit after the alteration in infringing activity.

Perhaps the most striking aspect of the decision is the contrast between the court’s careful deference to the lower court’s role on most issues — such as whether there might be a likelihood of confusion between Cooperativa’s various prior marks and Oriental Financial’s, which was remanded for consideration by the district court even though the eight-part test clearly favored Oriental Financial — and its rather aggressive treatment of the progressive encroachment issue. The First Circuit focused on Cooperativa’s lack of proof regarding its advertising, noting for example that the defendant typically advertised only in one newspaper in the mid-1990s, and had not put in any evidence at all regarding its advertising from 1999 to 2009. The First Circuit did not address (or invite the district court to address), however, that the two banks were started in the same town in Puerto Rico (Humacao) in 1964 and 1966, respectively, and had co-existed there for decades while each gradually expanded by opening new branches, largely in the same geographic area. These facts were apparently viewed as insufficient to create a dispute as to whether Oriental Financial should have sued earlier. This outcome is certainly a positive one for mark holders who may be concerned about whether they have waived their rights through delay.

This case underscores the fact that equitable doctrines such as laches are, by their nature, heavily dependent on the facts and their application can be difficult to predict. Courts are often swayed by evidence that the consuming public, and not only the complaining party, will be harmed in the absence of relief. Plaintiffs and defendants alike must take these factors into account when deciding whether and how to litigate their rights.

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