A Tale Of Two Hats: Trademark “Use In Commerce” Expanded In A Potentially Game-Changing Decision

hatsOur readers no doubt understand that trademark use is the basis for trademark protection in the U.S.  But all use is not created equal, and sometimes it’s not so easy to tell whether a trademark is actually used in a manner sufficient to qualify for federal trademark registration.  A recent Federal Circuit decision promises to make this determination a little bit easier.

The U.S. Lanham Act and the Basics of Trademark Use

The question of whether a trademark is used to a sufficient degree to qualify for federal registration isn’t as easy as it sounds.  In the case of goods, a trademark is legally “used” when it is used in the ordinary course of trade and (a) placed on goods, or their containers, tags, or packaging, or a point of purchase display, and (b) the goods are sold or transported in commerce.  See 15 U.S.C. § 1127.  So, for instance, an advertisement on a website for your XYZ™ brand gyros doesn’t constitute use sufficient to support federal registration, but use of the XYZ™ mark on a shipping box filled with gyros and shipped across state lines does the trick.  The statutory standard has been applied differently to different types of goods and fact patterns, and use of a mark on services has a different standard entirely (use in advertising is sufficient for service marks), but suffice it to say that things can get complicated.

“Use in Commerce”

In order to register a trademark at the federal level, the Lanham Act requires that the mark be used “in commerce,” that is, in commerce “which may lawfully be regulated by Congress.”  Traditionally, courts and the United States Patent and Trademark Office (USPTO) have interpreted this to mean that branded goods must be shipped across state lines (or imported from abroad), or that goods shipped thusly be sold in connection with a point-of-purchase display bearing the mark.  In other words, purely intrastate trademark use, such as shipping a branded product to a customer in-state, historically has not qualified as “use in commerce” regulable by Congress, and is therefore insufficient to support a federal trademark registration.

There are, naturally, some situations where the interstate/intrastate question isn’t as easy to answer.  For instance, what if one is selling branded goods at a single location to an out-of-state customer?  This is a particularly interesting question because it has long been accepted that a single-location restaurant with at least some out-of-state customers is providing restaurant services “in commerce” sufficient to support federal registration.  See Larry Harmon Pictures Corp. v. Williams Restaurant Corp., 929 F.2d 662 (Fed. Cir. 1991).  But the analogous question with the sale of branded goods — even at that same restaurant! — hadn’t been authoritatively resolved before now.

A Tale of Two Hats

The U.S. Court of Appeals for the Federal Circuit recently answered this question with a resounding “yes” in Christian Faith Fellowship Church v. Adidas AG, No. 2016-1296 (Fed. Cir. 2016).  Adidas brought a cancellation action with the USPTO Trademark Trial and Appeal Board (TTAB) against two registrations, for the marks ADD A ZERO and a corresponding logo, owned by the Christian Faith Fellowship Church. Adidas argued, among other things, that the marks were not used “in commerce” as of the applications’ filing dates back in March 2005.  Because the applications were based on use in commerce, failure to use the marks as of that date would render the resulting registrations void.  The Church, which is located in Illinois, proffered evidence that, as of the 2005 filing date, two hats bearing the marks were sold within Illinois but to a customer hailing from Wisconsin.  The TTAB, rejecting the Church’s argument that the intrastate sale of branded goods to an out-of-state customer constituted “use in commerce” under the Lanham Act, granted the cancellation petition.  The Church appealed.

Looking to contemporary U.S. Supreme Court decisions broadly interpreting the scope of the Commerce Clause to apply to local activities, starting with Wickard v. Filburn, 317 U.S. 111 (1942), and its own trademark decisions including Larry Harmon Pictures Corporation v. Williams Restaurant Corp., the Federal Circuit reversed, holding that the transaction in question, “taken in the aggregate, would cause a substantial effect on interstate commerce and thus it falls under Congress’s Commerce Clause powers.”  Further, and overturning longstanding TTAB precedent, 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,” or even show that the hats were destined to travel out of state.  Therefore, the mark was deemed to have been used “in commerce” for Lanham Act purposes, and the case was remanded to the TTAB to evaluate Adidas’ other grounds for cancellation.

Is Everything Now “Use in Commerce”?

So it’s clearly the case now that the sale of branded goods in the ordinary course of business to out-of-state customers constitutes “use in commerce” for the purposes of federal registration.  But some are suggesting that the Federal Circuit goes much further — that it’s not unreasonable to read the decision as effectively rendering all sales of branded goods — even purely local commerce where no out-of-state customers are known to be involved — use in commerce.  Citing the Supreme Court’s Commerce Clause decisions in Wickard (holding that local growth of wheat, even for personal use, could be regulated because similar activities taken in the aggregate could have a “substantial economic effect” on interstate commerce) and  Gonzales v. Raich, 545 U.S. 1 (2005) (holding that Congress has Commerce Clause authority to criminalize the purely local production and use of homegrown cannabis irrespective of its legality under relevant state law), the Federal Circuit noted that “‘the de minimis character of individual instances’ arising under a valid statute enacted under the Commerce Clause ‘is of no consequence.’”  It therefore seems a reasonable possibility based on the court’s application of Wickard and Raich that the same result would have been achieved in this case even absent the out-of-state purchaser element of the fact pattern, because even the intrastate use “taken in the aggregate,” would affect interstate commerce enough to satisfy constitutional muster.  The court favorably quoted Wickard:

[E]ven if . . . activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce and this irrespective of whether such effect is what might at some earlier time have been defined as “direct” or indirect.

Id. at 125.

If this broad reading is accurate, then the decision marks something of a sea change for use sufficient to support federal registration.  Nevertheless, caution is in order when filing a use-based federal application, or a Statement of Use, because it’s difficult to say how the TTAB will apply this decision.  In other words, I would want to be reasonably certain that there’s active use with an interstate nexus at least as minimal — e.g., sales to a single out-of-state customer — as that presented here.  At least until there’s more guidance on the topic, it would be unfortunate to make filings based on a potentially overly broad reading of this decision and end up with a trademark registration being declared void ab initio.

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