Second Circuit Recognizes Broad Trademark Priority Even for New Channels of Trade

In American trademark law, trademark rights are gained through use – use of the mark in connection with the goods and services. A recent Second Circuit decision, Excelled Sheepskin & Leather Coat Corp. v. Oregon Brewing Company (2018), indicates that the rights gained through use can be broader than might have been previously supposed.

Specifically, the Second Circuit held, contrary to the district court’s decision, that a trademark owner had priority in certain types of goods (t-shirts, sweatshirts, hats and other apparel) over the defendant. Although, at first, the plaintiff had only been using the mark for apparel as an adjunct to support its main business, beer, and even though it did not commence selling these products in clothing stores until after the defendant has already done so, it nevertheless had priority. It could therefore assert an infringement claim after it had begun distributing these products in clothing stores.

The appellate court held that once the plaintiff established priority in these types of apparel, it has that with respect to any distribution channel for the same goods.

The takeaway is that when researching prior uses of a mark (for example, in clearing use of a mark), one must look to any uses of the mark in connection with the same or similar goods. That another party might be marketing the goods in a different manner or a different purpose may not change the fact that it has prior rights.

Under U.S. trademark law, rights are acquired through use of the mark in connection with goods or services. When different parties both use a mark, the first user is said to have “priority” and therefore senior rights in the mark. (Without a registration, the user only has common law rights which are limited to the geographic areas of use. A federal registration gives one nationwide priority.)

Oregon Brewing Company (OBC) is a commercial brewery which sells beer under the brand name ROGUE. Since 1989, it has used the ROGUE mark on t-shirts, sweatshirts, hats, and other apparel. Initially, these items were only distributed as an adjunct to the company’s beer business, in pubs, breweries, etc., and then later in beer festivals around the country. In 2011, however, it began marketing its clothing items through department stores and other “clothing only” outlets.

Excelled Sheepskin & Leather Coat Corp. began selling clothing, mostly leather goods, under the ROGUE mark in 2000. It later expanded to other, non-leather types of clothing, which it marketed in department stores and on-line. Excelled filed suit for infringement against Oregon Brewing, claiming it had priority in the market of department stores and clothing-only stores. Oregon Brewing counterclaimed.

The district court sustained Excelled’s position; the Second Circuit reversed. It noted that trademark rights derive from use, which must be bona fide, deliberate and continuous, and not sporadic. OBC easily met that standard. The fact that these uses were primarily meant as an adjunct to its beer business did not change the fact that they were real and continuous uses of the mark for apparel.

And, the fact that OBC had for a time marketed the apparel through different channels of trade did not take away from its priority. “The law does not limit the owner’s trademark rights to the types of stores in which it has sold, leaving the mark up for grabs in any other type of store. The fact that, prior to 2011, OBC did not sell in department stores and clothing-only stores does not mean that a new user was free to usurp OBC's priority in such stores.”

True, trademark rights are limited to the types of goods sold, and also related types of goods; OBC would not have rights in unrelated goods, e.g., auto parts. “But expanding into new product lines in which someone else has priority is different from beginning to sell the goods on which one has nationwide priority in a new category of stores (where a junior user is making infringing sales under the senior user's mark).”

In short, once having established priority in a particular type of goods, that priority extends to other channels of trade, even if only commenced later.

When clearing a mark for use, it is common to perform a trademark search in an attempt to determine who may have priority in the same or similar marks for the same or similar goods or services. The Excelled decision potentially expands the range of users that may have priority – even those who are making use of the mark in a secondary fashion (e.g., to promote a different business) or in different channels of trade, may nevertheless have priority.

It is important, however, to distinguish between priority and likelihood of confusion. Parties whose goods travel in different channels of trade might not be in a situation where there is confusion. Had OBC not begun marketing its products in department stores, arguably Excelled’s products might not create confusion. But once it did, it was entitled to rely upon its initial marketing for priority.

Quaere, also, how does this decision affect different levels of distribution. For example, sometimes a business uses a mark solely for wholesale distribution (think a commodity business that sells, for example, bulk food products, such as flour or sugar). Would that give it priority in the retail market?