A recent California case, Macy’s v. Strategic Marks, LLC, N.D.Cal. Dkt. No. 3:11-cv-06198-SC, highlights a number of important issues relating to the doctrine of abandonment – the process by which a trademark owner loses rights in its mark through non-use. For most people, the case evokes nostalgia about famous store names now long gone (A&S, Filene’s, Marshall Fields, Stern’s).
For lawyers, however, the case highlights the unique nature of trademarks as a property right and how both acquiring and losing such rights are different than other IP rights.
The Facts of the Macy’s Case
Although the origins of Macy’s business and name go back to the famous department store chain R.H. Macy, opened in 1843, the business and name now encompass much more than that. Over the last several decades, Macy’s and its predecessor, Federated Department Stores, acquired retail department store chains throughout the country and continued operating them under their original names.
Roughly in 2004, the company decided, however, to re-brand all these stores (other than Bloomingdale’s) under a single name, Macy’s. Some, like Abraham & Straus, as early as 1995, had already been rebranded. Although Macy’s continued to make some use of what it now calls its “heritage names” (historical plaques on certain stores, printing on T-Shirts and tote bags), its retail stores services (and the parallel on-line retail store) have since 2006 all been branded under the name Macy’s.
(The Trademark Act protects marks use in connection with both goods, named trademarks, and for services, named service marks. For most purposes, the law is the same for both. The PTO deems marks used for retail stores to be service marks, and the description of services on a registration generally reads as some variant of “retail store services.” For example, MACY’S is registered for “department store services.”)
Enter defendant Strategic Marks. The company started as a candy company, reviving defunct heritage brands of candy, such as Astropops. Encouraged by its success in that effort, in 2010 Strategic Marks began filing applications in the Patent and Trademark Office to register several of Macy’s heritage marks for retail department store and on-line services. Its website, retrodepartmentstores.com, currently lists 34 store brand names it claims it is reviving, but interestingly the site does not offer any products for purchase on-line.
In the litigation Macy’s contests whether Strategic Marks ever made sufficient use of the marks to justify it having any rights at all. That is a separate issue we do not deal with here. Strategic Marks initially filed its applications as intent-to-use applications, which initially only require a bona fide intent to use the listed mark in commerce for the listed goods and services. However, the applications then matured into registrations by filing Statements of Use, attesting to actual use in commerce. Macy's challenges these as inadequate.
In 2011, Macy’s filed suit claiming infringement of its trademarks. As a defense, Strategic Marks asserted that Macy’s had abandoned use of these marks by 2006 (or earlier) and thereby lost its rights. Strategic Mark’s website asserts that the company is “bringing back all the old department stores you remember and loved,” but provides no definitive date for that to occur.
The case was about to proceed to trial earlier this year, when Macy’s filed a second complaint alleging infringement of additional heritage brands. The district judge vacated the trial date to allow discovery to proceed on the new allegations and then a consolidated trial.
Although trademarks are often referred to as “intellectual property,” that is somewhat of a misnomer. The Supreme Court made that clear almost a century ago when it stated:
There is no such thing as property in a trademark except as a right appurtenant to an established business or trade in connection with which the mark is employed. The law of trademarks is but a part of the broader law of unfair competition; the right to a particular mark grows out of its use, not its mere adoption; its function is simply to designate the goods as the product of a particular trader and to protect his goodwill against the sale of another's product as his, and it is not the subject of property except in connection with an existing business. The owner of a trademark may not, like the proprietor of a patented invention, make a negative and merely prohibitive use of it as a monopoly.
United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 97-98 (1918) (citations omitted).
This observation is still good law today, and affects many central aspects of trademark law, including (1) trademark rights are only gained through use of the mark on goods or services, not through conception; (2) trademarks are only infringed by such use that causes confusion or deception of consumers; (3) trademark rights are lost if the owner abandons use of the mark in its business.
Under the Trademark Act, a mark is deemed abandoned if “its use has been discontinued with intent not to resume such use.” 15 U.S.C. § 1127. The statute also provides that “[i]ntent not to resume may be inferred from circumstances. Nonuse for 3 consecutive years shall be prima facie evidence of abandonment. ‘Use’ of a mark means the bona fide use of such mark made in the ordinary course of trade, and not made merely to reserve a right in a mark.” Id. These provisions are the basis of lines of case law interpreting and applying them.
Once a mark is deemed “abandoned,” the owner loses its rights, even if it later resumes use. New use after abandonment can, of course, be deemed a new acquisition of rights, but that would not prevent others who use the same mark in the abandonment period from acquiring priority.
It is in the situation where a second user (like Strategic Marks) uses the mark in the interim that abandonment becomes relevant, because the second user then claims to have priority of use in the mark because the initial rights were abandoned. (Conversely, if the trademark owner resumes use before the accused infringer, then abandonment is irrelevant; the trademark owner has priority.)
Intent Not To Resume and the Presumption from Three Years of Nonuse
Although at common law an intent to abandon a trademark was required, the above quoted language of the Trademark Act references an “intent not to resume” use of the mark. In Exxon Corp. v. Humble Exploration Co., 695 F.2d 96 (5th Cir. 1983), the Fifth Circuit held that the statute is stricter than the common law.
A mere wish not to abandon the mark is not enough; in the absence of actual use, an owner must show that it has “plans to resume commercial use” of the mark. Were it otherwise, the court reasoned, it would be virtually impossible to ever show abandonment. This rule has been universally followed by federal courts – there have to be “actual and concrete plans” to resume use within “a reasonable time” or within “the reasonably foreseeable future.”
What constitutes a “reasonable time” varies by the nature of the product and its market. In one case involving fire trucks, the Fourth Circuit opined that because the product has a long life and persistent goodwill, it might be reasonable for such a manufacturer to wait five to six years to consider whether to reintroduce a line of trucks, while the same delay for a potato chips manufacturer would be unreasonable. Emergency One, Inc. v. American FireEagle, Ltd., 228 F.3d 531, 537 (4th Cir. 2000).
The statute also provides that three years of non-use (increased from two years in 1996 as part of the GATT agreements) constitutes “prima facie evidence of abandonment.” Federal courts are divided as to the effect of this provision. The Fifth and Eleventh Circuits hold that a showing of three years of non-use shifts the burden of proof to the trademark owner to prove there was no abandonment.
The Second and Ninth Circuit, in contrast, hold that this provision only means that the burden of production of evidence of non-abandonment shifts to the trademark owner. Once it comes forward with some such evidence, then burden of proving abandonment – which most Circuits hold must be demonstrated by clear and convincing evidence – remains on the accused infringer.
In some instances, use of the mark on related goods can avoid a finding of abandonment. In one famous case, Ferrari was found to have trade dress (similar to trademark) rights in the design for one of its sports cars, the Ferrari Spyder. Although that model had not been made or sold by Ferrari for some fifteen years, Ferrari avoided a finding of abandonment by showing that it continued to make replacement parts bearing the design for use in repairing the sports cars, and had itself or through licensees repaired or refurbished the same model cars which were still being driven. Ferrari S.p.A. v. McBurnie, 11 U.S.P.Q.2d 1843 (S.D.Cal. 1989).
However, the law requires that the continued use be on goods that are “related,” meaning that they are close enough that potential customers would think that the source of the prior goods is the same source as the latter. Where, however, the use is on completely unrelated products or services, then the latter use will not save the trademark owner from abandonment.
For example, in one Fifth Circuit case, the court held that the use of a mark on retail store services for diabetics was not sufficiently related to the same mark as a title for a health and weight-loss book. Sugar Busters LLC v. Brennan, 177 F.3d 258, 266-67 (5th Cir. 1999).
The issue of relatedness may come into play in the Macy’s case. Among other things, Macy’s asserts that it has used its “heritage brands” on T-shirts and tote bags sold in its stores and meant to evoke nostalgia for the now defunct department stores. Quaere, however, whether such use is sufficiently “related” to retail department store services.
Effect of Residual Goodwill
One of the stickiest issues that courts have to deal with on the issue of abandonment is residual goodwill. Even if a trademark owner stops using a mark for an extended period of time, consumers often still remember it and have strong positive associations with it.
The Macy’s case well-illustrates the point: even twenty years after the fact, many people still fondly remember department stores that have since been renamed. Unabashedly, Strategic Marks asserts that it intends to exploit this residual positive commercial reputation.
There are conflicting policy considerations that came into play in this situation. On the one hand, the trademark owner has stopped using the mark and lost its rights, so why should it be allowed to stop others from using the mark? On the other hand, trademarks protect not only owners’ rights; they also protect the public from deceiving or confusing branding of goods and services.
As Professor J. Thomas McCarthy, a leading trademark expert, notes, consumers will not usually know whether a trademark owner intends to resume use of its mark. But if they are familiar with a mark, especially well-known ones, they may be mislead by its use by another to believe that the product is that of the old trademark owner.
There are three approaches as to the effect of residual goodwill on an abandonment claim. In Exxon, the Fifth Circuit basically held that residual goodwill has no effect on abandonment. If a party ceases use and has no intent to resume the mark, it loses its rights – even if there is enormous built up goodwill in the mark.
The more mainstream view, held by most federal courts, and championed by Professor McCarthy, is that residual goodwill is one factor to be considered in determining whether there has been abandonment. Where there is persisting goodwill, that should weigh heavily against a finding of abandonment, but only so long as there is some evidence of intent to resume.
A third view, so far expounded only in one unpublished decision from Pennsylvania (and championed by Macy’s in its trial brief), Peter Luger, Inc. v. Silver Star Meats, Inc., 2002 WL 1870666, 15 (W.D. Penn. 2002), is that even if there is abandonment, a trademark owner has a cause of action for unfair competition based on the accused infringer causing confusion and exploiting another firm’s positive reputation. That view, however, has been forcefully rejected by federal courts, see, e.g., Met. Life Ins. Co. v. O’M & Assocs., 2009 WL 3015210, 4-5 (N.D.Ill 2009), which hold that if abandonment is found, then the former trademark owner lacks standing to assert any claim based upon the mark.
Unsurprisingly, the trial briefs filed by the parties in the Macy’s case each tell very different factual stories about the parties’ respective uses of the marks at issue, so it is difficult to opine how the case will turn out. What the case makes clear, however, is that trademark owners have to be aware that non-use of their marks can lead to abandonment.
Macy’s asserts that it paid valuable consideration for the marks and associated goodwill when it acquired the various department stores throughout the country. But as Macy’s may learn, trademark rights can easily be lost through non-use.
Macy’s pursued a brand consolidation strategy by which department stores throughout the country were all folded under the Macy’s name. It undoubtedly had good business reasons for doing so. The question will be, perhaps, whether in hindsight it might have done more to preserve its rights in its “heritage brands.”
A previous version of this post appeared in the New York Law Journal, May 11, 2015