The federal court in Oregon ruled that a major footwear company committed fraud on the Trademark Office when it applied for renewal of a trademark application, and certified its continued use of the trademark, even though that use had no commercial purpose other than to preserve the trademark registration.
The submission of the renewal to the Trademark Office constituted fraud – and thus the trademark owner’s communications with its counsel on the renewal lost protection of the attorney-client privilege under the crime-fraud exception. Adidas America, Inc. v. TRB Acquisitions LLC (D.Ore. 2018).
The decision has important lessons for trademark owners. Most important is that use of a trademark to establish trademark rights must have a commercial purpose – use cannot be done merely to acquire (or retain) a trademark registration. This is so even where the use is sales in large quantities.
The case concerns the trademark RBK owned and registered by Reebok for footwear. Adidas acquired Reebok, so it was the named plaintiff in a suit alleging infringement of that mark by the defendant, TRB Acquisitions. Reebok renewed the registration for that mark in 2012, as it is required to do under the Trademark Act. Such a renewal by law requires a declaration that the trademark owner continues to make a “bona fide” use of the mark in commerce for the goods and/or services listed in the registration.
But, in fact, Reebok had not used the mark in commerce since 2010. So, it contrived to place stickers with a logo bearing the mark on the inside of certain boxes of “retro” product it was selling, all so that it could certify continued use to the Trademark Office.
The court reviewed the relevant documents in camera and concluded that there was no bona fide use. Particularly problematic for the court was the fact that the stickers had been placed on the inside of the shoe box lids (bearing other marks on their outside), and that Reebok made no use of that mark to market its products.
[T]he fact that when Reebok decided to place stickers on the inside of product box lids to ensure it did not lose its trademark Reebok was strategic about what products to place those stickers on, does not make the sticker program bona fide use. Placing the stickers on the products where it made the most sense from a marketing perspective is not evidence that Reebok designed or implemented the program for a bona fide commercial use. Doing the “least harm” commercially while meeting the legal requirements of trademark use is not bona fide use in the ordinary course of trade. If Reebok truly intended to “leverage the goodwill” and “benefit from the brand equity” of the mark, then why were the stickers placed on the inside of the lid of the box instead of the outside of the box where potential buyers could readily see the mark?
Customers were not purchasing RBK goods, and the goods were not identified as RBK goods. Customers were purchasing, for example, Iverson shoes. These shoes were advertised as Iverson shoes, sold as Iverson shoes, invoiced as Iverson shoes, packaged as Iverson shoes, marked as Iverson shoes on the product itself, and then happened to have an RBK sticker put on the inside of the lid of the product box. The sales, thus, did not depend on the RBK mark for identification of source. This is not brand identification, even for a mark with significant goodwill and brand equity.
Notably, the volume of the use was not an issue – the court emphasized that
The Court does not question the sales volume. This is not a case where only token sales were made to ensure trademark preservation or renewal. The Court acknowledges that the stickers were placed on products boxes having significant sales.
So, the court concluded that that the use was not abona fide use under the Trademark Act. This meant that the renewal, which certified that there was bona fide use, was a fraud on the Trademark Office, since Reebok’s personnel well knew that the whole purpose of the sticker program was merely to reserve rights in the registered mark. Accordingly, the court ruled that all communications with counsel about the renewal were subject to the crime-fraud exception – which means they are not protected by privilege.
The decision is obviously significant to trademark owners, especially corporate ones.
It often happens that trademarks that are popular at one point become less important to the company at a later point in time. Still, there may be residual recognition and goodwill that the company wishes to preserve – including in a trademark registration. But the Adidas case illustrates that courts will scrutinize whether the use really has a commercial purpose outside the desire to preserve legal rights. Reebok might have been better served if it had sold a small line of goods whose primary mark bore the registered mark (RBK), rather than try to piggy back on other established marks with a sticker.