Trademarks and Open Borders

March 3, 2017

On Monday February 27, the Supreme Court denied Belmora, LLC’s petition for certiorari regarding territoriality of trademarks. At the heart of the case is the issue of whether a company can use the Lanham Act to enforce trademark rights in a mark used in a foreign country, but not in United States commerce. Currently, three Circuit Courts of Appeals have weighed in on the matter, but there is a split in authority, unsurprisingly between the Ninth Circuit and Second Circuit. The Fourth Circuit sided with the Ninth Circuit in Belmora v. Bayer Consumer Care in 2016, holding that there is a well-known marks exception to the territoriality principle that allows the foreign mark owner to sue the domestic user. On the other side, the Second Circuit has held that foreign marks cannot receive protections that domestic marks cannot receive: if they are not used in commerce, they cannot be protected.
The cases that have created this circuit split follow roughly the same fact pattern as Belmora v. Bayer, but with different parties. Bayer, the German pharmaceutical company, has marketed what Americans know as “Aleve,” under the name “Flanax” in Mexico since 1976. Bayer had never used, and did not appear to intend to use, “Flanax” in the United States. Belmora, a smaller American company, registered “Flanax” in the United States in 2005, for the same type of product. Bayer sued for false association, alleging that Belmora used the mark to profit off of Mexican-Americans’ recognition of the name in the United States. Belmora responded, arguing that Bayer does not have a protectable interest in the mark because it has never been used in United States commerce. This is known as territoriality. The Fourth Circuit ruled in favor of Bayer, holding that false association claims under § 43(a) of the Lanham Act do not require that the plaintiff has used the trademark in the United States as long as the mark is recognized by a substantial percentage of relevant consumers. This is called the well-known marks exception.
The Supreme Court’s decision not to hear the case keeps territoriality on the list of circuit splits in trademark law which includes: the proper test for nominative fair use, the proper test for likelihood of confusion, functionality, and requirements for recovery of an infringer’s profits. The Court is justified in denying Belmora’s writ of certiorari; it did not and is not required to provide an explanation for the order. On one hand, allowing businesses to protect foreign marks in the United States without prior use or filing an intent to use application, is

“an invitation to foreign businesses to use the Lanham Act’s unfair competition provisions to circumvent the territorial limitations of trademark law.”

Without borders on trademarks, a foreign company could use lenient trademark requirements in one country to build consumer recognition in the foreign market, and then enforce trademark rights in the United States without ever contributing to American commerce. At the same time, foreign trademark systems do not afford reciprocal protections to American companies operating abroad. This allows some foreign users of well-known American trademarks to knock-off the American company and sue the American company when it begins operating in that country.
On the other hand, the scope of the Fourth Circuit’s opinion, and the well-known marks exception in general, is narrow. It only affects businesses that deliberately use others’ well-known foreign marks on domestic products for the purpose of causing familiar consumers to make a false association between the foreign owner and the domestic user. Moreover, the Fourth Circuit merely authorized cancellation of Belmora’s registration for “Flanax” which would not on its own prevent the company from continuing to use the mark. Finally, with a continually globalizing economy, the goodwill and consumer recognition that trademarks are supposed to protect are bound to cross borders. Without protections like the well-known marks exception, businesses will unfairly compete by trading off of the foreign mark’s success.
Of additional concern in these cases is the varying levels of protection that trademarks are entitled to depending on where they are used. This problem exists in other areas of trademark law as well, due in part to the fact that unique facts lead the courts to rules. However, the frequency of trademark circuit splits and stark differences in some of the issues calls for either clarification from the Supreme Court, or partial reformation of the Lanham Act to declare uniform standards.