Trademarks, Priority and 'Frozen' Rights: Important Factors
Trademarks, Priority and 'Frozen' Rights: Important Factors

In the United States, trademark rights flow from use, not registration. A business may be afforded a certain level of trademark protection in its geographic area simply by being the first to use a mark in commerce in connection with its goods or services. However, any unregistered or “common law” rights may be limited geographically. There are critical differences between common law trademark rights and trademark rights obtained via a federal trademark registration with the United States Patent and Trademark Office (USPTO). As discussed in this article, priority battles can ensue over conflicting trademark priority dates. In addition, a first user’s trademark rights can be “frozen” in a particular geographical area by a later or second user in certain circumstances.

A purpose of the U.S. Lanham Trademark Act is to protect trademark owners against the use of confusingly similar marks, and to thereby protect consumers from confusion. The Lanham Act's "use in commerce" requirement and its expansive definition of "commerce" stem from Congress's power to regulate interstate and foreign commerce under the Commerce Clause, U.S. Const. art. I, § 8, cl. 3. The Commerce Clause of the Constitution gives Congress the power “to regulate commerce…among the several states.” Thus, in order for a mark to qualify for federal protection, a mark must be used in interstate commerce. Interestingly, there are circumstances where even use of a trademark at a single business location within one state can be considered use in interstate commerce if the business services customers from outside of that state or otherwise impacts commerce as regulated by the Commerce Clause.

A mark that is used “intrastate” only cannot qualify for federal trademark protection because Congress does not have the power to regulate such limited use. However, intrastate use of a mark affords a mark owner common law trademark rights in the geographic area where it is used.

Common law trademark rights are afforded to a user when the mark is used in connection with goods or services, regardless of whether the use is intrastate or interstate. The owner of such a mark will have common law trademark protection in connection with the goods and services within the geographical area and also within any “natural zone of expansion.” This is true regardless of whether a mark is federally protected or is based on common law use.

The “natural zone of expansion” doctrine affords some additional rights to a trademark owner beyond their originally established commercial and/or geographical origins, if they can show that such an expansion is in fact “natural.” The natural zone of expansion can include an expansion of trademark rights to similar or related goods or services, or throughout an expected geographic expansion. In considering a trademark’s natural zone of expansion, courts consider: (1) previous business activity; (2) previous expansion or lack thereof; (3) dominance of contiguous areas of use; (4) presently-planned expansion; and (5) possible market penetration by means of products brought to or from other areas.

For example, a business offering custom bicycle frames under mark VK may have common law “natural zone of expansion” rights in connection with related custom bicycle seats or handle-bars. Further, a popular business operating with a few locations in one geographic area may have common law rights extending geographically into other nearby geographic areas as well, depending on the locations of the businesses and the factors discussed above.

A common law trademark, as previously mentioned, protects the first user of a mark within a particular geographical area. The first user of a mark is often referred to as the “senior user”. The senior user of a mark has superior rights as compared to a later or “junior user” who is using a confusingly similar mark (1) in connection with the same or similar goods or services (2) within the same geographical area or within the natural zone of expansion. However, common law protection does not afford the senior user protection outside the natural zone of expansion against a junior user who has innocently adopted a confusingly similar mark in a remote area, without knowledge of the senior user’s mark.

For example, assume VK bicycle shop has been operating in Philadelphia since 2016, with local use only and no expansion plans. Subsequently, in 2018, a separate company began operating a bicycle shop also named VK in Arizona, without knowledge of the Philadelphia business. It would be difficult to argue that Arizona was within the natural expansion of VK Philadelphia. The Philadelphia business will therefore not have common law trademarks rights effective to stop the Arizona business from using VK because consumer confusion is unlikely due to the remote geographic differences. Both of the VK businesses will essentially be considered the “senior user” in each of their own remote geographical areas. Meaning, if VK of Philadelphia opened a store in Phoenix in 2019, VK of Arizona will have prior common law rights in that area, regardless of the fact that VK opened first in Philadelphia back in 2016.

This trademark priority situation described is generally known as the “Tea Rose-Rectanus” or “Hanover-United Drug” prior use doctrine in trademark cases, derived from the Supreme Court’s decisions in Hanover Star Milling Co. v. Metcalf, 240 U.S. 403 (1916), and United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90 (1918). To take advantage of this doctrine, the second common law user must establish good faith use in a geographically remote area. To summarize the doctrine, a senior user in one market cannot preclude a junior (second), good faith use of the mark in a geographically remote area if the senior user's mark is not known to consumers in the junior user's market.

Not surprisingly, things can get complicated in trademark priority battles, and many cases focus on competing proofs as to the extent of each parties’ trademark use, market penetration, and consumer recognition.

Further complicating the priority issue is the federal trademark registration scheme. Federal registration provides broader protections to a trademark owner than those provided by the common law, including constructive notice of the federal registration, the presumption of validity, nationwide protection, the opportunity to gain incontestable status after five years on the federal trademark register, and the use of the ® symbol.

A federally registered mark is presumed to be entitled to exclusive nationwide rights in the mark in connection with the registered goods and services. But what if a common law trademark use predates a federal trademark registration? For example, say a third VK bicycle company, VK of Oregon, enters that market in 2020, and obtains a federal registration for “VK” in connection with a wide range of bicycle goods in 2021. This VK registration has presumptive exclusive nationwide rights to use the mark in connection with bicycles. So, what happens to the prior common law users, VK of Philadelphia and VK of Arizona?

Fortunately for the earlier users, the common law will continue to protect both prior VK users in their respective geographic areas. However, due to the scope of federal rights, the subsisting common law trademark rights of VK of Philadelphia and VK of Arizona are “frozen” upon registration of the VK of Oregon mark, to the extent of their uses as of the federal registration date. Thus, a federal registration has the practical effect of freezing a prior user's enforceable trademark rights thereby blocking any right to future expansion beyond the user's then-existing territory at the time of the federal registration. It should also be noted that when to the senior user applies for a federal trademark registration, the doctrine of constructive use will set the registrant's nationwide priority rights as of the filing of its application for federal registration. Thus, a senior user is almost always in a better position.

Accordingly, in the example discussed above, the rights of the common law users would be locked in or “frozen” in the common law geographical areas of VK of Philadelphia and of VK Arizona respectively. They cannot thereafter expand geographically further than the extent of their trademark market penetration occupied as of the registration date of VK of Oregon’s federal registration.

An infamous example of “frozen” common law rights is found in Burger King case. Burger King of Fla., Inc. v. Hoots, 403 F.2d 904 (7th Cir. 1968). In 1959, a small family-run restaurant owned by the Hoots’ family named “Burger King” began operating in Mattoon, Illinois and procured an Illinois state trademark for the same name. The Hoots’ family restaurant is not associated with the now famous fast food chain of the same name.

Soon after, the now famous Burger King fast food chain began operating in the United States and obtained a federal trademark registration for the name “BURGER KING”. The owners of the Mattoon, Illinois restaurant brought suit in state court to protect their rights, and the large fast food chain responded with a federal case. The Court ruled that the fast food giant’s federal trademark registration afforded it rights to the name across the United States, including Illinois, except within 20 miles of Mattoon, Illinois where the Hoots’ family had priority.

As a result of the case, the Hoots family and subsequent owners of the restaurant in Mattoon, Illinois cannot use the name "Burger King" outside of the Mattoon area, and the fast food chain cannot use the name in the Mattoon area. The closest national chain of “BURGER KING” is located about 25 miles north of Mattoon.

Priority and geographical location are therefore important factors in trademark usage and establishing priority rights. While common law rights are afforded to a trademark owner upon first use, obtaining a federal trademark registration imparts much greater, national protection. Clearing trademarks and filing federal trademark registrations as early as possible can limit whether there are geographic carve-outs of a business’s trademark rights. Otherwise, any innocent prior trademark users may be able to poke holes in the national map, and continue to use similar trademarks in the areas where they first established rights.

Reprinted with permission from the September 1, 2021 issue of The Legal Intelligencer ©2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.



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