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Trademark rights are territorial in nature. The general rule is that a brand owner must use its mark in the United States to obtain rights here, and the use of a mark abroad typically does not result in U.S. rights.

But what happens when a foreign brand is well known in the United States but not used here, and an opportunistic company registers an identical mark to trade on the reputation of the foreign brand in this country? That was the question in Bayer Consumer Care A.G. v. Belmora (or “Bayer II”) before the Trademark Trial and Appeal Board in April at the U.S. Patent and Trademark Office. It was a question the board called a “matter of first impression.” In that case, the board held that seldom-used Section 14(3) of the Lanham Act, the federal trademark statute, gives an owner of a foreign brand the right to cancel a U.S. trademark registration if the U.S. registrant is using its mark to misrepresent the source of its product. To the casual observer, this may seem like an obvious ruling. Of course someone who is trading on the renown of a foreign brand to trick U.S. consumers should not be entitled to the government imprimatur of a trademark registration. But the nearly seven-year history of this cancellation proceeding and the multiple rounds of motions to dismiss demonstrate the groundbreaking nature of this decision and offer insights for practitioners.

The trademark at issue in this proceeding is Flanax. Bayer uses the Flanax mark for a pain-reliever product in Mexico, which the record showed is the top-selling pain reliever in Mexico.

Bayer or its predecessors have used the Flanax mark in Mexico since 1976, and Bayer owns a trademark registration there. In the United States, Bayer sells its pain reliever with the same active ingredient (naproxen sodium) under the Aleve brand.

In 2005, a Virginia-based company named Belmora LLC registered the mark Flanax with the Patent and Trademark Office for use with a pain-reliever product with the same active ingredient as Mexican Flanax. As the evidence ultimately showed, Belmora did more than simply adopt the Flanax mark. The board found that Belmora “knowingly selected the identical mark Flanax,” then fabricated evidence to mask the genesis of the mark.

Belmora also copied the Mexican Flanax logo and marketed its products to invoke the reputation of the Mexican Flanax. For example, Belmora misleadingly told consumers in advertising that its Flanax brand was a “highly recognized top-selling brand among Latinos” that was “now made in the U.S.,” describing Flanax as “a very well known medical product in the Latino American market.”

Bayer went through three iterations of its pleadings before arriving at a cognizable basis to cancel Belmora’s registration. The claim that survived and ultimately prevailed was Bayer’s claim under Section 14(3) of the Lanham Act. That section provides grounds to cancel a U.S. trademark registration if the U.S. mark is being used “so as to misrepresent the source of the goods or services on or in connection with which the mark is used.” Notably, unlike the text of Section 2(d) of the Lanham Act (for a likelihood-of-confusion claim), Section 14(3) does not include the requirement of “use in the United States.”

First, applying its liberal standing requirements, the Trademark Trial and Appeal Board found that Bayer had standing because Belmora’s misrepresentations caused Bayer to “lose the ability to control its reputation.” As the board noted, “the reputation of the Mexican Flanax does not stop at the Mexican border.”

THE MERITS OF ‘BAYER’

With respect to the merits of Bayer’s Section 14(3) misrepresentation claim, the board canceled Belmora’s trademark registration, explaining that, “although the facts before us present a matter of first impression, they do not present a close case.” The board found that the knowing adoption of a mark identical to the Mexican Flanax mark, the deliberate copying of the Mexican Flanax packaging, and the efforts to invoke the reputation of the Mexican Flanax all led to one conclusion: Belmora had misrepresented the source of its goods, and its registration therefore had to be canceled.

One key aspect of this decision is that the board’s standing analysis focused on actions by Belmora in the United States and only on the reputation of Bayer here. Practitioners seeking to invoke this section should build a good record of both, including the registrant’s advertising and evidence of awareness of the foreign brand in the United States. Although the facts of this case were perhaps extreme, they may not be unique. It is also important to note that a trademark cancellation proceeding before the Trademark Trial and Appeal Board only affects the registration of a mark, not its use. A company does not need a registration to use a mark, so a foreign brand owner will need to file a civil action to halt the use of a mark.

Here, Bayer will have to navigate the legal landscape of the district courts, since the circuits are split as to the existence of a “famous marks” exception to the territoriality principle of U.S. trademark law as well as various nuances in state unfair-competition law to consider. Finally, under different circumstances, there may be different options to avoid this issue altogether. If a foreign brand owner is not yet using its mark in the United States, it can still file an intent-to-use application if it has a bona fide intent to use its mark here. Such an application can make a difference in establishing a cause of action. In Fiat Group Automobiles SpA v. ISM Inc., the Trademark Trial and Appeal Board held in 2010 that fame of a mark in a foreign country may support a dilution claim if the owner had filed an intent-to-use application in the United States.

Gabe Ramsey is a partner and Scott Lonardo is a senior associate in the Menlo Park, Calif., office of Orrick, Herrington & Sutcliffe. Ramsey’s practice focuses on intellectual property litigation, with particular emphasis on technology and entertainment-related matters. Lonardo focuses his practice on intellectual property litigation.