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The territoriality principle has long been a bedrock of United States trademark law. Two recent federal court decisions, however, call into question — or at least redefine — the applicability of this principle. TERRITORIALITY PRINCIPLE Put simply, the principle is that trademark rights arise in the United States through use or registration within the country. This fundamental premise, which arises from the Commerce Clause, [FOOTNOTE 1]generally dictates that use or registration of a mark abroad has no effect on trademark rights in the United States. As a result, when a business intends to adopt a new mark for use in the United States, trademark counsel ordinarily will conduct a clearance search aimed at identifying identical or similar marks used or registered by third parties in the United States only. Similarly, trademark counsel generally will advise that the proposed mark nonetheless should be available for adoption and use in the United States, should counsel become aware of a mark used or registered by a third party outside the United States that is identical or similar to such proposed mark. FASHION CAFE CASE Numerous decisions have endorsed the territoriality principle of trademark law, [FOOTNOTE 2]among the more prominent being the 2nd U.S. Circuit Court of Appeals’s decision in Buti v. Impressa Perosa, SRL [FOOTNOTE 3]There, the U.S.-based plaintiff secured a declaratory judgment permitting it to open restaurants under the ‘FASHION CAFE’ mark in the United States notwithstanding the defendant’s operation of a successful Fashion Cafe restaurant in Milan, Italy. In Buti,the defendant-owner of the Milan Fashion Cafe had engaged in advertising and promotional activities in the United States, and claimed that he had taken steps toward opening a Fashion Cafe “theme restaurant” in New York City and establishing Fashion Cafe restaurants in hotels across America. Affirming the district court’s grant of summary judgment in favor of plaintiff, the 2nd Circuit found that “[defendant's] activities in the United States were insufficient to establish ‘use in commerce’ of the Fashion Cafe name absent proof that [defendant] offered any restaurant services in United States commerce.” [FOOTNOTE 4]Such a strict territorial construction of trademark rights lends a sense of certainty to trademark law, as it quiets title to a business’s adoption of a mark in the United States, notwithstanding how such mark or any similar mark may be used or by whom elsewhere in the world. COURTS ADOPT NEW APPROACHES Two recent cases provide timely reminders of the limits of the territoriality principle. In International Bancorp, LLC v. Societe des Bains de Mer et du Cercle des Etrangers a Monaco, [FOOTNOTE 5]the 4th Circuit held that a mark used to designate services provided in foreign trade, but not in the United States, had nonetheless been “used in commerce” under the Lanham Act and accordingly should be accorded United States trademark rights. In that case, defendant (SBM), which owns and operates a casino in Monte Carlo, Monaco, under the mark “CASINO DE MONTE CARLO” challenged International Bancorp’s use of “CASINO DE MONTE CARLO” in 53 domain addresses and its use of images strikingly similar to the interior and exterior of SBM’s Casino de Monte Carlo on its gaming Web sites. Before a federal court in Virginia, International Bancorp principally argued that SBM held no protectable interest in its mark in the United States, asserting that SBM had never rendered gaming services in commerce under, nor registered, the CASINO DE MONTE CARLO mark in the United States, and thus held no rights here. The 4th Circuit disagreed, holding that SBM had satisfied the “use in commerce” requirement of the Lanham Act, based on the undisputed fact that U.S. citizens traveled to and gambled at the Casino de Monte Carlo in Monaco. Because SBM was the subject of a foreign nation, the court held that SBM’s provision of casino services to U.S. citizens visiting Monaco constituted commerce between the United States and a foreign nation, which “foreign trade” Congress may regulate under the Commerce Clause and “so also [is] commerce under the Lanham Act.” [FOOTNOTE 6]Accordingly, the court held that SBM had acquired U.S. trademark rights in the “CASINO DE MONTE CARLO” mark, which rights International Bancorp had infringed. In reaching its conclusion, the 4th Circuit essentially conducted a two-step analysis. First, the court held that the reach of the Lanham Act is as broad as the Commerce Clause, encompassing “all the explicitly identified variants of interstate commerce, foreign trade, and Indian commerce.” [FOOTNOTE 7]Then the court held that the casino activities of SBM could be regulated by Congress under the Commerce Clause, principally by undertaking an analysis of Commerce Clause cases having nothing to do with trademark disputes. [FOOTNOTE 8] In holding that a foreign entity may establish rights in a mark in the United States by providing its services overseas to U.S. citizens, the 4th Circuit arguably has opened a far-reaching fissure in the territoriality principle. Under International Bancorp,foreign owners of trademarks for services offered extraterritorially to U.S. citizens traveling abroad may now claim and assert trademark rights within the United States. In a vigorous dissenting opinion, Judge Frederick Motz warned that the majority decision “threatens to wreak havoc over this country’s trademark law” because businesses adopting new marks in the United States “would be forced to scour the globe to determine when and where American citizens had purchased goods or services from foreign subjects to determine whether there were trademarks involved that might be used against them in a priority contest or in an infringement action in the United States.” [FOOTNOTE 9] FAMOUS MARKS DOCTRINE More recently, in Empresa Cubana del Tabaco v. Culbro Corp., [FOOTNOTE 10]the court held that the foreign owner of a mark established trademark rights in the United States without any use of such mark on products in United States commerce. Empresa Cubana del Tabaco (Cubatabaco), a Cuban tobacco company, introduced COHIBA-branded cigars in Cuba in 1970, expanding internationally in 1982. Cubatabaco had never registered the COHIBA trademark in the United States, nor had it sold COHIBA cigars in the United States due to the U.S. embargo against importation and sale of Cuban goods. U.S.-based General Cigar Co. (General Cigar) introduced into the United States COHIBA-branded cigars imported from the Dominican Republic. Cubatabaco sued General Cigar in federal court in New York alleging that General Cigar unlawfully infringed Cubatabaco’s U.S. trademark rights in the COHIBA mark. The court found that the COHIBA trademark as used for Cuban cigars was entitled to protection in the United States under the “famous marks doctrine [which] carves out an exception to the well settled territoriality principle.” [FOOTNOTE 11]The famous marks doctrine accords trademark rights to marks that are “well-known” or “famous” in the United States based on their use outside the United States. [FOOTNOTE 12] Acknowledging that “available case law does not provide a consistent standard to determine whether a mark is famous within the meaning of the famous marks doctrine,” Judge Robert W. Sweet adopted a “secondary meaning” standard to establish requisite fame. [FOOTNOTE 13]This standard, which generally is used to determine whether a descriptive mark has acquired sufficient reputation as a source designator to be entitled to protection (i.e., a second meaning in addition to a term’s primary, descriptive meaning) requires only that the mark have a “known reputation” among relevant consumers in the United States. The court found that Cubatabaco’s mark had acquired such secondary meaning in the United States based on (i) surveys establishing consumer recognition of the mark, (ii) unsolicited publicity for Cubatabaco’s COHIBA cigars in relevant consumer publications such as Cigar Aficionado, Forbesand Newsweek, and (iii) efforts by General Cigar to plagiarize the COHIBA mark in order to capitalize on its favorable reputation among consumers in the United States. [FOOTNOTE 14]Judge Sweet accordingly held that Cubatabaco’s COHIBA mark had achieved a sufficient level of renown to be recognizable among premium cigar smokers and was therefore entitled to protection in the United States even though it had never been used here commercially to designate its cigars. [FOOTNOTE 15]Accordingly, the court enjoined General Cigar’s further use of such mark. Although “well-known” or “famous” marks have long been regarded as providing an exception to the territoriality requirement of U.S. trademark law, [FOOTNOTE 16]such exception historically has rarely been invoked by U.S. courts. [FOOTNOTE 17]Accordingly, Sweet’s Empresa Cubanadecision serves as a clear reminder of the vitality and potential availability of this doctrine. IN SEARCH OF A RATIONALE What does this all mean? The International Bancorpand Empresa Cubanadecisions are not necessarily inconsistent with the territoriality principle applied in Buti. For example, International Bancorpcan be distinguished from Butiin that there was no evidence that U.S. citizens regularly dined at the Milan Fashion Cafe. The COHIBA mark in Empresa Cubanaarguably had acquired the requisite renown in the United States to qualify for protection under the famous marks doctrine, whereas the FASHION CAFE mark in Butihad not. It is noteworthy, however, that Sweet in his Empresa Cubanadecision found the precedent established by the 4th Circuit in International Bancorptroublesome in its potentially far-reaching effects, reflecting that the 4th Circuit could have applied the “famous marks” exception to the CASINO DE MONTE CARLO mark instead of “call[ing] the territoriality principle into question” by broadly construing the “use in commerce” requirement. [FOOTNOTE 18] PRACTITIONERS’ IMPLICATIONS The International Bancorpand Empresa Cubanadecisions must be kept in mind when trademark practitioners and clients are looking to clear a new U.S. brand. Although it may not be cost-effective or even feasible to conduct extra-territorial trademark clearance searches for marks that are to be used principally or solely in the United States, practitioners must be mindful of the limitations of the U.S. clearance search in light of these cases. In the case of the famous marks doctrine, at least the client (and perhaps the practitioner) may be aware when considering a new mark that a similar overseas mark has achieved renown in the United States. The 4th Circuit rationale, however, provides no such refuge. At the same time, these two precedents provide further foundation upon which an owner of trademark rights outside the United States may assert claims against use or registration of such mark or a confusingly similar mark in the United States. As commerce becomes increasingly borderless, the International Bancorpand Empresa Cubanadecisions provide important reminders that in certain respects trademark rights themselves may follow. Bruce Goldner is a partner in the intellectual property and technology group at Skadden, Arps, Slate, Meagher & Flom ( www.skadden.com ). Dana Hirschenbaum is an associate in that group. If you are interested in submitting an article to law.com, please click here for our submission guidelines. ::::FOOTNOTES:::: FN1The Commerce Clause provides that Congress may regulate commerce among the states or between the United States and a foreign country. See U.S. Const. art. I, �8, cl. 3. This constitutional constraint is reflected in the Lanham Act, the federal trademark statute. See 15 USCA �1127. FN2See, e.g., Person’s Co. v. Christman, 900 F2d 1565, 1568-69 (Fed. Cir. 1990); Grupo Gigante, S.A. de C.V. v. Dallo & Co., 119 FSupp2d 1083, 1089 (C.D. Cal. 2000). FN3139 F3d 98 (2d Cir. 1998). FN4 Id.at 103. FN5329 F3d 359 (4th Cir. 2003), cert. denied, 124 SCt 1052 (2004). FN6329 F3d at 365. FN7 Id.at 364. FN8 See id.at 366-68 (citing Supreme Court Commerce Clause cases). FN9329 F3d at 388 (Motz, J., dissenting). FN10No. 97 Civ. 8399(RWS), 2004 WL 602295, 70 U.S.P.Q.2d 1650 (SDNY March 26, 2004), appeal granted, no. 04-2527-cv (2d Cir. June 23, 2004). FN112004 WL 602295, at *32, 70 U.S.P.Q.2d at 1677. FN12 See id. FN132004 WL 602295, at *31, 70 U.S.P.Q.2d at 1676. FN14 See id.at *35-39, 70 U.S.P.Q.2d at 1679-82. FN15 See id.at *39, 70 U.S.P.Q.2d at 1682. FN16See, e.g., All England Lawn Tennis Club (Wimbledon), Ltd. v. Creations Aromatiques, Inc., 220 U.S.P.Q. 1069, 1072 (T.T.A.B. 1983); Vaudable v. Montmartre, Inc., 193 N.Y.S.2d 332, 334 (Sup. Ct. N.Y. County 1959). FN17See International Bancorp, 329 F3d at 389 n.9 (Motz, J., dissenting) (noting that the “famous marks” doctrine “has been applied so seldom (never by a federal appellate court and only by a handful of district courts) that its viability is uncertain”). Even the injunction issued in Empresa Cubana has been stayed by the 2nd Circuit pending an expedited appeal, and the 2nd Circuit accordingly may reject or refine Judge Sweet’s rationale. FN182004 WL 602295, at *30 n.8, 70 U.S.P.Q.2d at 1696, n.8.

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