“According to the circuit court, it would require ‘an imaginative leap’ by consumers to grasp that the ENGINEERED TAX SERVICES trademark carries a double meaning. Thus, the court concluded that the mark was suggestive and, therefore, inherently distinctive.”
On May 14, the U.S. Court of Appeals for the Eleventh Circuit reversed a decision of the U. S. District Court for the Southern District of Florida in Engineered Tax Services, Inc., v. Scarpello Consulting, Inc. The district court granted summary judgment in favor of Scarpello, asserting that no reasonable jury could find ENGINEERED TAX SERVICES to be a valid trademark due to a lack of distinctiveness. Engineered Tax Services (ETS) appealed to the Eleventh Circuit, which found that a reasonable jury could have found the mark to be inherently distinctive.
ETS and Scarpello are both in the business of providing specialized tax services, including cost segregation and energy studies. ETS began using the service mark “Engineered Tax Services” in 2006 and used it continuously until filing an application with the United States Patent and Trademark Office (USPTO) to register the mark in 2015. In or around early 2014, ETS negotiated with Scarpello to purchase or subcontract Scarpello, but no agreement was reached. Soon thereafter, Scarpello began using the phrase “engineered tax services” in a Google AdWords marketing campaign, which caused Scarpello’s website to appear first when a user searched for “engineered tax services.” In 2016, ETS became aware of Scarpello’s AdWords campaign and filed a lawsuit in the district court for infringement of its ENGINEERED TAX SERVICES mark under the Lanham Act.
During prosecution of the mark, the USPTO did not require any evidence that the mark had taken on any secondary meaning, as is required when registration is based on “acquired distinctiveness” grounds. Rather, the mark was registered on the ground that it was “inherently distinctive.”
Eleventh Circuit’s Analysis
The circuit court initially noted that the district court did not fully consider whether Scarpello infringed ETS’s trademark because it reached the conclusion that the mark was invalid. Thus, the circuit court noted that it too would only consider the mark’s validity. The circuit court explained that, in order to be valid, a mark must have “either” inherent or acquired distinctiveness so that the “source” of the goods or services, rather than just the goods or services themselves, may be identified. The circuit court concluded that a reasonable jury could have found ENGINEERED TAX SERVICES to be inherently distinctive; thus, the circuit court did not consider acquired distinctiveness.
Citing Royal Palm Properties, LLC v. Pink Palm Properties, LLC, the circuit court explained that trademarks have been classified into four categories according to their strength: “(1) ‘fanciful’ or ‘arbitrary,’ (2) ‘suggestive,’ (3) ‘descriptive,’ and (4) ‘generic.’” The circuit court noted that the dispute at hand was whether ENGINEERED TAX SERVICES was suggestive or distinctive. The distinction was important because suggestive marks, which “bear only an oblique relationship to the product”, are inherently distinctive, while descriptive marks are not inherently distinctive. The circuit court also noted that the burden was on Scarpello to disprove that the mark has inherent distinctiveness. In reviewing the district courts analysis, the circuit court considered two tests for distinguishing between suggestive and descriptive marks, i.e. the “imagination” test and the “third-party use” test.
The “Imagination” Test
The circuit court quoted Investacorp, Inc. v. Arabian Inv. Banking Corp. in explaining that a mark is descriptive if “the customer who observes the term can readily perceive the nature of plaintiff’s services, without having to exercise his imagination.” The circuit court noted that the district court’s application of the “imagination” test was flawed in two respects. First, the district the court narrowly focused on the dictionary definitions of the individual words, rather than considering the mark as a whole. Second, the district court improperly considered only the verb form of the word “engineer” (to plan or manage as an engineer), rather than also considering the term as an adjective (skillfully and deliberately arranged or designed using scientific principals). The circuit court explained that “what makes ETS’s mark at least plausibly imaginative—and thus suggestive, and thus inherently distinctive—is that the term ‘engineered’ can be understood two ways, and that when combined with the phrase ‘tax services’ to form the mark, ‘Engineered Tax Services’ entails a clever double meaning, referring to tax services that are performed both (1) skillfully and scientifically and (2) by actual engineers.”
According to the circuit court, it would require “an imaginative leap” by consumers to grasp that the ENGINEERED TAX SERVICES mark carries a double meaning. Thus, the court concluded that the mark was suggestive and, therefore, inherently distinctive.
The “Third-Party Use” Test
The circuit court also considered the “third-party use” test for distinguishing between suggestive and descriptive marks. Citing Vision Ctr. v. Opticks, Inc., the circuit court noted that courts consider “whether competitors would be likely to need the terms used in the trademark in describing their products” because a mark cannot be distinctive if it is necessary for competitors to use the mark to describe their product. The circuit court explained that the evidence of third-party use presented by Scarpello is not “very compelling”, since Scarpello did not present a single example of a competitor using ENGINEERED TAX SERVICES in a product or service that corresponds to ETS’s line of business. Rather, Scarpello’s evidence suggested that the term “cost segregation” was by far the most common way to describe products or services similar to ETS’s. Further, the circuit court noted that “perhaps most tellingly”, even Scarpello did not use the phrase “engineered tax services” until about 2014, when it launched its Google AdWords campaign. Thus, the circuit court reasoned that the evidence of third-party use was not sufficient to “require a reasonable jury to conclude that ETS’s competitors actually ‘need’ to use the mark to describe their own services.”
The circuit court concluded by noting that the district court erred as a matter of law in holding that the ENGINEERED TAX SERVICES mark was merely descriptive and invalid. Thus, the circuit court reversed the district court’s grant of summary judgment and remanded for further proceedings.
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