Federal Circuit Reverses TTAB Ruling on Standing for Petition to Cancel Condom Trademark

The U.S. Court of Appeals for the Federal Circuit ruled yesterday that Australian Therapeutic Supplies Pty. Ltd. has “a real interest” in cancelling the registration for NAKED for condoms, owned by Naked TM, LLC. While the Trademark Trial and Appeal Board (TTAB) had found that Australian lacked standing to petition for cancellation because “it had contracted away its proprietary rights in its unregistered marks,” the Court held that “a petitioner seeking to cancel a trademark registration establishes an entitlement to bring a cancellation proceeding under 15 U.S.C. § 1064 by demonstrating a real interest in the cancellation proceeding and a reasonable belief of damage regardless of whether petitioner lacks a proprietary interest in an asserted unregistered mark.” Judge Wallach dissented from the majority opinion, which was authored by Judge Reyna.

The Fight for NAKED

Australian adopted and began using the mark NAKED for condoms in early 2000 in Australia and by April 2003 in the United States. Naked TM’s predecessor filed an application for the trademark NAKED in September 2003 and was granted Registration No. 3,325,577 for the mark NAKED for condoms. Australian contacted Naked TM in 2006 and the parties engaged in settlement negotiations until 2007. While Naked TM asserts that emails between the parties show that they agreed Australian would stop use of its mark in the United States and consent to Naked TM’s use of the mark, Australian counters that no agreement on the final terms of a settlement were reached.

In the midst of the settlement discussions, Australian petitioned the USPTO for cancellation of the mark NAKED on the grounds of fraud, likelihood of confusion, false suggestion of a connection, and lack of bona fide intent to use the mark. The TTAB denied both parties’ requests for summary judgment and urged them to focus on the issues of standing and priority at trial. Ultimately, the Board held that, “although no formal written agreement existed, the parties entered into an informal agreement through email communications and the parties’ actions” and “that Australian led Naked to ‘reasonably believe that [Australian] had abandoned its rights in the United States to the NAKED mark in connection with condoms.’” Thus, “Australian could not establish a real interest in the cancellation or a reasonable basis to believe it would suffer damage from the continued registration of the  NAKED mark.”

Proprietary Rights Not Required

In its discussion of the case, the Federal Circuit explained that under the terms of 15 U.S.C. § 1064, “a petitioner may seek cancellation of a registered trademark if the petitioner ‘believes that he is or will be damaged’ by the registered trademark.” Thus, the Board’s determination that Australian did not have standing because it could not establish proprietary rights was error. “Neither § 1064 nor our precedent requires that a petitioner have a proprietary right in its own mark in order to demonstrate a cause of action before the Board,” wrote the Court. Even if a party has contracted away its right, it may still petition for cancellation before the Board. While proof of an agreement to contract away rights may stop a party from proving actual damage, Section 1064 only requires a belief of damage, said the Court.

Belief of Damage

In determining whether Australian has a real interest and reasonable belief of damage to petition for cancellation, the Court said that the USPTO’s refusal of Australian’s two attempts to register its mark, coupled with the Office’s suspension of prosecution of Australian’s most recent application pending the outcome of the cancellation proceedings, further supports the conclusion that Australian meets the criteria under Section 1064. While Naked TM argued that Australian had abandoned its first application for the mark and filed the second in a “post filing,” “futile attempt to establish its standing,” the Federal Circuit was not persuaded. First, abandoning prosecution does not equate to abandoning rights, and second, Australian’s advertising and sales in the United States demonstrated a real interest. In conclusion, held the majority:

Australian’s advertising and sales of NAKED condoms in the United States since April 2003, coupled with its pending application for registration of its unregistered mark, demonstrates that Australian is not a mere intermeddler; these acts instead demonstrate a real interest and reasonable belief of damage, as contemplated for a cause of action under 15 U.S.C.§ 1064. The Board, therefore, erred as a matter of law when it determined that Australian lacks standing in the proceeding for cancellation of Naked’s registered mark.

Wallach Dissents

Judge Wallach dissented from the majority, arguing that, while he agreed that Section 1064 does not require a proprietary interest for standing to petition for cancellation, “I do not agree that the Board required a proprietary interest from Australian or that Australian met its burden of proving a real interest and a reasonable belief in damages.” While a proprietary interest is not required, wrote Judge Wallach, a “legitimate commercial interest” is, and Australian had contracted away such interest.