On February 23, 2015, in Pennzoil-Quaker State Company v. Miller Oil and Gas Operations, the US Court of Appeals for the Fifth Circuit reversed the district court's ruling finding in favor of defendant Miller Oil's affirmative defense of acquiescence in a trademark infringement suit brought by Pennzoil (No. 13-20558 (5th Cir. Feb. 23, 2015)). Significantly, the appellate court explicitly defined "undue prejudice" for the purpose of a defensive claim of trademark acquiescence in the Fifth Circuit, holding that it means that the defendant has taken steps such as making significant investment decisions or building the bulk of its business based on the reasonable assumption that it had permission to use the plaintiff's marks and that the investment or capital would be lost if the defendant could no longer use the mark.

The dispute at issue arose out of a series of agreements and commercial arrangements between the parties dating back to 1997 relating to Pennzoil's provision of its signage and branded materials for use at Miller Oil's Pit Stop U.S.A., a quick-stop oil change and state inspection facility in Houston. In 2007, Pennzoil proposed that Pit Stop become a prototype for Pennzoil's broader corporate re-imaging efforts. The re-imaging, paid for by Pennzoil, was substantial and took four to six weeks. At its own expense, Miller Oil repainted the interior of Pit Stop to match the exterior. Four years later, after Pennzoil discovered that Pit Stop was mislabeling bulk oil as a Pennzoil product, Pennzoil requested that Miller Oil remove Pennzoil's trademarks and trade dress. Miller Oil kept the marks and Pennzoil sued. The district court held that Miller's use of the trademarks was trademark infringement. However, the district court ruled in favor of Miller Oil's affirmative defense of acquiescence, finding that Pennzoil implicitly and explicitly assured Pit Stop that the use of the Pennzoil marks and trade dress were allowed and Miller Oil had relied on these assurances. The district court issued a limited injunction, ruling that the defendants were not required to remove the Pennzoil marks and trade dress from the Pit Stop's exterior.

On appeal, the court first noted that in the Fifth Circuit, an acquiescence defense requires the defendant to establish three elements:

(Abraham v. Alpha Chi Omega, 708 F.3d 614 (5th Cir. 2013).) The court discussed that while circuit court definitions of trademark acquiescence vary, each emphasizing different elements, the Fifth Circuit's definition fit within the spectrum of approaches.

Noting that the Fifth Circuit had not previously explicitly defined the undue prejudice prong, which was at issue in this case, the court held that undue prejudice means that the defendant has taken steps such as making significant investment decisions or building the bulk of its business based on the reasonable assumption that it has permission to use the plaintiff's marks, and that such investment or capital would be lost if the defendant could no longer use the mark. The court clarified that it is not enough that the trademark user will bear costs in removing the infringing marks it had been using. The court also noted that this definition is consistent with its laches jurisprudence, which also has an undue prejudice component, and decisions from other circuit courts.

The court did make one key qualification. While a defendant may be prejudiced if it relies on the plaintiff's mark to expand its business, prejudice is rarely found merely because the defendant has used the infringing mark in commerce (or spent money on products which use the mark) as this would moot the undue prejudice element. For the same reason, the costs of removing the infringing marks does not ordinarily factor into the undue prejudice analysis.

The court reversed the district court's decision, concluding that the district court made no explicit or implicit findings on whether Miller Oil suffered undue prejudice because of its reliance on Pennzoil's statements. It also rejected Miller Oil's arguments on appeal that it suffered undue prejudice from:

The court found that the disruption during the re-image process did not rise to a sufficient level to meet the undue prejudice standard. On Miller Oil's second argument, the court determined that there was no evidence in the record to indicate the commercial or economic consequence of the change in Pit Stop's identity after the re-image, for example, a change in its customer base, higher profits or new business opportunities it exploited because of the re-brand.