Use in US Commerce Not Necessary For Standing in Lanham Act Unfair Competition Claims: Fourth Circuit

Practical Law Legal Update w-001-8179 (Approx. 5 pages)

Use in US Commerce Not Necessary For Standing in Lanham Act Unfair Competition Claims: Fourth Circuit

by Practical Law Intellectual Property & Technology

Background

Bayer Consumer Care AG is the owner of the trademark FLANAX in Mexico and has sold its naproxen sodium pain reliever drug product under the mark in Mexico and other parts of Latin America since the 1970s. Belmora LLC owns the FLANAX trademark in the US and has sold its naproxen sodium pain relievers in the US since 2004.

Bayer has never sold its FLANAX product in the US (it sells naproxen sodium in the US under the brand ALEVE). However, Bayer's FLANAX brand is well-known to Mexican-Americans and Hispanics in the US. When Belmora began selling its naproxen sodium pain relievers in the US in 2004:

It did so under the name FLANAX.
Its early product packaging was very similar to Bayer's Mexican FLANAX packaging.
It made statements implying that its FLANAX brand was the same FLANAX product sold by Bayer in Mexico.

In 2007, Bayer (with its US counterpart, collectively Bayer), petitioned the TTAB to cancel Belmora's registration for the FLANAX mark, asserting various grounds for relief including likelihood of confusion, fraud, and misrepresentation of source. The TTAB ultimately cancelled Belmora's registration of the FLANAX mark finding that the company had misrepresented the source of its pain reliever in the US as a Bayer product. Belmora appealed the TTAB's decision to the US District Court for the Eastern District of Virginia.

In the meantime, Bayer filed a separate action in the US District Court for the Southern District of California against Belmora for, among other things, false association and false advertising under section 43 of the Lanham Act (15 U.S.C. § 1125). Subsequently, this action was transferred to the Eastern District of Virginia and consolidated with Belmora's trademark cancellation appeal.

The district court:

Dismissed the false association and false advertising claims, finding that Bayer did not have standing because it did not use or own a registration for the FLANAX mark in the US. Specifically, the district court held that because Bayer did not have a protectable interest in the FLANAX mark in the US:
- Bayer's claims fell outside the Lanham Act zone of interests; and
- Bayer could not have a cognizable economic loss.
Reversed the TTAB's cancellation order, finding that under Section 14(3) of the Lanham Act, Bayer lacked standing to sue under both the zone of interests and proximate cause prongs.

For more information on the district court's ruling, see Legal Update, Decision of First Impression Grants Foreign Trademark Owner’s Petition to Cancel US Registration of Mark.

Bayer appealed these decisions to the Fourth Circuit.

Outcome

On appeal, the Fourth Circuit reviewed the district court's decision de novo.

False Association and False Advertising

Concerning the false association and false advertising claims under Section 43 of the Lanham Act, the Fourth Circuit held that the plain language of Section 43(a) does not require that a plaintiff possess or have used a trademark in US commerce. This is in sharp contrast to the claim of trademark infringement under Section 32 of the Lanham Act (15 U.S.C. § 1114), which requires use of a registered mark in commerce.

The Fourth Circuit ruled that the Lanham Act requires Bayer to show that it was "likely to be damaged" by Belmora's use of the FLANAX mark and relied on the US Supreme Court's two-part analysis for determining this likelihood:

The plaintiff's claim must fall within the zone of interests protected by the Lanham Act, and in this determination:
- the plaintiff receives the benefit of any doubt; and
- in a suit for false advertising, a plaintiff must allege an injury to a commercial interest in reputation or sales.
The plaintiff's injury must be proximately caused by a violation of the statute. Under Section 43(a), this requires showing economic or reputational injury flowing directly from the defendant's deceptive advertising, which occurs when the deception causes consumers to withhold trade from the plaintiff.

(Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014).)

Applying this to the current case, the Fourth Circuit held:

The statute's plain language does not require the plaintiff's use of a trademark in US commerce to bring an unfair competition claim under Section 43(a) of the Lanham Act.
Concerning the false association claims:
- Bayer met the zone of interest prong by alleging that it loses sales revenue from Mexicans and Mexican-Americans because of Belmora's deceptive and misleading use of FLANAX to convey a false association with Bayer's product; and
- Bayer met the proximate cause prong because it can be reasonably inferred at the pleading stage that some Mexican-American customers along the US-Mexico border would forgo purchasing FLANAX in Mexico and buy it from Belmora in the US instead.
Concerning the false advertising claims:
- Bayer met the zone of interests prong because Belmora's alleged false statements relate directly to the nature, characteristics, qualities, or geographic origin of its FLANAX product as being the same as that of Bayer's product, and because these statements are linked to Belmora's alleged deceptive use of the FLANAX mark.
- Bayer met the proximate cause prong because it can be reasonably inferred that the alleged advertisements contributed to the lost border sales pled by Bayer.

Trademark Cancellation

In reviewing the TTAB's trademark cancellation, the Fourth Circuit once again applied the Lexmark framework and ruled that:

Bayer fell within the protected zone of interests because the conduct in question is the same as that of the false association claims and therefore follows the same analysis.
There is no requirement under Section 14(3) that Bayer use the challenged mark in US commerce.
Bayer satisfied the proximate cause prong under the analysis for the false association claims.

Consequently, the Fourth Circuit held that the district court had erred in reversing the TTAB's decision to cancel the registration of Belmora's FLANAX mark.

Practical Implications

The Fourth Circuit decision provides international businesses with a means of preventing overtly deceptive use of their foreign marks in the US. It acknowledges that the Lanham Act broadly protects a business against any injury that results from deceptive commercial conduct, and not just harm to a business's particular US trademark or brand.

Use in US Commerce Not Necessary For Standing in Lanham Act Unfair Competition Claims: Fourth Circuit | Practical Law