TAGS: trademark, territoriality, Bayer, Belmora, Flanax, Mexico, registration, first use, international, foreign, Madrid Protocol, famous mark, infringement, Lanham Act, TTAB, goodwill, reputation, misrepresentation, source.

In the U.S., trademarks rights first arise by using a mark in commerce. Even without federal registration, selling goods and services under a trademark gives the owner a “common law” right to the mark. Consistent and prominent use of a mark further strengthens the owner’s rights, but proper “use” of a mark implies important geographic limitations. Trademark law calls this idea the “territoriality principle” – meaning that trademark rights are limited to the country in which the mark is used. Outside of limited international treaties, this idea governs U.S. trademark law as well.

Trademark territoriality issues often arise when a foreign owner of a well-known or famous mark attempts to asserts his trademark rights in the U.S. without first using or registering that mark in the U.S. In the U.S., famous marks are granted additional protection against activities that would “dilute” their distinctive nature or recognition with consumers. But how to square the idea of a famous foreign mark, well known by consumers in the U.S. and broad, with the idea that trademark protection stops at a country’s border? Couldn’t someone steal the brand equity of a famous foreign mark and profit off its reputation it in a country where that mark is not registered? In short, the answer is yes.

In fact, trademark territoriality puts the owner of a famous foreign mark at a distinct disadvantage. Christopher Dolan, writing about this in Inside Counsel calls territoriality a well-meaning but outdated idea. According to Dolan, “foreign companies’ successful marks are at risk of infringement in the U.S. by parties who could copy, use and seek to register the marks, preempting the foreign company in the U.S. market and leaving the foreign owner without reliable recourse.”

The Eastern District of Virginia recently opined on just such a scenario. In Belmora LLC v. Bayer Consumer Care AG, Civil Action No. 1:14-cv-000847-GBL-JFA (February 6, 2015), the district court relied on the territoriality principle in a case involving the sale of a well-known painkiller under the brand name FLANAX. The German pharmaceutical giant Bayer sold painkillers under the name FLANAX in Mexico since 1976 but never registered or used the mark in the U.S. Belmora, a Virginia company, obtained a registration for FLANAX in 2004 and began selling a similar pain-relieving product under that name.

Bayer petitioned the Trademark Trial and Appeal Board (TTAB) to cancel Belmora’s FLANAX mark, arguing that Belmora misrepresented the source of its FLANAX products, in violation of Lanham Act Section 14(3), which prohibits misrepresentation of the source of goods. Bayer presented evidence that Belmora’s packaging and marketing was similar to its Mexican product, and argued that Belmora was attempting to mislead consumers into thinking the U.S. FLANAX mark was associated with Bayer’s well-known Mexican FLANAX mark. The TTAB agreed with Bayer and canceled Belmora’s FLANAX mark, despite the fact that Bayer did not have a U.S. registration for the mark or sell any FLANAX products in the U.S.

The Eastern District reversed the TTAB. The district court looked to a previous U.S. Supreme Court decision, Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014), to determine whether Bayer had standing to sue under the Lanham Act. In deciding that Bayer did not have standing, the court stated that because Bayer never used its FLANAX mark in the U.S., it had no “protectable interest” in the FLANAX mark. Considering the wealth of evidence that Belmora tried to capitalize on the familiarity and goodwill associated with Bayer’s FLANAX mark, the district court’s result seems less than fair. The court acknowledged this inequity but saw no grounds on which to allow a foreign trademark that was not registered or used in the U.S. to assert priority rights over a registered U.S. mark.

As pointed out in the Mintz Levin blog post about this decision, Belmora “underscores the territorial nature of trademark rights and the need to seek formal protection for your marks where possible in all countries of interest.” Even a company like Bayer, which sold millions of dollars of its trademarked pharmaceutical FLANAX outside of the U.S., cannot rely on its well-known foreign trademark to prevent the use of an identical mark for identical products in the U.S. In these cases, trademark territoriality would counsel a company like Bayer to first use and register its mark in the U.S. before seeking to enforce its rights.