FLANAX: Protecting Foreign Marks from US Unfair Competition Under Section 43(a)
In today’s increasingly global economy, trademark owners are more frequently butting up against the territorial limitations of trademark law. It has long been a matter of black letter law that trademark rights are territorial, subsisting only within the borders of the country where they are obtained. This general rule can present serious obstacles to foreign brand owners who seek to enforce their trademark rights in the United States, typically when they try to enter the United States market and run into putative “senior users” of their marks.
However, there has been a slow but steady trend in United States courts to try to mitigate these seemingly unjust results. Recently, the Fourth Circuit expanded the reach of a foreign registered trademark to the United States in the case Belmora LLC v. Bayer Consumer Care AG and Bayer Healthcare LLC, Appeal No. 15-2335 (2016 BL 89180) (March 23, 2016), vacating the decision of the Eastern District of Virginia, and remanding the case to the district court for further proceedings.
Plaintiff Bayer Consumer Care AG (“Bayer”) is a division of Bayer, AG, the German multinational chemical and pharmaceutical company. In 1976, Bayer registered the trademark FLANAX in Mexico for its line of naproxen sodium pain relievers (Bayer sells the same drug in the United States under the trademark ALEVE). Bayer’s FLANAX brand pain reliever has been tremendously successful in Mexico and other Latin American jurisdictions, totaling hundreds of millions of dollars in sales, including in Mexican cities near the United States border. While the brand is very well-known to Mexican-Americans and other Hispanic-Americans in the United States, Bayer has never marketed or sold any pain relievers under the FLANAX brand in the United States.
Belmora LLC (“Belmora”) launched a line of its own naproxen sodium tablets in the United States under the FLANAX mark in 2004. The following year, Belmora registered the FLANAX trademark with the USPTO. Belmora’s early FLANAX packaging closely mimicked Bayer’s Mexican FLANAX packaging in color scheme, font size, and typeface.
Belmora later made some modifications to the packaging, but retained the font size and typeface.
In addition to using similar packaging, Belmora made statements implying that its FLANAX brand was the same FLANAX pain reliever sold by Bayer in Mexico. For example, Belmora circulated a brochure to prospective distributors that stated,
For generations, Flanax has been a brand that Latinos have turned to for various common ailments. Now you too can profit from this highly recognized topselling brand among Latinos. Flanax is now made in the U.S. and continues to show record sales growth everywhere it is sold. Flanax acts as a powerful attraction for Latinos by providing them with products they know, trust and prefer.
Belmora also employed telemarketers and provided them with a script containing similar statements. This sales script stated that Belmora was “the direct producers of FLANAX in the US” and that “FLANAX is a very well-known medical product in the Latino American market, for FLANAX is sold successfully in Mexico.” Belmora’s “sell sheet,” used to solicit orders from retailers, likewise claimed that “Flanax products have been used [for] many, many years in Mexico” and are “now being produced in the United States by Belmora LLC.”
II. Proceedings Below
Bayer petitioned the United States Patent and Trademark Office, Trademark Trial and Appeal Board (the “Board”), to cancel Belmora’s registration under § 14(3) of the Lanham Act, arguing, among other things, that Belmora’s registration for the FLANAX mark misrepresented the source of the goods.
After discovery and a hearing, the Board ordered cancellation of Belmora’s FLANAX registration, concluding that Belmora had misrepresented the source of the FLANAX goods and that the facts “d[id] not present a close case.” The Board noted that Belmora 1) knew the favorable reputation of Bayer’s FLANAX product, 2) “copied” Bayer’s packaging, and 3) “repeatedly invoked” that reputation when marketing its product in the United States. The Board noted that it did not conclude that Bayer had any specific rights in the FLANAX mark in the United States, but that Belmora may not use the mark “to deceive customers as a source of unfair competition.”
Belmora appealed to the Eastern District of Virginia, maintaining that the Board’s § 14(3) cancellation of its FLANAX registration was in error because Bayer lacked standing, because it had not used or registered the FLANAX mark in the United States. Bayer counterclaimed, alleged false association and false advertising under § 43 of the Lanham Act.
The district court judge “distilled” the case “into one single question”:
Does the Lanham Act allow the owner of a foreign mark that is not registered in the United States and further has never used the mark in United States commerce to assert priority rights over a mark that is registered in the United States by another party and used in United States commerce?
The district court concluded that the answer was “no,” and dismissed the case under Rules 12(b)(6) and 12(c). In coming to this conclusion, the district court relied heavily on the Supreme Court’s decision Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014).
III. Lexmark International v. Static Control Components
Lexmark addressed the issue of “standing” under the Lanham Act. The case involved the sale of toner cartridges that only worked with Lexmark’s laser printers. While Lexmark wanted consumers only to buy its toner cartridges, third party manufacturers were also selling refurbished used Lexmark cartridges. Eventually, Lexmark developed a “Prebate” program that allowed customers to buy new toner cartridges at a discount if they returned the empty cartridges to Lexmark. Lexmark’s Prebate cartridges had a microchip that disabled the empty cartridge unless Lexmark itself replaced the chip. Static Control developed a similar microchip that remanufacturers were able to use to refresh and resell Lexmark’s cartridges, undermining Lexmark’s Prebate program. Lexmark sued for copyright infringement, and Static Control counterclaimed with false advertising and unfair competition claims under the Lanham Act. The district court granted Lexmark’s motion to dismiss on “prudential standing” grounds because Static Control’s injury was too remote and there were more direct plaintiffs. The Sixth Circuit reversed, relying on the Second Circuit’s “reasonable interest” test for standing. The U.S. Supreme Court granted certiorari and affirmed.
The Court reasoned that “standing” relates to whether a person is a proper person to sue under a particular statute. The statute at issue on the counterclaims in Lexmark was the Lanham Act. To determine whether a party has standing under the Lanham Act, the Court set forth a two-prong test: (1) whether the party’s claim comes within the statute’s zone of interests; and (2) whether the injury to a commercial interest in reputation or sales was proximately caused by the defendant’s conduct in violation of the statute. 134 S. Ct. at 1389. Regarding the zone-of-interests test, the Court explained that it was not especially demanding, and that “the test forecloses suit only when a plaintiff’s interests are so marginally related to or inconsistent with the purposes implicit in the statute that it cannot reasonably be assumed that Congress authorized that plaintiff to sue.” Regarding the proximate cause requirement, the harm alleged must have a sufficiently close connection to the conduct the statute prohibits. Id at 1393-94. That, too, was not seen as a high bar.
IV. The Fourth Circuit’s Decision In Belmora
Bayer appealed the Eastern District of Virginia decision. Because the appeal was a review of the district court’s dismissal under Rules 12(b)(6) and 12(c), the Fourth Circuit reviewed the decision de novo. The Court concluded that the district court had misapplied Lexmark :
The primary lesson from Lexmark is clear: courts must interpret the Lanham Act according to what the statute says. To determine whether a plaintiff, “falls within the class of plaintiffs whom Congress has authorized to sue,” we “apply traditional principles of statutory interpretation.” [citations omitted] The outcome will rise and fall on the “meaning of the congressionally enacted provision creating a cause of action.” [citations omitted].
Slip. op. at 17.
The Court observed that there is no requirement in the language of § 43(a) of the Lanham Act that a plaintiff must have used its own mark in commerce in the United States. Written in terms of the putative defendant’s conduct, § 43(a) sets forth unfair competition causes of action for false association and false advertising:
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which —
(A) [False Association:] is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) [False Advertising:] in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
Significantly, the plain language of § 43(a) does not require that a plaintiff possess or have used a trademark in United States commerce as an element of the cause of action. The Fourth Circuit explained that, under § 43(a), it is the defendant’s use in commerce that creates the injury under the terms of the statute. Thus, the district court erred in requiring Bayer to have pled use of its FLANAX Mark in United States commerce “when it is the defendant’s use of a mark or misrepresentation that underlies the § 43(a) unfair competition cause of action.”
Additionally, under Lexmark, Bayer’s claims of unfair competition fell with the Lanham Act’s protected zone of interests, and that Bayer pleaded “proximate causation of a cognizable injury.” Bayer claimed that Belmora’s “misleading association with Bayer’s FLANAX has caused customers to buy the Belmora FLANAX in the United States instead of purchasing Bayer’s FLANAX in Mexico.” Basically, Bayer lost sales revenues in Mexico. The Court concluded that Bayer adequately pled a § 43(a) claim, the allegations reflecting the Lanham Act’s purpose of preventing “the deceptive and misleading use of marks” in “commerce within the control of Congress.”
Bayer also asserted a false advertising claim under 43(a), and the Court held that this claim also fell within the Lanham Act’s zone of protection. Belmora’s allegedly deceptive advertising could have resulted in U.S. customers purchasing Belmora’s FLANAX pain relievers instead of Bayer’s ALEVE brand product. These lost customers satisfied the requirement of injury proximately cause by the challenged conduct. The Court therefore concluded that the Lanham Act allows Bayer to proceed with its § 43(a) claims.
The same analysis was applied to Bayer’s § 14(3) trademark cancellation action. The relevant language in § 14(3) closely tracks similar language from § 43(a) that the Supreme Court considered in Lexmark: “[A]ny person who believes that he is or will be damaged” by the mark’s registration may petition for cancellation under § 14(3), just as “any person who believes that he or she is or is likely to be damaged” may bring an unfair competition action under § 43(a). Bayer fell within the protected zone of interests because it pertained to using marks so as to misrepresent the source of the goods. Therefore, “[m]ost of the [Lanham Act’s] enumerated purposes are relevant” to § 14(3) claims as well. As with § 43(a), neither § 14(3) nor Lexmark mandate that the plaintiff have used the challenged mark in United States commerce as a condition precedent to its claim.
Therefore, the Court concluded that Bayer is entitled to bring unfair competition claims under Lanham Act § 43(a) and its cancellation claim under § 14(3), and vacated and remanded the case.
Belmora represents an important step in protecting the interests of the owners of foreign trademarks in the United States. However, the breadth of protection that this case may afford future litigants may be limited. The renown of Bayer’s FLANAX mark among United States consumers was important to the Court’s analysis, especially when assessing the harm to Bayer’s reputation and loss of sales. In this respect, the Belmora Court followed the lead of the Ninth Circuit in Grupo Gigante SA de CV v. Dallo & Co., 391 F.3d 1088 (9th Cir. 2004), which allowed an exception to the territoriality principle for “famous” foreign trademarks.
Owners of foreign trademarks should take heed of these facts before drawing broad conclusions concerning the scope of protection those foreign trademarks receive in the United States. The safest approach is still to seek U.S. trademark protection whenever practicable as part of a global strategy to prevent potential competitors from taking advantage of the territorial aspect of United States trademark law.