Almost Zero - Recent Federal Circuit Decision Shows Lanham Act Sets Very Low Bar in Requiring Use of Trademark “In Commerce”
Intellectual Property Litigation Update
Date: November 28, 2016
The Federal Circuit recently decided the case of Christian Faith Fellowship Church v. adidas AG, No. 2016-1296, which concerns the Lanham Act’s requirement that a trademark registrant use or intend to use the trademark “in commerce.” The Lanham Act defines “in commerce” as all commerce that Congress may lawfully regulate and, under the Commerce Clause of the U.S. Constitution, Congress may only lawfully regulate interstate commerce, as well as economic conduct that affects interstate commerce. The adidas case features a somewhat unlikely set of litigants (i.e., a church versus a large apparel company) and raises an issue at the intersection of trademark law and constitutional law (i.e., what conduct constitutes use of a trademark in commerce that Congress can lawfully regulate through the Lanham Act). The adidas case shows that Congress has very broad power to regulate conduct that affects interstate commerce and relates to trademarks. Thus, the Lanham Act reaches conduct that, on its face, may seem to have only a minimal impact on interstate commerce. Because the Lanham Act imposes such a low bar in requiring that trademarks be used “in commerce,” those who are challenging a trademark should think twice before seeking to cancel a trademark on the ground that it was not used in commerce.
In adidas, Christian Faith Fellowship Church began selling caps and shirts bearing the phrase “ADD A ZERO” at its bookstore. Shortly thereafter, the Church applied with the U.S. Patent and Trademark Office (USPTO) to register two ADD A ZERO trademarks, averring in its applications that it was using the marks in commerce. Some time later, adidas tried to register the mark ADIZERO with the USPTO, but its registration was refused due to a likelihood of confusion with the Church’s ADD A ZERO marks. adidas then brought an action to cancel the Church’s marks, because the Church had allegedly not used its marks “in commerce.” In its defense, the Church pointed to a single sale for $38.34 of two hats bearing the ADD A ZERO marks from the Church’s Illinois store to a resident of Wisconsin. The Trademark Trial and Appeal Board (TTAB) sided with adidas, finding the Church’s single sale de minimus, and insufficient to show use of a trademark affecting interstate commerce. The TTAB canceled the Church’s trademark registrations.
The Church appealed to the Federal Circuit, which reversed. The Federal Circuit held the Church’s single sale was regulable by Congress under the Commerce Clause and, therefore, the Church had used its trademarks in commerce under the Lanham Act. In determining what conduct Congress may regulate under the Commerce Clause, the court looked primarily to three U.S. Supreme Court opinions: Wickard v. Filburn, 317 U.S. 111 (1942); Gonzales v. Raich, 545 U.S. 1 (2005); and Taylor v. United States, 136 S. Ct. 2074 (2016). None of these was a trademark case. Instead, these cases involved regulation of wheat, marijuana, and robbery involving marijuana, respectively. According to the Federal Circuit, these cases stand for the proposition that Congress can regulate conduct occurring within a single state provided the conduct falls within a category or class of activities that, taken in the aggregate, have a substantial effect on interstate commerce.
Applying this principle to the present case, the Federal Circuit wrote (internal citations omitted):
[T]he transaction at issue falls comfortably within the bounds of those powers sketched for us by the Supreme Court. The Lanham Act is a comprehensive scheme for regulating economic activity—namely the marking of commercial goods—and the “use in commerce” pre-registration requirement is an “essential part” of the Act. Further, it cannot be doubted that the transaction at issue—the private sale of goods, particularly apparel, to an out-of-state resident—is "quintessentially economic." This transaction, taken in the aggregate, would cause a substantial effect on interstate commerce and thus it falls under Congress’s Commerce Clause powers.
Further, the court held the Church did not need to come forward with actual proof that its activities affected interstate commerce. The Church needed only to show that its conduct was in a class that, in the aggregate, had the required effect on interstate commerce. Finally, the court rejected the contention that the U.S. Supreme Court’s case law could be limited to certain types of commerce—namely commerce involving illicit drugs.
adidas thus makes clear that recent U.S. Supreme Court Commerce Clause jurisprudence is generally applicable; it extends beyond cases involving illicit drugs and agricultural products to trademark cases. adidas is noteworthy not only for the recent Supreme Court cases it interpreted and followed, but also for the case law it chose not to rely on. In the last 30 years, the Supreme Court has decided at least two cases—United States v. Lopez, 514 U.S. 549 (1995) and United States v. Morrison, 529 U.S. 598 (2000)—that seemed to suggest Congress’s powers under the Commerce Clause were more limited than previously thought. The Federal Circuit gave short shrift to Lopez and Morrison, only citing them in passing and focusing instead on cases that have read the Commerce Clause more broadly.
Because of this, the Federal Circuit adopted a low bar for the “in commerce” requirement. That much is sure. But how low? The Federal Circuit’s analysis arguably hinged on how one defines the “class” or “category” of conduct in which the transaction at issue fell. This class must, in the aggregate, substantially affect interstate commerce. In adidas, the class appears to be the private sale of goods to an out-of-state resident. If this is the class, then a party can presumably show that the “in commerce” requirement is met in any case merely by showing that the party made a single sale, for any amount, of a good bearing the trademark at issue to any person residing outside the state. If the party is selling goods online, this bare minimum should not be hard to prove. While adidas did not address this point, a party could presumably also meet the “in commerce” requirement merely by showing that it made a single sale of goods bearing the party’s trademark and those goods were produced in another state or country. This burden is so low that those who are challenging a registered trademark may want to forgo arguing this point in all but the most extreme cases.
The adidas case also shows the potential costs and pitfalls of pursuing formal legal proceedings, rather than working with the trademark holder to reach an amicable resolution. The Federal Circuit’s opinion does not reveal whether adidas negotiated with the Church in an attempt to resolve this matter before filing cancellation proceedings. If it did not, it certainly should have. Rather than prolonged, costly litigation that led to an adverse decision by the Federal Circuit, adidas might have quickly resolved this matter with the Church through a consent licensing agreement, assignment agreement, or coexistence agreement, particularly since the parties are not established competitors in the marketplace. Parties are well-advised to consider these options before resorting to litigation.
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