In January 2007, the Ninth Circuit adopted the long-standing policy of the Patent Trade Office’s Trademark Trial and Appeal Board that “use in commerce only creates trademark rights when the use is lawful.” This case, CreAgri, Inc. v. USANA Health Sciences, Inc., arose out of competing trademark claims brought by two manufacturers of a dietary supplement.
In 2001, CreAgri began selling “Olivenol,” a dietary supplement containing an antioxidant, hydroxytyrosol, which is found in olives. Olivenol’s label originally indicated that each tablet contained 25mg of hydroxytyrosol. Dietary supplements like Olivenol are required to be sold in compliance with Federal labeling regulations detailed in 21 C.F.R. sections 101.9 and 101.36. A manufacturer may apply for an exemption from these labeling regulations. When it developed Olivenol, CreAgri believed that there was no standardized method to accurately measure the content of hydroxytyrosol in its capsules. However, it did not apply for an exemption from the labeling requirements.
In 2002, CreAgri changed Olivenol’s label. CreAgri had learned that its 25mg hydroxytyrosol measurement might be wrong and conducted further testing which indicated that each tablet contained only 5 mg of hydroxytyrosol. CreAgri changed the Olivenol label to reflect these test results but again did not apply for an exemption from the federal labeling requirements.
It was later determined that each Olivenol tablet contained, at most, 3mg of hydroxytyrosol. Therefore, both Olivenol labels were in violation of the federal labeling requirements. As a result of the lawsuit and further testing, Olivenol’s labeling was finally changed in February 2004 to reflect that each tablet contained 5mg of polyphenols of which hydroxytyrosol was just one variety.
CreAgri’s original application to register Olivenol on the principal register for trademarks was rejected. CreAgri’s application was considered deceptively misdescriptive in that Olivenol is German for “olive oil,” which was not one of its ingredients. CreAgri’s amended application for Olivenol was subsequently listed on the supplemental register which, unlike the principal registration, does not provide prima facie evidence of the validity of the registered mark.
On June 18, 2002, more than a year after CreAgri began selling Olivenol, USANA filed an intent to use application with the PTO for a series of vitamins, minerals and nutritional supplements containing an ingredient called “Olivol,” which was apparently an olive abstract containing beneficial polyphenols. USANA began selling its Olivol products in August 2002 and Olivol was listed on the principal register with a priority date of June 18, 2002.
Shortly after USANA began selling its Olivol product, CreAgri brought an action for trademark infringement, unfair competition, unjust enrichment and a number of related claims. CreAgri claimed that USANA’s “Olivol” ingredient was confusingly similar to its own “Olivenol” product. CreAgri further contended that despite Olivol’s principal registration with a priority date of June 18, 2002, USANA was infringing upon CreAgri’s trademark rights in Olivenol which it acquired by selling it more than a year earlier.
USANA counterclaimed against CreAgri requesting declaratory relief as to all of CreAgri’s claims as well as the cancellation of Olivenol’s mark from the supplemental register. The U.S. District Court for the Northern District of California granted USANA’s motion for summary judgment and concluded that CreAgri’s “Olivenol” mark had not been lawfully used in commerce prior to USANA’s priority date. Accordingly, CreAgri’s claims were dismissed and declaratory judgment entered in USANA’s favor. The Court also ordered that Olivenol be cancelled from the supplemental register.
The Ninth Circuit began by recognizing that for CreAgri to ultimately prevail on its trademark infringement claims, it must have acquired trademark rights to “Olivenol” before USANA acquired trademark rights to “Olivol.” Because CreAgri did not challenge the lawfulness of the registration of USANA’s Olivol with a priority date of June 18, 2002, CreAgri could only prevail on its claims if it could establish that it acquired trademark rights to Olivenol prior to that date. The Ninth Circuit observed that if “use in commerce” were the only requirement for acquiring trademark rights, CreAgri would have an easier path to establishing priority of its mark because it began selling Olivenol more than one year before USANA’s intent to use application for Olivol was filed.
However the Ninth Circuit’s inquiry did not end there. As a matter of first impression, the Court recognized that it had “long been the policy of the PTO’s Trademark Trial and Appeal Board that use in commerce only creates trademark rights when the use is lawful.” Prior to this decision, only one other federal circuit, the Tenth Circuit, had adopted and applied this rule. (United Phosphorus, Ltd. v. Midland Fumigant, Inc. (10th Cir. 2000) 205 F.3d 1219, 1225.)
The Ninth Circuit found two reasons justifying the adoption of this rule. First, the Court found that it would be illogical to have the government extend the benefits of trademark protection “to a seller based upon actions the seller took in violation of that government’s own laws.” Second, the Court found that as a policy matter, “to give trademark priority to a seller who rushes to market without taking care to carefully comply with the relevant regulations would be to reward the hasty at the expense of the diligent.”
The Court held that it was undisputed that “at all times prior to USANA’s priority date, Olivenol’s labels were not in compliance with the [federal] labeling requirements . . . and, thus, Olivenol was being sold in violation of [federal] law.” CreAgri attempted to avoid the consequences of its non-compliance by arguing that: (1) the nexus between its labeling violation and it use of the Olivenol mark were too attenuated to justify depriving it of trademark protection; (2) because it was technologically infeasible to measure the content of hydroxytyrosol when it mislabeled Olivenol, it was not actually unlawful since the regulations provide for an exemption in such circumstances; and (3) its violation of the federal labeling laws was not material. The Court rejected each of these arguments in turn.
First, the Ninth Circuit recognized that: “There must be some nexus between . . . use of [a] mark and [an] alleged violation before it can be said that the unlawfulness of [a] sale or shipment has resulted in [a trademark’s] invalidity . . . .” The Ninth Circuit rejected CreAgri’s argument by finding that “while it may be possible to conceive of a situation in which violation of a law in connection with a trademark product would have no effect on the rights inuring in that trademark, the nexus between a misbranded product and that product’s name, particularly one designed for human consumption, is sufficiently close to justify withholding trademark protection for that name until and unless the misbranding is cured.”
The Ninth Circuit also rejected CreAgri’s argument that its violation should be excused since the federal regulations provide for an exemption. The Court found that while it was unclear whether it was technologically feasible to test for hydroxytyrosol at the time CreAgri first labeled Olivenol, the Court found that CreAgri never filed for an exemption. The Ninth Circuit reasoned that the federal regulations do not provide for an automatic exemption, but rather, require that sellers apply for and receive an exemption from the FDA. Because it took no action to apply for an exemption, CreAgri’s violation of the federal labeling requirements could not be excused.
Finally, the Ninth Circuit rejected CreAgri’s argument that its mislabeling of Olivenol in violation of federal regulations was so harmless or de minimis that it should be excused as immaterial under the ruling in General Mills, Inc. v. Health Valley Foods, 24 U.S.P.Q.2d 1270, 1274 (T.T.A.B. 1992). The Court distinguished the General Mills case because General Mills had corrected its labeling error before its competitor’s priority date. Therefore, General Mills was able to establish “the lawful use in commerce” necessary for trademark protection. Unfortunately, CreAgri had not corrected its labeling error before USANA’s priority date. Therefore, CreAgri could not establish a single instance of “lawful use in commerce” prior to USANA’s June 18, 2002 priority date.
As a result of this recent Ninth Circuit case, it is imperative that any seller seeking to establish trademark protection through “use in commerce” must establish that its use was lawful. This requires that a seller seeking such protection take every step to ensure that it is in compliance with all federal and state regulations governing that product, including any labeling requirements, to avoid the consequences that befell CreAgri.
James Kachmar is a Senior Associate in Weintraub Genshlea Chediak Tobin & Tobin’s litigation section. He represents corporate and individual clients in both state and federal courts and various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes. For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com.