Meeting of the Minds

Trademarks without Borders: The Struggle to Establish Geographical Rights for Common Law Trademarks Used Online

John A. Zevitas and Thomas J. Mihill

©2014. Published in Landslide, Vol. 7, No. 2, November/December 2014, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

The Internet has become an integral part of the lives of U.S. consumers. More than 80 percent of shoppers utilize the Internet to make a purchase or to conduct research to make informed buying decisions.1 The transformation of the U.S. economy from one traditionally reliant upon brick-and-mortar stores to one that has becoming increasingly dependent on a vibrant online marketplace has required U.S. trademark law to evolve in order to meet the demands that follow such a rapid expansion of commerce. The resounding advancements in e-commerce and online advertising provide geographically remote trademark owners unprecedented access to untapped markets, allowing them to expand their reach in both sales and advertising. This is especially true with the development of an Internet marketplace that allows goods to be advertised and sold around the country from a single geographic location.

Though U.S. trademark law has been updated to reflect some changes in the U.S. economy, common-law rights remain geographical in nature and are only afforded to marks that have actually established goodwill within a geographic location. Not surprisingly, this geographical limitation of common-law trademark rights has been called into question in today’s Internet age where goods and services may acquire nationwide sales and/or reputation through simply having an online presence. In fact, it is possible for a trademark owner to only have an online presence without engaging in traditional means of advertising and sales. In these scenarios, could an exclusive online presence establish trademark rights in a specific geographic area? Courts seem to struggle with this inquiry, and on occasion even overlook the geographical use requirement entirely. Even though the Internet has been a part of commerce for decades now, courts have been unable to come to a consensus as to how to establish geographical trademark rights based purely upon Internet use. Though the courts have not formulated a method to attach geographical boundaries to online commercial activities, patterns have emerged that may shed some light on how courts consider these activities when deciding upon the geographical rights of a trademark.

Ascertaining Geographical Rights for Registered and Unregistered Marks

Determining the extent of the geographical rights of a mark is an important undertaking for both common-law and federally registered trademarks. In many cases, this determination must be made as a prerequisite for enforcement. Under common law, trademarks can only be enforced within a geographic zone of actual goodwill, which consists of two subzones: the zone of market penetration and the zone of reputation.2 Some courts add a zone of natural expansion to this protection zone, thus granting further rights where no actual sales or reputation exist.3 Even federally registered trademarks, which acquire a presumption of nationwide priority, must show actual market penetration of or intent to penetrate the junior user’s geographic market before a court can grant an injunction.4

It is also necessary to establish the geographical rights of a mark when adopting the good faith junior user (a.k.a. Tea Rose-Rectanus doctrine5) defense. This affirmative defense allows a junior user to establish priority in a geographic location if: (1) it began using the mark in the geographically remote area prior to the senior user entering that location or receiving a federally registered mark, and (2) its use was in good faith, which is evidenced by the fact that the junior user was unaware of the senior user’s mark at the time of appropriation.6

Traditional Methods of Establishing Geographical Trademark Rights

Before asserting common-law trademark rights, courts usually require the user to show that it has priority in the mark as the senior user and can prove that it has legally sufficient market penetration in the geographic market.7 Establishing priority of use requires the user to demonstrate prior appropriation of the mark in commerce. This is usually shown by providing evidence that the user adopted the mark and, in a continuous and uninterrupted manner, used the mark in a sufficiently public way so that consumers can identify the mark as deriving from its adopter.8

Once priority of use is established, the senior user needs to prove that it has legally sufficient market penetration in the geographic area in which it is attempting to assert its trademark rights. Courts have cautioned trademark owners that the use of their marks must not be de minimis, but that their presence in the area should be significant enough that the likelihood of consumer confusion is plausible.9 Traditionally, the courts have applied the zone of market penetration test, zone of reputation test, and/or zone of natural expansion test to determine whether there has been legally sufficient market penetration.

The core of any argument usually begins by examining the zone of market penetration. This test examines four factors when determining sufficient penetration within a geographic location: (1) volume of sales of the product in the area, (2) growth trends, (3) ratio of persons buying from the potential group of consumers, and (4) amount of advertising.10 Once the zone of market penetration is found, courts may expand a mark’s geographical boundaries to locations where its reputation has been established sans actual sales and into areas in which the user is reasonably expected to naturally expand.

Today, even with the unprecedented reach of the Internet, many courts continue to utilize these traditional tests when establishing the geographical rights of a trademark. Other courts, many of which struggle to determine how online trademark activity fits within the traditional boundaries of geographical trademark rights, adopt alternative tests or simply decide to forgo any analysis regarding the geographical extent of common-law rights. Though no apparent consensus on how to calculate the geographical boundaries of online commercial activity has formed, several principles have emerged that can be reasonably relied upon when determining the effect of these activities on the geographical rights of a mark.

Traditional Tests Can Incorporate Quantifiable Internet Activity

Though it may seem a daunting and perhaps nearly impossible task to accomplish, some courts have integrated digital consumer interactions with trademarks into the traditional geographical tests. The types of exposure consumers have with marks online can be broadly classified into three manageable groups: (1) interacting with a trademark by way of purchasing or downloading a good or service it is associated with, (2) visiting a website in which the trademark is located, and (3) viewing a paid Internet advertisement, the organic search results of a search engine, or a social networking post that contains the trademark. By reviewing case law with these general categories of exposure in mind, patterns begin to emerge as to how courts may incorporate online activity into their geographical rights analyses.

Online Sales Made within the Purchaser’s Geographic Location

Studies have shown that 62 percent of U.S. consumers utilize the Internet to make a purchase each month.11 Though the transaction occurs online, it does involve a customer located within an identifiable geographic location. Courts applying the market penetration test consistently acknowledge this fact and hold that evidence of Internet sales will be considered with other sales made within that geographic area.12 Nevertheless, as is the case with brick-and-mortar transactions, the volume of actual sales cannot be de minimis or sporadic, but rather must occur on some significant level.

For example, in Optimal Pets, Inc. v. Nutri-Vet, LLC, the plaintiff provided evidence that it sold its pet products online to consumers in 34 states. However the court ruled that the plaintiff was unable to establish sufficient market penetration in any state due the low volume of actual sales. Specifically, the court concluded that $1,888 in sales deriving from a single zip code located in the plaintiff’s highest grossing state was not sufficient to establish penetration.13 By accepting the traditional volume of sales needed in a location to sufficiently penetrate a market, the Optimal Pets court may have unintentionally disadvantaged Internet retailers. The ability for an Internet retailer to reach a broad and diverse consumer base incentivizes the retailer to cast a much wider net rather than focusing its sales efforts in a single area, thereby reducing the volume of sales per location. Though this shift in sales strategy should be taken into consideration, for now, some courts may require the traditional volume of sales for Internet sellers to establish geographical rights.

Evidence of Substantial Website Visits Can Support a Geographical Reputation

Most consumer activity conducted online can be traced and measured accurately. Online services, such as Google Analytics, can generate detailed reports containing data and statistics about a website’s traffic patterns, conversion rates, and sales activity, and even the demographics of its visitors. Most pertinently, these services provide data concerning the geographic location of visitors and the means by which they arrived on the site. Courts have utilized evidence of visits to a website from a specific geographic location as part of its zone of reputation analysis.

In JS IP, LLC v. LIV Ventures, Inc., the plaintiff, a Miami, Florida, nightclub, alleged that an Omaha, Nebraska, cocktail bar’s use of a similar mark was likely to cause confusion with its registered mark.14 Because the two companies were geographically remote, the court required that the plaintiff plead sufficient evidence its reputation had entered the junior user’s location before deciding on the likelihood of confusion. The court held that a zone of reputation for the Miami nightclub was established in Omaha because, during the relevant time period, the nightclub’s website received over 7,600 unique visits from consumers in Nebraska and 97,000 unique visits from consumers in surrounding states.15 Therefore, courts may consider non-de minimis visits to a trademarks user’s website in its zone of reputation analysis as long as quantifiable evidence is provided.

Internet Advertisements Must Be Specifically Directed to the Geographic Market

Advertising online has the capability of reaching a wide global audience; however, advances in micro targeting also allow companies to direct online ads to specific demographics, including geographic locations. When establishing the geographical rights of a trademark, courts commonly look to the geographical reach and influence of a company’s advertisement campaign. However, simply posting an advertisement with an online or traditional medium that has a large circulation may be insufficient to establish common-law trademark rights. By borrowing the standards used to establish personal jurisdiction through Internet activity, some courts seem to require that online advertisements specifically target consumers within a geographic location to find sufficient market penetration.16

In Commerce Bancorp, Inc. v. BankAtlantic, a plaintiff mid-Atlantic bank, with over one million customers, alleged that a Florida-based bank’s use of the slogan “Florida’s Most Convenient Bank” infringed upon its mark “America’s Most Convenient Bank” registered on the supplemental register.17 The defendant Florida bank relied upon the remote user defense, alleging that the mid-Atlantic bank did not establish a reputation or market penetration within Florida and thus was not entitled to relief. Even though the plaintiff had one million customers, including 3,500 customers in Florida, a large online banking presence, and ran advertisements on the Internet as well as in nationally circulated print publications, the court held that there was inadequate evidence to conclude that the mid-Atlantic bank sufficiently penetrated the Florida market. The court held, in part, that there was no evidence the mid-Atlantic bank specifically directed its advertising efforts, including online ads, toward potential customers in Florida.18

Though the Commerce Bancorp court does not explicitly mention how Internet advertisements could specifically target a geographic location, it is plausible that establishing geographic parameters through geo-targeting for Internet ads may deem an ad sufficiently targeted. For example, online advertising services, such as Google Adwords and Facebook Ads, allow businesses to create ads that will only be displayed to users located within a certain predetermined geographic area. By utilizing these geo-targeting parameters, businesses should be able to provide evidence that their online advertising specifically targets a geographic location.

A National Reputation May Establish Nationwide Common-Law Rights

A senior user may acquire geographical trademark rights without actual sales in a geographic location if its reputation expanded into that area before the junior user’s adoption and use of the mark. In time, this doctrine grew to allow for the creation of a nationwide common-law reputation.19 Since the development of the nationwide reputation doctrine, some courts have eagerly applied it to cases where the plaintiff has a substantial active presence on the Internet.

In Sunearth, Inc. v. Sun Earth Solar Power Co., the court found that even though the defendant had a registered mark, the plaintiff established legally sufficient national market penetration prior to the defendant’s registration date.20 Though the defendant admitted that the plaintiff held common-law prior user rights in some states, it believed its registration provided it with priority in all other states. However, the court disagreed and held that the plaintiff actually acquired nationwide common-law rights because sufficiently specific quantifiable information was presented to support a conclusion of a substantial nationwide reputation. In part, the court relied upon the fact that the plaintiff sold 39 percent of the product in its industry, had over 3,400 monthly visitors to its website, and spent $66,000 per year in advertising to support its holding.21 Therefore, with the provision of sufficiently specific information corroborating a substantial nationwide presence and reputation, courts may be more inclined to find that a party is able to establish a nationwide common-law right.22

Overlooking the Requirement of Establishing Geographical Rights Altogether

Most cases examining the geographical rights of a mark include parties engaged in a mixed channel marketing and sales strategy where the Internet is but only one trade channel. However, in today’s marketplace, there are companies that only establish an Internet presence and do not rely upon traditional trade channels to sell or advertise their products and services. When two purely Internet-based companies are engaged in a common-law trademark dispute, some courts seem inclined to overlook the requirement of establishing geographical rights altogether and only determine which party has priority of use in the mark and is thus considered the senior user.23

For example, the court in Boathouse Group, Inc. v. TigerLogic Corp. established ownership of a common-law mark used by two parties providing similar online social media aggregators by solely looking at who was the first to adopt and use the mark in a sufficiently public way.24 The court held that the plaintiff was the senior user of the mark because after launching its aggregator on its website, it continued to work on and publicize the product on Twitter and various websites as well as establishing a sufficient social media following. Even though seniority was established, the court was silent as to the geographical limitations of the plaintiff’s common-law rights. This practice of not delving into the geographical limitations of common-law trademark solely used online seems nothing more than a matter of convenience for the courts that unintentionally causes a detrimental effect to the U.S. trademark system. For example, if common-law marks with an online-only presence can be enforced nationwide without regard to geographical limitations, this practice could weaken the necessity of and protections provided by federally registering marks with the United States Patent and Trademark Office.

The Future of Establishing Geographical Rights with Internet Use

Although some courts seem inclined to overlook the requirement of establishing geographical rights, most courts that engage in a thorough analysis of precedent acknowledge the geographical nature of common-law trademarks. All courts need to begin answering the tough questions about the geographical limitations of online activity rather than simply avoiding them. When these questions are addressed, most courts have modified the traditional tests in order to incorporate and consider evidence of consumer exposure to online trademark activity. As consumer interactions with trademarks online become easier to measure accurately, more courts may begin to consider this quantifiable data in their inquiry to establish a mark’s zone of actual goodwill.

So far, courts have considered in their analyses quantifiable evidence regarding the geographic location of an online purchaser, the intended geographic location of targeted online advertising campaigns, and the ascertainable geographic locations of unique website visits. In the future, it is logical that the courts may even consider the geographic location of a mark’s fan base on social media platforms such as Twitter, Facebook, Pinterest, and Instagram to establish a zone of reputation. As long as quantifiable evidence of substantial online activity specifically directed to a geographic location is made available for the court’s consideration, it is reasonable to conclude it will utilize such evidence to establish the geographical rights of a trademark.

Endnotes

1. Jon Stine & Hiten Sethi, Cisco Systems, Inc., Digital Shopping Behavior in an “Internet of Everything” World 2 (2014), available at http://www.cisco.com/web/about/ac79/docs/IoE/IoE-Retail-Key-Findings.pdf.

2. W. Scott Creasman, Establishing Geographic Rights in Trademarks Based on Internet Use, 95 Trademark Rep. 1016, 1017 (2005); see also Natural Footwear Ltd. v. Hart, Schaffner & Marx, 760 F.2d 1383, 1398–99 (3d Cir. 1985).

3. See Weiner King, Inc. v. Wiener King Corp., 615 F.2d 512, 523 (C.C.P.A. 1980) (citing In re Beatrice Foods Co., 429 F.2d 466, 475 (C.C.P.A. 1970)).

4. Adam V. Burks & Dirk D. Lasater, Comment, Location? Location? Location?: A New Solution to Concurrent Virtual Trademark Use, 11 Wake Forest J. Bus. & Intell. Prop. L. 329, 337 (2011); see also Robert C. Cumbow, Use Is the New Protectability, Dawn Donuts Are Still Hot This Season, and Other Trademark Issues, Landslide, Mar./Apr. 2009, at 21, 22–24.

5. See Hanover Star Milling Co. v. Metcalf (Tea Rose), 240 U.S. 403 (1916); United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90 (1918).

6. Commerce Bancorp, Inc. v. BankAtlantic, 285 F. Supp. 2d 475, 496 (D.N.J. 2003). This rule was codified as part of the Lanham Act to allow concurrent use registration where both parties appropriated the mark in good faith in distinct geographic areas before one of the parties filed for federal registration.

7. MNI Mgmt., Inc. v. Wine King, LLC, 542 F. Supp. 2d 389 (D.N.J. 2008); see also Credit One Corp. v. Credit One Fin., Inc., 661 F. Supp. 2d 1134, 1138 (C.D. Cal. 2009) (“A party asserting common law rights must not only establish that it is the senior user, it must also show that it has ‘legally sufficient market penetration’ in a certain geographic market to establish those trademark rights.”).

8. Dep’t of Parks & Recreation v. Bazaar Del Mundo Inc., 448 F.3d 1118 (9th Cir. 2006); see also Planetary Motion, Inc. v. Techsplosion, Inc., 261 F.3d 1188, 1195 (11th Cir. 2001).

9. MNI Mgmt., 542 F. Supp. 2d at 419.

10. Natural Footwear Ltd. v. Hart, Schaffner & Marx, 760 F.2d 1383, 1398–99 (3d Cir. 1985).

11. Ayaz Nanji, Online Shopping Trends 2013: Most Popular Categories, Top Purchase Drivers, MarketingProfs (Dec. 5, 2013), http://www.marketingprofs.com/charts/2013/12195/online-shopping-trends-most-popular-categories-top-purchase-drivers#ixzz34iI4Dulk.

12. See Optimal Pets, Inc. v. Nutri-Vet, LLC, 877 F. Supp. 2d 953, 962 (C.D. Cal. 2012) (“[A] sale to a customer through the internet will be considered a sale in the geographical area in which the customer is located.”); Glow Indus., Inc. v. Lopez, 252 F. Supp. 2d 962, 985 (C.D. Cal. 2002) (considering sales made over the Internet as part of its market penetration analysis); Chatam Int’l, Inc. v. Bodum, Inc., 157 F. Supp. 2d 549, 556–57 (E.D. Pa. 2001) (recognizing that Internet sales supplemented other sales activities). Cf. Big Time Worldwide Concert & Sport Club at Town Ctr., LLC v. Marriott Int’l, Inc., 236 F. Supp. 2d 791, 798 (E.D. Mich. 2003) (holding that “the sporadic and casual use of marketing and selling tickets over the Internet . . . in [a geographic] area is insufficient to create a common law mark for [that] area”).

13. Optimal Pets, 877 F. Supp. 2d at 963; see also Natural Footwear, 760 F.2d at 1400 (finding clothing sales of $5,000 and 50 total customers in a geographic area in at least two of three years for which sales data was available de minimis and insufficient to establish market penetration).

14. No. 8:11CV424, 2012 U.S. Dist. LEXIS 96546 (D. Neb. July 12, 2012).

15. Id. at *15; see also Echo Drain v. Newsted, 307 F. Supp. 2d 1116, 1128 (C.D. Cal. 2003) (holding that the plaintiff’s common-law rights did not expand beyond the Dallas-Fort Worth area as it offered no evidence that people outside that geographic location “accessed the website, downloaded performances from the website, or even posted messages to the website”).

16. See Burns v. Realnetworks, Inc., 359 F. Supp. 2d 1187, 1194 (W.D. Okla. 2004) (“The [Internet] advertising was strictly passive and not directed at any particular audience.”); Commerce Bancorp, Inc. v. BankAtlantic, 285 F. Supp. 2d 475, 499 (D.N.J. 2003); Windsor Jewelers, Inc. v. Windsor Fine Jewelers, LLC, 2009 NCBC 2, ¶ 123 (N.C. Super. Ct. 2009). Cf. Pure Imagination, Inc. v. Pure Imagination Studios, Inc., No. 03 C 6070, 2004 U.S. Dist. LEXIS 23064, at *42 n.7 (N.D. Ill. Nov. 15, 2004).

17. 285 F. Supp. 2d at 479–80.

18. Id. at 499 (holding that there was ample evidence the plaintiff’s marketing efforts were only directed to potential customers in the mid-Atlantic region and any exposure in Florida was incidental).

19. Champions Golf Club, Inc. v. The Champions Golf Club, Inc., 78 F.3d 1111, 1115–16 (6th Cir. 1996).

20. No. 11-4991, 2013 U.S. Dist. LEXIS 120439 (N.D. Cal. Aug. 23, 2013).

21. Id. at *38–39.

22. Compare Sunearth, 2013 U.S. Dist. LEXIS 120439, at *38–39, and Buzz Off Insect Shield, LLC v. S.C. Johnson & Son, Inc., 606 F. Supp. 2d 571, 598 (M.D.N.C. 2009) (establishing a national common-law right after examining specific evidence as to “sales of products in all fifty states, placement of products for sale in catalogs distributed nationally, nationwide advertising and promotion of the products, including extensive use of the . . . mark on the Internet, nationwide media coverage, and Internet sales of products using the . . . mark through third party retailer sites”), with Glow Indus., Inc. v. Lopez, 252 F. Supp. 2d 962, 985 (C.D. Cal. 2002) (finding that the plaintiff was unable to establish a nationwide reputation because it failed to provide specific information regarding alleged sales to consumers in all 50 states, nationwide Internet availability of its products, and quantifiable advertising data).

23. See Planetary Motion, Inc. v. Techsplosion, Inc., 261 F.3d 1188, 1195 (11th Cir. 2001); Boathouse Grp., Inc. v. TigerLogic Corp., 777 F. Supp. 2d 243, 249 (D. Mass. 2011).

24. 777 F. Supp. 2d at 249; see also Planetary Motion, 261 F.3d at 1195 (holding that free software widely distributed on the Internet established use in commerce and granting the trademark owner the right to enforce the mark).