Federal Circuit Clarifies Interstate Use-In-Commerce of Trademarks
November 30, 2016
Hamilton Brook Smith Reynolds Alert
- The ability to seek federal registration for trademarks is confirmed to be very broad.
- A sale of a product does not have to cross state lines if the buyer is from another state.
- No threshold minimum number of interstate sales is required.
A long-standing requirement for federal trademark registration under the Lanham Act is use of a product or service bearing the mark in commerce that is regulated by Congress. If a company is involved in commerce that is regulated by Congress, it can seek federal registration of its trademarks. If not, it would be limited to state registrations or common law rights. Because of the significant benefits of federal registration, marks that are significant to the business of a company should be federally registered.
Some industries are directly regulated by Congress, such as banks or breweries, and their trademarks qualify for federal registration on that basis, but most businesses are not so regulated. To qualify for federal registration, those businesses must rely on use of their products or services in interstate commerce, which is a form of commerce regulated by Congress. The extent to which a particular business activity can be considered to be "interstate commerce" has been the subject of many legal battles, which have not always been consistently resolved. The Federal Circuit recently clarified in Christian Faith Fellowship Church v. adidas AG, Appeal No. 2016-1296 (Fed. Cir. November 14, 2016) that a sale of a product does not necessarily need to cross state lines to be considered a use in commerce that is regulated by Congress.
Christian Faith Fellowship Church is located in Illinois. The Church sells products in its bookstore, including apparel with the phrase "ADD A ZERO." One of the Church's parishioners, who lives in Wisconsin, bought two hats with the ADD A ZERO mark. The Church thereafter filed a trademark application in March of 2005 and the mark was registered in November of 2006.
Following the Church's registration, adidas AG (hereinafter "Adidas") attempted to register ADIZERO for clothing. The Examiner rejected the Adidas application in view of the ADD A ZERO registration. In an attempt to overcome the rejection, Adidas initiated a cancellation proceeding with the Trademark Trial and Appeal Board (TTAB). The cancellation proceeding was successful following the TTAB's opinion that the sale of two ADD A ZERO hats to a Wisconsin resident did not qualify as use in commerce because the sales took place in Illinois, where the Church is located. Thus, the Board concluded that the sale was insufficient to show use that affects interstate commerce. The Church appealed to the Court of Appeals for the Federal Circuit.
The Federal Circuit reversed the TTAB's decision, noting that Congress' power under the Commerce Clause is broad, and that it even includes the power to regulate purely local activities that are part of an economic class of activities that have a substantial effect on interstate commerce. The Court referred to prior rulings in "use in commerce" cases that reflect the broad scope of Congress' Commerce Clause powers. For example, in Larry Harmon Pictures Corp. v. Williams Rest. Corp., 929 F.2d 662 (Fed. Cir. 1991), the court held that the use requirement could be satisfied by a single-location restaurant. While Larry Harmon involved the provision of a service, not the sale of a product, that difference does not affect Congress' broad power to regulate commerce, even local commerce, under the right conditions. Relying on such precedent, the Court held that it was clear "the Church's sale of two 'ADD A ZERO'-marked hats to an out-of-state resident is regulable by Congress under the Commerce Clause and, therefore, constitutes 'use in commerce' under the Lanham Act."
Adidas attempted to argue that the single sale to an out-of-state resident was de minimis and, thus, insufficient to show that the use affects interstate commerce. However, the Court explained, citing to Gonzales v. Raich, 545 U.S. 1 (2005), that "the de minimis character of individual instances ... is of no consequence." The sort of transaction by the Church, taken in the aggregate, would cause a substantial effect on interstate commerce. For this reason, it falls under Congress' Commerce Clause powers. "The Church did not need to present evidence of an actual and specific effect that its sale of hats to an out-of-state resident had on interstate commerce. Nor did it need to make a particularized showing that the hats themselves were destined to travel out of state."
The Court concluded that "[b]ecause one need not direct goods across state lines for Congress to regulate the activity under the Commerce Clause, there is likewise no such per se condition for satisfying the Lanham Act's 'use in commerce' requirement." This decision makes it clear that a very low level of activity is sufficient to support a federal registration for a trademark, and thus, clients are well-advised to seek registration for marks that are important to their businesses.