February 28, 2013

By Oliver Herzfeld, Forbes IP Counsel

In the recent case of Abraham v. Alpha Chi Omega, the Fifth Circuit Court of Appeals issued an opinion regarding a fascinating dispute that involved a failure to enforce trademarks for more than 40 years.

Background

Thomas Kenneth Abraham is the world’s largest manufacturer of decorative fraternity and sorority paddles. Since founding his business in 1961, Abraham continuously advertised and sold products bearing the names of fraternities and sororities. In 1990, after almost 30 years of inaction, representatives of 32 fraternities and sororities commenced contacting Abraham. The various communications consisted of invitations to join the Greek organizations’ licensing programs, cease and desist letters and threats to sue for trademark infringement. Sometimes Abraham ignored the letters and other times he responded stating that he refused to enter into a license agreement after decades of use without complaint. After another 17 years of intermittent communications, in 2007 and 2008, the parties’ dispute escalated into litigation. The district court decided against monetary relief but granted an injunction, and all of the parties appealed.

Laches And Unclean Hands

Abraham did not dispute the Greek organizations’ claims of trademark infringement but maintained a defense of laches, which is an equitable doctrine that an infringer may assert when a trademark owner inexcusably “sleeps on its rights” and the delay prejudices the infringer. The Greek organizations claimed Abraham was not entitled to a laches defense because he had unclean hands. Essentially, a defendant that intentionally infringes a trademark in bad faith does not have the clean hands necessary to assert the defense of laches. However, the Fifth Circuit rejected that counter-defense since Abraham lacked bad faith or any intent to confusingly deceive his purchasers. In particular, Abraham virtually created the market for fraternity and sorority paddles long before the Greek organizations established a licensing program, and his intent was always to sell paddles to fraternity and sorority members, not pass himself off as being sponsored or endorsed by the Greek organizations.

Monetary Damages and Injunctive Relief

Abraham’s successful laches defense created an implied, revocable trademark license that barred monetary damages. However, laches may or may not defeat claims for injunctive relief. It all depends on the degree to which the trademark owners’ unreasonable delay prejudiced the infringer. In balancing the equities, the district court enjoined Abraham from selling almost all of his infringing products since they made up less than 2.44% of his total sales, but permitted him to continue selling one type of infringing product, namely decals of the Greek organizations’ crests purchased wholesale from licensed vendors to be affixed to a backing carved in the shape of the Greek organizations’ crests, that drove his sales of non-infringing paddle kits, because it was the only item that Abraham claimed would cause him substantial prejudice if enjoined.

On appeal, the Greek organizations argued that the district court’s injunction was not broad enough. They claimed their delay was excusable since Abraham’s use was always minimal and, under the doctrine of progressive encroachment, a trademark owner is permitted to defer enforcement against de minimis infringers, reserving its right to sue when the infringement expands, causing increased or more imminent potential harm to the owner. The Fifth Circuit rejected that claim and affirmed the district court’s balance of equities and judgment since several milestones along the critical path of Abraham’s business over the decades (such as the development of his website in 1997 and commencement of sales on the site in 2001) constituted a progressive encroachment that the Greek organizations had failed to respond to. And Abraham was substantially prejudiced by the Greek organizations’ delay, insofar as he would not have invested millions of dollars to completely rebuild his business three times (twice after fires and once after a tornado) had he known the Greek organizations would later sue him to enforce their trademarks.

What Should Trademark Owners Do?

Trademark owners should diligently protect their trademarks from infringement and other misuse (e.g., blurring, tarnishment, unfair competition, passing off, false advertising and cybersquatting) that may harm the owner’s goodwill and business reputation. A trademark owner is not required to uncover all possible uses that might conflict, or immediately commence a lawsuit against every possible infringer. At the same time, a complete failure to enforce will lead to a weakening of an owner’s marks, loss of distinctiveness over time and, as we saw in this case, potential forfeiture of certain available remedies. So, at a minimum, owners should establish an appropriate level of proactive monitoring of USPTO registration applications, the Internet and other uses in commence. Companies with famous trademarks and/or large budgets should consider engaging a professional watch service to conduct such search and monitoring activities, whereas companies with more limited budgets could ask their employees, contractors, customers, licensees and counterparties to look out for and report any potential infringements that may come to such parties’ attention. When potential infringements are identified, trademark owners should investigate and evaluate relevant factors such as the third party’s ownership, priority of use, type of use and likelihood of confusion. If a response is warranted, owners should consider and pursue the most desired outcome including monetary damages, injunctive relief, a trademark license agreement, coexistence agreement or settlement agreement. Lawsuits and cancellation or opposition proceedings with the USPTO’s Trademark Trial and Appeals Board can be costly in terms of time, money and resources, so legal enforcement priorities should be established based on similarity of the marks, similarity of the goods, quantities of infringing products, dollar values and other appropriate considerations. Low level infringers may not be cost-effective to pursue. Nonetheless, trademark owners should continue to periodically monitor such infringers and remain ready to vigorously enforce their rights if the infringement expands, causing increased or more imminent potential harm to the owner. That way, the owner can avoid getting paddy-whacked later with a weakened mark and loss of remedies.