Good Faith De Minimis Use of a Mark May Defeat a Claim of Trademark Abandonment in the Fifth Circuit

In Perry v. H.J. Heinz Company, et al. (No. 20-30418 5th Cir. April 12, 2021), the U.S. Court of Appeals for the Fifth Circuit dealt with the issue of whether de minimis use can defeat a claim of trademark abandonment. It can, provided that such use is not made in good faith and not simply to maintain a trademark.

In Perry, the plaintiff produced 60 bottles of his mayonnaise/ketchup and mustard/ketchup concoctions branded METCHUP. He sold bottles from the lobby of his nine-room hotel in Lacombe, Louisiana (which, according to the U.S. Census Bureau, had a population of 8,679 in 2010). The plaintiff had sales records for 34 bottles. Sales totaled $170 for a profit of $50. The plaintiff testified he hoped to sell more bottles and had obtained a federal registration for the mark, which at the time of the suit was incontestable.

Heinz desired to sell a blend of mayonnaise and ketchup. Before doing so, it held a national promotion online for the naming of its product. One fan proposed METCHUP, and Heinz posted a mockup of a bottle branded so on its website. The name MAYOCHUP was eventually selected, however, after Heinz searched the mark and could not locate its use anywhere.

Despite such fleeting use of METCHUP, the plaintiff sued for trademark infringement and Heinz counterclaimed for abandonment through nonuse of the mark. The lower court granted Heinz summary judgment, ruling there was no likelihood of confusion, and canceled the plaintiff’s METCHUP registration because he failed to prove lawful, non-de minimis use of the mark in commerce.

The plaintiff appealed. While the Fifth Circuit upheld the lower court’s finding of non-confusing similarity, it vacated and remanded the case to the lower court on the issue of abandonment.

• Statutory definitions of ‘abandonment’ and ‘use in commerce’.

The Fifth Circuit reviewed the grant of summary judgment de novo. In analyzing the abandonment issue, it stated a party asserting intentional abandonment of a mark bears a heavy burden of proof. Id. at 10. The court next explored the definition of abandonment in the Lanham Act, which under 15 U.S.C. §1127 occurs when a mark “has been discontinued with intent not to resume such use” and such intent “may be inferred from the circumstances,” with three consecutive years’ nonuse being prima facie evidence of abandonment. Id. at 11. The court also discussed “use” under 15 U.S.C. §1127, which is defined as “the bona fide use of such mark made in the ordinary course of trade, and not made merely to reserve a right in a mark.”

The lower court’s finding that the plaintiff abandoned the mark due to his failure to show he had METCHUP sales outside Louisiana or to non-Louisianans failed with the Fifth Circuit, as conflicting with “recent Commerce Clause jurisprudence” and misplacing the burden of proof. Id. Interstate sales are not necessary for Congress to regulate activity under the Commerce Clause, and per “modern Commerce Clause cases,” de minimis intrastate activities “can influence” commerce regulable by Congress, thus qualifying under the Lanham Act. Id.

• ‘Burden of proof’ and ‘unlawful use’ issues.

The Fifth Circuit determined that the lower court “misplaced” the burden of proof because the plaintiff testified he sold METCHUP bottles to people “who come from ‘all over the place.’” Id. at 12. This resulted in Heinz having to present strict proof that discredited the plaintiff’s testimony, whereas Heinz had presented none.

The court also quickly dispatched Heinz’s argument that the plaintiff’s use of METCHUP was not sufficient use under the Lanham Act due to his noncompliance with federal and state food labeling laws, because the Fifth Circuit has not adopted the “unlawful use doctrine.” Id.

• Minor, sporadic good faith uses.

The Fifth Circuit distinguished Exxon Corp. v. Humble Exploration Co., Inc., 965 F.2d 96 (5th Cir. 1983), where it found cancellation of a registration was warranted because of “seemingly similar sporadic and de minimis use.” The difference was that the Humble case involved a trademark maintenance program where Exxon made only “token or sporadic” use of “Humble Oil” to reserve rights in that mark, which is conduct prohibited by the Lanham Act. Considering the requirements of the Lanham Act and the “more prevalent view” of Sixth, Ninth and Eleventh Circuit Court decisions that “even minor good-faith use can forestall abandonment,” the court found unwarranted the lower court’s conclusion that the plaintiff’s lack of commercial activity did not qualify as “use.” Id. at 12-13.

The court also stated Heinz had created an issue of fact about whether the plaintiff’s METCHUP use was bona fide, noting that the plaintiff had acquired numerous domain names (1,400) with the intention of selling, not using, them, which was “akin to a trademark maintenance program.” That fact and the recitation of facts below could lead a reasonable jury to infer the plaintiff’s registration and use of METCHUP were not in good faith:

Mr. Perry made next to no effort to grow the sales of Metchup. He never registered his trademark in Louisiana[;] never attempted to sell Metchup in local stores, restaurants[] or farmer’s markets; never attempted to increase production or improve packaging; and never attempted to sell the product online or advertise where the product could be purchased online. His only attempts to get Metchup into stores came when he sent unsolicited samples to national groceries and to a store in New Orleans after he found out Heinz was selling a similar product and had used the name Metchup in its marketing. At the time of his deposition, Mr. Perry had no Metchup on hand.

Id. at 14.

• Summary judgment inappropriate.

Noting summary judgment is “rarely proper” when an issue of intent is involved, the court held summary judgment was inappropriate because of Heinz’s heavy evidentiary burden and a lack of “definite proof” that the plaintiff’s use really was part of a trademark maintenance program; the plaintiff’s intent and credibility were proper for examination by a trier of fact on the issue of bona fide use of the mark.

The takeaway from Perry about abandonment? Fully develop the facts during discovery about the mark that is challenged as abandoned through nonuse, know the law in the circuit in which your case is pending and be wary of resolving such an issue on summary judgment.