Reading the Tea Leaves of the Tea Rose-Rectanus Doctrine: What Test Should Be Used to Determine “Good Faith” Trademark Use?

BACKGROUND

 The Tea Rose-Rectanus Doctrine is a common law trademark canon that establishes the geographic extent of trademark rights held by senior users of a mark. Arising out of two century-old Supreme Court cases, the doctrine is a defense to trademark infringement that allows junior users of a trademark to have priority for a trademark if they use the mark (1) in “good faith”; (2) in a geographical territory remote and distinct from the territory where the senior uses the trademark; and (3) in a geographic region where the junior use of the mark will not be mistaken for the senior user of the same mark.

Even when a trademark registrant successfully obtains a federal nationwide trademark, their exclusive rights to that trademark does not completely extend across and cover the entire United States. The 9th Circuit explained how the common-law rights of a trademark holder practically work in Stone Creek, Inc. v. Omnia Italian Designs, Inc. (2017):

Under this rule, already-established common-law rights are carved out of the registrant’s scope of protection. In other words, the geographic scope of a senior user’s rights in a registered trademark looks like Swiss cheese: it stretches throughout the United States with holes cut out where others acquired common-law rights prior to the registration.

THE ISSUE

The issue with the Tea Rose-Rectanus Doctrine is the meaning of “good faith” usage a junior trademark user must have to successfully use the defense. For example, does a junior’s knowledge of the senior’s trademark rights constitute a lack of “good faith” resulting in the elimination of the availability of a Tea Rose-Rectanus defense? A circuit split has developed in answering this question.

THE SPLIT

The 9th Circuit recognized the split in this question in Omnia, and observed that the circuits divided into two general camps: (1) those holding that knowledge on its own destroys good faith and (2) those holding that knowledge is merely part of a larger “good faith” test. At its heart, the question is whether mere knowledge is sufficient to destroy good faith or if that knowledge must be accompanied with an intent to benefit from the reputation of the senior user.

The 9th Circuit opted for the former test, and joined the 7th and 8th Circuits in holding that a junior user simply having knowledge of a senior’s use and rights is sufficient to destroy good faith on its own. The 7th Circuit defined a “good faith junior user” as one who “begins using a mark with no knowledge that someone else is already using it” in Money Store v. Harriscorp Fin., Inc. (1982). Neither the 7th nor the 8th Circuits sought to interpret a junior user’s intent with their mark use after acquiring knowledge of the senior user’s usage. All that is examined is whether the junior had that knowledge and whether they continued to use the mark—regardless of the reason why.

The 9th Circuit agreed and further contended that the original doctrine-creating cases, Hanover Star Milling Co., v. Metcalf (1916) and United Drug Co. v. Theodore Rectanus Co. (1918), support its position. The court in Metcalf (or the Tea Rose Case), held that the junior user “adopted and used [the mark] in good faith without knowledge or notice that the name ‘Tea Rose’ had been adopted or used by the [senior user], or by anybody else.”

A similar holding exists in Rectanus, which the 9th Circuit takes to mean that the omission of any mention of any element beyond simple knowledge.

The 5th and 10th Circuits split with the 7th, 8th, and 9th, however, and instead hold that knowledge alone is not sufficient to destroy good faith. The 10th Circuit, in GTE Corp. v. Williams (1986), acknowledges that there is precedent for knowledge being sufficient to destroy good faith, the court refuses to apply such a narrow test. The court held that “the ultimate focus is on whether the second user had the intent to benefit from the reputation or goodwill of the first user.” The 5th Circuit reached a similar result in Pebble Beach Co. v. Tour 18 Ltd. (1998), holding that knowledge of prior use by the senior user is just one element of a good faith test.

LOOKING FORWARD

Omnia Italian Designs filed a writ of certiorari in November 2017 seeking a definitive answer to whether mere knowledge of senior use destroys good faith in trademark use or whether knowledge is just a part of a larger “good faith test.” The Supreme Court denied the petition in May 2018, leaving the question unresolved.

Because of the certiorari denial, junior users of trademarks are held to different standards depending on where they reside in the country. Where one may be permitted to continue using a mark they have used for months, years, or decades, another may be forced to completely change the image of their business. Additionally, junior users in the 6 remaining circuits—those that have not decided which good faith test it will use—are left in the dark as to whether they will be permitted to continuing using their names and logos if they are sued.

With corporations acquiring trademarks either by absorbing smaller businesses or by filing federal trademarks for new ventures constantly, smaller businesses using the same marks may encounter legal issues with their continued use that they could not predict—and these harms flow directly from the split. A definitive and final “good faith test” for the Tea Rose-Rectanus doctrine would eliminate much of the ambiguity found in determining the viability of that doctrine as a defense and would allow business owners to situate their businesses in a way that would avoid lawsuits.