Unconstitutional – CAFC Rules PTO Cannot Deny Registration for Disparaging Trademarks

Yesterday the Federal Circuit in an en banc decision held that the portion of Section 2(a) of the Trademark Act, which bars federal registration for trademarks that are disparaging, is unconstitutional under the First Amendment.

The SLANTS case, one I’ve discussed here before, has been closely watched by the IP community and the popular press alike, not least of all because of the impact any ruling in the case could have on ongoing efforts by the REDSKINS to challenge the PTO’s revocation of six trademark registrations (for the background on that case, see my discussion here). The decision, in my opinion, is a watershed moment in the trademark law space. That’s because under the Lanham Act, the PTO must register source-identifying trademarks unless the applied-for mark(s) fall into one of several explicitly delineated categories of marks that are precluded from registration. 15 U.S.C §1052 (“No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless…”) (emphasis added). Yesterday’s decision effectively removes one of the specified grounds for rejection that the PTO has increasingly come to rely on in recent years, namely, §2(a)’s grant of power to deny registration for marks that “[c]onsist[] of or compromise[] immoral, deceptive, or scandalous matter” or “matter which may disparage” others.

By way of brief background, in November 2011, Simon Tam, front man of the “Chinatown Dance Rock” band The Slants, filed a trademark application for the mark THE SLANTS. The group’s trademark application was denied registration because the examining attorney determined that the term was likely to be disparaging to persons of Asian descent. Although Tam argued the group sought to “reclaim” the term as a means of taking pride in their Asian heritage, the PTO nevertheless concluded that because of the term’s long history of being used to deride Asians’ physical features, a substantial composite of people of Asian descent would still find the term offensive.

The Trademark Trial and Appeal Board later affirmed the examiner’s refusal on nearly identical grounds, and in April 2015 the Federal Circuit affirmed the Board’s determination that the mark is disparaging. Tam argued that §2(a) violates the First Amendment because it allows the government to engage in content-based and viewpoint-based discrimination of expression. The Federal Circuit, however, relying on 34-year-old precedent from the Court of Customs and Patent Appeals, determined that because the denial of federal trademark registration under §2(a) does not prohibit applicants from continuing to use their trademark in commerce, that no speech is burdened or suppressed, and the First Amendment is not implicated.

The Federal Circuit, at the urging of Judge Moore, decided to take up the case for consideration en banc in part because “[m]ore than thirty years have passed since the decision in McGinley, and in that time both the McGinley decision and our reliance on it have been widely criticized.” The court further noted that McGinley was decided “at a time when the First Amendment had only recently been applied to commercial speech,” a concept which has “evolved significantly” since the 1980s. McGinley, whose analysis was propounded without citation to legal authority, has come to be relied on by other courts, including the Fifth Circuit and, more recently, the Eastern District of Virginia in the REDSKINS dispute. As such, the Federal Circuit recognized “the importance of taking this case” en banc.

As a general matter, the content-based regulation of expression – where speech is targeted based on its communicative content – is presumptively invalid under the First Amendment. The Court determined that because §2(a)’s disparagement provision effectively discriminates against some trademarks but not others based on the “idea or message expressed” by the trademark, that §2(a) could not be considered content or viewpoint neutral. In other words, because §2(a) allows the PTO to grant registration for ASIAN EFFICIENCY but deny registration for the SLANTS, it is unconstitutional on its face unless it meets strict scrutiny. Furthermore, although trademark holders must eventually prove use in commerce and therefore trademarks are “commercial” in nature, §2(a) refusals target a trademark’s expressive character, rather than its ability to function as a source identifier. Because the PTO can deny registration for a trademark under §2(a) even though the mark successfully functions as a source-identifier in the marketplace, §2(a) does not regulate “commercial speech” for First Amendment purposes, but rather, private expressive speech.

The government advanced three principal arguments for why §2(a) did not violate the First Amendment: (1) because §2(a) does not “prohibit” or suppress speech at all; (2) because trademark registration is government speech; and (3) because §2(a) merely withholds a government subsidy. The Court rejected all three of the government’s arguments, and in doing so issued holdings on three separate issues that have divided other tribunals.

[Varsity-2]

Holding 1: The PTO’s Denial of Trademark Registration Under §2(a) Burdens Speech in Unconstitutional Ways

Federal trademark registration is significant, and conveys substantive and procedural advantages on registration-holders. The holder of a federal trademark registration has a right to exclusive nationwide use of that mark where there was no prior use by others. Registered marks are presumed to be valid, and the mark becomes incontestable (subject to certain exceptions) after five years of post-registration use. Markholders may sue in federal court to enforce their trademark rights, and may recover treble damages for willful infringement. Markholders may also obtain the assistance of U.S. Customs to restrict the import of infringing or counterfeit goods, prevent cybersquatters from misappropriating their domain names, and enjoy a simplified process for rights-protection under the Paris Convention. Federal registration also operates as a complete defense to state or common law claims of trademark dilution.

The Court concluded that just because withholding registration does not censor or suppress speech outright, as the government argued, does not mean it does not run afoul of the First Amendment. Because §2(a) burdens allows some applicants to obtain the aforementioned benefits but denies those benefits to others on the basis of the expressive content of their trademarks, it is unconstitutional. Furthermore, §2(a)’s denial – or threat of denial – of these benefits creates a serious disincentive to continue use of a particular trademark, or to adopt a potentially scandalous, disparaging, or immoral trademark in the first place. §2(a) has also been criticized for its grant of substantial discretion to trademark examiners, and for its prohibition of trademarks that “may” disparage others. The combination of these two factors, the Court reasoned, render §2(a) hopelessly vague, a criticism that only heightens §2(a)’s First Amendment troubles.

Holding 2: Federal Trademark Registration is Not Government Speech

The Court concluded that “[s]se of a mark by its owner is clearly private speech.” Specifically, the Court held that a trademark’s purpose – to identify the source of goods – is antithetical to the notion that a trademark is somehow “tied” to the government. The government granting registration to both COCA COLA and PEPSI does not mean that the government is signaling its endorsement of one over the other, or prefers either to DEER PARK water. The Court held that when the government registers a trademark, the only message it conveys is that the mark is registered.

The government argued that the registrant’s right to attach the ® symbol to the registered mark, the mark’s placement on the Principal Register, and the issuance of a certificate of registration all amount to government speech. The Court held, however, that there is no basis for finding that consumers associate registered private trademarks with the government. Trademark registration holders have the option, but are not required, to attach the ® symbol to their goods or services, much like copyright registrants can attach the © symbol to their own works. Likewise, registered copyrights are listed in a government database, and the copyright owner receives a certificate of registration. To think, however, that the government should be able to similarly deny copyright registration to any works deemed disparaging, immoral, or scandalous would clearly contravene the First Amendment. The Court argued that the vast majority of trademarks (unlike license plates) “are not created by the government, owned or monopolized by the government, sized and formatted by the government, immediately understood as performing any government function (like unique, visible vehicle identification), aligned with the government, or (putting aside any specific government secured trademarks) used as a platform for government speech.” The Court concluded that processing trademark registrations “no more transforms private speech into government speech than when the government issues permits for street parades, copyright registration certificates, or, for that matter, grants … birth certificates.” Because of this, whenever the government registers a trademark “it regulates private speech.” In doing so, “[i]t does not speak for itself,” and cannot engage in content-based or viewpoint-based discrimination unless it can satisfy strict scrutiny.

Holding 3: Federal Trademark Registration is Not a Government Subsidy Program

The “constitutional conditions doctrine” states that “even though a person [may have] no ‘right’ to a valuable government benefit and even though the government may deny him the benefit for any number of reasons, there are some reasons upon which the government may not rely. It may not deny a benefit to a person on a basis that infringes his constitutionally protected interests – especially, his interest in freedom of speech.” Perry v. Sinderman.

The Spending Clause of the Constitution gives Congress the power to impose limits on the use of government funds to ensure they are used in the manner that Congress intends. Trademark registrations, however, “while valuable, are not monetary.” Furthermore, the Lanham Act derives from the Commerce Clause, rather than the Spending Clause, and is a regulatory regime, rather than a subsidy program.

By granting a federal trademark registration, the federal government is not attempt to “use[] private speakers to transmit specific information pertaining to its own program,” in which case viewpoint-based discrimination might be sustained. The court determined, however, that “trademark registration is not a program through which the government is seeking to get its message out through recipients of funding.” Subsidies, the Court held, do not extent to the mere “benefit” like recognition of legal rights in speakers against private interference. Trademark registration does not implicate Congress’s power to spend or to control use of government property under the Spending Clause, and is therefore not a subsidy. Furthermore, because the PTO’s registration fees, rather than taxpayer dollars, underwrite (almost) all of the operating expenses associated with trademark registration, the Court held this to be further evidence that trademark registration is not a subsidy in and of itself.

The Court went on to note that even if trademarks were viewed as purely commercial speech, they would not survive the intermediate scrutiny mandated by Central Hudson. Because disparaging, scandalous, or immoral trademarks are not unlawful and misleading per se, a substantial government interest must exist to justify §2(a) under intermediate scrutiny. According to the Court, “§2(a) immediately fails at this step” because the entire interest of the government “depends on disapproval of the message.”

In determining that part of §2(a) is unconstitutional, the court was careful to note that it does not necessarily endorse the registration of immoral, disparaging, or scandalous marks, and realizes that “invalidating this provision may lead to the wider registration of marks that offend vulnerable communities.” But the same can be said for many decisions upholding the First Amendment where hurtful – or worse – speech has been at issue.

The First Amendment mandates that trademarks not be denied registration on the grounds that they disparage. The Court noted that even though some speech might “inflict great pain,” the Constitution nevertheless protects it “to ensure that we do not stifle public debate.”