Federal Circuit Says Minority Ownership Interest Isn’t Enough for Standing to Seek Trademark Cancellation

“On appeal to the CAFC, the court explained that, while the Luca McDermott trust did have Article III standing to bring the appeal, it did not have standing to bring the cancellation action.”

cancellationThe U.S. Court of Appeals for the Federal Circuit (CAFC) on Thursday, May 23, affirmed a Trademark Trial and Appeal Board (TTAB) decision that found a party with only a minority ownership interest in the owner of allegedly infringed marks did not have standing to seek cancellation of the marks. The decision was precedential and authored by Judge Lourie.

Luca McDermott Catena Gift Trust appealed a TTAB decision dismissing its petitions to cancel the registered marks ALVAREDOS-HOBBS and HILLICK AND HOBBS. Luca McDermott and two other family trusts collectively own 21.6% of the partnership in Paul Hobbs Winery, L.P., which owns the registered trademark PAUL HOBBS. Paul Hobbs is another partial owner of Hobbs Winery and is also the winemaker and is affiliated with the owners of the two alleged infringing marks. McDermott filed a petition to cancel the two marks on the grounds of likelihood of confusion and fraud. The fraud accusation was based on the argument that Hobbs “caused its attorney, the same attorney of record for Hobbs Winery’s PAUL HOBBS mark, to aver in a declaration that Appellees’ marks would not be likely to cause confusion with another mark” when the attorney “knew, or should have known,” that confusion was likely.

The TTAB dismissed the petition, agreeing with Hobbs’ argument that the McDermott trusts didn’t have standing to bring the cancellation action because they weren’t the owners of the PAUL HOBBS marks and because the petition had failed to adequately allege confusing similarity or fraud. The Board said that, because the trusts were minority owners of the winery and did not independently have rights to assert the marks without approval of Hobbs Winery, they lacked a statutory entitlement to bring the action. The Board also said the confusion and fraud allegations failed because the trusts had no proprietary interest in the marks, which was a necessary element to prove such a claim, and the marks were not substantially identical to show fraud. The TTAB also denied the trusts’ leave to amend the petition.

On appeal to the CAFC, the court explained that, while the Luca McDermott trust did have Article III standing to bring the appeal, it did not have standing to bring the cancellation action. Applying the Supreme Court’s Lexmark framework for determining if there is entitlement to a statutory cause of action, the CAFC said that 1) Luca McDermott did not have any independent commercial interest in the PAUL HOBBS mark, thereby failing the “zone of interests” prong of the Lexmark test; and 2) even if it didn’t fail the zone of interests prong, it could not satisfy the “proximate causation” prong. The opinion noted that “the Supreme Court explained in Lexmark that a harm will be ‘too remote’ from the alleged unlawful conduct if it ‘is purely derivative of misfortunes visited upon a third person by the defendant’s acts.’” In the instant case, said the CAFC:

“The alleged diminishment in value of Appellant’s ownership interest in Hobbs Winery due to Appellees’ use of their marks is suffered only as a consequence of an injury suffered by Hobbs Winery itself…. Thus, because Appellant’s alleged injury is merely derivative of any injury suffered by Hobbs Winery, it is too remote to provide Appellant with a cause of action under § 1064.”

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