Chance v. Pac-Tel Teletrac Inc.

Citations: 242 F.3d 1151; 58 U.S.P.Q. 2d (BNA) 1222; 2001 Cal. Daily Op. Serv. 2226; 2001 Daily Journal DAR 2817; 2001 U.S. App. LEXIS 4114; 2001 WL 267013Docket: No. 98-55160

Court: Court of Appeals for the Ninth Circuit; March 19, 2001; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The appeal concerns the determination of when a service mark is first used in commerce under the Lanham Act. T.A.B. Systems claims first use of the "TeleTrak" service mark for its lost and found tag service, while Pac-Tel Teletrac, Inc. asserts priority of use for its radio frequency tracking system for vehicles. The district court ruled summary judgment in favor of Pac-Tel, identifying its first use of the mark as April 1990, linked to services provided to the Los Angeles County Office of Education (LACOE). However, the appeal court found that Pac-Tel's first use occurred even earlier, predating T.A.B.'s claims, and affirmed the summary judgment.

Pac-Tel's predecessor, North American Teletrac (NAT), had begun developing its tracking system as early as 1984 and secured necessary licenses by 1985. By October 1988, Pac-Tel commenced field testing on school buses operated by LACOE. In June 1989, NAT's subsidiary rebranded to International Teletrac Systems and later formed a joint venture, adopting the name Pac-Tel Teletrac. A comprehensive public relations campaign was launched in July 1989, culminating in commercial availability of the service in April 1990, with broader non-fleet access beginning in late 1990.

In contrast, Allen Chance of T.A.B. conceived a lost and found service in mid-1989, creating the "TeleTrak" name and acquiring a toll-free number. T.A.B. initiated marketing efforts, including a postcard distribution in October 1989, which generated interest but no sales. In January 1991, Chance discovered Pac-Tel's service and subsequently filed for a service mark and trademark for "TeleTrak," claiming first use in December 1990 but later backdating it to October 1989. Additionally, Chance presented a registration form for a TeleTrak tag sold in February 1990.

Chance lacked information regarding the payment details for the tag received by Voorheis, including the amount and method of payment, and T.A.B. had no records of such transactions. Voorheis could not recall the timing of receiving the tag, the payment details, or the service registration process. The tag presented during his deposition had a registration number differing by one digit from the official record. Kirk Rudy testified that he received two tags from Chance in the summer of 1990 but could not specify whether they were given as gifts or exchanged. T.A.B. produced no sale records for these tags. In 1992, Pac-Tel contested T.A.B.'s registrations, and on August 29, 1994, the Trademark Trial and Appeal Board (TTAB) upheld Pac-Tel's challenge, granting summary judgment based on Pac-Tel's promotional activities predating T.A.B.'s claimed priority. However, this judgment was overturned on appeal by the Federal Circuit, which found Pac-Tel’s evidence inadequate to justify a June 1989 priority date. The case was remanded for further evaluation of whether T.A.B.’s postcard mailer constituted valid use in commerce. Following this, T.A.B. opted to suspend the TTAB proceedings to seek monetary damages. The district court's summary judgment is subject to de novo review, focusing on whether there were genuine material issues of fact and proper application of law. The primary issue is the priority of use, requiring Chance to present evidence beyond mere pleadings to contest T.A.B.’s claim of prior use over Pac-Tel. Key questions include the validity of T.A.B.’s 1989 postcard mailer as first use, the sufficiency of tag sales to establish first use, and the correctness of the district court's determination of Pac-Tel’s first use in April 1990.

Under the Lanham Act, a service mark is defined as any word, name, symbol, or device used to identify and distinguish the services of one person from those of others, even if the source is unknown. This definition closely mirrors that of a trademark, with the distinction being that a trademark identifies goods while a service mark identifies services. Both are governed by the same standards, with common law rights acquired through actual use of the mark in connection with services.

The Lanham Act was amended in 1988 to redefine "use in commerce," emphasizing bona fide use in the ordinary course of trade, thereby eliminating "token use" for registration purposes. The revised definition requires a bona fide intention to use the mark in commerce. The Federal Circuit has clarified that "use in commerce" entails a bona fide sale or transportation of goods subject to congressional regulation, comprising two key elements: the bona fides of the transaction and subsequent activities demonstrating intent to use the mark continuously.

The courts have held that a single sale or shipment may suffice for registration if it appears bona fide and is followed by efforts indicating continued use. Ownership rights to a mark are granted to the first bona fide user, and mere adoption without actual use does not confer trademark rights. Therefore, both appropriation and genuine use in trade are necessary for ownership of a mark.

A service mark differs from a goods mark primarily in its commercial application. Rights to a goods mark arise from its placement on products or packaging, while a service mark is associated with the offering of services, necessitating its use in sales or advertising materials. The Federal Circuit has recognized that advertising, such as business listings in directories, can constitute valid evidence of service mark use. In *West Florida Seafood, Inc. v. Jet Restaurants, Inc.*, the court stressed that evidence should be evaluated collectively, akin to assembling a puzzle, to demonstrate prior use of a service mark. It upheld that advertisements, when combined with other evidence like trade name registrations and regulatory licenses, can substantiate prior use claims, although the case did not confirm actual service sales during the advertising period. Similarly, in *New West Corp. v. NYM Co. of California Inc.*, the court ruled that while mere advertising does not alone prove priority, it can contribute to demonstrating use in commerce when combined with other non-sales activities. The essence of establishing ownership lies in showing adoption and sufficient public use to associate the mark with the goods or services, even without direct sales evidence. Rights may be acquired through advertising if the use creates a public association with the mark, thereby supporting a claim of ownership based on the totality of actions prior to any sales.

In Brookfield Communications, Inc. v. West Coast Entm’t Corp., the Ninth Circuit addressed the concept of "use in commerce" regarding trademark rights, particularly in the context of internet domain names. The court rejected the notion that prior e-mail correspondence could establish such use, emphasizing that mere intent to use a mark does not confer trademark rights. However, it acknowledged that trademark rights can be established through the totality of prior actions, even before any sales occur, provided these actions demonstrate a right to use the trademark.

The court asserted that the definition of "use in commerce" should similarly apply to service marks, requiring both actual use and display. It noted that the Trademark Law Revision Act (TLRA) amended definitions to prevent sham uses aimed solely at reserving rights in a mark. The totality of circumstances approach, deemed more flexible, aligns with past decisions regarding the "use in commerce" requirement under 1127.

The balance of equities is crucial when determining whether a defendant's use warrants trademark protection. While sales evidence is compelling, establishing ownership can rely on showing adoption and public use that identifies the mark with the goods or services. Rights can also arise from prior use in advertising, provided it sufficiently associates the mark with the goods or services.

The court concluded that district courts should consider various non-sales activities when assessing a service mark's use in commerce, including the genuineness of the activities, their public nature, the commercial attempt to market, ongoing business activity, and transaction amounts. In this case, the evidence did not support that T.A.B.'s use of the TeleTrak mark was merely a "sham," as there were indications of genuine intent to commercially exploit the service associated with the mark.

T.A.B.’s mailing of 35,000 postcards resulted in 128 responses but no sales, failing to qualify as a first use under the law. Although the mailing indicated some commercial intent, Chance did not provide adequate evidence that T.A.B. continued to exploit the mark afterward. The district court determined that sales by Voorheis and Rudy were merely token sales, lacking bona fide characteristics. No evidence showed payment for the tags or services, and neither Voorheis nor Rudy could recall details about their transactions. Chance's assertions about T.A.B.’s subscriber list were unsupported by records, and no sales from 1990, aside from Voorheis’s, were identified. Additionally, T.A.B. had no operational capacity, marketing plan, or significant activity until February 1991, while Pac-Tel demonstrated continuous use of the mark as early as June 1989 and launched a public relations campaign in July 1989. Although the district court dated Pac-Tel's first use to April 1990, the evidence indicated earlier use predating T.A.B.’s efforts. T.A.B. also claimed that the district court improperly curtailed discovery but failed to file a necessary motion to postpone the summary judgment for additional discovery and did not specify what crucial evidence it sought. Thus, T.A.B.’s arguments were fundamentally flawed.

T.A.B. did not file a Rule 56(f) motion to delay the summary judgment consideration and failed to present sufficient evidence to the district court or on appeal to demonstrate that relevant evidence existed that could prevent summary judgment. T.A.B. claimed it lacked the opportunity to discover crucial evidence but did not specify what that evidence was. The record indicates that T.A.B. was aware of additional witnesses by May 19, 1997, seven months before the summary judgment was issued, and it did not explain why it could not conduct discovery during that time. The court found no abuse of discretion in the district court's refusal to grant more time for discovery due to T.A.B.'s lack of diligence in pursuing it and the absence of proof that any discovered evidence would alter the outcome.

The statutory definition of "use in commerce" specifies that a mark must be genuinely used in trade and not merely to reserve rights. Specifically, a mark is considered in use on goods when affixed to the goods or their containers, or when associated documents are involved, and on services when displayed in service advertising and if the services are rendered in commerce across state lines or internationally. New West's marketing activities involved sending 430,000 magazine samples resulting in over 13,500 subscriptions, which were pivotal in determining the effectiveness of its advertising. In contrast, T.A.B.'s mailing efforts, targeting locksmiths for lost and found tags, were deemed less commercially reasonable. 

The court also addressed that T.A.B.'s claim that the district court disregarded the Federal Circuit's findings in a registration case lacked merit. The Federal Circuit's remand to assess T.A.B.'s mailing as potential first use did not prevent Pac-Tel from presenting further evidence on its trade name usage during the remand. The district court's summary judgment was based on first use, not analogous use, rendering T.A.B.’s arguments irrelevant. The review for abuse of discretion regarding the denial of additional discovery underscores that the burden rests on the party requesting it to show that the evidence sought exists and could prevent summary judgment, especially if they failed to pursue earlier discovery opportunities diligently.