trademark priority

Trademark Priority: Risks of Too Much Secrecy and “Use in Commerce”

Trademark protection in the United States is based on “use in commerce.” Sometimes, competing businesses arrive at the same branding concept at about the same time, raising questions of trademark priority. With respect to trademark priority, as discussed below, too much secrecy can be risky.

Many businesses legitimately want to shroud in secrecy various aspects of product research, development, consumer testing, and marketplace pre-launch and launch preparations. In general, these fall under the category of “trade secrets“. In the best of business practices, trade secrets are protected by internal security protocols and by well-drafted confidentiality and nondisclosure agreements. When an application for trademark registration is filed, too much secrecy can conflict with an applicant’s assertion of “use in commerce.” A good trademark lawyer can help strike the right balance.

A recent trademark case out of the Federal District of Massachusetts gives a good example of this interplay between secrecy and trademark priority. See Nexsan Technologies, Inc. v. EMC Corporation, Civ. No. 16-10847-WGY (US Dist. Mass. April 14, 2017). In that case, too much secrecy led to a competitor being awarded the trademark priority.

Trademark Priority: The Parties, the Mark and the Claims

The mark at issue in the Nexsan case was “UNITY” intended to be the brand mark used by both competitors for newly developed computer data storage systems.

On March 22, 2016, plaintiff Nexsan filed two intent-to-use trademark applications with the USPTO seeking to register UNITY and NEXSAN UNITY marks. However, EMC Corporation claimed that it had been using the UNITY mark since early 2014 in connection with its “VNX” data storage system. Nexsan filed for declaratory judgment in federal court asserting trademark priority based on its intent-to-use registrations and other legal claims. As discussed below, the court ruled in favor of Nexsan.

Trademark Priority: “Use in Commerce” Legal Principles

Trademark rights may be acquired by filing for registration under the Lanham Act, 15 U.S.C. §§ 1051-72 or under federal trademark common law. Both the Lanham Act and federal common law require that the mark be used in commerce. Even though an individual or business might be the “first to file” a trademark application, that application or subsequent registration can be defeated if another can show priority of their use in commerce. Factors used by courts to determine “use in commerce” include:

  • Actual and consistent use
  • Quantity of use
  • Widespread use of the mark
  • Quality of use — targeted use
  • Use of mark in advertising
  • And more

The general idea is that the party seeking to prove priority must show that its use of the mark created, in the minds of potential customers, an association between that this mark and that party as the commercial source of the particular goods or services at issue.

Trademark Priority: Application of Legal Principles in Nexsan

In the Nexsan case, EMC argued that it had been using the UNITY mark since 2014. EMC pointed to three specific types of use – beta testing with focus groups, pre-sale product presentations and use of the word “unity” on a blog run by an EMC employee. The District rejected these as sufficient to establish priority.

Trademark Priority: Beta Testing as “Use in Commerce”

In general, beta testing of a product may be sufficient to establish prior use in commerce in a priority proceeding. However, in Nexsan, with respect to EMC’s beta testing, the court held that such was not sufficient use in commerce because the focus groups were too small, the testing was done under a shroud of secrecy and confidentiality and because EMC was not consistent with use the UNITY name. In general, for beta testing to constitute “use in commerce,” that testing must reach a sizable proportion of the relevant public. EMC only beta tested with a focus group of 20 businesses. The court found this to be “an insubstantial proportion of this market” where the market was “tens of thousands” of businesses.

More importantly for our discussion, EMC bound each beta tester to secrecy by nondisclosure and confidentiality agreements. Not only were the beta testers bound to the technical details of the product confidential, but also the product name. As such, the court held that EMC actually intended the brand UNITY to remain “non-public” which is the exact opposite of “open and notorious use in commerce.” The court distinguished this from other cases where a mark was used in trade journals to publicize a new product launch. In those cases, priority was held to exist because the trade journal reached a sizable portion of the relevant consuming public and the mark was non-secret and very much “public.”

The nondisclosure and confidentiality agreements (“NCA”) also inhibited EMC from arguing “word of mouth” as evidence of “use in commerce.” The NCAs forbade the signers from publicly discussing the UNITY name even among themselves even, in theory, during the testing. As such, the court rejected an claim the mark UNITY belonged to EMC because of “word of mouth.”

Finally, during the beta testing, EMC was inconsistent with use of the UNITY mark. As the court noted, using different names during beta testing lessens the likelihood that the beta test consumers will associate a single mark with the tested goods. Taken together, the court held the beta testing was not sufficient evidence of “use in commerce.”

Trademark Priority: Pre-Sale Presentations as “Use in Commerce”

For similar reasons, EMC’s pre-sale presentations were also held insufficient to be deemed “use in commerce.” Courts have held that pre-sale demonstrations and presentations and other forms of publicity may be sufficient to establish prior “use in commerce” for priority proceedings. However, many of the same principles discussed with respect to beta testing apply with respect to pre-sale marketing. To qualify as “use in commerce,” such must reach a sizable portion of the relevant consuming public, such must be “open and notorious” and must use the mark consistently.

In Nexsan, the court rejected EMC’s arguments that its pre-sale marketing was sufficient to establish “use in commerce.” First, the court held that EMC’s 84 presentations were not sufficient in a market of “tens of thousands” and held that such did not reach a sizable portion of the market. Second, as with the beta testing, all the attendees to the presentations were required to sign NCAs. Again, this undercut any argument that EMC used the UNITY brand “openly and notoriously.”

Trademark Priority: Blogging “Word of Mouth” as “Use in Commerce”

Finally, EMC argued that its UNITY mark was “widely known” to the public because of blog postings by a blogger known as Virtual Geek, an employee of EMC. However, the court rejected this as a form of publicity. First, Virtual Geek attached a disclaimer to his blog stating that his blog was “purely personal in nature” and that his blog articles were not authorized by EMC. As such, the blog-reading public would not see, in the blog posts, a commercial intent by EMC to create a brand. Second, according to the court, various Virtual Geek references to “unity” would not have been seen by the blog-reading public as being references to EMC’s UNITY product. Taken together with the disclaimer, Virtual Geek’s blogging activity was not evidence of EMC’s use in commerce of the UNITY mark. In the end, EMC lost out and the court awarded trademark priority to Nexsan.

As can be seen by the Nexsan case, there is an interplay between keeping product development confidential and needing sufficient public awareness to create a brand. EMC would have been wise to consult trademark attorneys during their beta testing.

Trademark Priority: Contact Revision Legal

If you need more information about trade secrets and trademarks or have other questions about business law, internet law, data breaches and other legal issues related to IP, contact the lawyers at Revision Legal. We can be reached by email or by calling us at 855-473-8474.

 

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The US Trademark Registration Process

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Affirmative Defenses to Allegations of Trademark Infringement

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