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What Makes a Trademark Distinctive? 9th Circuit Clarifies


12/16/09

INTRODUCTION AND FACTS

A recent Ninth Circuit decision, Lahoti v. Vericheck, Inc., No. 08-35001, clarified when a trademark is "distinctive" and therefore entitled to federal protection. Vericheck, Inc. ("the company"), provides financial transaction processing services, and claimed that David Lahoti ("Lahoti") infringed on the company's trademark, "VeriCheck" by registering the domain name, "vericheck.com." In 2001, the company obtained a Georgia registration for the "VeriCheck" trademark, but was unable to obtain federal registration of the same mark from the U.S. Patent and Trademark Office (the "PTO") because another company (the "Arizona company") had already registered "VeriCheck" for use with check verification services (the "Arizona Mark"). Lahoti registered the domain name two years later in 2003, but did not subsequently use the website to offer any goods or services. Instead, Lahoti "cybersquatted," and re-routed those who visited the vericheck.com web-site to the company's competitors.

The company alleged that Lahoti's use of the "vericheck.com" domain name violated the company's exclusive right to the word VeriCheck. Lahoti argued that the company did not have the exclusive right to use the word "VeriCheck" because the word was "descriptive" and therefore not protectable under federal trademark law (the Lanham Act 15 U.S.C. §1051 et. seq). In response, the company argued that the word "VeriCheck" was at most "suggestive" and not descriptive,[1] citing (among other things) the PTO's registration of the Arizona Mark on behalf of the Arizona company (which was not a party to the lawsuit).

Following a hearing, the trial court determined that the word "VeriCheck" was inherently distinctive and that Vericheck had proven trademark infringement against Lahoti. Lahoti appealed. On appeal, the Ninth Circuit vacated the trial court's decision, concluding that the trial court had misapplied trademark law.

LEGAL ANALYSIS

The Ninth Circuit reiterated the basic dichotomy between "suggestive" marks protectable under federal trademark law, and "descriptive" marks which are generally not protectable:

"A mark is suggestive if ‘imagination' or a ‘mental leap' is required in order to reach a conclusion as to the nature of the product being referenced. . .By contrast, a mark is descriptive if it define[s] a particular characteristic of the product in a way that does not require any exercise of the imagination."[2]

The court also held that a trial court's conclusions regarding suggestiveness or descriptiveness are inherently fact-laden determinations entitled to significant appellate deference.

"[W]e are aware of only a handful of published opinions in the past forty years in which a district court's determination that a mark is suggestive rather than descriptive was held to be clearly erroneous on appeal. . . These few exceptions are entirely consistent with the maxim that absent legal error we owe great deference to a district court's factual decision on whether a mark is distinctive. And these cases mean more in establishing the boundaries between the fact-finding trial courts and the appellate courts than they do in establishing for all cases that a particular mark is distinctive or descriptive."[3]

Turning to the merits, the court began by emphasizing that a trial court's classification of a trademark's strength is a factual determination to which the deferential "clear error" standard is applicable. Id., at 15242.[4] However, it excepted from this general rule of deference a district court's categorization of a mark based on incorrect law.[5]

The Ninth Circuit held that the trial court had properly considered the PTO's registration of the Arizona Mark as evidence that the word "VeriCheck" was distinctive:

"given the strong similarity between the appearance and purposes of the Arizona Mark and the Disputed Mark. Deference to the PTO's classification decision is sensible because the PTO has special expertise that we lack on this fact-intensive issue. . . Although the statutory presumption of distinctiveness applies only when the mark holder's own mark has been registered, courts may also defer to the PTO's registration of highly similar marks . . .In particular . . . nearly identical marks used for similar products may be viewed in a common light when the PTO has found one of them to be suggestive."[6]

However, the Ninth Circuit proceeded to find that, in three respects, the trial court had employed an unduly narrow interpretation of "descriptiveness" in the course of ruling in favor of the company. First, the court held that the trial court had "erred to the extent it required that the Disputed Mark describe all of [the company's] services to qualify as descriptive." The appellate court held:

"The district court reasoned that the Disputed Mark does not ‘immediately call to mind the broad array of electronic transaction processing services that [the company] provides.' However, a mark does not have to meet this requirement to be found descriptive. The inquiry is whether, when the mark is seen on the goods or services, it immediately conveys information about their nature."[7]

Second, the trial court erred to the extent it based its decision on the fact that the word "Vericheck" could have hypothetically described services unrelated to those the company offered. Instead, the trial court should have examined the "VeriCheck" mark in light of the services the company actually offered , to determine whether the mark described those services:

"the mark must be evaluated as if it were seen on the goods or services, which means the mark must be examined in the industry context rather than in the abstract."[8]

Finally, the trial court erred in refusing to consider the component parts of the mark "veri" and check" individually:

"[C]ourts may analyze all components of the mark in determining whether those parts, taken together, merely describe the goods or services offered. . .In analyzing the compound ‘VeriCheck' mark, the district court may therefore have broken the mark into ‘veri-‘ and ‘check,' to separately view the component parts as a preliminary step on the way to an ultimate determination of probable customer reaction to the composite as a whole. . . we cannot be sure that the district court, having earlier misstated the law, properly accounted for those individual components."[9]

For these three reasons, the Ninth Circuit vacated the trial court's judgment determining that the word "VeriCheck" was inherently distinctive and thereby afforded protection under the federal trademark law. The Ninth Circuit also directed the trial court to reconsider its decision under the principles set forth in its opinion.

CONCLUSION

The Lahoti case is significant in two respects. First, it stands for the principle that a trial court's conclusions regarding suggestiveness or descriptiveness are inherently fact-laden determinations entitled to substantial deference on appeal. At the same time, the decision specifies a number of non-exclusive factors that attorneys/courts should consider in evaluating whether a mark is suggestive or descriptive, including: (i) whether a highly similar mark has been registered by the PTO; (ii) whether, when the mark is seen on goods/services, it immediately conveys information about their nature; and (iii) whether the component parts of a mark, taken together, merely describe the goods or services offered.



[1] A party cannot prevail on a federal trademark claim unless its mark is distinctive. Id. at 15244 citing Disc Golf Ass'n v. Champion Discs, Inc. 158 F.3d 1002, 1005 (9th Cir. 1998). A suggestive mark is inherently distinctive, whereas a descriptive mark lacking a secondary meaning is not distinctive and does not receive trademark protection. Id. at 15244.

[2] Id. at 15245-46.

[3] Id. at 15247.

[4] Under the clear error standard, the appellate court defers to the lower court's determination unless, based on the entire evidence, it possesses a definite and firm conviction that a mistake has been committed. Id., at 15243.

[5] Id., at 15243.

[6] Id. at 15247-49.

[7] Id. at 15251.

[8] Id. at 15252.

[9] Id.

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