The First Circuit Court of Appeals vacated a summary judgment order, finding that there were genuine issues of material fact regarding the likelihood of confusion for two hotels using similar marks. Dorpan S.L. v. Hotel Meliá, Inc., Case No. 12-1679 (1st Cir. August 28, 2013) (available here). Dorpan S.L. (“Dorpan”) and Hotel Meliá, Inc. (“HMI”) are Puerto Rican hotels. Dorpan sued HMI in a trademark infringement case over the use of the mark “Meliá.” The lower court found in favor of Dorpan on a summary judgment ruling, holding that with the exception of the city where HMI’s hotel was located, Dorpan had exclusive use of the Meliá mark throughout Puerto Rico. HMI appealed. On appeal, the First Circuit concluded that the two hotels could not co-exist and both use “Meliá” without creating confusion. As a result, the First Circuit vacated the summary judgment in favor of Dorpan and remanded the case for further proceedings.
HMI operated the Hotel Meliá for over 100 years in Puerto Rico but never federally registered the mark with the United States Patent and Trademark Office (“USPTO”). Dorpan has several federally registered trademarks using the name “Meliá” since the late 1990s. In 2007, Dorpan opened a hotel called “Gran Meliá” in the city near HMI’s hotel. Dorpan filed a petition with the Puerto Rico Department of State to register the mark “Gran Meliá,” and HMI filed an opposition expressing concern for confusion and citing to HMI’s common law rights to the Meliá mark. Dorpan withdrew the request to register, but continued to use the Gran Meliá mark in connection with its Puerto Rico hotel. In 2008, HMI filed a complaint against Dorpan’s parent company, asserting that HMI was the senior user of the Meliá mark and therefore had the sole right to use it in connection with hotels and restaurants throughout Puerto Rico. Dorpan then filed a complaint against HMI seeking a declaration that under the Lanham Act, Dorpan had the right to use the Meliá mark throughout Puerto Rico and that HMI only had the right to use the mark in the city where its hotel was located.
The two cases were consolidated, Dorpan moved for summary judgment, and the lower court granted it. While the lower court did note that the two hotels’ names were very similar, and that there was evidence of confusion, it placed the most emphasis on the fact that neither HMI nor Dorpan had accused each other of attempting to profit from the good-will of the other. In addition, the lower court noted that the hotels were in different geographic areas, HMI’s 100 year use was strictly limited to its use in Puerto Rico, and thus “frozen” to that area, while Dorpan’s Meliá marks were used internationally. Thus, the lower court concluded that HMI could use the Meliá mark in the city where its hotel was located, but that Dorpan could use the mark throughout the rest of Puerto Rico and the United States. HMI appealed, arguing that the lower court erred in treating HMI as the junior user of the Meliá mark.
The First Circuit noted that avoiding confusion is the focal point of trademark protection. While the Lanham Act provides federal protection against trademark infringement, the individual states also offer trademark protection either by registering the mark with the state or by using the mark in that state. In other words, a senior user of a mark who does not register its mark, retains rights in its geographic area of use. HMI argued it had the exclusive right to the Meliá mark in Puerto Rico under Puerto Rico law, while Dorpan argued it had the exclusive right to use the mark in Puerto Rico under federal law.
Dorpan’s federally registered Meliá mark is incontestible under the Lanham Act, giving Dorpan the presumption of exclusive use. However, HMI was not seeking to cancel, contest, or challenge Dorpan’s registration. HMI claimed that it was the undisputed senior user of the mark in Puerto Rico and therefore Dorpan’s rights under federal law are limited by HMI’s common law Puerto Rico rights (supported by 100 years of use), which HMI acquired before Dorpan’s mark become incontestible. HMI’s argument is supported by the Lanham Act, which limits the incontestible right of a federal trademark holder “to the extent, if any, to which the use of a mark registered on the principal register infringes a valid right acquired under the law of any State or Territory by use of a mark or trade name continuing from a date prior to the date of registration under this chapter of such registered mark.” 15 U.S.C. § 1065. Thus, Dorpan’s federal rights are limited by any rights HMI acquired under Puerto Rico law before Dorpan’s mark became incontestible.
“The senior unregistered user of a mark in Puerto Rico does not automatically acquire a Commonwealth-wide right to use the mark. Rather, the senior unregistered user is entitled to exclusive use of the mark in the area where ‘he currently do[es] business.’” Dorpan, S.L., Slip Op. P. 14. Thus, HMI is entitled to the exclusive use of the Meliá mark is based on where HMI’s hotel is located. If Dorpan’s use of a similar Meliá mark near where HMI uses its Meliá mark creates a likelihood of confusion, then HMI’s trade area protect extends at least as far as where Dorpan’s hotel is located and Dorpan’s use infringes on HMI’s rights. Conversely, if Dorpan’s mark does not create a likelihood of confusion with HMI’s mark, then HMI’s trade area is smaller and Dorpan is not infringing on HMI’s rights. Therefore, the First Circuit had to determine whether Dorpan’s use of the Meliá mark in Puerto Rico created a likelihood of customer confusion.
The most common type of confusion is “ordinary” or “forward” confusion, which occurs when a weaker junior user attempts to use the senior user’s goodwill and brand loyalty to boost its own brand. The second type is “reverse confusion,” where a senior unregistered user is overwhelmed by a more powerful junior user, causing the senior user to lose its brand and goodwill. There are eight factors that the First Circuit looks at in determining whether there is a likelihood of confusion: “(1) the similarity of the marks; (2) the similarity of the goods (or, in a service mark case, the services); (3) the relationship between the parties’ channels of trade; (4) the juxtaposition of their advertising; (5) the classes of prospective purchasers; (6) the evidence of actual confusion; (7) the defendant’s intent in adopting its allegedly infringing mark; and (8) the strength of the plaintiff’s mark.” Int’l Ass’n of Machinists & Aerospace Workers, AFL-CIO v. Winship Green Nursing Ctr., 103 F.3d 196, 201 (1st Cir. 1996). These are known as the Pignons factors.
The First Circuit applied the Pignons factors to the case. First, the First Circuit examined the similarity of the marks. HMI’s “Hotel Meliá” and Dorpan’s “Gran Meliá” are essentially identical in terms of trademark because they both have “Meliá” as their most salient word. Second, HMI and Dorpan both use their marks to operate large, full-service hotels in Puerto Rico. Third, the hotels advertise and solicit customers in similar ways, such as attending trade shows, working with travel agents, advertising to consumers, and accepting bookings on Internet website like Orbitz. Fourth, HMI had presented evidence that consumers were confused between the two hotels. Fifth, there was no evidence that Dorpan used “Meliá” in order to cause market confusion or to exploit HMI’s reputation and goodwill. Sixth, “the parties have developed relatively little evidence from which a factfinder could draw inferences about the relative strength of the marks and their tendency to create confusion.” Dorpan, S.L., Slip Op. P. 25. In balancing these factors, the First Circuit noted that, with the exception of Dorpan’s intentions, the rest of the factors weighed in favor of HMI’s claims of confusion.
The First Circuit then explained the errors in the lower court’s analysis. First, the lower court did not give enough wight to the evidence of actual confusion. Second, even if HMI had not presented evidence of actual confusion, the similarity of the marks, services, customers, and advertising were enough to create a reasonable inference of a substantial likelihood of confusion. Third, the lower court placed too much emphasis on its conclusion that Dorpan did not act in bad faith. Fourth, the lower court’s focus on the physical locations of the hotels was irrelevant. Lastly, the lower court erred in taking the narrow view of confusion when considering the strength of the marks. As such, the First Circuit vacated the lower court’s summary judgment in favor of Dorpan and remanded the case back to the lower court for further proceedings.