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What Makes a Trademark Case “Exceptional” in the Fifth Circuit?

The US Court of Appeals for the Fifth Circuit affirmed a senior party mark but found that the district court committed clear error in finding that a similar junior party mark was valid. The Fifth Circuit also found that the district court abused its discretion in awarding attorneys’ fees to the senior user. Appliance Liquidation Outlet, L.L.C. v. Axis Supply Corp., Case No. 23-50413 (5th Cir. June 21, 2024) (Smith, Haynes, Douglas, JJ.)

Appliance Liquidation Outlet (ALO), a decades-old appliance store in San Antonio, Texas, brought a trademark action under the Lanham Act and Texas law (which in all relevant aspects tracks the Lanham Act) against Axis Supply Corporation, another San Antonio appliance store that opened in 2021. Axis’s store and social media prominently featured the phrase “Appliance Liquidation”:

ALO noted that Axis’s opening happened to coincide with an influx of customers conflating ALO with Axis. ALO’s storefront had prominently displayed a banner reciting “Appliance Liquidation Outlet” for years:

Although ALO had never registered its mark, ALO had long engaged in a variety of promotional activities to raise brand recognition, including partnering with local sports teams and holding antique exhibitions and car shows.

Soon after Axis opened its store, ALO experienced a rush of customers who failed to differentiate between the stores and believed that ALO operated both. ALO requested that Axis stop using “Appliance Liquidation” and sued Axis in state court when Axis refused. Axis removed the dispute to the federal district court. After a bench trial, the district court held for ALO, enjoining Axis from using “Appliance Liquidation” and “Appliance Liquidation Outlet” and causing confusion between the two businesses. The district court also awarded attorneys’ fees under 15 U.S.C. § 1117(a) to ALO, finding that Axis’s decision to change its name only a week before trial (about 1.5 years into the dispute) amounted to litigating in an unreasonable manner. Axis appealed.

The Fifth Circuit affirmed the district court’s holding that Axis had infringed ALO’s “Appliance Liquidation Outlet” mark but assigned clear error to the district court’s finding that “Appliance Liquidation” was valid mark. The Fifth Circuit also found that the district court had abused its discretion in awarding attorneys’ fees to ALO.

With respect to the marks’ validity, the Fifth Circuit noted that both marks were unregistered and thus were not presumptively valid. The Court found that the record did not support the conclusion that “Appliance Liquidation” was a source identifier and thus found that it was not a valid mark. However, the Fifth Circuit was satisfied that “Appliance Liquidation Outlet” served as a source identifier. The Court found that although “Appliance Liquidation Outlet” was descriptive, the evidence established that San Antonian consumers perceived the mark as conveying information about ALO, not merely reflecting a class of services or businesses, and [...]

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Stay in the Know: Informational Message Is Not a Source Identifier

Addressing whether the mark EVERYBODY VS. RACISM was registrable, the US Court of Appeals for the Federal Circuit affirmed the Trademark Trial & Appeal Board’s final refusal to register the mark because it failed to function as a source identifier. In re: GO & Assoc., LLC, Case No. 22-1961 (Fed. Cir. Nov. 13, 2023) (nonprecedential) (Fed. Cir. Jan. 22, 2024) (precedential) (Lourie, Reyna, Hughes, JJ.)

On June 2, 2020, GO & Associates filed a trademark application seeking registration on the principal register of EVERYBODY VS. RACISM, identifying the goods and services as various apparel “promoting public interest and awareness of the need for racial reconciliation and encouraging people to know their neighbor and then affect change in their own sphere of influence.”

In a non-final office action, the examining attorney refused to register the mark, asserting that it “failed to function as a source identifier for GO’s goods and services.” The examiner noted that the mark “merely convey[ed] support of, admiration for, or affiliation with the ideals conveyed by the message.” The examiner presented examples of the mark being used in informational settings, such as by referees in the National Basketball Association; in YouTube videos; on clothing; and in titles of rap songs, podcasts and church sermons. Although GO presented evidence that the mark had hardly been used or searched prior to its use in May 2020, the examining attorney continued to reject the application. The examiner found that “the ornamental uses of the mark only reinforced the fact that consumers would likely view the mark as a sentiment rather than a source.” The examiner also noted that the applicant’s first use of the mark coincided with the “general timeline of the heated anti-racism protests throughout the nation in the wake of the George Floyd killing.”

GO appealed to the Board. The Board found “that the record as a whole show[ed] wide use of the proposed mark in a non-trademark manner to consistently convey an informational, anti-racist message to the public, as opposed to a source identifier of GO’s goods and services,” and affirmed the examiner’s refusal to register the mark. GO appealed to the Federal Circuit.

Affirming the Board’s decision, the Federal Circuit emphasized that the threshold requirement for the issuance of a mark is whether it is source identifying: “what makes a trademark a trademark under the Lanham Act is its source-identifying function.” The mark must identify the source for the public and distinguish that source from others.

The Federal Circuit noted that whether a mark is source identifying depends on “how the mark is used in the marketplace and how consumers perceive it.” In particular, the US Patent & Trademark Office prohibits registering marks that it calls “informational matter” (i.e., “slogans, terms, and phrases used by the public to convey familiar sentiments, because consumers are unlikely to perceive the matter as a trademark or service mark for any goods and services”). Reviewing the Board’s findings for substantial evidence, the Court found that the Board properly weighed the [...]

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What Makes a Trademark Case “Exceptional” in the Fifth Circuit?

Stay in the Know: Informational Message Is Not a Source Identifier

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