07/12/18

COURT ZEROS OUT RULING ON COCA-COLA’S “ZERO” MARKS

Timothy J. Lockhart

On June 20, the U.S. Court of Appeals for the Federal Circuit vacated and remanded the ruling of the Trademark Trial and Appeal Board (TTAB) that a number of Coca-Cola Company’s trademarks containing “ZERO” and identifying no-calorie drinks have acquired distinctiveness. Royal Crown Co. & Dr. Pepper/Seven Up, Inc. v. Coca-Cola Co., ___ F.3d ___, 2018 WL 3040163 (Fed. Cir. 2018) [precedential]. The court held that the TTAB “erred in its legal framing of the genericness inquiry in two ways—it failed to examine whether ZERO identified a key aspect of the genus [i.e., product category] at issue, and it failed to examine how the relevant public understood the brand name at issue when used with the descriptive term ZERO.” The court also held that the TTAB should have assessed the degree of the marks’ descriptiveness before determining whether Coca-Cola Company (CCC) had established that any or all of its ZERO marks have acquired distinctiveness.

The TTAB’s ruling came in a consolidated proceeding involving eight oppositions by Royal Crown Company, Inc. and Dr. Pepper/Seven Up, Inc. (RCC) to CCC’s applications for ZERO marks for soft drinks, sports drinks, and energy drinks and two oppositions by CCC to RCC’s applications for PURE ZERO and DIET-RITE PURE ZERO. Royal Crown Co. & Dr. Pepper/Seven Up, Inc. v. Coca-Cola Co., Oppositions Nos. 91178927, et al. , 2016 WL 9227936 (TTAB May 23, 2016) [not precedential]. RCC argued that ZERO, a term that RCC disclaimed the exclusive right to use apart from each of its mark as a whole, was either generic or merely descriptive of no-calorie drinks.

The TTAB found CCC had established acquired distinctiveness for its ZERO marks used with soft drinks but not for those used with energy drinks. Accordingly, the TTAB dismissed RCC’s opposition to 13 of CCC’s applications for soft-drink marks but sustained it with respect to four applications for energy-drink marks, giving CCC two months to enter in those four applications a disclaimer of ZERO. (The TTAB dismissed CCC’s oppositions on the grounds that CCC had not established priority in its cited marks.) RCC then appealed the TTAB’s rulings with respect to genericness and acquired distinctiveness.

With regard to the genericness issue, the court said the TTAB “asked the wrong question in assessing the alleged genericness of the ZERO term. Specifically, the [TTAB] failed to consider that ‘a term can be generic for a genus of goods or services if the relevant public . . . understands the term to refer to a key aspect of that genus’” (citing In re Cordua Rests., Inc., 823 F.3d 594, 603 (Fed. Cir. 2016) (emphasis added)). The test, the court said, is whether “the relevant public would understand the term to be generic” for any part of the relevant goods or services, meaning soft drinks, sports drinks or energy drinks.

The court said that the TTAB should “examine whether the term ZERO, when appended to a beverage mark, refers to a key aspect of the genus.” Specifically, the TTAB must “consider whether ZERO is generic because it refers to a key aspect of at least a sub-group or type of the claimed beverage goods,” all of which are no-calorie beverages.

The court then turned to the descriptiveness issue. The court noted that CCC sought registration of its ZERO marks under Section 2(f) of the Trademark Act, 15 U.S.C. § 1052(f), which allows descriptive marks that have acquired distinctiveness, or “secondary meaning,” to be registered on the Principal Register of the U.S. Patent and Trademark Office. By doing so, the court said, CCC had “conceded that ZERO is not inherently distinctive in association with the genus of goods at issue—soft drinks, energy drinks, and sports drinks” (emphasis in original) and thereby had “concede[d] that ZERO is, to some extent, descriptive.” For that reason RCC argued that CCC’s ZERO marks should not be registered without disclaimers of ZERO—which would, of course, assist RCC in registering its own ZERO marks.

The court said that “[w]here a mark sits on a sliding scale of descriptiveness impacts the burden a proposed registrant must bear with respect to its claim of acquired distinctiveness” (citing In re Steelbuilding.com, 415 F.3d 1293 (Fed. Cir. 2005)). Thus, the distinction between a mark that is merely descriptive and one that is highly descriptive is important, one that the court said the TTAB failed to make initially but should make on remand along with providing an explanation of “how its assessment of the evidentiary record reflects that finding.”

The court’s last point was that the TTAB had not applied the proper legal standard when deciding the issues of genericness and acquired distinctiveness. In relying on CCC’s sales and advertising figures and its consumer-survey results, the TTAB had “ignore[d] the fact that ‘[g]eneric terms cannot be rescued by proof of distinctiveness or secondary meaning no matter how voluminous the proffered evidence may be’” (citing In re Northland Aluminum Prods. Inc., 777 F.2d 1556, 1558 (Fed. Cir. 1985) (alteration in original) (quoting Examining Attorney); (other citation omitted)). The court acknowledged that CCC’s evidence “may be probative of acquired distinctiveness to the extent it shows that a non-generic term has gained recognition with consumers primarily as to the source of a product” but added that sales and advertising figures do not “demonstrate that a term is not used by the public to refer to the genus of goods in question, or to a sub-group thereof.”

The court said the TTAB’s reliance on CCC’s survey evidence was “also troubling.” The court noted that the survey results were already five years old when the TTAB considered them, the surveyor had not framed his questions properly, and the TTAB had mentioned CCC’s “family of marks” without actually finding that there was such a family or considering whether the family feature is sufficiently distinctive to trigger recognition (citing Spraying Sys. Co. v. Delavan, Inc., 975 F.2d 387, 395 (7th Cir. 1992) (itself citing 2 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 23:19, at 103 (3d ed. 1992)).

Thus, the court sent the case back to the TTAB for further proceedings consistent with the court’s decision. Interestingly, Professor McCarthy, whose leading treatise the court cited in its opinion, provided a critique of that opinion to The TTABlog® in which he said that the court had “smudge[d] the line between descriptive and generic” and “expand[ed] the ‘generic name’ category to include words that describe but do not name the goods.” He claimed that the court had overlooked a key 1989 change in the Trademark Act: the deletion of the language “common descriptive term” in favor of “generic name.” He also said that the court erred by focusing on whether ZERO “refers” to a product when the proper inquiry is whether it “names” a product.

NEW EUROPEAN PRIVACY REGULATION AFFECTS U.S.-BASED BUSINESSES

Corina V. San-Marina

The General Data Protection Regulation (GDPR) was enacted to protect the privacy of personal data of individuals within the European Union (EU) and became effective May 25, 2018. The GDPR directly affects any U.S.-based business that either offers goods or services (paid or free) to individuals within the EU or monitors the online behavior of individuals within the EU.  It can also affect a U.S.-based business that provides services to another business that is subject to the GDPR if such services involve the processing of personal data of EU individuals.

Whether a U.S.-based business is subject to the GDPR is not always obvious. At one end of the spectrum are U.S.-based businesses that intend to offer their goods or services to individuals in the EU.  At the other end of the spectrum are U.S.-based businesses that interact with EU individuals indirectly and perhaps unintentionally—for example, businesses that use their websites to provide targeted advertisements to individuals in the United States but also have visits to their sites from individuals in the EU.

The GDPR does not provide for a de minimis amount of goods or services to be offered to individuals in the EU before it applies.  The determining factor is the intent to provide goods or services to individuals in the EU, which intent can be ascertained from external factors such as offering international shipping to countries within the EU, accepting EU currency, offering testimonials from individuals in the EU, or having a website available in different languages.  Without any of those factors the mere accessibility of the business’s website in the EU is likely not sufficient to subject the business to the GDPR.

A U.S.-based business monitors the behavior of individuals in the EU by virtue of its website operations if it tracks individuals’ web-surfing activities to predict certain aspects about that individual such as personal preferences, interests, economic situation, and location. U.S.-based businesses that are directly affected are “publishers” that sell advertising space on their websites to advertisers to reach their target audiences.  Because the GDPR defines personal data very broadly to include online identifiers such as an IP address, a business is subject to the GDPR if it uses the IP address of individuals in the EU and serves them targeted advertisements based on their online activity.

A U.S.-based business that does not have any direct interaction with individuals located in the EU may become subject to the GDPR if it provides services to another business that is subject to the GDPR and enters into a contractual agreement that acknowledges its status under the GDPR. For example, a cloud service provider that stores personal data of EU individuals on behalf of another business may become subject to the GDPR if it enters into a contractual agreement containing GDPR-required terms.

U.S.-based businesses that are directly or indirectly subject to the GDPR should determine the changes necessary to comply with the GDPR. The GDPR provides for very steep fines for non-compliant businesses, ranging from two percent or four percent of global “turnover,” i.e., revenue, or €10,000,000 or €20,000,000, whichever measurement is higher.  The extent to which EU regulators will try to enforce the GDPR and impose fines for non-compliance on U.S.-based businesses likely will be seen in the next year or two.

 

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