Foreign Companies Can Acquire U.S. Trademark Rights without Direct Sales to Consumers

Direct Niche, LLC v. Via Varejo S/A, 2018 WL 3687868 (11th Cir. Aug. 3, 2018), emphasizes that foreign companies can acquire trademark and service mark rights in the United States even without selling products directly to consumers domestically.  Instead, contracts with third parties and publication of the mark are sufficient to confer rights.  The Eleventh Circuit recently reaffirmed that “use in commerce” is the standard to determine ownership rights for a mark.

Via Varejo is a Brazilian corporation and the parent company of the Casas Bahia chain of retail stores.  Casas Bahia is a multi-billion dollar retail brand with approximately 22,000 employees and over 750 stores throughout Brazil.  Via Varejo also owns a trademark portfolio for its Casas Bahia mark, including about forty trademarks in countries around the world.  Via Varejo has utilized the Casas Bahia brand in e-commerce since 2009, operating under the domain name  Via Varejo does not operate any physical Casas Bahia stores in the United States and does not ship goods ordered online to the United States, although millions of Internet Protocol addresses located in the United States access the Casas Bahia website every year.

Direct Niche is a domestic LLC whose sole business is the acquisition of Internet domain names, with a portfolio of over 150 domain names, purchased through online auctions and sales, or through direct registration on websites like  Direct Niche monetizes the domain names it owns through resale, or by “parking” advertisements on the domain.  “Parking” is an arrangement in which the domain name owner provides a third-party company with the exclusive right to “park” pay-per-click or other revenue-generating advertisements under the domain name.  The “parking” company then pays Direct Niche a portion of the profits it generates from the advertisements.  In this way, Direct Niche capitalizes on the web traffic to a particular domain.  Any traffic to these domain names stems from the prior use of the domain name by a different owner, which often is, or was, a real business.

A dispute arose between the parties when Direct Niche registered the domain name in 2015.  Later that year, Via Varejo filed a complaint with the World Intellectual Property Organization (WIPO) under the Uniform Dispute Resolution Policy (UDRP) challenging Direct Niche’s registration.  In October 2015, WIPO ordered that the domain name be transferred to Via Varejo.  Direct Niche then filed suit in the U.S. District Court for the Southern District of Florida, seeking a declaration that its registration or use of the domain name was not unlawful, and requesting an injunction against the transfer.  After a bench trial, the district court found that Via Varejo had appropriated ownership rights to the Casas Bahia mark in the United States because it used the mark in commerce to provide advertising services for others.  The court further determined that the Casas Bahia mark is inherently distinctive and that the domain name registered by Direct Niche is identical to, or at least confusingly similar to, the Casas Bahia mark.  Based on these findings, the district court entered final judgment in favor of Via Varejo.

Direct Niche appealed the judgment, challenging the conclusion that Via Varejo had used the Casas Bahia mark in commerce in a manner sufficient to establish ownership rights.

On appeal, the Eleventh Circuit affirmed the district court’s decision, holding that “[a]ppropriation of service mark ownership rights under common law requires ‘actual prior use in commerce.’”  The court explained that “use in commerce” to show ownership is analyzed under a two-part test:  “[E]vidence showing, first, adoption, and, second, use in a way sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind as those of the adopter of the mark, is competent to establish ownership, even without evidence of actual sales.”  Facts supporting the conclusion that Casis Bahia met the test included Via Varejo’s contracts with U.S. companies to provide advertising of their goods on the Casas Bahia website, both through preferred product placement and a banner ad program.  These advertising services are rendered on the Casas Bahia website in conjunction with the Casas Bahia mark.  Moreover, the Casas Bahia website receives millions of visits every year from IP addresses located in the United States.  This evidence demonstrates sufficient public use in commerce to establish ownership of the mark, as recognized by the court, to support the district court’s decision.

Posted by Ann Fort and Rob Kohse.

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