Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 58 U.S.P.Q.2d 1222 (9th Cir. 2001).

WEINER, Senior District Judge:

In this appeal, we must determine when a service mark is first used in commerce under the Lanham Act, 15 U.S.C. §1127. Allen Chance, d/b/a/ T.A.B. Systems ("T.A.B."), claims first use of the service mark "TeleTrak" in connection with T.A.B.'s lost and found tag service. Pac- Tel Teletrac, Inc. and related entities (collectively "Pac-Tel") claim priority of use [of "Teletrac"] in connection with their radio frequency based system for tracking fleet vehicles and recovering lost or stolen vehicles. The district court entered summary judgment in favor of Pac-Tel, finding that Pac-Tel's free services to the Los Angeles County Office of Education ("LACOE") in April 1990 constituted first use. We conclude that Pac-Tel's first use of the mark was even earlier than that found by the district court, and clearly pre-dated T.A.B.'s first use.

As early as 1984, Pac-Tel's predecessor in interest, North American Teletrac ("NAT") began developing a radio-frequency based system for tracking fleet vehicles and recovering lost or stolen vehicles. In 1985, NAT acquired the necessary frequency licenses from the Federal Communications Commission. In October 1988, Pac-Tel began field testing its system on school buses operated by LACOE. In June 1989, one of NAT's subsidiaries, DMI Systems, Inc., changed its name to International Teletrac Systems. Also in June 1989, DMI entered into a joint venture arrangement with Pacific Telesis and adopted the name Pac-Tel Teletrac.

In July 1989, Pac-Tel began a comprehensive public relations campaign to market its new service, including distributing press releases and giving interviews to print and electronic media. It also made presentations to prospective customers. The district court found that in April 1990, Pac- Tel began making its service available on a commercial basis, and began making its service available to non-fleet customers in the last quarter of 1990. April 1990 was the first time LACOE began using the system on a non-test basis, although it did not begin paying for the service until December 1990, when the system was publicly launched. The record before the district court also included information that, from mid-1990 onward, Pac-Tel was developing customers among various vehicle fleet operating enterprises and had agreements with at least twenty four of them.

Meanwhile, in mid-1989, Allen Chance came up with the idea for a lost and found service using attachable tags with unique serial numbers. Finders of lost tagged items would use a toll free telephone number to report their discovery. In June 1989, Chance worked with his partner Bill Gray to design and manufacture the tags. The two brought in another friend, Tom Nettles, to work with them, coining the name "TeleTrak" for their service. "T.A.B." is an abbreviation for Tom Allen Bill.

In late summer 1989, T.A.B. obtained a toll free number under the name "TeleTrak Lost and Found Hotline." It also obtained a mail drop and drew up a business plan. In October 1989, an unrelated company, Locksmith Ledger, included T.A.B.'s postcard in its own bulk mailing to 35,000 locksmiths. This post card announced the TeleTrak World Wide Toll Free Lost and Found Hotline. T.A.B. received 128 responses from the mailing, but made no sales as a result.

In January 1991, Chance saw advertisements for Pac-Tel's Teletrac service. He conducted a trademark search and discovered no pending application on file with the United States Patent and Trademark Office (PTO). T.A.B. filed a service mark application for "Teletrak Lost and Found Hotline" and a trademark application for "TeleTrak" claiming first use of the mark on December 28, 1990. It later claimed first use in October 1989, the time of the postcard mailer. [Pac-Tel opposed T.A.B.'s application. After the Trademark Trial and Appeal Board (TTAB) granted Pac- Tel summary judgment, and the Federal Circuit reversed, T.A.B. moved to suspend the TTAB proceeding and filed this action to pursue a claim for damages.]

In February 1990, Chance purportedly sold a TeleTrak tag to Brian Voorheis, a long time friend. Chance produced a one page typewritten registration form he prepared for Voorheis' tag, number 11229, dated February 23, 1990. Chance could not state, however, how much Voorheis paid for the tag, how he paid for the tag, nor does T.A.B. have any record reflecting payment. Voorheis could not recall when he received it, when he paid for it, or how much he paid for it. He also could not recall signing up for the service or ever renewing it. The tag Voorheis produced at his deposition was one number different from the number recorded on the registration form. In addition, Kirk Rudy, another friend of Chance, testified that Chance gave him two tags in the summer of 1990. He could not recall if they were a gift or he bartered for them. T.A.B. produced no record of a sale to Rudy.

To have prevented entry of summary judgment in the district court, Chance would have had to come forward with some evidence beyond the mere pleadings to demonstrate a disputed issue of fact that T.A.B.'s use of the TeleTrak service mark predated Pac-Tel's first use. This question is dependent upon several subordinate questions: (1) was T.A.B.'s national post card advertising mailer in 1989 a bona fide first use; (2) if not, were T.A.B.'s "sales" of tags to Voorheis and Rudy, in February and the summer of 1990 respectively, sufficient to establish first use; and (3) was the district court correct in holding that Pac-Tel's first use occurred in April 1990 when LACOE began using Pac-Tel's system on a non-test basis?

A. The definitions of "service mark" and "use in commerce"

Under the Lanham Act, a service mark can be any "word, name, symbol, device or any combination thereof--(1) used by a person, or (2) which a person has a bona fide intention to use in commerce and applies to register ... to identify and distinguish the services of one person, including a unique service, from the services of others and to indicate the source of the services, even if that source is unknown." 15 U.S.C. §1127. This definition is virtually identical to the definition of "trademark," contained in the preceding paragraph of §1127, the only difference between a trademark and a service mark is that a trademark identifies goods while a service mark identifies services. Service marks and trademarks are governed by identical standards, and thus like with trademarks, common law rights are acquired in a service mark by adopting and using the mark in connection with services rendered.

The current version of §1127 was enacted in 1988 when Congress passed the Trademark Law Revision Act (TLRA), Pub.L. No. 100-667, 102 Stat. 3935 (1988). Congress amended the Lanham Act by redefining the term "use in commerce" to mean "the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a mark." The TTAB has held that the purpose of this revision was to eliminate "token use" as a basis for registration, and that the stricter standard contemplates instead "commercial use of the type common to the particular industry in question." "Prior to 1989, in order to qualify for federal registration, the extent of actual use of the mark was irrelevant so long as it amounted to more than a mere sham attempt to conform with statutory requirements. However, effective November 16, 1989, Congress changed the statutory definition of 'use' so as to require a greater degree of activity." 2 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, §16:8 (4th ed.1997) (footnotes omitted). The revised section now requires a showing that the applicant has a bona fide intention to use the mark in commerce. This new bona fide intention requirement has been termed entirely consistent with the traditional rules governing common law ownership of trademarks.

The Federal Circuit has held that "use in commerce," in the context of a trademark, means "a bona fide sale or transportation in commerce which may lawfully be regulated by Congress.... This requirement breaks down into two distinct elements: (1) Was the transaction upon which the registration application was founded bona fide; and (2) if it was bona fide, was it followed by activities proving a continuous effort or intent to use the mark." Avakoff v. S. Pac. Co. Alternatively, the Federal Circuit has also held that where a mark has been placed on goods, a single sale or shipment may be sufficient to support an application to register the mark, providing that this shipment or sale has the color of a bona fide transaction and is accompanied or followed by activities which would tend to indicate a continuing effort or intent to continue such use and place the product on the market on a commercial scale within a time demonstrated to be reasonable in the particular trade. Hydro-Dynamics, Inc. v. George Putnam & Co. However, because token use is not enough, "[m]ere adoption of a mark without bona fide use, in an attempt to reserve it for the future, does not create trademark rights.... [O]wnership of a mark requires both appropriation and use in trade; and []ownership of a mark and the exclusive right to a mark belongs to the one who first uses the mark on goods placed on the market."

In the service mark context, the Federal Circuit has held that

Such use in advertising, the court held, can include "listing the name of the business, including the mark, in telephone directories and placing listings and advertisements in the yellow pages." Later, in West Florida Seafood, Inc. v. Jet Restaurants, Inc., the Federal Circuit emphasized that, in reviewing evidence of "use in commerce" in a service mark case, "one should look at the evidence as a whole, as if each piece of evidence were part of a puzzle which, when fitted together establishes prior use." Based on its prior decision in Lloyd's--that advertisements may constitute acceptable "specimens" of use--the Federal Circuit in West Florida determined that three newspaper advertisements corroborated the plaintiff's prior use assertions when combined with other evidence of state trade name registrations, three regulatory licenses and a state health inspection report listing the service mark. Significantly, there is nothing in the West Florida opinion to indicate whether there were actual sales of services using the service mark in the same time frame of the appearance of the advertising.

Our own cases are not dissimilar. In New West Corp. v. NYM Co. of Calif., Inc., a pre-TLRA trademark case, we determined that, although mere advertising by itself may not establish priority of use, advertising combined with other non-sales activity is sufficient to establish use in commerce. Specifically, we held that in deciding a question of first use, a court should examine the totality of the parties' activities, a formulation not dissimilar to the Federal Circuit's "jigsaw puzzle" analogy. Quoting New England Duplicating Co. v. Mendes, we stated

We went on to cite Hotel Corp. of Am. v. Inn Am., Inc., for the proposition that

We concluded that the totality of the appellee's acts, prior to its first sale [Footnote: New West had sent 430,000 individuals a free exemplar copy of its magazine containing its mark and began receiving paying orders within three days. Over 13,500 people bought subscriptions prior to the printing of the first issue.] was sufficient to show adoption of its mark and "use in a way sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind.... Although mere advertising by itself may not establish priority of use ... the totality of appellee's prior actions, taken together, establish a right to use the trade-mark...."

Most recently, in Brookfield Communications, Inc. v. West Coast Entm't Corp., a case involving internet domain names, we rejected the theory that e-mail correspondence predating actual sales could constitute use in commerce because it failed to establish 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." We made clear that "trademark rights are not conveyed through mere intent to use a mark commercially." However, "trademark rights can vest even before any goods or services are actually sold if 'the totality of [one's] prior actions, taken together, [can] establish a right to use the trademark.'"

We find that the totality of the circumstances test should apply to service mark cases as well. The statutory language supports the conclusion that "use in commerce" should be similarly defined for service marks as it is for trade marks. . . . . The propriety of applying New West 's totality approach is further supported by the fact that New West based its formulation on at least one service mark case.

Although perhaps more flexible than the approaches taken by other courts, the totality of the circumstances approach is consistent with various notable decisions discussing the "use of commerce" requirement of §1127.

Accordingly, we hold that the totality of the circumstances must be employed to determine whether a service mark has been adequately used in commerce so as to gain the protection of the Lanham Act. In applying this approach, the district courts should be guided in their consideration of non-sales activities by factors we have discussed, such as the genuineness and commercial character of the activity, the determination of whether the mark was sufficiently public to identify or distinguish the marked service in an appropriate segment of the public mind as those of the holder of the mark, the scope of the non-sales activity relative to what would be a commercially reasonable attempt to market the service, the degree of ongoing activity of the holder to conduct the business using the mark, the amount of business transacted, and other similar factors which might distinguish whether a service has actually been "rendered in commerce".

B. Application

Reviewing the totality of the circumstances presented in the record before the district court on summary judgment, and permitting all inferences to be viewed in T.A.B.'s favor, we cannot say that T.A.B.'s use of the TeleTrak mark was a "sham" designed merely to warehouse the mark. All inferences from the record indicate that when he came up with the idea for the lost and found tag service, Chance intended to commercially exploit the idea using the TeleTrak mark. That is not the end of the inquiry, however.

We find T.A.B.'s mailing of the 35,000 post cards, which generated 128 responses to its 800 number and no sales, cannot be considered a first use under the law set out above. [Footnote: Under New West and Brookfield, the scope of the advertising activity is central to its weight in the totality of the circumstances assessment. The scope of T.A.B.'s mailing pales in comparison to the type of advertising-- 430,000 solicitations, which generated 13,500 subscription sales--that we found determinative in New West. In addition, it is questionable whether this mailing was a commercially reasonable attempt to market the service. The mailing was addressed to locksmiths; there was no evidence that locksmiths were intended to be the users of the lost and found tags.] While the mailing may have been some evidence of a commercial intent when it was mailed, Chance failed to come forward with sufficient evidence to establish a triable issue of fact that T.A.B. genuinely continued to exploit the mark thereafter. The district court found the Voorheis and Rudy "sales" constituted token sales and were not a bona fide first use. The record on summary judgment amply supports this conclusion. There was no evidence presented that either Voorheis or Rudy paid for the tag or the service. Chance could not state how much Voorheis paid for the tag or how he paid for the tag. T.A.B. could produce no record reflecting payment. Voorheis could not recall when he received it, when he paid for it, or how much he paid for it. He could not even recall if he ever signed up for the service. Rudy testified that Chance gave him two tags in the summer of 1990 and could not recall if they were a gift or he bartered for them. T.A.B. produced no record of a sale to Rudy.

While Chance testified in his deposition that T.A.B. had a "list of subscribers", he did not produce records from his toll free service to substantiate customers from 1990 forward. He also could not identify any other sales of T.A.B.'s products in 1990 other than the Voorheis sale. In addition, the record indicated that the software to process customer calls to the toll free number was never delivered, and T.A.B. never leased the necessary computer hardware to actually operate the business. Through early 1991, T.A.B. had no working capital and no marketing plan and it ordered no tags from its supplier until February 1991.

Pac-Tel, in contrast, had significant activities even prior to T.A.B.'s post card mailing. The record demonstrates that as early as June 1989, Pac-Tel began using the mark on a continuous basis. As early as 1984, a Pac-Tel predecessor company was using the mark as part of its business name. Pac-Tel began a public relations campaign using the mark to introduce its new service in July 1989. In September 1989, it sent out brochures to potential customers. In early fall 1989, it conducted interviews with major newspapers including the Wall Street Journal, Washington Post and Chicago Tribune which resulted in a number of stories that mentioned the service mark. During this time the service was marketed to potential customers who managed large vehicle fleets through a slide presentation using the mark. While the district court found that Pac-Tel's first use was in April 1990, when it began making its service available on a commercial basis for the first time on the Los Angeles school buses, the totality of the record demonstrates that its first use of the mark was significantly earlier and clearly predated T.A.B.'s first use.

Prepared by Jefferson Scher for Law 227: Unfair Competition, Spring 2004. Substantial portions of the original opinion have been omitted.