In re California Innovations, Inc.

RADER, Circuit Judge.

I.

CA Innovations filed an intent-to-use trademark application, Serial No. 74/650,703, on March 23, 1995, for the composite mark CALIFORNIA INNOVATIONS and Design. The application sought registration for . . . thermal insulated bags for food and beverages, thermal insulated tote bags for food or beverages, and thermal insulated wraps for cans to keep the containers cold or hot. . .

The United States Patent and Trademark Office (PTO) initially refused registration based on an alleged likelihood of confusion with some prior registrations. At the PTO's request, applicant disclaimed the CALIFORNIA component of the mark. . . . After the PTO refused to reconsider its decision, CA Innovations renewed its appeal to the Board. On February 20, 2002, the Board upheld the PTO's refusal to register applicant's mark and concluded that the mark was primarily geographically deceptively misdescriptive.

. . .

II.

The Lanham Act addresses geographical marks in three categories. The first category, § 1052(a), identifies geographically deceptive marks:

No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it - (a) Consists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.

Although not expressly addressing geographical marks, § 1052(a) has traditionally been used to reject geographic marks that materially deceive the public. A mark found to be deceptive under § 1052(a) cannot receive protection under the Lanham Act. To deny a geographic mark protection under § 1052(a), the PTO must establish that (1) the mark misrepresents or misdescribes the goods, (2) the public would likely believe the misrepresentation, and (3) the misrepresentation would materially affect the public's decision to purchase the goods. . . . This test's central point of analysis is materiality because that finding shows that the misdescription deceived the consumer. . . .

The other two categories of geographic marks are (1) "primarily geographically descriptive" marks and (2) "primarily geographically deceptively misdescriptive" marks under § 1052(e). The North American Free Trade Agreement, as implemented by the NAFTA Implementation Act in 1993, has recently changed these two categories. Before the NAFTA changes, § 1052(e) and (f) stated:

No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it -

(e) Consists of a mark which . . .

(2) when used on or in connection with the goods of the applicant is primarily geographically descriptive or deceptively misdescriptive of them. . .

(f) Except as expressly excluded in paragraphs (a) - (d) of this section, nothing in this chapter shall prevent the registration of a mark used by the applicant which has become distinctive of the applicant's goods in commerce.

The law treated these two categories of geographic marks identically. Specifically, the PTO generally placed a "primarily geographically descriptive" or "deceptively misdescriptive" mark on the supplemental register. Upon a showing of acquired distinctiveness, these marks could qualify for the principal register.

Thus, in contrast to the permanent loss of registration rights imposed on deceptive marks under § 1052(a), pre-NAFTA § 1052(e)(2) only required a temporary denial of registration on the principal register. Upon a showing of distinctiveness, these marks could acquire a place on the principal register. . . .

In the pre-NAFTA era, the focus on distinctiveness overshadowed the deceptiveness aspect of § 1052(e)(2) and made it quite easy for the PTO to deny registration on the principal register to geographically deceptively misdescriptive marks under § 1052(e)(2). On the other hand, the deception requirement of § 1052(a) protected against fraud and could not be overlooked. Therefore, the PTO had significantly more difficulty denying registration based on that higher standard.

Before NAFTA, in In re Nantucket, the Board used a three-prong test to detect either primarily geographically descriptive or deceptively misdescriptive marks. Under the Board's test, the only substantive inquiry was whether the mark conveyed primarily a geographical connotation. On appeal in In re Nantucket, this court's predecessor rejected that test:

The board's test rests mechanistically on the one question of whether the mark is recognizable, at least to some large segment of the public, as the name of a geographical area. NANTUCKET is such. That ends the board's test. Once it is found that the mark is the name of a known place, i.e., that it has "a readily recognizable geographic meaning," the next question, whether applicant's goods do or do not come from that place, becomes irrelevant under the board's test, for if they do, the mark is "primarily geographically descriptive"; if they don't, the mark is "primarily geographically deceptively misdescriptive." Either way, the result is the same, for the mark must be denied registration on the principal register unless resort can be had to § 2(f).

Thus In re Nantucket, for the first time, set forth a goods-place association requirement. In other words, this court required a geographically deceptively misdescriptive mark to have more than merely a primary geographic connotation. Specifically, the public must also associate the goods in question with the place identified by the mark - the goods-place association requirement. However, this court did not require a showing that the goods-place association was material to the consumer's decision before rejection under § 1052(e).

In In re Loew's Theatres, Inc., this court expressly permitted a goods-place association without any showing that the place is "well- known" or "noted" for the goods in question. The Loew's court explained: "If the place is noted for the particular goods, a mark for such goods which do not originate there is likely to be deceptive under § 2(a) and not registrable under any circumstances." Clarifying that pre-NAFTA § 1052(e)(2) does not require a "well-known" place, this court noted:

The PTO's burden is simply to establish that there is a reasonable predicate for its conclusion that the public would be likely to make the particular goods/place association on which it relies. . . . The issue is not the fame or exclusivity of the place name, but the likelihood that a particular place will be associated with particular goods.

As noted, the Lanham Act itself does not expressly require different tests for geographically misleading marks. In order to implement the Lanham Act prior to the NAFTA amendments, the PTO used a low standard to reject marks for geographically deceptive misdescriptiveness under pre-NAFTA § 1052(e), which was relatively simple to meet. In contrast, the PTO required a much more demanding finding to reject for geographical deception under § 1052(a). This distinction was justified because rejection under subsection (a) was final, while rejection under pre-NAFTA subsection (e)(2) was only temporary, until the applicant could show that the mark had become distinctive. The more drastic consequence establishes the propriety of the elevated materiality test in the context of a permanent ban on registration under § 1052(a).

NAFTA and its implementing legislation obliterated the distinction between geographically deceptive marks and primarily geographically deceptively misdescriptive marks. Article 1712 of NAFTA provides:

1. Each party [United States, Mexico, Canada] shall provide, in respect of geographical indications, the legal means for interested persons to prevent:

(a) the use of any means in the designation or presentation of a good that indicates or suggests that the good in question originates in a territory, region or locality other than the true place of origin, in a manner that misleads the public as to the geographical origin of the good . . . .

This treaty shifts the emphasis for geographically descriptive marks to prevention of any public deception. Accordingly, the NAFTA Act amended § 1052(e) to read:

No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it -

(e) Consists of a mark which (1) when used on or in connection with the goods of the applicant is merely descriptive or deceptively misdescriptive of them, (2) when used on or in connection with the goods of the applicant is primarily geographically descriptive of them, except as indications of regional origin may be registrable under section 4, (3) when used on or in connection with the goods of the applicant is primarily geographically deceptively misdescriptive of them, (4) is primarily merely a surname, or (5) comprises any matter that, as a whole, is functional.

(f) Except as expressly excluded in subsections (a), (b), (c), (d), (e)(3), and (e)(5) of this section, nothing herein shall prevent the registration of a mark used by the applicant which has become distinctive of the applicant's goods in commerce.

Recognizing the new emphasis on prevention of public deception, the NAFTA amendments split the categories of geographically descriptive and geographically deceptively misdescriptive into two subsections (subsections (e)(2) and (e)(3) respectively). Under the amended Lanham Act, subsection (e)(3) - geographically deceptive misdescription - could no longer acquire distinctiveness under subsection (f). Accordingly, marks determined to be primarily geographically deceptively misdescriptive are permanently denied registration, as are deceptive marks under § 1052(a).

Thus, § 1052 no longer treats geographically deceptively misdescriptive marks differently from geographically deceptive marks. Like geographically deceptive marks, the analysis for primarily geographically deceptively misdescriptive marks under § 1052(e)(3) focuses on deception of, or fraud on, the consumer. The classifications under the new § 1052 clarify that these two deceptive categories both receive permanent rejection. Accordingly, the test for rejecting a deceptively misdescriptive mark is no longer simple lack of distinctiveness, but the higher showing of deceptiveness.

The legislative history of the NAFTA Act confirms the change in standard for geographically deceptively misdescriptive marks. In a congressional record statement, which appears to be the equivalent of a committee report, the Senate Judiciary Committee acknowledges the new standard for these marks:

The bill creates a distinction in subsection 2(e) of the Trademark Act between geographically "descriptive" and "misdescriptive" marks and amends subsections 2(f) and 2(a) of the Act to preclude registration of "primarily geographically deceptively misdescriptive" marks on the principal and supplemental registers, respectively. The law as it relates to "primarily geographically descriptive" marks would remain unchanged.

The amended Lanham Act gives geographically deceptively misdescriptive marks the same treatment as geographically deceptive marks under § 1052(a). Because both of these categories are subject to permanent denial of registration, the PTO may not simply rely on lack of distinctiveness to deny registration, but must make the more difficult showing of public deception. In other words, by placing geographically deceptively misdescriptive marks under subsection (e)(3) in the same fatal circumstances as deceptive marks under subsection (a), the NAFTA Act also elevated the standards for identifying those deceptive marks.

Before NAFTA, the PTO identified and denied registration to a primarily geographically deceptively misdescriptive mark with a showing that (1) the primary significance of the mark was a generally known geographic location, and (2) "the public was likely to believe the mark identified the place from which the goods originate and that the goods did not come from there." The second prong of the test represents the "goods-place association" between the mark and the goods at issue. This test raised an inference of deception based on the likelihood of a goods-place association that did not reflect the actual origin of the goods. A mere inference, however, is not enough to establish the deceptiveness that brings the harsh consequence of non- registrability under the amended Lanham Act. As noted, NAFTA and the amended Lanham Act place an emphasis on actual misleading of the public.

Therefore, the relatively easy burden of showing a naked goods-place association without proof that the association is material to the consumer's decision is no longer justified, because marks rejected under § 1052(e)(3) can no longer obtain registration through acquired distinctiveness under § 1052(f). To ensure a showing of deceptiveness and misleading before imposing the penalty of non-registrability, the PTO may not deny registration without a showing that the goods-place association made by the consumer is material to the consumer's decision to purchase those goods. This addition of a materiality inquiry equates this test with the elevated standard applied under § 1052(a). . . . This also properly reflects the presence of the deceptiveness criterion often overlooked in the "primarily geographically deceptively misdescriptive" provision of the statute.

The shift in emphasis in the standard to identify primarily geographically deceptively misdescriptive marks under § 1052(e)(3) will bring that section into harmony with § 1052(a). Both sections involve proof of deception with the consequence of non- registrability. The adherence to the pre-NAFTA standard designed to focus on distinctiveness would almost read the term "deceptively" out of § 1052(e)(3), which is the term that the NAFTA amendments to the Lanham Act has reemphasized. Accordingly, under the amended Lanham Act, both subsection (a) and subsection (e)(3) share a similar legal standard.

Since the NAFTA amendments, this court has dealt with two cases involving § 1052(e)(3). Although neither of those cases explores the effect of the NAFTA Act on the test for determining geographically deceptive misdescription, both cases satisfy the new NAFTA standard. "If there is evidence that goods like applicant's or goods related to applicant's are a principal product of the geographical area named by the mark, then the deception will most likely be found material and the mark, therefore, deceptive." "If the place is noted for the particular goods, a mark for such goods which do not originate there is likely to be deceptive under § 2(a) and not registrable under any circumstances."

In Save Venice, this court affirmed the Board's refusal to register applicant's marks "THE VENICE COLLECTION" and "SAVE VENICE, INC." because of the "substantial evidence available showing that Venice, Italy is known for glass, lace, art objects, jewelry, cotton and silk textiles, printing and publishing." Although the court in Save Venice did not expressly address the materiality issue, because it was not officially recognized in this context, the court emphasized that "all of the applicant's goods are associated with traditional Venetian products." The court in Save Venice concluded that the public would mistakenly believe they were purchasing "traditional Venetian products" because the applicant's products were "indistinguishable" from the products traditionally originating in Venice. Thus, the record in Save Venice satisfies the test for deception.

Similarly, in Wada, this court affirmed the Board's refusal to register applicant's mark "NEW YORK WAYS GALLERY" because there was "evidence that showed . . . New York is well-known as a place where leather goods and handbags are designed and manufactured." Again, the court in Wada did not expressly make a finding that the goods-place association would materially influence the consumer. However, this court noted that the public, "upon encountering goods bearing the mark NEW YORK WAYS GALLERY, would believe that the goods" originate in New York, "a world- renown fashion center . . . well-known as a place where goods of this kind are designed, manufactured, or sold." This showing that the place was not only well-known, but renowned for the products at issue supports a finding of materiality.

Thus, due to the NAFTA changes in the Lanham Act, the PTO must deny registration under § 1052(e)(3) if (1) the primary significance of the mark is a generally known geographic location, (2) the consuming public is likely to believe the place identified by the mark indicates the origin of the goods bearing the mark, when in fact the goods do not come from that place, and (3) the misrepresentation was a material factor in the consumer's decision.

As a result of the NAFTA changes to the Lanham Act, geographic deception is specifically dealt with in subsection (e)(3), while deception in general continues to be addressed under subsection (a). Consequently, this court anticipates that the PTO will usually address geographically deceptive marks under subsection (e)(3) of the amended Lanham Act rather than subsection (a). While there are identical legal standards for deception in each section, subsection (e)(3) specifically involves deception involving geographic marks.

. . .

. . . Accordingly, this court vacates the finding of the Board that CA Innovations' mark is primarily geographically deceptively misdescriptive, and remands the case for further proceedings. On remand, the Board shall apply the new three-prong standard.