New Trademark Law Amendment Helps Franchise Businesses

March 31, 2021Articles The Legal Intelligencer

Congress amended the Trademark Act of 1946 (the Lanham Act) by passing the Trademark Modernization Act of 2020 (TMA) on Dec. 27, 2020. The TMA makes several changes to federal trademark law, but for franchise businesses, the one big change is with respect to trademark enforcement and the presumption of irreparable harm.

History of the Lanham Act and Its Amendments

Congress created the Lanham Act as a statutory scheme defining federal trademark protection and trademark registration rules. The two requirements for a trademark to be protected under the Lanham Act are that the mark must be in “use in commerce” and it must be distinctive. Under the Lanham Act, trademarks may be registered under the principal register, which confers significant benefits to the holder of the mark, or the supplemental register, which affords limited protection to the holder of the mark including the ability to sue for trademark infringement. The Lanham Act codifies grounds for cancellation of a trademark by a third party, remedies for infringement of trademarks, and abandonment of a trademark. Amendments to the Lanham Act have increased protections to trademark holders by providing criminal penalties for counterfeiting trademarks, adding enforcement remedies, and the award of potential treble damages.

Trademark Dilution Act of 1995 and Trademark Dilution Revisionist Act of 2006

Congress enacted the Federal Trademark Dilution Act of 1995 (FTDA), which amended the act to protect owners of a “famous mark” from dilution caused by competition and the likelihood of confusion. Holders of a “famous mark” are entitled to an injunction against another person’s use of the trademark if such use “begins after the mark has become famous and causes dilution of the distinctive quality of the mark.” A famous mark is defined by the act as one widely recognized by the general public as a designation of the source of goods or services of the mark’s owner, and its fame is considered under a non-exclusive, four factor test. In 2006, Congress enacted the Trademark Dilution Revisionist Act of 2006 to specifically overturn the U.S. Supreme Court’s decision in Moseley v. Victoria’s Secret, and the amendment contains six factors that a court should consider when confronted with a trademark dilution case.

Anticybersquatting Consumer Protection Act

Following the FTDA, Congress passed the Anticybersquating Consumer Protection Act in 1999 (ACPA) to specifically address the issue of “cybersquatters,” who register or use domain names that are “confusingly similar to, or dilutive of, a trademark.” Cybersquatters then extort legitimate trademark holders to purchasing their intentionally confusing websites. The ACPA does not require “commercial use of a domain name involving a protected mark,” but there is a nine-factor test to establish bad faith necessary to win a claim.

The Trademark Modernization Act

On Dec. 27, 2020, Congress enacted the Trademark Modernization Act (TMA) to amend the Lanham Act. The TMA was introduced to make “several changes to trademark law, such as by providing new mechanisms for opposing and canceling trademark registrations at the Patent and Trademark Office (PTO) and by making it easier to secure an injunction.

One of the most significant changes to the Lanham Act under the TMA is a rebuttable presumption for plaintiffs of irreparable harm. A trademark holder seeking injunctive relief must demonstrate it will suffer irreparable harm. The TMA creates a uniform rule to be applied nationally with respect to what a plaintiff must show in a Lanham Act case to establish its entitlement to an injunction. Until 2006, irreparable harm was assumed when trademark infringement occurred.

The U.S. Supreme Court eliminated this presumption in patent cases in eBay v. MercExchange, and this was soon applied to trademark cases in certain federal circuit courts. The U.S. Courts of Appeal for the Third, Ninth, and Eleventh Circuits have cases holding that no presumption of irreparable harm exists. The First and Second circuits have not answered whether the presumption exists. This circuit split resulted in forum shopping.

The TMA provides that a trademark holder owner seeking an injunction in an infringement case is entitled to a rebuttable presumption of irreparable harm, an essential element of proving entitlement of injunctive relief. The TMA clarifies that the eBay decision, which eliminated the presumption of irreparable harm, does not apply to trademark cases.

For litigators, the TMA still has some open issues. First, is this presumption of irreparable harm applicable today, even though the legislation is not intended to be effective until one year after enactment? Litigators can argue that the TMA represents the public policy of the United States, and the irreparable harm presumption should be recognized now. To do otherwise would allow the court to speculate on the trademark protections Congress intended.

Another issue is whether the irreparable harm presumption shifts the burden of proof to a defendant against which it is asserted. It may only shift the burden of production to the defendant, and then the plaintiff must meet its burden of proof to succeed, which is greater when seeking an injunction than at a trial on the merits. Federal Rule of Evidence 301 suggests that the irreparable harm presumption merely shifts the burden of production, however, the cases before eBay suggest otherwise.

As always with trademark issues, we need well informed courts and counsel to navigate the best course.

Reprinted with permission from the March 31 issue of The Legal Intelligencer. (c) 2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.