Century-old hotel’s trademark rights not limited to city in which it was located
By Cheryl Beise, J.D.
A trademark infringement dispute between two hotels over the right to use the mark “Meliá” in Puerto Rico was not amenable to resolution on summary judgment, according to the U.S. Court of Appeals in Boston (Dorpan, S.L. v. Hotel Meliá, Inc., August 28, 2013, Lipez, K.). The federal district court in San Juan erred in its likelihood of confusion analysis favoring a junior user’s federally registered mark over a senior user’s common law rights.
Hotel Meliá, Inc. (“HMI”) has continuously operated the upscale Hotel Meliá in Ponce, Puerto Rico since the 1890. The hotel has attracted many famous guests over the years, including President Theodore Roosevelt. But HMI has never registered its Meliá mark with the USPTO or the Puerto Rican Department of State.
Dorpan S.L. is owned by Sol Melia, S.A., a Spanish hotel conglomerate that operates numerous hotels around the world, including several hotels in North America using the Meliá mark. Dorpan’s principal business is to license the Sol Meliá trademark portfolio. Since the late 1990s, Dorpan has obtained several U.S. trademark registrations incorporating the mark “Meliá” in connection with hotel services.
The parties’ dispute arose in 2007, when another Sol Meliá subsidiary opened a hotel under the name “Gran Meliá” in Coco Beach, Puerto Rico, about eighty miles from HMI’s hotel.
Both parties filed suit; HMI in state court and Dorpan in federal court. The state action was removed and the cases consolidated before the federal district court in San Juan. Following discovery, the district court entered summary judgment in favor of Dorpan, concluding that the parties’ use of the marks could coexist in different local geographic markets without creating a likelihood of consumer confusion. Because HMI operated only in Ponce and had no plans to expand, the court ruled that HMI could continue to use the Meliá mark, but only within the city of Ponce. Dorpan was barred from using from using the Meliá mark in Ponce, but free to use the mark throughout the rest of Puerto Rico and the United States.
The First Circuit reversed the district court’s ruling, finding that a reasonable fact finder could conclude that coexistence of the Hotel Meliá and Gran Meliá marks within Puerto Rico could create a likelihood of confusion among consumers.
Scope of trademark rights. Both parties claimed exclusive rights to use the Meliá mark in Puerto Rico. Dorpan argued that its rights in the Meliá mark were superior because its federal registration for mark had become “incontestable” within the meaning of the Lanham Act. HMI contended that it had a superior claim to the Meliá mark based on prior continuous use under Puerto Rican common law.
Dorpan was correct that incontestability creates a presumption that the holder of the mark is entitled to exclusive use of the mark throughout the United States, the court noted. However, under the facts of this case, Dorpan’s reliance on the incontestability of its marks was misplaced, the court said. HMI was not challenging the validity of Dorpan’s registration. Rather, HMI was claiming that the rights granted to Dorpan under federal law were limited by the rights HMI acquired under Puerto Rico law before Dorpan’s mark became incontestable.
Section 15 of the Lanham Act grants federally registered marks the right to exclusive use of the mark “only insofar as they do not conflict with any pre-existing rights acquired under state law,” the court explained.
Under Puerto Rico common law, a senior unregistered user of a mark is entitled to exclusive use of the mark in the area where “he currently do[es] business.” Therefore, under Puerto Rican common law, HMI was entitled to the exclusive use of the Meliá mark in the area where HMI was currently “doing business” using the Meliá mark, the court said.
An area in which an unregistered trademark is “in use” is defined as the area in which the use of similar mark would create a likelihood of confusion, the court explained. Therefore, the analysis of the scope of HMI’s pre-existing common law trademark rights in this case merged with the likelihood of confusion analysis. As the court explained:
if Dorpan’s use of a similar mark in Coco Beach creates a likelihood of confusion with HMI’s mark, then HMI’s trade area extends at least as far as Coco Beach and Dorpan’s use infringes on that right. Likewise, if Dorpan’s mark does not create a likelihood of confusion with HMI’s, then HMI’s trade area is considerably smaller and Dorpan is entitled to a declaratory judgment of non-infringement.
Likelihood of confusion. The court next proceeded to examine each of the eight Pignons factor used in the First Circuit to determine likelihood of confusion. The district court had concluded, and the appeals court concurred, that a reasonable jury in this case would be compelled to conclude that at least six of the Pignons factors supported HMI’s claim of confusion: (1) the marks were similar; (2) the customers were similar; (3) the services offered were similar; (4) the advertising methods were similar; (5) the channels of trade were similar; and (6) there was at least some evidence of actual confusion. Both courts also found that there was no evidence find that Dorpan had acted in bad faith.
The dispositive factor that tipped the likelihood of confusion analysis to Dorpan’s favor in the mind of the district court was the comparative strengths of the parties’ marks. The district court incorrectly concluded that a reasonable jury would be compelled to infer that HMI’s Meliá mark was only strong within the city of Ponce, while Dorpan had a strong international mark, giving it superior trademark rights in Meliá everywhere else.
The appeals court pointed out several errors in the district court’s analysis. Among other things, the district court: (1) underestimated the probative value of the actual confusion evidence; (2) assigned too little weight to the fact that two upscale hotels were using a nearly identical mark to sell nearly identical services in a relatively small geographic area; (3) took an impermissibly narrow view of confusion, discounting potential injury to HMI’s goodwill and reputation; and (4) incorrectly equated the scope of HMI’s use of its mark with the location of its hotel.
“The relevant inquiry here is the area in which the mark is in use in commerce,” the court said. For hotels, that area is usually a much larger area than the city in which the hotel operates because, unlike many other businesses, hotels seek to attract customers physically distant from the point of service, the court explained. “The reputation of an upscale hotel that has been attracting guests for more than a century is unlikely to be limited only to the city where it is located,” the court added.
In view of the errors in the district court’s analysis, summary judgment of noninfringement in favor of Dorpan was vacated and the case remanded.
The case is No. 12-1679.
Attorneys: Jairo A. MelladoVillarreal (Mellado & Mellado-Villarreal ) for Dorpan, S.L. Federico Calaf Legrand (Reichard & Calaf, P.S.C.) for Hotel Meliá, Inc.
Companies: Dorpan, S.L.; Hotel Meliá, Inc.; Sol Melia, S.A.; Desarrolladora del Norte, S. EN. C. S.E.
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