Opinion ID: 1038552
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Heading Rank: 2

Heading: HMI's Rights Under Puerto Rico Law

Text: HMI has never registered its mark with the Puerto Rico 10 There is some authority suggesting that the extent to which a pre-existing unregistered state law trademark limits rights conferred under the Lanham Act is a question that should be determined by federal common law rather than state law. See, e.g., Natural Footwear Ltd. v. Hart, Schaffner & Marx, 760 F.2d 1383, 1397-1400 (3d Cir. 1985) (determining the rights of an unregistered senior user against registered junior user without reference to state law). We think that this approach cannot be reconciled with the plain language of Section 15 of the Lanham Act, which limits the rights conferred on a federal registrant insofar as the registrant's use interferes with a valid right acquired under the law of any State or Territory. 15 U.S.C. § 1065 (emphasis added). At the same time, the common law of most jurisdictions, including Puerto Rico, seems to be essentially identical to federal common law. Thus, in practice, the choice of law in this context seems to be a distinction without a difference. -13- Department of State. Like most U.S. jurisdictions, however, Puerto Rico law protects both registered and unregistered marks. See P.R. Laws Ann. tit. 10, § 223a (stating that [T]he right to use a mark can be acquired through either use of the mark in commerce or registration); Arribas & Assocs. v. Am. Home Prods. Corp., P.R. Offic. Trans., 2005 WL 2290286 (P.R. 2005) (Our Marks Act [] combines the rights born of use with the rights that arise from the registration. (citation omitted) (internal quotation marks omitted)). The senior unregistered user of a mark in Puerto Rico does not automatically acquire a Commonwealth-wide right to use the mark. Rather, the senior unregistered user is entitled to exclusive use of the mark in the area where he currently do[es] business. Posadas de P.R. Assocs. v. Sands Hotel & Casino, Inc., P.R. Offic. Trans., 1992 WL 754912 (P.R. 1992); see also ColgatePalmolive Co. v. Mistolin de P.R., Inc., 17 P.R. Offic. Trans 376, 391-92 (P.R. 1986) (The territorial extent of trademark rights is coextensive with the territorial extent of its use.). Thus, in this case, HMI is entitled, under Commonwealth law, to the exclusive use of the Meliá mark in the area where HMI does business using the Meliá mark.11 In this context, the geographic 11 Because Dorpan's federal registration of the Meliá mark in the late 1990s puts all would-be users of the mark (or a confusingly similar mark) on constructive notice of the mark, Thrifty Rent-a-Car Sys., Inc. v. Thrift Cars, Inc., 831 F.2d 1177, 1180 (1st Cir. 1987) (citing 15 U.S.C. § 1072), HMI's trade territory is technically frozen at the extent it had reached at the time of Dorpan's registration. Neither party, however, argues that -14- 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. See 5 J. McCarthy, McCarthy on Trademarks & Unfair Competition § 26:27 (4th ed. 2011) (The touchstone of the determination of a trade area is likelihood of confusion.) (internal quotation marks omitted); William Jay Gross, Comment, The Territorial Scope of Trademark Rights, 44 U. Miami L. Rev. 1075, 1078 (1990) (Th[e] inquiry into the territorial scope of trademark rights is primarily a determination of the geographical area in which there exists a likelihood of confusion between the trademarks of the legitimate user and the infringing user. (citation omitted) (quotation marks omitted)). Thus, in this case, the inquiry into the geographic scope of HMI's pre-existing common law trademark rights and the likelihood of confusion analysis are one and the same. In other words, 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. See 5 McCarthy, § 26:27 (A trade area is the area in which people have associated a service mark HMI has changed its trade area since Dorpan registered the Meliá marks, so in this case this principle is irrelevant. -15- with a particular business such that they would likely be confused by someone else's unauthorized use of the mark. (internal quotation marks omitted)). Consequently, both the extent of HMI's rights under Puerto Rico law and Dorpan's rights under federal law turn on the same question: Does Dorpan's use of the Meliá mark in Puerto Rico create an impermissible likelihood of consumer confusion? C. Likelihood of Confusion and the Pignons Factors Likelihood of confusion is a question of fact. In this appeal from a grant of summary judgment, we review de novo whether the record presents a genuine issue of material fact as to likelihood of confusion. See Sports Auth., Inc. v. Prime Hospitality Corp., 89 F.3d 955, 960 (2d Cir. 1996) (noting that in the infringement context summary judgment is appropriate only where no reasonable trier of fact could conclude that confusion is likely). Not all conceivable forms of confusion are relevant to trademark infringement. Confusion is relevant when it exists in the minds of persons in a position to influence the purchasing decision or persons whose confusion presents a significant risk to the sales, goodwill, or reputation of the trademark owner. Beacon Mut. Ins. Co. v. OneBeacon Ins. Grp., 376 F.3d 8, 10 (1st Cir. 2004); see also Lang v. Ret. Living Publ'g Co., 949 F.2d 576, 583 (2d Cir. 1991) (noting that confusion in the relevant sense means confusion that could inflict commercial injury in the form of -16- either a diversion of sales, damage to goodwill, or loss of control over reputation). Trademark confusion is occasionally discussed in terms of two different types of confusion. See DeCosta v. Viacom Int'l, Inc., 981 F.2d 602, 607-08 (1st Cir. 1992). The first, and most common, is ordinary or forward confusion, which occurs, for example, when a weaker junior user attempts to impermissibly bootstrap its product by free-riding on the senior user's goodwill and brand loyalty. In a forward confusion situation, reasonable consumers may mistakenly purchase the junior user's product believing they have purchased the senior user's. See id. at 607-08; see also Attrezzi, 436 F.3d at 38 (noting that ordinary or forward confusion occurs where the claimant asserts that the infringer is diverting the claimant's customers and free-riding on the claimant's reputation and goodwill). The second is reverse confusion, which occurs, for example, when a senior unregistered user is overwhelmed by a more commercially powerful junior user, causing the senior user to lose control over its brand and its goodwill. Id. at 38-39. In a reverse confusion scenario, a reasonable consumer might assume that the junior user and the senior user's product shared the same source, thereby imputing any negative experiences with the junior user's product or services to the senior user. See DeCosta, 981 F.2d at 608; see also Visible Sys. Corp. v. Unisys Corp., 551 F.3d 65, 74 (1st Cir. 2008) (In a reverse confusion case, the focus is -17- on the relative strengths of the marks so as to gauge the ability of the junior user's mark to overcome the senior user's mark.).12 In determining whether likelihood of confusion exists in a particular case, we consider the eight factors laid out in Pignons S.A. de Mecanique de Precision v. Polaroid Corp., 657 F.2d 482, 487 (1st Cir. 1981) (Pignons factors): (1) the similarity of the marks; (2) the similarity of the goods (or, in a service mark case, the services); (3) the relationship between the parties' channels of trade; (4) the juxtaposition of their advertising; (5) the classes of prospective purchasers; (6) the evidence of actual confusion; (7) the defendant's intent in adopting its allegedly infringing mark; and (8) the strength of the plaintiff's mark. Int'l Ass'n of Machinists & Aerospace Workers, AFL-CIO v. Winship Green Nursing Ctr., 103 F.3d 196, 201 (1st Cir. 1996).13 12 In its brief before us on appeal, Dorpan argues that HMI has waived any reverse confusion argument it might have. This argument is misguided. Reverse confusion is not a separate legal claim requiring separate pleading. Rather, it is a descriptive term referring to certain circumstances that can give rise to a likelihood of confusion in a trademark infringement suit. HMI has argued from the beginning that it is the senior unregistered user and that Dorpan's more powerful international brand has caused consumers to believe mistakenly that the two marks are related, thus causing HMI to lose control over its goodwill and reputation. Whether or not HMI called this a reverse confusion theory before the district court is irrelevant. 13 As discussed supra, we consider the likelihood of confusion here in order to define the scope of HMI's unregistered trademark rights under Puerto Rico law. Thus, Puerto Rico law, not federal common law, technically governs our likelihood of confusion analysis. However, because Puerto Rico law uses the same standard for likelihood of confusion as that developed under federal common law, we use the case law developed under both bodies of law interchangeably. Compare Pignons S.A. de Mecanique de Precision v. Polaroid Corp., 657 F.2d 482, 487 (1st Cir. 1981), with Posadas de -18- We review the evidence pertinent to the Pignons factors de novo, considering the evidence offered to support each factor individually before considering whether, taking the factors together, no reasonable factfinder could conclude that Dorpan's use of the Meliá mark in Coco Beach creates a likelihood of confusion. See Astra Pharm. Prods., Inc. v. Beckman Instruments, Inc., 718 F.2d 1201, 1205 (1st Cir. 1983) (No one factor is necessarily determinative, but each must be considered.). Given this de novo standard of review, we do our own assessment of the summary judgment record before turning to the district court's assessment of that record. Because the likelihood of confusion analysis is a particularly fact-intensive one, resolving this issue on summary judgment is disfavored. See Bos. Athletic Ass'n v. Sullivan, 867 F.2d 22, 24 (1st Cir. 1989) (noting that 'infringement and unfair competition cases often present factual issues that render summary judgment P.R. Assocs. Inc. v. Sands Hotel & Casino, Inc., P.R. Offic. Trans., 1992 WL 754912 (P.R. 1992): [T]here is no specific rule for determining the existence of a likelihood of confusion between two products or services. This is a relative concept, determined according to the circumstances of each particular case, based upon the balancing of caselaw factors or tests, some of which are: the similarity of the two marks; similarity of the goods or services; strength or distinctiveness of the mark; the intent of the junior user in adopting the service mark; and evidence of actual confusion. -19- inappropriate' (quoting Kazmaier v. Wooten, 761 F.2d 46, 48-49 (1st Cir. 1985)); see also Rearden LLC v. Rearden Commerce, Inc., 683 F.3d 1190, 1219 (9th Cir. 2012) ([D]istrict courts should grant summary judgment motions regarding the likelihood of confusion sparingly, as careful assessment of the pertinent factors that go into determining likelihood of confusion usually requires a full record. (citation omitted) (internal quotation marks omitted)); AHP Subsidiary Holding Co. v. Stuart Hale Co., 1 F.3d 611, 616 (7th Cir. 1993) ([A] motion for summary judgment in trademark infringement cases must be approached with great caution.); Country Floors, Inc. v. P'ship Composed of Gepner & Ford, 930 F.2d 1056, 1063 (3d Cir. 1991) (noting that in the likelihood of confusion context summary judgments are the exception). The Pignons factors are meant to be a guide, not a mechanistic formula. See Winship Green, 103 F.3d at 201. 1. Similarity of the Marks The marks Hotel Meliá and Gran Meliá are essentially identical for trademark purposes because both marks have the word Meliá as their most salient word. See Bos. Duck Tours, LP v. Super Duck Tours, LLC, 531 F.3d 1, 34 (1st Cir. 2008) (DiClerico, J., concurring) ([I]f the most dominant feature of both marks is the same or similar, then that similarity may cause confusion.); Beacon Mut., 376 F.3d at 18 (concluding that a reasonable factfinder could conclude that the mark Beacon Mutual Insurance -20- Company was substantially similar to OneBeacon Insurance Group because they shared Beacon as their most salient word). No reasonable factfinder could conclude otherwise. 2. Similarity of Services and Customers Undisputed evidence indicates that Hotel Meliá and Gran Meliá are large, full-service hotels operating in Puerto Rico. Dorpan attempts to distinguish the services offered by Gran Meliá from those offered by Hotel Meliá by emphasizing that Gran Meliá is a beach resort while Hotel Meliá is a historic, urban hotel. The evidence Dorpan offers to support this argument –- for example, that Hotel Meliá's pool is smaller than Gran Meliá's –- is weak. Each hotel may offer some auxiliary services and amenities not offered by the other, but there is substantial overlap in the core services offered by each hotel. Thus, a reasonable factfinder would be compelled to infer from the undisputed facts that the hotels offer substantially similar services to substantially similar customers –- overnight, upscale lodgings to tourists and short-term visitors to Puerto Rico. 3. Similarity of Advertising and Channels of Trade The two hotels advertise and solicit customers in substantially similar manners. Both parties attend trade shows, develop relationships with travel agents, advertise directly to consumers, and accept reservations through Internet booking sites like Orbitz. Because Dorpan has not directed us to any facts in -21- the record suggesting the contrary, we conclude that a reasonable factfinder would be compelled to conclude that the hotels use similar advertising methods and conduct business through similar channels of trade. 4. Actual Confusion HMI argues that Dorpan's use of the Gran Meliá mark in Puerto Rico has led to actual confusion. In support of this argument, HMI points to several pieces of evidence in the record.14 First, HMI's manager Raúl Albors Meliá testified in his deposition that a wholesaler at a trade show had noticed that he represented Hotel Meliá and approached him to discuss the beach at Gran Meliá.15 14 Dorpan makes hearsay objections to much of the evidence HMI cites in support of its argument. Dorpan failed to make these objections before the district court, however. They are thus waived. See United States v. DeSimone, 488 F.3d 561, 580 n.11 (1st Cir. 2007) (noting that failing to raise a hearsay objection before the district court constitutes waiver). Moreover, much (if not all) of the objected-to evidence was not admitted for the truth of the matter asserted, and accordingly is not hearsay. See Fed. R. Evid. 801(c). 15 There is a dispute between the parties as to whether this portion of Albors Meliá's testimony was properly part of the record before the district court. At this remove, the precise travel of this evidence is difficult to discern. This particular portion of Albors Meliá's deposition was originally submitted as an attachment to HMI's Supplemental Motion in Opposition to Gran Meliá's Motion for Summary Judgment, which the original district court judge struck from the record without explanation. After the case was transferred to a new district judge, that judge directed the parties to submit in hard copy their respective dispositive motions to him. HMI claims that it submitted the deposition evidence and it was accepted. Indeed, from the district court's discussion of the evidence in its opinion, it appears that the district court deemed the evidence properly submitted. Specifically, the district court noted that HMI put forth some -22- Second, Albors Meliá testified that guests had occasionally thought that Hotel Meliá was associated with Gran Meliá. Third, Albors Meliá testified that Domino's Pizza mistakenly attempted to deliver a pizza to HMI that was intended for Gran Meliá. Fourth, HMI introduced a notice of claim letter from the Fajardo office of the Puerto Rico Department of Labor notifying HMI that a laid-off employee had sought benefits, and HMI's subsequent reply stating that the employee had never been employed at Hotel Meliá. HMI suggests that because the letter came from the Fajardo office, which is close to Gran Meliá, rather than the Ponce office, it was probably intended for Gran Meliá. Though HMI's evidence supporting an inference of actual confusion is not overwhelming, evidence of actual confusion in this context does not need to be overwhelming to give rise to a reasonable inference of confusion. Indeed, even a few incidents of actual confusion are highly probative of the likelihood of confusion. Kos Pharms., Inc. v. Andrx Corp., 369 F.3d 700, 720 (3d Cir. 2004) (citation omitted) (internal quotation marks omitted); see also Sports Auth., 89 F.3d at 964 (concluding that on evidence of confusion by vendors. Other than this portion of Albors Meliá's testimony, there seems to be no evidence in the record of confusion by vendors. In any event, Dorpan did not object to the re-submission below. Any objection it may have had is waived. See DiMarco-Zappa v. Cabanillas, 238 F.3d 25, 34 (1st Cir. 2001) (This Court has repeatedly warned litigants that 'arguments not made initially to the district court cannot be raised on appeal.' (citation omitted)). -23- the actual confusion prong evidence of misdirected phone calls between [plaintiff's] stores and [defendant's] restaurants, and especially the evidence that customers have believed there to be a connection between the restaurants and stores, is sufficient to create a genuine issue of fact on this factor). As such, we think a reasonable jury could conclude that HMI has demonstrated at least some level of actual confusion. 5. Dorpan's Intent There is no evidence from which a reasonable factfinder could infer that Dorpan decided to use the mark Meliá in order to cause market confusion or with an intent to exploit Hotel Meliá's reputation and goodwill. 6. Strength of the Marks In evaluating the strength of a mark, we consider its tendency to identify the goods sold under the mark as emanating from a particular [] source. Eli Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456, 464 (7th Cir. 2000) (citation omitted) (internal quotation marks omitted). [W]e typically evaluate a mark's strength primarily on the basis of its commercial strength, analyzing such factors as 'the length of time a mark has been used and the relative renown in its field; the strength of the mark in plaintiff's field of business; and the plaintiff's action in promoting the mark.' Bos. Duck Tours, 531 F.3d at 16 n.14 (quoting Equine Techs., Inc. v. Equitechnology, Inc., 68 F.3d 542, -24- 547 (1st Cir. 1995)). Here, the parties have developed relatively little evidence from which a factfinder could draw inferences about the relative strength of the marks and their tendency to create confusion. It is undisputed that HMI has operated Hotel Meliá in the center of the second largest city in Puerto Rico for more than one hundred years. Indeed, the Hotel Meliá name was sufficiently well-known even a century ago to attract famous guests like President Roosevelt. Likewise, neither party disputes that Dorpan and the Sol Meliá family of hotels has significant international brand recognition and far greater financial resources than HMI. In our view, there are genuine issues of material fact on the respective strength of the competing marks. That is, evidence in the record suggests that both marks have certain strengths, and the relevant question at trial will be whether their relative strengths contribute to consumer confusion. For example, a reasonable jury could conclude that Dorpan will be able to use its greater financial strength to flood the market with advertising, thereby causing HMI to lose control over its brand and reputation. At the same time, a reasonable jury could conclude that Hotel Meliá was so strongly associated with historic downtown Ponce that consumers were unlikely to associate it with a hotel in Coco Beach. 7. Balancing the Factors With one exception, the district court's conclusions about the -25- individual Pignons factors were identical to our own. Like us, the district court concluded that a reasonable jury would be compelled to conclude that at least six Pignons factors supported HMI's claims 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. The district court also concluded that there was no evidence from which a reasonable jury could find that Dorpan had acted in bad faith. The only factor on which the district court reached a different conclusion than we do is the strength of the marks. The district court concluded that a reasonable jury would be compelled to infer that HMI's mark was only strong within Ponce, while Dorpan had a strong international mark. The court then offered this dispositive balancing analysis: With the factors split, the court finds these two marks can co-exist within Puerto Rico without causing substantial confusion to the reasonable consumer. However, the court must define the limits within which each mark may be used. HMI's use was frozen at the time [Dorpan] acquired the trademark on December 30, 1997. On this date, HMI's use of the Meliá mark is frozen. As of this date, HMI operated one hotel in Ponce, Puerto Rico. HMI had no plans to expand its business at that time and had been operating in that location for the previous eighty to one hundred years. These facts demonstrate HMI was in continuous operation within Ponce, long before the registration of Gran Meliá by Dorpan. Therefore, the court finds HMI may continue to use the Meliá name within Ponce, Puerto Rico, but must refrain from using the Meliá name in any future business ventures outside of Ponce. Conversely, [Dorpan] is barred from extending its services into Ponce, but may use its trademarks -26- throughout the rest of the island and the U.S. Dorpan, S.L., 851 F. Supp. 2d at 411 (citations omitted). There are a number of errors in the district court's analysis. First, the district court gave too little weight to evidence of actual confusion. In the past, we have noted that once the party alleging infringement has put forward evidence of actual confusion, the alleged infringer is left fighting an uphill battle in arguing that no reasonable factfinder could find a substantial likelihood of confusion. Evidence of actual confusion is often considered the most persuasive evidence of likelihood of confusion because past confusion is frequently a strong indicator of future confusion. Beacon Mut., 376 F.3d at 18; see also Country Floors, 930 F.2d at 1064 (noting that actual confusion usually implies a likelihood of confusion). Second, even without evidence of actual confusion, evidence of the substantial similarity between the marks, services, customers, and advertising might be sufficient in itself to create at least a reasonable inference of a substantial likelihood of confusion between the two hotels. Many courts have found that a triable issue of confusion exists where two companies use marks that are somewhat similar but not identical. See, e.g., AHP Subsidiary Holding Co., 1 F.3d at 617 (finding confusion was triable issue in dispute between two cooking sprays, one called PAM and one called Pan-Lite). Others have found that a likelihood of confusion -27- exists when companies use identical marks in different industries. See, e.g., Sports Auth., 89 F.3d at 962 (finding likelihood of confusion was a triable issue in dispute between a sporting goods store and a restaurant that both used the mark Sports Authority). The situation in this case involves an even greater likelihood of confusion. Two hotels are using a nearly identical mark to sell nearly identical services in a relatively small geographic area. Third, the district court gave far too much weight to its conclusion that Dorpan had not acted in bad faith. We have noted that the lack of intent on the alleged infringer's part to create confusion is not particularly useful in the ultimate determination of likelihood of confusion and may not outweigh other factors that suggest a likelihood of confusion. I.P. Lund Trading ApS, 163 F.3d at 44 (noting that little weight should be given to a finding that the alleged infringer had not acted with bad faith); see also Star Fin. Servs., Inc. v. AASTAR Mortg. Corp., 89 F.3d 5, 11 (1st Cir. 1996) (noting that [e]vidence of bad intent . . . [is] potentially probative of likelihood of confusion . . . [but] 'a finding of good faith is no answer if likelihood of confusion is otherwise established' (quoting President & Trs. of Colby Coll. v. Colby Coll.-N.H., 508 F.2d 804, 811-12 (1st Cir. 1975))). Fourth, the district court's emphasis on the physical locale of the marks is largely beside the point. While the district court is correct that HMI's use of the Meliá mark is frozen at its 1997 -28- extent, see supra note 11, the district court was incorrect to equate the use of the mark with the location of the hotel. The relevant inquiry here is the area in which the mark is in use in commerce. For hotels, that area is usually a much larger area than the city in which the hotel operates. Unlike many companies, such as retail outlets and professional services, that rely on service marks and have a local customer base, hotels seek to attract customers physically distant from the point of service. See 5 McCarthy, § 26:30 (The trade area for services such as hotels, motels, and restaurants may be very large since purchasers are ambulatory and on the move. They may carry the reputation of the mark thousands of miles away from the actual outlet.). Customers of upscale hotels typically do not live in the area where the hotel is located. 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. Finally, the district court took an impermissibly narrow view of confusion when considering the evidence offered about mark strength. Indeed, in holding that HMI must refrain from using the Meliá name in any future business ventures outside of Ponce while Dorpan is barred from extending its services into Ponce, the district court appears to have inappropriately equated confusion with diversion of sales, overlooking the fact that trademark law also seeks to protect mark holders from commercial injury involving -29- damage to the holder's goodwill and control over its reputation. Beacon Mut., 376 F.3d at 10. In other words, the issue here is not simply whether the likelihood of confusion might lead customers to book a room in one hotel when intending to book a room at the other. It is also relevant that a reasonable consumer's mistaken beliefs about the relationship between the two hotels could cause an injury to HMI's goodwill and reputation. For example, a reasonable factfinder could conclude that HMI has a valid concern that customers traveling to Puerto Rico who have had a bad experience at Gran Meliá, might impute that bad experience to Hotel Meliá when booking a subsequent trip or influencing others traveling to Puerto Rico. See I.P. Lund Trading ApS, 163 F.3d at 35 (noting that trademark protection protects that which identifies a product's source). Given these errors in the district court's analysis of the likelihood of confusion, we must vacate its summary judgment ruling and remand for further proceedings. On this record, there are genuine issues of material fact on the likelihood of confusion. Though we conclude that there is sufficient evidence to create such issues of fact, we note that the record in this case is sparse, particularly given the fact-intensive nature of the inquiry. The evidence is especially sparse on the question of how the two hotels market their services and how the respective strength of their marks in the competitive hotel marketplace -30- affects the perception of potential consumers about the hotels and their decision to use their services. On remand, whether discovery should be reopened as the parties prepare for trial is a question we leave to the discretion of the district court.