Court Opinion

ID: 3040444
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:02:58.848123+00
Date Added: 2024-06-11T07:37:59.799587
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CREAGRI, INC., a California            
corporation,
 Plaintiff-counter-claim- defendant-
                                             No. 05-15305
                          Appellant,
                  v.                          D.C. No.
                                           CV-03-3216-MMC
USANA HEALTH SCIENCES, INC., a
                                              OPINION
Utah corporation,
       Defendant-counter-claimant-
                           Appellee.
                                       
       Appeal from the United States District Court
          for the Northern District of California
       Maxine M. Chesney, District Judge, Presiding

                 Argued and Submitted
       December 6, 2006—San Francisco, California

                   Filed January 16, 2007

    Before: John T. Noonan, Michael Daly Hawkins, and
             Sidney R. Thomas, Circuit Judges.

                 Opinion by Judge Hawkins

                             557
560         CREAGRI, INC. v. USANA HEALTH SCIENCES

                             COUNSEL

Robin M. Pearson (argued) and Antonio Valla, Gilliss,Valla
& Dalsin, Lafayette, California, together with Katheryn C.
Ashton, Hancock, Rothert & Bunshoft, San Francisco, Cali-
fornia, for the plaintiff-counter-claim-defendant-appellant.

James W. Kinnear (argued), Holme, Roberts & Owen, San
Francisco, California, for the defendant-counter-claimant-
appellee.

                              OPINION

HAWKINS, Circuit Judge:

   In a contest involving competing products claiming trade-
mark priority, the district court determined, in order to acquire
priority, a “use in commerce” means a lawful use—here, a use
compliant with federal labeling requirements. We agree.

                         BACKGROUND

   In the spring of 2001, Appellant CreAgri, Inc. (“CreAgri”)
began selling Olivenol, a dietary supplement containing an
apparently beneficial antioxidant found in olives called
hydroxytyrosol. At the time, Olivenol’s label indicated that
each tablet contained 25mg of hydroxytyrosol, the product’s
primary active ingredient.1 Although the scientist who devel-

  1
    Olivenol is now sold not only in tablet form, but also in capsule and
liquid forms. As there is no relevant difference between the three dosage
methods for purposes of this appeal, we will use “tablet” to refer to all
three forms.
            CREAGRI, INC. v. USANA HEALTH SCIENCES                  561
oped Olivenol claimed no standardized method to accurately
measure a substance’s hydroxytyrosol content was yet avail-
able, neither he nor CreAgri applied for an exemption from
the Food, Drug, and Cosmetic Act’s (“FDCA”) labeling
requirements due to this technological limitation,2 apparently
content with the results of CreAgri’s own testing and the test-
ing done by two outside companies selected and paid for by
CreAgri.

   One year later, however, Olivenol’s label had changed. It
had been brought to CreAgri’s attention that its 25mg
hydroxytyrosol measurement might be in error; thus, CreAgri
ordered further testing, which suggested that each Olivenol
tablet contained only 5mg of hydroxytyrosol. CreAgri
changed the Olivenol label accordingly but—despite its con-
tention that a standardized measurement method was still
unavailable—again failed to apply for an exemption from the
FDCA’s labeling requirements and, in fact, claimed on Oli-
venol’s label that the 5mg measurement was “HPLC Certified.”3

   CreAgri now admits that each tablet contains at most 3mg
of hydroxytyrosol and that Olivenol was, therefore, inaccu-
rately labeled in both instances. Indeed, as a result of this
lawsuit—which prompted CreAgri to test Olivenol again,
using what Olivenol’s developer admits to be a more accurate
testing method than the methods previously used—Olivenol’s
label was again changed in February 2004 to accurately
reflect the product’s contents.4 By this time, CreAgri’s appli-
  2
    Dietary supplements like Olivenol are required to be sold in compli-
ance with the labeling regulations detailed in 21 C.F.R. §§ 101.9 and
101.36; however, one may apply for an exemption from these regulations
—which the Food and Drug Administration (“FDA”), in its discretion,
may grant or deny—when it believes compliance would be impracticable
under the circumstances. 21 C.F.R. § 101.36(f)(2).
  3
    HPLC or High Performance Liquid Chromatography is a standard
method of testing the characteristics of food supplements and additives.
  4
    This new label makes no claim about the product’s hydroxytyrosol
content, but instead claims that each Olivenol tablet contains 5mg of
polyphenols, of which hydroxytyrosol is just one variety. USANA does
not dispute the accuracy of this label.
562          CREAGRI, INC. v. USANA HEALTH SCIENCES
cation to register “Olivenol” on the principal register had been
denied,5 but—upon CreAgri’s October 9, 2002 amended
application—“Olivenol” had been listed on the supplemental
register.6

   On June 18, 2002—more than a year after CreAgri began
selling Olivenol—Appellee USANA Health Sciences, Inc.
(“USANA”) filed an intent to use application with the Patent
and Trademark Office (“PTO”) asserting that it intended to
begin selling a series of vitamins, minerals, and nutritional
supplements containing an ingredient called Olivol, which—
like Olivenol—is an olive extract containing apparently bene-
ficial polyphenols. USANA began selling these products in
August 2002, the PTO granted USANA’s application, and
“Olivol” is now listed on the principal register with a priority
date of June 18, 2002.7 The present suit arises because,
  5
     The principal register is the primary register of trademarks in the
United States. Marks on the principal register receive a variety of evidenti-
ary benefits, including presumptions of validity and ownership, as well as
a presumption that the registrant has the “exclusive right to use the regis-
tered mark in commerce.” 15 U.S.C. § 1057(b). CreAgri’s principal regis-
ter application was denied based on its representation to the Patent and
Trademark Office that the word “Olivenol” translated to the German for
“olive oil,” making Olivenol—which contained no olive oil—deceptively
misdescriptive. See id. § 1052(e) (prohibiting registration of deceptively
misdescriptive marks). Although CreAgri now rescinds its prior represen-
tation, the fact remains that Olivenol does not appear on the principal reg-
ister and is therefore ineligible for its evidentiary benefits. Id. § 1057(b).
   6
     “All marks capable of distinguishing applicant’s goods or services and
not registrable on the principal register” can be registered on the supple-
mental register. 15 U.S.C. § 1091(a). However, “registrations on the sup-
plemental register shall not . . . receive [some of] the advantages”
extended to marks registered on the principal register. Id. § 1094. In par-
ticular, unlike principal registration, supplemental registration is not
“prima facie evidence of the validity of the registered mark . . . , of the
registrant’s ownership of the mark, [or] of the registrant’s exclusive right
to use the registered mark in commerce.” Id. § 1057(b).
   7
     Under 15 U.S.C. §§ 1051(b), 1051(d), and 1057(c), as long as an appli-
cant’s mark is eventually granted registration on the principal register, and
as long as the applicant does, in fact, use the mark in commerce within a
set period of time thereafter, the filing of an intent to use application con-
stitutes “constructive use of the mark, conferring a right of priority,
nationwide in effect.”
          CREAGRI, INC. v. USANA HEALTH SCIENCES         563
according to CreAgri, the name of USANA’s Olivol ingredi-
ent is confusingly similar to the name of its own Olivenol
product and, therefore—despite the June 18, 2002 priority
date attached to Olivol’s principal registration—USANA is
infringing upon the trademark rights CreAgri acquired when
it began selling Olivenol more than a year earlier.

               PROCEDURAL HISTORY

   Shortly after USANA began distribution of its product,
CreAgri brought an action for trademark infringement, unfair
competition, unjust enrichment, and a number of related
claims. USANA counterclaimed requesting declaratory relief
as to all of CreAgri’s claims, as well as cancellation of the
Olivenol mark from the supplemental register.

   Following briefing, the district court granted USANA’s
motion for summary judgment. The court concluded that,
even viewing the evidence in the light most favorable to
CreAgri, the Olivenol mark had not been lawfully used in
commerce prior to USANA’s priority date—a prerequisite to
all of CreAgri’s claims against USANA. Accordingly, the dis-
trict court dismissed CreAgri’s claims, entered declaratory
judgment in favor of USANA on its counterclaims, and
ordered “Olivenol” cancelled from the supplemental register.
CreAgri appeals this final judgment.

                       DISCUSSION

   “We review the district court’s grant of summary judgment
de novo.” Klamath Siskiyou Wildlands Ctr. v. Boody, 468
F.3d 549, 554 (9th Cir. 2006). For CreAgri to ultimately pre-
vail on its trademark infringement claims, it must have
acquired trademark rights to “Olivenol” before USANA had
acquired trademark rights to “Olivol.” See Sengoku Works
Ltd. v. RMC Int’l, Ltd., 96 F.3d 1217, 1219 (9th Cir. 1996)
(“It is axiomatic in trademark law that the standard test of
564          CREAGRI, INC. v. USANA HEALTH SCIENCES
ownership is priority of use.”).8 Because “Olivol” was regis-
tered on the principal register with a priority date of June 18,
2002—and CreAgri does not challenge the lawfulness of that
registration—the question becomes whether CreAgri had
acquired trademark rights to “Olivenol” prior to that date. See
15 U.S.C. § 1057(b) (“[R]egistration of a mark upon the prin-
cipal register . . . shall be prima facie evidence of . . . the reg-
istrant’s ownership of the mark, and of the registrant’s
exclusive right to use the registered mark in commerce.”).

   If “use in commerce” were the only requirement for acquir-
ing trademark rights,9 then CreAgri would have an easier path
to establishing priority of its mark because it began selling
Olivenol more than one year before USANA’s intent to use
application was filed. See 15 U.S.C. §§ 1051(a)(1), 1127
(requiring “use in commerce” to establish trademark rights);
Cal. Bus. & Prof. Code §§ 14207, 14209 (mirroring federal
law).

   [1] But the inquiry does not stop with use in commerce. It
has long been the policy of the PTO’s Trademark Trial and
Appeal Board that use in commerce only creates trademark
rights when the use is lawful. See, e.g., In re Midwest Tennis
& Track Co., 29 U.S.P.Q.2d 1386, 1386 n.2 (T.T.A.B. 1993);
Clorox Co. v. Armour-Dial, Inc., 214 U.S.P.Q. 850, 851
(T.T.A.B. 1982); In re Pepcom Indus., Inc., 192 U.S.P.Q. 400,
401 (T.T.A.B. 1976); In re Stellar Int’l, Inc., 159 U.S.P.Q. 48,
51 (T.T.A.B. 1968). At least one circuit has adopted and
applied this rule. See United Phosphorus, Ltd. v. Midland
Fumigant, Inc., 205 F.3d 1219, 1225 (10th Cir. 2000). A
question of first impression in this circuit, we also agree with
  8
     As the district court correctly noted, the success of CreAgri’s other
claims rises or falls with its success on its trademark infringement claims.
   9
     We assume, for discussion purposes, that CreAgri’s mark is eligible for
trademark protection—i.e., that it is inherently distinctive or has acquired
distinctiveness through secondary meaning. See KP Permanent Make-Up,
Inc. v. Lasting Impression I, Inc., 408 F.3d 596, 602 (9th Cir. 2005).
             CREAGRI, INC. v. USANA HEALTH SCIENCES                      565
the PTO’s policy and hold that only lawful use in commerce
can give rise to trademark priority.

   [2] The rationale for this rule is twofold. First, as a logical
matter, to hold otherwise would be to put the government in
the “anomalous position” of extending the benefits of trade-
mark protection to a seller based upon actions the seller took
in violation of that government’s own laws. See In re Stellar,
159 U.S.P.Q. at 51. It is doubtful that the trademark statute—
passed pursuant to Congress’s power under the Commerce
Clause—“was . . . intended to recognize . . . shipments in
commerce in contravention of other regulatory acts promul-
gated [by Congress] under [that same constitutional provi-
sion].” Id. Second, as a policy matter, to give trademark
priority to a seller who rushes to market without taking care
to carefully comply with the relevant regulations would be to
reward the hasty at the expense of the diligent.

   [3] Here, it is undisputed that, at all times prior to
USANA’s priority date, Olivenol’s labels were not in compli-
ance with the labeling requirements of 21 C.F.R.
§ 101.9(g)(4)(i) and, thus, Olivenol was being sold in viola-
tion of 21 U.S.C. §§ 331(a), 343(a) (prohibiting sale of mis-
branded food as determined by reference to the relevant
regulations). By CreAgri’s own admission, each tablet sold
under the Olivenol name before June 18, 2002 contained, at
most, 3mg of hydroxytyrosol, while Olivenol’s label claimed
that each tablet contained either 25mg or 5mg of this nutrient.
21 C.F.R. § 101.9(g)(4)(i), however, requires that the actual
amount of a nutrient added to a product be “at least equal to
the value for that nutrient declared on the label.”10 Because
   10
      This is the standard for a Class I vitamin, which we agree with the dis-
trict court is the correct categorization for hydroxytyrosol. Although
hydroxytyrosol may naturally be found in olives, it is not naturally found
in Olivenol, but rather is added to Olivenol, which is manufactured pursu-
ant to a patented method. Compare 21 C.F.R. § 101.9(g)(3)(i) (Class I
vitamins are “[a]dded nutrients in fortified or fabricated foods”), with id.
§ 101.9(g)(3)(ii) (Class II vitamins are “[n]aturally occurring (indigenous)
nutrients”).
566         CREAGRI, INC. v. USANA HEALTH SCIENCES
the actual amount of hydroxytyrosol (at most 3mg) was less
than the values for hydroxytyrosol declared on Olivenol’s
labels (25mg and 5mg), CreAgri’s product was, at all relevant
times, in violation of 21 C.F.R. § 101.9(g)(4)(i).11

   CreAgri seeks to avoid the consequences of its non-
compliance in three ways: first, by arguing that the nexus
between its labeling violation and its use of the Olivenol mark
is too attenuated to justify depriving “Olivenol” of trademark
protection; second, by contending that it was technologically
infeasible to accurately measure the content of hydroxytyrosol
when Olivenol was mislabeled and that, because the regula-
tions provide for an exemption in such circumstances, sale of
Olivenol was not actually unlawful; and third, by asserting
that its violation was not material, citing General Mills, Inc.
v. Health Valley Foods, 24 U.S.P.Q.2d 1270, 1274 (T.T.A.B.
1992). We are not persuaded by these arguments.

                                Nexus

   The nexus requirement springs from decisions of the Trade-
mark Trial and Appeal Board: “There must be some nexus
between . . . use of [a] mark and [an] alleged violation before
it can be said that the unlawfulness of [a] sale or shipment has
resulted in [a trademark’s] invalidity . . . .” Satinine Societa
in Nome Collettivo v. P.A.B. Produits, 209 U.S.P.Q. 958, 967
(T.T.A.B. 1981) (Kera, concurring); General Mills, 24
U.S.P.Q.2d at 1274 (adopting this rule). CreAgri argues that
its labeling violation was collateral to its use of the Olivenol
  11
    Even if Olivenol were more leniently categorized as a Class II vita-
min, “the [hydroxytyrosol] content of [Olivenol would have to be] at least
equal to 80 percent of the value for [hydroxytyrosol] declared on the
label” to comply with the FDCA regulations. See 21 C.F.R.
§ 101.9(g)(4)(ii). Olivenol’s actual hydroxytyrosol content (at most 3mg)
is only 60 percent of the hydroxytyrosol content (5mg) declared on Oli-
venol’s more recent label. Thus, at all relevant times, Olivenol’s labels
would have been in violation of section 101.9(g)(4)(ii), as well.
          CREAGRI, INC. v. USANA HEALTH SCIENCES                 567
mark and, thus—under the Satinine rule—the former should
not render the latter “unlawful.”

   [4] We neither adopt nor reject the Satinine rule because,
even if the rule were adopted, CreAgri could not benefit from
it. While it may be possible to conceive of a situation in
which violation of a law in connection with a trademarked
product would have no effect on the rights inuring in that
trademark, the nexus between a misbranded product and that
product’s name, particularly one designed for human con-
sumption, is sufficiently close to justify withholding trade-
mark protection for that name until and unless the
misbranding is cured.

  Indeed, the concurrence in Satinine cuts against CreAgri’s
position:

    [W]e should not refuse registration or order the can-
    cellation of a registration because of some purely
    collateral defect such as the use of a container which
    did not comply with an ICC regulation or the failure
    of a party to pay an excise tax. . . . [But, as] a general
    proposition, subject to qualification as the facts of
    particular cases require, I may venture to say that a
    registration should be refused or cancelled when it is
    unlawful to ship the goods in commerce (either
    because any shipment is forbidden or because
    required prior approval was not obtained) or when
    the contents of the labelling [sic], of which the mark
    is a part, are unlawful.”

209 U.S.P.Q. at 967 (Kera, concurring) (emphasis added).

   [5] Without expressing an opinion as to whether the exam-
ples given in Satinine establish the appropriate dividing line
between collateral and non-collateral defects, the labeling
defect in this case was sufficiently related to the Olivenol
mark so as to satisfy the nexus requirement. Cf. Clorox, 214
568         CREAGRI, INC. v. USANA HEALTH SCIENCES
U.S.P.Q. at 851 (finding unlawful use in commerce when
product label did not comply with the FDCA); In re Pepcom,
192 U.S.P.Q. at 401 (same); In re Stellar, 159 U.S.P.Q. at 51
(same).

                     Potential Exemption

   We also reject CreAgri’s argument that, because there was
no accepted method for determining the hydroxytyrosol con-
tent of a given substance at the time Olivenol’s labels were in
error, Olivenol was exempt from the FDCA’s labeling
requirements. See 21 U.S.C. §§ 331(a), 343(a) (requiring that
dietary supplements be sold in accordance with the FDCA’s
labeling regulations, including 21 C.F.R. §§ 101.9 and
101.36); 21 C.F.R. § 101.36(f)(2) (allowing a seller to apply
for an exemption from these regulations if it is technologi-
cally infeasible or otherwise impracticable to comply with
them).

   [6] While it is unclear, as a factual matter, whether appro-
priate testing was technologically feasible at the time, section
101.36(f)(2) does not provide for an automatic exemption but,
rather, expressly requires sellers to apply for and receive an
exemption from the FDA. CreAgri did neither. Cf. Lane Capi-
tal Mgmt., Inc. v. Lane Capital Mgmt., Inc., 15 F. Supp. 2d
389, 397 (S.D.N.Y. 1998) (noting that “[a]n investment
adviser is exempt from registering with the SEC” under 15
U.S.C. § 80b-3(b)(3) if the adviser has certain characteristics;
the adviser need not apply in order to qualify). As per the
clear language of 21 C.F.R. § 101.36(f)(2) (emphasis added):

      When it is not technologically feasible, or some
      other circumstance makes it impracticable, for firms
      to comply with the requirements of this section,
      FDA may permit alternative means of compliance or
      additional exemptions to deal with the situation in
      accordance with § 101.9(g)(9). Firms in need of such
      special allowances shall make their request in writ-
           CREAGRI, INC. v. USANA HEALTH SCIENCES           569
    ing to the Office of Nutritional Products, Labeling
    and Dietary Supplements (HFS-800), Food and Drug
    Administration, 5100 Paint Branch Pkwy., College
    Park, MD 20740.

   [7] Thus, if CreAgri had applied for, and if the FDA had
exercised its discretion by granting, an exemption on the basis
of technological infeasibility, then CreAgri’s violation of sec-
tion 101.9(g)(4) would be properly excused. CreAgri, how-
ever, offered no evidence to show that it so much as applied
to the Office of Nutritional Products for an exemption pursu-
ant to the procedures set forth in 21 C.F.R. § 101.36(f)(2),
much less that the FDA granted CreAgri “special allowances”
from the FDCA’s labeling requirements. As such, sale of Oli-
venol until at least June 18, 2002 was unlawful and was not
excused by CreAgri’s hypothetical eligibility for an “upon-
application-only” exemption for which CreAgri never
applied. Cf. 21 C.F.R. § 101.36(h) (providing automatic
exemptions from § 101.9’s labeling requirements in other cir-
cumstances); Lane, 15 F. Supp. 2d at 397.

                          Materiality

   CreAgri’s final argument with respect to the apparent
unlawfulness of its use of “Olivenol” in commerce prior to
USANA’s priority date is that the labeling defect was so
harmless or de minimis that it should be excused as “immate-
rial” under General Mills, 24 U.S.P.Q.2d at 1274 (holding
that a labeling defect is “material” only when it is “of such
gravity and significance that the usage must be considered
unlawful—so tainted that, as a matter of law, it [can] create
no trademark rights”).

   General Mills involved a dispute between Health Valley
Foods (seller of Fiber 7 Flakes cereal) and General Mills, Inc.
(seller of Fiber One cereal), in which the former accused the
latter of not having lawfully used “Fiber One” in commerce
570         CREAGRI, INC. v. USANA HEALTH SCIENCES
when the latter applied for trademark registration.12 Id. at
1271-72. Although the first eighteen boxes of Fiber One—
indeed, all boxes sold before General Mills applied for trade-
mark registration of the Fiber One mark—were mislabeled
under the FDCA, General Mills noticed the error, promptly
corrected it, and then sold over 600,000 correctly labeled
boxes to consumers before Health Valley Foods even applied
to register “Fiber 7 Flakes.” Id. at 1271-73 & n.1. Under these
facts, the Trademark Trial and Appeal Board concluded that
cancelling Fiber One’s registration based on the original eigh-
teen mislabeled boxes would be “Draconian.” Id. at 1273.

   This case is categorically different. Whereas General Mills
corrected its labeling error before its competitor’s priority
date—thus eventually establishing the “lawful use in com-
merce” necessary for trademark protection—CreAgri did not
correct its labeling error before USANA’s priority date, and
thus, there is not a single instance of “lawful use in com-
merce” prior to June 18, 2002 upon which CreAgri can base
its claim of priority. Accordingly, we need not decide whether
to adopt the General Mills test for materiality; by any defini-
tion, Olivenol’s defect—which existed as to every bottle of
Olivenol sold prior to the competing registrant’s priority date
—was material.

                          CONCLUSION

   [8] Because CreAgri’s admitted violation of 21 C.F.R.
§ 101.9(g)(4) cannot be deemed collateral to use of the Oli-
venol mark under Satinine, 209 U.S.P.Q. at 967 (Kera, con-
curring), excused under 21 C.F.R. § 101.36(f)(2), or
  12
     At the time, failing to lawfully use a mark in commerce before apply-
ing for trademark registration would render the mark ineligible for such
registration. The “intent to use” system has since supplanted the system
that was in place when General Mills’ application was processed. See Pub.
L. No. 100-667 § 103, 102 Stat. 3935 (1988) (codified as amended at 15
U.S.C. § 1051).
             CREAGRI, INC. v. USANA HEALTH SCIENCES                    571
overlooked as immaterial under General Mills, 24 U.S.P.Q.2d
at 1274, it follows that the Olivenol mark was not lawfully
used in commerce prior to Olivol’s June 18, 2002 priority
date. As such, USANA’s mark has priority over CreAgri’s
mark, and a trademark infringement action by CreAgri against
USANA cannot stand. The district court correctly granted
summary judgment in favor of USANA on CreAgri’s trade-
mark infringement claims.13

   [9] Additionally, the district court correctly cancelled “Oli-
venol” from the supplemental register. A mark is only eligible
for supplemental registration if it was in “lawful use in com-
merce” prior to the date on which the holder applied for such
registration. 15 U.S.C. § 1091(a); In re Pepcom, 192 U.S.P.Q.
at 401. As explained above, “Olivenol” was not lawfully used
in commerce prior to June 18, 2002, and CreAgri admits that
Olivenol’s labels on October 9, 2002—when CreAgri filed its
amended application for registration on the supplemental
register—were no different from those in use on June 18,
2002. Thus, the Olivenol mark was properly cancelled from
the supplemental register.14

   AFFIRMED.

  13
      Summary judgment was also properly granted as to CreAgri’s non-
trademark-infringement claims and USANA’s request for declaratory
judgment, as these claims also hinged on Olivenol’s trademark priority—
or lack thereof—over Olivol.
   14
      It should be noted that cancellation of Olivenol’s current supplemen-
tal registration does not necessarily render “Olivenol” forever incapable of
being registered on either the principal or supplemental registers.