Creagri, Inc. v. Usana Health Sciences, Inc.

• Decision Date: 16 January 2007
• Docket Number: No. 05-15305.,05-15305.
• Parties: CREAGRI, INC., a California corporation, Plaintiff-counter-claim-defendant-Appellant, v. USANA HEALTH SCIENCES, INC., a Utah corporation, Defendant-counter-claimant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

474 F.3d 626

CREAGRI, INC., a California corporation, Plaintiff-counter-claim-defendant-Appellant, v. USANA HEALTH SCIENCES, INC., a Utah corporation, Defendant-counter-claimant-Appellee.

No. 05-15305.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 6, 2006.

Filed January 16, 2007.

Robin M. Pearson (argued) and Antonio Valla, Gillis, Valla & Dalsin, Lafayette, CA, together with William J. Baron and Katheryn C. Ashton, Duane Morris LLP, San Francisco, CA, for the plaintiff-counter-claim-defendant-appellant.

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

Appeal from the United States District Court for the Northern District of California; Maxine M. Chesney, District Judge, Presiding. D.C. No. CV-03-3216-MMC.

Before NOONAN, HAWKINS, and THOMAS, Circuit Judges.

MICHAEL DALY HAWKINS, Circuit Judge.

In a contest involving competing products claiming trademark 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 developed Olivenol claimed no standardized method to accurately measure a substance's hydroxytyrosol content was yet available, 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 testing 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 contention 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 Olivenol'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, inaccurately 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 application 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 beneficial 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, according to CreAgri, the name of USANA's Olivol ingredient 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 district 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 prevail 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 ownership is priority of use.").⁸ Because "Olivol" was registered 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 principal register . . . shall be prima facie evidence of . . . the registrant'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 acquiring 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).

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, 1993 WL 562977 (1993); Clorox Co. v. Armour-Dial, Inc., 214 U.S.P.Q. 850, 851, 1982 WL 50434 (1982); In re Pepcom Indus., Inc., 192 U.S.P.Q. 400, 401, 1976 WL 21138 (1976); In re Stellar Int'l, Inc., 159 U.S.P.Q. 48, 51, 1968 WL 8159 (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 the PTO's policy and hold that only lawful use in commerce can give rise to trademark priority.

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 trademark 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 promulgated [by Congress] under [that same constitutional provision]." 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.

Here, it is undisputed that, at all times prior to USANA's priority date, Olivenol's labels were not in compliance with the labeling requirements of 21 C.F.R. § 101.9(g)(4)(i) and, thus, Olivenol was being sold in violation of 21 U.S.C. §§ 331(a), 343(a) (prohibiting sale of misbranded 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 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 noncompliance 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 regulations 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, 1992 WL 296518 (1992). We are not persuaded by these arguments.

Nexus

The nexus requirement springs from decisions of the Trademark Trial and Appeal Board: "There...