Re/Max LLC v. M.L. Jones & Assocs., Ltd.

• Decision Date: 29 December 2014
• Docket Number: No. 5:12-CV-768-D,5:12-CV-768-D
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: RE/MAX LLC, Plaintiff, v. M.L. JONES & ASSOCIATES, LTD., and MATTHEW L. JONES, Defendants.

RE/MAX LLC, Plaintiff, v. M.L. JONES & ASSOCIATES, LTD., and MATTHEW L. JONES, Defendants.

No. 5:12-CV-768-D

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA WESTERN DIVISION

December 29, 2014

ORDER

On November 26, 2012, Re/Max ("Remax"), a real estate brokerage firm, sued M.L. Jones & Associates and Matthew Jones d/b/a FavoriteAgent.com ("defendants") alleging: (1) trademark infringement under federal law; (2) unfair competition under federal law; (3) unfair and deceptive trade practices under North Carolina law; and (4) trademark infringement and unfair competition under North Carolina law. CompL [D.E. 1 ] ¶¶ 23—41. On June 13, 2013, defendants answered and filed six counterclaims. CountercL [D.E. 22] ¶¶ 55-71. On August 29, 2013, the court granted in part Remax's motion to dismiss defendants' counterclaims and dismissed three counterclaims. See Order [D.E. 26]. Three counterclaims remain: (1) a request for declaratory judgment that Remax's trademarks are invalid; (2) cancellation of Remax's trademarks; and (3) a request for declaratory judgment that defendants did not infringe Remax's trademarks. See id. 3-4, 7.

Remax filed two motions for summary judgment [D.E. 59, 61] and supporting memoranda [D.E. 60, 62] concerning its claims and defendants' remaining counterclaims. Defendants responded [D.E. 69, 70], and Remax replied [D.E. 71, 72]. As explained below, the court grants in part and denies in part Remax's motion for partial summary judgment on defendants' first two counterclaims and denies Remax's motion for partial summary judgment on defendants' third counterclaim and Remax's claims.

I.

Remax is a real estate brokerage firm that provides services through franchisees and affiliated independent contractors. Three Remax trademarks are central to this case. On June 9, 1992, Remax registered the first trademark, number 1, 691,854 ("the '854 trademark"). Walsworth Decl. [D.E. 60-1] 4. The '854 trademark consists of a dark-over-light-over-dark background with a black-and-white hot air balloon See id. On Jury 21, 1992, Remax registered the second trademark, number 1,702,048 ("the '048 trademark"). Walsworth Decl. 6. The '048 trademark consists of a red-over-write-over-blue design See id. On September 29, 1992, Remax registered the third trademark, number 1,720,592 ("the '592 trademark"). See [D.E. 1-1] 3; United States Patent and Trademark Office, http://tmsearch.uspto.gov /bin/showfield?f=doc&state=4809-20nuq.2.9 (last visited Dec. 29, 2014). The '592 trademark consists of a red-over-white-over-blue design with a red-white-and-blue hot air balloon See id. The three trademarks are shown below:

The'854 Trademark

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The '048 Trademark

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The '592 Trademark

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Defendants began as a real estate company and then gradually migrated to software licensingfor real estate agents. See Walsworth Decl. 25, 28-29, 32 (Jones deposition). Jones approved a FavorieAgent.com logo that incorporates a red-over-white-over-blue design, as seen below, and distributed it to defendants' independent contractors for use in their real estate practices. Id. 30-32 (Jones deposition).

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In late 2012, a Remax agent discovered and photographed a FavoriteAgent.com yard sign and notified Remax's assistant general counsel. Scoville Decl. [D.E. 60-2] 3. Remax contacted defendants and objected to defendants' use of the yard signs with a red-over-white-over-blue design. Walsworth Decl. 36-37 (Jones deposition). Jones offered to change the sign in exchange for $50,000. Id. 38 (Jones deposition). After the parties failed to compromise, Remax filed suit.

II.

Remax's four claims and defendants' three remaining counterclaims fit within two general categories. Defendants' first two counterclaims concern the validity of Remax's trademarks. Remax's four claims and defendants' third counterclaim concern the potential infringement of Remax's trademarks by defendants.

A.

In defendants' first counterclaim they seek a declaratory judgment that the '048 trademark and the '854 trademark are "incapable of functioning as a trademark" because they allegedly resemble the national flag of the Netherlands. Countercl. ¶¶ 55-59. In defendants' secondcounterclaim they ask the court to cancel the '048 trademark and '854 trademark pursuant to 15 U.S.C. § 1119. Countercl. ¶¶ 60-61. Both counterclaims rely on an alleged violation of 15 U.S.C. § 1052(b), which prohibits the registration of a trademark that "consists of or comprises the flag . . . of any foreign nation, or any simulation thereof." A court may cancel a registration of a trademark that was registered in violation of section 1052(b). See 15 U.S.C. §§ 1064(3), 1119. A registered trademark is presumed valid, 15 U.S.C. § 1057(b), and a party seeking cancellation must rebut this presumption by a preponderance of the evidence. See, e.g., Retail Servs. Inc. v. Freebies Publ'g, 364 F.3d 535, 542 (4th Cir. 2004); Pizzeria Uno Corp. v. Temple, 747 F.2d 1522, 1529 n.4 (4th Cir. 1984).

In determining whether a trademark simulates a flag, a court considers the trademark and the flag in a comparison "of first impression . . . without a careful analysis and side-by-side comparison" In re Advance Indus. Sec., Inc., 194 U.S.P.Q. 344, 1977 WL 22511, at *2 (T.T.A.B. 1977); see In re Peter S. Herrick, P.A., 91 U.S.P.Q.2d, 2009 WL 1741898, at *5 (T.T.A.B. 2009); Knorr-Nahrmittel Aktiengesellschaft v. Havland Int'l, Inc., 206 U.S.P.Q. 827, 1980 WL 30123, at *7 (T.T.A.B. 1980); In re Waitham Watch Co., 179 U.S.P.Q. 59, 1973 WL 19968, at *2 (T.T.A.B. 1973). The simulation inquiry focuses on whether the average purchaser or person would associate the trademark with the flag. See Knorr-Nahmittel, 1980 WL 30123, at *6 (stating that the relevant factor is "the commercial reaction that [the trademark] imports to viewers"); In re Advance Indus. Sec., 1977 WL 22511, at *2 (finding a seal was registrable because it was unlikely that "the average purchaser upon seeing applicant's overall mark would associate the eagle and shield design in the context with which it is used with the Coat of Arms of the United States"); In re Wattham, 1973 WL 19968, at *2 (finding that the applicant's use of "common elements of flag designs such as horizontal or vertical lines, crosses or stars" did not constitute a simulation of any nation's flag because the trademark was "readily distinguishable from any of the flags of the nations alluded to by the examiner"). A court also must consider the "fallibility of memory" when determining whether theaverage person could, without a careful analysis, associate the trademark with a nation's flag. In re Advance Indus. Sec., 1977 WL 22511, at *2.

As for the '854 trademark, it bears no resemblance to the Netherlands's flag other than its use of three horizontal bands. The '854 trademark is black-and-white and includes a hot air balloon image. See U.S. Dep't Of Commerce, Patent and Trademark Office, Trademark Manual of Examining Procedure ("TMEP") § 1204.01(b) (October 2014) (noting that a mark is registrable if it "appears in a color different from that normally used in the national flag" or "is substantially obscured by . . . designs"); TMEP § 1204.01(a) (noting that "a black-and-white drawing showing three horizontal rectangles would not be refused" as a foreign flag). Furthermore, no evidence suggests that consumers would, as a first impression, associate the '854 trademark with the Netherlands's flag. Thus, the court rejects defendants' argument that the '854 trademark simulates the Netherlands's flag and therefore violates 15 U.S.C. § 1052(b).

As for the '048 trademark, the simulation analysis does not apply because the '048 trademark is not a simulation See In re Certa ProPainters, Ltd., 2008 WL 5009753 (T.T.A.B. Nov. 14, 2008) (unpublished) (noting that the simulation analysis applies when the "mark does not include the entirety of the actual . . . flag"); cf. In re Peter S. Herrick, 2009 WL 1741898, at *4-5 (applying the simulation analysis to an alleged simulation involving a flag); Knorr-Nahmittel, 1980 WL 30123, at *6-7 (same); In re Advance Indus. Sec., 1977 WL 22511, at *2 (same); In re Waltham, 1973 WL 19968, at *2 (same). Rather, as shown below, the '048 trademark consists of the Netherlands's flag. See In re Peter S. Herrick, 2009 WL 1741898, at *5 (quoting In re Advance Indus. Sec., 1977 WL 22511, at *1, for the proposition that a simulation "gives the appearance or effect or has the characteristics of the original item").¹ As a depiction of the Netherlands's flag, the '048 trademark is "barred from registration under [section 1052(b)]." Natural Footwear Ltd. v. Hart Schaffher &Marx & Roots, Inc., 577 F. Supp. 128, 131 (D.N.J. 1983). Thus, Remax's evidence of lack of association between the '048 trademark and the Netherlands's flag by consumers, which itself suffers from at least one serious flaw, is insufficient to save the '048 trademark from a clear statutory bar to any trademark that "consists of or comprises the flag. . . of any foreign nation"² As one treatise explains:

Section 2(b)'s absolute bar is apparently founded upon the thinking that these kinds of governmental insignia, such as a national flag or seal, should not be registered as symbols of origin for commercial goods and services. That is, these kinds of governmental insignia ought to be kept solely to signify the government and not be sullied or debased by use as symbols of business and trade.

J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 19:78 (4th ed. 2014) (emphasis added).

The '048 Trademark

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The Netherlands's Flag

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See The Netherlands, Flags of the World, http://www.crwflags.com/fotw/flags/nl.html (last visited Dec. 29, 2014) (referenced in TMEP § 1204.05...