Do “Illegal” Alcohol Sales Create Trademark Rights? The Trademark Trial and Appeal Board Says Maybe So.
As more and more beverage brands are introduced into the U.S., it is becoming increasingly difficult for suppliers to come up with unique trademarks that do not infringe marks already in use by others. As a result, trademark disputes involving alcohol beverage brands are common. Such disputes typically come down to the issue of priority of use – if the marks and the products are very similar, i.e., both are alcoholic beverages – the party with first commercial use will have priority and will likely be entitled to register the trademark. One of the fundamental elements used to prove first-use for alcohol products and to establish priority over other users is the date on which a Certificate of Label Approval (“COLA”) was issued. As most alcoholic beverage producers and importers are aware, a COLA is required before alcohol products can be legally imported or sold in the U.S. Sales of such products without a COLA would constitute an illegal sale under 27 CFR 4.50 (wine) 5.51 (distilled spirits) and 7.41 (beer). Because sales of a product without a COLA are not legal sales, they do not constitute bona fide use in commerce and may not be relied upon in establishing trademark priority. At least, that’s what many of us thought. But a recent decision of the Trademark Trial and Appeal Board (“TTAB”) suggests otherwise.
In an opposition proceeding involving the PARLAY trademark, both parties were using the same trademark on wines and the parties disagreed on who had priority. The opposer argued that the earliest use date relied on by the other party was actually before the labels had been issued a COLA; therefore, they were unlawful and did not count for trademark priority. But the TTAB ruled against the opposer, noting that even if sales without a COLA were not strictly compliant with the federal labeling regulations, that was not sufficient to deny that user priority rights. Rather, the opposing party is required to show either: (1) that a court or regulatory body had made a formal determination of non-compliance, or (2) that the improper usage was so “tainted” it could not create trademark rights. In other words, if the labels were otherwise approvable and not misleading or deceptive to consumers, sales of those products without a COLA may still be used to establish priority, even though not technically legal. In the PARLAY case, the TTAB also noted the Draconian result of denying priority because of a regulatory lapse occurring several years before. The TTAB decision is non-precedential, so it’s not binding and future decisions of the TTAB may come out differently. But for those of us who frequently scan the TTB COLA registry to determine trademark priority, this decision is of great interest.
For trademark or COLA help, contact one of the attorneys at Strike & Techel.
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