On October 27, 2020, the Federal Circuit affirmed a U.S. Trademark Trial and Appeal Board (“TTAB”) decision canceling Corcamore, LLC’s registration for the mark SPROUT. More specifically, the Federal Circuit concluded that the TTAB correctly found that the challenger to Corcamore’s registration had standing, even though the TTAB applied the incorrect legal standard, and that the TTAB did not abuse its discretion in imposing a default judgment against Corcamore as a sanction for Corcamore’s numerous discovery abuses.

In 2014, SFM, LLC filed a petition seeking to cancel Corcamore’s SPROUT registration for vending machine services based on SFM’s own federal trademark registration for the mark SPROUTS for retail grocery store services. SFM asserted that SFM had superior rights in its SPROUTS mark because SFM first used the SPROUTS mark at least as early as 2002—more than 6 years before Corcamore’s claimed first use date for Corcamore’s SPROUT mark. SFM further asserted that continued registration of Corcamore’s mark would damage SFM because the relevant consuming publicly would be likely to confuse the two brands.

Corcamore moved to dismiss SFM’s cancellation petition for lack of standing based on the U.S. Supreme Court’s decision in Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014) (“Lexmark”). Lexmark, which the Supreme Court decided in the context of a civil claim for false designation of origin under 15 U.S.C. § 1125(a), holds that a party has standing to bring a claim if (1) the party’s interests fall within the protection of the Lanham Act and (2) the party’s injuries are “proximately caused” by violations of the Lanham Act.

The TTAB denied Corcamore’s motion to dismiss, concluding that Lexmark did not extend to cancellation of registered marks under 15 U.S.C. § 1064. Instead, the Board concluded that SFM had standing under the Federal Circuit’s decision in Empresa Cubana del Tabaco v. Gen. Cigar Co., 753 F.3d 1270 (Fed. Circ. 2014) (“Empresa”), finding that SFM had sufficiently alleged a real interest in the cancellation proceeding and a reasonable belief of damage, as required under 15 U.S.C. § 1064.

After the TTAB denied Corcamore’s motion to dismiss, Corcamore sent a letter to SFM’s counsel, indicating that Corcamore would bring “procedural maneuvers” against SFM and delay discovery. “Corcamore then embarked on a path of conduct that resulted in two separate sanctions and entry of default judgment in favor of SFM.”  [Federal Circuit Op., at p. 5].

On appeal, Corcamore argued that SFM lacked standing to bring a petition for cancellation of a registered trademark under Lexmark. Corcamore further argued that the Board abused its discretion in granting SFM default judgment as a sanction against Corcamore.

A three-judge panel of the Federal Circuit affirmed the TTAB’s ultimate ruling, but held that the TTAB applied the incorrect legal standard in determining that SFM had legal standing to bring the cancellation proceeding.

Although the Supreme Court decided Lexmark in the context of a false advertising claim under 15 U.S.C. § 1125(a), the Federal Circuit held that Lexmark established the two requirements necessary to find that a party is entitled to bring or maintain a statutory cause of action. First, the party must demonstrate an interest falling within the zone of interest protected by the statue. Second, the party must demonstrate proximate causation.

The Federal Circuit noted that a cancellation proceeding brought under 15 U.S.C. § 1064 is a statutory cause of action provided by the Lanham Act. Accordingly, the Federal Circuit ruled that the Lexmark analytical framework applies to both § 1064 and § 1125(a).

The Federal Circuit, however, concluded that, although the TTAB applied the incorrect legal standard, it still reached the correct result. In reaching that decision, the Federal Circuit stated that a party that demonstrates a real interest in cancelling a trademark under § 1064 has demonstrated an interest falling within the zone of interests protected by § 1064. Moreover, a party that demonstrates a reasonable belief of damage by the registration of a trademark demonstrates proximate causation within the context of § 1064. The Federal Circuit found that SFM had alleged facts sufficient to satisfy both of these requirements and, therefore, had standing under Lexmark to bring the cancellation.

Finally, in light of the facts of record, the Federal Circuit ruled that the TTAB did not abuse its discretion in entering default judgment against Corcamore as a sanction for Corcamore’s repeated discovery abuses.

The decision is Corcamore, LLC v. SFM, LLC, Case No. 2019-1526 (Fed. Cir. Oct. 27, 2020).