As competition intensifies in the heavily regulated ingredient and supplement industry, manufacturers must be cognizant of the interplay between Food and Drug Law and Trademark Law. One wrong step in the regulatory minefield could set off an unexpected chain-reaction that can destroy even the strongest trademarks, leaving a valuable asset vulnerable to attack.
It is first important to have a basic understanding of how trademarks are formed. Trademark rights can be acquired in one of two ways: (1) by being the first to use the mark in commerce; or (2) by being the first to register the mark with the U.S. Patent and Trademark Office (“PTO”), which at some point requires actual use of the trademark. A common thread in each method of obtaining rights is “priority”. Priority is a threshold issue in nearly every trademark dispute. In most cases, the first to use a mark in commerce will be deemed the “senior” user, and will own superior rights in that mark.
However, “use in commerce” is not the only requirement for acquiring trademark rights. The PTO has a long-standing policy that use in commerce only creates trademark rights when that use is “lawful”. United States Trademark Rule 2.69 clearly states that “[w]hen the sale or transportation of any product for which registration of a trademark is sought is regulated under an Act of Congress, the PTO may make appropriate inquiry as to compliance with such Act for the sole purpose of determining lawfulness of the commerce recited in the application.” 37 C.F.R. § 2.69. As federal courts adopt the PTO’s policy regarding lawful use, dietary supplement and ingredient manufacturers may unwittingly find their trademark rights in peril.
In a case of first impression, the 9th Circuit put the PTO’s policy to work in CreAgri, Inc. v. USANA Health Sciences, 474 F.3d 626 (9th Cir. 2007). The Court in CreAgri affirmed a lower court’s denial of trademark priority where the senior user of the mark failed to comply with federal labeling requirements. The facts of the case are not complex and are likely not unique.
In 2001, Plaintiff CreAgri began selling a dietary supplement under the Olivenol trademark. Olivenol’s label indicated that each tablet contained 25mg of hydroxytyrosol. Dietary supplements like Olivenol are required to be sold in compliance with federal labeling regulations set forth in 21 C.F.R. §§ 101.9 and 101.36. For instance, 21 C.F.R. § 101.9(g)(4)(i) requires the actual amount of a nutrient added to a product to be “at least equal to the value for that nutrient declared on the label.” While a manufacturer may apply for an exemption from these labeling regulations, CreAgri had not done so.
CreAgri later discovered that each Olivenol tablet contained, at most, 3mg of hydroxytyrosol. CreAgri finally changed the Olivenol labeling in February 2004 to truthfully reflect the product’s content. However, all Olivenol labels prior to February of 2004 had been inaccurate.
On June 18, 2002, more than a year after CreAgri began selling Olivenol, but before its labeling was compliant, Defendant USANA filed an intent-to-use application with the PTO for the Olivol mark, which was to be used on highly similar goods. USANA began selling its Olivol products in August 2002 and the Olivol trademark was registered with a priority date of June 18, 2002.
CreAgri sued USANA alleging, among other things, that it had priority of use and that the Olivol trademark was likely to cause confusion with CreAgri’s registered Olivenol trademark. USANA counterclaimed by challenging the threshold issue of priority, and seeking cancellation of CreAgri’s federal registration. Because CreAgri’s labels mis-stated the amount of an active ingredient, the product was, at all relevant times, labeled in violation of 21 C.F.R. § 101.9(g)(4)(i). USANA argued that CreAgri’s use was “unlawful”, thereby destroying CreAgri’s priority date and requiring cancellation of CreAgri’s trademark registration. The court agreed.
The Court in CreAgri reasoned that, as a logical matter, the government should not be placed in the anomalous position of extending the benefits of trademark protection to a seller based upon actions that violate that government’s own laws. As a matter of policy, “to give trademark priority to a seller who rushes to the market without taking the care to carefully comply with the relevant regulations would be to reward the hasty at the expense of the diligent.” CreAgri, 474 F.3d at 630.
While the decision in CreAgri applies to products and services in all industries, it is particularly important to the food, drug and dietary supplement industry because of the dense forest of federal laws and regulations surrounding it. Moreover, trademark law is intended primarily to protect consumers from unfair business practices and confusion. Nowhere is this goal more important than an industry whose products are intended for human consumption. The Court in CreAgri pointed out that, “[w]hile it may be possible to conceive of a situation in which a violation of 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 consumption, is sufficiently close to justify withholding trademark protection for that name until and unless the misbranding is cured.” CreAgri, 474 F.3d at 631.
As competition intensifies in a crowded market of ingredients and supplements, developing and maintaining strong and enforceable intellectual property rights has become more important. Therefore, it is critical for branded ingredient and supplement manufactures to ensure and document full regulatory compliance. It is important for a manufacturer to facilitate disclosure and communication between its marketing team, its regulatory consultant or attorney, and its trademark attorney. This will help avoid potential issues as they develop, and will ensure the strength and validity of a manufacturer’s valuable assets.
When it comes time to enforce a trademark, a review of one’s regulatory compliance is recommended to ensure solid priority. The “unlawful use” argument provides a potentially potent weapon for accused infringers, or those simply looking for a “free ride” on someone else’s goodwill. Before asserting trademark rights against potential infringers, even if only by means of a cease and desist letter, a trademark owner must confirm that its use of the trademark fully complies with all applicable federal law and regulations. As we have seen since CreAgri¸ hasty attacks may prompt retaliatory counterclaims.
Trademarks play a key role in the development of any successful product. Effective development and protection of brand names is crucial to those seeking to remain competitive. Manufacturers of dietary ingredients and supplements must contend with the increasingly tense interplay between several regulatory frameworks. As seen in CreAgri, failure to comply with one regulatory scheme can have direct implications on trademark rights and registrations. Regular audits, open communication, consistent documentation and careful scrutiny of all labeling and advertising are necessary steps in developing and maintaining a strong and enforceable brand. If you have specific questions about how regulatory compliance may affect your trademark rights, please consult with your attorney.
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