April 16, 2013 Leave a comment
Good Things Do Not Always Come to Those Who Wait:
The Use of the Laches Defense in 5th Circuit Trademark Litigation
The time-tested adage, “good things come to those who wait,” extols the virtue of patience and has been used throughout pop culture to explain phenomena ranging from love to job prospects. But in the context of trademark protections, the concept of “waiting” can be fatal to a plaintiff’s claim for relief when a defendant asserts the affirmative defense of “laches.”
“Laches” is defined as an inexcusable delay that results in prejudice to a defendant. Abraham v. Alpha Chi Omega, 796 F. Supp. 2d 837, 846 (N.D. Tex. 2011). The claim can be raised as an equitable defense available for those alleged infringers who lack the requisite “bad faith intent to capitalize on the markholder’s [goodwill].” Bd. of Supervisors for La. State Univ. Agric. & Mech. Coll. v. Smack Apparel Co., 550 F.3d 465, 490 (5th Cir. 2008). Thus, to establish a “laches” defense, the defendant has the burden to show: “(1) [plaintiff’s] delay in asserting one’s trademark rights; (2) [plaintiff’s] lack of excuse for the delay, and (3) undue prejudice to the alleged infringer caused by the delay.” Id. at 489-90. In so analyzing the defense, courts in the Fifth Circuit take a “totality of the circumstances” approach by making factual inquiries regarding “the combined effect of the [p]laintiff’s delay and the prejudice resulting to the [d]efendant[ ].” New Century Fin., Inc. v. New Century Fin. Corp., No. C-04-437, 2005 WL 2453204, at *10 (S.D.Tex. Oct. 4, 2005). Factual insufficiencies in any one of the three prongs will prove fatal to the defendant’s assertion of the affirmative defense.
The Fifth Circuit has simplified the inquiry by utilizing the more rigid equation of “LACHES = DELAY x PREJUDICE” as a quantitative or mathematical tool to assist the trial court in deciding, as a matter of considerable discretion, whether estoppel by laches is appropriate equitable relief. See Armco, Inc. v. Armco Burglar Alarm Co., 693 F.2d 1155, 1161 (5th Cir. 1982). Courts will typically combine the Smack Apparel inquiries with regard to elements (1) and (2), and simply bifurcate the analysis so that a plaintiff’s failure to satisfy either element—delay or prejudice—will bar that particular claim.
Delay and Excuse
The first judicial inquiry begins with an analysis regarding the length of time, or delay, in assertion of the plaintiff’s claim for relief. In the Fifth Circuit, the period of delay for measuring “laches” begins at the time when the plaintiff knew or should have known of the infringement. Am. Rice, Inc. v. Producers Rice Mill, Inc., 518 F.3d 321, 334 (5th Cir. 2008). The delay period ends when the plaintiff informs the defendant of its objections, for example by filing suit or sending a cease and desist letter. See Studiengesellshaft Kohle v. Eastman Kodak Co., 616 F.2d 1315, 1328 (5th Cir. 1980).
But, the “[m]ere passage of time[,] even a considerable amount of time[,] will not automatically perfect a claim for such an equitable bar.” New Century Fin., Inc., 2005 WL 2453204, at *10. While the Fifth Circuit has yet to adopt a bright-line rule, generally the courts will look to analogous state statutes of limitation to aid in determining what length of delay is excusable for purposes of defense of “laches” to a claim of trademark infringement under the Lanham Act. Mary Kay, Inc. v. Weber, 601 F. Supp. 2d 839, 859 (N.D. Tex. 2009) (looking at analogous four-year statute of limitations under Texas state law for period of excusable delay). Accordingly, periods of inexcusable delay range all over the board, from just a few years to several decades. See Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 1082-83 (5th Cir. 1997) (period of twenty years was unreasonable under Texas standard); Abraham, 796 F. Supp. 2d at 856 (period of four years to formally assert claim was unreasonable where plaintiffs were aware of possible infringement for several decades).
While not formally adopted by the Fifth Circuit, some plaintiffs have attempted to counter questions concerning the period of delay in various district courts by asserting the doctrine of “progressive encroachment” as reason for the delay. See Abraham, 796 F. Supp. 2d at 852-53. Under this doctrine, delay is justifiable if the infringer began its infringing use in a market outside the trademark owner’s, but later on “directs its marketing . . . efforts such that it is placed more squarely in competition with the [owner].” Id. at 853. The basis for this doctrine is that “a plaintiff is justified in delaying suit until its legal right has clearly ripened.” H.G. Shopping Ctrs., L.P. v. Birney, No. H-99-0622, 2000 WL 33538621, at *7 (S.D. Tex. Nov. 29, 2000). In other words, a claim may not ripen until likelihood of confusion is clear, which in turn, might not occur until the infringer increases or expands its use. See id.
The doctrine of progressive encroachment “goes hand-in-hand” with excuse for delay. Abraham, 796 F. Supp. 2d at 852. In Abraham,the trademark owners, various student campus Greek organizations, argued progressive encroachment as an excuse for their delay. Id.. They argued that the recent placement of infringing products on the infringer’s website was progressive encroachment, and that this expansion of the infringing vendor’s business was “markedly more impermissible” than selling locally through catalogs. Id. The court said that although “‘normal business growth’” does not alone establish progressive encroachment, some actions, such as purchasing internet keywords on search engines or continuing to expand after the owner objected to the infringer’s use, created a material fact issue. Id. at 853. But because the doctrine of progressive encroachment has yet to be formally adopted by the Fifth Circuit, plaintiffs must still overcome the heavy burden to prove valid excuse for unreasonable delays in prosecuting their claim. See Exxon Corp., 109 F.3d at 1082-83 (plaintiff’s delay unreasonable where plaintiff delayed assertion of claim until suffering “reputational injury” based upon Exxon Valdez verdict) .
One final point to note, in situations concerning the possibility of “progressive encroachment,” although the court may be able to enjoin the alleged infringer in current and future endeavors, if the defendant can show established use at a local level, the court may limit the scope of its injunction to permit the defendant to continue use of the mark in that particular local market. See Conan Props., Inc. v. Conans Pizza, Inc., 752 F.2d 145, 154-55 (5th Cir. 1985).
The final element of a “laches” defense is proof of prejudicial harm to the defendant. To show prejudice, the defendant must show that it “has done something it otherwise would not have done absent the plaintiff’s conduct.” Conan Props., 752 F.2d at 153. It is not enough that one merely “loses what otherwise he would have kept.” Baylor Univ. Med. Ctr. v. Heckler, 758 F.2d 1052, 1058 (5th Cir. 1985). Notably, because the Fifth Circuit has not formally adopted a minimum period of delay to absolutely bar a plaintiff’s claim, even a short delay can constitute “laches” if the resulting prejudice is overwhelmingly great. See 6 McCarthy on Trademarks and Unfair Competition § 31:12.
Prejudice can be shown in a number of ways but one of the best ways is by showing that the delay caused the alleged infringer to rely on the holder’s inaction when it “buil[t] up a valuable business around its trademark.” Abraham, 796 F. Supp. 2d at 854. The Northern District of Texas has said, however, that “‘prejudice’ must constitute more than expenditures in promoting a business.” SeeMarshall v. Fulton, No. 3:08-CV-1921-L, 2011 WL 1630661, at *6 (N.D. Tex. Apr. 29, 2011). For example, in Exxon Corp., the plaintiff’s claim against Exxon was barred by laches because Exxon, acting in reliance upon the federal registration of its marks and its strict policing of similar marks, had accrued tremendous investment costs and resultant goodwill in the challenged marks while the plaintiff remained quiescent to Exxon’s actions. Exxon Corp., 109 F.3d at 1082-83. Defendant’s prejudice is limited “to the period prior to notice of another party’s objection” because after receiving such notice, all acts are at the defendant’s own risk. Conan Props., 752 F.2d at 152.
Because trademarks today have become safeguards of business reputations, litigation concerning the rights to those marks will continually remain necessary to the viability of many trademark owners. While the jurisprudence surrounding the defense of “laches” in the Fifth Circuit provides little in the way of hard deadlines for periods of delay or minimum damage amounts for prejudice, what remains clear is that the case law disfavors those plaintiffs who fail to take a proactive approach in guarding their marks. As such, defendants who can successfully substantiate a prolonged and established use of the mark and a resulting goodwill from the mark’s use will find the “laches” defense a helpful jurisprudential safeguard.
Tom Jacks is a partner with Chalker Flores, LLP in Dallas, Texas. He concentrates his practice on patent, trademark, copyright and general commercial litigation.
John Sokatch is a 3L law student at Southern Methodist University and a law clerk with Chalker Flores, LLP in Dallas, Texas.