• Trademark-Holding Restaurant Franchise's Passive Knowledge For 30 Years Of Similar Company With Similar Name Did Not Bar Exercise Of Trademark Rights
  • May 16, 2004 | Author: Monica Y. Youn
  • Law Firm: Manatt, Phelps & Phillips, LLP - New York Office
  • Recently, the U.S. Court of Appeals for the Fourth Circuit held that a trademark holder, despite knowing for more than 30 years of another company's use of a very similar mark in a certain geographical area and not taking any definitive action to stop the other company, was still entitled to exclusive use of the mark in that geographical area. What-A-Burger of Virginia, Inc. v. Whataburger, Inc.

    Whataburger, Inc. ("Texas Whataburger") owns a chain of more than 500 "Whataburger" restaurant franchises through the southern United States -- although not in Virginia -- and Mexico. Texas Whataburger has had a registered U.S. trademark for WHATABURGER in connection with hamburgers since 1957. However, prior to 1957, Jack Branch had opened a hamburger restaurant named "What-A-Burger" ("Virginia What-A-Burger") in Newport News, VA. Over the next several decades, Branch opened a handful of additional Virginia What-A-Burger restaurants in various Virginia locations, but never ventured outside that state. Hence, Texas Whataburger and Virginia What-A-Burger have been in business at the same time for many years but always in different geographic areas.

    Texas Whataburger and Virginia What-A-Burger first became aware of each other in 1970. At that time, Texas Whataburger sent two letters to Virginia What-A-Burger stating that Texas Whataburger held the name WHATABURGER as a registered trademark, and indicating that Texas Whataburger expected Virginia What-A-Burger to change its name unless the parties reached a licensing agreement. However, no further action was taken, and there appears to have been no further contact between the parties until 2002, when Texas Whataburger sent Virginia What-A-Burger a letter indicating that Virginia What-A-Burger's use of the name WHATABURGER might be an infringement of Texas Whataburger's mark. Notably, the letter also asked whether Texas Whataburger had licensed use of the mark to Virginia What-A-Burger (the answer to which question Texas Whataburger would seemingly already know).

    Trying to protect itself in Virginia, Virginia What-A-Burger filed a declaratory judgment action in federal court in Newport News seeking an order declaring that Virginia What-A-Burger is "the rightful owner of the trademark or trade name What-A-Burger in the State of Virginia" and had the right to exclusive use of the mark in the geographical areas where Virginia What-A-Burger already had restaurants (emphasis added). Virginia What-A-Burger also sought a corollary pronouncement from the trial court that it was not guilty of federal trademark infringement, since Virginia What-A-Burger had used the mark prior to Texas Whataburger's registration, and Texas Whataburger had waived any right to use of the mark in the Virginia.

    Texas Whataburger asserted a counterclaim, seeking a declaration that it was the rightful owner of the mark WHATABURGER and was entitled to exclusive use of the mark in the United States, including Virginia. Notably, Texas Whataburger did not counterclaim for infringement.

    The lower court ruled that Texas Whataburger was the rightful owner of the mark in Virginia. Without being asked by the parties, this court further held that the doctrines of laches (essentially, unreasonable, prejudicial delay) and acquiescence barred Texas Whataburger from enforcing its exclusive rights against Virginia What-A-Burger.

    Neither party appealed the holding that Texas Whataburger was the rightful owner of the mark in Virginia, so that ruling from the lower court stands. Texas Whataburger did appeal the ruling on laches and acquiescence, ostensibly to establish its ability to enforce those rights.

    The Fourth Circuit reversed the trial court's determination that laches and acquiescence barred enforcement of Texas Whataburger's ownership rights. The Court held that a trademark holder can be estopped by laches only where an infringement claim has clearly ripened. Both laches and acquiescence assume a preexisting infringement. That was not the case here. There had been no infringing use of the trademark in question by Virginia What-A-Burger (indeed, Texas Whataburger did not claim infringement).

    The outcome, then, is that even though Texas Whataburger has known about Virginia What-A-Burger for so long, Texas Whataburger does not have to confront Virginia What-A-Burger legally unless and until Texas Whataburger begins to do business in Virginia. Thus, Texas Whataburger has achieved a victory in this case, and Virginia What-A-Burger appears vulnerable in the event of Texas Whataburger's expansion into Virginia.

    However, the Whataburger case does not make it safe for trademark owners to sit upon their rights until an infringement claim ripens. The Fourth Circuit cautioned that the result might have been dictated by the limited nature of Virginia What-A-Burger's declaratory judgment action. Thus the Court noted that laches could come into play even though a trademark owner asserts no claim for infringement: "For example, a junior user may seek a declaration that even if it has infringed, it has the right to continue using a particular mark because the owner has unreasonably delayed in enforcing his rights."