Civil Cases
Grocery Outlet Inc. v. Albertsons, Inc.,
2008 WL 5245962 (N.D. Cal. Dec. 17, 2008)
ABSTRACT
The Northern District of California held that the declaratory judgment defendant had not abandoned its rights in the LUCKY trademark, even though it made only limited use of the mark between 1999 and 2005, and ceased use of the mark altogether in 2005. The court found that the sell-off of existing merchandise bearing the mark constituted use for purposes of avoiding abandonment and that the mark owner had established an intent to resume use of the mark.
CASE SUMMARY
FACTS
In 1998, defendant Albertsons, Inc. (“Albertsons”) merged with the owner of the LUCKY brand of grocery products and supermarket and grocery store services. Following the merger, Albertsons decided to rebrand all of the existing LUCKY stores with the ALBERTSONS name and, although Albertsons never unequivocally announced that it would cease use of the LUCKY mark, it was clear that the new postmerger brand name for the store and its products was to be ALBERTSONS. By November 1999, all former LUCKY stores were converted to ALBERTSONS stores.
Nevertheless, Albertsons continued using the LUCKY mark in a limited manner after the conversion of LUCKY stores. Specifically, Albertsons continued to sell LUCKY brand private label merchandise in its stores for several years in an effort to use up existing LUCKY branded inventory and packaging. Also, on the advice of counsel, Albertsons created a few signs featuring the LUCKY mark for the purpose of supporting the renewal of its trademark registrations. Albertsons also maintained the registration of the luckystores.com domain name and made general efforts to police the LUCKY mark.
In 2001, Albertsons commissioned research to determine if there was any residual goodwill in the LUCKY mark and assembled focus groups to evaluate the loss of LUCKY customers as a result of the name change. Also in 2001, Albertsons explored the possibility of using the LUCKY mark for a new line of stores targeted at specific ethnic markets. In 2004, Albertsons created a business plan that included the proposed opening of California stores targeted at Hispanic customers and the development of warehouse-type “price impact” stores, both under the LUCKY banner. By the time of the decision, Albertsons had begun operating and rebranding many stores under the LUCKY name in both California and Nevada.
Plaintiff Grocery Outlet Inc. (“Grocery Outlet”), an “extreme value grocer” operating in California, sought to open a number of grocery stores under the name LUCKY. In January 2006, Grocery Outlet filed an intent-to-use application for the LUCKY mark covering retail grocery store services and shortly thereafter opened its first grocery store under the LUCKY mark.
Grocery Outlet filed an action seeking a declaration that Albertsons had abandoned the LUCKY trademark and alleging trademark infringement based on Grocery Outlet’s purported rights in the mark. Albertsons counterclaimed for a declaration of nonabandonment and for infringement by Grocery Outlet. The court granted Albertsons’s request for a preliminary injunction in July 2006, finding that the mere sell-off of existing LUCKY inventory was insufficient to establish a continued bona fide commercial use of that mark, but that there was sufficient evidence to demonstrate Albertsons’s intent to resume use of the LUCKY mark within the reasonably foreseeable future during the period of alleged nonuse. The Ninth Circuit affirmed at Grocery Outlet Inc. v. Albertson’s, Inc., 497 F.3d 949 (9th Cir. 2007). Albertsons subsequently moved for summary judgment on the ground that its sell-off of inventory constituted a continued bona fide commercial use of the LUCKY mark and that it intended to resume use of the mark within the period of nonuse.
ANALYSIS
The court held that a putative trademark infringer must prove both of two separate elements to show that a mark has been abandoned: that the trademark owner has ceased using the mark in dispute, and that it has done so with an intent not to resume its use. A showing of three years of consecutive nonuse creates a rebuttable presumption of an intent not to resume.
On the first factor—whether Albertsons ceased use of the LUCKY mark—the court noted that Albertsons made a concerted effort to remove the vestiges of the old LUCKY mark when it converted former LUCKY stores to ALBERTSONS stores in November 1999, and that its use of the mark since then had been somewhat limited. The court concluded that the precipitous drop in the number of LUCKY products sold over the years following the 1999 conversion was merely a sell-off of residual inventory, and the court had earlier ruled that a mere sell-off of inventory could not constitute use for purposes of withstanding an abandonment challenge.
However, since the time of the court’s preliminary injunction ruling, the Ninth Circuit issued a decision holding that “the meaning of ‘use’ for the purposes of abandonment necessarily signifies ‘use in commerce’ and thus includes the placement of a mark on goods sold or transported.” Electro Source, LLC v. Brandess-Kalt-Aetna Group, Inc., 458 F.3d 931, 936 (9th Cir. 2006). The Ninth Circuit specifically rejected the argument that “attempts to merely ‘rid oneself of inventory,’ were not bona fide uses in the ordinary course of trade” because “abandonment requires complete cessation or discontinuance of trademark use . . . [and] even a single instance of use is sufficient against a claim of abandonment of a mark if such use is made in good faith.” In view of the change in the law of abandonment in the Ninth Circuit, the court reversed its earlier ruling and held that evidence of Albertsons’s continued sell-off of LUCKY branded inventory between 1999 and 2005 constituted a bona fide commercial use of that mark during those years.
The court did not credit evidence demonstrating that Albertsons displayed signage bearing the LUCKY mark on a few stores after the 1999 conversion, because the signage was erected solely on the advice of counsel for the purpose of maintaining an active trademark registration and such usage is not considered use in the ordinary course of trade.
On the second abandonment factor—whether Albertsons demonstrated an intent not to resume use of the mark—the court held that the issue only arises at the point of cessation of use. The court again found that Albertsons’s undisputed evidence demonstrated that it intended to resume use of the LUCKY mark. This evidence included internal discussions regarding the use of the mark for a Hispanic-themed neighborhood store or for a warehouse-type “price impact” store, discussions about rebranding such stores with a LUCKY brand storefront as early as 2001, and Albertsons’s decision in 2004 to convert existing Albertsons stores to the LUCKY banner in California.
The court concluded that because Grocery Outlet was unable to demonstrate that Albertsons abandoned the LUCKY mark, it had by its own admission infringed Albertsons’s trademark rights.
CONCLUSION
The court’s decision demonstrates that even very limited use of a mark may be sufficient to avoid a finding of abandonment when combined with some demonstrable plans to resume use of that mark. It also suggests that actions undertaken on the advice of counsel solely for the purpose of maintaining a trademark registration may not be considered a bona fide commercial use sufficient to defeat a claim of abandonment.
