By: Anthony Anello

Member, American Journal of Trial Advocacy

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The Tea Rose-Rectanus doctrine (“Doctrine”) is a common law doctrine used in American Trademark law.[1] It “protects [the] use of a mark in a remote geographic area when the use is in good faith.”[2] There is now a dispute among Federal Circuit courts as to what can be classified as good faith when it comes to the Tea Rose-Rectanus doctrine. The Doctrine originated from two Supreme Court cases:[3] Hanover Star Milling Co. v. Metcalf[4] and United Drug Co. v. Theodore Rectanus Co.[5]

In the Hanover case, the Hanover Star Milling Company (“Hanover”), later renamed to Steeleville Milling Company, was an Illinois based manufacturer of Tea Rose flour.[6] Hanover’s packaging contained the words “Tea Rose” and had an emblem comprised of three little roses.[7] Defendant in the case, Metcalf, was a merchant who also sold flour, but in Butler County, Alabama.[8] Metcalf advertised his flour with the same logo and name as Hanover and used Hanover’s reputation for selling premium flour to bolster his own Alabama sales.[9]

In United Drug, Ellen M. Regis, from Massachusetts, created a drug to combat indigestion.[10] She named the drug “Rex,” trademarked it, and began to market it, making sure all boxes, bottles, and packages displayed its name.[11] At around the same time, Theodore Rectanus of Louisville, Kentucky, who went by the nickname, “Rex,” created and sold a blood purifier.[12] Not long after, Regis’s son opened up a pharmacy in Louisville, Kentucky and notified his mother that Rectanus was selling a blood purifier under the name “Rex.” Regis filed a subsequent suit against Rectanus for trademark infringement.[13]

The Stone Creek court summarized these two cases by stating, “[t]he central proposition underlying the two cases is that common-law trademark rights extend only to the territory where a mark is known and recognized, so a later user may sometimes acquire rights in pockets geographically remote from the first user’s territory.”[14] Furthermore, the purpose of the Tea Rose-Rectanus doctrine was to prohibit an owner of a registered mark to “monopolize markets that his trade has never reached and where the mark signifies not his goods but those of another.”[15]

Stone Creek

The most recent case concerning the Tea Rose-Rectanus doctrine, Stone Creek, Inc. v. Omnia Italian Design, Inc., dealt with similar issues as mentioned above.[16] Omnia Italian Design (“Omnia”) claimed that it acquired common law rights to use Stone Creek’s logo based on the Tea Rose-Rectanus doctrine.[17] To understand this case, it is important to know that Omnia was once a part of Stone Creek, but broke later off to form a separate entity prior to this dispute.[18] After the split, Omnia admitted that it “blatantly copied and began selling the same goods branded with the mark of its [(now ex)] business partner . . . Stone Creek.”[19]

Stone Creek was a furniture manufacturer and distributer in Phoenix, Arizona.[20] In 1990, it had five showrooms in the area.[21] All of its furniture contained its unique logo, comprising of a red oval with the words “STONE CREEK” inside of it.[22] In 1992, Stone Creek registered for a state trademark, which it obtained the rights to.[23] In 2003, Stone Creek and Omnia joined together in a business venture.[24] The arrangement allowed Omnia to place the Stone Creek logo on the leather furniture that it would sell to Stone Creek.[25] In 2012, Stone Creek filed for a federal trademark, again procuring the rights to.[26] In 2013, Stone Creek discovered that Omnia had been embossing the Stone Creek logo on all of its furniture, including those pieces that were sold to competitors of Stone Creek.[27] One of Omnia’s other main buyers, Bon-Ton Stores, Inc. (“Bon-Ton”), convinced Omnia to begin placing the Stone Creek logo on its products and in its showrooms because Stone Creek sounded more American than the Bon-Ton name.[28] Bon-Ton sold its furniture in the Midwest, not including Arizona.[29]

Stone Creek filed a trademark infringement case against Omnia, but an Arizona district court held for Omnia.[30] On appeal, the Ninth Circuit addressed Omnia’s Tea Rose-Rectanus doctrine argument.[31] The Court stated “[t]o take advantage of the Tea Rose-Rectanus doctrine, the junior user must establish good faith use in a geographically remote area.”[32] The Ninth Circuit then “conclude[d] that . . . there is no good faith if the junior user had knowledge of the senior user’s prior use.”[33]

The Stone Creek court claimed that the Tea Rose-Rectanus doctrine origins substantially backed its ruling.[34] In the Hanover case, the Supreme Court noted that Metcalf “began selling ‘Tea Rose’ flour . . . without any knowledge of [Hanover’s] prior use.”[35] The same rationale was given in the United Drug case.[36] The junior drug distributor, Rectanus, had no prior knowledge that the senior, United Drug, was also using the name “Rex” to sell its drugs.[37] The Ninth Circuit stated that “[a] junior user like Omnia who has affirmative knowledge of the senior user’s mark has not serendipitously chosen the same mark and independently built up its own brand.”[38] Therefore, Omnia acted in bad faith and was not protected by the Tea Rose-Rectanus doctrine.[39]

Circuit Split

Along with the Ninth Circuit, the Seventh and Eighth Circuits have taken the side that knowledge of a senior company using a logo or symbol precludes the junior company from arguing the Tea Rose-Rectanus common-law defense.[40] In Money Store v. Harriscorp Finance, Inc., the Seventh Circuit stated that “[a] good faith junior user is one who begins using a mark with no knowledge that someone else is already using it.”[41] The Money Store and its three subsidiaries wanted to create one national brand to simplify its advertising, which they chose to call “The Money Store.” (“Plaintiff”).[42] All companies were located in the North-east area.[43] After a national trademark search that revealed only one other “The Money Store” located in Utah, the Plaintiff, being in a different service industry than the Utah company, made the decision that it was fine to use “The Money Store” as its brand.[44] The Plaintiff eventually sought to obtain a federal trademark of the name, which it was granted.[45]

Theodore Roberts, an executive at Harriscorp, also wanted to also use “The Money Store” mark, but United Bank (“United”), in Chicago, was already using the mark.[46] Thereafter, United surrendered and assigned the brand, “The Money Store,” to Roberts’s Harriscorp.[47] A month after Harriscorp began using the name “The Money Store,” the Plaintiff notified Harriscorp that it was using a trademarked mark.[48] After months of back-and-forth, the Plaintiff went silent, so Roberts came to believe that they had the right to use the mark without challenge by the Plaintiff.[49]

Harriscorp was wrong, and the Plaintiff filed a suit shortly thereafter.[50] After a ruling for Harriscorp, the Plaintiff appealed to the Seventh Circuit.[51] On appeal, Harriscorp asserted the Tea Rose-Rectanus defense, arguing that it was a good faith junior.[52] After weighing the facts, the Seventh Circuit concluded that when Harriscorp began using “The Money Store” mark, it was not aware that anyone else was also using the mark.[53] Therefore, it was a “good faith junior user in its market area.”[54]

The Eighth Circuit came to a similar conclusion.[55] In National Association for Healthcare Communications, Inc. v. Central Arkansas Area Agency of Aging, Inc., the Plaintiff and Defendant were fighting over which firm could use the mark “CareLink.”[56] Plaintiff (“Healthcom”) argued that since it was the first to use the “CareLink” mark nationally, it held the superior right, but Defendant (“Central Arkansas”) was the first to use it in six Arkansas counties, so it argued that it had superior right in those specified areas.[57] The district court held that since Central Arkansas was the first adopter in Arkansas and held a state trademark, it was entitled to relief for the state of Arkansas.[58] Additionally, since Central Arkansas was granted exclusive trademark rights to Arkansas, Healthcom was prohibited from using the “CareLink” mark in the state.[59]

On appeal, the Eighth Circuit found that Central Arkansas “adopted the CareLink mark in good faith, without knowledge of Healthcom’s prior use.”[60] Therefore, the court found for Central Arkansas and granted permanent exclusive use to Central Arkansas in those six Arkansas counties that it was first located.[61]

Conversely, the Fifth and Tenth Circuits “have held that the knowledge is a factor in informing good faith, but the ‘focus is on whether the [junior] user had the intent to benefit from the reputation or goodwill of the [senior] user’”[62] In the Tenth Circuit case, GTE Corp. v. Williams, GTE Corporation (“GTE”) owned four subsidiaries, all of which used the “General Telephone” mark.[63] Williams was a sole proprietor in Utah that had been using the “General Telephone” mark for multiple years in his small geographic area.[64] Well after both companies had been using the “General Telephone” mark, GTE filed for, and was granted, a national trademark of the name.[65] GTE immediately filed a trademark infringement suit against Williams.[66] After three trials and a remand, the appeal landed in the Tenth Circuit Court.[67]

The court took note that:

While a subsequent user’s adoption of a mark with knowledge of another’s use can certainly support an inference of bad faith, mere knowledge should not foreclose further inquiry. The ultimate focus is on whether the second user had the intent to benefit from the reputation or goodwill of the first user.[68]

Additionally, GTE was a national brand and Williams only operated in the remote area of Wasatch Front, Utah.[69] Therefore, despite the court’s finding that Williams had knowledge of another “General Telephone,” his intent was not to compete with GTE, nor benefit from its reputation.[70] The Tenth Circuit concluded its holding for Williams by finding that only when the junior user adopted the “mark for the purpose of benefiting from the plaintiff’s reputations and goodwill” will the junior not be protected by the Tea Rose-Rectanus doctrine.[71]

The Fifth Circuit, in C.P. Interests, Inc. v. California Pools, Inc., relied on the same rationale.[72] California Pools, Inc. (“CP”) built and installed pools and spas out of its California headquarters.[73] It did business in numerous states in the vicinity.[74] It held a national trademark to the mark “California Pools & Spas, Inc.”[75] When it attempted to expand to Texas, CP discovered that there was a Texas company doing business as “California Pool Repair & Service Company” (“Texas Pools”).[76] Texas Pools was part of a larger corporation out of Dallas, Texas called “California Pool Service.”[77] In a trademark infringement suit brought by Texas Pools, a jury found for Texas Pools, finding that it had a good faith use of the mark.[78]

In an argument anchored by the Tea Rose-Rectanus doctrine, CP disputed the district court’s instruction that “mere knowledge of defendant’s use of a mark does not defeat good faith.”[79] Instead, CP said that any knowledge of prior use means that that use was not in good faith.[80] Following prior Fifth Circuit precedent, the court in C.P. Interests found that knowledge of prior use is one element in a multi-factor test.[81] The court held that “knowledge of use is not dispositive in the absence of evidence of ‘an intent to benefit from the reputation or good will of the [senior user].’”[82]

Conclusion

Since “good faith” was not clearly defined in the Hanover or United Drug cases, it is still open to interpretation by the Circuits.[83] As of now, it seems to be an argument that has stayed away from the East Coast, but once it hits, the Supreme Court may be forced to make an ultimate ruling. On the other hand, since the Tea Rose-Rectanus doctrine is very specific in its applicability, the Supreme Court may just leave its interpretation in the hands of the district courts. If the split continues on its current path; however, it very well may become a north and south issue, opposed to an East Coast-West Coast one. It may have the Seventh and Eighth Circuits leading the charge up north and the Fifth and Tenth Circuits doing the same in the south.[84] Either way, the Circuits seem to be following precedent tightly with no apparent thoughts on breaking it.[85] This may create an increase in forum shopping, or it may be so marginal of a point that things remain the same.

[1] Stone Creek, Inc. v. Omnia Italian Design, Inc., 875 F.3d 426, 429, 436 (9th Cir. 2017).

[2] Id. at 429.

[3] Id. at 436.

[4] 240 U.S. 403 (1916). The Hanover case is more commonly known as the “Tea Rose” case because the defendant, Metcalf, sold flour in containers which were labeled “Tea Rose” and were embossed with the same Tea Rose emblem as Plaintiff, Hanover Star Milling Company. Id. at 405-06.

[5] 248 U.S. 90 (1918).

[6] Hanover, 240 U.S. at 405.

[7] Id. at 405-06

[8] Id. at 405.

[9] Id. at 406.

[10] United Drug, 248 U.S. at 94.

[11] Id.

[12] Id. at 94-95.

[13] Id. at 95-96.

[14] Stone Creek, 875 F.3d at 436. See Hanover, 240 U.S. at 423-24 (“Metcalf’s purpose to take advantage of the reputation of the Hanover Company’s Tea Rose flour is so manifest, and the tendency of the similarity of the brand and accompanying design, and of the make-up of the packages, to mislead ultimate consumers, is so evident, that it seems to us a case of unfair competition is made out. The circumstances strongly indicate a fraudulent intent to palm off the Steeleville Tea Rose flour upon customers as being the same as the Tea Rose flour made by complainant, the reputation of which is shown to be so well established.”); see also United Drug, 248 U.S. at 103 (stating that “since it appears that Rectanus in good faith, and without notice of any prior use by others, selected and used the ‘Rex’ mark, and by the expenditure of money and effort succeeded in building up a local but valuable trade under it in Louisville and vicinity before petitioner entered that field, so that ‘Rex’ had come to be recognized there as the ‘trade signature’ of Rectanus and of respondent as his successor, petitioner is estopped to set up their continued use of the mark in that territory as an infringement of the Regis trade-mark.”).

[15] Nat’l Ass’n for Healthcare Commc’ns, Inc. v. Cent. Ark. Area Agency of Aging, Inc., 257 F.3d 732, 735 (8th Cir. 2001) (quoting Hanover, 240 U.S. at 416).

[16] 875 F.3d at 436.

[17] Id.

[18] Id. at 429

[19] Id.

[20] Id.

[21] Id.

[22] Stone Creek, 875 F.3d. at 429-30.

[23] Id. at 430.

[24] Id.

[25] Id.

[26] Id. at 430

[27] Id.

[28] Stone Creek, 875 F.3d. at 430.

[29] Id.

[30] Id. at 431.

[31] Id. at 436-37.

[32] Id. at 436 (citing United Drug, 248 U.S. at 100) (“It would be a perversion of the rule of priority to give it such an application in our broadly extended country that an innocent party who had in good faith employed a trade-mark in one state, and by the use of it had built up a trade there, being the first appropriator in that jurisdiction, might afterwards be prevented from using it, with consequent injury to his trade and good will, at the instance of one who theretofore had employed the same mark, but only in other and remote jurisdictions, upon the ground that its first employment happened to antedate that of the first-mentioned trader.”).

[33] Id. at 437.

[34] Stone Creek, 875 F.3d. at 437.

[35] Id. (quoting Hanover, 240 U.S. at 410) (The “Tea Rose” logo and emblem was “adopted and used [the trademark] in good faith without knowledge or notice that the name ‘Tea Rose’ had been adopted or used . . . by anyone else.” (alterations in original)).

[36] Id. (quoting United Drug, 248 U.S. at 96, 103) (protecting parties that have acted “in perfect good faith; neither side having any knowledge or notice of what was being done by the other.”).

[37] Stone Creek, 875 F.3d at 437; United Drug, 248 U.S. at 96.

[38] Stone Creek, 875 F.3d at 439.

[39] Id.

[40] Id. at 437, 439 (citing Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 674-75 (7th Cir. 1982); Nat’l Ass’n for Healthcare Commc’ns, 257 F.3d at 735).

[41] Money Store, 689 F.2d at 674 (emphasis added).

[42] Id. at 668.

[43] Id.

[44] Id. at 669.

[45] Id.

[46] Id. at 669-70.

[47] Money Store, 689 F.2d at 669-70.

[48] Id. at 670.

[49] Id.

[50] Id.

[51] Id.

[52] Id. at 674.

[53] Money Store, 689 F.2d at 679.

[54] Id.

[55] Nat’l Ass’n for Healthcare Commc’ns, Inc., 257 F.3d at 735.

[56] Id. at 733.

[57] Id.

[58] Id.

[59] Id. (citing Nat’l Ass’n for Healthcare Commc’ns, Inc. v. Cent. Ark. Area Agency of Aging, Inc., 119 F.Supp. 2d 884, 892 (E.D.Ark. 2000)

[60] Id. at 735.

[61] Nat’l Ass’n for Healthcare Commc’ns, Inc., 257 F.3d at 738.

[62] Stone Creek, 875 F.3d at 437 (quoting GTE Corp. v. Williams, 904 F.2d 536, 541 (10th Cir. 1990)).

[63] GTE Corp., 904 F.2d at 537.

[64] Id.

[65] Id.

[66] Id.

[67] Id. at 537-38.

[68] Id. at 541 (citing Jordache Enterprises, Inc. v. Hogg Wyld, LTD., 828 F.2d 1482, 1485 (10th Cir. 1987) (citations omitted)).

[69] GTE Corp., 904 F.2d at 537.

[70] Id. at 541-42.

[71] GTE Corp., 904 F.2d at 541 (quoting Value House v. Phillips Mercantile Co., 523 F.2d 424, 431 (10th Cir. 1957)).

[72] 238 F.3d at 700.

[73] Id. at 692.

[74] Id.

[75] Id.

[76] Id.

[77] Id.

[78] C.P. Interests, Inc., 238 F.3d at 692-93.

[79] Id. at 700.

[80] Id.

[81] Id. (citing El Chico, Inc. v. El Chico Café, 214 F.2d 721, 726 (5th Cir. 1954)) (“In short, though the defendants knew of plaintiff’s use of the name, they further knew that the plaintiff did not have an exclusive right to such use as against a noncompeting business, where there was no likelihood of confusion as to source, and in the absence of an intent to benefit from the reputation or good will of the plaintiff.”).

[82] Id. (quoting El Chico, 214 F. 2d at 726) (alterations in original).

[83] Hanover, 240 U.S. 403; United Drug, 248 U.S. 90.

[84] C.P. Interests, Inc., 238 F. 3d 690; Money Store, 689 F. 2d 666; Nat’l Ass’n for Healthcare Commc’ns, Inc., 257 F.3d 732; GTE Corp., 904 F.2d 536.

[85] Id.