Ninth Circuit Panel Splits on Laches Issue in Trademark Suit
Internet Specialties West and Milon-Digiorgio Enterprises, Inc. are both internet service providers offering substantially similar services. Internet Specialties uses the domain name "ISWest.com" and it registered that domain name in May 1996. MDE uses the domain name "ISPWest.com", which it registered in July 1998. Internet Specialties learned of ISPWest's existence in late 1998 but took no action against it because the company was not concerned about competition from ISPWest at that time.
After 1998, ISPWest continued to expand, including offering nation-wide service in 2002 and DSL in mid-2004. In 2005, Internet Specialties took action, sending ISPWest a cease-and-desist letter and filing a lawsuit alleging that the use of the "ISPWest.com" domain name constituted trademark infringement under the Lanham Act. In a bifurcated trial, the jury found that ISPWest had infringed on Internet Specialties' trademark but found no damages. The district court in turn denied ISPWest's laches defense and issued an injunction against its use of the name "ISPWest".
The Ninth Circuit panel split on the primary issue on review--the analysis of ISPWest's laches defense to Internet Specialties' trademark infringement claim.
Both the majority and the dissent agreed on certain aspects of ISPWest's laches defense. For example, both agreed that the laches period began in 1998, when Internet Specialties first learned of ISPWest's existence. Because Internet Specialties did not file suit within the applicable four-year statute of limitations period starting from 1998, there was a presumption that laches applied.
But the majority and the dissent parted ways on the question of prejudice to ISPWest resulting from Internet Specialties' unreasonable delay in bringing suit for approximately six years. The majority concluded that ISPWest could not show prejudice simply by demonstrating that it had spent money expanding its business but rather must show that during the delay, it developed "brand recognition of its mark." Thus, although the majority expressed sympathy for ISPWest's position--during Internet Specialties' delay in bringing suit, ISPWest expanded from 2,000 to 13,000 customers and grew from $518,848 in sales to $2,422,463 in sales--it concluded that ISPWest had failed to show "that its identity had much at all to do with the mark ISPWest, inasmuch as [it] did not rely on its mark to attract customers."
Judge Kleinfeld, writing in dissent, disagreed with the majority's view of the type of prejudice that must be proven and asserted that the practical effect of what he characterized as a new rule in the Ninth Circuit "is to eviscerate the defense of laches in trademark law." Relying on an earlier Ninth Circuit case, Grupo Gigante S.A. de C.V. v. Dallo & Co., 391 F.3d 1088 (authored by Judge Kleinfeld), the dissent argued that the rule had long been that for purposes of laches, prejudice is established if the party asserting the defense proves "it has continued to build a valuable business around its trademark during the time that the plaintiff delayed the exercise of its legal rights." Based on ISPWest's "five or sixfold" expansion of its business during Internet Specialties' delay, the dissent concluded that ISPWest had met its burden of proving such prejudice.
The dissent also rejected the majority's attempt to distinguish Grupo Gigante. The majority argued that there "is a significant difference between the public association of a grocery store [at issue in Grupo Gigante] and its name, versus the public association of MDE and ISPWest" and that "[a] grocery store's very identity rests in its name." Indeed, the discussion of prejudice in Grupo Gigante does not appear to support whatever distinction the majority was attempting to articulate between a grocery store name and a domain name. To the contrary, the Ninth Circuit in Grupo Gigante merely stated that by opening a second grocery store after the senior user learned of the alleged infringement and "by operating both stores for an additional four years after that use was discovered," the junior user was prejudiced by the delay.
You can find a copy of the Ninth Circuit's decision in Internet Specialties West, Inc. v. Milon-DiGiorgio Enterprises, Inc., including the dissent, here (PDF, 25 pages).
