Laches Defense Upheld, But Injunction Imposed After Long Delay by Trademark Owners

Thomas Kenneth Abraham founded Paddle Tramps in 1961.  Paddle Tramps manufactures and sells products displaying the names and symbols of fraternities and sororities and is known for its wooden paddles decorated with the Greek letters associated with fraternities and sororities.  Abraham was first contacted about obtaining a license from the Greek Organizations in 1990.  Abraham received letters from individuals representing the Greek Organizations periodically until 2007, when the Greek Organizations sued him in the Southern District of Florida for patent infringement and unfair competition.  That case was dismissed for improper venue, as Paddle Tramps is located in Lubbock, Texas. 

Abraham then brought a declaratory judgment action against the Greek Organizations in 2008.  A jury found that Abraham established his laches defense and that the Greek Organizations did not establish their unclean hands counter-defense.  The district court ruled that the Greek Organizations were not entitled to damages, due to the laches finding.  The district court judge enjoined Abraham from selling and using in advertising all of the infringing products except one.  Both parties appealed to the Fifth Circuit Court of Appeals.  The Fifth Circuit affirmed the district court’s judgment.

On appeal, the Greek Organizations argued that the district court improperly instructed the jury on laches and unclean hands and that the jury’s findings on laches and unclean hands were not supported by the evidence. 

No unclean hands.

A laches defense is an equitable defense and cannot be asserted by a party with unclean hands. 

A defendant who intentionally infringes a trademark with the bad faith intent to capitalize on the markholder’s good will lacks the clean hands necessary to assert the equitable defense.

(Opinion pdf page 8).

For the unclean hands counter-defense to apply, the defendant must subjectively and knowingly intend to confuse buyers.  Unclean hands requires knowing and intentional infringement of the marks with the bad faith intent to capitalize on the mark holder’s goodwill by confusing or deceiving consumers.  The confusion or deception required to support a case of unclean hands is not the same confusion or deception required to support a case of trademark infringement.  Otherwise, the defendant in every trademark infringement case would automatically have unclean hands.

Abraham introduced evidence tending to show a lack of bad faith: Paddle Tramps helped to create the market for fraternity and sorority paddles decades before the Greek Organizations had a licensing program, Abraham’s intent was to service fraternities and sororities, not to capitalize on their goodwill in bad faith, the products are virtually the same today as they were in the 1960s, and Paddle Tramps never passed itself off as being sponsored or endorsed by the Greek Organizations.

(Opinion pdf page 11).

The Fifth Circuit found this evidence to be legally sufficient to support a jury verdict in Abraham’s favor on the unclean hands issue because of the showing of Abraham’s lack of bad faith.

Abraham established the laches defense.

Laches is an inexcusable delay that results in prejudice to the defendant.  Laches has three elements: (1) delay in asserting one’s trademark rights, (2) lack of excuse for the delay, and (3) undue prejudice to the alleged infringer caused by the delay.

(Opinion pdf page 12).

See my post Copyright Holder’s Tardiness Prevents Copyright Infringement Claims for a discussion of laches in the copyright context.

No excuse for the delay.  The Greek Organizations challenged the jury’s finding that the Greek Organizations lacked an excuse for the delay.  Trademark owners are not required to take action against de minimus infringements.  Similarly, under the doctrine of progressive encroachment, the mark holder is not required to take action against infringers until the infringement reaches the level of causing serious harm. 

Paddle Tramp first put up a website advertising its products in 1997 and began selling products directly from its website in 2001.  The Greek Organizations did not sue Abraham until 2007.  The Fifth Circuit ruled that the jury could have found that 6 year delay after Paddle Tramp started selling products from its website to be an unexcused delay, satisfying the lack of excuse element of laches.

Abraham was unduly prejudiced by the Greek Organizations’ actions.  The question under the undue prejudice element of laches is whether the trademark owner’s delay caused the infringer to suffer losses that would have been avoided without the trademark owner’s delay. 

Laches is a good defense if plaintiff’s long failure to exercise its legal rights has caused defendant to rely to its detriment by building up a valuable business around its trademark.

(Opinion pdf page 16).

The Greek Organizations argued that the jury’s finding of undue prejudice was not supported by the evidence.  Abraham testified that he rebuilt his plant three times, following fires and a tornado, and that he would not have rebuilt if he knew he would later get sued by the Greek Organizations for trademark infringement.  He further testified that the sale of the infringing products, even though it was a small percentage of total sales, drive the sale of Paddle Tramp’s non-infringing products.  The Fifth Circuit ruled that Abraham’s testimony met the test for undue prejudice and for laches.

The district court did not err in imposing a permanent injunction

Abraham appealed the permanent injunction imposed by the district court.  Abraham argued that injunctive relief was not available to the Greek Organizations due to their long, unreasonable and inexcusable delay.  The Greek Organizations also appealed the injunction, arguing that it did not cover enough products.

A finding of laches alone ordinarily will not bar injunctive relief, although it typically will foreclose a demand for an accounting or damages.  This is because courts construe a trademark owner’s unreasonable delay to imply consent to the infringer’s conduct, which amounts to nothing more than a revocable license; the license is revoked once the plaintiff objects to the infringer’s infringement.

(Opinion pdf page 18).

In determining whether to enjoin the defendant from future infringement, the court examines the prejudice to the defendant.  The district court enjoined Abraham from selling all infringing products except one.  Abraham testified at trial that that one infringing product drove the sales of his non-infringing products.  The only item that would cause Abraham prejudice if it was included in the injunction was excluded from the injunction.  The Fifth Circuit ruled that the district court properly balanced the equities, that the injunction imposed by the district court was reasonable and therefore affirmed the district court’s ruling.

This case is Abraham v. Alpha Chi Omega, No. 12-10525, Fifth Circuit Court of Appeals.

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