Dorpan, S.L. v. Hotel Meliá, Inc., 851 F.Supp.2d 398 (D.P.R. 2012), vacated, 728 F.3d 55 (1st Cir. 2013).
For more than a century at the time of the litigation, Hotel Meliá, Inc. (“HMI”), a family business, operated a single hotel called “the Hotel Meliá” at 75 Cristina Street in Ponce, Puerto Rico. Despite its long history (or perhaps because of it), HMI never registered the word “Meliá” for federal or territorial trademark purposes. Thus, the mark’s status as a trademark was entirely dependent on Puerto Rico’s common law.
While it was undisputed that HMI had acquired trademark rights for its Meliá mark, the geographic reach of those rights was called into question when a large Spanish hospitality firm, Sol Meliá, S.A., through its subsidiary, Dorpan, S.L. (“Dorpan”), registered the mark “Gran Meliá” with the USPTO and opened a resort bearing the mark’s name in Coco Beach, Puerto Rico, eighty miles from HMI’s Ponce location. After the parties’ efforts to resolve the dispute failed, each brought suit in Puerto Rico — HMI in the territorial courts, Dorpan in the federal court. Dorpan then removed HMI’s case to the federal forum where the cases were consolidated.
HMI’s central contention was that as senior user of the Meliá mark in Puerto Rico it was entitled to exclusive use of the name throughout the territory. Sol Meliá disagreed, contending that its Lanham Act registration gave it sole right to the mark in Puerto Rico. If HMI had any right to the name, Sol Meliá argued, that right was limited to the city of Ponce.
At the close of discovery both sides moved for summary judgment. The district court granted Dorpan’s motion but concluded that the two marks could coexist in Puerto Rico. Dorpan, S.L. v. Hotel Meliá, Inc., 851 F.Supp.2d 398, 411 (D.P.R. 2012). As for the reach of HMI’s mark, the district court determined that HMI’s rights had been “frozen” in place by Dorpan’s federal registration. Id. Accordingly, while HMI could continue to use the Meliá mark within the city of Ponce, Dorpan would be free to use its Gran Meliá mark everywhere else in Puerto Rico and the United States. Id.
Both sides appealed. Dorpan, S.L. v. Hotel Meliá, Inc., 728 F.3d 55 (1st Cir. 2013). In an opinion by Judge Lipez, the court of appeals explained that, despite its status as the senior user of the Meliá mark in Puerto Rico, HMI did not “automatically acquire a Commonwealth-wide right to use the mark.” Id. at 63. Rather, HMI was entitled to exclusivity only in the geographic area where it had been doing business using the Meliá mark (its “trade area”):
In this context, the geographic area in which an unregistered trademark is ‘in use’ is defined as the area in which the use of [a] similar mark would create a likelihood of confusion . . . . Thus, in this case, the inquiry into the geographic scope of HMI’s pre-existing common law trademark rights and the likelihood of confusion analysis are one and the same. In other words, if Dorpan’s use of a similar mark in Coco Beach creates a likelihood of confusion with HMI’s mark, then HMI’s trade area extends at least as far as Coco Beach and Dorpan’s use infringes on that right. Likewise, if Dorpan’s mark does not create a likelihood of confusion with HMI’s, then HMI’s trade area is considerably smaller and Dorpan is entitled to a declaratory judgment of non-infringement . . . . Consequently, both the extent of HMI’s rights under Puerto Rico law and Dorpan’s rights under federal law turn on the same question: Does Dorpan’s use of the Meliá mark in Puerto Rico create an impermissible likelihood of consumer confusion?
Id. at 63-64.
While the district court performed a likelihood-of-confusion analysis based on the Pignons factors, Pignons S.A. de Mecanique de Precision v. Polaroid Corp., 657 F.2d 482, 487 (1st Cir. 1981), the circuit court reviewed that analysis de novo, factor by factor, to determine whether “no reasonable factfinder could conclude that Dorpan’s use of the Meliá mark in Coco Beach created a likelihood of confusion.” Dorpan, 728 F.3d at 65-66. In the end, the court found a number of errors in the district court’s evaluation of the Pignons factors (too little weight given to evidence of actual confusion and the similarity of the marks, too much weight to the absence of bad faith on Dorpan’s part, incorrect equating of HMI’s use of its mark with the geographic location of its hotel, and too narrow a view of the interests protected by trademark law) and concluded that the lower court’s summary ruling in Dorpan’s favor should be vacated and the case remanded for trial on the central question of likelihood of confusion. Id. at 69-71.
Confusion is relevant for trademark purposes when “it exists in the minds of persons in a position to influence the purchasing decision or persons whose confusion presents a significant risk to the sales, goodwill, or reputation of the trademark owner.” Id. at 64. Whether such confusion exists requires a “particularly fact-intensive” analysis using the eight factors identified in Pignons. Id. at 66. But, to one degree or another, each of the factors requires the application of some amount of judgment. Are the marks similar? Are the goods or services similar? Is there substantial similarity in the parties’ methods of advertising and channels of trade? Is the evidence of actual confusion, if available, persuasive? Did the junior user intend to cause confusion or exploit the senior user’s goodwill? When individual factors point in different directions, how are the factors to be balanced?
After its return to the district court, the case was settled before trial, although the terms of settlement are not part of the court record. Nonetheless, HMI continues to operate its hotel on Christine Street in Ponce, but now does so as “Meliá Century Hotel.” Sol Meliá, on the other hand, operates a “beach resort” in Coco Beach under the name “Meliá Coco Beach.” Based solely on this post-litigation rebranding, both sides appear to have compromised in the settlement. HMI preserved the core terms of its mark (“Meliá” and “Hotel”) but adopted the intervening word “Century” as an addition to them. At the same time, HMI appears to have moderated its claim to exclusive use of the word “Meliá” throughout Puerto Rico. For its part, Sol Meliá compromised its view that federal registration somehow gave it exclusive right to the word “Meliá” throughout Puerto Rico, but gained the ability to use that word to identify its operations in Coco Beach. Other factors, particularly the relative economic strength of the parties, may have affected the terms of settlement. But uncertainty about the eventual outcome had to be prominent among them. Delineating the geographic boundaries between federal and common law marks is an uncertain business, even where one of the protagonists had been in place for more than a century.
– Anthony F. Muri, January 1, 2020