As a bit of a jaded reward for writing a great paper in my Craft Beer Law class, the following is a very interesting paper written by a rock-star McGeorge student, Megan McCauley.  Megan has been a standout student in two of my classes–especially Craft Beer Law.  What I find most interesting about her piece is the idea of creating a dispute resolution mechanism for Brewers Association members to lessen the potential for brewer-on-brewer litigation.  It’s a good read, and it provides a glimpse of what we are doing here at McGeorge in Craft Beer Law.  Cheers!

What’s in a Name? Mitigating the Tension Between Independent Craft Breweries and Trademark Law

Introduction

In the past decade, small and independent craft breweries have taken America by storm. During the industry’s infancy, the number of craft breweries rose from eight in 1980 to 537 in 1994.[1] Today, there are over 6,000 craft breweries in the United States.[2] Largely driven by consumer demand and expedited by self-distribution laws that allow small craft breweries to sell directly to consumers in taprooms, the craft beer boom has created a market that injects billions of dollars into our economy.[3] In 2016 alone, craft breweries contributed $68 million to the national economy.[4]

With more and more breweries entering the marketplace, brewers are struggling to come up with unique and innovative beer and brand names. “Virtually every large city, notable landscape, creature and weather pattern of North America … has been snapped up and trademarked as the name of either a brewery or a beer.”[5] As the market becomes increasingly saturated, the likelihood of conflict between breweries also increases as market players seek to protect and maintain their brands. In recent years, this conflict has primarily come to fruition in the courtroom. This trend is troubling because the adversarial nature of litigation is the antithesis of the craft beer industry’s collaborative and collegial identity. Therefore, to help harmonize the industry and avoid courtroom battles between craft brewers, industry members should pursue alternative tactics of protecting their trademark rights, such as mediation or trademark consent agreements, in lieu of litigation. This paper explores the tension between trademark law and the craft beer industry and proposes two mechanisms that may help minimize the need for litigation in this context.

Protecting Trademark Rights and Respecting the Culture of Craft Beer

For most craft breweries, survival depends on being able to protect their brands and trademarks.[6] In the past, “craft brewers have … solve[d] trademark disputes amicably, rather than through litigation.”[7] However, in light of the industry’s recent growth, many craft brewers have opted for more “adversarial approaches to trademark disputes, including expensive trademark litigation, harming competitors’ reputation on social media, or trademark bullying.”[8]

Trademark litigation is particularly detrimental in the craft beer industry because protracted courtroom battles contradict the collegial nature of the industry. A hallmark of the craft brewing movement is the focus on developing a local fan base, rather than mass distribution or production.[9] While this is often due to tight budgets and limited resources, it is also a product of the “home-grown” mentality that stems from the industry’s humble roots. After all, most craft breweries were born out of home brew kits in basements and garages.[10] Based on this grassroots approach, craft brewers’ unique “culture of collaboration and the cultivation of local community support … have combined to create a close-knit industry with a strong sense of camaraderie.”[11] For many craft brewers, it is critical for customers and industry members to perceive them as “laid back, easygoing, and focused mainly on brewing great beer.”[12]

Based on those concerns, if a craft brewery chooses to pursue litigation to protect its trademark rights, it may experience a reputational hit during the ensuing court battle.[13] For example, many craft beer enthusiasts and consumers have begun “using online petitions to pressure the plaintiffs into resolving their disputes out of court.”[14] They complain that resorting to litigation, as opposed to resolving disputes amicably, contradicts the community spirit that serves as the foundation for the entire industry.[15] This backlash has inspired some breweries to reconsider litigation, while others have remained steadfast in their decision.

Since a craft brewery’s success is often directly correlated to its ability to build and maintain a “grassroots fan base and support in the local community,” this friction between trademark enforcement and the craft beer industry’s culture poses serious challenges to small and large craft breweries across the country.[16]

The Lanham Act, Likelihood of Confusion, and Trademark Coexistence Agreements

If a craft brewery uses its trademark in interstate commerce, federal trademark registration is available to protect their ability to enforce their intellectual property rights in that mark. Pursuant to § 2(d) of the Lanham Act, an application for trademark registration may be refused if the mark “so resembles a mark registered in the Patent and Trademark Office … as to be likely, when used on or in connection with the goods of the applicant, to cause confusion.”[17] A significant share of trademark litigation deals with this section.

One creative way that craft brewers have avoided the negative impact and costs of trademark litigation is through trademark coexistence agreements, also known as consent agreements. A consent agreement is “an agreement between parties in which one party (e.g., a prior registrant) consents to the registration of a mark by the other party (e.g., an applicant for registration of the same [or similar] mark…).”[18] The goal of these contracts is to permit “potentially confusing trademarks to coexist without [the risk] of trademark infringement suits.”[19] Parties seeking trademark registration often introduce these agreements to overcome refusal of their registration pursuant to § 2(d) of the Lanham Act.[20] Often times, the craft brewing industry’s “sense of camaraderie … translates over to how breweries … approach potential trademark issues with other breweries,” making these agreements particularly attractive to industry members.[21]

While they are not dispositive, consent agreements are usually considered as evidence that confusion is unlikely under § 2(d).[22] The Trademark Manual of Examining Procedure explains the deference that examining attorneys of the Trademark Trial and Appeal Board (“TTAB”) apply to these agreements:

Examining attorneys should give substantial weight to a proper consent agreement. When an applicant and registrant have entered into a credible consent agreement and, on balance, the other factors do not dictate a finding of likelihood of confusion, an examining attorney should not interpose his or her own judgment that confusion is likely.[23]

This deference, however, was brought into question in 2016 with the TTAB’s decision in In re Bay State Brewing Co.[24] In that case, the TTAB refused to register a brewery’s trademark, despite their consent agreement with the owner of a similar mark. One basis for the court’s decision was that “both marks [would] be used in overlapping geographical areas, namely New England and New York.”[25] This suggests that where parties to a consent agreement operate in entirely distinct geographical markets, the TTAB may afford more deference to the agreement. Overall, Bay State Brewing diverges from the highly deferential standard previously employed and complicates a brewery’s ability to use consent agreements to avoid litigation.[26]

Crafting a Solution to Minimize Trademark Litigation

Moving forward, it would greatly benefit the craft brewing industry to avoid litigation whenever possible. Not only would this allow craft brewers to focus on supplying the market with quality craft beer, but it would also preserve both parties’ and the court’s resources. Two courses of action may help reduce litigation, including encouraging craft brewers who choose to use consent agreements to do so with utmost care and detail in light of the heightened scrutiny used by the TTAB, and also by urging the Brewers Association to mandate a non-binding mediation program for all craft brewers participating in the trade association.

          A.      Refining Consent Agreements

If craft brewers are unable to enter into trademark consent agreements, an increase in litigation is almost inevitable.[27] This litigation threatens to undermine the collegial and unique culture of the craft brewing industry. Specifically, the rise in litigation “may hamper the development of many smaller breweries and prevent the craft brewing industry from expanding as it has recently.”[28] In the future, it would be ideal if the TTAB afforded more deference to consent agreements out of respect for the party’s freedom of contract as well as their unique understanding of the industry as it exists on the ground.[29] That said, to a certain extent, Bay State Brewing simply signals that consent agreements will be carefully and meticulously scrutinized.[30] Thus, while these contracts do not guarantee success in refuting trademark registration refusal, they remain useful tools if crafted carefully.

For example, in Bay State Brewing, the TTAB was particularly concerned with the overlap of geographical coverage between the applicant and registrant’s brews. One way to alleviate those concerns is to clearly identify the geographic regions in which each party will operate and ensure there is no overlap. That, however, still does not guarantee that the consent agreement will be given great weight. Alternatively, brewers can pursue concurrent use registration. Concurrent use applications request that a trademark be registered in a specific geographical area of the United States.[31] In their application, the applicant “lists one or more parties who concededly have rights in the mark in other geographical areas of the United States.”[32]

Overall, the takeaway from cases like Bay State Brewing is that when consent agreements deal with virtually identical goods, craft brewers must be prepared for extensive scrutiny by the TTAB.[33] Moving forward, craft brewers who enter into consent agreements must take great care to ensure that their agreements clearly and succinctly show, for example, that the goods travel in distinct trade channels, that the parties mutually agree to limit the scope of their use, and that the parties will take steps to avoid any possibility of confusion in the marketplace. [34]

            B.     Self-Policing Through a Mandatory, Non-Binding Brewers Association Mediation Program

Another approach to minimizing trademark litigation between craft brewers would be to focus on the “possibility of industry self-policing through the implementation of a mandatory non-binding mediation scheme required as a condition of membership in the industry’s trade organization.”[35] Essentially, in order to minimize the inevitable conflicts between craft brewers over concurrent use of a similar trademark, the Brewers Association would implement this mediation process as a component of its dispute resolution procedure and as a condition to membership in the trade association.[36]

Arguably, the Brewers Association has the most accurate and up-to-date information on any developments within the industry. Since it is a trade organization, rather than a legislative body, it can respond quickly and efficiently to changes in the industry on a national scale. This approach is particularly useful when compared with federal legislation because it would not require any changes to the well-established Lanham Act, nor require any legislature to afford special treatment to a specific industry.[37] Furthermore, a state-based legislative approach would likely fail primarily because of the confusion and inevitable discrepancies between different state’s approaches.[38]

The largest benefit of this approach is that it would encourage “brewers to work within the industry to resolve … dispute[s] quietly.”[39] This would increase the chances of settlement, limit the strain on judicial resources, and allow the parties to return as quickly as possible to promoting their breweries and creating great beer. By diverting the resources that are currently being expended on protracted legal battles, this tactic would also encourage even further growth of this already thriving industry.[40]

Conclusion

In recent years, the tension between the “culture and expectations of the craft brewing industry and the requirements for federal trademark registration” has resulted in a significant number of lawsuits between craft breweries across the country.[41] Often times, this friction forces craft brewers to choose between “protecting their valuable trademarks and being subjected to industry ridicule or forgoing trademark protection and allowing their marks to be infringed, diluted, or tarnished.”[42] Therefore, to succeed in the increasingly competitive marketplace while also maintaining the good will of a brand, craft brewers must consider alternatives to litigation in the future.[43] Implementing a mandatory, non-binding mediation procedure as a condition to membership in the Brewers Association as well as encouraging detailed, thoughtful, and carefully crafted consent agreements may help alleviate the tension that extensive trademark litigation places on the craft beer industry.

[1] History of Craft Brewing, Brewers Association (last visited Mar. 9, 2018), https://www.brewersassociation.org/brewers-association/history/history-of-craft-brewing/.

[2] Id.

[3] Derek Thompson, Craft Beer is the Strongest, Happiest Economic Story in America, The Atlantic (Jan. 19, 2018), https://www.theatlantic.com/business/archive/2018/01/craft-beer-industry/550850/; National Beer Sales & Production Data, Brewers Association (last visited Mar. 9, 2018), https://www.brewersassociation.org/statistics/national-beer-sales-production-data/.

[4] C.J. Hughes, How Craft Breweries Are Helping to Revive Local Economies, The New York Times (Feb. 27, 2018), https://www.nytimes.com/2018/02/27/business/craft-breweries-local-economy.html.

[5] Alastair Bland, Craft Brewers are Running Out of Names, and Into Legal Spats, NPR (Jan. 5, 2015), https://www.npr.org/sections/thesalt/2015/01/05/369445171/craft-brewers-are-running-out-of-names-and-into-legal-spats.

[6] Spencer Wiles, The TTAB Should Drink a Beer and Relax: Implications for Trademark Consent Agreements in the Craft Brewing Industry After In re Bay State Brewing Company, Inc., 74 Wash. & Lee L. Rev. Online 103, 105 (2017).

[7] Gabrielle L. Palanca, More Collaboration, Less Litigation: Analyzing Craft Beer Within Intellectual Property’s Negative Space, 88 U Colo. L. Rev. 13, 14 (forthcoming publication), available at http://lawreview.colorado.edu/wp-content/uploads/2017/05/Palanca_Final_Formatted.pdf.

[8] Id.; Rebecca Winder, Trademark Protection in the Craft Brewing Industry: A Beer by Any Other Name May Be an Infringement, 15 Wake Forest J. Bus. & Intell. Prop. L. 147, 149 (2014); see The Brooklyn Brewery Corp. v. Black Ops Brewing, Inc., 156 F.Supp.3d 1173 (E.D. Cal. 2016) (action for enforcement of federal trademark rights, which resulted in enjoining Black Ops Brewing, Inc. from using “Black Ops” or “Black Ops Brewing,” and resulting in a name change for the defendant brewery); see also Complaint at 5, Port Brewing v. Moylan’s Brewing Co., No. 10 CV1826IEG (S.D. Cal. Sept. 2, 2010).

[9] Winder, supra note 8, at 150.

[10] Id. at 152.

[11] Id.

[12] Id. at 155.

[13] Id.

[14] Samantha Drake, Craft Beer’s Recent Spate of Lawsuits Has Beer Drinkers Hopping Mad, Quartz (Jan. 13, 2016), https://qz.com/589208/craft-beers-recent-spate-of-lawsuits-has-beer-drinkers-hopping-mad/.

[15] Id.

[16] Winder, supra note 8, at 150.

[17] Lanham Act, 15 U.S.C.S. § 1052.

[18] Trademark Manual of Examining Procedure § 1207.01(d)(viii) (Oct. 2017) [hereinafter “Trademark Manual”].

[19] Wiles, supra note 6, at 127.

[20] Trademark Manual, supra note 18, § 1207.01(d)(viii).

[21] Wiles, supra note 6, at 135.

[22] Id. at 128–129.

[23] Trademark Manual, supra note 18, § 1207.01(d)(viii); see Erica Fang, Brewing Likelihood of Confusion: A Look at Coexistence Agreements, Bend Law Group (July 17, 2017), http://www.bendlawoffice.com/2017/07/17/brewing-likelihood-of-confusion-a-look-at-coexistence-agreements (explaining that “Courts will consider [consent agreements as] evidence that there is no likelihood of confusion because the parties entering into the agreement are those who would most greatly be affected by potential consumer confusion”).

[24] In re Bay State Brewing Co., 2016 WL 1045677, *4 (T.T.A.B. 2016) (refusing to register Bay State Brewing’s “Time Traveler Blonde” mark after finding likelihood of confusion with another brewery’s prior registration of “Time Traveler” for beer, ale, and lager, notwithstanding a consent agreement between both parties).

[25] Id.

[26] Wiles, supra note 6, at 157.

[27] Id. at 158.

[28] Id.

[29] Id.

[30] Sandra Edelman, Consent Agreements – Not Always a Sure Path to Overcome Likelihood of Confusion Refusals in the USPTO, The TMCA (Nov. 27, 2017), http://thetmca.com/consent-agreements-not-always-a-sure-path-to-overcome-likelihood-of-confusion-refusals-in-the-uspto/.

[31] Trademark Manual, supra note 18, § 1207.04(a).

[32] Id.

[33] See Edelman, supra note 30.

[34] See In re A-Plant 2000, ApS, 2017 ITAB Lexis 306 at 15 (T.T.A.B. 2017) (establishing five factors the TTAB looks to when evaluating consent agreements).

[35] Winder, supra note 8, at 149.

[36] Id. at 163.

[37] Id.

[38] Id.

[39] Id.

[40] Id. at 164.

[41] Id. at 161.

[42] Id.

[43] Id.

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