How Opening a Restaurant in New York Can Constitute Unfair Competition with a Restaurant with No U.S. Operations
Bukhara is an ancient city on the Silk Road in Uzbekistan. It has an interesting Central Asian cuisine and quite a few émigrés in New York City. If a few Bukharan-Americans were to open a restaurant in the New York named after their city of origin, under what circumstances could they be held liable for unfair competition to a restaurant in India named Bukhara, with no branches in the United States?
Remarkably, a case similar to this one has already found its way to both the Second Circuit and the New York Court of Appeals. A restaurant in New York named “Bukhara Grill” was sued in Federal Court for unfair competition and related claims by ITC, the owner of an Indian chain of restaurants named “Bukhara,” based in New Delhi. ITC, at one point, had a branch in New York and had filed a trademark application for the name “Bukhara,” but the New York branch had shut down. It had no current operations in North America.
When ITC’s branch in New York closed, three of its employees opened their own restaurant and called it Bukhara Grill. As one of them explained, there was “no restaurant Bukhara in New York, and we just thought we [would] take the name.” (ITC Ltd. v Punchgini, Inc., 482 F3d 135, 144 [2d Cir 2007]). And, as they would later note, there were at least 20 other restaurants around the world named “Bukhara.” But Bukhara Grill bore similarities to ITC’s Bukhara aside from name, including menu, decoration and waiters’ dress.
Shortly after the Bukhara Grill opened, ITC’s counsel sent a letter to one of the owners, relying on the “famous marks” doctrine (see below) and accusing him of “passing off [his] new business [i.e., Bukhara Grill] as that of” ITC, “piggy[]back[ing] on the tremendous reputation” of ITC's Bukhara restaurants, and “partak[ing] of the fame, goodwill and custom earned by [ITC], by the mere adoption of the identical name.” ITC Ltd. v. Punchgini, Inc., 9 N.Y.3d 467, 473 (2007).
The famous mark’s doctrine holds that a trademark owner not currently using a mark in the U.S. can nevertheless stop any infringing use in the U.S. if the mark at issue is famous or has acquired “secondary meaning” within the U.S. “Secondary meaning” is a term of art referencing a trademark’s ability to ‘identify the source of the product rather than the product itself ’ ITC Ltd. v. Punchgini, Inc., 518 F.3d 159, 161. When secondary meaning attaches, a mark that a business would not have initially been able to register may achieve trademark status. The mark may be subject to registration at some point in the future after sufficient use has been made to prove secondary meaning under trademark law.
ITC’s counsel demanded that the new restaurant cease using the name Bukhara and acknowledge ITC’s exclusive rights to the Bukhara mark; he also demanded an accounting of its sales and profits and remittance of any such profits, as well as estimated damages and attorneys’ fees.
Bukhara Grill’s counsel responded by stating that Bukhara had abandoned the tradename in the United States two years earlier, so it had no rights to it.
Ultimately, ITC filed suit in the United States District Court for the Southern District of New York, alleging trademark infringement under section 32 (1) (a) of the Lanham Act (codified at 15 USC § 1114 [1] [a]); unfair competition and false advertising under sections 43 (a) and 44 (h) of the Lanham Act (codified at 15 USC § 1125 [a]; § 1126 [h]); and parallel claims under New York common law. Bukhara Grill defended by claiming “abandonment” and filed a counterclaim seeking cancellation of the mark's registration on that ground.
After discovery, both sides moved for summary judgment. The District Court ruled that ITC could not pursue a trademark infringement claim because it had abandoned the mark for restaurants in the United States. It also rejected ITC’s unfair competition claims under section 43 (a) of the Lanham Act and New York common law.
The Second Circuit affirmed the District Court’s award of summary judgment on Bukhara’s infringement, unfair competition and false advertising claims under federal law. It rejected the use of the famous marks doctrine under federal law, but was uncertain whether it applied under New York common law. Thus, it certified the following two questions to the New York Court of Appeals: (1) “Does New York common law permit the owner of a famous mark or trade dress to assert property rights therein by virtue of the owner's prior use of the mark or dress in a foreign country?”; (2) “If so, how famous must a foreign mark be to permit a foreign mark owner to bring a claim for unfair competition?” (482 F3d at 167.)
The New York Court of Appeals responded by stating: “We have long recognized two theories of common-law unfair competition: palming off and misappropriation. “Palming off”--that is, the sale of the goods of one manufacturer as those of another --was the first theory of unfair competition endorsed by New York courts, and has been extended . . . to situations where the parties are not even in competition.” ITC Ltd. v. Punchgini, Inc., 9 N.Y.3d at 476-477. Misappropriation rests on the principle “that one may not misappropriate the results of the skill, expenditures and labors of a competitor.” Id. The Court of Appeals stated that New York courts decided cases such as this one on a “misappropriation” theory and that there is no separate “famous mark or trade dress” theory in New York.
Under New York law, “[a]n unfair competition claim involving misappropriation usually concerns the taking and use of the plaintiff's property to compete against the plaintiff's own use of the same property.” The term “commercial advantage” has been used interchangeably with “property” within the meaning of the misappropriation theory. . . . for certain kinds of businesses (particularly cachet goods/services with highly mobile clienteles), goodwill can, and does, cross state and national boundary lines.
Accordingly, while we answer “Yes” to the first certified question, we are not thereby recognizing the famous or well-known marks doctrine, or any other new theory of liability under the New York law of unfair competition. Instead, we simply reaffirm that when a business, through renown in New York, possesses goodwill constituting property or a commercial advantage in this state, that goodwill is protected from misappropriation under New York unfair competition law. This is so whether the business is domestic or foreign.”
The Court followed this by answering the second question, stating that “protection from misappropriation of a famous foreign mark presupposes the existence of actual goodwill in New York. If a foreign plaintiff has no goodwill in this state to appropriate, there can be no viable claim for unfair competition under a theory of misappropriation. At the very least, a plaintiff's mark, when used in New York, must call to mind its goodwill. . . Thus, at a minimum, consumers of the good or service provided under a certain mark by a defendant in New York must primarily associate the mark with the foreign plaintiff.” (9 N.Y.3d at 479).
Thus, to prevail on an unfair competition theory, under New York law, the Plaintiff would have to show that defendants appropriated (i.e., deliberately copied), its mark or dress for their New York restaurant. If it makes that showing, it would then have to establish that the relevant consumer market for New York's Bukhara restaurant primarily associates the Bukhara mark or dress with those Bukhara restaurants owned and operated by Plaintiff (9 N.Y.3d at 480). In short, to pursue an unfair competition claim, Plaintiff must adduce proof of both deliberate copying and “secondary meaning”.
The case went back to the Second Circuit, which we will discuss further in another blog post next week. Where the Court concentrated on what constitutes “secondary meaning”.