Are Courts Still Sprinkling Sugar on the Dawn Donut Rule in the Age of Internet Trademarks?

While federal trademarks afford businesses nationwide
recognition, does a federally registered trademark always insure injunctive
relief?  Not necessarily.  The problem stems from a 1959 trademark case
in which Dawn Donut Co., a retailer of doughnuts and baked goods tried to stop
another company, Hart’s Food Stores, [1]
from using the word “Dawn” in the sale of doughnuts in the Rochester, New York
area.  Dawn Donut Co., however, did not
sell doughnuts in the Rochester market. 
As colossal food fights go, this was a biggie.  The
Dawn Donut rule concerns issues of
priority of trademark rights. In trademark law, the general rule is that, where
two parties seek to use the mark in the same geographic area, the earlier
(i.e., “senior”) user has rights superior to rights of a subsequent (i.e.,
“junior”) user. [2]The
trial court denied the injunction sought, and said Hart’s Food Stores could
continue using the name.  The case was
appealed, and the United States Federal Court for the Second Circuit agreed,
and espoused one of the most popular rules in trademark law:  The Dawn Donut Rule.  The language of the Court is
self-explanatory:
“Therefore,
if the use of the marks by the registrant and the unauthorized user are
confined to geographically separate markets, with no likelihood that the
registrant will expand his use into the defendant’s market, so that no public
confusion is possible, then the registrant is not entitled to enjoin the junior
user’s use of the mark.”
Dawn Donut Co. v.
Hart’s Food Stores, Inc.
, 267 F.2d 358 (2nd Cir. 1959).  You might say this rule is irrelevant today
with many businesses being online.  You
might be wrong.  Fifty years after the
rule came about, with the commercial world drifting into the web, Dawn Donut still has a cache.  The rule, however, is not uniformly
interpreted in all federal circuits. 
Texas is in the Fifth Circuit Court of Appeals, perhaps the most
conservative circuit in the country.  The
Fifth Circuit’s take on the rule is that injunctions in trademark infringement cases are limited “to
those areas where the trademark has gone on the goods through sale or
advertisement, together with such additional areas as are warranted under the
evidence for expansion. [3]
The
good faith basis for the Dawn Donut
rule defense is being increasingly questioned in the Internet Age. After all,
with registered trademark searches available online at no cost, it becomes
difficult to argue the junior user didn’t, or couldn’t through the exercise of
reasonable diligence, have known about the senior – use of the mark. If, under Dawn
Donut
, the use of a trademark by the registrant and an unauthorized junior
user are confined to geographically separate markets, with no likelihood that
the registrant will expand his use into the junior user’s market, so that no
public confusion is possible, then the registrant is not entitled to enjoin the
junior user’s use of the mark. [4]
The
core of the rule is likelihood of confusion, and the way to overcome it is to
show likelihood of confusion. Enter the Internet. Though the rule was a good
one in 1959, it is not so in 2015. With increased travel, media,
and the Internet, a business’s trademark may be known in several geographic
markets, even though the business does not operate in all of those
markets.
In
Circuit City Stores, Inc., though the
appellate court upheld an injunction against using CarMax’s federally
registered mark, Circuit Judge Nathanial Jones, in a concurring opinion, offered
the following observations regarding Dawn
Donut
:
Entering the new millennium, our
society is far more mobile than it was four decades ago. For this reason and
given that recent technological innovations such as the Internet are
increasingly deconstructing geographical barriers for marketing purposes, it
appears to me that a reexamination of precedents would be timely to determine
whether the Dawn Donut Rule has
outlived its usefulness.
[5]
Ultimately,
the Sixth Circuit concluded that geographic remoteness was but one factor to
consider in deciding whether injunctive relief was warranted. [6] The Sixth Circuit already
had an eight point test for infringement liability under the Lanham Act, of
which entry into the market is but one factor to consider. [7]
In
a more recent case, Boldface Licensing +
Branding
, a court declined to apply the Dawn
Donut
rule because the plaintiff, Tillett, sold products over the Internet
and across the country, promoted its products in nationwide media, and had
engaged in discussions with a U.K. distributor in the hope of using that deal
to spur further sales in the U.S. Importantly, the court found that applying
the Dawn Donut rule would have a
significant adverse impact on Tillett’s rights arising from its federal
registration. [8]
Other courts have declined to apply the rule or have stated the rule is
inappropriate where the trademark holder markets through the Internet. [9]
In
the Third Circuit, the Holiday Inn chain sued a hotel in the U.S. Virgin
Islands called Holiday Inn. [10] The chain did not have a
hotel in the USVI at the time, but had two applications for franchises located
there pending. [11]
The Third Circuit stated that while the Holiday Inn chain had established a
strong likelihood of confusion, it had failed to present sufficient evidence of
debasement of its trademark, and therefore had not demonstrated a right to
immediate relief, and that “the geographic location of the USVI militated
against a finding that there was a use by the defendants of the type of
competitive commerce envisioned by Congress.” [12] The Third Circuit also
held that when Holiday Inn commenced operations in the USVI there would be a
likelihood of public confusion, and the chain would be entitled to an
injunction. [13]
In the Third Circuit (Western District of Pennsylvania), was infringing its registered
trademarks, “Dogma” and “Dogma Grill A Frank Philosophy.” [14]
Dogma Grill brought a complaint for trademark infringement, unfair competition,
and cybersquatting under the Lanham Act. [15]
Interestingly, in its complaint, Dogma Grill did not allege that it had
marketed its products and services nationally, instead, Dogma Grill alleged
that it was Hot Dogma that had marketed through the Internet and television,
thus creating a likelihood of confusion. [16]
However, the case settled before there was any substantial briefing.
Where does this leave most savvy online
companies?  Essentially, the takeaway may
be that companies must have some presence in markets in which it wants to stop
a junior (unregistered) user of the mark. 
Perhaps having a website with the ability to place orders; having some
retailers or sales agents make sales calls; attending trade shows; looking for
franchisees in an area, etc. may satisfy the Dawn Donut standard.  Not very definite, but that’s what keeps us
trademark lawyers in business.
The better option is to visit with business lawyers
and trademark attorneys and find out how you may show a business presence and
market penetration in the market where injunction is sought.  If your company is not in that market, you
just may be dunked by the Dawn Donut
rule.
The business and intellectual law attorneys at the
Vethan Law Firm, P.C. look forward to visiting with you and your management
team.  Fixing your problems is our
business.
 
[1] Dawn Donut Co. v. Hart’s Food Stores, Inc.,
267 F.2d 358 (2nd Cir. 1959).
[2] The “Dawn Donut Rule”:
Still Standing (Article III, That Is) Even with the Rise of the Internet
,
90 Trademark Rep. 723, 723(2000).
[3] Am. Foods, Inc. v. Golden Flake, Inc.,
312 F.2d 619, 625 (5th Cir. 1963).
[4] Dawn Donut Co. v. Hart’s Food Stores, Inc.,
267 F.2d 358 (2d Cir. 1959).
[5] Circuit City Stores, Inc. v. CarMax, Inc.,
165 F.3d 1047, 1057 (6th Cir. 1999).
[6] Id. at 1056.
[7] Daddy’s Junky Music Stores, Inc. v. Big
Daddy’s Family Music Ctr.
, 109 F.3d 275, 279, 287 (6th Cir. 1997).
[8] Boldface Licensing + Branding v. By Lee
Tillett, Inc.
, 940 F.Supp.2d 1178 (C.D. Cal. 2013).
[9] Rebel Debutante LLC v. Forsythe Cosmetic
Group, Ltd.
, 799 F.Supp.2d 558 n. 12 (M.D.N.C. 2011)(declining to apply
rule where business marketed nationwide through Internet); see also A.Z. Johnson, Jr., Inc. v. Sosebee, 397 F. Supp. 2d 706,
710 n.1 (D.S.C. 2005)(application of rule inappropriate where the businesses
transcend local boundaries such as through use of the Internet).
[10] Holiday Inns of America, Inc. v. B & B
Corp.
, 409 F.2d 614, 618 (3rd Cir. 1969).
[11] Id.
[12] Id. at 618.
[13] Id. at 618-619.
[14] Dogma Grill, LLC v. Hot Dogma Enterprises,
LLC, et al.
, Civil Action No. 2:06-cv-00495.
[15] Id.