Hokto Kinoko Co. v. Concord Farms, Inc. - 738 F.3d 1085 (9th Cir. 2013)

Rule:

To succeed on a claim for cancellation based on fraud, a defendant must adduce evidence of (1) a false representation regarding a material fact; (2) the registrant's knowledge or belief that the representation is false; (3) the registrant's intent to induce reliance upon the misrepresentation; (4) actual, reasonable reliance on the misrepresentation; and (5) damages proximately caused by that reliance. A false representation in the original trademark application or an affidavit accompanying a renewal application may be grounds for cancellation if all five requirements are met. The defendant, however, bears a heavy burden of demonstrating that a trademark should be cancelled. Although a material false representation regarding an applicant's bona fide intent to use a trademark for a particular purpose may satisfy the test's first requirement, material falsity is only one aspect of the fraud claim.

Facts:

In this trademark infringement action, Hokto Kinoko Co. (Hokto USA), a wholly owned subsidiary of Hokuto Co., Ltd. (Hokuto Japan), sued Concord Farms, Inc. (Concord Farms) for violating its rights to marks under which it markets its Certified Organic Mushrooms, which are produced in the United States. Hokto USA claimed that Concord Farms wrongly imported and marketed mushrooms under its marks for Certified Organic Mushrooms, but which were cultivated in Japan by Hokuto Japan under non-organic standards. Concord Farms counterclaimed against Hokto USA and Hokuto Japan, challenging the validity of the marks. The district court granted summary judgment in favor of Hokto USA and Hokuto Japan on all claims and entered a permanent injunction against Concord Farms.

Issue:

Were Hokuto Japan's trademarks subject to cancellation for fraud or abandoned because it entered into a "naked licensing" agreement with Hokto USA for their use in connection with its organic mushrooms?

Answer:

No.

Conclusion:

The court held that Concord Farms’ mushrooms were not "genuine goods" in relation to any of the three separately sold and packaged products of Hokto USA, because, inter alia, competitor's mushrooms were not organic. Concord Farms’ importation of its mushrooms was likely to confuse consumers under the Lanham Act because while there was no evidence of actual confusion, each of the other Sleekcraft factors weighed heavily in Hokto USA’s favor. Cancellation of Hokuto Japan’s trademark registration for fraud was not warranted under 15 U.S.C.S. § 1064. To succeed on a claim for cancellation based on fraud, a defendant must adduce evidence of (1) a false representation regarding a material fact; (2) the registrant's knowledge or belief that the representation is false; (3) the registrant's intent to induce reliance upon the misrepresentation; (4) actual, reasonable reliance on the misrepresentation; and (5) damages proximately caused by that reliance. A false representation in the original trademark application or an affidavit accompanying a renewal application may be grounds for cancellation if all five requirements are met. The defendant, however, bears a heavy burden of demonstrating that a trademark should be cancelled. Although a material false representation regarding an applicant's bona fide intent to use a trademark for a particular purpose may satisfy the test's first requirement, material falsity is only one aspect of the fraud claim. Moreover, Hokuto Japan did not engage in naked licensing.