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Natural Zone of Expansion: A Misnomer That Should Send You Running to Federally Register Your Trademark

August 7, 2017Basic Trademark Matters

Ivy growing on a wall

In my last blog post, I discussed how difficult it is to rely on common law trademark rights because of the requirement to prove market penetration. Continuing with this same theme, it doesn’t get any easier after you’ve proven market penetration. After you’ve established common law trademark rights by proving market penetration in one or more markets, your next task is to try to expand your common law trademark rights beyond just the markets in which you were able to prove market penetration. This takes us to the common law principle of natural zone of expansion. Unfortunately, federal courts are pretty stingy when it comes to a common law trademark owner’s natural zone of expansion, leading once again to the inescapable conclusion that you should federally register your trademark if you can.

Market Penetration As a Prerequisite to Natural Zone of Expansion

A common law trademark owner is entitled to enjoin a junior user from using an infringing trademark within its natural zone of expansion. Hanginout, Inc. v. Google, Inc., 54 F. Supp. 3d 1109, 1121 (S.D. Cal. 2014).

But remember, asserting common law rights is a three step process. First, the trademark owner must show that it is the senior user. Second, the trademark owner must show legally sufficient market penetration in one or more markets. Third, the trademark owner must establish its natural zone of expansion. Id.

Therefore, a common law trademark owner cannot even argue natural zone of expansion in the first place until it has proven that it is the senior user and that it has sufficient market penetration:

Awarding common law trademark rights based on a “zone of natural expansion” presupposes, however, that the trademark user has already penetrated the market in at least some geographic areas and established a presence there. Indeed, it is only after existing zones of market penetration are determined that natural zones of expansion can be identified.

Glow Industries, Inc. v. Lopez, 252 F. Supp. 2d 962, 985 (C.D. Cal. 2002). Otherwise, a federal court will not entertain any natural zone of expansion arguments. Id.; see also Hanginout, 54 F. Supp. at 1124 (“[T]he Court finds Hanginout has not presented sufficient evidence to permit the Court to determine its market penetration in a specific geographic area, and as a result, the Court need not consider Hanginout’s natural zone of expansion.”).

Natural Zone of Expansion Defined and Interpreted

Again, a party claiming common law trademark rights must establish the territorial scope of its trademark use. Glow Industries, Inc. v. Lopez, 252 F. Supp. 2d 962, 983 (C.D. Cal. 2002). And without a federal registration, trademark owners have the right to expand their use of their unregistered trademarks into an unoccupied territory by being the first to establish exclusive rights in that unoccupied territory. Id. In other words, it becomes a race between trademark owners to establish consumer recognition in an unoccupied territory. Id.

One way to lay claim to an unoccupied territory is through the doctrine of natural zone of expansion. The natural zone of expansion doctrine affords the senior user breathing space within which to expand, it is generally recognized that if a senior user has constantly expanded its business by the date of the junior user's adoption of the mark, and if distances are not great, it may be that the senior user is entitled to exclusive rights in a zone of natural expansion which includes the junior user's area, even though no actual sales have yet been made in that area by the senior user. Lucky 13 Unlimited, LLC v. Comly Rd. Holdings, LLC, 2016 U.S. Dist. LEXIS 6643, *12-13 (E.D. Pa. 2016). Therefore, if the unoccupied territory is within the senior user’s natural zone of expansion, then it can prevent a junior user from using an infringing mark in that territory. Unfortunately, there are no bright lines when it comes to defining what constitutes a senior user’s natural zone of expansion. However, here are some of the questions and criteria that courts use:

There are few firm guidelines to define the senior user’s imaginary zone of natural expansion. However, several criteria seem relevant: (1) How great is the geographical distance from the senior user’s actual location to a point on the perimeter of the zone of expansion? (2) What is the nature of the business? Does it already have a large or small zone of actual market penetration or reputation? (3) What is the history of the senior user’s past expansion? Has it remained static for years or has it continually expanded into new territories? Extrapolating prior expansion, how long would it take the senior user to reach the periphery of the expansion zone he claims? (4) Would it require an unusual “great leap forward” for the senior user to enter the zone or is the zone so close to existing locations that expansion would be (or is) a logical, gradual, step of the same length as those previously made?

Tally-Ho, Inc. v. Coast Community College District, 889 F.2d 1018, 1028 (11th Cir. 1989).

Some courts even fold in the market penetration analysis into the natural zone of expansion analysis, making the showing even more difficult:

As an alternative theory, Diamonds Direct argues that Richmond, Virginia is within its "natural zone of expansion." This requires the Court to consider its: (1) previous business activity; (2) previous expansion or lack thereof; (3) dominance of contiguous areas; (4) presently-planned expansion; and (5) possible market penetration by means of products brought from other areas. The last of these factors—market penetration—requires consideration of four additional elements: (1) the volume of sales; (2) the growth trends in the area; (3) the number of persons actually purchasing the product in relation to potential customers; and, (4) the amount of product advertising in the target market.

Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., 2012 U.S. Dist. LEXIS 161316, *20-21 (E.D. Va. 2012).

The Narrow Interpretation of Natural Zone of Expansion

Federal courts have a tendency to define the natural zone of expansion narrowly. Glow Industries, 252 F. Supp. 2d at 984; Tally-Ho, 889 F.2d at 1028-29 (Dade County, Florida not within natural zone of expansion for senior user of a mark at three community colleges in Florida); Accu Personnel v. Accustaff Inc., 846 F. Supp. 1191 (D. Del. 1994) (parts of Pennsylvania and Delaware not within natural zone of expansion for senior user in southern New Jersey); Lucky 13, 2016 U.S. Dist. LEXIS 6643, at *12 (natural zone of expansion must be assessed as of the date the junior user first began to use the mark in the relevant market); Diamonds Direct, 2012 U.S. Dist. LEXIS 161316, at *20-22 (Richmond, Virginia not within natural zone of expansion); Commerce Bancorp, Inc. v. BankAtlantic, 285 F. Supp. 2d 475, 503 (D.N.J. 2003) (Florida not within natural zone of expansion); Laurel Capital Group, Inc. v. BT Fin. Corp., 45 F. Supp. 2d 469, 493 (W.D. Pa. 1999) (Pittsburgh not within natural zone of expansion); Popular Bank v. Banco Popular, 9 F. Supp. 2d 1347, 1356 (S.D. Fla. 1998) (South Florida not within natural zone of expansion).

And it is also unclear whether all Circuits have accepted the natural zone of expansion doctrine. See, e.g., Explorica, Inc. v. Elderhostel, Inc., 2010 U.S. Dist. LEXIS 9946, *6 n. 4 (D. Mass. 2010) (“Elderhostel argues that the First Circuit has never accepted the ‘natural zone of expansion’ doctrine …. This is true …”); Commerce Bancorp, 285 F. Supp. 2d at 501 (“It is important to note, however, the Third Circuit has never explicitly adopted or rejected this theory.”).

The Last Word

The doctrine of natural zone of expansion is construed narrowly, inconsistently, and, in some cases, not at all. It would be a mistake to stake your common law rights on succeeding on a natural zone of expansion argument.

Really, while it is an argument that a common law trademark owner should make, it’s more icing on the cake. Conservatively (i.e., realistically), a common law trademark owner should assume that a federal court will only afford it common law trademark rights in a geographical market in which it was the senior user and in which it can establish sufficient market penetration. The likelihood of obtaining additional common law rights in other geographical areas based on the natural zone of expansion doctrine is small and, even if additional rights are obtained, the additional geographic area is likely small too. A federal court simply isn’t going to interpret natural zone of expansion to award a common law trademark owner nationwide rights or the Internet as zone of expansion.

This just shows that, even as you continue to make progress in the fight to establish your common law trademark rights by establishing seniority, market penetration, and a natural zone of expansion, the progress made continues to pale in comparison to where you would be had you simply federally registered your trademark.

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