Editor's Note: As is noted below, the Court of Appeals for the Second Circuit vacated the District Court decision. Our November 1996 Bulletin reports further on the Second Circuit's decision.

In WarnerVision Entertainment Inc. v. Empire of Carolina Inc., et al., the United States District Court for the Southern District of New York held that until an intent-to use ("ITU") application matures to registration, the applicant may not rely on its filing date either to obtain a preliminary injunction or to defend against a motion for a preliminary injunction sought by a third party, whose use is junior to the applicant's ITU filing date.

Plaintiff WarnerVision Entertainment Inc.'s ("WarnerVision") predecessor in interest commenced use of the REAL WHEELS mark and logo in respect of a line of children's video cassettes no later than January 18, 1995. Defendant Empire Manufacturing Inc. ("Empire") acquired the rights to an ITU application which had been filed prior thereto, that is, on September 23, 1994, and which covered the mark REAL WHEELS for toy vehicle wheels. Empire, however, only first used REAL WHEELS on August 15, 1995. Both parties sought a preliminary injunction prohibiting the other's continued use of REAL WHEELS. The Court granted WarnerVision's motion and denied Defendants' motion.

The Court in first considering the matter acknowledged that Empire may rely upon an ITU filing date to establish ownership rights, but held that it may not do so until its application has issued to registration. In this instance, the Court noted that Empire's application had been rejected by the Trademark Office, and on that basis held that Empire could not rely on its ITU filing date either to defend against a motion, or support its own motion, for a preliminary injunction.

The Court reconsidered its decision after learning that the Trademark Office had accepted Empire's application for registration. Empire argued that the purpose of the ITU provision was to encourage applicants to file as early as possible and thereby publicly disclose their marks. The Court's decision, therefore, would undermine that policy. Empire further argued that the constructive use date accorded to the application is intended to promote certainty in the trademark system. Allowing a subsequent user to obtain an injunction and thereby bar the applicant from obtaining a registration would thwart this policy by encouraging third parties to use marks covered by ITU applications for the purpose of extorting licensing fees.

The Court rejected Empire's arguments. The Court found that Congress had adopted the constructive use system with full knowledge of its inherent problems. Prior to the passage of the ITU legislation, a Senate bill had included a provision whereby ITU applicants were permitted to sue for an injunction, although federal courts could not enter a final judgment until the mark was registered. This proposal was eventually rejected on two grounds: (1) the provision would clog the courts with cases that could remain unresolved for up to four years, while the application remained pending; and (2) in the absence of actual use, the federal courts might not be constitutionally empowered with jurisdiction over claims asserted by ITU applicants. While Congress appears to have considered the issue only in the context of offensive use of an ITU application, that is, to enjoin use by a subsequent user, the Court rejected Empire's effort to employ defensively its ITU filing date. In the Court's view, the legislative history demonstrated that Congress recognized that constructive use rights might be irrelevant under certain circumstances.

Moreover, while acknowledging that the Trademark Trial and Appeal Board permits an ITU applicant to employ its filing date defensively in opposition proceedings, the Court declined to apply the TTAB's rule to infringement actions. In fact, the Court noted that the Board, in adopting its rule, specifically differentiated between civil suits and oppositions. In contrast to civil suits, the ITU legislation expressly permits the Board to defer the entry of a final judgment in an opposition proceeding pending issuance of an ITU pending application to registration.

On June 12, 1996, the Court of Appeals for the Second Circuit vacated this decision, without issuing any written opinion. Nevertheless, our sources have indicated that a written opinion is expected to issue within the next few weeks.