We previously reported in our August 1996 Newsletter (N.S. 187) that the Court of Appeals for the Second Circuit in WarnerVision Entertainment Inc. v. Empire of Carolina, Inc. et al. had vacated a preliminary injunction barring the owner of a pending intent to-use ("ITU") application from commencing use of its mark. In an important and long-awaited opinion, issued on November 27, 1996, explaining its previous order, the Second Circuit has now held that the owner of a pending ITU application is entitled to perfect its rights by commencing actual use of its mark, even where, subsequent to the filing of its application, another party first uses the mark in commerce.

In the way of background, defendant-appellant Empire had obtained from another entity the rights to an ITU application for the mark REAL WHEELS for toy vehicles. Without knowledge of Empire's ITU application, plaintiff WarnerVision subsequently adopted the identical mark for its children's videos and accompanying toy vehicles. Indeed, as occasionally happens, Empire's ITU application had been filed so recently that it was not disclosed in a search of Trademark Office records undertaken by WarnerVision. Finding no obstacle, WarnerVision then commenced use of the REAL WHEELS mark. Upon learning of Empire's use of the identical mark, WarnerVision brought suit.

The trial court granted a preliminary injunction in favor of WarnerVision on the grounds that it had been first to use the mark in commerce, notwithstanding Empire's prior-filed ITU application. The court relied heavily on the legislative history of Section 7(c) of the Lanham Act, which clearly states that no constructive priority may be obtained, unless and until an application matures to registration. The legislative history, the trial court noted, indicates that until such time, the ordinary rules of priority, i.e., first use, should govern. Moreover, the trial court distinguished Trademark Office cases which grant constructive use priority to ITU applications, citing peculiarities in the legislative history relating to such proceedings as well as the language of the Trademark Office decisions themselves, which distinguished opposition proceedings from infringement actions.

After an emergency hearing, the Second Circuit in June, 1996 issued the previously reported order vacating the trial court's injunction, but for reasons unknown, waited over five months to issue the instant decision explaining its order. In its opinion, the Second Circuit concluded that to enjoin Empire from perfecting its rights would effectively "eviscerate" the ITU provisions of the Lanham Act. While conceding that a constructive use priority retroactive to its filing date will only be afforded an ITU application if and when such application matures to registration, the court reasoned that the ITU applicant should not be vulnerable to unscrupulous third parties who might seek to beat the applicant in a race to the marketplace. The court also relied heavily on equitable considerations, noting that the trial court's injunction amounted to an adjudication on the merits, in that Empire would have been prohibited from ever obtaining cognizable rights in the REAL WHEELS mark.

Nevertheless, in permitting Empire to use the REAL WHEELS mark and thereby file the requisite statement of use necessary to obtain registration, the court was plainly dooming WarnerVision's position, since Empire's constructive use priority, if and when perfected, would clearly prevail over WarnerVision's first use.

Empire's position was strongly supported by the International Trademark Association ("INTA"), which had filed an amicus brief before the appellate court. However, the "nightmare" scenario envisioned by INTA (and cited by the Second Circuit), whereby "pirates" might obtain superior rights by monitoring the filing of ITU applications and making preemptive use in the marketplace, was plainly not the situation in the case at bar and, in any case, seems unlikely given the general requirement that priority be obtained in "good faith". Moreover, as suggested by the trial court, any "loopholes" in the protection afforded ITU applications arguably should be addressed by Congress in the form of amendments to the statute, rather than by the courts.

For the present, however, the WarnerVision case, if not overturned by the Supreme Court, should serve as a strong impetus for the early filing of ever more intent-to-use applications.