Tumblebus Inc. v. Meredith Cranmer

United States Court of Appeals, Sixth Circuit
399 F.3d 754 (2005)

ELI5:

Rule of Law:

A trademark owner does not abandon their rights to a mark in a specific geographic area where the mark retains its significance as a source identifier, even if they have engaged in 'naked licensing' in other markets. The 'first-sale' doctrine is not a defense to trademark infringement when the mark is used to promote the defendant's own services, rather than to merely resell the plaintiff's original, unaltered product.

Facts:

In 1987, Brenda Scharlow founded Tumblebus Inc. in the greater Louisville area, providing mobile gymnastics instruction to children in retrofitted school buses.
Tumblebus Inc. expanded its business by selling over 200 retrofitted buses to individuals across the United States, permitting them to use the 'Tumblebus' name without formal franchise agreements or quality control measures.
In November 2001, Tara Pate purchased a bus from Tumblebus Inc. after an oral discussion in which she was asked not to operate in the Louisville market, a restriction that was not put in writing.
Pate briefly advertised her Tumblebus service in the Louisville area before deciding to sell her bus in a Louisville newspaper.
Meredith Cranmer saw Pate's advertisement and contacted Tumblebus Inc. about purchasing a new bus. Scharlow told Cranmer she would not sell a bus intended for operation in the Louisville market.
In April 2002, Cranmer purchased Pate's used bus and began operating a mobile gymnastics business in the Louisville area under the name 'Tumblebus.'
Cranmer listed her business as 'Tumblebus of Louisville' in the local phone directory.
Subsequently, customers began to confuse the two businesses, sending payments to the wrong company and calling Tumblebus Inc. to inquire about appointments scheduled with Cranmer.

Procedural Posture:

Tumblebus Inc. filed suit against Meredith Cranmer in the U.S. District Court for the Western District of Kentucky, alleging trademark and trade dress infringement.
Tumblebus Inc. moved for a preliminary injunction to prevent Cranmer from using the 'TUMBLEBUS' mark and trade dress.
After an evidentiary hearing, the district court granted the motion and issued a preliminary injunction against Cranmer.
Cranmer, the Defendant-Appellant, appealed the district court's preliminary injunction order to the U.S. Court of Appeals for the Sixth Circuit; Tumblebus Inc. is the Plaintiff-Appellee.

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Issue:

Does a trademark owner's failure to control its licensees in distant geographic markets (naked licensing) constitute an abandonment of the mark in the owner's home market where the mark still identifies the source of the services?

Opinions:

Majority - Moore, Circuit Judge.

No. A trademark owner's failure to control licensees in other geographic areas does not constitute abandonment of the mark in its home market, so long as the mark continues to function as an indicator of origin in that home market. The court affirmed that 'TUMBLEBUS' is a protectable 'suggestive' mark and that there was a strong likelihood of confusion due to evidence of actual customer confusion. The court rejected Cranmer's defense of abandonment through 'naked licensing,' endorsing the concept of 'partial geographic abandonment,' which holds that rights to a mark can be lost in one geographic area without being forfeited in another where the mark retains its significance. The court also rejected the 'first-sale' doctrine defense, reasoning that it applies to the resale of genuine goods, not the use of a mark to promote independent services, which inherently vary in quality and can confuse the public as to their origin and nature. The court vacated the portion of the injunction related to trade dress, however, because the district court failed to make specific findings identifying the protectable elements of the trade dress.

Analysis:

This decision clarifies the geographical scope of the 'naked licensing' defense, establishing that a trademark owner can be lax with licensees in some markets without necessarily forfeiting rights in their home market where the mark's source-identifying function remains intact. This provides a degree of protection for businesses that expand informally without a robust national franchising or licensing system. The ruling also reinforces the critical distinction between goods and services for the application of the 'first-sale' doctrine, limiting its use as a defense in service-based industries where brand consistency and quality control are paramount to avoiding consumer confusion. The court's remand on the trade dress issue underscores the procedural requirement for district courts to create a detailed factual record identifying the specific, nonfunctional elements that constitute a protectable trade dress.

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