The New York Court of Appeals held recently that a foreign franchisor could assert an unfair competition claim under New York law for infringement of its marks and trade dress, even though the marks and trade dress were neither in use nor registered in the United States. ITC Ltd. v. Punchgini, Inc., 2007 WL 4334177 (N.Y. Dec. 13, 2007).

In ITC, the New York Court of Appeals addressed two issues raised by the United States Court of Appeals for the Second Circuit arising from the federal court's uncertainty as to whether New York had adopted the "famous" or "well-known" marks doctrine. Under that doctrine, foreign marks or trade dress may be protected from unfair competition within a particular geographical territory, even without use or registration in the territory, if the mark or trade dress is so well known that its use by someone other than the owner would cause consumer confusion. Whether the doctrine applies is significant because it is an exception to the usual requirement that a trademark owner use its mark within a particular territory in order to protect it from appropriation by another person.

The first issue was whether "New York common law permit[s] the owner of a famous mark or trade dress to assert property rights therein by virtue of the owner's prior use of the mark or dress in a foreign country." The New York Court of Appeals concluded that, although New York law does not recognize the famous marks doctrine, a mark that is used in a foreign country may have acquired sufficient goodwill in New York to sustain a claim for unfair competition on the grounds of misappropriation.

The second issue was how famous a foreign mark had to be in order to permit its owner to pursue a claim for common law unfair competition. In response, the New York court provided several examples of the kinds of evidence that would support a claim.

The Facts

This dispute arose from the defendant Punchgini, Inc.'s operation of two Indian restaurants in Manhattan under the name "Bukhara Grill" and use of trade dress similar to that of a well-known restaurant in New Delhi called "Bukhara." Plaintiff ITC Ltd., an Indian corporation, had used the name "Bukhara" continuously since 1977 to operate a five-star Indian restaurant in New Delhi. As recently as 2002 and 2003, the New Delhi Bukhara had been listed in a British magazine as one of the 50 best restaurants in the world. ITC also operated or franchised others to operate Bukhara restaurants in other major international cities, including New York and Chicago. All of ITC's Bukhara restaurants featured a distinctive rustic décor, heavy menus made of slabs of wood, and traditional Indian costumes for the servers. In 1987, ITC obtained a United States trademark registration for the Bukhara mark in connection with restaurant services. However, by 1997, the Bukhara restaurants in New York and Chicago had closed, and ITC ceased using the Bukhara name in the United States.

In 1999, several former employees of the New Delhi Bukhara incorporated Punchgini for the purpose of opening the Bukhara Grill. In 2001, several Punchgini shareholders and two other former employees of the New Delhi Bukhara opened a second restaurant in Manhattan called Bukhara Grill II. The Bukhara Grill restaurants featured décor, menus, and servers' uniforms similar to those of ITC's Bukhara restaurants.

The Litigation

ITC filed suit against Punchgini in federal district court for trademark infringement, unfair competition, and false advertising under the Lanham Act and New York common law.

The U.S. district court granted summary judgment to Punchgini on all of ITC's claims. ITC Ltd. v. Punchgini, Inc., 373 F. Supp. 2d 275 (S.D.N.Y. 2005). The court held that ITC had abandoned the Bukhara trademark in the United States, and therefore the Lanham Act was inapplicable. The court further held that, assuming the famous marks doctrine applied to protect the Bukhara mark and trade dress, ITC nevertheless had failed to establish a triable issue of fact that the Bukhara mark was sufficiently famous to support an unfair competition claim under common law.

The United States Court of Appeals for the Second Circuit affirmed the dismissal of the federal claims based on ITC's abandonment of its marks in the United States. ITC Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir.), cert. denied, 128 S.Ct. 288 (2007). With respect to the viability of the state law unfair competition claim, the Second Circuit observed that support for the application of the famous marks doctrine in New York was murky, since the theory seemed to arise only from two "decades-old trial court decisions" that were "routinely cited" by non-New York courts and commentators, and "[n]either the New York Court of Appeals nor any intermediate New York appellate court . . . has ever specifically adopted the views expressed in [those cases] to accord common law protection to the owners of famous marks." Id. at 165, 166. Because New York plays "a pivotal role in international commerce," id. at 166, the Second Circuit sought clarification from New York's highest court regarding the applicability of the famous marks doctrine and the standard to be applied to determine if foreign marks were entitled to protection from unfair competition.

The N.Y. Court's Decision

The New York Court of Appeals reviewed the two seminal cases cited by the Second Circuit, Maison Prunier v. Prunier's Restaurant & Café, Inc., 288 N.Y.S.2d 529 (N.Y. Sup. 1936) (use by a New York restaurant of the name and slogan of a famous Parisian restaurant) and Vaudable v. Montmartre, Inc., 193 N.Y.S.2d 332 (N.Y. Sup. 1959) (use by a New York restaurant of the name "Maxim's" and the Parisian restaurant's distinctive décor). The court concluded that, rather than establishing a new basis for liability, those cases "fit logically and squarely within our time-honored misappropriation theory, which prohibits a defendant from using a plaintiff's property right or commercial advantage—in Prunier and Vaudable, the goodwill attached to a famous name—to compete unfairly against the plaintiff in New York." The court explained:

We are not thereby recognizing the famous or well-known marks doctrine, or any other new theory of liability under the New York law of unfair competition. Instead, we simply reaffirm that when a business, through renown in New York, possesses goodwill constituting property or a commercial advantage in this State, that goodwill is protected from misappropriation under New York unfair competition law. This is so whether the business is domestic or foreign.

In response to the second issue, the court held that, to sustain an unfair competition claim, ITC must show that Punchgini deliberately copied ITC's mark or trade dress for Punchgini's restaurants, and that consumers primarily associate the Bukhara mark or trade dress with ITC's Bukhara restaurants. Relevant evidence would include "evidence that the defendant intentionally associated its goods with those of the foreign plaintiff in the minds of the public, such as public statements or advertising stating or implying a connection with the foreign plaintiff; direct evidence, such as consumer surveys, indicating that consumers of defendant's goods or services believe them to be associated with the plaintiff; and evidence of actual overlap between customers of the New York defendant and the foreign plaintiff."

While this decision will likely not have a broad-brush impact, it is noteworthy since it makes clear that failure to use or register foreign marks in the United States will not, by itself, preclude a foreign company, including a foreign franchisor, from protecting its marks and trade dress from unfair competition in this country.