The United States Court of Appeals for the Second Circuit certified two questions to New York’s highest court regarding New York common law claims for unfair competition based on goodwill. In responding, the New York Court of Appeals concluded that while New York common law does recognize unfair competition claims, it does not do so based on the “famous” or “well-known” marks doctrine. ITC Ltd. v. Punchgini, Inc., USCDA 2 NO. 165, (N. Y. Ct. App., Dec. 13, 2007) (Renk, J.).

Since 1977, ITC has owned and operated a restaurant in New Delhi, “Bukhara.” In 2002 and 2003, Bukhara was named one of the 50 best restaurants in the world. In the three decades following the original restaurant’s opening, ITC franchised numerous Bukhara restaurants in various locations worldwide, including in the United States. Although ITC obtained a U. S. trademark for the Bukhara mark used in connection with its restaurant services, it subsequently abandoned the U.S. mark when it ceased its U.S.-based franchise operations.

Notwithstanding the abandonment of its U.S. mark in February 2003, ITC filed a lawsuit against numerous restaurateurs for trademark infringement and unfair competition for the unauthorized use of the mark Bukhara under the “well-known” or “famous” marks doctrine. The district court held that ITC could not pursue its federal trademark claim because it had abandoned the U.S. mark for Bukhara. With regard to ITC’s unfair competition claim, it was the district court’s opinion that while the very existence of the “well-known” or “famous” marks doctrine is controversial, even if the doctrine was valid in New York, ITC was not protected because it failed to establish the requisite level of U.S. recognition or goodwill for the mark to trigger the “well-known” or “famous” marks doctrine.

In March 2007, the Second Circuit affirmed the district court’s holdings on the federal trademark law issues, but certified two questions to the New York Court of Appeals regarding the New York common law claims.

The first certified question inquired whether “New York common law permits 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?” Although the New York Court of Appeals recognized the line of New York cases often cited as “famous marks doctrine cases,” it held that those cases did not explicitly adopt the “well-known” or “famous” marks doctrine. Rather, those cases simply applied unfair competition common law to find it is unfair to appropriate the results of the skill, expenditures and labor of a competitor. The court further held that it was reaffirming unfair competition case law that when a business possesses goodwill in New York, that is a form of property that the law will protect, whether the business is domestic or foreign.

The Second Circuit also questioned how famous must a foreign mark be in order to permit its owner to sue for unfair competition. In response, the New York Court of Appeals held protection from misappropriation of a famous foreign mark presupposes the existence of actual goodwill or recognition in New York. As explained by the New York Court of Appeals, if a foreign plaintiff has no goodwill in New York to appropriate, there can be no viable claim under New York’s common law theory of misappropriation.

Practice Note: Although this case does not address the difficulties of applying the “famous” or “well-known” marks exception to the U.S. use-based system, it does hold that New York will protect a famous foreign mark under the common law theory of misappropriation provided one can prove that New York consumers “primarily associate the mark with the foreign plaintiff.”