According to the California secretary of state, the Golden State has "the busiest state registration office in the country and has the largest number of [trademark] registrations of any state, consisting of over 80,000 active marks." Against this backdrop of robust trademark activity, the Legislature recently passed AB 1484, also known as the Model State Trademark Law. The new law, which repeals and replaces certain trademark provisions now located in Division 6, Chapter 2 of the Business and Professions Code, was recently signed by the governor and will take effect on Jan. 1, 2008.
     

California now joins the majority of states (30) that have adopted a modern version of The Model State Trademark Bill drafted by the International Trademark Association. The overhaul was overdue. Current state law is based on the association's 1949 draft of the model bill and has been updated sparingly since its enactment in 1967. Since that time, the association issued major revisions of the bill in 1992 and again in 1996 in order to codify important developments in trademark case law and adapt to ever-changing business conditions and practices.
     

The intent of the new law "is to provide a system of state trademark registration and protection substantially consistent with the federal system of trademark registration and protection." Business and Professions Code Section 14272. To harmonize with the federal system, the Legislature has authorized state courts and the secretary of state to look to federal case law as persuasive authority when interpreting the new law. Likewise, key trademark concepts and doctrines developed in federal courts and statutes also have been included and defined in the new law.

Notable Changes
     

Changes to current state law include reducing the registration and renewal periods by half the present duration. Trademark registration and renewals are effective for 10 years and may be renewed for successive 10-year periods. The new term is halved from 10 to five years. The reduction reflects the Legislature's intent to reduce the number of "deadwood" registrations, although no data was included in committee reports to confirm a "deadwood" problem. Registrations in force on Jan. 1, 2008, will continue in full force and effect for the unexpired term. This change departs from federal law, which allows renewals on 10-year intervals.
     

Various substantive changes also have been made. Although existing state law provides a cause of action for trademark dilution, it does not expressly define dilution or limit the claim to famous marks, as federal law does. The new law defines "dilution" and specifies that only famous marks can be diluted.
     

A mark will be considered famous "if it is widely recognized by the general consuming public of this state, or by a geographic area of this state, as a designation of source of the goods or services of the mark's owner." Business and Professions Code Section 14247. Factors determining whether a mark is famous within the state or geographic subset include the geographic reach of advertising, the amount, volume and geographic extent of sales, and actual public recognition of the mark in California.
     

The new dilution right of action for marks having fame limited to a geographic area, sometimes known as "niche fame," departs from recently enacted federal law. At the federal level, the Trademark Dilution Revision Act of 2006 abolished the niche-fame concept that had been developed by the courts. Thus, the state law may allow claims that could not be brought under federal law.
     

A finding of dilution entitles owners of famous marks to injunctive relief within the state or throughout the geographic area where the mark has achieved fame, without regard to the presence or absence of competition between the famous mark and the infringer's mark. The new dilution provisions also expand available remedies to the recovery of money damages in instances of willful conduct.
     

Other changes in state law include defining "abandonment" to mean that "a mark's use has been discontinued with intent not to resume that use" and that "[n]onuse for two consecutive years shall constitute prima facie evidence of abandonment." Business and Profession Code Section 14202. The state's two-year nonuse provision differs from federal law, which requires three consecutive years of nonuse for a prima facie showing of abandonment. Although important California provisions regarding anti-counterfeiting, vicarious infringement and seizures will not change, the classification of goods and services will conform to the classifications adopted by the United States Patent and Trademark Office.

Expanding Duties
     

Whether the new law will bring harmony to the secretary of state remains to be seen. Although the fiscal effect of the new law was deemed "negligible" in Legislative committee reports, the new law expressly and necessarily expands the secretary of state's administrative duties.
     

First, in terms of the volume of filings, the Legislature's halving of the duration and renewal terms should eventually double the turnover rate for registrations within the same 10-year period. The secretary of state claims an eight- to-12-day processing time for new applications but has not determined whether this will change based on the new law.
     

Additionally, achieving harmony with the often-complex and sometimes-unpredictable federal system requires a new reliance on federal resources and information. By declaring that federal case law is persuasive and that it "should be examined," the new law presumably requires the secretary of state to track interpretations and changes in federal law. Whether the secretary of state has the resources to do so is unclear. The secretary of state's trademark division has one "document examiner," who processes most trademark applications, and no attorney-examiners (although the document examiner may consult with attorneys within the secretary of state). The division lacks the infrastructure or resources of the U.S. Patent and Trademark Office, which boasts 400 trademark attorney-examiners.
     

The new law authorizes the secretary of state to inquire whether an applicant has applied for a federal registration and what the result of that application was, including the reasons for denial, if applicable. The implication is that the secretary of state may then rely on the Patent Office's determination as persuasive, if not dispositive, proof that a mark is unregistrable. Indeed, the legislative history states that "the federal office has more resources and is better equipped to spot issues and deny registration because a mark does not satisfy registrability requirements" and that "this allows the Secretary of State to obtain the benefit of the federal examination process and will help prevent individuals from obtaining California registrations to which they are not entitled." Senate Judiciary Committee Bill Analysis. Thus, the intent is to use the federal trademark screening process as a backstop for the secretary of state. This necessarily requires the secretary of state to maintain a high level of familiarity with the federal registration process.
     

Further, the bill requires the secretary of state to "keep for public examination a record of all marks registered or renewed," as well as a record of documents assigning marks. Business and Professions Code Section 14225. The public records are particularly important for state trademark owners, because registration provides constructive notice of ownership of that mark, and may establish statewide priority over junior users.
     

State registrations are recorded and filed on 3-by-5 note cards located at the secretary of state's physical office. Although fee-based searching is possible through private firms that maintain their own databases, no publicly searchable electronic database exists at the secretary of state's office or Web site. Because California has the highest number of registrations of any state, a comprehensive, accurate and searchable public record akin to that of the Patent Office's is vital in order to update the state's trademark registration process and provide effective notice of marks registered in the state.

Impact on Businesses
    

The Model State Trademark Law will update protections for small businesses engaged in intrastate commerce but may require them to expand their trademark knowledge and awareness, because they will have to operate in a more-complex regulatory environment. Consultation with trademark counsel becomes more important, given the new complexity.
     

Uniformity with the federal system also benefits large businesses engaged in interstate commerce, because the law is consistent with other state and federal jurisdictions. Moreover, businesses that enjoy the benefits of federal registration will appreciate that, under the new law, competitors who are blocked from obtaining confusingly similar federal registrations may have a difficult time obtaining registrations in California.
     

On the other hand, the use of the federal trademark screening process as a backstop for the secretary of state may be of concern to some California applicants. Specifically, state trademark applicants who must report the denial of a federal application should be concerned about the secretary's use of that information. This is particularly true if the federal applicant believed the Patent Office's examiner improperly rejected the application, but elected to pursue a California registration rather than appeal the decision.

Achieving Harmony
     

The Model State Trademark Law provides California with an overdue update to its trademark laws and gives attorneys a more-uniform landscape. At the same time, the addition of provisions unique to the state, such as geographic niche fame, provides small businesses a level of protection not found at the federal level. In any event, trademark owners and lawyers must keep abreast of new developments in federal law, which, under the new state law, will affect state trademark rights.

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Michael J. Thomas is a partner and Matthew G. Massari is an associate in the Sacramento office of Downey Brand. Their practice focuses on intellectual property.

 

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