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April 1, 2012 Vol. 67 No. 7 Back to Bulletin Main Page

Is the Dawn Donut Rule Still Viable in the Internet Age?

The explosive growth of Internet use over the past ten years has had a profound effect upon the territorial reach and limits of trademark rights. It used to take a company months—if not years—to put in place the mechanisms to advertise or sell products or services outside its immediate geographic region. Now, through the Internet, these tasks can sometimes be accomplished in a matter of hours. In the United States, the statistics concerning Internet use are staggering: according to Internet World Stats, as of March 31, 2011, there were approximately 245 million U.S. Internet users, comprising nearly 78.2 percent of the population and representing a growth of 156.9 percent since 2000.

Given the borderless commerce of the Internet, one has to ask: Do territorial limitations on the enforcement of federally registered rights make sense? Is the geographic physical proximity of two parties even relevant when determining whether their contemporaneous use of a term is likely to cause consumer confusion? In other words, is the Dawn Donut Rule, which has guided courts and practitioners on these issues for 50 years, viable in the Internet age?

U.S. Trademark Rights and the Dawn Donut Rule
Trademark rights in the United States are created through use—not registration. Once a party begins using a mark in commerce, it begins to acquire common-law rights in the mark. These common-law rights are limited to the geographic area in which the mark has been used on products sold or in which the services it covers have been promoted. Although a federal registration is not required to establish or enforce rights in a mark, it is beneficial: the primary benefit is that it confers upon the owner presumptive nationwide rights in the mark regardless of the geographic areas where the owner is actually using the mark. 15 U.S.C. § 1057(b), (c).

In 1959, the Second Circuit issued its decision in Dawn Donut Co. v. Hart’s Food Stores, Inc. (267 F.2d 358 (2d Cir. 1959)). The plaintiff, a wholesale distributor of doughnuts and other baked goods, was the senior user and owned a federal registration for the trademarks DAWN and DAWN DONUT. The defendant used the mark DAWN in connection with the retail sale of doughnuts and baked goods within certain counties surrounding Rochester, New York. The plaintiff sued the defendant for trademark infringement and sought to enjoin the defendant from continued use of the DAWN mark. At the time, the plaintiff was not using its marks at the retail level or in the defendant’s trade area. The district court denied the injunction; the Second Circuit affirmed, and, with the following words, what is now commonly referred to as the “Dawn Donut Rule” was born:

Therefore, if the use of the marks by the registrant and the unauthorized user are confined to geographically separate markets, with no likelihood that the registrant will expand his use into the defendant’s market, so that no public confusion is possible, then the registrant is not entitled to enjoin the junior user’s use of the mark.

Id. at 364. Essentially, Dawn Donut established a per se rule against injunctions when parties do not compete in the same geographic market, because there is no likely confusion to enjoin unless and until the senior federal registrant shows a likelihood of entry into the junior user’s trade territory. See 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 26:33 (4th ed. 2011) (“[T]he registrant has a nationwide right, but the injunctive remedy does not ripen until the registrant shows a likelihood of entry into the disputed territory.”) (emphasis in original). Moreover, although they were not required to adopt the rule, in subsequent years the Dawn Donut Rule gained acceptance in the majority of federal appellate courts across the country.

The Impact of the Internet
When Dawn Donut was decided, a company’s physical presence and geographic location played an important role in determining where the company sold and offered its products or services. In the Internet age, geographic proximity can be irrelevant, unknown to the average consumer (e.g., where companies such as Amazon or Netflix are physically located) or only minimally important. Thus, a per se rule that there is no potential for confusion when parties are geographically remote and thus a federal registrant is not entitled to an injunction no longer makes sense.

The first appellate court to consider the effect of the Internet and then reject the Dawn Donut Rule was the Sixth Circuit. In Circuit City Stores, Inc. v. CarMax, Inc. (165 F.3d 1047 (6th Cir. 1999)), the federal registered owner of the mark CARMAX for used-car superstores brought an infringement action against a dealership that sold new and used automobiles under the same service mark. The district court found the defendant liable and entered an injunction. On appeal, the defendant argued that the district court erred when it failed to apply the Dawn Donut Rule. The Sixth Circuit affirmed the district court’s decision, holding that geographic remoteness was only one factor to be considered in determining whether there was a likelihood of confusion. In a concurring opinion, Circuit Judge Nathaniel Jones observed (id. at 1057):

The Dawn Donut Rule was enunciated in 1959. Entering the new millennium, our society is far more mobile than it was four decades ago. For this reason and given that recent technological innovations such as the Internet are increasingly deconstructing geographical barriers for marketing purposes, it appears to me that a reexamination of precedents would be timely to determine whether the Dawn Donut Rule has outlived its usefulness.

Trends and Guidance
While no other courts have explicitly overruled or rejected the Dawn Donut Rule, many have questioned its relevancy. Moreover, while citing Dawn Donut as supportive of the proposition that geographic remoteness can eliminate the potential for confusion, courts no longer appear to apply the principle as a per se rule. See, e.g., Capitol Federal Savings Bank v. Eastern Bank Corp., Case No. 1:07-cv-11342-RCL (D. Mass. 2007) (when denying plaintiff’s motion for preliminary injunction, court applied a non-exclusive multifactor test, including geographic remoteness); A.Z. Johnson, Jr., Inc. v. Sosebee, 397 F. Supp. 2d 706, 710 n.1 (D.S.C. 2005) (“Many businesses, especially those accessible over the Internet, may transcend local boundaries. In such cases, this court agrees that a traditional Dawn Donut analysis would be inappropriate.”). In addition, from a review of the reasoning in more recent cases, certain trends emerge that provide practitioners helpful guidance concerning the ability of a federal registrant to obtain an injunction against a remote geographic user.

First, if the parties offer services that are still tied to a physical/geographic location (e.g., restaurants or clubs), courts are more likely to apply the Dawn Donut Rule or principles. See, e.g., Brennan’s, Inc. v. Brennan’s Restaurant, L.L.C., 360 F.3d 125, 134-35 (2d Cir. 2004) (federal registrant denied injunction; parties offered restaurant services in New York and New Orleans); 24 Hour Fitness USA, Inc. v. 24/7 Tribeca Fitness, LLC, 447 F. Supp. 2d 266 (S.D.N.Y. 2006) (summary judgment of non-infringement granted; parties offered health club services in New York and California); cf. Tana v. Dantanna’s, 96 U.S.P.Q.2d 1001, 1010 (11th Cir. 2010) (geographic remoteness weighed against finding of likelihood of confusion where neither party had a federal registration and parties operated restaurants in California and Georgia).

Second, if the Internet is used as the trade channel rather than merely as an advertising medium, the Dawn Donut Rule is less viable. As a result, if two parties both offer products for sale over the Internet, their actual physical location is not as relevant when evaluating likelihood of confusion. Thus, a federal registrant has a better chance of obtaining an injunction. See Rebel Debutante LLC v. Forsythe Cosmetic Group, Ltd., No. 1:11cv00113, (M.D.N.C. 2011) (granting preliminary injunction where federal registrant “publicized nationwide” and “used the Internet to seek and obtain sales nationwide”).

Third, even if strictly applied, the Dawn Donut Rule provides a junior user with only a temporary defense. As soon as the senior federal registrant establishes entry into the market, an injunction will issue. See 5 McCarthy § 26:33 (noting that the junior user is in a “precarious position” and “living on borrowed time” because as soon as the federal registrant enters the market it will be entitled to an injunction). Thus, the Internet enables a senior user to more quickly establish reputation and make sales in a junior user’s remote geographic area, and consequently the junior user’s ability to rely on such a defense likely will be much more limited.

Yes, the Dawn Donut Rule still has viability in the Internet Age. While only the Sixth Circuit has explicitly rejected the rule, the Internet has affected the manner in which courts apply and consider it. As a result, a U.S. practitioner needs to consider the relevancy of geographic location to the nature of a client’s business when either advising a federal trademark registrant on the likelihood of success of a preliminary injunction motion against a remote geographic user or counseling a party about the risks of relying on such a defense.

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.

© 2012 International Trademark Association