No Proprietary Right Required: Australian Therapeutic v. Naked TM and Standing to Cancel

A fight over the NAKED mark for condoms produced one of the Federal Circuit’s clearest modern statements on who may petition to cancel a trademark registration. In Australian Therapeutic Supplies Pty., Ltd. v. Naked TM, LLC, 965 F.3d 1370 (Fed. Cir. 2020), decided July 27, 2020, a divided panel reversed the Trademark Trial and Appeal Board and held that a petitioner need not own any proprietary right in its own mark — and need not have preserved such rights against a prior settlement — to establish a statutory cause of action under Section 14 of the Lanham Act, 15 U.S.C. § 1064. Judge Reyna wrote for the majority; Judge Wallach dissented, and would dissent again when rehearing was denied.

At a glance

• Case: Australian Therapeutic Supplies Pty., Ltd. v. Naked TM, LLC, No. 2019-1567, 965 F.3d 1370 (Fed. Cir. July 27, 2020).
• Court: U.S. Court of Appeals for the Federal Circuit; majority opinion by Judge Reyna, dissent by Judge Wallach.
• Posture: Appeal from a TTAB decision dismissing Australian’s cancellation petition for lack of standing after finding it had contracted away its proprietary rights.
• Holding: A petitioner establishes entitlement to bring a cancellation under § 1064 by showing a real interest in the proceeding and a reasonable belief of damage, regardless of whether it lacks a proprietary interest in an asserted unregistered mark; a settlement waiving proprietary rights does not by itself negate standing.
• Significance: Confirmed that cancellation standing turns on injury and interest, not ownership, and that contractual concessions about use and registration do not automatically foreclose the right to petition.

Beginning in 2000, Australian sold condoms under NAKED and NAKED CONDOM in Australia, and from 2003 advertised, sold, and shipped condoms bearing the unregistered mark to U.S. customers through its website. Naked TM, LLC owns U.S. Registration No. 3,325,577 for NAKED for condoms. The parties had earlier exchanged communications that the Board treated as a settlement, under which Australian agreed not to use or register NAKED for condoms in the United States and acquiesced in Naked TM’s use and registration. When Australian later petitioned to cancel Naked TM’s registration, the Board held it had bargained away the proprietary rights it needed for standing.

The Board’s proprietary-rights theory

The TTAB dismissed the petition on the ground that Australian had “contracted away” its proprietary rights in the unregistered NAKED marks. In the Board’s view, because the settlement left Australian without any ownership interest it could assert in the United States, Australian lacked the kind of stake required to maintain a cancellation. That reasoning fused two distinct ideas — owning a protectable mark and having standing to challenge someone else’s registration — into a single ownership requirement.

The Federal Circuit rejected that fusion. The majority emphasized that the statutory text of § 1064 permits a petition by “any person who believes that he is or will be damaged” by a registration, and that the court’s precedent requires only a real interest in the proceeding and a reasonable belief of damage. Neither the statute nor precedent, Judge Reyna wrote, requires that a petitioner hold a proprietary right in its own mark to demonstrate a cause of action. The proprietary-rights inquiry, the court explained, goes to the merits of who has superior rights, not to the threshold question of who may bring the challenge.

Real interest and reasonable belief of damage

Applying the correct standard, the majority found Australian easily qualified. Its history of advertising and selling NAKED-branded condoms to U.S. consumers since 2003, together with its own pending trademark application that the Patent and Trademark Office had refused based on Naked TM’s registration, demonstrated a concrete commercial interest and a reasonable belief that the registration damaged it. Australian was not, in the court’s words, a “mere intermeddler” with no real stake; it was a competitor whose business was directly affected by the challenged registration.

The decision thus reinforces a recurring theme in Federal Circuit cancellation law, decided the same year as Corcamore, LLC v. SFM, LLC: the entitlement to petition is broad and is keyed to injury and interest rather than to ownership. A party can be barred from proving it owns superior rights and still have every right to ask the Board to cancel a registration it believes harms it.

The settlement and the dissent

The hardest aspect of the case was the settlement. Australian had affirmatively agreed not to use or register NAKED for condoms in the U.S. and had consented to Naked TM’s registration. The majority held that contracting away proprietary rights did not extinguish Australian’s real interest or its reasonable belief of damage. The agreement might bar Australian from ultimately proving entitlement to relief — and might limit any damages — but it did not negate the statutory cause of action to petition.

Judge Wallach dissented sharply. He argued that the majority improperly read proprietary rights out of the standing analysis and allowed a party that had bargained away its rights, and consented to the very registration it now attacked, to proceed anyway. When the full court denied rehearing, Wallach again dissented, contending the panel had departed from precedent. The back-and-forth highlights a genuine tension: how to reconcile generous statutory standing with the enforceability of private settlements that allocate trademark rights.

Open questions

• When does a settlement actually bar a cancellation? The court left open how an agreement might still defeat a petition on the merits or through estoppel, even if it does not negate standing.
• What is the line between standing and the merits? The decision separates the two cleanly in theory, but later cases must apply that line where ownership and injury are entangled.
• How should drafters protect a consent? The opinion implies that a covenant not to challenge a registration must be drafted explicitly, since merely consenting to registration did not foreclose the attack.

Implications

• Ownership is not the standing test. A petitioner may pursue cancellation on a showing of real interest and reasonable belief of damage, even without a proprietary right in its own mark.
• Draft covenants not to challenge expressly. Parties who want to foreclose future cancellations should bargain for explicit no-challenge clauses, not merely consent to registration.
• Settlement waivers affect remedies, not access. Contracting away rights may limit what a petitioner can ultimately win, but it does not necessarily bar the door to the Board.
• Distinguish threshold from merits. Litigants should argue ownership and superiority on the merits, not as a standing defense.
• Expect generous cancellation standing. Together with Corcamore, this case signals that the Federal Circuit reads the entitlement to petition broadly.

Frequently asked questions

Does a trademark cancellation petitioner need to own its own mark? No. In Australian Therapeutic Supplies v. Naked TM, the Federal Circuit held that a petitioner establishes a statutory cause of action under 15 U.S.C. § 1064 by showing a real interest in the proceeding and a reasonable belief of damage, regardless of whether it holds a proprietary interest in an asserted unregistered mark.

Did the prior settlement agreement defeat standing? No. Even though Australian had agreed not to use or register NAKED for condoms in the U.S. and consented to Naked TM’s registration, the majority held that contracting away proprietary rights did not eliminate Australian’s real interest and reasonable belief of damage. The agreement might bar relief or damages later, but it did not negate the cause of action.

Why was the decision controversial? Judge Wallach dissented, arguing the majority wrongly read proprietary rights out of the standing inquiry and let a party that had bargained away its rights still attack the registration. A petition for rehearing was denied over a renewed dissent, underscoring the split within the court.

Authorities and sources

• Australian Therapeutic Supplies Pty., Ltd. v. Naked TM, LLC, 965 F.3d 1370 (Fed. Cir. 2020), opinion (Justia): https://law.justia.com/cases/federal/appellate-courts/cafc/19-1567/19-1567-2020-07-27.html
• Opinion text (FindLaw): https://caselaw.findlaw.com/court/us-federal-circuit/2099196.html
• IPWatchdog, “Federal Circuit Reverses TTAB Ruling on Standing for Petition to Cancel Condom Trademark”: https://ipwatchdog.com/2020/07/28/federal-circuit-reverses-ttab-ruling-standing-petition-cancel-condom-trademark/
• The TTABlog, “Divided CAFC Panel Reverses TTAB: NAKED Condom Petitioner Has Standing Despite Contractual Estoppel”: https://thettablog.blogspot.com/2020/07/divided-cafc-panel-reverses-ttab-naked.html