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Sprouts v. Sprouts: Regional Trademark Disputes

Sprouts v. Sprouts: Regional Trademark Disputes

Many of my Southern California-area readers will be familiar with the Sprouts Farmers Market chain of grocery stores. San Diego’s Boney family originally operated several stores as “Boney’s.” Following the death of founder Henry Boney, the names were changed to “Henry’s.” Recently, stores in the Southern California region saw another name change, this time to “Sprouts Farmers Market.” This is because of a merger between the Henry’s stores and the Arizona-based Sprouts Farmers Market chain (which, confusingly, was also founded by the Boney family). The merged company is now owned by a hedge fund. Apparently they wanted to consolidate the brand, so they have changed all of the stores’ names to Sprouts Farmers Market (or are in the process of doing so).

This attempt at brand consolidation brought them into direct conflict with a small mom-and-pop grocery in Temecula.

Sprouts Farmers Market (which I will refer to as “SFM” for reasons that will shortly become clear) has been engaged in trademark litigation with a Temecula-based store, Sprouts Natural Market (“SNM”).

SFM has several Federal trademark registrations dating back to 2001 (here is the first). SNM has no such registrations. SFM is a large company which both parties in this litigation valued at $20 billion; SNM is a single mom-and-pop grocery store.

In the course of litigation, the parties agreed that the marks SPROUTS FARMERS MARKET and SPROUTS NATURAL MARKET are essentially identical for trademark purposes, and that there was a likelihood that consumers would be confused between the two – in fact, there was evidence of actual confusion by consumers, vendors, and the like.

SFM (the big guy) argued that they enjoyed nationwide rights in the mark owing to their uncontested Federal trademark registration. SNM (the little guy) had been operating under a different name around that time, but they submitted some evidence – ultimately accepted by the court – that they had begun to use the SPROUTS name in commerce prior to SFM’s 2001 filing date.

While SFM filed the initial suit, SNM responded by asking the court to enjoin (prevent) SFM from using the name in the Temecula and San Diego area. The court granted the injunction in part, ordering SFM to stop using the SPROUTS name in connection with SFM’s Temecula, Riverside, Hemet, and Corona stores. The court weighed several factors, including the “balance of equities” – essentially, which entity would suffer the most harm. The court was persuaded that by having to compete (unfairly, in their view) with SFM, SNM faced the possibility of serious economic harm, including the likelihood that they would go out of business. Even accepting that the cost to SFM – to rebrand their stores and product packaging, among other things – would meet their alleged number of $14 million, the damage to SNM was seen as proportionally greater.

While I’m certain that the litigation will continue, for now, at least, SNM has won a significant legal victory over its much larger competitor.

I do have a few questions about this, chiefly: did SFM attempt to purchase the name from SNM, or enter into some sort of licensing or trademark coexistence agreement? Clearly, the parties could have found a way to work something out at a cost of less than $14 million (plus the legal fees and costs).

What are the lessons here for trademark owners, large and small? First, do your due diligence. Even if you do “the right thing” and file for a Federal trademark registration – and hold it unopposed for more than 10 years – you can still run into serious trouble. Consider every alternative, including adopting a different name or negotiating an agreement with your perceived opponent. The risks of using a mark that another entity may have a claim to can be significant.

Editorial Note: I always liked Boney’s…if they had kept that name, they never would have had this problem in the first place.

Thanks to Reuben Liber for providing me with this story.

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