Third Circuit vacates district court’s grant of relief in charity infringement dispute 

After the district court held on remand that laches did not bar relief in a dispute between two children’s charities, the US Court of Appeals for the Third Circuit determined that the court abused its discretion by not properly applying the presumption in favour of laches. The Third Circuit issued an order to vacate and remand with instructions to dismiss one charity’s trademark infringement claims with prejudice (Kars 4 Kids Inc v America Can!, case 23/1273;1281, 17 April 2024, Bibas, Porter, Fisher, JJ).

Case background

Kars 4 Kids and America Can! Cars for Kids are both charities that sell donated vehicles to fund children’s education programmes and have been engaged in a trademark dispute since 2003. Both parties have alleged federal and state trademark infringement, unfair competition and trademark dilution over their respective marks KARS 4 KIDS and CARS FOR KIDS. 

The parties last appeared before the Third Circuit in 2021, when it held that America Can was first to use its CARS FOR KIDS mark in Texas and Kars 4 Kids waived any challenge to the validity of America Can’s marks. In that decision, the Third Circuit also partly vacated the district court’s judgment and remanded the case back to the court to reexamine its laches and disgorgement conclusions, on which it had ruled in favour of America Can.

The laches defence

The Lanham Act does not contain a statute of limitations; instead, it subjects all claims to the principles of equity. To determine whether laches bars a claim, a court considers two elements: 

• whether the plaintiff inexcusably delayed bringing suit; and 
• whether the defendant was prejudiced as a result of the delay. 

With regard to the burden of proof for the laches claim at issue, America Can and Kars 4 Kids agreed that their Lanham Act claims were properly analogous to New Jersey’s six-year fraud statute. Since America Can first discovered the Kars 4 Kids trademark in Texas in 2003 but did not bring counterclaims until 2015, America Can was subject to a presumption that its claims were barred by laches, unless it was able to prove that its delay in filing suit was excusable and that it did not prejudice Kars 4 Kids.

The court’s findings

On the issue of delay, the Third Circuit found that the district court erred because it did not find that America Can met its burden of establishing an excusable delay in bringing suit and that a reasonable person would have waited to file. Instead, the district court improperly placed the burden on Kars 4 Kids to establish whether its advertisements in Texas were viewed by a sufficient number of people so as to put America Can on notice. As the Third Circuit explained, this was an error. The district court should have held America Can to the burden of showing that it was not sufficiently aware of Kars 4 Kids’ use of its mark in Texas, and what it did to identify and stop any potentially infringing behaviour.

On the issue of prejudice, the Third Circuit held that the district court improperly skipped the required analysis by concluding that Kars for Kids “assumed the risk” of a claim following its receipt of a 2003 cease-and-desist letter from America Can. Under the proper framework, America Can bore the burden of establishing that Kars 4 Kids was not prejudiced because of America Can’s delay in bringing a claim. With this in mind – and noting that America Can took no proactive steps to police the marketplace or protect its mark for almost 12 years after sending the 2003 cease and desist (while Kars 4 Kids grew its nationwide presence and investment in the Texan market) – the court found that America Can failed to meaningfully rebut the presumption that Kars 4 Kids suffered prejudice during the time that America Can delayed in acting.

Finally, in response to America Can’s arguments that a laches defence was inappropriate, the Third Circuit held that the district court erred in finding that Kars 4 Kids had engaged in conduct that satisfied the legal standard for unclean hands. According to the court, even Kars 4 Kids’ “willful” conduct was not shown to have the necessary fraudulent intent or bad faith to apply this doctrine.

Key takeaways

The Third Circuit reminded the district court that its 2021 remand required the lower court to hold America Can to its burden to establish that its delay was excusable, and that Kars 4 Kids was not prejudiced as a result of that delay. Because America Can failed to meet that burden, the Third Circuit held that America Can did not overcome the presumption of laches, which barred its claims against Kars 4 Kids. 

Under the Lanham Act, because a case of “actual laches” (a failure to rebut the presumption in favour of laches as to both delay and prejudice) may bar legal and equitable relief, the Third Circuit vacated the district court’s judgment granting monetary and injunctive relief. Once again, it remanded the case with instructions to the district court to dismiss America Can’s claims with prejudice due to laches.