In 1959 one of the important trademark rules was created. The United States Court of Appeals for the Second Circuit issued a decision in Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959). Dawn Donut Co. was a wholesale distributor of doughnuts and other baked goods, the senior user, and owned a federal registration for the trademarks DAWN and DAWN DONUT. Hart’s Food Stores, Inc. used the mark DAWN in connection with the retail sale of doughnuts and baked goods within certain counties surrounding Rochester, New York. Dawn Donut Co. sued Hart’s Food Stores, Inc. for trademark infringement and sought to enjoin the continued use of the DAWN mark even though Dawn Donut Inc. was not using its marks at the retail level or in the counties surrounding Rochester, NY. The district court denied the injunction; the Second Circuit affirmed, and created the “Dawn Donut Rule”:
[I]f 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.
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 provided the mark is inherently distinctive. 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. A federal registration confers upon the owner presumptive nationwide rights in the mark regardless of the geographic areas where the owner is using the mark.
Although the owner of a federal registration has a nationwide right to use its mark, the Dawn Donut trademark rules provide that the injunctive remedy does not ripen until the owner of the federal registration shows a likelihood of entry into the disputed territory. This rule has been adopted in the majority of federal appellate courts across the country.
What is means for any company choosing a new name is that a search of the United States Patent and Trademark Office database is 100% necessary because even though the owner of a federal registration is not currently in your market, the minute the federal registrant shows a likelihood of coming into your market it can force the junior user to rebrand.