after this, lets see how Small responds to Big's counterclaim

Introduction

1. Counterdefendants' response offers no credible reason to deny Big's Application for a Preliminary Injunction. It appears to argue that since the Counterdefendants were allegedly the first to use and register "TaxHQ" as a service mark, their rights to the mark are necessarily superior to those of Big. That argument, however, ignores Big's evidence that it used "TaxHQ" as a service mark and tradename well before the Counterdefendants' use of the mark in 2003, making it the senior user of the mark and giving it superior rights to use it. But even if Big's pre-2003 use of "TaxHQ" were deemed to have been limited to its use on a good (i.e., a newsletter) rather than in association with Big's services, Big would still be entitled to a preliminary injunction because, as a matter of law: (a) Big's prior use of the mark on a newsletter advertising its services gives it a right to enjoin the Counterdefendants' later use of it as a service mark because that use is likely to mislead consumers into believing that Counterdefendants' services are affiliated with Big; and (b) Big is entitled to "tack" its use of the mark on its newsletter onto its purportedly "later" use of the mark in association with its website's on-line services because that use was within "the zone of natural expansion" of Big's prior use of the mark.

The response's other arguments are baseless:

(a) Big's 2005 trademark application does not "estop" Big from asserting that it used "TaxHQ" as a service mark before 2005. All the application says is that Big started using the mark in connection with its computerized provision of services in 2005, which is true because that was when Big launched its website. Nothing in the application is inconsistent with Big's other uses for the mark before then. In any event, as a matter of law, statements set forth in a trademark application cannot be used as a basis for an estoppel.

(b) Nor are Big's claims barred by laches. Even if Mr. Cpaatty's account of an October 2004 telephone conversation with a Big employee were accurate, all that Mr. Cpaatty claims he told Big was that he was using the mark for legal services and that he had used the mark in Seattle newspaper advertisements. As a matter of law, that could not have afforded Big with notice that he intended to setup a competitive website in July 2006 targeted to the same consumer class as Big's website or that he intended to misappropriate the domain name for Big's website in March 2007. Moreover, the Counterdefendants nowhere demonstrate the requisite detrimental reliance and prejudice necessary to prove laches.

(c) Counterdefendants also have failed to demonstrate that their use of "TaxHQ" is not confusingly similar under the Ninth Circuit's Sleekcraft factors', accordingly, Big's Application for a Preliminary Injunction should be granted.

Argument

2. BIG HAS SUPERIOR RIGHTS TO USE "TaxHQ" AND IS ENTITLED TO AN ORDER ENJOINING COUNTERDEFENDANTS' USE OF THE MARK.

3. Although the Counterdefendants do not deny that Big's use of "TaxHQ" predates their own, they argue that they are entitled to priority because they were the first to use the mark as a service mark . According to the Counterdefendants, because Big's use of the mark before 2003 was allegedly limited to using it on a newsletter (a good), the Counterdefendants' first use of the mark in 2003 in association with their services gives them priority over Big. [Plaintiffs Opposition to Motion for Expedited Discovery and Application for Preliminary Injunction ") at 2 & 5-6].

4. That argument, however, ignores Big's evidence showing that it used "TaxHQ" as a service mark well before 2003, when the Counterdefendants claim that they first started using the mark. As is shown in Big's supporting declaration of William Person, Big has used its "TaxHQ" newsletter to advertise its services throughout the country since 1997, fostering an association between the mark and the services that Big provides and giving Big common law rights to the mark either as a service mark or as a tradename. [Declaration of William Person ("Person Decl.") ~~ 4-11 (describing, before 2003, newsletter's national distribution, the recognition of the mark by consumers as being associated with Big's services, the hundreds of thousands of dollars invested in newsletter and its advertising)] That alone is sufficient to give Big priority in the use of "TaxHQ" as a service mark. See American Scientific Chem., Inc. v. American Hosp. Supply Corp., 690 F:2d 791, 792 (9th Cir. 1982) (holding that the size of the seller, the volume of sales, large amounts spent in promotion and advertising, the scope of publicity given the mark, and any similar evidence showing wide exposure of the mark to the buyer class is sufficient proof of required consumer association between the mark and the services in question).

5. Moreover, the fact that Big later registered the mark as a trademark for its newsletter, rather than as a service mark, has no effect on Big's rights to the mark under common law. See, e.g., Universal Motor Oils Co. v. Amoco Oil, 15 U.S.P.Q.2d 1613, 1618-19 (D. Kan. 1990) (that mark in issue was only a part of plaintiff's registered trademark did not resolve dispute because an issue remained whether the plaintiff had established common law trademark rights in the mark as a separate mark). Nor does it matter that the Counterdefendants' registration is senior to Big's: all that matters is that Big's use of the mark predates that of the Counterdefendants. See Sengoku Works Ltd. v. RMC Int'l, 96 F.3d 1217, 1219 (9th Cir. 1996) ("To acquire ownership of a trademark it is not enough to have invented the mark first or even to have registered it first; the party claiming ownership must have been the first to actually use the mark in the sale,of goods or services. ").

6. But even if Big were not able to establish use of the mark before 2003 in association with its services, Big would still be entitled to enjoin Counterdefendants' use of "TaxHQ":

7. First, nothing under the trademark laws requires a "product mark" owner to first use the mark as a "service mark" before alleging a likelihood of confusion with respect to an infringing party's "service mark." See, e.g., Beef/Eater Restaurants, Inc. v. John Burrough, Ltd., 398 F.2d 637, 639 (5th Cir. 1968) (likelihood of confusion found between BEEF-EATER used for gin and BEEFEATER used for restaurant services). Instead, so long as the goods and services of the conflicting parties are "related" to each other or fall "within the zone of natural expansion" of the senior user, the senior user is entitled to injunctive relief if consumer confusion is likely with respect to source (Accord Turner v. HMH Pub.' Co., 380 F.2d 224, 228 (5th Cir. 1967) (confusion found between PLAYBOY for magazine and PLAYBOY for nightclub services); HMH Pub. Co. v. Turbyfill, 330 F. Supp. 830, 833 (M.D. Fla. 1971) (confusion found between PLAYBOY for magazine and PLAYBOY for movie theater services).

8. Second, in determining priority of use, Big is entitled to "tack" its use of TaxHQ on a "good" (i.e., its newsletter) onto its purportedly later use of mark in association with its "services" (i.e., on its website). The Counterdefendants do not dispute that Big used its newsletter to advertise its services. They also do not deny that Big's website, which started in January 2005, continued to advertise those services and started providing those services on-line. In such circumstances, Big's purportedly "later" use of TaxHQ as a service mark was within "the zone of natural expansion" of Big's prior use of the mark. Where, as here, a senior user of a mark on product line A later expands into product/service line B and finds an intervening user, priority in product/service line B is determined by whether the expansion is "natural" in that customers would have been confused as to the source or affiliation at the time of the intervening user's appearance. See. e.g., Jaguar Cars. Ltd. v. Skandrani, 18 u.S.P.Q.2d 1626, 1630 (S.D. Fla. 1991) (holding that an intervening user of JAGUAR on cologne did not have superior rights to a mark where the prior user,.which had used the mark in association with automobiles, later expanded into the fragrance market); Geoffrey Inc. v. Stratton. 16 u.S.P.Q.2d 1691, 1694-95 (C.D. Cal. 1990) (although plaintiff was not yet selling working phones at the time defendant adopted its mark, plaintiff was actively selling electronic goods, including intercoms, walkie-talkies and computers and was therefore entitled to protect its mark against defendant's infringing use on phones). As such confusion would have resulted here, this rule dictates that Big's date of first use extends back to 1997, when it started its newsletter, and, as such, its rights to the mark are superior to those of the Counterdefendants.

BIG IS NOT "ESTOPPED" FROM ASSERTING ITS CLAIMS BY THE STATEMENTS IN ITS TRADEMARK APPLICATIONS.

9. Although the argument is hard to follow, the Counterdefendants appear to contend that Big's 2005 trademark application "estops" it from claiming that it used "TaxHQ" as a service mark before 2005. [Opp. at 3 & 10-11] According to the Counterdefendants, Big's application said that Big's "first use [of the mark] for corporate document filing and retrieval services ... was in 2005." [Id. at 3)

10. The application, however, says no such thing. In paraphrasing Big's application, the Counterdefendants fail to disclose that the field of use was specifically described and that it was accurate for the application to state that the TaxHQ mark was first used with this set of services in early 2005 because that was when Big first launched its website offering those services on-line. [Person Decl. 1113]3 But the application does not state, nor can it be reasonably inferred, that Big was not using its mark in association with such services before that date. Moreover, to the extent that this statement can be misconstrued to support the Counterdefendants' interpretation, it is immaterial because "the defense of 'file wrapper estoppel' is inapplicable in trademark cases." Watercare Corp. v. Midwesco-Enter., Inc., 171 U.S.P.Q. 696, 700 (T.T.A.B. 1971); accord Goodyear Tire & Rubber Co. v. A.J. Indus. Corp., 165 U.S.P.Q. 665, 668 (T.T.A.B. 1970).

11. The Counterdefendants are on no stronger ground in arguing (at 3) that because Big's first trademark registration sought only to register "TaxHQ" in a field of use as a newsletter, it is somehow estopped from claiming that it made use of the mark as a service mark before 2003. As a matter of law, a trademark owner is not required to apply for a federal trademark registration to protect his or her rights in a mark. That Big could have successfully applied for a broader registration does not diminish any common law rights Big had in "TaxHQ" as a service mark. Similarly rneritless is the Counterdefendants' argument that Big was obligated to disclose to the PTO the Counterdefendants' use of the mark. Even if Big had known about it (which the Counterdefendants have not shown), a prior user (like Big) had no duty to disclose conflicting uses by a junior user. See, e.g., Heaton Enter. v. Lang, 7 U.S.P.Q. 2d 1842, 1948-49 (T.T.A.B. 1988).

12. The statement also is consistent with the field of use that the PTO ultimately approved in Big's registration, which described the mark's use for "computer services, namely, providing on-line database in the fields of tax information, tax documents, and related information on filing tax documents and related legal forms"[Defendants' Answer and Verified Counterclaim Against Plaintiff Small P.C. and Counterdefendant John T. Cpaatty, Ex. B]

SMALL HAS MADE NO SHOWING THAT BIG'S CLAIMS ARE BARRED BY LACHES

13.The Counterdefendants also argue that Big is barred from pursuing its claims because of laches.That argument is based primarily on the Counterdefendants' allegation that during an October 2004 telephone conversation, Mr. Cpaatty purportedly told one of Big's employees that he was using "TaxHQ" to promote his services and that the mark appeared in an advertisement in the Seattle newspaper. [Opp. at 2; Declaration of John T. Cpaatty ] But even if Mr. Cpaatty's self-serving account of the conversation were accurate, the Counterdefendants' laches argument is still flawed in three respects:

14. First, telling Big that the Counterdefendants were using the mark in a Seattle telephone directory cannot be construed as affording notice of their later expansion of their use of the mark in July 2006, when they started using the mark on a website targeted to a nationwide audience that was offering the same type of services that were being offered on Big's TaxHQ website. [plaintiffs Opposition to Application for Expedited Discovery and Application for Preliminary Injunction (HOpp.")

15. In trademark cases, the existence of laches is determined by a six part test: (l) the strength and value of the trademark rights asserted; (2) the senior user's diligence in enforcing the mark; (3) the harm to the senior user if relief is denied; (4) whether the junior user acted in good faith ignorance of the senior user's rights; (5) the degree of competition between the junior and senior users; and (6) the extent of harm suffered by the junior user because of the senior user's delay in asserting its rights. Ocean Garden, Inc. v. Marktrade Company, Inc., 953 F.2d 500, 506 (9th Cir. 1991) (holding that laches did not preclude granting of preliminary injunction).

16. Second, for the same reason, there is no merit to the Counterdefendants' argument that Big should have discovered their use of the mark earlier. An exhaustive search of the filings of the Patent and Trademark Office would not have revealed that the Counterdefendants were using the mark on an Internet site as the field of their trademark registration (unlike Big's) did not include computerized services. [Complaint ~ 5] Moreover, a search of the Internet would not have necessarily uncovered their infringing website until they started using "TaxHQ.NET" as a domain name last March, which is too short a time upon which to base a laches defense. See, e.g., University of Pittsburgh v. Champion Prods., Inc., 686 F.2d 1040, 1044-46 (3rd Cir. 1982) (holding that if plaintiff is aware of defendant's local use of a mark but not of its use of it nationally, the time period for laches begins to run for national use only when such use becomes known to plaintiff).

17. Third, the Counterdefendants have failed to demonstrate reliance on Big's purported delay or any legitimate prejudice associated with that delay. Based on the present record, until July 2006, the only expenditures the Counterdefendants apparently made in connection with their mark was to pay for newpaper advertisements, which is too small an amount to show prejudice.. See, e.g., H&R Indus. v. Kirshner, 899 F. Supp. 995, 1007 (E.D.N.Y. 1995) Accord Brookfield Comm. v. West Coast Enter. Corp., 174 F.3d 1036, 1061 (9th Cir. 1999) (where defendant's encroachment is minimal, or its growth slow and steady, there is no laches); HH Scott, Inc. v. Annapolis Elecroacoustic Corp., 195 F. Supp. 208, 218 (D. Md. 1961) (delay of three years in objecting to the local use of the infringing mark did not estop the plaintiff from objecting to defendant's national use of the mark).

18. Nor can the Counterdefendants rely on their expenditures on their website after that date. They do not deny that they used the mark on their site and used "TaxHQ" as part of the site's domain name with full knowledge that Big already had a website offering similar services that featured the mark and was using "TaxHQ" as part of its domain name. As such, any harm they may suffer if they are forced to end their infringement is self-inflicted and should not be considered. See Warner-Lambert Co. v. Schick U.S.A., 935 F. Supp. 130, 142 (D. Conn. 1996) (prejudice does not consist merely of expenditures incurred in promoting the infringement); Holiday Inns, Inc: v. Holiday Inn, 364 F. Supp. 775, 784 (D.S.c. 1973) (after defendant's bad faith adoption of the mark, any expansion of business under that mark is at defendant's own peril and does not show prejudice), aff'd, 498 F.2d 1397 (4th Cir. 1974).

THE SLEEKCRAFT FACTORS INDICATE THAT THERE IS A SUBSTANTIAL LIKELIHOOD OF CONFUSION.

19. The Counterdefendants argue (at 8-10), but fail to demonstrate, that under the factors set forth in AMF Inc v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979), their use of "TaxHQ" is not likely to result in confusion:

(a) They concede (at 10) that the parties marks are "similar" under factor #1. Indeed, they are identical.

(b) They appear to contest the applicability of factors ##2 and 6 (the relatedness or proximity of the parties services and the sophistication of purchasers) by asserting (but never proving) that their services are targeted to "ma and pa" entities rather than the "large corporate clients" to which Big's website is allegedly directed. However, there is nothing on the Counterdefendants' website that suggests that their services are directed solely to consumers who would be uninterested in Big's services. Indeed, if that were the case, their appropriation of Big's second-level domain name in March 2007 makes no sense, as the Counterdefendants had to know by that time that Big was already using "TaxHQ" as part of its domain name to direct consumers to its website.

(c) They deny that the parties are not using the same marketing channels (factor #3), arguing that it is not enough both Big and the Counterdefendants are using the mark on Internet websites using virtually the same domain name. Under governing Ninth Circuit precedent, however, that is enough. See Brookfield Comm., Inc. v. West Coast Enter. Corp., 174 F.3d 1036, 1057 (9th Cir. 1999) (identifying the marketing of similar services as likely to cause confusion if the parties make use of the Internet under virtually identical domain names).

(d) They concede that the strength of the mark (factor #4) is relevant, but contend that their investment in their mark is "every bit as significant" as Big's. However, they provide absolutely no proof of that assertion.

(e) They argue that "intent" (factor #5) favors them, yet nowhere deny that they knew of Big's use of "TaxHQ" in newsletters and on the Internet well before they set up a website using that mark and registered in March 2007 a domain name that was virtually identical to the one used by Big's website. Given that knowledge, the Counterdefendants had to know that their actions were likely to invite consumer confusion.

(f) They claim that no actual confusion has yet occurred (factor #7), but do not deny that given the similarity of the marks, the similarity of the services, and the similarity of. the parties' Internet domain names, consumer confusion is inevitable.