The company that first marketed the "Naked" brand of condoms has statutory standing to sue for cancellation of a rival's mark—even if a settlement between the parties may ultimately prove a bar to damages.

Reversing a Trademark Trial and Appeal Board ruling by a 2-1 vote, the U.S. Court of Appeals for the Federal Circuit ruled that an apparent deal between Australian Therapeutic Supplies Pty. Ltd. and Naked TM LLC is not a bar to a cancellation proceeding.

"An absence of proprietary rights does not in itself negate an interest in the proceeding or a reasonable belief of damage," Judge Jimmie Reyna wrote for the majority in a precedential opinion. Instead, Australian can bring the cancellation if it has "a real interest in the cancellation proceeding and a reasonable belief of damage."

Judge Evan Wallach dissented, saying Australian specifically agreed not to challenge Naked's use and registration of the Naked mark. That leaves Australian "no more than an intermeddler here," Wallach wrote in Australian Therapeutics Supplies v. Naked TM.

Australian first began selling Naked condoms in 2000. Naked TM's predecessor-in-interest filed a trademark application for Naked condoms in 2003. Australian asserted its rights in 2006, and the parties apparently reached a settlement under which Naked received the rights to the mark in the United States, while Australian got rights to the Nude brand of condoms. Australian argues that the parties never hammered out final terms.

"Australian's advertising and sales of Naked condoms in the United States since April 2003, coupled with its pending application for registration of its unregistered mark, demonstrates that Australian is not a mere intermeddler," Reyna wrote. "These acts instead demonstrate a real interest and reasonable belief of damage, as contemplated for a cause of action under 15 U.S.C. Section 1064."

The court remanded the case to the TTAB for further proceedings.

Wallach wrote that he agreed with Reyna's formulation of the test, but concluded that Australian had not met it.

James Menker of Atlantic Beach, Florida's Holley & Menker had the winning argument for Australian. Suzanne Meehle of Orlando's Meehle & Jay represented Naked TM.