Harry Potter Trademark

Question
    J.K. Rowling is the author of the famous Harry Potter novels.  She owns all trademarks associated with the books since 1997.
In 1996, a man named Stouffer started a small publishing company with the intent of publishing one short book about fantasy creatures called "muggles." The company folded and the book was never published.  Stouffer did not register a trademark for "muggles."  However, Stouffer sued Rowling for trademark infringement because she used the term "muggles" in her books to describe humans who were not witches or wizards.  Who wins?  Why?  How would a court analyze the issues presented?

Stouffer is suing Rowling for trademark infringement due to use of the word "muggles" used in the Harry Potter collection of books. Rowling owns all trademarks associated with the books however the word "muggles" was previously used by Stouffer in a non published short book. The case will be decided based on the federal statute that regulates the use of trademarks known as the Lanham Act.
The Lanham Act of 1946, also known as the Trademark Act, is a federal statute that regulates the use of trademarks in commercial activity. Trademarks are distinctive pictures, words, and other symbols or devices used by businesses to identify their goods and services. The Lanham Act gives trademark users exclusive rights to their marks, thereby protecting the time and money invested. The act also serves to reduce confusion in the identification of goods and services.

The Lanham Act was put into effect for the purpose of protecting trademarks and the people that created the device that is trademarked.  Although it is strongly encouraged to register a trademark it is not necessary as federal protection ...
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