• The Risk of the Silent License

    by  • February 20, 2009 • trademark

    A previous post looked at a contract that was silent on trademark ownership and licensing, leaving the court to sort out who owned the trademark in dispute. A similar problem, a contract silent on the trademark, was decided in the Northern District of Indiana on the same day. This time, it was decided in the defendant’s favor and to the detriment of the mark.

    The plaintiff Boss Products was formerly known as Port-A-Pit Bar-B-Que, Inc. (“Inc.”) and had a registered trademark for Port-A-Pit. In 1974, the principal of defendant, Peverly, entered into a one-year contract with Inc. to lease Inc.’s patented barbecue grill, so long as he did it as an individual proprietor, adopted an assumed business name, paid half of his net profits to Inc., and used barbecue sauces developed by Inc. In 1975 they entered into a second agreement that was the same in all relevant respects and then continued to operate under the terms of the agreement until 1983. During that time, Peverly operated under the name “Port-A-Pit Bar-B-Que of Edgerton,” incorporating in 1981.

    In 1983 they entered into another agreement with a five year term that did not require, but urged, the use of Inc.’s barbecue sauces, then entered into another similar agreement in 1987. They continued their relationship until 2003, when Peverly terminated because, in Peverly’s opinion, Boss Products proposed unreasonable terms. Peverly instead returned the grills and had new ones built in order to continue his business. Shortly thereafter, Boss Products sent Edgerton a cease and desist letter telling Edgerton that it could no longer use the Port-A-Pit name. Boss Products ultimately sued in 2005, alleging trademark infringement, dilution and unfair competition.

    Edgerton had three theories in its defense: there was no breach of contract because the contract did not prevent its use of the Port-A-Pit mark; Boss Products abandoned its mark through naked licensing; and the claim was barred by laches or equitable estoppel.

    The contract was silent on the use of the “Port-A-Pit” trademark, but Boss Products claimed there was an oral agreement that Edgerton could use the mark only so long as Edgerton used the grill and the sauces. Edgerton said there was no oral agreement, only the contract provision that Peverly adopt an assumed business but not what the name should or should not be. The court dodged, finding that the written agreements were fully integrated and thus parol evidence not admissible. Since the agreements did not reference the Port-A-Pit trademark, there was no breach of contract by Edgerton by its use of the “Port-A-Pit” name, even post-termination.

    On the naked licensing defense, Edgerton alleged that the agreements did not control Edgerton’s use of the mark; in fact, the 1983/85 lease agreements demonstrated absence of control. The lease terms said that Edgerton was “an independent business in all respects and is not required to use any particular marketing plan or system,” was to have “sole control over the manner in which [it] will use the leased barbeque machine and over [its] method of operation,” and had no obligation to use the Boss Products’ barbecue sauces. Edgerton claimed it marketed the business in any way it chose, used the sauces of its choice, and served any side dishes it chose.

    But the court sided with Boss Products – a licensor may rely on the reputation and expertise of its licensees to some degree, and there was no substantial deviation in quality. There was also no reduced significance of the Port-A-Pit mark, so no abandonment.

    But the laches defense was successful for Edgerton. Boss Products was aware of Edgerton’s use of the Port-A-Pit mark since the 1970’s because the contracts were signed as “Port-A-Pit Bar-B-Que of Edgerton.” Thirty years of use, including at least five years of non-use of the Boss Products sauces, was inexcusable delay. Prejudice was also an easy call for the court – Edgerton’s “inability to continue operating their business under the ‘Port-A-Pit’ name would strip them of the goodwill they spent thirty years establishing.”

    Although laches does not necessarily bar injunctive relief, “in some cases, however, the delay may be so prolonged and inexcusable that it would be inequitable to permit the plaintiff to seek injunctive relief as to future activities.” That was the case here; summary judgment entered in Edgerton’s favor.

    So the “Port-A-Pit” mark is in use by a company other than the trademark owner or its licensee. Remember the trademark license.

    Boss Prods., Inc. v. Port-a-Pit Bar-B-Que of Edgerton, Inc., Cause No. 3:05-CV-293 RM, 2009 WL 260793 (N.D. Ind. Feb. 4, 2009)

    © 2009 Pamela Chestek