• Schooling on Unincorporated Associations

    by  • August 18, 2014 • trademark • 0 Comments

    The Ninth Circuit has given us a lesson on unincorporated associations and two different legal concerns when one is involved in a trademark infringement lawsuit: the association’s capacity to own trademarks and to bring a lawsuit for infringement.

    The plaintiff is the Southern California Darts Association (“SoCal”), which promotes darts competitions and coordinates leagues. It had incorporated many years ago but its corporate powers were suspended by the state in 1977 for nonpayment of corporate franchise tax. Defendant Dino Zaffina was a member of SoCal but there was a falling out. (“Zaffina and SoCal feuded in July 2010 over whether Zaffina’s middle initial would be used in SoCal’s weekly scoring reports, and Zaffina’s membership in SoCal came to an end.” Wow. One suspects there were more issues than just a middle initial.) Zaffina had the not-too-bright idea* to form his own corporation (“SoCal Inc.”) and register the the domain name “southerncaliforniadartsassociation.com.” Zaffina and SoCal Inc. then wrote to SoCal’s host pubs to tell them of their existence and ultimately sued multiple defendants. SoCal then sued Zaffina and SoCal Inc. for trademark infringement. SoCal ultimately prevailed in the suit in the district court, against Zaffina on the merits and by default against SoCal Inc., when it failed to retain new counsel after its original counsel withdrew. Zaffina appealed pro se.

    Zaffina’s first challenge on the appeal was subject matter jurisdiction, quickly put the bed because there is federal jurisdiction for unregistered trademark infringement under § 43(a). Then we get to the interesting stuff with unincorporated associations.

    First is capacity to sue. Under California law, a delinquent corporation whose powers have been suspended may not bring suit or defend a legal action. However, capacity to sue in federal court is governed by Federal Rule of Civil Procedure 17(b). While indeed the Rule ties the capacity to sue back to capacity under state law, there is a relevant exception, which is that an unincorporated association that lacks capacity to sue under state law may “sue or be sued in its common name to enforce a substantive right existing under the United States Constitution or laws.” The lower court correctly held that the SoCal corporation, although delinquent as a corporation, met the definition of an unincorporated association and therefore had capacity to bring a federal claim, that is, the Lanham Act claim.

    But can an unincorporated association own trademarks? The court wasn’t particularly clear about why they might not have the capacity—after all, California state law allows unincorporated associations to own property, so that doesn’t seem to be the issue. It seems to revolve around the concept that unincorporated associations may not be commercial. But, since they can engage in commercial activities (the NFL is relieved to hear), there is no reason to categorically exclude them from trademark ownership.** In two earlier trademark cases the court implicitly held that unincorporated associations could own them, so here the court “expressly adopt[s] the implicit holding of Idaho’s High Desert.” This decision is consistent with the Sixth and Seventh Circuit, as well as decisions by the District Courts for the Eastern District of Wisconsin and New Jersey.

    And a bonus legal discussion: While only lawful use in commerce creates trademark rights, there must be a nexus between the unlawful behavior and the use of the mark in commerce. Not paying corporate franchise tax is “collateral and immaterial” to the purpose of federal trademark law and therefore did not make SoCal’s use of its trademarks unlawful.

    Southern California Darts Association v. Zaffina, No. 13-55780 (Aug. 11, 2014).

    * “Not-too-bright” because at the end of the day, this feud cost Zaffina more than $100K in damages, plus costs.

    ** Implicit in the court’s analysis is the court’s underlying assumption that non-profit or non-commercial enterprises don’t have use of a trademark “in commerce,” which is just flat wrong.

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