• Why Litigation Is So Expensive

    by  • January 5, 2015 • trademark • 0 Comments

    The USPTO has a number of different databases with information about trademarks—one for basic trademark registration data, searched by using the Trademark Electronic Search System (TESS), assignment records at Assignments on the Web (AOTW), and ex parte appeal, opposition and cancellation proceedings in the Trademark Trial and Appeal Board Inquiry System (TTABVUE). Two older databases, the Trademark Application and Registration Retrieval (TARR) and Trademark Document Retrieval (TDR) systems, have been replaced with the unified Trademark Status and Document Retrieval (TSDR) system. The TSDR system pulls together data about a trademark from a number of different databases and makes them available on one page. But the information displayed on a single page is still populated with data from the different systems.

    At least two of the databases have ownership information, the basic trademark database and the assignments database. Years ago, when one recorded an assignment the information would be added to the assignment database but it would not be reflected in the trademark database until the record was updated for other reasons. Now it’s done automatically, but not always, and not always correctly, particularly where there are multiple transactions recorded all at the same time. It’s also very clear that recording is a ministerial act that does not effect a change of ownership; ownership changes “by instruments in writing duly executed ….”

    Which is all background for a position taken by a defendant that gives litigation a bad name. Gibson Brands, Inc., owner of the Gibson guitar marks, sued John Hornby Skewes & Co. Ltd. (“JHS”) for trademark infringement. JHS looked at the TSDR records and found that the status page for five trademarks had Bank of America listed as the owner, not Gibson. It therefore amended its counterclaim to add a third-party claim against Bank of America.

    A week later Gibson coughed up printouts, this time from TESS searches of the trademark database, that listed Gibson (albeit Gibson Guitar, not Gibson Brands) as the owner of the marks. And finally three weeks later the Bank of America provided TSDR pages that also listed Gibson Guitar as the owner.

    JHS had no evidence other than the printouts, and five minutes’ worth of work would have shown that it was a simple data entry error.* The assignments database listings do not have a single abstract in their lengthy chains of title suggesting that Bank of America has anything but a security interest in the marks. Further, all of the underlying documents are available and JHS used some of them as evidence, therefore presumably had reviewed them all, and couldn’t find any suggestion in them of a change of ownership. All that JHS had was a single data field with bad data that was quickly corrected by Gibson.

    So what does the court do with all of this? First it takes judicial notice of the printouts, which is probably wrong to start. According to the authority cited by the court, it may take judicial notice of “matters of public record.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). But the printouts are not public record of anything except what data is in that particular field in whatever PTO database it came from, which says nothing about the underlying legal rights. The act of recording may be prima facie evidence of the document’s execution, but it is not evidence of the legal effect of the document.

    But no harm, no foul:

    Gibson and BOA essentially ask the Court to weigh the credibility of one judicially-noticeable iteration of a government website against the credibility of another. This the Court declines to do.

    The judicially-noticeable evidence presented is not so unambiguous that the Court may, on that ground alone, treat otherwise well-pled allegations as implausible.

    But JHS still loses, for a better reason than my belief that the JHS argument is frivolous—it’s also a nonsensical theory:

    [A] complaint does not state a plausible ground for relief if it is illogical or plainly at odds with common sense. JHS’s theory of the case is that BOA acquired ownership of the marks via one of the security agreements listed in the various USPTO documents or the deal to which the security agreement is ancillary. Assuming this to be true, JHS does not explain why BOA would come before this Court and aver, in filings subject to Rule 11, that USPTO records “unambiguously establish” that it “does not, and never has, owned the marks.”

    What would be the benefit to BOA of pretending that it does not own the marks? Suppose the Court denies these motions and continues to the summary judgment stage. BOA, which in this hypothetical owns the marks, would then be in the position of having lied to the Court and would have opened itself up to discovery which would undoubtedly reveal that fact. What could possibly be its motivation in doing so? The best case scenario for BOA at that point would be that the Court erroneously finds that it is not the owner—a determination which would likely act as res judicata to preclude BOA from asserting its ownership rights in the marks in the future. Additionally, if JHS’s interests were harmed by BOA’s false statements in this matter, JHS could sue BOA for fraud. JHS does not explain what benefit accrues to BOA, if it is the owner, in taking such risks. Surely if BOA were the owner of the marks, and were apprised of a lawsuit that could result in cancellation of the marks, the rational course of action would be to intervene as the true owner, or at the very least to inform the Court in this motion that it is the true owner so that the counterclaims for cancellation against Gibson would be dismissed.

    Compared to JHS’s narrative, which requires obscure, gamesmanlike motives and wild risk-taking by a sophisticated business entity, BOA and Gibson’s explanation—a clerical error at the USPTO, now rectified—has the virtue of being both simple and likely. This is, indeed, a case where “[the third-party] defendant’s plausible alternative explanation is so convincing that [the third-party] plaintiff’s explanation is implausible.”

    I’m not sure how the bank came to be listed as owner, but there are two bank-to-bank transactions with Bank of America on the receiving end. This one now says on the summary page that it is a security interest, but the cover sheet for the document states, correctly, that it is “assignment of security interest,” so perhaps the word “assignment” triggered the change. There is a second transaction that is a bank merger, also a transaction type that will trigger a change to the owner field, although clearly in error if it is a bank merger and not a merger involving the trademark owner. My suspicion is that one of these two is what caused the error in the database. So the lesson is—keep an eye on what banks are recording against your trademarks. And don’t be a dick in litigation when there’s a clear data entry error.

    Gibson Brands, Inc. v. John Hornby Skewes & Co. Ltd., No. CV 14-00609 DDP (SSx) (N.D. Cal. Dec. 8, 2014).

    *According to Gibson Brands, JHS didn’t even have to do any homework, because it had been “notified multiple times, by both Gibson and Bank of America, that Bank of America owns nothing more than a security interest in the trademarks at issue.”

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