• Cutting to the Chase

    by  • October 17, 2016 • trademark • 0 Comments

    Props to the bankruptcy court in the Eastern District of North Carolina for cutting through to the meat of a trademark ownership dispute.

    We have a company, B6USA, Inc., doing business as “BaySix,” in Chapter 11 bankruptcy. B6USA was formed in March 2005 and was solely owned by Katherine D. Hite, who was also president, secretary and treasurer of the corporation. She was married to defendant Stephen M. Hite, who had no ownership interest in the corporation and was not an officer or director. Nevertheless, both parties agree that he was heavily involved in the formation of B6USA, served as its manager or chief operating officer from its inception until he left the company in September, 2016, and was actively involved in its operations. B6USA was formed after the closing and dissolution of TRG, Inc., a company that Mr. Hite owned and that had been in the same business. TRG “apparently suffered from its own financial difficulties at that time” and its business operations were blended into B6USA. Mr. Hite said that his wife owned B6USA so it would be a woman-owned business, but that she had very little involvement in the day-to-day operations.

    Mr. Hite claimed that he originated and controlled the “BaySix” trademark well before B6USA was formed. He said he and a deceased business partner first created the name 20 years again and that it was originally used by his first company Bay Six Group, Inc., then subsequently by TRG and B6USA. Needless to say, there was no license agreement and no trademark registration, or at least not one before the bankrupty petition was filed.

    The Hites had marital difficulties and in January, 2016 Mr. Hite formed a new company, Baysix Group, LLC, while still working for B6USA and without Mrs. Hite’s knowledge. On September 6, 2016 B6USA filed a voluntary petition for a Chapter 11 reorganization and on September 8, 2016 B6USA fired Mr. Hite. Mr. Hite then contacted B6USA customers and obtained new orders, sold products under the “BaySix” brand, removed inventory and assets from the B6USA warehouse, and funneled orders placed on the B6USA website to his new company. He also filed several trademark applications for “BaySix” formatives. So we have a dispute over who owns the BAYSIX trademark.

    The court paused briefly to recite the standard for determining whether one has sufficient use to establish common law rights in a trademark as described in Emergency One, Onc. v. Am. Fire Eagle Engine Co., a point that is largely irrelevant. When there is a dispute where two different entities claim to own a single trademark, there can’t be a question of who started using the same mark first.

    But no harm, the court didn’t let incorrect legel doctrine get in the way of the proper finding on the facts. I can’t summarize the legal conclusion any better than the court did itself, so I’ll just quote:

    [T]he plaintiff did establish, and Mr. Hite cannot escape, that among other things he never used the name and marks individually in commerce, but rather moved the use from company to company over many years; that he voluntarily contributed the name to B6USA when it was formed in 2005; that for ten years he actively, even enthusiastically, used the name and marks in an on-going and then successful business (B6USA) that he believed or considered to be his own (as shown by the $1.00 stock purchase option he says existed); that he created confusion in the marketplace by secretly using the same or substantially similar names and marks at around and after bankruptcy was filed by B6USA; and that unlike B6USA, the LLC does not have an established and protracted time-line of parallel use of the name and marks. While open questions remain for trial, and it remains to be seen whether either party can meet its full burden for entry of a permanent injunction, at least at this early stage of the case B6USA has demonstrated a significantly greater likelihood of success on the merits than Mr. Hite.

    And be still my heart, the court also recognized that allowing the status quo to continue and not force one or the other to stop with a preliminary injunction was an unacceptable outcome:

    Furthermore, even if neither party presented clear evidence necessary to meet its burden, but instead evidence of determination of likelihood of success was largely advocated on the lack of contrary evidence from the other side, the court would still find itself in a position where it cannot allow the status quo (mutual use of the same term) to continue due to the clear evidence of public confusion resulting from dual use. Fortunately, the Seventh Circuit established a “tie-breaking determiner” under similar circumstances. See TMT North America, INC. v. Magic Touch GmbH, 124 F.3d 876 (7th Cir. 1997).

    Denying both parties injunctive relief … “is not a comfortable posture for the Court to assume” because it “is tantamount to holding that both parties are free to offer their products for sale in the same marketplace.” Johanna Farms [Inc. v. Citrus Bowl, Inc.], 468 F. Supp. [866] at 882 [(E.D.N.Y.1978)]; see generally 4 [J. Thomas] McCarthy, [McCarthy on Trademarks and Unfair Competition] § 31:10 [(4th ed. 1997)]. The law therefore allows the senior user’s claim to be revived from estoppel if the senior user can show that “inevitable confusion” would result from dual use of the marks.

    Because the plaintiff has established a likelihood of showing that it owns the name due to first use in commerce (as between the two parties) plus years of exclusive use with the active participation and agreement of the other party, the court does not need to adopt the Seventh Circuit “tie-breaker” test. However, … as an alternative basis, the court finds that, in addition to B6USA being the senior user as between it, the LLC and Mr. Hite individually, the parties have shown not only a likelihood of confusion but the existence of marketplace confusion in fact that must be addressed until further and better evidence can be presented.

    Mr. Hite is therefore enjoined from doing business as BaySix Group, operating a website at “baysixusa.com” or holding himself out as affiliated with B6USA.

    B6USA, Inc. v. Hite, Adv. Proceeding No. 16-00149-5-JNC (Bankr. E.D.N.C. Oct. 13, 2016)

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