• I Think I Heard the Phone Ringing …

    by  • December 15, 2016 • trademark • 0 Comments

    John Welch put in the call, and I’ll pick up. If you didn’t read his post on Emerald Cities Collaborative, Inc v. Roese, go read it now.

    Section 10 of the Lanham Act limits the assignability of intent-to-use trademark applications. One can assign an ITU application only after the Amendment to Allege Use or the Statement of Use is filed, except where the ongoing and existing business to which the mark pertains is transferred. It’s the last provision that is usually litigated and I have railed against what I consider to be an overly narrow interpretation of what it requires.

    But in Emerald Cities Collaborative the trademark owner didn’t claim that there had been a transfer of a business. Instead, there was an agreement, which was executed and effective before an AAU/SOU was filed but designed to not be operative until after the SOU was filed. It didn’t work.

    The TTAB and the Federal Circuit both held that it was not a future assignment but was instead, in effect, a present assignment before the SOU was filed and therefore the improper assignment of an ITU application. I agree and found these two paragraphs of the agreement particularly damning:

    [4.2(c)] The products and services sold by Mr. Orlando [the original applicant] and his associated entities under the Mark shall at all times be of a high quality, as determined by ECC [the transferee] acting reasonably. If the products or services sold by Mr. Orlando and his associated entities under the Mark fail to meet such quality standards, Mr. Orlando shall immediately take corrective action to ensure that the products or services are of the appropriate quality ….

    [4.3] Mr. Orlando shall not challenge ECC’s use of the Mark or support challenges by third parties, whether before or after the Registration Date. Only ECC shall have the exclusive right to file oppositions or claims against the users of confusingly similar trademarks ….

    (Brackets added; emphasis in original.)

    Controlling the quality of the goods and services is almost the whole kettle of fish when you’re trying to figure out who owns a trademark. Memorializing in writing that the supposed owner doesn’t have control, and throw in the inability of the supposed owner to enforce its trademark rights as soon as the agreement is signed, is pretty compelling evidence that the putative owner isn’t really the owner.

    License cases have an analogous situation, where a court has to decide whether an exclusive licensee has standing under Section 32, which is for infringement of a registered trademark. A licensee can be considered the owner of a trademark for purposes of standing where it holds so many rights that it is effectively the owner: “[A] truly exclusive licensee, one who has the right even to exclude his licensor from using the mark … is equated with an assign[ee] since no right to use [the mark] is reserved to the licensor ….” Krasnyi Oktyabr, Inc. v. Trilini Imps., Civil Action No. CV-05-5359, 2007 U.S. Dist. LEXIS 23733, at *8-9 (E.D.N.Y. Mar. 29, 2007).

    To rise to the level of a property interest, the license must be truly exclusive in that the licensor retains no rights to use the mark and the licensee can exclude the licensor from use. Bliss Clearing Niagara, Inc. v. Midwest brake Bond Co., 339 F. Supp.2d 944, 960 (W.D. Mich. 2004); Fin. Inv. Co. (Bermuda) Ltd. 165 F.3d at 532 (quoting 3 Jerome Gilson, Trademark Protection & Practice § 8:16[1][b] (1997)); Quabaug Rubber Co., 567 F.2d at 159; ICEE Distribs., Inc., 325 F.3d at 598-99. A license may also be tantamount to an assignment where the license agreement grants exclusive use of the trademark without restrictions on the licensee’s ability to enforce it. Bliss Clearing Niagara, Inc., 339 F.Supp.2d at 960 (quoting Ultrapure Sys., Inc. v. Ham-Let Group, 921 F.Supp. 659, 665-66 (N.D. Cal. 1996)). Courts have found that a licensee has no property interest where (1) the license agreement imposes geographical limitations on the use of the trademark, Calvin Klein Jeanswear Co., v. Tunnel Trading, 2001 U.S. Dist. LEXIS 18738, 2001 WL 1456577, at *5 (S.D.N.Y. Nov. 16, 2001); (2) the licensing agreement requires the licensee to maintain the trademark’s quality and reserves the right to monitor the licensee’s product quality, Gruen Marketing Corp. v. Benrus Watch Co., Inc., 955 F. Supp. 979, 983 (N.D. Ill., 1997); (3) the rights and duties in the license agreement are inconsistent with an assignment, Fin. Inv. Co. (Bermuda) Ltd., 165 F.3d at 532, and (4) the license agreement states that the licensor retains ownership of the trademark. Ultrapure Sys., Inc., 921 F.Supp. at 665 (citing DEP Corp. v. Interstate Cigar Co., 622 F.2d 621, 623 (2d Cir.1980)).

    Experian Mktg. Sols., Inc. v. U.S. Data Corp., No. 8:09CV24, 2009 U.S. Dist. LEXIS 82075, at *9 (D. Neb. Sep. 9, 2009)

    Those were all the things that were going on here; in the agreement the purported future owner was the one presently controlling the quality of the goods and services, and the purported present owner’s inability to enforce its trademark rights was inconsistent with ownership. So I have no problem with this decision and find it very consistent with existing trademark ownership law.

    John posed the question: “Is there anything wrong with an agreement to assign a mark in the future, in terms of the Section 10 prohibition? Wouldn’t that invite abuse? Pamela Chestek, please pick up the white courtesy phone!”

    I’m of two minds on the anti-assignment provision altogether. It was added to prevent trafficking in trademarks. One of my minds says that it has interfered with legitimate business interests and operations much more often than it has prevented trafficking. My other mind recognizes the possibility that trafficking hasn’t been a problem precisely because of the anti-assignment provision.

    In any case though, the law is pretty clear that one can’t assign a bare intent-to-use application and we can only act within the confines of the law we have. That said, to answer John’s question (finally), I have no problem with a future assignment based on a condition precedent that the trademark be put in use by the applicant and the assignment perfected after the Statement of Use is filed. But that’s not what happened here; here, as the Federal Circuit said, “we must construe the Agreement as a whole.” And as a whole, it was in effect a present assignment.

    I also don’t know how to draft a future assignment that will both fully satisfy the business desire and successfully survive a challenge. The parties are in this situation because one wants to acquire the inchoate right to use a trademark from a stranger. The reason for acquiring the application rather than just filing a new one might be to gain a priority date, or simply to get the earlier-filed application out of the way. The acquiring party isn’t interested in the applicant’s business and is likely planning to use the trademark right away for its own goods and services, which may be unlike the applicant’s planned use.

    The scheme I’ve generally heard proposed for assigning an intent-to-use application is that the applicant retains ownership and licenses the mark to the future assignee. The future assignee’s use of the mark as a related company then becomes the very use that is needed to perfect the application. But this strikes me as likely to fail too, based on my assumption that the assignee isn’t going to allow the applicant to actually control the assignee’s use, making it a classic naked license.

    It was a creative effort here, but it made the fatal mistake of not allowing the applicant to control the quality of its own goods and services, the sina qua non of trademark ownership. Had the acquiring party allowed the applicant to put the mark in use in whatever way the applicant wanted (recall here that it appeared the applicant had the ability to use the mark, it just had to be under the acquiring party’s control), but simply prohibited the applicant from bringing a claim for infringement against the acquiring party’s use before the actual assignment, that might have worked. The naked license risk with this is negligible; the applicant has its own use and simply tolerates a single infringer for a short period of time. There is a risk though that if the two uses are too dissimilar the acquiring party won’t be able to “tack” its own use to the acquired application, thereby gaining the earlier constructive first use date, so the purpose for the acquisition may not be satisfied.

    Essentially, these are situations where there is a desire to do exactly what the statute was designed to prevent. That will take some clever drafting indeed to make it work. But no matter how an intent-to-use application is acquired, it behooves the acquiring party to file a second “safety” registration that isn’t tainted by the acquisition, because any ITU application that has been assigned is likely to be challenged.

    And would Rebecca Tushnet pick up the white courtesy phone? The PTO denied acknowledging the Section 15 declaration because there was a pending opposition.

    Emerald Cities Collaborative, Inc. v. Roese, No. 2016-1703 (Fed. Cir. Dec. 13, 2016).

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