• Licenses, Consents or Assignments?

    by  • July 31, 2017 • trademark • 1 Comment

    Lawn Managers, Inc. v. Progressive Lawn Managers, Inc. is about a trademark and a divorce, a case we’ve visited before. Where we last left it, the federal court was abstaining to allow the parties to figure things out in family court. As it turns out that order was vacated; on reconsideration the court concluded that the trademark rights were not implicated in the state court proceedings and therefore it could proceed.

    So we get to the gist of the case. While married, Randy Zweifel and Linda Smith were 50-50 owners of Lawn Managers. In the marital settlement agreement, incorporated into the divorce decree, Linda gave her share of the Lawn Managers business to Randy and in return:

    5.06 Development of New Business Linda will establish a new lawn care company using the name Progressive Lawn Managers, Inc. doing business as Lawn Managers. The parties agree that Linda may use the name Lawn Managers for a period of time no longer than two years from the date of dissolution of marriage. At the end of two years from the date of dissolution of marriage, or sooner if Linda wishes, Linda will use the name Progressive Lawn Managers, Inc. and will discontinue using the name Lawn Managers.

    * * *

    8.01(8) Enforcement and Construction of Terms The terms of this Agreement are expressly intended to be construed as contractual, with reference to RSMo. Section 452.325, as amended, and therefore nonmodifiable, except as may otherwise be expressly noted ….

    * * *

    8.02(3) Review and Modification of This Agreement No modification or waiver of any of the terms of this Agreement shall be valid unless it is in writing and signed by both parties and where necessary, approved by a court of competent jurisdiction as required by law.

    (Asterisks in original.) Linda ultimately did end her use of “Lawn Managers” but Randy did not like Linda’s logo for Progressive Lawn Managers:

    (Ed. note: I’m with Randy on this one. Pretty hard to read “Progressive.”)

    Lawn Managers said it had withdrawn its consent for Linda to use the names “Lawn Managers” and “Progressive Lawn Managers” and alleged that Linda’s continued use of “Progressive Lawn Managers” infringed its trademark.

    So, can you do that? For the court,

    A threshold question in deciding this motion for summary judgment is whether the rights granted in the marital and post-dissolution settlement agreements are licenses, consents, or assignments.

    It was a matter of contract intepretation under Missouri law. “Plaintiff would have the court construe the rights grantted by the marital settlement agreements to be terminable at will.”

    Indeed, as a general rule a contract without a definite duration expressed or implied are terminable by either party with reasonable notice. This, though, was incompatible with rules governing marital settlement agreements:

    Where a perpetual contract in a commercial relationship, for instance, is not favored by public policy, marital settlement agreements exist in an entirely different context: they involve not just contractual but also family law considerations, and they are ratified and enforced in state court divorce proceedings. Missouri law provides that a divorce court’s order distributing marital property is “a final order not subject to modification.” The divorce court in this case did not find the parties’ separation agreements unconscionable; it incorporated them into the divorce and post-marital judgments, and the terms of the agreements are binding.… Therefore, in this case, the general rule that a contract without a definite duration is terminable at will simply does not apply. Instead, the express mention of a limited duration as to defendant’s right to use “Lawn Managers” implies that the next sentence granting defendant the unqualified right to use “Progressive Lawn Managers” grants a perpetual right.

    But what kind of rights did Linda get? The court accurately sussed it out:

    The court must determine the precise nature of these rights, however, as either an assignment, license, or consent. An assignment occurs when one party assigns rights of ownership in a mark to the other. A license occurs when one party grants another party the right to use a mark it owns in return for consideration. In a license, the licensee is engaging in acts which would infringe the licensor’s mark but for the permission granted in the license. In a consent, on the other hand, the consentee is permitted to engage in defined actions which do not infringe the consentor’s mark, and the agreement implicitly or explicitly recognizes that. Whereas a license brings the parties together into a common public image and a joint enterprise, a consent agreement keeps the parties apart at a defined distance. A license integrates, while a consent differentiates. As the Seventh Circuit observed in a seminal trademark case, a consent agreement “is not an attempt to transfer or license the use of a trademark, or any rights therein, or in any word thereof, but fixes and defines the existing trademark of each, that confusion and infringement may be prevented.” Waukesha Hygeia Mineral Springs Co. v. Hygeia Sparkling Distilled Water Co., 63 F. 438, 441, 1895 Dec. Comm’r Pat. 208 (7th Cir. 1894).

    For purposes of this motion, and based on the undisputed facts presently before this court, the agreements in question fall into the following categories. Randy granted Linda a license to use the name “Lawn Managers” until December 31, 2014. Use of the name “Progressive Lawn Managers” does not appear to have been assigned because no facts indicate that Randy owned rights to that mark. Instead, it was a consent, for the purpose of defining the existing marks of both parties to avoid confusion and infringement. This purpose was not explicitly stated in the agreements, but it is implied in the description of “Progressive Lawn Managers” as the unrestricted, perpetual name of Linda’s new and separate business. The agreements in question gave plaintiff the right to the name “Lawn Managers” and defendant the right to the name “Progressive Lawn Managers.”

    (Internal quotation marks and citations omitted, they were to McCarthy.)

    With this sorted out, the court reached the various issues raised on summary judgment. It carefully differentiated the use of the word mark “Progressive Lawn Doctors” (the only trademark addressed in the settlement agreement) from the logo, allowing the claims against the logo to proceed. Progressive Lawn Manager’s naked licensing defense (the marital settlement agreement being the naked license) survived a challenge on the basis of licensee estoppel; in the Eighth Circuit there is only estoppel for registered trademarks, the licensee is not estopped if the challenge is not inconsistent with the licensee’s rights under the license, and anyway here is it Progressive Lawn Care raising the defense, not the licensee, who is Linda.1

    The court said it was “premature” to consider the licensee estoppel, but even without it I will be very surprised if temporary permission to use a trademark as part of a divorce settlement is deemed a naked license.

    I wonder why Linda just didn’t changed the logo.

    Lawn Managers, Inc. v. Progressive Lawn Managers, Inc., No. 4:16 CV 144 DDN (E.D. Mo. July 27, 2017).

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    1. In a puzzling statement, the court characterized a case in the New York Supreme Court, which is the lowest level of court in New York, as by “the Supreme Court.” The case held that the licensee may claim that its own license was the naked one. 

    One Response to Licenses, Consents or Assignments?

    1. August 2, 2017 at 6:44 pm

      Interesting – trademarks are (really) all about the association of the mark image with the source of the product or service. Their only real meaning is in the presentation and how it’s seen by a consumer.

      But here, the key bit of law in the case is explicitly about the two ex-spouses, so the way the law feels like it’s applied is overtaken by how ” marital settlement agreements exist in an entirely different context”.

      Reading crazy legal stories always makes me think: if they’d just written the contract better in the first place, they wouldn’t be having this argument!

      FYI: typo, last sentence.

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