I think one of the reasons I like trademarks so much is their split personality. On one hand, they are the most ephemeral of intangible property, only a symbol representing a collective ethos. On the other hand, they can be the subject of the most ordinary transactions, buying and selling, securing a loan. A non-precedential decision from the 6th Circuit, Guaranty Residental Lending, Inc. v. Homestead Mortgage Co. on appeal from a Michigan federal court, demonstrates how a trademark-as-asset can be used to defeat trademark-as-symbol. Indeed, the case begins, “This appeal of a dismissed trademark suit involves no trademark law.”
As typical in these cases, the facts are complicated. Below is a roadmap:
Plaintiff is Guaranty Residential Lending (GRL)
Defendant and Counterplaintiff is Homestead Mortgage Co. (HMC)
Non-party former owner of the federally registered trademark HOMESTEAD MORTGAGE is Bob Fitzner, Inc. (BFI)
Counterplaintiff is Bob Fitzner (Fitzner).
1987: GRL first used the marks Homestead USA and Homestead Mortgage in Michigan
1993: BFI filed a federal application for the mark “Homestead Mortgage”
1996: BFI registration issues
May, 1998: A predecessor to GRL (confusingly named “The Homestead Mortgage Company”) files an ITU application for the mark Homestead USA, which was refused in 2001 after ex parte appeal on the basis of likelihood of confusion with the BFI mark
March, 2001: Texas forfeited BFI’s corporate privileges for failure to pay franchise fee so BFI cannot sue or defend in Texas state or federal courts. Under Texas law, the beneficial ownership of assets passes to the shareholders (here, Fitzner) who can sue or defend in Texas courts on behalf of the company to protect the shareholder’s interest
August, 2001: Fitzner files for Chapter 7 bankruptcy personally but did not list the beneficial ownership of trademark as an asset
January, 2002: Fitzner bankruptcy closes (beneficial ownership of trademark remains with the estate because it was unscheduled)
March, 2002: Texas forfeit’s BFI’s company charter
February, 2003: Fitzner bankruptcy reopens
Before August or September, 2004: HMC begins using “Homestead Mortgage” in MI
December, 2004: GRL sued HMC for trademark infringement
January 17, 2005: BFI assigns the Homestead Mortgage mark to Fitzner for $1.00, effective March, 2002
January 26, 2005: Fitzner licenses the mark to HMC for $10,000
July, 2005: HMC answers the complaint and Fitzner and HMC file a counterclaim for likelihood of confusion
January, 2006: Fitzner bankruptcy closes for the second time
GRL claimed that Fitzner lacked the capacity to sue on the trademark counterclaim, since he was not the owner of the Homestead Mortgage mark. The issue in the case was whether, under Texas state corporate and tax law and federal bankruptcy law, the assignment of the mark to Fitzner in 2005 was valid. To summarize a lengthy decision as succinctly as possible, yes.
The court of appeals held that when the corporate charter was forfeited, the beneficial and legal ownerships of the trademark were rejoined. The forfeiture of BFI’s charter began a wind-down for a period of three years during which time the corporation has the right to sue or defend in any court and Fitzner no longer had any interest in the mark. Thus, while Fitzner held beneficial title to the mark as of March, 2001, before he filed for bankruptcy, the interest was extinguished when BFI dissolved in March, 2002. At that point in time, BFI held full title to the mark and Fitzner, as the only officer of BFI, had the authority to liquidate and thus assign the mark to himself personally. Any objections to the assignment would have to have been raised by a creditor, not GRL.
The court gave two other reasons why the unscheduled asset was not problematic: first, the forfeiture of corporate privileges affected on the right to sue in Texas courts, not Michigan, so BFI always retained those rights. Second, the court raised an argument sua sponte in dicta, that the bankruptcy code exempts from estate property any power that the debtor may exercise solely for the benefit of an entity other than the debtor. Since under Texas law the beneficial ownership to sue and defend is exercised on behalf of the corporation, not the shareholder personally, Fitzner was not required to schedule it.
Even though Fitzner was (again) in bankruptcy at the time BFI assigned the mark to him, it was an after-acquired asset and not subject to the bankruptcy. Any objections to the assignment would have to be raised in the bankruptcy case (not this trademark case) by a creditor or trustee; further, the time for any objection had past.
So, well-played by HMC, by successfully engineering a counterattack against plaintiff GRL through licensing of a mark. But is HMC really licensing BFI’s “mark”? There is no suggestion that HMC had any relationship with BFI before taking a retroactive license; in other words, BFI and HMC were just two unrelated companies that happened to use the same words, but the words had entirely different sets of meaning (i.e., goodwill) for their respective customers. And speaking of “naked licensing,” how could BFI exercise control over HMC’s use of the “mark” when there was no relationship whatsoever between the two companies before January 26, 2006? Can one exercise control retroactively?
This is a case where the realities were defeated by the formalities, at least so far. It will be interesting to watch.
Documents from the district court proceedings here, here and here, in and of themselves an interesting read.
Guaranty Residential Lending, Inc. v. Homestead Mortgage Co., Nos. 07-1773/07-1815, 2008 U.S. App. LEXIS 19025 (6th Cir. Sep. 4, 2008).
© 2008 Pamela Chestek