Property, intangible

a blog about ownership of intellectual property rights and its licensing

Act Two

In Act One of Third Education Group, Inc. v. Phelps, we had Richard Phelps versus Bruce Thompson, an informal partnership that turned sour. In the first decision, the court held that the registration for the mark they were both using, Third Education Group, was void because it was filed in the name of Richard Phelps but was actually owned by the unincorporated association.

After the court’s easy escape on the first trademark ownership theory, we now have Act Two. Here, the successor to the unincorporated association, Third Education Group, Inc. (“TEG”), alleges that Phelps’ continued use of “Third Education Group” is an infringement of the corporation’s unregistered trademark. Not so fast says Phelps; while the unincorporated association may have owned the mark, it was never assigned to TEG and instead remained with the unincorporated association. Since he was one of two members of the unincorporated association, his continued use was not an infringement.

The court therefore had to determine under Wisconsin law what happened to the trademark when the unincorporated association later incorporated. After a stroll through several cases in various states, the court held that

in Wisconsin, determining what happened to a joint venture or voluntary association upon incorporation will depend upon the unique circumstances of each case and whether the parties “clearly expressed” the intention for the association to survive incorporation. In the present case, TEG, the association, incorporated as a result of the unanimous consent of its members. The evidence demonstrates that Phelps and Thompson intended TEG, Inc. to succeed the unincorporated association; there is absolutely no evidence to permit the court to conclude that Phelps and Thompson intended the unincorporated association to coexist alongside the corporation and to retain control of the trademark or any other property. The evidence demonstrates that in every way, the parties intended TEG, Inc. to be the successor to the unincorporated association. There no longer was an unincorporated association once TEG, Inc. was created.

Therefore, the property of the association passed to the corporation . . . .

The dominos fall after that: the mark was suggestive, not descriptive, and Phelps’ use was likely to be confused with TEG’s use.

But the court at least understood Phelps obstinacy and didn’t punish him for it:

[T]he court finds that the actions of Phelps were not taken in bad faith. To the contrary, Phelps had much more than a mere good faith belief that he was entitled to use the mark. This was not a case of an individual, for example, mistakenly believing he had a license. Rather, in the present case, the objective evidence was on Phelps’ side. He was the one who undisputedly came up with the mark. He was the one who paid to register the mark. He was the one in whose name the mark was registered. And he was the one primarily responsible for establishing the use of the mark. He did this, not as one person in a large organization, but rather as an individual who had joined with another collaborator and in doing so, likely without an understanding of the legal ramifications, formed an unincorporated association. As the person who invested so much in creating the mark, it is not surprising that Phelps felt passionately about the mark and the organization he was primarily responsible for creating, as is reflected in some of his correspondence with Thompson. But the fact that he spoke passionately in defense of what he believed to be his mark does not make this case exceptional.

Technology & Marketing Law blog post here.

Third Education Group, Inc. v. Phelps
, Nos. 07-C-1094, 07-C-1095, 2009 WL 4544127 (E.D. Wis. Nov. 25, 2009).

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