Due Diligence Matters
by Pamela Chestek • September 27, 2010 • trademark
Pacific Coast Trailers, LLC v. Cozad Trailer Sales, LLC is a tale of failed due diligence.
Reliance Trailer Manufacturing Corp. (“Reliance Mfg.”) owned the trademarks RELIANCE, STURDYWELD, ALLOY and COMET. It assigned the latter three, but not RELIANCE, to a sibling company, Reliance Trailer Co., LLC (“Reliance LLC”). Reliance LLC defaulted on some loans and filed for Chapter 11 bankruptcy. It listed the RELIANCE trademark as an asset on its bankruptcy schedule.
Defendant Cozad purchased any interest that the lending bank, Sterling, had in the Reliance LLC assets. The Bill of Sale listed the purchased assets as
|without warranties of any kind, all of [Sterling]’s right, title and interest, if any, in (1) the trade names ‘Reliance Trailer,’ ‘Sturdy Weld,’ ‘Alloy Trailers,’ and ‘Comet Trailers’ and the word mark ‘Sturdy Weld’.|
The bank then assigned the marks STURDYWELD, ALLOY, and COMET to Cozad, but not the RELIANCE mark.
Almost simultaneously, Reliance Mfg. granted an exclusive license to use the RELIANCE mark to plaintiff Pacific Coast. The agreement was signed three days after Cozad purchased its rights from Reliance LLC. Pacific Coast sued Cozad one day later in state court.
This is really a no-brainer – preliminary injunction granted against Cozad’s use of RELIANCE. A few sentences is all it took:
|The Court finds that Pacific Coast has demonstrated a likelihood of success on the merits. First, Pacific Coast holds “an exclusive, royalty bearing right and license” to use the RELIANCE name, which it obtained from the presumed owner of the RELIANCE trademark, Reliance Mfg. Thus, Pacific Coast can likely prove it obtained a valid, protectable interest in the RELIANCE trademark.Second, Cozad’s use is likely unauthorized. Cozad attempts to rebut Reliance Mfg.’s presumed ownership by claiming that it purchased from Sterling all the assets and goodwill listed in Reliance, LLC’s bankruptcy schedule, which included the RELIANCE mark. Although a trademark may be validly assigned by sale or operation of law via bankruptcy, a transferor cannot convey any more interest than he or she has. But for the fact that the RELIANCE mark was listed in Reliance LLC’s bankruptcy schedule, there is no evidence that Reliance LLC (or Sterling) ever owned or obtained any interest in the RELIANCE mark. Furthermore, the fact that Sterling assigned to Cozad the marks for STURDYWELD, ALLOY, and COMET but not RELIANCE indicates that Sterling is at least uncertain whether it owned any interest in the RELIANCE trademark in the first place. If Sterling never owned any interest in the mark, it could not have transferred any interest to Cozad. Thus, Cozad has failed to rebut the presumption that Reliance Mfg. owns the RELIANCE trademark and could properly license it to Pacific Coast.|
But the case is really a lesson in due diligence and gamesmanship. An email from Cozad’s CPA shows Cozad thought it was getting the RELIANCE mark:
(Full email here.) Uh, no. The PTO assignment database shows that only three were assigned, clearly showing that neither Reliance LLC nor Sterling owned the RELIANCE mark.
Meanwhile, Pacific Trailer was also after the mark. A declaration submitted on behalf of Pacific Coast Trailers in a co-pending California suit between the parties says:
|Pacific Coast Trailers made several offers to purchase Reliance Trailer Co. LLC assets from Sterling but ceased doing so when it reached an agreement with Cozad regarding a subsequent transfer of substantially all of the assets from Cozad to Pacific Coast Trailers, such agreement now being the subject of [the Washington] lawsuit.|
So at some point Pacific Coast Trailers figured out that the RELIANCE mark, at least on paper, hadn’t been assigned and took a license from the record owner, then sued Cozad for trademark infringement in Washington. Meanwhile, Cozad sued Pacific Coast Trailers for trademark infringement in California. Pacific Coast Trailers then successfully obtained a preliminary injunction against Cozad.
But these things have a way of working themselves out. The preliminary injunction was only pawn to queen four and the game continues. Since the decision, Reliance Mfg. was somehow motivated to terminate the license for the RELIANCE mark to Pacific Coast and sold the mark to Cozad. Cozad then dismissed the Reliance parties from the California suit and has moved to dissolve the preliminary injunction in the Washington action.
That’s a lot of trouble, money and time spent because the assignment database wasn’t checked carefully enough.
Seattle Trademark Lawyer post here.
Pacific Coast Trailers, LLC v Cozad Trailer Sales, LLC, No. CV-10-111-EFS (E.D. Wash. Sept. 1, 2010).
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