Property, intangible

a blog about ownership of intellectual property rights and its licensing

“Dad, Who Owns the Mark?”

Arredondo v. Arredondo is a classic family dispute over trademark ownership. Here, two brothers, Carlos and Caesar, were successful real estate developers–so successful that they established the Arredondo Properties Limited Partnership (APLP) to invest in projects and gather and distribute income to the Arredondo family for the next 200 years. APLP had no employees and never played any role in the daily operation of its investments. Ultimately, APLP was jointly owned in 50% share by two trusts, one for the benefit of Carlos’ grandchildren and one for Caesar’s. Carlos and Caesar were the trustees for their respective trusts. For the most part, Carlos and Caesar operated all their businesses through a company called Arredondo & Co., LLC (“A & Co.”).

This dispute in particular is about a self-storage business that Carlos and Caesar started, originally called “Westy’s” and then changed to “Westy.”  A number of facilities were opened in Connecticut and New York, the first in Port Chester, New York. The various pieces of real estate were owned by APLP or by the brothers personally. The facilities were ostensibly operated by Westy’s Connecticut, Inc. and Westy’s New York, Inc., although these entities had no employees and instead contracted with A & Co. for the actual operation. The opinion details how Carlos and Caesar were fairly lackadaisical about keeping the roles of the various companies and trusts separate. In 1991, counsel filed trademark applications for WESTY’S and a Westie dog logo in the name of Westy’s Connecticut and the marks were registered.

In 1999 Carlos decided to get out of the business and sell to Caesar his interests in A & Co., Westy’s Connecticut and Westy’s New York.  Carlos agreed to transfer “all rights and claims to any assets,” including “trademark rights and vehicles” to Caesar.  A trademark assignment to A & Co. was recorded with the PTO. The description in the case is somewhat confusing, but it appears that APLP then asked A & Co. not to open new facilities for it.  A & Co. agreed, but continued to open new facilities that were not owned by APLP.

In 2002 A & Co. filed new applications for the WESTY, WESTY’S and dog logo marks, since the original registrations had been cancelled under Section 8. One of Carlos’ children questioned her father about it, mentioning the concept of “first use.”  Carlos spoke with a lawyer, then contacted Caesar to say that APLP was the first user of the marks and therefore owner of them, offering to license-back the marks.*  Caesar disputed the claim, stating that A & Co. was the first user and owner.  Carlos then opposed the new applications and filed the lawsuit.

The court recognized the root of the problem:

Generally, trademark rights are acquired and maintained through priority of use . . . . [But t]his is not the typical situation in which one company, completely separate from a competitor, first uses a specific mark in commerce. Here, a number of different entities and individuals contributed, in some way, to the creation of the Westy facility at Port Chester. Because of the number of different entities that were involved in the conception, funding, purchase, construction, advertising, management, and day-to-day operation and control of the Port Chester facility, no one single entity can conclusively be determined to be the “first user” of the Westy marks.

The court held that the marks are owned by whoever controlled them.  Because it was a small family enterprise where two identifiable individuals made all the decisions, the easy answer might have been “Carlos and Caesar.” But the court dug a little deeper and gave the business forms their due:

[T]he relationship between Carlos and Caesar and their various corporate forms and limited liability companies is complex and sometimes inconsistent. Throughout the trial and the history of the Westy self-storage facility development, “Caesar and Carlos,” “C & C,” and A & Co. were often used by the brothers and other witnesses interchangeably. In a legal sense, of course, these entities are not interchangeable. The lack of clarity or confusion at times over whether the brothers were acting through their corporate forms, particularly A & Co., stems largely from the lack of consistent involvement of legal counsel. Neither Carlos nor Caesar has legal training, and the brothers involved lawyers in their business dealings only on an episodic and infrequent basis, and then only for very specific tasks. Therefore, their lack of complete adherence to the corporate form is understandable.

Caesar and Carlos, however, were particularly diligent in creating and utilizing various corporate entities to limit their own personal liability in connection with the Westy facilities. . . . Therefore, the Court finds that when the brothers acted in connection with the management, creation, and development of the Westy facilities and the Westy concept, as well as the management and control of the trademark, they intended to and did act through the protection of their corporate working arm–A & Co.

Although the relationship of the brothers to A & Co. is complex, and the history of the trademark licensing opaque, what is crystal clear is that APLP did not exercise control over the trademarks at any time. APLP was a completely passive vehicle whose only actions were to fund and benefit from investments. APLP had only one meeting per year, had no employees, and never made any of the key decisions regarding the trademark or the daily management of the Westy facility. Therefore, APLP did not exercise any control over the trademarks or the quality of the Westy services and is not the owner of the Westy trademarks.

In a footnote the court also dismissed the possibility that Westy’s Connecticut owned the marks: “Although the brothers initially registered the trademarks in WCI, WCI is not the owner of the trademarks. The registrations for the trademarks in WCI I or II have lapsed, and WCI I ceased to exist for a number of years while the trademarks were still being used. More importantly, WCI never had any employees and did not control the development of the trademark, the use of the trademark in commerce, or the quality of the goods or services that the trademark represented. These actions were all conducted by A & Co. Thus, WCI is not the owner of the marks in question.”

A & Co. owns the marks, case dismissed.  Notice of appeal filed.

Arredondo v. Arredondo, No. 3:02-cv-2200 CFD (D. Conn. Nov. 30, 2010).

*The decision not say specifically, but I assume that Carlos’ children saw the Westy business growing and perhaps were not too happy to be excluded.  One solution would be to own the trademarks and earn royalty income for their use.

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One response to ““Dad, Who Owns the Mark?””

  1. This case has been made more difficult as two brothers decided to compete with one another based on the brand name of the self storage business. Had they partnered, it would have saved them the trouble.