Property, intangible

a blog about ownership of intellectual property rights and its licensing

Abandoned, No Surprise

Some cases make you wonder more about the lawyers. Did they come in to the situation too late and just have a mess to clean up? Have they counseled their clients about their odds? Original Rex, LLC v. Beautiful Brands International, LLC just looks like such a long shot, but some clients can’t be deterred. The facts are lengthy, but I’ll try to be brief.

In 1974 Vernon McFarland introduced a boneless, skinless, bite-sized chicken breast meat marinated in a spicy liquid that was called “Rex Chicken.” McFarland set up a distributorship (“MDI”) for the chicken and allowed restaurants to use the “Rex” name. In 1977, non-party John Ballard entered into a franchise agreement with MDI. McFarland visited Ballard’s restaurant biweekly to deliver chicken until his death in 1988. After McFarland died, his wife Dolly took over MDI.

In 1989 MDI filed an application to register a crown logo:

Ballard started using it at his drive-in restaurant and continues to use it today.

In 1992, Ballard’s franchise agreement was expiring and MDI wanted to terminate all franchises. It was, however, willing to give Ballard a one year extension, but he never signed the agreement. Ballard stopped paying any royalties in 1993, stopped using the Rex spice packets, and has been using his own chicken for perhaps longer than 10 years.

In 1993, MDI sold all the assets, including the trademarks, to Rex Chicken, LLC, a subsidiary of Magnum Foods. In 1996, Rex Chicken LLC adopted and registered a “ribbon” trademark. Dolly McFarland operated some Rex Chicken outlets as a franchisee, sold them, but they were all closed by 2002. Rex Chicken LLC transferred its assets to Magnum in 2000 and Magnum ultimately quit franchising Rex Chicken altogether in 2002.  Neither Rex Chicken LLC nor Magnum ever inspected the Ballard business and didn’t have his business listed in their records as licensee.

Rex Chicken LLC filed its Section 8 and 9 affidavit for the original Rex mark in 2001, after it didn’t own the marks anymore, using the Ballard trademark use as specimens.  Another trademark filed at the same time, for “Rex the Original,” was allowed to lapse, and the ribbon trademark ultimately lapsed under Section 8 in 1996. So we have complete cessation of use in 2002 (but for one former licensee now using his own recipe for the chicken), two lapsed trademark registrations, and one that was maintained questionably.

Six years later, in 2008, defendant Coney Beach, Inc. begins to sell bite-sized boneless chicken it called “Rex’s Chicken” at its hot dog stand; because of the success of the chicken the restaurant is now known as Rex’s Chicken:

Co-defendant Rex’s Franchise System, LLC filed an application to register the “Rex’s Chicken” word mark and is now franchising the business.

At some point the McFarland family gets the bright idea that it stills owns the trademarks and goes through a number of steps to try to perfect its claim. This is where I’m intrigued – the documents were clearly prepared with legal assistance. What was the family told?

To try to reclaim its rights to the “Rex Chicken” marks, on April 2, 2010 the family obtained an assignment from Rex Chicken, LLC (which no longer existed). The family then assigned the marks and goodwill to its new entity, plaintiff Original Rex LLC.  They recorded the assignments against the still-active registration. They obtained an “Affidavit and Assignment” from Ballard, wherein he stated that he both used the mark as a licensee and assigned any rights he may have to the “Rex” trademarks to to the family (belts and suspenders, I suppose).  They got a statement from Magnum Foods that it never intended to abandon use of the mark:

(click for larger image)

The family now has its own business, using the “Rex” name and the ribbon mark.

So the family made a valiant effort to cover the bases, but unsurprisingly was not successful.  There was no valid assignment in 2010:

Neither assignment, however, establishes either chain of title or the requisite intent to revive the Mark. The record shows that Rex Chicken, LLC, the last registered owner of the Mark, no longer existed as an Oklahoma limited liability company by the time the assignments were executed in 2010. It ceased to operate the Rex Chicken franchise system on November 4, 2000, allegedly transferring all rights to Magnum. Magnum, in turn, stopped using the Mark in 2002 when it shut down the Rex franchise system, and never used the Mark again. Further, it had no intention of using the Mark again because it had switched to the Ribbon Mark. The Ribbon Mark was canceled in 2006.

Plaintiff offers the Clarification Statement in an effort to show an intent to revive the Mark on the part of Magnum. . . . In considering the issue of intent to resume use, courts place little weight on self-serving affidavits and statements. . . . Here, the Clarification Statement . . . was executed in an effort to overcome the fact that Magnum abandoned the trademark in 2002 and made no effort to revive it until McAuliff and Johnson approached Price about acquiring the Mark. Additionally, it contradicts Price’s testimony that Magnum stopped using the Mark and had no intention of using it again in part because it had switched to the Ribbon Mark.

On the Ballard license, despite Ballard’s affidavit it was, of course, naked. For those of you who want a quick primer on naked licensing, the decision gives short summaries on all the usual suspects – Kentucky Fried Chicken, Land O’Lakes, Transgro, and Taco Cabana, as well as a new one to me, Lutheran Ass’n of Missionaries & Pilots, Inc. v. Lutheran Ass’n of Missionaries & Pilots, Inc., 2004 WL 2730104 (D. Minn. Nov. 29, 2004).

This article says that the defendants purchased the name in a tax lien sale, which surprisingly wasn’t mentioned in the opinion. While they undoubtedly took ownership as-is, I find it another reason that the McFarland family’s belief that it had any rights in the Rex marks a questionable view.  So, rather than winning its own infringement case, the McFarland family is looking like an infringer itself at this point – it has a number of stores and all the parties are in Oklahoma. What happens now? How charitable is Beautiful Brands feeling?

Original Rex, L.L.C. v. Beautiful Brands Int’l, LLC, No. 10-CV-424-CKF-FHM (N.D. Okla. May 27, 2011).

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