Property, intangible

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Just Another Skirmish or the War?

Registrant’s goods

Cancellation action Paul Audio, Inc. v. Zhou is just one glimpse of what clearly is a much larger dispute. Baoning Zhou, an individual, is the owner of a registration for the mark C-MARK for audio equipment. Petitioner Paul Audio, Inc., owned by Li Gong, had also applied to register the C-MARK mark for the same goods after its earlier registration lapsed in 2006, but the Baoning Zhou registration was blocking the way of the new application. Paul Audio petitioned to cancel the Baoning Zhou application on the bases that it was the senior user of the C-MARK mark, that the Baoning Zhou application was void ab initio because Baoning Zhou was not the owner of the mark, and that the registration was obtained through fraud. Paul Audio managed to cancel the application, but nevertheless lost the war – or maybe just this battle.

It’s not entirely clear what the relationship is or was between Paul Audio and Baoning Zhou, but there must have been one. Li Gong testified he created the C-Mark mark in 1989 and that it was later used by Shenzhen World Music, of which Li Gong had been General Manager and owner. Li Gong says that he started a U.S. company C-Mark Light and Sound, Inc. in 1993, then started petitioner Paul Audio, Inc. in 1996 and closed C-Mark Light and Sound, Inc. “because of internal management issues.” Perhaps not coincidentally, it was also about 1996 that Li Gong’s relationship with Shenzhen World Music ended. Thus C-Mark Light and Sound, Inc., was the first to use the C-MARK mark in the United States in 1993 and Paul Audio continued to use the mark when it was established in 1996. Li Gong claims continuous use of the C-MARK mark.

Respondent Baoning Zhou is the Chairman of the Board and owner of Shenzhen Bao Ye Heng Industrial Development Company Limited, which wholly owns a U.S. company called U.S.A. C-Mark Light and Audio Inc., also selling C-MARK goods in the U.S. Largely incidental to the main events in the cancellation, we also learn that another company owned by Baoning Zhou, Shenzhen Ao Chuang Company, had been the distributor for Li Gong’s Shenzhen World Music, but that Shenzhen Ao Chuang Company ultimately ended up with the Chinese registration. So there is also a tantalizing story here about a distributor gaining ownership of a manufacturer’s mark, but we don’t learn any of the details in this decision.

The TTAB comments that “this petition for cancellation is one battle in a worldwide trademark dispute between the parties.” In addition to the suggestion above that something happening in 1996, Baoning Zhou also appears to have won a battle in 2004. In that year Baoning Zhou and Li Gong, on behalf of Paul Audio d/b/a C-Mark Light and Sound, were exhibiting in booths next to each other at the 2004 NAMM (National Association of Music Merchants) trade show. The Paul Audio booth displayed a sign that said “C-Mark change to CSP in the world.” Li Gong testified that the banner was up so Baoning Zhou could “take pictures to China, stating whatever. That’s why we put the banner, for him. It was solely for the purpose to let them see it.” He further testified that the name change to “CSP” was for China only and “in the United States, in the U.S. market, we still use C-Mark as the name of the company. We didn’t change the company’s name to CSP.” Nevertheless, Li Gong couldn’t produce any evidence of use of the C-Mark mark in the U.S. after that.Which spelled the end of Paul Audio’s claim of priority. The TTAB found that, lacking any reliable evidence of use after 2004, Paul Audio’s petition to cancel on likelihood of confusion failed because Paul Audio had abandoned the mark.

Which would seem to then be clear sailing for the Baoning Zhou registration, but that wasn’t the case either: the TTAB held that the Baoning Zhou application had indeed been void ab initio. In closely-held corporations there is often a blurry line between individual ownership and corporate ownership of assets, but this didn’t turn out to be such a tough call. First, there was the ownership history of the Chinese registration for C-MARK, which went from Shenzhen World Music to Shenzhen Ao Chuang Company (mentioned above, of which Baoning Zhou was the General Manager), to Shenzhen Hongda Development Company, to Shenzhen Bao Ye Heng Industrial Development Company Limited, another of Baoning Zhou’s company. There were also a number of pieces of documentary evidence stating that Shenzhen Bao Ye Heng Industrial Development Company Limited was the source of the products; that C-MARK was its registered trademark; and that Paul Audio was infringing the rights of Shenzhen Bao Ye Heng Industrial Development Company. Baoning Zhou also testified:

I am the shareholder to begin with. So the trademark was owned by me, is owned by me, so I have the full right of giving the usage right to the company…. I actually own this trademark, and I, as the Chairman of the Board of this Company, and I am actually the shareholder of this company – so of course, by all reasons, that Shenzhen Bao Ye Heng Industrial Development Company Limited will be the company who will manufacture and sell this product.
The TTAB’s conclusion:

As of the September 25, 2006 filing date of the application for Registration No. 3252760, Baoning Zhou himself was not using and had not used the mark sought to be registered. All use of the mark prior to and as of the filing date was by Shenzhen Bao Ye Heng Industrial Development Company Limited both in the United States and in China. Therefore, there was no use of the mark by Baoning Zhou upon which he can rely as a basis for establishing that he was the owner of the mark and thus that he was entitled to file the application for registration of the mark…..

To the extent that respondent may be arguing that his ownership of Shenzhen Bao Ye Heng Industrial Development Company Limited is so complete that Shenzhen Bao Ye Heng Industrial Development Company Limited is the alter ego of Baoning Zhou (i.e., the two are one-and-the same), there is insufficient evidence to support that argument. Moreover, the fact that respondent may be the majority shareholder of Shenzhen Bao Ye Heng Industrial Development Company Limited does not prove that respondent and the company constitute a single entity such that respondent may claim ownership of the mark through the company’s use of the mark. With respect to respondent’s claim that he actively participates in the control of the nature and quality of the goods is insufficient in and of itself to demonstrate that he is the owner of the mark, and moreover his statements regarding control is conclusory and unsupported by any facts or evidence.

As one could predict, the fraud claim failed for lack of evidence of an intent to deceive the PTO.

So Baoning Zhou is left without a registration, but the TTAB has also held that Paul Audio is not the senior user of the mark. Any guesses on what will happen to the Paul Audio application? Will Paul Audio appeal this decision? Will Paul Audio abandon its application or will Shenzhen Bao Ye Heng Industrial Development Company Limited have to oppose? It doesn’t look like this one is close to over.

HT to John Welch for the case.

Paul Audio, Inc. v. Zhou, Cancellation No. 92049924 (TTAB Dec. 7, 2011).

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