Property, intangible

a blog about ownership of intellectual property rights and its licensing

Way Too Many Co-owners

International Importers v. International Spirits & Wines, LLC is, at bottom, a manufacturer-distributor dispute. It’s also a lesson in how not to handle trademark ownership.

Fernbrew Pty. Ltd. Corp., an Australian company, is the owner of trademark registrations for WALLABY CREEK for wine in Australia, New Zealand, the EU, and Canada, but the U.S. trademark application was filed by A.V. Imports, Inc. A.V. Imports was the first distributor of WALLABY CREEK wine in the United States. This is the transactional history for the registration:

– May 4, 2004: Maple Leaf Distillers, Inc. assigns a 25% interest to Fernbrew Pty Ltd. The assignment says:

If you can’t read the text, it says “Further to our discussions, Maple Leaf Distillers Inc. hereby confirm that we understand the Wallaby Creek trademark is … owned by Fernbrew Pty. Limited Corporation of Australia (50%) and A.V. Imports of the United States (50%).

“Following the agreement with New World Brands Inc. to distribute the product in the United States and our discussed agreement is in place, it is understood and agreed that trademark will be shared in the United States as follows:

“Fernbrew Pty. Limited Corporation 25%
“Maple Leaf Distillers Inc. 25%
“New World Brands Inc. 50%”

Note that this assignment was recorded by litigation counsel for Fernbrew after suit was filed. Thus, International Importers might not have been aware of Fernbrew’s claim of partial ownership at the time it filed the complaint.

– February 8, 2005: A.V. Imports, Inc. assigned the entire interest to Maple Leaf Distillers Inc.

– March 9, 2005: Maple Leaf Distillers Inc. assigns a 50% interest to New World Brands, Inc. According to Rex D’Aquino, a director of Fernbrew, these two 2005 assignments were in furtherance of the 2004 letter and a distribution agreement of the same date.

– May 16, 2008: New World Brands Inc. assigns its entire interest to plaintiff International Importers, Inc. Fernbrew had appointed International Importers as the importer (p. 6) in 2005, so presumably this assignment was made because of the change of relationship, albeit well after the change.

The dates are a bit out of order and the 2004 letter assignment (if it can be given such a formal status) is ambiguous, but it looks like it goes this way: Fernbrew and A.V. Imports were each half owners of the trademark but A.V. Imports was the only record owner of the registration. A.V. Imports then assigns the entire interest to Maple Leaf Distillers upon the instructions of, or at least with the knowledge of, Fernbrew. Shortly thereafter the assignment of the 50% interest to New World Brands is formally recorded, but not the 25% interest of Fernbrew that is acknowledged in the same letter. In 2008 Fernbrew engages a new distributor, plaintiff International Importers, and New World Brands assigns its 50% interest to it. So after all the assignments, International Importers has 50%, Maple Leaf has 25%, and Fernbrew has 25%.

But there’s more. There was a condition on the 2004 assignment:

It says “In the event that any one of the companies mentioned above becomes insolvent or unable to fulfill our agreement (ie. sales and marketing of the products), the trademark will revert to Fernbrew Pty Limited Corporation ownership.” And Maple Leaf Distillers did become insolvent, so the defendants claimed that Fernbrew was now 50% owner of the mark. Plaintiff International Importers disagrees, claiming that Maple Leaf Distillers’ 25% interest didn’t revert to Fernbrew under Canadian bankruptcy law and instead was owned by the purchaser of Maple Leaf Distillers’ assets out of bankruptcy, Angostura Canada, Inc.

With that as background (phew!), International Importers sued International Spirits & Wines, LLC and “D’Aquino Group of Companies,” a non-existent legal entity, for infringement of the mark WALLABY CREEK based on the defendants’ importation and sale of the wine. Most notably, Fernbrew is one of the “D’Aquino Group of Companies.” So at the end of the day we have what is a common situation – the former distributor of a product claiming ownership of the trademark and bringing a trademark infringement claim against the manufacturer and the new distributor. But because of the joint ownership of the mark, what happens next is far from typical.

Rather than sorting out the ownership under the usual manufacturer-distributor framework (alert – recursive link), the defendants challenged International Importers’ standing under Fed. R. Civ. P. 12(b)(1), on the theory that all co-owners must be joined, and under Fed. R. Civ. P. 12(b)(7) for failure to join a necessary and indispensable party under Rule 19, namely, the other owners of the trademark.

So does one owner have standing without joining the other owners? The magistrate deferred, but the district court in adopting the report and recommendation did not:

International Spirits and D’Aquino Group cast the absence of the trademark co-owners as a standing issue. According to International Spirits and D’Aquino Group, in patent cases, failure to bring suit alongside a co-inventor of a patent raises prudential-standing concerns. By analogy, the argument continues, the same principle applies in trademark cases. I disagree.

To be sure, in patent cases, for prudential reasons, a co-inventor of a patent must sue with all her co-inventors or else she lacks standing to sue for infringement. International Spirits and D’Aquino Group have not linked the concerns found in patent law to concerns found in trademark law. Any prudential concerns, moreover, are allayed by Rule 12(b)(7), which allows dismissal for failure to join a party under Rule 19. And, in fact, where an owner of a trademark is not involved in a case, courts have dismissed under Rule 19, not the prudential-standing doctrine. Accordingly, I reject the standing argument.

But the defendants were much more successful with the failure to join an indispensable party. Here’s the standard:

A party is “required” if “in [the] person’s absence, the court cannot accord complete relief among existing parties.” FED. R. CIV. P. 19(a)(1)(A). A party is also “required” if the party has an interest in the action and resolution of the action may either “as a practical matter impair or impede the person’s ability to protect the interest” or “leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations.” FED. R. CIV. P. 19(a)(1)(B).

International Importers’ first effort to dodge Rule 19 was a claim to be the sole owner, despite the recorded documents. It claimed that Fernbrew and Angostura, the other potential co-owners, abandoned the mark because they didn’t use it. Relying on one 2006 district court case from New York, Mears v. Montgomery, No. 02 Civ. 0407 (MHD), 2006 WL 1084347 (S.D. N.Y. Apr. 24, 2006), the magistrate held, however, that one owner’s use would be imputed to the other co-owners. Quoting Mears:

The purpose of the “use” requirement is to “maintain the public’s identification of the mark with the proprietor. Therefore, as long as [the challenging co-owner] was actively using the name … , there was no danger of improper identification of the owner of the Mark by the public, and [the challenged co-owner] had no reason to take additional steps to use or protect the Mark.

Having decided that there were co-owners, the court didn’t go on to decide whether Maple Leaf Distillers still had its 25% interest or whether Fernbrew or Angostura succeeded to it. It didn’t matter; all that mattered was that International Importers was not the sole owner.

The magistrate then held that any co-owners were necessary and indispensable parties under the above standard: if absent the co-owners would be deprived of the opportunity to protect their interest in the validity of the trademark registration so thus had an interest in the action, and the defendants would be at risk of multiple obligations since any judgment would only be binding on International Importers, not any other co-owners.

Even if the co-owners couldn’t be joined the court might proceed if the co-owners’ interests would be adequately protected in their absence. The court, in admirable understatement, didn’t think they would be: “The ease with which the plaintiff seeks to divest its co-owner(s) of their interests in the mark suggests to the undersigned that the co-owner(s)’ interests would not be adequately protected in the instant case.” It therefore gave International Importers leave to amend the complaint to add the other co-owners – Fernbrew and/or Angostura – as plaintiffs. “D’Aquino Group of Companies” was dismissed for failure to properly serve it (which you can’t do when it doesn’t exist).

International Importers was then unable to join the co-owners as plaintiffs. In what I suppose it thought might be a colorable end run, International Importers added Fernbrew as a party defendant, but didn’t amend the complaint to state that there were other co-owners of the trademark. The court was not amused and granted the defendants motion to dismiss, albeit with leave to replead.

So Fernbrew found itself in a world of hurt because of a misguided decision, made long ago, to allow for joint ownership of its U.S. trademark. I don’t know to what end the parties thought that a joint ownership of the trademark was an appropriate arrangement. The 2004 assignment uses an odd turn of a phrase, to “share” a trademark. According to Rex D’Aquino, the trademark was assigned by A.V. Imports to reflect Fernbrew’s “equitable interest” in the registration and “how the rights in the Registration were to be apportioned as of the time that New World Brands, Inc. was appointed as the U.S. distributor for our ‘WALLABY CREEK’ wine.” But rather than devising a legal relationship that more accurately reflected the various roles and stakes of the parties, such as granting a security interest in the mark, the parties divvied up the ownership of the mark itself. Perhaps under Australian law the arrangement would have worked out fine, but under U.S. law, by allowing the distributor to have a claim of legal ownership, Fernbrew finds itself in a position where another company can start labeling goon “Wallaby Creek.”

As clever as the defense ploy was, I’m not sure where it goes now and how Fernbrew can regain ownership of its trademark. It looks like a stand-off, at least one based on a trademark infringement cause of action. There are at least two co-owners, neither of which can bring a trademark infringement case against the other. Breach of contract? Interference with contractual relations? Often a lot of money goes a long way ….

Thanks to counsel for the defense Joe Lewis for sending me this fascinating case.

International Importers, Inc. v. Int’l Spirits & Wines, LLC, Civ. No. 10-61856-CIV-Jordan/O’Sullivan (July 26, 2011) (Report and Recommendation).
 International Importers, Inc. v. Int’l Spirits & Wines, LLC, Civ. No. 10-61856-CIV-Jordan/O’Sullivan (Sep. 26, 2011) (Order Adopting Report and Recommendation).
International Importers, Inc. v. Int’l Spirits & Wines, LLC, Civ. No. 10-61856-CIV-Jordan/O’Sullivan (May 9, 2012) (Order Granting Motion to Dismiss).

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