Property, intangible

a blog about ownership of intellectual property rights and its licensing

The Tale, Part II

DeliverMed Holdings LLC v. Schaltenbrand is a dispute about a failed business involving the tagline “Right at Home, the trademark “DeliverMed,” and a “mortar and pestle” logo:

In the last post we covered the court’s opinion, after a bench trial, on the ownership and infringement of the copyright in the logo. Score one for the defendants: the plaintiffs didn’t own the copyright in the logo; instead the independent contractor who designed it did, and anyway the defendants had an implied nonexclusive license for the time period in which the logo was used.

On to the trademark rights. As a refresher, in 2005 plaintiff Mark Swift started an on-line pharmacy with defendant Michael Schaltenbrand, owner of bricks-and-mortar Medicate Pharmacy. There was no formal memorialization of the parties’ business relationship, so the court held that the business relationship was an oral general partnership, which the court referred to as the “JV.” Sometime after the JV was formed, Swift’s wife formed plaintiff DeliverMed Holdings, LLC. DeliverMed would provide marketing services to promote the mail order pharmacy services, using direct mailings, call centers and other marketing strategies, and Medicate would provide the mail order pharmacy services to customers attracted by DeliverMed’’s marketing. DeliverMed never itself provided any pharmacy services.

In 2005, the name “DeliverMed” was used for the first time to identify mail order pharmacy services, used by Medicate in furtherance of the JV.

In 2008, DeliverMed filed an application to register the trademark “DeliverMed” for “retail pharmacy services.” (The court states that the application was in 2003 or 2004, but that date is for an earlier failed application by Swift.) Swift claimed a first use date of February 1, 2005, even though he had not used the mark in commerce at that time. The mark was registered on the Supplemental Register on February 3, 2009.

Also in 2008, Swift hired Deeter Associates to design the logo. The court, acting as factfinder, stated

The placement of the phrases “Medicate Pharmacy DeliverMed” or “DeliverMed Medicate Pharmacy” with the “house and pestle” logo on many of the resulting business and promotional materials at Swift’s request is strong evidence that he obtained the creation of the logo on behalf of the JV, not DeliverMed or himself individually.

After the lawsuits were filed (there were two filed, one by DeliverMed and one by Swift), DeliverMed filed an application to register the trademark in the logo. It was ultimately registered for “mail order pharmacy services” on February 1, 2011 (claiming an impossible first use date of January 1, 2007). The court found that

In the summer of 2008, the logo was used commercially for the first time to identify mail order pharmacy services provided by Medicate in furtherance of the JV. The mark was used to distinguish Medicate’s mail order pharmacy services in furtherance of the JV from similar services provided by others. DeliverMed never commercially used the logo to identify pharmacy services it provided because DeliverMed, by itself, never provided any pharmacy services.

On May 1, 2008 Swift filed an application to register “Right at Home” for “retail pharmacy services” in his own name. It registered on the Principal Register on March 24, 2009.

The relationship fell apart in a fairly spectacular way, including Swift’s diversion of incoming telephone calls to his cell phone, filing of a false UCC-1 financing statement claiming a secured interest in Medicate’s assets, and falsely informing Medicate’s bank that DeliverMed and Swift had initiated an involuntary Chapter 7 bankruptcy against Medicate. Schaltenbrand wasn’t a boy scout either; he paid personal expenses from company money and increased his own salary from Medicate so that there would be no profits remaining to go to the JV partners.

Attorneys for DeliverMed sent a cease and desist letter to Schaltenbrand demanding that he and Medicate stop using the “DeliverMed” name, but not mentioning the logo. The defendants stopped using the DeliverMed name and the “Right at Home” tagline after the letter, and stopped using the logo after the lawsuit was filed.

So who owns the trademarks?

The court’s statement of the law on trademark ownership was this:

The first question in a Lanham Act trademark infringement case is “whether someone has used a word or symbol to identify goods such that the word or symbol refers (at least in the eyes of the law) only to that person’s goods.” TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876, 882 (7th Cir. 1997). The person who first uses a mark is sometimes said to “own” the trademark, although a trademark is an “identifier” rather than an ordinary property interest. Id.; see Heinemann v. General Motors Corp., 342 F. Supp. 203, 206 (N.D. Ill. 1972) (“trade or service mark rights are acquired by appropriation and use””). A trademark gives a seller or supplier of services “a ‘property right’ in his mark of identification, appurtenant to his property rights in the goods [or services] he so marks, enabling the ‘owner’ of the trademark to enjoin [an] imposter from continuing misrepresentations.” Walt-West Enterps., Inc. v. Gannett Co., 695 F.2d 1050, 1057 (7th Cir. 1982). Trademarks are “protected only to the extent that they give consumers information about the origin or quality of products,” TMT, 124 F.3d at 882, or, as the case may be, the origin of services. Trademark infringement law gives sellers or providers of services a way to prevent others from using similar marks to induce customers away by misleading them into thinking they are obtaining goods or services from the mark owner. Id. at 882.

First up is “Right at Home.” DeliverMed conceded at trial that it did not have rights to the mark. Recall that it was owned by Swift, and Swift had not alleged trademark infringement in his complaint. Whoops.

Next, “DeliverMed.” A trademark registration on the Principal Register is prima facie evidence of ownership of the mark. “DeliverMed” was on the Supplemental Register, though, so there was no presumption of ownership of the DeliverMed mark. And simply enough, DeliverMed never used the “DeliverMed” mark for pharmacy services so could not be the owner of the mark:

The preponderance of the evidence shows that DeliverMed does not have an interest in the service mark “DeliverMed” to identify pharmacy services because DeliverMed, by itself, never used the name in commerce in a manner that allowed consumers to identify pharmacy services it provided. In fact, it never provided any pharmacy services but only marketing services to further the purposes of the JV. On the contrary, the “DeliverMed” name was used, often in combination with “Medicate Pharmacy,” to indicate Medicate was the origin of the pharmacy services provided. DeliverMed never used the name “DeliverMed” to identify pharmacy services provided by DeliverMed such that it acquired a service mark for the “DeliverMed” name to identify the source of services. Thus, DeliverMed does not own the service mark “DeliverMed” to identify the source of pharmacy services.

Moving on to the logo, it was registered on the Principal Register, so there was prima facie evidence that DeliverMed was the owner of the mark. But the presumption didn’t help; like with the DeliverMed mark the court found that DeliverMed had not used the logo to identify mail order pharmacy services.

Alternatively, the defendants were licensed to use the marks to advance the purposes of the JV. At Swift’s direction, the defendants used the marks on business and promotional materials and on the prescription drugs Medicate provided to customers. When DeliverMed asked the defendants to stop using the marks, they did. Thus, there was no use outside the scope of the license that could be an infringement.

As the last blow, DeliverMed lost its trademark registration for the logo on the basis of fraudulent registration. Swift had

knowingly and intentionally misrepresenting that (1) DeliverMed first used the logo before it was actually created, (2) DeliverMed used the logo to provide mail order pharmacy services, and (3) it had the exclusive right to use the logo. He did this in an effort to make it appear that DeliverMed, and DeliverMed alone, used the logo in connection with mail order pharmacy services prior to the JV’’s first use of the logo in connection with such services. He believed registration of the logo by DeliverMed would give it an advantage in this litigation, which had commenced six days before he filed the trademark registration application. Swift deliberately and successfully misled the USPTO into registering the mark. The USPTO would not have registered the logo trademark on the principal register had it known the true facts. Swift’s actions constitute fraud on the USPTO and warrants cancellation of DeliverMed’’s logo registration.

The registration for “DeliverMed” survived, though: “Swift misrepresented that the name was first used on February 1, 2005, in connection with pharmacy services, but it is plausible to believe that he intended to use the name in connection with such services in partnership with a pharmacy as of that date and that his mistake was a misinterpretation of the application question.”

It seems like a lot of money spent on litigation with nothing gained, and nothing likely to be gained even at the outset. The DeliverMed domain name is for sale, if anyone is interested. You could probably get a logo cheap, too, I think a guy named Allan Kovin might be selling.

DeliverMed Holdings LLC v. Schaltenbrand, No. 3:10-cv-00685-JPG-DGW (S.D. Ill. Oct. 15, 2012).

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