It’s So Hard to Value Trademarks
by Pamela Chestek • July 7, 2014 • trademark • 1 Comment
It always gets interesting when an owner has incentive to make inconsistent claims about the same intangible asset in different venues. Say, for example, where you claim that copyrights are part of your deceased spouse’s estate to keep them out of bankruptcy and then try to claim you are the owner for purposes of a copyright infringement suit.
Today, we have the story of Zig Zag Bail Bonds. The business was started by Margie Cohen in 1965, then sold to Richard Wader in 1977. In 1988, Richard Wader sold the business to his daughter, Reagan Anne Hubbard, and her husband, defendant Glen Hubbard. Whether Wader sold the trademark too becomes part of the story, although as we’ll see everyone acted like the Hubbards owned the name for years.
In 1990 the Hubbards formed Glen Hubbard, Inc. to operate the Zig Zag Bail Bond business. In 1992, 1996, 2003 and 2005 Glen Hubbard signed various documents that allowed his sister, co-defendant Lynn Simon, to use the trademark in a defined geographic area in exchange for a fee.
In 2006, Glen Hubbard filed an application to register the ZIG ZAG BAIL BOND mark in his own name, which registered in September, 2007. In 2010 there was a spat between Hubbard and Simon about whether she had breached their agreement, therefore terminating her license, but Hubband and Simon both agree (the enemy of my enemy is my friend) that the license wasn’t cancelled.
We’re now up to 2011 and Glen and Reagan Hubbard file a voluntary joint Chapter 7 petition for bankruptcy. The petition lists the ZIG ZAG BAIL BONDS mark as community value with no property. When the trustee tried to sell the mark along with some other assets, the story starts to shift. The Hubbards now claim they don’t own the trademark, that they only licensed it from Reagan’s dad Wader, and if he had known about the registration he would have opposed it. (The Hubbards submitted two declarations from Wader to that effect, although perhaps their weight was undercut by Wader’s deposition testimony that he sold the entire business including the mark, that he had never seen the declarations before, that he had not authorized anyone to sign them on his behalf, and that he disagreed with their substance.)
The Hubbards claimed that the registered mark “is most likely valueless and is a likely candidate for a motion by the Debtors to have the asset declared valueless and that it should be abandoned by the Trustee as opposed to being sold.” Note that the abandonment would mean that Glen Hubbard gets to keep the trademark. (I’ll note also that the court very correctly interpreted this statement as a concession that the mark is not validly registered, rather than doesn’t exist at all. Yaay bankruptcy court!) After a couple more hearings, Hubbard conceded through counsel that he owned the trademark and that the mark was licensed, but that “it’s a nonincome-generating license” and there were all sorts of infringing uses out there. The court thereafter granted the trustee’s motion to sell assets and the trademark was sold (for the princely sum of $4,000) “as is, where is” to the plaintiff in this case.
Which brings us to the present case for trademark infringement, brought by the successor to the purchaser in bankruptcy, Zig Zag Holdings LLC, against Simon and Hubbard, each of whom continued to do business as Zig Zag Bail Bonds.
Despite the bankruptcy proceeding, Hubbard and Simon revert to the arguments that Wader owns the mark and licensed it to Hubbard, who sub-licensed it to Simon, and that the trademark registration wasn’t valid. Plaintiff Zig Zag Holdings LLC cries “issue preclusion” (specifically, “offensive non-mutual collateral estoppel”) and wins.
The requirements for offensive non-mutual collateral estoppel are whether “(1) there was a full and fair opportunity to litigate the identical issue in the prior action; (2) the issue was actually litigated in the prior action; (3) the issue was decided in a final judgment; and (4) the party against whom [collateral estoppel] is asserted was a party or in privity with a party in the prior action.”
Here, the bankruptcy court had several hearings and the Hubbards had argued that Wader owned the mark, but in overruling the Hubbards’ objection the bankruptcy court
necessarily found that Glen Hubbard owned the mark in order to approve the sale of the service mark. “A bankruptcy court may not allow the sale of property as ‘property of the estate’ without first determining whether the debtor in fact owned the property.”
Selling the trademark “as is, where is” is doesn’t alter the fact that the bankruptcy court has to determine there is some ownership interest before it can sell the asset. The “as is, where is” statement in the court’s view “likely referred to the fact that the Hubbards had repeatedly represented to the Bankruptcy Court that the service mark had no value.” I would argue that it means that it was sold subject to any licenses, although I also note that the bankruptcy court appears to have been misled about the true nature of the licenses as income-generating and having, in the past, generated over $550,000 in revenue for Hubbard.
But the court agreed that likelihood of confusion wasn’t suitable for a motion for summary judgment because of all those squirrely license agreements to sort out. In a subsequent order denying Zig Zag Holdings’ motion for reconsideration, the court pointed out that the original opinion only addressed the plaintiff’s argument that Hubbard terminated the licenses, finding there was a question of fact. Still to come is whether Zig Zag Holdings can terminate the Simon licenses.
So we have a debtor who is incentivized to minimize the value of an asset in bankruptcy, it appears in the hope that he can keep ownership of it, by claiming that there are a lot of infringements and some valueless licenses. Suddenly, in an infringement case, those licenses become pretty darn valuable—without them, Hubbard and Simon have to start all over with a new name.
Zig Zag Holdings LLC v. Hubbard, No. C 13-2643 SI (N.D. Cal. June 12, 2014), order denying motion of reconsideration (N.D. Cal. June 23, 2014).
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