Property, intangible

Sometimes it’s difficult to state a claim for a trademark ownership dispute. There is no cause of action per se for declaring or correcting ownership of a trademark.* Resolution of the ownership issue is almost always subsumed into the infringement claim, because the two warring parties are both trying to use the trademark and so there is confusion. Occasionally, though, that isn’t the case, which makes it a bit tougher to state a claim.

Section 38 of the Lanham Act may give you the hook you need. It is another section of the Lanham Act that provides a basis for a civil action:

Any person who shall procure registration in the Patent and Trademark Office of a mark by a false or fraudulent declaration or representation, oral or in writing, or by any false means, shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof.

But plaintiff Joshua Fenwick learned it’s still not easy to state a claim. He and defendant Eddie Dukhman started a business manufacturing, marketing and selling an energy drink called PRO-NRG. Because Dukhman had a criminal background, he had his sister, Helen Khorosh, serve as his representative in the newly-formed company PRO-NRG, LLC. Fenwick alleges that Dekhman and the other defendants then set up a shadow company, Sante Pur Solutions, LLC, that excluded him and they transferred all of the assets, including the trademark, to it. (There are two trademark records for PRO-NRG, one for which the applicant was Khorosh, now surrendered, and the other by Sante Pur Solutions.) Among other allegations, Fenwick claimed that Dukhman’s wife sold a 30% interest in PRO-NRG, LLC on the show Shark Tank without authority:

So what to claim? After Fenwick’s first complaint was dismissed without prejudice, his second stated six state law counts and three counts under the Lanham Act:

• “Cancelation of PRO-NRG Trademark as Defendant is not the Owner of the Mark – 15 U.S.C. §1051(a)”
• “Declaratory Judgment for Cancelation of Trademark Registration Procured by Fraud – 15 U.S.C. §1064” and
• “Damages for False or Fraudulent Registration – 15 U.S.C. §1120”

The defendants challenged Fenwick’s standing for the Lanham Act claims under Fed. R. Civ. P. 12(b)(1).

First is the Section 38, 15 U.S.C. § 1120, claim for a false or fraudulent declaration or representation. But here’s the wrinkle: “To have standing under § 1120, it is not enough for the plaintiff merely to establish fraud in the registration of the trademark; the plaintiff must also show that it sustained some damage in consequence of the fraud.” Most of the harm Fenwick alleged was before the fraudulent registration, which isn’t actionable, and the complaint failed to allege any concrete injury post-registration:

Plaintiff argues, however, that “just when PRO–NRG was poised to be launched to the market,” Defendants “committed their acts of treachery” by “fraudulently register[ing] the trademark, lock[ing] Mr. Fenwick out of taking any further part in the development of the PRO–NRG drink, and [ ] marketing the drink under the Sante Pur Solutions company instead of the PRO–NRG, LLC company.” Plaintiff also argues that, Defendants “have allegedly obtained contracts for the sale of PRO–NRG in thousands of stores,” resulting in “sales[ ] that would have accrued to the benefit of PRO–NRG, LLC, had it not been for the fraudulent registration and other fraudulent acts of [ ] Defendants”.

While the precise bounds of post-registration damages necessary to confer standing under § 1120 are not defined, persuasive authority strongly suggests that Plaintiff’s alleged damages are insufficient.

The case has a good summary of the § 38 cases, which ones survived and which didn’t. Here:

Perhaps most significantly, … Plaintiff’s claims would exist wholly independent of Defendants’ allegedly false registration. Plaintiff’s § 1120 claim stems from the allegation that Defendants shut Fenwick out of PRO–NRG LLC; it is not the use of the PRO–NRG trademark, so much as Defendants’ exclusion of Fenwick, that forms the basis of Plaintiff’s Amended Complaint. Thus, any nebulous, post-registration damages asserted by Plaintiff are not “clearly articulated” and did not “directly” result from the fraudulent trademark registration—more accurately, it was the lockout of Fenwick that “directly” caused any such damages. In sum, the Amended Complaint amounts to an assertion that, although PRO–NRG LLC did not engage in any post-registration use of the PRO–NRG trademark, it was precluded from doing so because Fenwick was shut out of the business. Such an injury rightly sounds in the state law causes of action alleged by Plaintiff rather than a § 1120 action and, accordingly, the Court finds that Plaintiff lacks standing to assert a cause of action under 15 U.S.C. § 1120.

As to the other Lanham Act claims,

At the outset, it must be noted that the Court’s power to cancel trademarks derives solely from 15 U.S.C. § 1119, which reads in relevant part: “In any action involving a registered mark the court may determine the right to registration, order the cancelation of registrations, in whole or in part, restore canceled registrations, and otherwise rectify the register with respect to the registrations of any party to the action.” Although the Court is empowered to cancel trademarks under § 1119, this section alone cannot confer jurisdiction; there must be some independent basis upon which the Court may exercise the cancellation remedy.

Section 1, 15 U.S.C. §1051, isn’t an independent basis for jurisdiction,

Plaintiff cites no cases, and the Court is aware of none, in which a court cancelled a trademark solely on the basis of § 1051(a) where the registrant falsely asserted ownership of the mark. Indeed, unlike other sections of the Lanham Act, there is no mention of civil liability for violations of § 1051 nor any other indication that § 1051 was meant to create a cause of action. While fraudulent registration contravenes of the [sic] requirements of § 1051 and may therefore form the basis of another Lanham Act claim–such as a § 1064 claim–Plaintiff cannot predicate federal jurisdiction on § 1051 standing alone.

Nor is § 14, 15 U.S.C. § 1064, an independent basis:

it is beyond argument that § 1064 applies only to trademark cancellation proceedings in the Patent and Trademark Office …. Under a more generous reading of the Amended Complaint, Plaintiff asks the Court to cancel the PRO–NRG mark under § 1119–the proper statutory authorization for court cancellation of a trademark–for one of the enumerated reasons set forth in § 1064; namely, the alleged fraudulent registration of the mark. A petitioner seeking trademark cancellation pursuant to § 1064 and § 1119 must plead and prove facts showing a real interest in the proceeding in order to establish standing. Therefore, Plaintiff must show a real and rational basis for his belief that he would be damaged by the registration sought to be cancelled, stemming from an actual commercial or pecuniary interest. As thoroughly explained, supra, Plaintiff can make no such showing here.

Because the Lanham Act claims were the only basis for federal jurisdiction, the court could not exercise supplemental jurisdiction over the state law claims and the case was dismissed with leave to amend.

Fenwick  v. Dukhman, Civil Action No. 13-4359 (CCC) (D.N.J. March 20, 2015).

*One can attack ownership per se in an opposition or cancellation proceeding at the Trademark Trial and Appeal Board, but that is a negative claim, i.e., that the applicant or registrant is not the owner so is not entitled to the registration. See Nahshin v. Product Source Int’l LLC, Cancellation No. 92051140 (TTAB June 21, 2013) (“Although the proceeding was brought on the ground of priority /likelihood of confusion, the actual issue in this matter is ownership of the mark”).

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