Corporation versus Unincorporated Association
by Pamela Chestek • September 10, 2015 • trademark • 0 Comments
One of the issues I often write about is what entity, exactly, owns a trademark. As described by the Trademark Trial and Appeal Board, “feuding members of extended family businesses, aging pop bands, or religious organizations riven by theological schisms” are frequent litigants because trademarks can be adopted with great informality and no documentation. Sometimes it turns out that the owning organization is an “unincorporated or voluntary association” (caution, recursive link), if the state law recognizes such an entity.
It gets more complicated when the informal collection of individuals then decides it’s time to formalize and they incorporate. Having not realized that there was an existing entity, they also don’t think about any formality of transfer of assets. When the schism comes after that, who owns the mark?
We have this fact pattern in HardRiders Motorcycle Club Association v. HardRiders, Inc. Individuals started a motorcycle club, known as “Hard Riders Motorcycle Club” and “Hard Riders of Houston” and had a bank account in the latter name. After an person was injured at an event, the club decided to incorporate under the name “HardRiders, Inc.” and thereafter used “HardRiders, Inc.,” “Hard Riders Motorcycle Club” and “Hard Riders of Houston,” always with the same logo. In preparation for going national, the organization decided to elect a board but some of the members were unhappy with the outcome and split off. They filed a federal trademark application and changed the ownership of the domain name at the registrar. HardRiders, Inc. sued and a jury awarded the trademark to HardRiders, Inc.
The linked opinion is an appeal of the jury verdict, claiming that there were two inconsistent jury findings. The jury held that defendant Hard Riders Motorcycle Club Association stated as an unincorporated association in 2000 and that it “still existed.” Nonetheless, the jury found that HardRiders, Inc. “held the superior right to the trademark (flames and colors), trade name (“Hard Riders”), and website address (“hardridersmc.com“) of the Hard Riders organization as of February 29, 2011.”
The newly re-formed association claimed that the corporation couldn’t own the trademark because it hadn’t been formally assigned when the club incorporated.
It is undisputed that no formal document of transfer was produced, but HRMCA [defendant Hard Riders Motorcycle Club Association] does not direct us to any case law or statute requiring a “formal” transfer of title in a common law trademark action. Moreover, case law cited by HRMCA suggests that no formal transfer of property is required when an unincorporated association incorporates, so long as the members of the unincorporated association and the corporation take some action to transfer the ownership of the property.
There was plenty of evidence; the name on the back account was changed and there was testimony that the intent was to transfer all assets. “Viewing the evidence in the light most favorable to the verdict, the jury could have reasonably inferred that the club membership decided to incorporate to protect themselves from personal liability, and that that all of the club’s assets, including the Hard Riders name, the flames logo, and the website address, were transferred to HardRiders, Inc. for the purpose of protecting those assets.”
There’s a bonus issue, too – relegated to a footnote, but it’s an important one. I wrote in the past about an “uh oh moment,” an argument that state law imposes a writing requirement for assignment of an unregistered trademark. The argument was made here too, but the court dismissed it:
On rehearing, HRMCA points out that section 16.061 of the Texas Business and Commerce Code requires that an assignment of a trademark “must be made by a properly executed written instrument….” See Tex. Bus. & Com. Code § 16.061(b). However, HRMCA does not allege a statutory violation. Moreover, remedies provided under the code are available only to owners of registered marks, and HRMCA does not contend it owns a registered trademark. See id. § 16.104(a) (“An owner of a mark registered under this chapter may bring an action to enjoin the manufacture, use, display, or sale of any counterfeits or imitations of a mark.”); Sandy Int’l, Inc. v. Hansel & Gretel Children’s Shop, Inc., 775 S.W.2d 802, 806 (Tex. App.—Dallas 1989, no pet.) (absent evidence of a written assignment, plaintiff was not a registrant and lacked standing to seek relief for trademark infringement under Texas trademark statute).
It’s a pretty non-responsive comment, but the defendant’s argument is fairly easy to skirt. The statute provides “A mark and its registration under this chapter are assignable with the goodwill of the business …. (b) An assignment must be made by a properly executed written instrument ….” I can read it as applying only to a mark associated with a registration, which really is the only sensible rule.
Hard Riders Motorcycle Club Association v. HardRiders, Inc., No. 14-14-00234-CV (App. Ct. Tx. Aug. 25, 2015).
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