Property, intangible

a blog about ownership of intellectual property rights and its licensing

Getting Back on the Rails

I have written extensively in the past about what I consider a misapplication of the anti-trafficking provision of Section 10 of the Lanham Act. Section 10 has a special provision that limits when one can assign an intent-to-use trademark application. After the 1989 amendment to the Lanham Act, companies could file trademark applications before actually using the trademark. But there was a fear that it would create a market for trademark applications unassociated with any business, so as a general rule the law prohibited assignment of the intent-to-use application. However, there was a carve-out for transfers of businesses. The exact wording is important:

[N]o application to register a mark under section 1051(b) of this title shall be assignable prior to the filing [the Statement of Use or an Amendment to Allege Use], except for an assignment to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing.

So one can assign an intent-to-use application if there is an assignment of the business (or portion of it) if the business is ongoing and existing. The plain words, and their meaning, are pretty simple and should be easy to apply. Of course there are edge cases, for example, if your entire business is simply in licensing trademarks it might be hard to know whether and when a business apart from the marks was transferred. But it is generally a pretty clear statement.

Nevertheless some courts have misconstrued Section 10 to essentially mean that the trademark has to be in use before it can be transferred. This misdirection started with a TTAB opinion in Railrunner N.A., Inc. v. New Mexico Department of Transportation. The opinion reached the correct conclusion but used some unfortunate language in getting there.

I am pleased to see that it looks like there might be a course correction. In Vacation Rental Partners, LLC v. Vacaystay Connect, LLC, a company called Gameday Housing, LLC had a business booking vacation and rental properties near college campuses on weekends where there were sporting events and decided to expand its business. In February, 2014 it filed a trademark application for VAYSTAYS. A month later, the owners of Gameday formed plaintiff Vacation Rental Partners, LLC. Effective May 6, 2016, although executed in September, Gameday assigned the intent-to-use application to Vacation Rental. Effective the next day, the owners of Gameday exchanged their ownership interest in Gameday for ownership in Vacation Rental and Gameday was dissolved shortly thereafter. Vacation Rental kept Gameday’s business location and employees. Vacation Rental filed the Statement of Use in October, 2014 and the trademark registered.

I don’t know how anyone could look at this and think that this wasn’t the assignment of the application “to the successor of the business of the applicant” and that the business was “existing and ongoing.” Nevertheless, because of the problematic jurisprudence, there was an opportunity for the defendant to make the collateral attack on the validity of the registration. And I am pleased to say it failed.

Based on the undisputed record, Vacation Rental is a successor to the entire business of Gameday, which was ongoing and existing at the time of the assignment. The entirety of Gameday’s business was rolled into Vacation Rental—its owners, assets, business location, and employees. Although VacayStay quibbles that the assignment does not mention the transfer of other assets or goodwill, VacayStay does not identify any authority requiring the transfer of assets or goodwill in the assignment agreement itself—instead, cases look to the overall facts and circumstances of the assignment. Here, although executed several months later, the assignment was backdated to coincide with Gameday’s rollover into to Vacation Rental, after which Gameday was dissolved.

VacayStay also argues that the assignment was invalid because Gameday was not an “ongoing and existing” business at the time of transfer. VacayStay interprets “ongoing and existing” business to mean that the business used the mark in commerce. Some courts have interpreted § 1060(a)(1) this strictly. See Greene v. Ab Coaster Holdings, Inc.; Sebastian Brown. In Railrunner N.A., Inc. v. New Mexico Department of Transportation, the Trademark Trial and Appeal Board voided an intent-to-use application that was assigned before a statement of use was filed. The Board’s decision rested on the applicant’s failure to provide any explanation of the facts and circumstances of the assignment to show transfer of any assets other than the application itself. But the Board also mentioned in passing that because § 1060(a)(1) requires intent-to-use applications to be transferred (if prior to a statement of use) with at least that part of the applicant’s business to which the mark pertains, such a transfer “is only permissible if the applicant actually has such a business, i.e., if the applicant is already providing the goods or services recited in the application.”

However, only a few months after deciding Railrunner, the Board clarified in Exel Oyj v. D’Ascoli that requiring an intent-to-use applicant to be using the mark in at the time of the assignment would be reading § 1060(a)(1) “in a manner that would be inconsistent with the intent behind” allowing trademark applications based on an intent-to-use.

Section 1060(a)(1) was designed to allow assignment of intent-to-use applications before actual use—the provision prohibits assignments unless the application is “assigned with the business associated with the intended use of the mark.” S. Rep. No. 100-515, at 25 (1988) (emphasis added). As explained in Exel, the point of the statute was to allow for the transfer of an intent-to-use application claiming a bona fide intention to use the mark for goods which are not yet in production or which may be in the planning stage, and which may represent an extension of an applicant’s business. Prior to filing a statement of use, an applicant may not have actually used the mark in commerce yet, but it may have goodwill or existing business tied to the mark (e.g., relationships based on planned use of the mark)—that is enough to ensure that a trademark has no existence separate from the product or service it symbolizes. Vacation Rental has shown that there is no genuine dispute of material fact that, as of the assignment, it was the successor to Gameday’s ongoing and existing business pertaining to the VAYSTAYS mark. By that point in time, Gameday had registered, had hired several employees (including a web developer and salespeople to market the VAYSTAYS brand), and was attempting to get property listings to market as vacation rentals.

VacayStay also argues that “ongoing and existing” business requires not only that Gameday—the applicant—had some business, but that Vacation Rental itself was an ongoing and existing business prior to the assignment. This argument misreads § 1060(a)(1) and its associated case law, which make clear that the ongoing and existing business must pertain to the mark and be transferred with the application because it is the manifestation of the goodwill associated with the intended use of the mark. It is irrelevant that Vacation Rental was not formed until the mark was transferred, as long as it received the existing business to which the mark pertained. Also, the testimony VacayStay cites to show that Vacation Rental was not yet in business indicates merely that, in May 2014, Vacation Rental did not yet have an actual customer booking for a vacation rental property. But actual use in commerce is not required under § 1060(a)(1).

VacayStay has not shown a genuine issue of material fact to rebut the presumption that Vacation Rental’s VAYSTAYS mark is validly registered and therefore protectable.

Vacation Rental Partners, LLC v. Vacaystay Connect, LLC, No. 15 CV 10656 (N.D. Ill. March 28, 2017).
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