Property, intangible

By now you should have read John Welch‘s excellent report on the Federal Circuit opinion in Lyons v. The American College of Veterinary Sports Medicine and Rehabilitation; you can also find more background from me on the Board decision here. Despite my fondness for ownership cases, I wish this wasn’t one, or at least I wish it wasn’t one that was appealed.

It is a case where a co-founder of an organization, Lyons, who later left, claimed that she owned the trademark in the name that the organization was using. After her departure Lyons obtained a registration on the Supplemental Register for the name, relying on a document in which she had used the name before the organization was formed. Her specimen was her own website, not the organization’s. Thus in this case, the registrant wasn’t claiming the organizational use as her own, but rather claimed to have a senior, competing use. It was, in my view, better styled as a likelihood of confusion case. Based on the facts as stated in both opinions, the registration would then have been successfully cancelled for either non-use or abandonment. But the law isn’t derived from how you wish a case had been argued, only how it actually was argued.

The reason I don’t like this as an appeal court-level opinion is that the standard used to determine ownership is a factor test, and a new one at that. I worry about factor tests generally because it becomes so easy to use them as a checklist rather than a guide to structured thinking about an issue. It’s even more troubling for ownership cases because we have not yet established the fundamental policy interests we are trying to protect. To the appeals court’s credit, it limited this test to situations “when there has been a departure from or change of membership in a group and, in the absence of a formal agreement governing ownership of the mark, both the departing member and the remnant group claim ownership of the mark.” But even so, now there is a three-factor test, as I will explain a malformed one, based on an incorrectly-framed dispute, ratified by a court of appeals, for reaching a conclusion on ownership when we don’t even know what interests should be rewarded.

The Board looked at several sources¹ and from them derived three main factors to be considered: (1) the parties’ objective intentions or expectations; (2) who the public associates with the mark; and (3) to whom the public looks to stand behind the quality of goods or services offered under the mark.

Let’s deconstruct this standard. First, there is a significant, but subtle, departure from the source material. The standard question is not to whom the public looks to stand behind the quality of the goods or services, but who actually controls the quality of the goods or services.²

As derived by the Board and ratified by the Court of Appeals though, two of the three factors — who the public associates with the mark and to whom the public looks to stand behind the quality of the goods or services — are essentially the same question: what does the public think? The Board’s construction therefore really boils down to a two-factor test, who do the parties think is the owner and who does the public think is the owner?

This standard works in the identified situation, where there is an existing organization with a departing member. And under this test, where there is no formal agreement, the organization will almost surely win. I’m not saying that’s a bad thing; with departing individual versus organization I would say it should even be a presumption that the organization is the owner. I’ll even go so far as to say when the disputed mark is the name of the entity, it should be owned by the entity conclusively. And there are a lot of ownership cases with this fact pattern, so it might prove to be a highly useful test for reducing litigation. The departing member has some chance though; for example a famous chef might be able to prove that the eating public thinks the chef is responsible for the restaurant, not the corporation, owned by investors, that was formed to operate it.

However, this standard should only be used where both parties claim the same trademark and appurtenant goodwill as their own. It is not applicable where the claim is to separate marks, as here, because then you are rewarding the more dominant player, a concept that has never controlled the outcome in likelihood of confusion cases. If this was a straight-up case of strangers using the same mark, the public’s familiarity with either plays no role, it is only a question of priority.

In true ownership cases, the commonly-used test for manufacturer-distributor disputes has factors designed to elicit whether the public has a view on who owns the mark, such as which party’s name appears on packaging and to whom purchasers made complaints. And I have no problem with a legal outcome that whoever the public thinks is the owner should be the owner.

But as we know, a trademark source can be anonymous, that is, consumers don’t have to associate the trademark with any entity, it simply represents in the consumer’s mind a known quality. I don’t have any view on who stands behind the flour I buy at the grocery store, I just pick up the same brand every time because I know it’s pre-sifted and unbleached. I don’t have a view whether it is the flour mill or the packager who chose the miller who owns the trademark. So what do we do in that case? This three two factor test then doesn’t work, because all we’re left with is what the parties themselves think based on objective evidence – or is that just as good a reason as any to award ownership? But we can’t know the answer because we have not identified the policy bases for deciding disputes of this type.

This rule is a shortcut, a bastardization of doctrine that is already without any clearly identified policy basis. My hope is that the rule as written by the Board and adopted by the Court of Appeals will be limited to the exact case where there is a departing member of an existing organization. It has insufficient substance to be extended more generally.

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