One of the most difficult ownership questions is who owns intangible assets created by a person who is the sole shareholder of a legal entity. There isn’t any receipt, or a check written against the corporate account, as evidence of ownership. Trademarks can be the most difficult because people don’t tend to think of them as assets at all.
Dr. Harvey Barnett started teaching infants and young children acquatic survival skills in 1966 and did so until his retirement. He had formed several different legal entities, at least five, which the opinion refers to collectively as the “Barnett Companies.” The business was a family affair; Barnett’s wife taught water safety to children and trained instructors, and the couple’s children worked in the business too. The titular trademark owner in the cancellation was J. Barnett Holdings, Inc., an entity formed on the advice of counsel in 2002 to hold the intellectual property of the Barnett Companies. J. Barnett Holdings claimed there was an unwritten license to a Barnett company called Infant Swimming Resource, LLC (ISR) to license the intellectual property to instructors, who get written licenses to use various trademarks.
The petitioner was Survival Swim Development Network, Inc.; the mark was SELF RESCUE. The cancellation was sustained on the basis of that the mark was merely descriptive, but one of the other claims was that the registration was void ab initio because the application was not filed by the owner of the mark.
Dr. Barnett filed the application for a collective mark in his own name on March 31, 2012, giving a date of first use in commerce of November 26, 2008. He assigned it to J. Barnett Holdings a few months later. He testified that he filed the application in his own name because “I was the author of — I was the author,” because he was the founder and owner of the Barnett Companies “and the originator of the self rescue technique,” and because a state court in Colorado had ruled in 2011 that he and the Barnett Companies were essentially one and the same entity. The application was assigned during its prosecution and, after the assignment, Ms. Barnett signed a substitute application amending the application from one for a collective mark to one for a service mark, but also stating that ISR was the owner of the mark. A follow up office action stated “The request to change the owner name raises a question regarding whether the proper party filed the original application and/or whether the mark was assigned to the proper party” and advised that an application is void ab initio if not filed by the owner. The response to the office action said “the owner of the application was correctly initially filed in the name of J. Barnett Holdings, LLC, and that Infant Swimming Resource, LLC was mistakenly listed in Applicant’s previous response as the owner of the application.” The mark thereafter registered.
The Board established that “To prevail on its claim that the involved application was void ab initio, Petitioner must show, by a preponderance of the evidence, that Dr. Barnett, the original applicant, was not the owner of the mark when he applied to register it.” The petitioner claimed that Dr. Barnett was not the first to use the mark. In an application for a collective mark, the first use date statement is that “the mark was first used by group members at least as early as …,” and there is also a mandatory statement explaining how the owner exercises control over the group, which for Dr. Barnett’s application was that “all members must have written permission to use the term Self Rescue prior to their utilizing the term.” But Dr. Barnett had no documentary evidence that either statement was true, nor that he controlled the use of the mark on any documents or website.
The Board seemed unwilling to find that Dr. Barnett could be the owner of the mark. But we have the earlier lawsuit, where a court held that ISR was an alter ego of Dr. Barnett and that “Dr. Barnett and his companies were legally one and the same,” plus some pesky binding precedent:
Dr. Barnett’s ownership of ISR, in and of itself, would be an insufficient basis upon which to claim that ISR was a related company, or that its use of “Self-Rescue” was attributable to him personally. Great Seats [ v. Great Seats Inc.], 84 USPQ2d [1235,] 1243 [(TTAB 2007)](citing In re Hand, 231 USPQ 487 (TTAB 1986); Smith v. Coahoma Chem. Co., 264 F.2d 916, 121 USPQ 215 (CCPA 1959)). But as the Board noted in In re Hand, the CCPA in Smith v. Coahoma Chem. Co. had clearly implied that “if facts were presented to show that an individual[‘s] ownership of a corporation was so complete that the two legal entities ‘equitably constituted a single entity,’ then sufficient control by the individual with use by the corporation inuring to the individual’s benefit would be found.” 231 USPQ at 488 (quoting Smith, 121 USPQ at 218).
The court in the Heumann litigation found in 2011, a little more than a year before Dr. Barnett filed the application, that the Barnetts’ trial testimony about the various Barnett Companies “showed that the web of corporations that they formed were meaningless window dressing for what was in fact a kitchen table operation.” The court observed that the Barnetts “often could not keep their own corporations straight” and that even though ISR had been formed in 2002, there were no corporate records for ISR as of 2011, “none whatsoever.” The court also found that an Infant Swimming Research business plan “described the ISR techniques as the intellectual property of Harvey Barnett, not the property of any of his corporations.” The court concluded that Infant Swimming Research and ISR were alter egos and that Infant Swimming Research was “the alter ego of Dr. Barnett,” and entered judgment against Dr. Barnett and ISR, enabling the Heumanns to collect the judgment that they had obtained against Infant Swimming Research against Dr. Barnett and ISR.
The court’s judgment, which was made of record by Petitioner, and obtained by the prime mover behind Petitioner, who was represented in that case by the same attorney representing Petitioner in this one, permits us to infer that Dr. Barnett and ISR “equitably constituted a single entity,” Smith, 121 USPQ at 218, when the application was filed in 2012, such that any use of “Self-Rescue” by ISR at that time inured to Dr. Barnett’s benefit and made him the owner of the mark. We therefore find that Petitioner failed to prove, by a preponderance of the evidence, that Dr. Barnett did not own the “Self-Rescue” mark when the application to register it was filed, and we dismiss Petitioner’s non-ownership claim.
Well, that’s an interesting way to turn lemons into lemonade – I suppose. The registration was still cancelled, so it didn’t much matter. But it is in essence a reverse veil-piercing, a theory that should be viewed skeptically. I’m also a bit skeptical of the registrant’s argument; how one could get schooled in piercing the corporate veil in 2011, file an application a year later, but then clais not to have grasped the finer points of keeping entities separate, strikes me as equally likely to prove he meant to own it personally. But we have a cancellation, where the registration is prima facie evidence of ownership and the burden is on the petitioner to prove non-ownership, rather than the burden on an applicant to prove ownership. Which might have made all the difference here.
Survival Swim Dev. Network, Inc. v. J. Barnett Holdings, LLC, Cancellation No. 92061915 (TTAB Dec. 12, 2017).
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