Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Goodwill for Sale

    The area of “residual goodwill” seems to be a hot one lately. I posted recently on River West Brands and Chrysler LLC v. Pimpo, two “residual goodwill” situations, and the TTABlog recently posted on a third one involving the LaSalle trademark for automobiles. “Residual goodwill” describes the significance of a trademark when it is no longer in use but consumers nevertheless still recognize the brand. Conflicts arise where a company unrelated to the original trademark owner adopts the mark specifically intending to take advantage of that residual goodwill, but the original trademark owner objects. Some owners become former owners, some remain current owners.

    There is a discontinuity in trademark law that allows this to happen. Whether a trademark has been abandoned is a two-part question: whether there has been discontinuation of use and whether the trademark owner has an intent not to resume use.

    A mark shall be deemed to be “abandoned” if either of the following occurs:
    (1) When its use has been discontinued with intent not to resume such use. Intent not to resume may be inferred from circumstances. Nonuse for 3 consecutive years shall be prima facie evidence of abandonment.

    Section 45 of the Lanham Act, 15 U.S.C. § 1127.

    The existence (or dissipation) of goodwill isn’t part of the statutory test. This is what River West Brands, Pimpo and others rely on; that they can prove abandonment of a trademark while the mark still has some goodwill left. There is case law that helps them (notably the 5th Circuit in Exxon Corp. v. Humble Exploration Co., 695 F.2d 96 (5th Cir. 1983)) and case law that hurts them (Defiance Button Machine Co. v. C & C Metal Prods. Corp., 759 F.2d 1053 (2d Cir. 1985)). Note that Defiance Button actually doesn’t go as far as residual goodwill proponents would have it; that case said that residual goodwill + intent to resume use + resumed use = no abandonment, which is a far cry from residual goodwill = no abandonment.

    When cases do consider residual goodwill, they rarely have any analytical rigor tying residual goodwill to the statutory definition of abandonment. Some cases just seem to treat it as a separate factor entirely (like in the Pimpo case and Defiance Button); others talk about it in the general context of the trademark owner’s intent. A generous interpretation of the relevance of residual goodwill to intent would be that a trademark owner is more likely to have an intent to resume use if there is still goodwill left, but the cases don’t generally bother connecting those dots. Compare the more typical Seidelmann Yachts, Inc. v. Pace Yacht Corp., Civ. No. JH-87-3490, 1989 WL 214497, at *11 (D. Md. April 26, 1989) (“Moreover, other courts have considered the existence of goodwill as evidence to negate an intent to abandon”) with the theoretical musings offered by the court in Emergency One, Inc. v. American FireEagle, Ltd., 228 F.3d 531, 537 (4th Cir. 2000) (“Because fire trucks have very long lives (often twenty or thirty years), the mark stays visible, and the good will value of the mark persists long after production of trucks with that mark has ceased. Thus, it might be reasonable for a fire truck manufacturer to spend five or six years considering the reintroduction of a brand, even through the same passage of time would be unreasonable for a maker of a more ephemeral product, say potato chips.”)

    Professor McCarthy believes that residual goodwill is relevant, citing protection of the consumer. In his treatise he says that “it is error to give greater weight to the non-user’s subjective intent than to the marketplace perception of customers,” citing as his reason, “consumers know nothing of the state of mind of the former trademark user. But they may well mistakenly think that a new use of the mark by another is a renewed use by the former user.” See McCarthy on Trademarks, § 17:15.

    But if the former trademark user is not using it, and has no intention of resuming use, the trademark owner hasn’t really lost anything. In theory a company may suffer some harm along the lines of “I know that the LaSalle is a General Motors car and this LaSalle is a piece of junk, so therefore all General Motors cars are junk.” First, the value to the new adopter is exactly the favorable association consumers have with the mark, so there is a business disincentive to put a different character of product on the market. Further though, this theory is untested and unproven. Query whether instead it’s more appropriate to use a business tort theory, subject to the rigors of evidentiary proof, to redress an identifiable harm rather than overreach in the protection of trademark rights by relying on a nonstatutory factor to guard against what may be only a theoretical harm.

    As for the consumer, we allow assignment of trademarks all the time without caring a wit whether there is an adverse effect on consumers. At most we would say that a subsequent use too dissimilar to the former use can’t claim priority to it (but not if the dissimilarity is in quality, only if it is in type of goods), but we don’t force the new user to stop. As pointed out by Kevin Parks in “Naked” Is Not a Four-Letter Word: Debunking the Myth of the “Quality Control Requirement” in Trademark Licensing, 82 Trademark Rep. 531 (1992), we also don’t oblige a trademark owner to maintain any particular quality of goods. Is there a reason to protect consumers more in this situation than those?

    Assuming we protect residual goodwill, is there nevertheless a point where we should allow someone else to capture the pent-up value of the goodwill if the trademark owner won’t? Is the end of the three year period, during which time it is more difficult to prove abandonment, an appropriate point in time to allow the balance to shift in favor of a new user? If we are going to consider residual goodwill as affecting the abandonment question, shouldn’t the statute at least recognize it, or at least require trademark owners to explain what effect residual goodwill has on their intent? There may be a good reason the definition of abandonment doesn’t consider residual goodwill and perhaps we shouldn’t be so cavalier about ignoring what the statute actually says.

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  • EasyTrademark Licensing


    The IPKat has brought our attention to a spat between Sir Stelios Haji-Ioannou, founder of easyJet, and that airline over its use of “easy” for more than just plain Jane “easyJet.” Seems Sir Stelios licenses the easyJet name to the airline through a licensing company called easyGroup IP Licensing, and finds that easyJet’s use of “easyJet[something]” for other services is interfering with the licensing of his other “easy” marks, like easyHotels and easyCruise. From my count, easyGroup has about 94 registrations on the UK register for “easy [something],” including various iterations for easyJet and my favorite, easyEverything for, well, a lot of things.

  • And Not Even a Passing Reference to Whitman’s Chocolates

    Family relationships are frequent fodder for a blog about ownership of IP and also my favorite kind of case, because they are such tangled human stories. The contracts are also poor or nonexistent and the IP rights misunderstood if recognized at all, so trying to get to a fair outcome sometimes an interesting exercise. I have to agree with Merpel, though, that family cases can be a difficult read just trying to sort out all the names.

    So this is a story about a family candy business named “Widman’s.” There was a Widman’s Candy Co., a Carol Widman’s Candy Co., at least two Widman’s Candy Shops, a Widman’s on Eighth, a Widman’s Candy, and a Widman’s Coffee and Chocolate, all in various places in Minnesota and North Dakota. We’ll just say everyone was “Widman’s.”

    (With a nod to Merpel) Grandma and Grandpa started the first Widman’s in 1885; Plaintiff is a direct descendant and runs one of the Widman’s. Plaintiff’s Sister and Brother-in-Law also had a store and, the genesis of the saga, Brother-in-Law got to keep the store in the divorce. The now Ex-Brother-in-Law sold the store to MJR Candy Shop. In this sale Ex-Brother-in-Law explicitly transferred all rights to the name “Widman’s” to MJR Candy.

    MJR Candy sold the business to Freedom Enterprises, the defendant. Although Freedom Enterprises’s store was “Cafe Chocolat,” Plaintiff sued Freedom Enterprises under the Lanham Act for some other uses of “Widman’s.” Freedom then sued MJR Candy (the third party defendant) for breach of the Purchase and Sale Agreement; MJR Candy Shop then sued Ex-Brother-in-Law (the fourth party defendant) but he has not appeared in the case. Plaintiff then paid Freedom an undisclosed sum to relinquish any rights in “Widman’s,” settling the original Lanham Act claim. This left the breach of contract suit between Freedom Enterprises and MJR Candy Shop; this opinion is on cross-motions for summary judgment.

    The court commented several times that the purchase and sale contract was “inartfully drafted” and “not a model of clarity.” As you will see that’s true enough, but at least some of the reason was undoubtedly the result of what we all have to do, which is make concessions during negotiations in the hope that, if push comes to shove, a court will find the contract supports our interpretation more readily than the other side’s. In this case, it was MJR Candy that played it right.

    The court used standard contract interpretation principles to arrive at its conclusion. The first question was whether MJR Candy had given the name “Widman’s” to Freedom. The contract specifically assigned to Freedom a “Chippers” trademark and the domain names widmans-chipperz.com, fargo-candy.com and widmanscandy.com, but listed as an excluded asset “the trade names of MJR Coffee & Fine Chocolates and Widman’s Candy.” However, the following sentence was crossed out and initialed by both parties: “Buyer does not have the right to use of the name ‘Widman’s Candy’ in connection with the business hereunder.” There were also general provisions that Freedom was getting the goodwill and all intangibles that MJR Candy used in the ongoing business.

    The court said that the language describing “Widman’s” as an excluded asset was clear and more general statements in the contract could not contradict it. The crossed-out sentence did not change anything either. (ed. note – this is where we make the change and cross our fingers, hoping the court will appreciate that there is a difference between not affirmatively assigning a trademark and saying that the other side can’t use it).

    The court also concluded that, even if there had been an assignment, there was nevertheless no breach of the agreement. The trademark/domain name assignment clause transferred “All Seller’s rights” in those assets. The court interpreted this as the equivalent of a quitclaim deed. Indeed MJR Candy warranted that it had transferred “good and marketable title to the Purchased Assets, free and clear of all security agreements, mortgages, liens, pledges, charges or encumbrances,” but the agreement also said it was selling the assets as-is and disclaimed any warranty of merchantability, relating to the condition of the purchased assets, or their suitability for the buyer’s business. The agreement also said that Freedom had been able to determine to its own satisfaction the condition of the purchased assets. Putting all of this together, the court decided that the intent of the agreement was to sell the assets as is and without any warranty. Holding: no breach of contract by MJR Candy.

    Merpel offers that perhaps there should be a special arbitral body that specializes in untangling family entanglements. I vote for a refinement, that a court that has already sorted everybody out should keep jurisdiction no matter what. That’s what happened here; there was no longer a federal question because the Lanham Act claim settled, so all that remained were the state law claims. The federal court could have kicked it but didn’t, for which I’m sure the state courts are grateful.

    Widman’s Candy Co. v. Knutson, Civ. No. 3:07-cv-13, 2008 U.S. Dist. LEXIS 61245 (D.N.D. Aug. 8, 2008).

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  • Penguin to Continue Publishing Steinbeck

    In the past I could have just linked to William Patry’s blog for a case like this, but unfortunately no more. We’ll just have to soldier on and do our best to understand the intricacies of termination rights in copyright law without the benefit of his knowledge and insight.

    A recently published termination case, Penguin Group (USA) Inc. v. Steinbeck, involves the publishing right to some of John Steinbeck’s books, including “Of Mice and Men,” “The Grapes of Wrath,” and “Tortilla Flat.” You may have heard it on the news; John Steinbeck’s heirs won at the district court but just suffered a reversal in the Second Circuit.

    John Steinbeck had originally licensed the works to Penguin’s predecessor in interest in 1938. Steinbeck’s wife and successor to his copyrights, Elaine, renegotiated a new agreement in 1994 after Steinbeck’s death. The 1994 agreement said, “when signed by Author and Publisher, [it] will cancel and supersede the previous agreements, as amended, for the [works] covered hereunder.” (Brackets in original). Elaine Steinbeck died in 2003 but her will did not give Steinbeck’s two children any ownership interest in the copyrights. In 2004, one of these children, Thomas, and the sole surviving child of the other son, Blake Smyle, served a notice of termination of the 1938 agreement on Penguin. Penguin filed a declaratory judgment action asking the court to find that the termination was invalid.

    The works were in their renewal period on January 1, 1978, so termination is controlled by § 304 of the Copyright Act rather than § 203. If the 1938 agreement was still in effect, there would have been an earlier opportunity to terminate the publishing rights at times ranging from 1990 to 2000 (depending on the publication date of each book), but that right had not been exercised. The Steinbeck heirs were now taking advantage of a “second bite of the apple” opportunity provided under the Sonny Bono Copyright Term Extension Act, i.e., if there was no termination of a grant under § 304 prior to the Sonny Bono Act a second window for terminating opened. This termination notice was served within the second window.

    But the 1938 Agreement was not in effect; it was superseded by Elaine Steinbeck’s 1994 grant, so there was no termination right under § 304. The language of the 1994 agreement clearly terminated the 1938 agreement, plus other terms in the 1994 contract demonstrated that it completely superseded the 1938 agreement.

    Indeed, the 1994 agreement contemplated future exercise of termination rights, but the Court of Appeals distinguished the question it was deciding, i.e., whether the 1938 agreement had been terminated, from the question of whether the new contract affected the termination right. Any statements regarding the latter in the 1994 agreement did not change the answer to the former.

    The court also wasn’t buying Professor Nimmer’s argument that under § 304(c)(6)(D) there must be a “moment of freedom” between the termination and the new grant; by its terms the section itself contemplates that contracts may be made before the termination is effective so long as the notice to terminate has been served. Furthermore, nothing in § 304 suggests that an agreement cannot be renegotiated before the notice of termination is served.

    Still, § 304(c)(5) provides that one cannot avoid the termination right by contract: “Termination of the grant may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant.” The Steinbeck heirs argued that the 1994 agreement was an “agreement to the contrary” and therefore ineffective to extinguish the termination right. The court held that reading § 304(c)(5) so broadly that this new contract would be considered an “agreement to the contrary” was inconsistent with other narrowing limitations of the termination right in the Copyright Act. Further, the 1994 agreement did not even terminate any of the heirs’ rights at the time, since in 1994 they did not have a majority share and therefore no termination right (a situation that changed upon Elaine Steinbeck’s death).

    Unfortunately for the Steinbeck heirs, they do not have another chance under § 203. Unlike § 304, § 203 only applies to grants made by the author. The 1994 grant was by the author’s widow, so the 1994 grant cannot be terminated:

    In this case, Elaine Steinbeck had the opportunity in 1994 to renegotiate the terms of the 1938 Agreement to her benefit, for at least some of the works covered by the agreement were eligible, or about to be eligible, for termination. By taking advantage of this opportunity, she exhausted the single opportunity provided by statute to Steinbeck’s statutory heirs to revisit the terms of her late husband’s original grants of licenses to his copyrights. It is no violation of the Copyright Act to execute a renegotiated contract where the Act gives the original copyright owner’s statutory heirs the opportunity and incentive to do so.

    It’s also a good decision to have for some basic background on the historical roots of the termination provisions of the Copyright Act, provided by the Court of Appeals to explain the district court’s reasoning.

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  • Bratz Mandamus Denied

    The 9th Circuit, brief and to the point:

    Petitioners’ motion to file portions of the emergency motion and the petition for writ of mandamus under seal is granted. The motion to exceed the page limitation on the petition is granted. The emergency motion for an order suspending trial is denied. Petitioners have not demonstrated that this case warrants the intervention of this court by means of the extraordinary remedy of mandamus. See Bauman v. United States Dist. Court, 557 F.2d 650 (9th Cir. 1977). Accordingly, the petition is denied.

    Copy of order here. Press report here. Previous blogging here.

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  • Fall River’s Own Lizzie Borden

    A local segment from WBUR’s broadcast of this morning’s NPR show “Morning Edition” was about a dispute in Massachusetts over the rightful owner of Lizzie Borden’s history. The argument is in the form of a trademark lawsuit, where the owner of the “Lizzie Borden Museum” trademark (website here) filed a complaint for trademark infringement in the Massachusetts federal district court against a new museum in Salem called “The True Story of Lizzie Borden Gift Shop and Museum” (website here). Of course we all know that the murder was in Fall River, not Salem, and the plaintiff is located at the house where the murder occurred. Salem’s connection to Lizzie Borden is that there’s a statue of Elizabeth Montgomery as Samantha in “Bewitched” there, and Elizabeth Montgomery played Lizzie Borden in “The Legend of Lizzie Borden.” That, and a lot of tourists.

  • Bratz Hobby

    Watching the Bratz litigation has become a bit of a hobby for me. Law.com reports that MGA applied for a writ of mandamus with the Court of Appeals for the Ninth Circuit, asking it to overturn the district court’s denial of the motion for mistrial that MGA filed when it learned that a juror was biased against Iranians (blogged here and here). Court of Appeals docket number 08-73438, but no documents available on line.

  • “Heritage” Brands Revisited

    Thanks to John Welch for pointing me to a new decision from the TTAB, Chrysler LLC v. Pimpo. Chrysler LLC opposed the registration of the mark RAMBLER for “automobiles and structural parts therefor” by Anthony S. Pimpo. RAMBLER is, of course, a model of car that was produced from 1950 to 1969 – you may be familiar with an earlier trademark dispute over the RAMBLER name, American Motors Corp. v. Action-Age, Inc., 179 U.S.P.Q. 377 (TTAB 1973).

    Mr. Pimpo originally filed the application for “automobiles and automobile associated goods; parts and memorabilia pertaining to this specific brand.” Mr. Pimpo had also filed applications for ASPEN and STINGRAY, also well-known car brands, so it’s pretty clear that Mr. Pimpo was referring to the original RAMBLER automobile in his application.

    The TTAB held that the RAMBLER mark was abandoned for automobiles, but that Chrysler successfully established trademark rights in RAMBLER for some collateral goods earlier than the filing date of Mr. Pimpo’s application. Saving a discussion of the merits for another day, the case is interesting in its description of the licensing of the RAMBLER brand for these collateral goods. I previously blogged on River West Brands, a company that identifies unused marks with residual goodwill and builds a new business around them. Chrysler has a somewhat different approach; a company called the Joester-Loria Group is a licensing agency that acts on behalf of Chrysler to license the “heritage” RAMBLER mark. As described by the president and chief executive officer of the agency during her deposition:

    We develop and execute licensing strategies for our clients, so we will start with strategic planning for their marks and execute those programs, including negotiating terms of agreements, developing the contracts, reviewing product for quality control and appropriateness, and managing the retail distribution and revenue collection.

    As she explained it,

    One of the most important trends of the last several years has certainly been the return of retro or heritage intellectual property . . . . [A heritage mark] is a mark that existed sometime 20, 30 years ago, had built an affinity and emotional connection with the consumer as a result of the original product that was in the marketplace, and continues to have nostalgia appeal with consumers who are still interested in acquiring product that is built around the mark’s core values and replicates the markets and the mark itself.

    The use of RAMBLER for collateral goods began in 1995, 25 years after the last production of the automobiles. Nevertheless, Joester-Loria successfully obtained royalty-bearing licenses for calendars, key rings, toy replicas of the cars, fabrics, lighters, carrying bags, decals, owner’s manuals, sales literature, stripe kits, and specification sheets, all without any active registration for RAMBLER for automobiles or any other goods or services.

    What’s right or wrong here? How many of the licensees are simply paying a toll to avoid the uncertainty of suit (or signed up under threat of suit)? Is Chrysler entitled to the financial benefit of the residual goodwill in the mark? If not Chrysler, then who, or no one?

    Here’s a link to John’s stellar blog on all things TTAB, most notable of late for the admirable restraint of his proclivity for punning in this post.

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  • Tickler for Licensing IP

    This IP Finance blog post points us to a publication by the UK Intellectual Property Office giving some basics for licensing intellectual property. It looks like a useful handbook to remind us of the various points to remember when doing licensing work.

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  • Bratz Continues

    No mistrial in Bratz. Trial on damages to continue tomorrow.

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