LEGAL ISSUE: SOME PEOPLE THINK YOU CAN JUST SELL A TRADMARK FOR PROFIT. SOMETIMES THESE ARE CALLED TRADEMARK FARMS WHERE PEOPLE WILL REGISTER A TRADEMARK ONLY TO SELL IT. ANOTHER SITUATION ARISES WHERE A COMPANY IS PURCHASING A FAILING COMPANY ONLY FOR THEIR TRADEMARK. SOMETIMES THEY DO THIS TO GET A PRIORITY FILING DATE TO BEAT OUT ANOTHER PERSON CLAIMING RIGHTS TO A TRADEMARK. IN THESE CIRCUMSTANCES, BRUSHING UP ON “TRADEMARK ASSIGNMENT IN GROSS” MAY PROVE TO BE THE DIFFERENCE.
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TRADEMARK "PRIORITY" DISPUTES - THE "ASSIGNMENT IN GROSS."
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PRIORITY CONTESTS (WHERE A COMPANY MAY TRY TO ACQUIRE AN ASSIGNMENT OF AN OLDER IDENTICAL TRADEMARK IN ORDER TO ESTABLISH A PATTERN OF USE THAT PREDATES THAT OF ITS COMPETITOR). ALSO KNOWN AS PURCHASING PRIORITY AS AN ASSET.
CASE EXAMPLE: Many mobile app disputes arise due to trademark infringement issues. One company may complain that another application is violating their pre-existing trademark rights. A fight may arise over who has the lawful rights to use the trademark and who does not. Sometimes, you will find one company (that wants to submit/market an application) try to purchase a federally registered trademark - that was registered before the other company had their trademark rights - and create a dispute with Apple or Google store over this and seek to have the other party withdraw their app from the relevant app store, claiming trademark priority.
In seeking to obtain the federally registered trademark rights of another company (perhaps a failed one), one may seek an assignment of the trademark and the business "goodwill." Will this alone give the assignee of the trademark "priority rights." not necessarily. In these situations, there is a legal concept known as "assignment in gross" that may preclude the assignee in this situation from having priority trademark rights over the other party. In essence, by showing the assignment of the trademark was ineffective or nothing more than a ruse to seek priority rights. This doctrine is complicated, but let's look at some cases that discuss this often-overlooked principle.
CLARK & FREEMAN CORP. V. HEARTLAND CO. LTD., 811 F. SUPP. 137 (S.D.N.Y. 1993)
Generally, an assignment of a trademark and its accompanying goodwill will entitle the assignee to "step into the shoes" of the assignor, gaining whatever priority the assignor might have had in the mark. Money Store v. Harriscorp Fin., Inc., 689 F.2d 666 (7th Cir. 1982); G's Bottoms Up Social Club v. F.P.M. Industries, Inc., 574 F. Supp. 1490 220 U.S.P.Q. 874, 879 (S.D.N.Y.1983); 1 McCarthy, Trademarks and Unfair Competition 805 (2d ed.1984); accord 15 U.S.C. § 1060.
However, where a trademark has been assigned "in gross," i.e. without the accompanying goodwill, then the assignment is invalid, Haymaker Sports, Inc. v. Turian, 581 F.2d 257 (C.C.P.A.1978), and the "assignee" must instead rely upon his or her own use to establish priority. Merry Hull & Co. v. Hi-Line Co., 243 F. Supp. 45 (S.D.N.Y. 1965); see McCarthy, supra, at 807.
Marshak v. Green, 746 F.2d 927 (2d Cir. 1984), discusses the rationale behind the assignment in gross rule:
"Use of the mark by the assignee in connection with a different goodwill and different product would result in a fraud on the purchasing public who reasonably assume that the mark signifies the same thing, whether used by one person or another." Id. at 929; see Money Store; PepsiCo, Inc. v. Grapette Co., 416 F.2d 285, 289 (8th Cir. 1969).
Let's take a closer look at this principle. If, for example, a company (with no trademark rights), purchases an assignment of a pre-existing trademark but only for the sole purpose of acquiring part of the trademark name so they can try to kick another app off the Google or Apple app store based on a claim of prior existing trademark rights, is this legal?
The law wants to encourage a "bona fide" assignment of the trademark and the "goodwill" that goes with it. In other words, if you buy the Hershey's trademark, and it is assigned to you, the law expects you to keep selling Hershey bars using the valuable trademark and goodwill so that consumer will continue to know what to expect from the source of goods.
However, if you buy the Hershey's trademark just because you wanted to purchase the name for priority trademark purposes, it can be argued that this is nothing more than an "assignment in gross" (naked assignment) and not a valid transfer/use of the mark by the assignee.
Here is one California Central District case that discusses this: MGM Pictures, Inc. v. Mark Brown, Beauty Shop, LLC (C.D.Cal. Feb. 11, 2004, No. CV 03-8103 SJO (Ex)) 2004 U.S.Dist.LEXIS 29562, at *15-17.)
Courts have upheld assignments of marks "if they find that the assignee is producing a product or performing a service substantially similar to that of the assignor and that the customers would not be deceived or harmed." Marshak, 746 F.2d at 930. This is the case even if no physical or tangible assets have been transferred. Defiance Button, 759 F.2d at 1059. The key question is whether the assignee produced a product "substantially similar" to that of the assignor such that "the customers would not be deceived or harmed." Clark & Freeman Corp. v. Heartland Co., 811 F. Supp. 137, 140 (S.D.N.Y. 1993).
Even minor differences can be enough to threaten customer deception. In the oft-cited Pepsico. Inc. v. Grapette Co., 416 F.2d 285, 289 (8th Cir. 1969), the appellate court instructed that:
Where a transferred trademark is to be used on a new and different product, any goodwill which the mark itself might represent cannot legally be assigned.
"The trademark owner does not have the right to a particular word but to the use of the word as the symbol of particular goods."
To hold otherwise would be to condone public deceit. The consumer might buy a product thinking it to be of one quality or having certain characteristics and could find it only too late to be another. To say that this would be remedied by the public soon losing faith in the product fails to give the consumer the protection it initially deserves.
That said, the court in Pepsico found that the assignor's cola-flavored syrup and assignee's pepper-flavored syrup were sufficiently different to prevent a transfer of goodwill, and thus invalidate the assignment:
"[The assignee]'s intended use of the mark is one simply to describe its new pepper beverage. Id. at 290.
The evidence is clear that [the assignee] did not intend to adopt or exploit any 'goodwill' from the [trademark] and [the assignor]'s long association and use of it with a cola syrup." Id. at 289-90.
OTHER CASES - MARSHAK V. GREEN (2D CIR. 1984) 746 F.2D 927, 929.
- Courts have held that registered trade names or marks may not be validly assigned in gross. A sale of a trade name or mark divorced from its goodwill is characterized as an "assignment in gross."
- Use of the mark by the assignee in connection with a different goodwill and different product would result in a fraud on the purchasing public who reasonably assume that the mark signifies the same thing, whether used by one person or another. "The consumers might buy a product thinking it to be of one quality or having certain characteristics and could find only too late to be another. To say that this would be remedied by the public soon losing faith in the product fails to give the consumer the protection it initially deserves." Pepsico, Inc. v. Grapette Co., 416 F.2d 285, 289 (8th Cir. 1969). See also, 1 J. McCarthy, Trademark and Unfair Competition, § 18.1, p. 794 (2d ed. 1984)
Thus, issues of whether the assignment involves a new use of the trademark, transfers the goodwill, and whether consumers would be confused are key issues in every analysis. Other facts such abandonment of the trademark, and non-use of the trademark will also potentially factor in. Also, was the assignor purchasing a trademark (presumably for a lost cost) from a company going bankrupt or otherwise closing its doors (what is the "goodwill" value of a trademark that essentially failed in the marketplace). Also, some courts will look to whether there is continuity in management flowing with the assignment.
For example, in Marshak v. Green, 505 F. Supp. 1054 (S.D.N.Y. 1981), defendant unsuccessfully claimed that the assignment of the service mark, "The Drifters," to plaintiff was an invalid assignment in gross. The plaintiff had been the manager of the group prior to the assignment and continued in that capacity after the assignment. The Court found that the plaintiff had promised to protect the mark from infringement and had continued to provide the same singing style. "The essence of what [plaintiff] acquired was the right to inform the public that [he] is in possession of the special experience and skill symbolized by the name of the original concern, and of the sole authority to market its services."
- If the owner expressly abandons his mark, such as by cancelling it, or discontinues using it with the intent not to resume use, others are no longer restrained from using it since it ceases to be associated in the public's mind with the owner's goods or services. Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd., 627 F.2d 628, 630 (2d Cir. 1980). In the example above, if the assignor makes it publicly known that it is closing his doors, would this constitute grounds to use the trademark?
- The mark also ceases to be enforceable against others when it loses its significance as an indication of the origin of goods sold by and associated with the mark owner, such as when the owner makes the mark the subject of an unrestricted license or sale to others, Haymaker Sports, Inc. v. Turian, 581 F.2d 257, 261, 198 U.S.P.Q. (BNA) 610 (C.C.P.A. 1978); Universal City Studios, Inc. v. Nintendo Co., Ltd., 578 F. Supp. 911, 929 (S.D.N.Y. 1983), aff'd on other grounds, 746 F.2d 112, (2d Cir. 1984), or the mark has become generic, Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 9 (2d Cir. 1976), or the owner assigns the mark without the goodwill associated with it, 15 U.S.C. § 1060; Marshak v. Green, supra; Universal City Studios, Inc. v. Nintendo Co. Ltd., supra, 578 F. Supp. at 922-23.
- Under such circumstances the mark is held to have been abandoned for the reason that there "are no rights in a trademark apart from the business with which the mark has been associated" and the "use of the mark by the assignee in connection with a different goodwill and different product would result in a fraud on the purchasing public who reasonably assume that the mark signifies the same thing, whether used by one person or another," Marshak v. Green, 746 F.2d at 929 (2d Cir. 1984); accord Universal City Studios v. Nintendo Co., supra, 578 F. Supp. at 922-23 (holding invalid the separate transfer of the King Kong mark by its owner when all of the business associated with the mark had been developed by a third party movie studio).
- Thus, a trademark may be validly transferred without the simultaneous transfer of any tangible assets, as long as the recipient continues to produce goods of the same quality and nature previously associated with the mark
See Defiance Button Mach. Co. v. C & C Metal Prods. Corp. (2d Cir. 1985) 759 F.2d 1053, 1059.) for the above four bullet points.
- Also, another case held that an assignment is ineffective to transfer the assignor's priority if the assignee uses the mark on substantially different goods or services. PepsiCo, Inc. v. Grapette Co., 416 F.2d 285 (8th Cir. 1969) (acquisition of mark on cola drink did not confer priority when assignee used mark on pepper drink); see also Sugar Busters LLC v. Brennan, 177 F.3d 258 (5th Cir. 1999) (retail store specializing in products for diabetics compared to title of health and weight loss book recommending reduced consumption of insulin-producing foods); Clark & Freeman Corp. v. Heartland Co., 811 F. Supp. 137 (S.D.N.Y. 1993) (women's boots and men's shoes). Use of the mark by the assignee "in connection with a different goodwill and different product would result in a fraud on the purchasing public who reasonably assume that the mark signifies the same thing, whether used by one person or another." Marshak v. Green, 746 F.2d 927, 929 (2d Cir. 1984). See Boathouse Group, Inc. v. TigerLogic Corp. (D.Mass. 2011) 777 F.Supp.2d 243, 251.)
- “whether the products are designed to appeal to distinct or similar customer groups.” Glow Indus., 273 F. Supp. 2d at 1113; see also BBC Grp., 2019 U.S. Dist. LEXIS 161317, at *8 (“‘Substantially similar' products . . . must also appeal to similar customer groups.”). The mere fact that two uses are in the same "class" for trademark purposes is not sufficient to demonstrate that they are substantially similar. See PepsiCo, supra, 416 F.2d at 289 (holding that a soft drink using a "pepper" syrup was not substantially similar to a soft drink using a "cola syrup" and citing W.T. Wagner's Sons Co. v. Orange Snap Co., 18 F.2d 554, 555 (5th Cir.1927) (fruit beverages are not substantially the same as ginger ale)). Indeed, even generally similar products have been found not to be substantially similar where they have key differences. Whether differences are important turns in this context on whether the products are designed to appeal to distinct or similar customer groups.
Attorney Steve® Tip: This is a tricky area of trademark law that may need to be analyzed in mobile application disputes where one of the companies to the dispute buys a trademark apparently for the sole purpose of trying to get priority and get the others application kicked off Apple or Google via a trademark infringement assertion.
Other factors that can work against a trademark purchaser who can lose priority rights if the assignment is found to be "in gross" is whether: (1) the quality control standards of the assignor was carried over, (2) was there a continuity in management, and (3) is the trademark assignor deceiving the consumer by not continuing use of the mark as consumers have come to expect and other factors and (4) is it the same target audience as the assignor. The trademark purchase and assignment agreement will likely need to be reviewed for other factors.
It would seem this can also be argued as an unfair form of competition. Issues such as whether or not to file a TTAB trademark cancellation proceeding may also arise.
FEDERAL ASSIGNMENT IN GROSS JURY INSTRUCTIONS
FOR AN EXAMPLE OF WHAT MIGHT GO DOWN IN FEDERAL COURT REVIEW THE INSTRUCTIONS.
In conclusion, you may see websites on the internet that “sell trademarks” (some call this a trademark farm), but before buying a trademark and believing that you now have priority in that mark, think again, and ask yourself “did I get the goodwill of the business” and is a continuity in operations? If not, you may have likely purchased nothing at all.
