Act Two

In Act One of Third Education Group, Inc. v. Phelps, we had Richard Phelps versus Bruce Thompson, an informal partnership that turned sour. In the first decision, the court held that the registration for the mark they were both using, Third Education Group, was void because it was filed in the name of Richard Phelps but was actually owned by the unincorporated association.

After the court's easy escape on the first trademark ownership theory, we now have Act Two. Here, the successor to the unincorporated association, Third Education Group, Inc. (“TEG”), alleges that Phelps' continued use of “Third Education Group” is an infringement of the corporation's unregistered trademark. Not so fast says Phelps; while the unincorporated association may have owned the mark, it was never assigned to TEG and instead remained with the unincorporated association. Since he was one of two members of the unincorporated association, his continued use was not an infringement.

The court therefore had to determine under Wisconsin law what happened to the trademark when the unincorporated association later incorporated. After a stroll through several cases in various states, the court held that

in Wisconsin, determining what happened to a joint venture or voluntary association upon incorporation will depend upon the unique circumstances of each case and whether the parties "clearly expressed" the intention for the association to survive incorporation. In the present case, TEG, the association, incorporated as a result of the unanimous consent of its members. The evidence demonstrates that Phelps and Thompson intended TEG, Inc. to succeed the unincorporated association; there is absolutely no evidence to permit the court to conclude that Phelps and Thompson intended the unincorporated association to coexist alongside the corporation and to retain control of the trademark or any other property. The evidence demonstrates that in every way, the parties intended TEG, Inc. to be the successor to the unincorporated association. There no longer was an unincorporated association once TEG, Inc. was created. Therefore, the property of the association passed to the corporation . . . .

The dominos fall after that: the mark was suggestive, not descriptive, and Phelps' use was likely to be confused with TEG's use.

But the court at least understood Phelps obstinacy and didn't punish him for it:

[T]he court finds that the actions of Phelps were not taken in bad faith. To the contrary, Phelps had much more than a mere good faith belief that he was entitled to use the mark. This was not a case of an individual, for example, mistakenly believing he had a license. Rather, in the present case, the objective evidence was on Phelps' side. He was the one who undisputedly came up with the mark. He was the one who paid to register the mark. He was the one in whose name the mark was registered. And he was the one primarily responsible for establishing the use of the mark. He did this, not as one person in a large organization, but rather as an individual who had joined with another collaborator and in doing so, likely without an understanding of the legal ramifications, formed an unincorporated association. As the person who invested so much in creating the mark, it is not surprising that Phelps felt passionately about the mark and the organization he was primarily responsible for creating, as is reflected in some of his correspondence with Thompson. But the fact that he spoke passionately in defense of what he believed to be his mark does not make this case exceptional.

Technology & Marketing Law blog post here.

Third Education Group, Inc. v. Phelps, Nos. 07-C-1094, 07-C-1095, 2009 WL 4544127 (E.D. Wis. Nov. 25, 2009).


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Does the Parent Own the Mark?

The TTABlog reports on a decision invoking In re Wella to try to escape a likelihood of confusion refusal. In re Wella is a 1986 Federal Circuit decision which held that corporate family members (in that case, parent and subsidiary) may own substantially similar marks without a likelihood of confusion so long as there is

a unity of control over the use of the trademarks. ‘Control’ and ‘source’ are inextricably linked. If, notwithstanding the legal relationship between entities, each entity exclusively controls the nature and quality of the goods to which it applies one or more of the various ‘WELLA’ trademarks, the two entities are in fact separate sources.

In In re Federal Express Corporation, one of Federal Express Corp.'s marks was refused registration under §2(d) because of a likelihood of confusion with a mark owned by a sister company, FedEx Custom Critical, Inc. It is a "substantial burden" to show a unity of control when it is a sibling relationship, rather than a parent-subsidiary relationship, TMEP §1201.07(b)(iii), and one that Federal Express Corp. wasn't able to meet. Likelihood of confusion is then a foregone conclusion.

There was one glaring part of the Federal Express Corp. argument that I would have avoided, though. The TTAB quotes Federal Express Corp. as arguing:

... because Fedex Corporation directly owns Applicant (Federal Express Corporation), FedEx Custom Critical, Inc. and Fedex Office and Print Services, Inc., control over the mark at issue in this case and the cited marks resides in a single source. There is no likelihood of confusion as to source between services offered by Federal Express Corporation, FedEx Custom Critical, Inc. and Fedex Office and Print Services, Inc. because they all are wholly owned and controlled by Fedex Corporation. Purchasers will know that services emanating from subsidiaries of Fedex Corporation emanate from a single source. Because Applicant (Federal Express Corporation), FedEx Custom Critical, Inc., and Fedex Office and Print Services, Inc. are wholly owned and controlled by the same parent company, Fedex Corporation, all use of marks owned by these subsidiaries inures to the ultimate benefit of Fedex Corporation.

But In re Wella has some “additional comments” offered by Judge Nies that one should be mindful of when arguing for unity of control:

There is, however, a different question, not addressed in the initial prosecution of the application, with respect to ownership of U.S. rights in the WELLA marks. Is Wella A.G. the owner of such rights or is its subsidiary, Wella U.S., the owner? Under section 1 of the Lanham Act, only the owner of a mark is entitled to apply for registration.

Federal Express Corp. says directly “all use of marks owned by these subsidiaries inures to the ultimate benefit of Fedex Corporation.” This sounds to me like a statement that parent FedEx Corporation, not Federal Express Corporation, controls, and thus owns, the applied-for marks.

In re Federal Express Corporation, Serial Nos. 78726298, 78726303, 78726306, and 78726310, (TTAB December 7, 2009).


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Bratz Stayed!!

I consider myself the unofficial recordkeeper for the Bratz litigation (so it was fate that the Secret Santa I pulled was for a Moxie Girlz), but I must have been sleeping on the job because everyone has jumped on this one before me.

So playing catch-up to what's already been reported by the IPKat, Techdirt, Likelihood of Confusion, the WSJ Law Blog, the WSJ proper and BBC News, on December 9th the Court of Appeals for the Ninth Circuit heard oral arguments on the Bratz appeal and issued an order staying the district court's order and ordering the parties to mediation. Here's the gist of it:

Press coverage of the hearing is here. Based on the report, it doesn't look very good for Mattel.

Full order available here.
MGA Entertainment surprisingly sedate press release here.


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The Missing Schedule

The Patent Prospector summarizes a decision from the Federal Circuit where the ownership of patents hinged on whether they were "related to" pending litigation at the time of an earlier intra-company assignment agreement. If the patents were related, they weren't assigned and U.S. Surgical Corporation, not plaintiff Tyco Healthcare, remained the owner of the patents. Tyco Healthcare's major problem was that the transactional documents were silent on what that litigation was:

On its face, the Contribution Agreement purports to answer the question of whether any USSC litigation was pending at the time. Section 4.21 describes pending litigation: Except as set forth on Schedule 4.21 hereto, there are no actions pending or threatened by or against, or involving USSC (with respect to the Business only) or any directors, officers, or employees thereof in their capacity as such or which question or challenge the validity of this Agreement, or any action taken or to be taken by USSC pursuant to this Agreement in connection with the transactions contemplated hereby or thereby, and to the knowledge of USSC, there is no valid basis for any such Action. Thus, Schedule 4.21 was to list any USSC litigations then pending or threatened, but Schedule 4.21 is missing. Or it simply never existed, as Tyco Healthcare contends on appeal.

Since there had been several suits pending at the time, the court assumed all the patents were excluded from the assignment. Therefore, Tyco Healthcare was not the owner and did not have standing.

Judge Newman's dissent compellingly points out several flaws in the majority's reasoning even absent the schedule, concluding with this: "The court's contrary reading produces the absurd result whereby no USSC patent, indeed none of the assets transferred by the Contribution Agreement, can be deemed to have been transferred, merely because Schedule 4.21, listing public information, was missing. That is not a tolerable reading of the contract, for it renders the contract ineffective for its purpose and defeats the plain intent of the contracting parties." But at least the suit was dismissed without prejudice, giving Tyco Healthcare another chance.

Tyco Healthcare v. Ethicon Endo-Surgery, Nos. 2008-1269, 2008-1270, 2009 WL 4546935 (Fed. Cir. Dec. 7, 2009)

This work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

Everyone Owns the Mark, So No One May Use It

Demonstrating rare insight into the fundamental principles of trademark law, the court in LunaTrex, LLC v. Cafasso granted both parties' motions for preliminary injunction on the same issue, enjoining everyone from calling themselves “LunaTrex.” That's not an inconsequential holding, since it means none of the parties may participate in the $30 million Google Lunar X Prize competition until they sort it out.

At least five individuals, working for at least four different companies, formed a team to enter the contest to put a rover on the moon. The main contestants in the suit are plaintiff Pete Bitar, who was the primary money man, and Defendant Mary Cafasso, who brought her expertise in aerospace work to the project.

The five met and picked a name, LunaTrex. They registered for the competition and later, as required by the rules of the contest, adopted a logo:

There would be no story if there wasn't a falling out. The court details promises of salaries never paid, accusations of incompetence at jobs, companies registered by one without telling the other, and dueling trademarks applications filed. Cafasso went for the jugular: she sent a letter to a major funder, Stihl Corporation, telling it that she, not Bitar, was in charge, the natural result being that Stihl pulled its funding. She also sent a letter to the X Foundation, the sponsor of the lunar competition, which then told both Bitar and Cafasso that the team was suspended effective immediately. The foundation said the suspension would remain in effect until it received clear evidence of ownership of the LunaTrex name and team registration, and a clear statement of who was authorized to speak for the team.

The same day as the X Foundation letter, Bitar sued. Both parties asked that the other be enjoined from using the LunaTrex name.

The court found that the four principal contributors (and perhaps others) had formed a de facto partnership and the trademark was an asset of that partnership. There was no single contributor to the team who could claim ownership; rather “the entire team contributed to the creation of the mark's value and protected status.” Bitar contributed money, but others contributed talent and effort. The promotional materials focused on the team as a whole, not any one individual, and there was no evidence that the relevant public believed that one individual in particular stood behind the LunaTrex name. The mark therefore belonged to all members of the team and no one was entitled to use the mark to the exclusion of any of the others.

But the partnership had broken up. Normally then, the assets are distributed among partners, but the court had the good sense to understand that:

A trademark, however, is not divisible. If it were shared among the different splintered partners, the resulting confusion would destroy the value that each partner worked so hard to create. Organizers of the Google Lunar X Prize are well aware of this risk and seem committed to preventing this confusion: they say they will disqualify the entire team if this dispute is not resolved, and they will not allow two "LunaTrex" teams to compete. Both plaintiffs and defendants have shown that they have an ownership interest in the mark and a right to veto unauthorized uses of the mark. Neither side has shown that it is likely to succeed in showing that the other side is not equally entitled to use the mark. To prevent confusion to the public, the best solution under the law is to prevent all parties from using the mark without the consent of all other parties who are entitled to share control of its use. In other words, the court will take the unusual step of granting each side's motion for preliminary injunction to prevent the other from using the LunaTrex trademark without the moving side's consent.

Be still my heart, but it gets even better: “Nothing in this decision would necessarily prevent the parties from resolving the dispute by agreement, so long as they can avoid confusion for the relevant public as to the origin of an ongoing LunaTrex effort.” My goodness, allowing a trademark to do what it's supposed to do.

Disclaimer: The court cites my article “Who Owns the Mark? A Single Framework For Resolving Trademark Ownership Disputes,” available here. I suppose it's not a surprise I like the decision so much.

Lunatrex, LLC v. Cafasso, No. 1:09-cv-1272-DFH-DML, 2009 WL 4506321 (S.D. Ind. Dec. 1, 2009).

© 2009 Pamela Chestek

Sohmer v. Sohmer

Ryan Giles at the Las Vegas Trademark Attorney blog tells the tale of two claimants to the piano brand "Sohmer." It's a law school exam, and I think Ryan gets an "A."

Read it here.

© 2009 Pamela Chestek