Another Restaurant Name Dispute

Specimen

One of the most common scenarios where trademark ownership disputes arise is between the owner of the building and the operator of the business in the building.  There was the newsworthy "Tavern on the Green" case, where the City of New York successfully retained ownership of the name for the landmark building in Central Park, and the continuing internecine dispute over "Joyce Theater."  The common thread in these disputes is that there are documents defining the relationship, but they do not elaborate on trademark ownership.  The court has to do some tea leaf reading to figure out what the intent of the parties was with respect to the trademark ownership.

In Nothing Heavy, Inc. v. Levinson, though, the court has a little more than just tea leaves.  The defendant's predecessor had originally opened a diner under the name "Empire Diner" and operated it for about 30 years.  In 1976, plaintiff Nothing Heavy then leased the property and made substantial improvements to the restaurant.  In 2002 it filed a trademark application to register "Empire Diner," but the lessor caught on.  The lessor then negotiated a deal where Nothing Heavy would abandon the application in exchange for the lessor's consent to an outdoor sidewalk cafe license:

(Note that I'm not sure much was obtained on the trademark front; the application was about to be finally refused under § 2(d) for likelihood of confusion with EMPIRE, KOSHER EMPIRE RESTAURANT, EMPIRE KOSHER CHICKEN RESTAURANT and EMPIRE BREWING COMPANY.)

But that wasn't the end of it.  In 2007, Nothing Heavy began negotiating with third parties to expand the use of THE EMPIRE DINER trademark and trade dress.  A potential licensee, Michael Feucht, filed a Madrid application for THE EMPIRE DINER and extended it to the United States.  Nothing Heavy then asserted to the lessor that it owned the trademark, the lessor opposed the Feucht trademark application, and asserted its own ownership claim to the restaurant name.  Ultimately Nothing Heavy lost the lease to the restaurant, vacated the building, and sued for a declaratory judgment that it owns the name of the restaurant.

There's not much meat at the moment for this case.  The decision is on a motion to dismiss by the lessor, claiming that the 2003 amendment precludes the trademark ownership claim altogether.  The court, I think rightly, rejects the theory:

Reading the contract language in the light most favorable to Plaintiff, the agreement unambiguously requires Plaintiff to forgo trademark registration-nothing else. Plaintiff's covenant means that Plaintiff relinquished its right to become a registrant, which confers certain benefits to trademark owners, but is not the only avenue for acquiring trademark rights. See 15 U.S.C. § 1127 ("trademark"). Based solely on the contract language, the covenant cannot be reasonably construed to bear on any common law trademark rights claimed to have been already acquired by Plaintiff. Nor can it be construed as an admission that Plaintiff lacks trademark rights. The 2003 Amendment is thus not dispositive. There are simply insufficient facts at the moment to conclude that Defendants are, as a matter of law, the owners of THE EMPIRE DINER trademark.

The pleadings and decision reference an opinion of counsel obtained by Nothing Heavy that it is the owner of the trademark, but I couldn't find a copy through the docket.  That's an opinion I'd be interested in reading.  Wonder what it did with this: "The traditional view in New York [is] that the goodwill and rights to the name of a public building run with the building." City of New York v. Tavern on the Green, L.P., 09 Civ. 9254 (MGC) (S.D.N.Y. March 10, 2010) (citing cases).

Nothing Heavy Inc. v. Levinson, No. 10-cv-03466 (GBD) (S.D.N.Y. Dec. 6, 2010).


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Why Does a Subsidiary Need a License Agreement?

Bankruptcy. Not sure it would have made a difference in the outcome here, but it might have helped.

Ham's Inc., a wholly-owned subsidiary of Chelda, Inc., operated restaurants under the "Ham's" brand:

Ham's Inc. filed for bankruptcy and RCR Marketing, LLC bought all of Ham's "right, title and interest in the assets, property and rights, tangible and intangible (including without limitation, equipment, inventory, supplies, goodwill, trademarks, licenses, and other intellectual property), of [the Ham's Inc.] bankruptcy estate."  It bought the assets without any warranties of title, merchantability or fitness.

Problem was, Ham's didn't own the trademark, Chelda did.  Meanwhile, the Bank of North Carolina was a secured creditor of Chelda, holding a perfected security interest in, inter alia, the trademark. The Bank of North Carolina and Chelda filed complaints claiming that RCR Marketing had no right to use the mark and asking that RCR Marketing be enjoined.  RCR Marketing retorted that that it bought the marks and other property at auction, so Chelda and the bank no longer had an ownership interest.

(Any bankruptcy practitioners out there?  The U.S. trademark register lists Chelda, Inc. as the record owner of the trademark. How is it that RCR Marketing could think that it owned the mark?  The only clue I could find in the case was a statement that "RCR contends that confusion exists regarding the separation of Ham's Inc. and Chelda as operational businesses, which in turn has created a question of whether the companies operated as one entity, or, if separate, which company had title to the assets in question, including the Trademarks.")

Not surprisingly, the court found that, by virtue of the registration, Chelda had prima facie evidence of its ownership of the mark and had therefore shown a likelihood of success on the merits that it owned the trademark.  But not all was won for Chelda; it wanted RCR Marketing to cease using the marks too, but was unsuccessful. The court was unsympathetic:

Evidence suggests that Chelda has never used the Trademarks in commerce itself, but rather only benefitted from the use by another, namely use by Ham's Inc. under a purported license agreement. Furthermore, Chelda is not currently using the Trademarks itself and has not provided the Court with another entity which would definitively become the immediate user of the Trademarks at this time. As such, although the Court takes into account that Chelda seeks to maintain control over the use of the Trademarks, the Court finds that immediate and continued use of the Trademarks cannot be accomplished by Chelda, itself, at this time. Therefore, prohibiting all use of the Trademarks in commerce by RCR would neither protect the purported ownership interest claimed by Chelda nor protect the goodwill of the Trademarks in the eyes of the consuming public. As such, the Court will not grant the preliminary injunctive relief sought by the Bank to the extent that such relief would entirely prohibit RCR from using the Trademarks in commerce. Instead, the Court will allow RCR to continue use of the Trademarks in commerce . . . .

Chelda was granted the right to exercise quality control over RCR Marketing's use of the mark, "in the manner it claims to have done as purported licensor during Ham's Inc.'s use of the Trademarks."  A percentage of sales was also to be held in escrow.

Would a formal license agreement between Chelda and Ham's Inc. have put Chelda in a better position?  Perhaps. The court is clear that there are underlying questions of trademark ownership and abandonment based on the absence of a formal licensing agreement (e.g., "As of the October 18, 2010 hearing, no evidence of any specific license agreement between Ham's Inc. and Chelda has been produced. As such, the Court does not resolve any questions of ownership nor make any determinations based on abandonment arguments that have been or may be raised by the parties . . . ."), issues that would be much harder for RCR Marketing to raise if there was a formal agreement in place. 

Further, by not having formal quality control program in place, Chelda is somewhat hamstrung in its ability to exercise quality control ("the Court will allow Chelda to monitor use of the Trademarks in the manner it claims to have done as purported licensor during Ham's Inc.'s use of the Trademarks. As such, Chelda shall have the authority to monitor operations of the Ham's restaurants and the trademark use therein for purposes of maintaining the consistency of the goods and services sold in conjunction with use of the Trademarks. Such monitoring authority shall include access to individual Ham's restaurants for purposes of inspecting the quality of goods and services rendered therein. . . . Chelda shall not have the authority to substantially interfere with RCR's general management of the individual Ham's restaurants.")

Finally, the license would have been part of the bankrupt estate, making RCR Marketing's argument that it thought it acquired the mark because "confusion exists regarding the separation of Ham's Inc. and Chelda" much more difficult. I'm not a bankruptcy lawyer, but I believe that the trustee would also then have had to go through the process of formally deciding whether to reject or assume the license under Bankruptcy Code § 365.

It's easy to let the formalities between corporate family members slide.  But you never know when you're not going to be on such friendly terms anymore.

Bank of North Carolina v. RCR Marketing, LLC, No. 1:10cv663 (M.D.N.C. Dec. 3, 2010).


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Unremarkable Manufacturer-Distributor Dispute

Wincam America, Inc., a distributor for CD Lab AG Multimedia Systems, filed applications to register the WINCAM and WINCAM AMERICA trademarks in the U.S.  CD Lab, the foreign owner of the WINCAM mark, was unhappy.  Wincam America set out the possible scenarios: (1) withdraw the applications, (2) CD Lab register the marks and Wincam America change its name, or (3) Wincam America gets to keep the trademarks in the U.S.  CD Lab opted for allowing Wincam America to complete the registration, after which Wincam America unequivocally agreed to assign them to CD Lab.  Wincam America didn't.  CD Lab wins summary judgment on breach of contract but summary judgment for trademark infringement denied; infringement was at trade show where Wincam America was using the mark with the permission of and for the benefit of CD Lab.

Wincam America, Inc. v. CD Lab AG Multimedia Systems, No. 3:09-CV-103-S (W.D. Ky. Nov. 24, 2010).


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"Dad, Who Owns the Mark?"

Arredondo v. Arredondo is a classic family dispute over trademark ownership. Here, two brothers, Carlos and Caesar, were successful real estate developers--so successful that they established the Arredondo Properties Limited Partnership (APLP) to invest in projects and gather and distribute income to the Arredondo family for the next 200 years. APLP had no employees and never played any role in the daily operation of its investments. Ultimately, APLP was jointly owned in 50% share by two trusts, one for the benefit of Carlos' grandchildren and one for Caesar's. Carlos and Caesar were the trustees for their respective trusts. For the most part, Carlos and Caesar operated all their businesses through a company called Arredondo & Co., LLC ("A & Co.").

This dispute in particular is about a self-storage business that Carlos and Caesar started, originally called "Westy's" and then changed to "Westy."  A number of facilities were opened in Connecticut and New York, the first in Port Chester, New York. The various pieces of real estate were owned by APLP or by the brothers personally. The facilities were ostensibly operated by Westy's Connecticut, Inc. and Westy's New York, Inc., although these entities had no employees and instead contracted with A & Co. for the actual operation. The opinion details how Carlos and Caesar were fairly lackadaisical about keeping the roles of the various companies and trusts separate. In 1991, counsel filed trademark applications for WESTY'S and a Westie dog logo in the name of Westy's Connecticut and the marks were registered.

In 1999 Carlos decided to get out of the business and sell to Caesar his interests in A & Co., Westy's Connecticut and Westy's New York.  Carlos agreed to transfer "all rights and claims to any assets," including "trademark rights and vehicles" to Caesar.  A trademark assignment to A & Co. was recorded with the PTO. The description in the case is somewhat confusing, but it appears that APLP then asked A & Co. not to open new facilities for it.  A & Co. agreed, but continued to open new facilities that were not owned by APLP.

In 2002 A & Co. filed new applications for the WESTY, WESTY'S and dog logo marks, since the original registrations had been cancelled under Section 8. One of Carlos' children questioned her father about it, mentioning the concept of "first use."  Carlos spoke with a lawyer, then contacted Caesar to say that APLP was the first user of the marks and therefore owner of them, offering to license-back the marks.*  Caesar disputed the claim, stating that A & Co. was the first user and owner.  Carlos then opposed the new applications and filed the lawsuit.

The court recognized the root of the problem:

Generally, trademark rights are acquired and maintained through priority of use . . . . [But t]his is not the typical situation in which one company, completely separate from a competitor, first uses a specific mark in commerce. Here, a number of different entities and individuals contributed, in some way, to the creation of the Westy facility at Port Chester. Because of the number of different entities that were involved in the conception, funding, purchase, construction, advertising, management, and day-to-day operation and control of the Port Chester facility, no one single entity can conclusively be determined to be the "first user" of the Westy marks.

The court held that the marks are owned by whoever controlled them.  Because it was a small family enterprise where two identifiable individuals made all the decisions, the easy answer might have been "Carlos and Caesar." But the court dug a little deeper and gave the business forms their due:

[T]he relationship between Carlos and Caesar and their various corporate forms and limited liability companies is complex and sometimes inconsistent. Throughout the trial and the history of the Westy self-storage facility development, "Caesar and Carlos," "C & C," and A & Co. were often used by the brothers and other witnesses interchangeably. In a legal sense, of course, these entities are not interchangeable. The lack of clarity or confusion at times over whether the brothers were acting through their corporate forms, particularly A & Co., stems largely from the lack of consistent involvement of legal counsel. Neither Carlos nor Caesar has legal training, and the brothers involved lawyers in their business dealings only on an episodic and infrequent basis, and then only for very specific tasks. Therefore, their lack of complete adherence to the corporate form is understandable. Caesar and Carlos, however, were particularly diligent in creating and utilizing various corporate entities to limit their own personal liability in connection with the Westy facilities. . . . Therefore, the Court finds that when the brothers acted in connection with the management, creation, and development of the Westy facilities and the Westy concept, as well as the management and control of the trademark, they intended to and did act through the protection of their corporate working arm--A & Co. Although the relationship of the brothers to A & Co. is complex, and the history of the trademark licensing opaque, what is crystal clear is that APLP did not exercise control over the trademarks at any time. APLP was a completely passive vehicle whose only actions were to fund and benefit from investments. APLP had only one meeting per year, had no employees, and never made any of the key decisions regarding the trademark or the daily management of the Westy facility. Therefore, APLP did not exercise any control over the trademarks or the quality of the Westy services and is not the owner of the Westy trademarks.

In a footnote the court also dismissed the possibility that Westy's Connecticut owned the marks: "Although the brothers initially registered the trademarks in WCI, WCI is not the owner of the trademarks. The registrations for the trademarks in WCI I or II have lapsed, and WCI I ceased to exist for a number of years while the trademarks were still being used. More importantly, WCI never had any employees and did not control the development of the trademark, the use of the trademark in commerce, or the quality of the goods or services that the trademark represented. These actions were all conducted by A & Co. Thus, WCI is not the owner of the marks in question."

A & Co. owns the marks, case dismissed.  Notice of appeal filed.

Arredondo v. Arredondo, No. 3:02-cv-2200 CFD (D. Conn. Nov. 30, 2010).

*The decision not say specifically, but I assume that Carlos' children saw the Westy business growing and perhaps were not too happy to be excluded.  One solution would be to own the trademarks and earn royalty income for their use.


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The Writing on the Wall

Sometimes you should just know when to quit.  Not that clients always go along with it, or that you have a choice, but some cases are just losers.  The Daniel Group v. Service Performance Group, Inc. is one of those.

The facts are simple - senior common law user (defendant Service Performance Group, Inc.) and junior registrant (The Daniel Group).  The mark: SERVICEPERFORMANCE. Legal arguments trying to negate the fact of the defendant's seniority failed. 

First up, that the plaintiff owns the mark by virtue of its federal registration. That is, of course, just flatly wrong under U.S. law.  The registration claims a first use date of January 20, 2005 and the registrant backpedaled to a 2002 date.  No matter; defendant had affidavits from 51 individuals proving its use from at least 1997 to the present so it was senior user.

Second up, that change of corporate form caused the trademark rights to evaporate.  That was also a no-go.  As is typical of small business, there were a number of changes in entity form.  The mark was first used by a husband and wife team, the Guyles.  They incorporated their business in Illinois.  The couple moved to North Carolina and the Illinois corporation was administratively dissolved in 2005.  The couple then operated "as a d/b/a" (a proprietorship), continuing to use the mark, and incorporated in North Carolina. After getting the cease and desist letter from the plaintiff in late 2009, they assigned any trademark rights that the Illinois company might have had in the trademark to the North Carolina corporation.

Under Illinois law, a corporation has five years to wind up its affairs.  The Guyles got the assignment in under the wire, so it was effective.  Even if they hadn't, also under Illinois law any assets would have passed to the shareholders, the Guyles.  In either case, they owned the trademark and could assign it to the North Carolina corporation.

Third up, abandonment.  The defendant produced affidavits showing continuity of the business and continuous use of the same mark during the entire period from 1995 to 2010.  Dissolution of the Illinois business entity was not the same as cessation of use of the mark.  Citing Callman on Unfair Competition, Trademarks and Monopolies § 20:19, citing a TTAB case, Brewski Beer Co. v Brewski Bros. Inc., 47 U.S.P.Q. (BNA) 1281 (TTAB 1998), there was no abandonment:

The relevant authority holds that defendant's change of corporate status--from a proprietorship, to an Illinois corporation, to a proprietorship, to a North Carolina corporation--does not affect defendant's validly held and continuously used trademark.

Since confusion was conceded, the only issue was priority.  Defendant's motion for summary judgment on federal and state law infringement claims granted.

This looks to me like a case the plaintiff should have been smart enough to get out of before it got this far.  It undoubtedly obtained a registration for its mark without having any knowledge of the defendant's senior use, then had that horrible "uh-oh" moment when, after accusing another of infringement, it realized that the accused is actually the senior user.  Assuming you don't want to change the mark (which might actually be the best move), smart money then is to either just shut up and hope that they don't sue you for infringement until you have a good equitable argument or negotiate a co-existence agreement. Instead now, the defendant has a judicial determination that it is the senior user AND a pending  counterclaim for trademark infringement against the plaintiff.  Perhaps no harm - it appears The Daniel Group has modified its web pages to eliminate use of the mark - so maybe it was all a question of buying time. But I'm curious to know why it got this far.  It sure is an expensive way to buy time.

The Daniel Group v. Service Performance Group, Inc., No. 5:10-CV-82-FL (E.D.N.C. Nov. 10, 2010).


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