Avoiding Illegal Trademark Assignment

Trademark ownership may be one of the most lucrative and recognizable assets for any major company. Even still, a trademark’s life is incredibly fragile as any improper mishandling or illegal trademark assignment can completely invalidate the mark. Another important distinction that must be made between trademarks and other financial assets: trademarks require monitoring and care to maintain their value and legitimacy.

Common Reasons For Assigning Trademarks

There are several reasons why a party may choose to assign its trademarks to another party:

• Business acquisition or merger: A company may transfer its trademarks to another company as part of a business acquisition or merger. This allows the acquiring company to use the trademarks in connection with its existing business.
• License or franchising: A company may assign its trademarks to another party for a specified period of time in exchange for a fee. This is typically done as part of a licensing or franchising arrangement.
• Strategic partnerships: A company may assign its trademarks to a strategic partner to allow the partner to use the trademarks in connection with its own products or services.
• Divestiture or spinoff: A company may assign its trademarks as part of a divestiture or spinoff of a particular business unit.
• Estate planning: An individual may assign their trademarks to another party as part of their estate planning.

Regardless of the reason for the assignment, it’s important for the parties to carefully consider the terms of the assignment, including the duration of the assignment, the rights and obligations of each party, and the limitations on the use of the trademarks.

What Is The Assignment-in-Gross Doctrine?

This lesser-known legal principle instructs that all transfers of trademark ownership must include other related business assets and must be done in genuine goodwill. These business assets may include company shares, trade secrets, management or other financial assets. In turn, it is prohibited to execute a bare transfer during trademark assignment as a mark alone possess no discrete worth.  Any trademark transfer completed without adhering to this guideline will be considered an illegal trademark transfer under the Lanham Trademark Act, 15 U.S.C. §1060.

Understanding whether a trademark assignment was done under genuine goodwill is a more difficult matter to measure. One way that courts will most commonly assess this condition is through a substantial similarity test. This judicial test examines both the quality and description of the goods and services before and after the transfer. Uniformity in the description of goods and services prevents a trademark assignment from intentionally misleading or confusing consumers. The guidelines for consistent quality of goods and services, however, can be quite exacting at times. In fact, some courts have observed that even nuanced differences in quality can cause a mark to fail the substantial similarity test.  In the landmark 1920 Supreme Court case of Coca-Cola Co. v. Koke Co. of America, for instance, an assignee using a pepper-flavored beverage instead of the previous classic cola-flavored beverage of a mark was deemed to be misleading to consumers. Alternatively,  Bambu Sales, Inc. v. Sultana Crackers reached an opposite ruling when an assignee adopt thinner cigarette paper than used by the previous mark owner.

In conclusion, an assignment in gross under the Lanham Act refers to a transfer of a trademark without the associated goodwill and business and is generally considered to be unusual and potentially be deemed an illegal trademark assignment.