Before we dive in to the following discussion regarding trademark assignments, it is important to understand the differences between a trademark assignment, a trademark license, and a trademark consent to use agreement. A trademark assignment is an outright sale of all rights in the trademark. A trademark license is a limited permit for a third party (i.e., a party other than the owner) to use the trademark. A trademark consent to use agreement is a promise between parties not to sue (or otherwise complain) the other for use of an identical or similar trademark. Trademarks are regarded as an unusual type of property (often very valuable property) that may be bought, sold and/or licensed. However, because trademarks inherently have unique rights as intellectual property, great care should be taken when attempting to transfer or assign such rights.
It is inevitable that at some point during the life of a trademark, the trademark owner may need to transfer ownership from one business to another business, change the name of the owner identified on the application or registration filed with the United States Patent & Trademark Office (USPTO), or transfer the rights in the trademark to a third party for some other reason. Great care should be taken when attempting to transfer (or assigning) trademark benefits and rights because, if handled improperly, those valuable trademark benefits and rights could be inadvertently terminated. It is important to note that Section 10 of the Trademark Act requires that assignments of federally registered trademarks (or applications) must be in writing and signed by all parties.
A Trademark Is a Symbol of Goodwill
Trademark ownership may be one of the most lucrative and recognizable assets of a company. A trademark is a tangible representation or symbol of goodwill. Edward S. Rodgers, who was the primary author of the Lanham Act (or Trademark Act), defined good will as an expectation of continued business which was symbolized by the trademark. “Good will is that which makes tomorrow’s business more than an accident. It is the reasonable expectation of future patronage based on past satisfactory dealings.” The California Supreme Court stated that “good will was the probability that business in the future will carry on as it has in the past.” Judge Learned Hand said that the definition of good will should be expanded to include not only the likelihood that customers will return to the old place of business, “but also that they will continue to do business with the old name.” While in the past a business might remain in the same physical location for years, today, the location may exist in cyberspace, but the trademark as the symbol that identifies the business remains the same regardless of location of the seller.
The Economist Magazine reported that goodwill is an asset that represents the business value of a company’s brand and reputation. It commented that when one business purchases another business, the premium paid over the seller’s book value is the value of its trademarks (and other intellectual property) as a symbol associated with the goodwill of the business. Therefore, because a trademark is the symbol of the goodwill of a business, a trademark cannot be separated from that goodwill or else it will lose all of its value. In other words, a trademark cannot be assigned apart from the goodwill that it represents.
Trademark Assignment In Gross
A sale of a trademark apart from its goodwill is called an “assignment in gross” and is invalid. As stated above, the basic rule of trademark assignments is that a trademark cannot be assigned to a third party separate from the goodwill the trademark represents. The US Court of Appeals for the Ninth Circuit (located in San Francisco, California) stated the following rule in Mister Donut of America, Inc. v. Mr. Donut (1969): “The law is well settled that there are no rights in a trademark alone and that no rights can be transferred apart from the business with which the mark has been associated.” Similarly, the US Court of Appeals for the Second Circuit (located in New York City) restated the rule in Marshak v. Green (1984): “A trade name or mark is merely a symbol of goodwill; it has no independent significance apart from the goodwill it symbolizes…[A] trademark cannot be sold or assigned apart from the goodwill it symbolizes…There are no rights in a trademark apart from the business with which the mark has been associated; they are inseparable…”
For example, let’s say a third party wants to sell surf apparel under the trademark “Slowtide” and files a trademark application for the same with the USPTO. The USPTO examining attorney reviews the third party’s application and issues an office action refusing trademark registration on the basis of likelihood of confusion with the registered trademark “Slowtide” for beach towels. The USPTO examining attorney argues in her trademark refusal that since beach towels and surf apparel are related products, if both trademarks existed in the marketplace there would be a high probability of consumer confusion between the two brands. In response, the third party’s leadership devises a plan to offer the trademark owner for “Slowtide” a certain amount of money to sell, assign, and transfer its trademark as an alternative strategy to registering the “Slowtide” trademark for clothing. The third party has no intent to use the “Slowtide” trademark with beach towels after the sale, assignment, and transfer. In this over-simplified example, the third party would be receiving the trademark assignment separate from the valuable goodwill associated with beach towels. As such, since the trademark was sold apart from the goodwill associated with beach towels, all rights in the trademark would terminate if used with surf apparel. This would be considered an trademark assignment in gross and thus invalid.
The law’s requirement that goodwill must follow the goods and/or services represented by the trademark is a way of insuring that the seller’s assignment of the trademark to the buyer will not be deceptive, and will not breach the continuity of the rights associated with the assigned trademark. The anti-assignment in gross rule precludes a purchaser from benefiting from the goodwill of the seller if the purchaser applies the mark to different goods. Courts strictly require goods to be very similar in order to uphold an assignment. As such, even if an assignment expressly assigns the goodwill associated with the trademark, the assignment may be ineffective if the assignee’s products are not nearly the same as the assignor’s goods.
Trademark Assignments Before Use In Commerce
A fundamental principle of trademark law is that trademark rights arise solely from use of the trademark in commerce associated with the specific goods and/or services to represent the goodwill of established business. Therefore, applying this rule, it is not possible to assign a trademark prior to selling goods and/or rendering services identified by the trademark, for there is technically no trademark to assign. There have been many instances where our trademark attorneys are contacted by a potential client desiring to trademark a certain name, symbol or phrase for the sole purpose of preventing others from using the trademark or to sell the trademark to a third party once it is registered. As discussed above, a valid trademark must be associated with certain goods and/or services and trademark rights/goodwill are only established through use in commerce. An idea for a trademark is not a trademark. Thus, it is impossible to register a federal trademark without it being associated to specific goods and/or services and without use of, or an intention to use, the trademark in commerce.
EXCEPTION – Under the Lanham Act, which governs trademark law in the United States, an intent-to-use (ITU) application under Section 1(b) can be assigned, but only under specific circumstances. The Lanham Act’s exception is found in Section 10(a)(1), which allows for the assignment of an ITU application if it is done in conjunction with the sale of the portion of a business to which the trademark pertains. The assignment must be accompanied by the goodwill of the business connected with the mark. This ensures that the trademark’s function as a source identifier is preserved and that there’s no disruption in the consumer perception of the mark.
Trademark Assignment and Recordation
As discussed above, under the Trademark Act the assignment of a federal trademark registration issued by the USPTO must be in writing and signed by all parties. The US Court of Appeals for the Second Circuit stated that “A clear writing effecting an assignment signals to the parties and the world that the assignee is the party that owns the trademark and is authorized to exclude all others from use.” Although recordation of the assignment with the USPTO is not mandatory, it is strongly suggested.
For example, the law states that a trademark assignment is void as against a later bona fide purchaser unless it is recorded with the USPTO (the ETAS system – Electronic Trademark Assignment System) within three (3) months of the assignment or prior to any subsequent assignment to a bona fide purchaser. Another reason that we strongly suggest all trademark assignments are recorded with the USPTO is due to future trademark maintenance requirements (e.g. Section 8 Affidavit). A Section 8 Declaration must be filed between the 5th and 6th years and 9th and 10th years after the trademark registration date. The Section 8 Declaration is mandatory if the trademark owner wants to keep its registration alive and valid. The Section 8 Declaration requires the then current owner of the trademark to attest to the use, and continued use (or excusable non-use), of the trademark in commerce in connection with all of the products and/or services listed in the trademark registration. If the trademark assignment is not recorded, the new owner will not be properly reflected in the trademark registration.
Once a trademark assignment is properly recorded, the new trademark owner (or assignee) stands in the shoes of the previous trademark owner (or assignor) and succeeds to all of the previous trademark owner’s rights and priorities. If the trademark assignment is properly recorded and valid, the new trademark owner carries on use of the trademark in commerce as it was used in the past (and on the same goods and/or services identified in the trademark registration), a continuity of the trademark and its goodwill is preserved. Note, the change in trademark ownership should be of no consequence to the purchasing public because the brand and its built-in reputation (goodwill) largely remains the same.
New Owner of Trademark (Assignee) Does Not Use In Commerce
It is not uncommon for a buyer of a business to discontinue use of the seller’s registered trademark, even when the trademarks were properly assigned and recorded. There could be a number of reasons why the new business owners decided not to use the previous businesses trademarks. For example, it is possible that the new owner simply purchased the business to sever competition, or it purchased the business to diversify the assets into other divisions, or it simply decided to re-brand under a different name and symbol. Whatever the reason, if the buyer (or assignor) of a business and its associated trademarks does not continue to use the trademarks in connection with the goods and/or services listed on the federal trademark registration, the trademarks and goodwill may become abandoned. In that situation, anyone and any business can then appropriate the trademark and seek to cancel the assigned trademark registration. Click here for more information on trademark cancellations.
Trademark Assignment To Acquire Priority Against Competitors
Priority in trademark rights is a fiercely contested issue in various proceedings before the USPTO. In the US, the rule of priority is that ownership and priority of a trademark go to the party who was first to use the trademark in commerce. The only exception to this rule is that priority can also be established by filing an application for federal trademark registration with the USPTO, which, upon registration, confers a constructive use date of first use (but only if the application turns into registration by a showing of actual use).
As noted above, a trademark assignment is an outright sale of all rights in the trademark. Thefactthata buyer purchases a business, including all of the goodwill associated with the seller’s trademarks, based on the sole motivation to acquire priority rights in the trademarks against a competitor is not an illegal or invalid transaction or trademark assignment. The acquisition of priority over a competitor by buying a business with senior trademarks, even in the midst of litigation, is not improper and does not constitute unclean hands.
Are you launching a new company or developing a new brand or product and need to clear and/or register a trademark? Are you an online seller enrolling in a brand registry program? Are you looking for help with another federal trademark matter? We can assist! Please do not hesitate to give us a call or fill out our contact form. There is absolutely no charge to schedule an initial consultation with one of our trademark attorneys.
NexTrend Legal, LLC, a trademark law firm with offices in Charleston, South Carolina and Jacksonville, Florida. Our trademark attorneys provide federal trademark services to businesses of all sizes, new start-ups, franchisors, inventors, product developers, online sellers and entrepreneurs throughout the US and internationally. Our federal trademark services include, but are not limited to, trademark search, trademark registration, trademark monitoring, trademark office actions, trademark oppositions, trademark renewals and more.
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