Intellectual Property Law

Psst, Want To Buy A Trademark?, Continued

By Marty Schwimmer

I posted about the Racebrook auction of 'retired trademarks' previously.  The auction has now taken place and the NY Times reports on the auction winners.  SHEARSON went for $45,000, MEISTER BRAU went for $32,500, VICTROLA was a steal at $1000.  The gross total of winning bids was $132,000, for about two dozen of the 170 or so names offerred.

The residual value (and true owner) of 'retired' brands is the usual point of interest for such a story, however this caught my eye:

Mr. Reich does not own the names that were auctioned. Rather, he filed trademark applications for them with the federal Patent and Trademark Office on what is known as an intent-to-use basis ? that is, declaring an intention to use the trademarks to sell goods and services in interstate commerce. The auction was selling his rights in those applications.

?You?re paying for a license for an interim period till the trademark issues? from the trademark office, said Gabe Fried, founding principal at Streambank in Needham, Mass., which handled the sale of intellectual property for brands like Circuit City, Duck Head apparel and KB Toys.

Ok, bear in mind that I have no background information as to the brands in questions or the relationship between the seller and auction winners.  This is all speculation, unfettered by facts.

Section 10 of the Lanham Act, states that an applicant may not assign a 'pre-use' Intent to Use application (in other words, the applications that Racebrook or its agents own):

"Except for an assignment to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing."

To give a non-controversial (hypothetical)  example of what's allowed: the Times reports today that Fortune Brands may sell the JIM BEAM business.  I assume that Fortune Brands may have pre-use ITU applications on record in its pipeline.  The company that buys that business could lawfully have assigned to it those pending ITUs because its buying the underlying JIM BEAM business.

To give an example of what's prohibited: somebody thinks up names all day, files trademark applications, and auctions them off.  Congress specifically prohibited this when requiring a 'bona fide intent to use.' (rueful aside: the domain name market seems to be exactly what Congress didn't want to exist for trademarks).

Mr Fried, in the article, refers to an 'interim license.'  This suggests to me that the ITU applicant will likely retain ownership of the application, have the 'purchaser'  begin use, then satisfy the user requirement with the licensee's use.

This portion alone is not unusual.  A movie company, for example, wishes to license a mark, say HARRY POTTER, in businesses in which it has never done business and will never do business in, let's say vitamins or shampoo.  It is uncontroversial that it had a bona fide intent to use (through licensees, possibly unknown to it on the day it files), and can satisfy its trademark registration user requirements with the use of its licensees.  Assuming quality control by the trademark owner, so far, so good.

The twist here is that there is (probably) an agreement to assign the registration to the auction winner at a later date.

The most respected commentator in trademark law, Prof. McCarthy, has stated in the abstract that such an agreement to assign in the future doesn't violate the letter of Section 10, simply because the  assignment only takes place once the prohibition no longer applies.  (McCarthy, Section 18:13, page 18-31, 2010 ed.)
Prof. McCarthy also states that such an agreement doesn't violate the spirit of the law.  I'm not sure he envisioned, however, a situation where an entity in no particular business, filed a portfolio of applications in disparate fields, and promotes the 'sale' of a 'trademark' through auction.

Auctions of ITU application would be, I think prohibited by trademark law but there may be (untested) loopholes.

Full post as published by Trademark Blog on December 09, 2010 (boomark / email).