In a precedential decision issued last week, the Trademark Trial and Appeal Board (TTAB) cancelled a registration because it was based on an intent-to-use (ITU) application that had been the subject of an intra-corporate assignment prior to the filing of the allegation of use. Because the assignee was not the successor to the assignor’s entire “ongoing and existing business,” the assignment violated Section 10 of the Lanham Act, rendering the resulting registration invalid. This decision is likely to have significant impact not only on future transactions but also on existing trademark portfolios.
In Central Garden & Pet Company v. Doskocil Manufacturing Company, Inc., (TTAB, 8/16/13), Central Garden relied on its prior registration for ZILLA for pet-related goods (Reg. No. 3,386,521, the “‘521 Registration”) in support of an opposition and cancellation action. The ‘521 Registration was based on an ITU application initially filed by All-Glass Aquarium Co., a wholly owned subsidiary of Pennington Seed, Inc., which was in turn a wholly owned subsidiary of Central Garden. While the application was pending, and before any allegation of use was filed, All-Glass assigned the application to Central Garden, the ultimate parent.
The assignment deed, duly recorded at the USPTO, contained the usual recitation that the mark was being assigned together with its appurtenant goodwill. But there was no documentation concerning any larger transaction. The assignment appears to have been a matter of intra-corporate housekeeping.
Doskocil counterclaimed for cancellation of the ‘521 Registration on the ground that the assignment ran afoul of Section 10(a)(1) of the Lanham Act. The second sentence of that provision prohibits assignment of an ITU application, prior to the filing of the allegation of use, unless the assignee is “a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing.” The TTAB agreed with Doskocil and ordered the registration cancelled. It held that the assignee Central Garden “was not the successor to All-Glass or any part of it; All-Glass continued in the exact same business after the transfer as it had conducted previously.” The fact that the two parties were related companies, and that the assignment caused no confusion or discontinuity in the use of the ZILLA mark, was irrelevant in view of the “plain and clear meaning of the statute,” which provides an exception only to the “successor of the business.”
Nor was it relevant that Central Garden arguably succeeded to the “business” done (or intended to be done) under the ZILLA mark. If it were, said the Board, then any assignment that recited the transfer of appurtenant goodwill (which all proper assignments must do) would meet the standard of Section 10, thereby rendering it superfluous.
This clause was added to Section 10 when Congress first authorized filing applications on the basis of ITU, and was designed to prevent trafficking in such applications. Central Garden argued that applying the clause here would go beyond Congress’ intention, because this clearly was not a case of trademark trafficking. The TTAB rejected that argument, holding that “we cannot ignore the express language of the statute merely because it is arguably broader than necessary to address the specific concern that prompted consideration of the legislation.”
Nor was the TTAB swayed by the fact that, because All-Glass ultimately was wholly owned by Central Garden, Central Garden had essentially owned the application all along. “Central chose to structure its business using multiple and separate corporate subsidiaries,” said the Board. “Such a business structure may offer some advantages, but it also comes with some strictures, and the existence of a corporation cannot be turned on or off at will to suit the occasion.”
This decision serves as a stark reminder that ITU applications must be treated with care in corporate transactions. Corporate restructurings are often designed and implemented without consideration of the special status of ITU applications, thereby putting the registrations resulting from those applications at risk. Some attorneys may simply assume that any assignee of an ITU application is automatically the “successor to the business” of the assignor. This case demonstrates the danger of such an assumption, and the need for advance counseling on documenting an adequate transfer of any ongoing business pertaining to the mark that may exist at the time of the transfer.
It is common for lenders to take security interests in all intellectual property assets of a borrower, and it is common to list ITU applications, for which no allegation of use has been filed, among the pledged assets. While the Central Garden decision does not address the question of security interests, it raises a question about the validity of such pledges and/or the validity of any registration resulting from such a pledged application.
The decision also highlights an important line of inquiry for a party defending an opposition, cancellation, or infringement case. It is important to examine the history of any asserted registration to learn whether an assignment at the ITU stage may have fatally infected the resulting registration, thereby providing a basis to cancel the asserted registration.
Portfolios may well contain active registrations that resulted from applications that were the subject of such assignments. As a result of this decision, trademark owners would be wise to examine their portfolios proactively, to make sure that no important registrations may be vulnerable to cancellation on this ground.
A copy of the decision may be found here: http://ttabvue.uspto.gov/ttabvue/ttabvue-91188816-OPP-99.pdf