In a recent non-precedential decision, the Trademark Trial and Appeal Board (TTAB) ruled that the fast food chain Del Taco, Inc. (Del Taco) no longer enjoys trademark rights in the NAUGLES brand associated with Naugles, Inc. (Naugles), a California-based fast food chain that Del Taco acquired in the late-1980s. In Ziebarth v. Del Taco, Inc., the TTAB held that Del Taco, which closed the last Naugles restaurant in the mid-1990s, had legally abandoned the “NAUGLES” mark, and the Board therefore cancelled Del Taco’s nearly 40-year-old federal trademark registration for NAUGLES for “restaurant services.” This case serves as a reminder to businesses of the “use it or lose it” nature of trademarks, as well as the challenges businesses face in maintaining their rights in trademarks associated with now-defunct brands.

In 1988, Del Taco purchased all of Naugles’ business assets, including a federal registration for the NAUGLES trademark covering “restaurant services.” By late 1995, Del Taco had closed all Naugles establishments or otherwise converted them into Del Taco restaurants. Although Del Taco would eventually use and register the NAUGLES mark in connection with clothing items in 2012, it never re-opened or operated any restaurants named “Naugles” after the last restaurant closed in 1995.

Sensing an opportunity, a California food blogger named Christian Ziebarth decided to resurrect the NAUGLES brand by opening his own restaurants under the Naugles name. In 2010, he filed an application for NAUGLES covering “cafeteria and restaurant services.” After the United States Patent and Trademark Office (USPTO) rejected his application based on the senior Del Taco-owned mark, Ziebarth filed a petition with the TTAB to cancel Del Taco’s registration.

Under the Lanham Act, a trademark is abandoned when the owner discontinues use of the mark with an intent not to resume use. Although the challenger bears the initial burden of proof, it can establish a rebuttable presumption of abandonment — and thereby shift the burden to the trademark owner — by demonstrating that the owner had failed to use the mark for three consecutive years. To overcome this presumption, the owner must prove that the mark was, in fact, used during this three-year period or that the owner had a genuine intent to resume use within the reasonably foreseeable future.

In considering Ziebarth’s cancellation petition, the TTAB concluded that Del Taco had abandoned its use of the NAUGLES mark in connection with “restaurant services” by closing or converting all NAUGLES-branded restaurants and by failing to take any meaningful steps toward resuming use of the NAUGLES mark in connection with such services for nearly two decades. In doing so, the TTAB rejected Del Taco’s claim that it had never stopped using the NAUGLES mark based on its alleged uses of the mark in connection with clothing items and certain limited advertisements. In particular, the Board held that Del Taco’s reliance on clothing bearing the Naugles name was misplaced. While acknowledging that NAUGLES-branded apparel could arguably be considered an advertisement for restaurant services, the TTAB explained that this is not enough to prove use. Rather, the Board pointed to a recent decision by the Federal Circuit in Couture v. Playdom, Inc. (recently discussed by Arent Fox here), where the court affirmed that use of a mark in connection with a service requires that the service actually be rendered. Likewise, the Board refused to afford evidentiary value to an undated archive record of a one-page food menu, as well as “history” pages on Del Taco’s website, which depicted the phrase “Viva Naugles Viva Del Taco.”

Having concluded that Del Taco had not used the NAUGLES mark in connection with restaurant services since the 1995 closure of the last NAUGLES-branded restaurant, the TTAB next rejected Del Taco’s claim that it had maintained an intent to resume such use of the mark. Although Del Taco argued that it had begun planning an advertising campaign in 2009 around a “secret” NAUGLES menu to be offered at Del Taco restaurants, the TTAB responded by highlighting another important rule: Once abandonment occurs, it cannot be undone. Thus, while there was some evidence to support the alleged 2009 advertising campaign, as well as use in 2011 on certain promotional items, this did not account for — or cure — a large swath of time during which the NAUGLES mark had gone unused.

Finally, the TTAB also refused to accept Del Taco’s contention that cancellation of the registration was improper due to the “residual goodwill” associated with the NAUGLES brand. Residual goodwill is a concept in which a mark can continue to identify the source of a good or service long after the owner has ceased producing or offering that good or service, and evidence of an inactive brand’s residual goodwill can be used to rebut a presumption of abandonment. This concept is largely based on a desire to prevent damage to the previous owner’s reputation (e.g., if inferior goods or services are offered by the new, unrelated entity) and to minimize the risk of consumer confusion. However, this is not a particularly strong defense, and where courts have treated residual goodwill favorably, it has usually been in conjunction with other factors, such as a relatively short period of non-use or continued de minimus use by the owner. And some courts have proven generally resistant to residual goodwill evidence. Indeed, in the Del Taco case, the TTAB stated simply that it had never before found residual goodwill to be a successful defense to abandonment of a registration and declined to do so here, reasoning that the “continued existence of enthusiasts of the old Naugles food items does not negate the statutory presumption of abandonment.”

The Del Taco case also raises an interesting question: Assuming Del Taco does not appeal the TTAB’s ruling cancelling its federal registration, could it still prevent Ziebarth from using the NAUGLES brand based on potential common law rights — and residual goodwill — in the NAUGLES mark? While the TTAB summarily dismissed Del Taco’s arguments pertaining to residual goodwill, the courts have been anything but consistent in analyzing a trademark owner’s burden in rebutting a presumption of abandonment.

Del Taco’s situation is not unique. Whenever a business acquires another entity, it faces important decisions regarding how to handle the brands associated with the newly acquired entity. For example, as detailed in a recent legal alert published by Arent Fox (see here), Macy’s, Inc. (Macy’s) is currently engaged in litigation with a company that laid claim to allegedly “dormant” brands associated with Macy’s-owned retail department stores that are no longer in use, including Filene’s, Jordan Marsh, Robinson’s, and Abraham & Strauss. The defendant in that case claims that Macy’s abandoned the subject marks in 2007 when it united its department stores under a single banner by converting them all to “Macy’s” stores.

The Del Taco case and the Macy’s dispute should serve as stark reminders to businesses that trademarks, no matter how well-known in the minds of consumers, can be forfeited through non-use. Therefore, when engaging in rebranding efforts or acquiring other entities, companies should take steps to retain their rights in valuable brands — or to make explicit plans for reviving temporarily unused marks — in order to prevent competitors or other third parties from later trading on their valuable goodwill and name recognition.