Addressing—for the second time—the ownership of certain trademarks after sale of the relevant business, the US Court of Appeals for the Fifth Circuit concluded that the trademarks and goodwill associated with a single location restaurant were necessarily transferred as a part of the sale. Uptown Grill, LLC v. Camellia Grill Holdings, Inc., Case No. 18-30515 (5th Cir. Mar. 29, 2019) (Clement, J).
In 2006, Michael Shwartz sold his New Orleans restaurant (the Camellia Grill located on Carrollton Avenue, at the time its only location) to Hicham Khodr. The bill of sale included all “right, title and interest in and to the . . . tangible property located within or upon [the restaurant, including] all . . . trademarks, names, logos, likenesses, etc. and all other personal and/or movable property . . . located within or upon the property” (emphasis added).
Shortly thereafter, the parties entered into a license agreement allowing Khodr to use the Camellia Grill trademarks and associated trade dress. The license also stated that “Licensee [i.e., Khodr] acknowledges and agrees that all of the Licensor’s [i.e., Shwartz’s] right, title and interest in and to the Marks shall remain the property of the Licensor.”
The license agreement was subsequently terminated during state court litigation, prompting Khodr to sue for declaratory judgment that he owned the Camellia Grill trademarks and Shwartz to sue for trademark and trade dress infringement and breach of contract based on Khodr’s continued use of the Camellia Grill intellectual property. The district court held that Khodr owned all “trademarks associated with the operation of the Camellia Grill restaurant on Carrollton Avenue” and—going one step further—that all Camellia Grill trademarks had been transferred to Khodr in the bill of sale. Shwartz appealed, and the Fifth Circuit reversed and remanded, concluding that the bill of sale transferred all trademarks “within or upon the Carrollton Avenue location,” but remanded for further proceedings to determine Shwartz’s remaining claims.
On remand, the district court held that Khodr owned all Camellia Grill trademarks and trade dress rights per the bill of sale and that Shwartz’s trade dress infringement claims therefore failed (and, even if they were sustainable, Shwartz was not entitled to monetary damages). The district court further held, however, that the parties were bound by the license agreement, and therefore Khodr’s use of the Camellia Grill trademarks at his new restaurant location after the license was terminated constituted breach of that agreement. Nonetheless, the district court found that Shwartz could not prove breach of the agreement with respect to the trade dress. Khodr was enjoined from using the Camellia Grill trademarks at any location other than the Carrollton Avenue location, and Shwartz was denied money damages. Shwartz again appealed.
In the present appeal, the Fifth Circuit found that Shwartz had no rights to the Camellia Grill trademarks: “when an entire business is sold, as here, the goodwill and associated trademarks are necessarily transferred.” This transfer is automatic unless “(1) the contract expressly reserves some right and interest in the trademark, and (2) the seller retains some of the business’s goodwill. . . . [N]o rights to trademarks can exist without the related goodwill.”
The Fifth Circuit acknowledged that it is possible to assign trademark rights subject to certain geographic boundaries, but stated that such an assignment “relies on the premise that there exists another portion of the business.” In this case, Shwartz sold his restaurant, which at that time had only one location, and therefore it was impossible for him to have retained any rights to the trademarks when no other portion of the business existed. Moreover, the Court stated that holding otherwise “would be contrary to a fundamental purpose of trademarks: identifying a single source of a product or service.”
The Fifth Circuit agreed with the district court’s findings that the bill of sale likewise assigned the Camellia Grill trade dress to Khodr and therefore Shwartz’s infringement claims must fail, and that Shwartz was not entitled to money damages. Nonetheless, because the district court had not considered the issue, the Court remanded the issue of whether Khodr’s use of the Camellia grill trade dress at the new restaurant location constituted a breach of the license agreement.