Merger and Acquisitions often involve the acquisition and/or assignment of trademarks. Companies acquiring trademarks must beware of potential problems lurking with intent-to-use (ITU) trademark applications (or applications which started as ITU applications), such as improper assignment or lack of a bona fide intent to use the mark. We review the case law highlighting these issues and provide practice pointers to address these issues.

Background: In the United States, one can file an intent-to-use (ITU) application, in effect reserving the mark and establishing a constructive priority date before the mark is actually used in commerce. The U.S. Patent and Trademark Office (USPTO) will not register an ITU application until the applicant files proof that it is using the mark in commerce. The applicant may do so in the form of an amendment to allege use before the Trademark Examiner approves the mark to be published for opposition, or in the form of a statement of use after the mark survives the opposition period and a Notice of Allowance is issued. An applicant has up to three years from the date of the Notice of Allowance to file a statement of use (SOU) to represent the mark is being used.

Section 10(a)(1) of the Lanham Act, also referred to as the anti-assignment provision of the Trademark Act, prohibits assignments of ITU applications prior to the filing of a statement of use (SOU) or amendment to allege use (AAU), with one exception. See 15 U.S.C. §1060(a)(1). It is possible to assign an ITU application if it is “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.” Among other factors that the courts and Trademark Trial and Appeal Board (TTAB) evaluate when determining the validity of an assignment of an ITU application, are the sufficiency of the transfer documents, whether the assignee is truly a successor to the business, whether the business is “ongoing and existing,” and whether the ITU was filed in the correct entity’s name. The Congressional intent behind enacting the prohibition of assignment of ITU’s was to prevent trafficking of or profiting from the sale of an ITU application. See The Clorox Co. v. Chemical Bank, 40 U.S.P.Q.2d 1098, 1100-01 (TTAB 1996).

Last summer’s TTAB decision in Central Garden & Pet Company v. Doskocil Manufacturing Company, Inc. Opposition No. 91188816 (TTAB August 16, 2013) (“Central”) serves as an excellent reminder that it is important to consider Section 10(a)(1)’s requirements when filing or acquiring ITU applications.

The Central Decision: In Central, All-Glass Aquarium Co., Inc. (“All-Glass”) filed an ITU application for the ZILLA mark on December 7, 2006 for aquariums, terrariums and other types of equipment. All-Glass was owned by a company named Pennington Seed, Inc. which in turn was owned by Central Garden. On June 26, 2007, All-Glass assigned its ITU application to Central Garden, and the registration was issued to Central Garden on February 19, 2008. However, All-Glass continued its business and did not transfer the business over to Central Garden.

Central Garden subsequently became involved in an opposition proceeding against a third party (Doskocil), and in response, Doskocil challenged Central Garden’s trademark rights, arguing that the assignment from All-Glass to Central Garden violated Section 10(a)(1). The TTAB concluded that the assignment from All-Glass to Central Garden did not qualify for the statutory exception to Section 10(a)(1) because the only thing that the entities exchanged was the mark and the “goodwill of the business connected to the mark.” The court noted that no portion of the business to which the mark pertained was transferred from All-Glass to Central Garden. In reaching that conclusion, the TTAB rejected the argument that cancellation of Central Garden’s registration ran counter to the purpose of Section 10, and found that the language of the statute was clear that an ITU application may onlybe assigned to a successor to the assignor’s business or at least the relevant part of it. Accordingly, the TTAB cancelled the mark. The effect of the TTAB’s ruling was twofold: not only did Central Garden lose its registration, but it lost its ability to claim priority (via the filing date of the ZILLA application) against Doskocil.

The TTAB’s rigid reading of Section 10 was initially set forth in Clorox Co. v. Chem. Bank, 40 USPQ 2d 1098, 1106 (TTAB 1996). In Clorox, an assignment of the ITU application was made from the trademark owner to its bank as collateral for a loan prior to the filing of the SOU. The assignment included a provision that once the loan was paid off, the ITU trademark application would be transferred back to the owner. The TTAB analyzed the language of the document at issue and found that, regardless of the parties’ intent, the agreement was an assignment of rights that violated Section 10(a)(1). The TTAB concluded that the application did not qualify for the statutory exception because there was no transfer of rights of the ongoing business to which the mark pertains, and the bank was not a successor in business to the company since the company was still going to operate its business. The TTAB ruled that the improper assignment voided the application, and that any resulting registration must be cancelled.

Other TTAB panels have reached a similar conclusion. In Railrunner N.A., Inc. v. New Mexico Department of Transportation (“NMDOT”) and New Mexico Mid-Region Council of Governments (“MRCOG”), Opposition No. 91172581 (TTAB, July 17, 2008) (not precedential) (“Railrunner”), MRCOG filed its ITU application in February 2005. In July 2007, MRCOG assigned its ITU application over to NMDOT before filing an AAU or SOU. An opposition proceeding was instituted which challenged the assignment. In response, NMDOT provided only the assignment and a brief affidavit as evidence of the succession of the business, and did not provide any detailed explanation of the transfer of the business or documents evidencing the succession of the business. The TTAB stated that it was incumbent upon the applicant to either provide documents evidencing the succession or to recite facts in an affidavit from which the fact-finder could conclude the transfer took place. The TTAB granted Railrunner’s summary judgment motion and voided the ITU application because the assignment of the opposed ITU application was not to a successor in business. Cases like Railrunner are a reminder that the acquiring party must ensure the sufficiency of the transfer documentation.

In Amazon Technologies, Inc. v. Jeffrey S. Wax, Opposition No. 91187118 (TTAB August 31, 2010), Mr. Freeland and Mr. Wax jointly filed an ITU application for AMAZON VENTURES in March 2000. Mr. Freeland assigned, in October 2008, his the entire right, title and interest in and to AMAZON VENTURES to Mr. Wax. In a latter opposition, Amazon Technologies argued that Freeland and Wax violated Section 10(a) because they had no ongoing and existing business; however the TTAB held that an assignment is defined as “[a] transfer or making over to another the whole of any property” and that in this case there was no transfer to “another” (as Mr. Wax was an original joint applicant and was now the sole remaining applicant). The TTAB ruled that the facts evidenced a change in ownership, which did not violate 15 U.S.C. § 1060(a)(1) because it was not an “assignment” that was prohibited under Section 10(a)(1).