Stating that it “will not presume the creation of jointly owned or non-exclusively licensed trademark rights,” the Sixth Circuit Court of Appeals recently held that an individual defendant and his company did not retain any ownership rights in an unregistered trademark his company had acquired in an asset sale and then transferred in another asset sale. [See Yellowbook Inc. v. Brandeberry, No. 11-4267 (6th Cir. Feb. 27, 2013).] The Sixth Circuit reversed the district court’s finding of no trademark infringement and remanded the case to the district court to enter appropriate injunctive relief and determine damages for trademark infringement.

The Sixth Circuit’s holding reinforces the importance of:

  1. Identifying all the trademark rights being purchased and by whom in a purchase agreement
  2. Purchasing the goodwill associated with the trademark rights being purchased
  3. Researching the chain of title of the trademarks being purchased and potential claims of ownership of those marks

It also illustrates why it is recommended that businesses register their trademarks with the U.S. Patent and Trademark Office and/or at the state level to secure a presumption of ownership of a mark.

Trademark Acquired

In reaching its holding, the Sixth Circuit closely analyzed the overall purpose and structure of an asset sale that happened in 1994, and a subsequent asset sale that happened in 2002. Both asset sales involved the individual defendant, Stephen Brandeberry, and his company, American Telephone Directories Inc. (“American Telephone”).

In 1994, a company named Area Marketing Telephone Directories sold its phonebook business in an asset-purchase agreement signed by Brandeberry in his individual capacity and in his corporate capacity as president of American Telephone. Under a contemporaneous license agreement, Area Marketing Telephone Directories agreed to license the mark “AM/TEL” exclusively to the “licensee,” then transfer full ownership of the mark to the “licensee” upon full payment of the agreed-to price of $50,000. The license agreement collectively referred to Brandeberry and American Telephone as the “licensee.” The agreement also noted that the mark was not registered. American Telephone subsequently dropped the slash in the mark and started marketing the phonebooks under the name “AMTEL.” American Telephone did not register either the AM/TEL or the AMTEL mark.

Trademark Transferred

In 2002, Brandeberry’s company American Telephone entered into an asset-purchase agreement with P.B.J. White Directories, LLC (“White”), selling the assets of the business “in their entirety.” White subsequently registered the AMTEL mark with the State of Ohio and then in 2007 sold its phonebook business to Yellowbook, a national publisher of yellow-pages directories. Yellowbook continued to use the AMTEL mark to publish phonebooks, but the trademark registration with Ohio expired in 2008 and was not renewed.

Trademark Infringed

In 2009, Brandeberry noticed that the registration had expired and decided to “revive” the “original” AMTEL phonebook to compete with Yellowbook in Ohio. In 2010, Brandeberry and American Telephone published a competing phonebook using the AMTEL mark.

Yellowbook filed suit against Brandeberry and American Telephone alleging trademark infringement, interference with business relations, misappropriation of trade secrets and unjust enrichment. Brandeberry counterclaimed for defamation.

The district court granted summary judgment against Yellowbook on the trademark infringement claim but ruled in Yellowbook’s favor on its tortious interference claim against American Telephone. At trial, a jury awarded $104,069 in compensatory damages and $10,406.90 in punitive damages against American Telephone for the tortious-interference claim, and it awarded Brandeberry $10 in nominal damages for his defamation counterclaim. The jury found that Yellow was entitled to attorneys’ fees, but the district court declined to award them because it found that the request for $209,009.30 in fees was not reasonable.

On appeal, the Sixth Circuit first rejected the argument that the license agreement signed in 1994 assigned joint ownership rights in the mark to both Brandeberry and his company. Based on “ordinarily principles of contract interpretation, in light of the particular nature of trademark rights,” the Sixth Circuit concluded that the parties intended to transfer a single, undivided ownership right in the mark to American Telephone because Brandeberry had no reason to retain any individual stake in the mark as a 100% owner of American Telephone, Brandeberry likely signed the agreement in his individual capacity only so he could be held personally liable for the $50,000 purchase price of the trademark, Brandeberry never used the AMTEL mark in his individual capacity or for other businesses, and Brandeberry did not receive any of the AMTEL goodwill.

The Sixth Circuit next rejected the argument that the 2002 asset-purchase agreement transferred only a non-exclusive right to use the AMTEL mark. Here, the Sixth Circuit concluded that when a business sells the “entirety” of its assets, including its goodwill, it passes title to the business’s trademarks. Moreover, the agreement was “not structured as an agreement to license or partially transfer the rights to the AMTEL mark.”

Even assuming that Brandeberry had acquired an individual right to the mark in 1994 that he did not transfer in 2002, the Sixth Circuit further ruled that Brandeberry abandoned any such right after 2002 because he stopped using the mark and did not demonstrate an intent to resume use. Here, the Sixth Circuit rejected the argument that abandonment may only be asserted as a defense: “Brandeberry’s abandonment-as-defense-only position would permit trademark users who abandoned their rights impunity from charges of infringement, regardless of the official registration and legitimate use in commerce of later users. Such a rule would be anomalous.”

Finally, the Sixth Circuit held that the district court abused its discretion by denying attorneys’ fees to Yellowbook and remanded to the district court for at least a partial grant of fees.