Trademark Registrations Are Worthless?
I often tell clients of Paradies® law that a trademark starts out its life with no value and only becomes valuable as good will accrues with use the mark in commerce. This usually starts a conversation about what I mean by this, and a good discussion of just what a trademark is and does follows. Good will is a foreign concept to most clients, and many don't know that good will is an important intangible that can add value to a balance sheet. Learning that the value associated with a trademark can increase (or decrease) as customers identify your company as the source of a certain quality of goods or services is an important step in understanding trademarks as IP. How valuable? The google brand has been valued at more than $150 billion. In comparison, a newly registered trademark, which hasn't yet accrued any meaningful good will, has no value.
I keep my eye on legal cases that break new ground in IP law. A recent case, SEBASTIAN BROWN PRODUCTIONS LLC v. MUZOOKA INC., et al., shows how an assignment of a pending application for a trademark can be void. An individual filed an intent-to-use application for “Muzook” as a mark. An intent-to-use application is filed with the United States Patent and Trademark Office when the mark has not been used in interstate commerce, yet, but the applicant has a bona fide intent to use the mark. Shortly after filing the application for registration of the mark, the individual signed over the rights in the trademark to a company. The agreement used to sign over rights is called an assignment. In this case, if the assignment was valid, then the company bringing the lawsuit, which is called the plaintiff, would have had an earlier date of "constructive use" than the defendant. The filing date of an application with the trademark office, even an intent-to-use application, is taken as the date of first use under "constructive use" doctrine. So, plaintiff would have had an earlier date of use, according to the law, if the assignment was valid.
However, an intent-to-use application is not freely assignable, under Title 15 U.S.C. § 1060(a)(1) of federal trademark law. So, an applicant may validly assign an intent-to-use application only two ways. What are the two ways? First, an assignment is valid if the applicant has filed an allegation of use. What is an allegation of use? During a pending intent-to-use application, an applicant can file a statement of use and a specimen of use that shows how the mark is being used in interstate commerce. This changes the application from an intent-to-use application into a "use" application, one in which the mark has been used, already. That didn't happen in the Moozika case. The individual did not file a statement of use and a specimen to allege use before signing the assignment to the plaintiff. The only other way to assign rights in the pending intent-to-use application is to assign the mark “…to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing.”
The Moozika case is interesting, because there are only a few cases where courts have considered the issues of whether a business is ongoing and existing. In Moozika, the individual had not been using the mark in commerce. On the contrary, evidence showed that the individual had taken measures to keep the trademark and business idea confidential. The assignment, itself, was no help to the plaintiff, and the plaintiff offered no facts supporting any acquisition of an ongoing and existing business, either. So, the court determined that the assignment was not valid. Since the intent-to-use application was not validly assigned, the application, itself, was void, as if it was never filed. Plaintiff could not rely on its "constructive use" date, and defendant had the earlier date of actual first use in commerce. Plaintiff loses. Defendant wins.
Why was this rule against freely assigning intent-to-use applications added to U.S. trademark law? According to the court, the rule was added to “prohibit ‘trafficking’ in marks: the buying and selling of ‘inchoate’ marks which as yet have no real existence,” citing a treatise on trademark law, 3 McCarthy on Trademarks and Unfair Competition § 18:13 (4th ed.). Trademark law doesn’t let a person file an application for the purpose of selling it to someone else, in order to make a profit off of reserving a right in a trademark. Why? Trademark policy wants only people or companies with a real intent to use a mark in interstate commerce in the very near future to file intent-to-use applications. Many countries and most U.S. states do not allow a person or company to file a trademark application until the mark has been actually used in commerce. So, U.S. trademark law adopted an anti-trafficking rule, and violating the anti-trafficking rule "...voids the assignment as well as the underlying application and resulting registration,” as cited in an earlier case in California, Oculu, LLC v. Oculus VR, Inc., No. SACV-14-0196-DOC, 2015 WL 3619204, at *7 (C.D. Cal. June 8, 2015). This anti-trafficking policy and the reasoning of these courts fits with the statement that applications for trademark registration have no value, and a trademark develops value only as good will accrues with use of the mark. Accordingly, U.S. trademark law discourages someone from filing an intent-to-use application for a trademark just to resell it, because that would be unjust enrichment. Sign up at IPmasterclass.com to learn how trademarks can add value to your business.