A Business May Not Assign (an ITU Application), if the Assign(or) Has No Business

There’s an old saying: “A business with no sign is a sign of no business.”

In a recent dismissal order, the Northern District of California provided insight into the requirements for assigning an Intent-to-Use (ITU) trademark application when the assignment occurs before proof of actual use of the mark is filed with the USPTO.

Some use of a mark, sufficient to accrue some goodwill, is required before an Intent-to-Use trademark application may be assigned to another. 

This is a very important concept, because it can arise in many contexts, including:

  • two companies develop a similar new product both seek to use the same mark, and they resolve the conflict with an assignment of a pending ITU application;
  • assignments between related companies;
  • an individual files an application in his or her personal name instead of or before forming a corporate or other entity (discussed below); and
  • M&A transactions involving IP portfolios that include pending applications.

Background

Common law trademark rights arise from actual use of a mark on goods or in connection with services.  USPTO registration of a mark (providing nationwide rights) can occur only after a mark is used in interstate commerce.

If a mark is already in use when a trademark application is filed, the first use date is stated in the application, and the mark, specimen, description, and classes are reviewed by the trademark examiner.  Upon approval, the mark is published to see if anyone objects.  Barring a successful objection, the USTPO issues a registration certificate.

U.S. law also allows a trademark application to be filed based on Intent-to-Use (ITU), effectively allowing a mark to be reserved.  However, the USPTO will register a mark only after the ITU applicant shows actual use of the mark by filing an “allegation of use” — either an Amendment to Allege Use (before publication of the mark) or a Statement of Use (after publication).  If the mark ultimately is registered, the filing date of the ITU application becomes the constructive first use date. This gives the ITU applicant priority over others who started using the mark after the ITU application filing date (even though the ITU applicant had not actually used the mark in commerce at that time).  See why this matters here.

Assignments of ITU Trademark Applications

An ITU trademark application may be assigned to another before a registration issues if the requirements of 15 U.S.C. § 1060(a)(1) are met.  The requirements differ, however, depending on whether the assignment occurs before or after the ITU applicant files an allegation of use.

If the assignment occurs after the applicant has filed an allegation of use, the ITU application must be assigned in writing together with the goodwill of the business in which the mark is used, just as if the assignment occurred after the mark already had been registered.

If the assignment occurs before the applicant files an allegation of use, the law will allow an assignment only “to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing.”

Stated another way, an ITU application may not be assigned before an allegation of use is filed, unless the ITU application is transferred with at least part of the applicant’s “ongoing and existing” business to which the mark pertains.  This prevents the trafficking or profiting from the sale of ITU applications, i.e., the buying and selling of “inchoate” marks which as of yet, have no real existence.

What does it mean to assign an ITU application “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 Northern District of California recently addressed this in an order granting a motion to dismiss in Sebastian Brown Productions LLC v. Muzooka Inc. (N.D. Cal., Mar. 14, 2016, No. 15-CV-01720-LHK) 2016 WL 949004, at *8.

Plaintiff Sebastian Brown Productions (SBP) operates a digital media storefront MuZook at muzook.com.  SBP’s sole owner, Miller, in his individual capacity, had applied for the MUZOOK trademark under an ITU application.  A few weeks after filing, Miller assigned the ITU trademark application to SBP, “together with that part of [Miller’s] business to which the Marks pertain, which business is ongoing and existing, the goodwill of the business symbolized by the Marks, and all registrations and applications therefor.”

In 2014, SBP sued competitor Muzooka, Inc.  While the facts are more complex than stated here, in order to prevail, SBP needed to establish constructive-use priority over Muzooka, Inc., based on the date Miller filed the MUZOOK ITU application.

Since Miller had assigned the MUZOOK ITU application to SBP before filing an allegation of use, the dispute focused on whether SBP was truly a successor to an “ongoing and existing” business to which the MUZOOK mark pertained, for purposes of § 1060(a)(1). Turning to precedent from the Trademark Trial and Appeal Board, the court discussed various cases applying this language, and distilled a few principles:

  • the “ongoing and existing” business exception to § 1060(a)(1) did not alter the requirement that the trademark assignment include the good will of the business in which the mark is used; and
  • an assignment of an “ongoing and existing” business involves more than the assignment of goodwill alone.  Hence, an assignment is void if it transfers only the intent-to-use application and goodwill, without any of the applicant’s ongoing and existing business.

Ultimately, the court determined that some use of a mark, sufficient to accrue some goodwill, is required before an ITU application may be assigned.  It is not enough to simply restate the language of § 1060(a)(1) in an assignment — there must be some goodwill or ongoing and existing business to transfer.

“Goodwill” generally has been described as “the advantage or benefit, which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers,” which accrues only through use of the mark.  As the court noted in citing Pfizer, Inc. v. Hamerschlag, 2001 WL 1182865, at *4 (TTAB Sept. 27, 2001) (non-precedential):  “Unwittingly or not, a party who has no business except obtaining a trademark on the basis of intent to use and who prior to starting a business assigns that application to another falls squarely into the trademark trafficking activity that [§ 1060(a)(1)] is intended to preclude.”

Although Miller used sufficient language to transfer an ITU trademark application before the filing of an allegation of use, Miller had nothing to transfer — no goodwill or ongoing and existing business.  SBP did not allege that Miller had provided any services under the MUZOOK mark; invested money in the development of the MUZOOK mark; publicly displayed the MUZOOK mark; had any business assets; or engaged in any business activities. There was nothing alleging that Miller had used the MUZOOK mark, prior to the assignment, in a manner that established goodwill or any ongoing and existing business. Thus, since no allegations could establish transfer of goodwill or an ongoing and existing business as required by § 1060(a)(1), SBP could not establish the constructive-use date needed to demonstrate priority over Mazooka, Inc., and the case was dismissed.

While this assignment issue is important in many contexts, counsel and DIY trademark applicants should use caution when assigning an individual’s ITU trademark application to his/her business entity before an Amendment to Allege Use or a Statement of Use has been filed with the USPTO.

10-22-2016 Addition:   For further application and analysis of these concepts, see Sorry, Apple, Assignment of ITU Applications Isn’t MAGIC by Wes Anderson at DuetsBlog (http://www.duetsblog.com/2016/10/articles/advertising/sorry-apple-assignment-of-itu-applications-isnt-magic/)

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