Monday, August 30, 2010
Brown Bark's Trademark Claims Have No Bite
shareholders and managers of SSB.
The first issue involved Adams Foods, Inc. and others ("Adams") who sold food products under the Adams mark until 1999, at which time it sold the mark to SSB. SSB gave a note to Adams secured by the trademark and its goodwill. In 2006 SSB defaulted on the note and Adams obtained a judgment against SSB giving it back full rights to the Adams mark.
At about the same time in 2006, SSB defaulted on its debts with Regions Bank. In 2007, Regions sold the SSB loans to Brown Bark II, the plaintiff. Shortly after that, one of the defendants locked SSB out of the SSB plant forcing a shutdown of the production and marketing of its products. SSB could not pay the loans Brown Bark had purchased so Brown Bark obtained a judgment that led to its acquisition of the SSB marks at a public sale.
Meanwhile the former SSB folks started a new company, Dixie Mills, LLC. They offered Brown Bark $300,000 for the old SSB trademarks and Brown Bark declined the offer. Dixie Mills then went ahead and started marketing products with similar names and packaging as the old SSB products (The SSB products were Dixie Lily, Alabama King, Arnett's and Pine Mountain; the new Dixie Mills products were Dixie Mills, Alabama, Donald Arnett, and Stone Mountain). Then Adams started selling products under the Adams mark again. Brown Bark sued the SSB group and the Adams group for trademark and trade dress infringement.
The court found that the Adams group owned the Adams mark due to the judgment in Alabama, because even though Brown Bark was not a party to the judgment, it got the trademark from Regions Bank who was in privity with SSB, against whom the judgment was made. However, the court also ruled that Brown Bark could not enforce the Adams mark because it had acquired the mark through an assignment in gross. An assignment in gross occurs when a trademark is transferred without the accompanying goodwill. Thus, a trademark cannot be sold separately from the business assets used to make the product or service that the trademark identifies. The theory is that if the trademark is traded but the assets underlying it are not, the public is misled about the origin of the product associated with the mark.
As for the former SSB group, the court made short work of the claims against them, finding that the old SSB marks were descriptive and therefore had to have secondary meaning. The court held that even though these marks, one of which dated back to 1933, might well have secondary meaning, there was no evidence that the mark had secondary meaning identifying Brown Bark as the source of any products. The court cited no authority for this proposition. However, all of the defendants won summary judgment on the case. Thus, it appears that Brown Bark made a big mistake when it refused to sell the marks for $300,000 because it turns out that, absent reversal on appeal, the marks were worth nothing.