Monday, June 24, 2013

Trademarks: No Writing Necessary for Trademark to Be Assigned to Another Company

     The Northern District of Georgia (Judge Thrash) Denied a Motion for Preliminary Injunction filed by the company Jomaps against D-Mand Better Products over the trademark for M-1, a mildewcide line of products dating back to the 1970s. Jomaps, LLC v. D-Mand Better Products, LLC; 2012 WL 5235533, (NDGA 2012).  Yours truly was counsel for the defense so I was actually there for the hearing, in a very interesting case.   

      Jomaps was the former owner of the M-1 brand, whose mark was registered in the mid-70s.  The owner of Jomaps had bought the brand from the family that had founded the brand and owned it for 30 years. The purchase was seller financed through a note.  Jomaps' owner ran into financial issues and was threatened with the prospect of giving back the brand to the seller, and ended up in litigation with the seller over a noncompete the seller had allegedly violated as well as the note payments.  D-Mand  was owned by Dennis Makowski, who ran Jomaps since its acquisition of the M-1 trademark in 2006.  D-Mand alleged that the owner of Jomaps had ordered that all of Jomaps' assets, including the trademark and brand for M-1, be transferred to D-Mand in the fall of 2010. 

     The evidence showed that Jomaps transferred $140,000 in payables it owed to various suppliers, and that D-Mand paid these bills.  It was also undisputed that the trade secret formula for M-1 was transferred to D-Mand.  All of the management of Jomaps and the key employees went with D-Mand, and D-Mand immediately ordered labels and other materials for continuation of the exact same products of the M-1 brand previously sold by Jomaps.  Moreover, Jomaps stopped operations, sold nothing, and did not file the paperwork or pay the fee to the Georgia Secretary of State to remain active and in good standing at all in 2011. Also, the owner of Jomaps personally signed a financing application for D-Mand to receive financing with its receivables as collateral, receivables transferred from Jomaps.  Finally, Jomaps had stopped advertising M-1, while D-Mand started advertising and promoting itself as the new seller of M-1, officially stating to the market that it was formerly Jomaps. 

     Despite all of this, there was no written transfer of the assets or any kind of purchase agreement.
D-Mand argued that Jomaps refused to put anything on paper.  Jomaps argued that it had only given "temporary permission" to D-Mand to use the mark through an oral license revocable at will.  In June 2011 the owner of D-Mand, and operator of Jomaps signed a transfer document which was filed with the USPTO making the transfer of the trademark from Jomaps to D-Mand a reality. 

      Jomaps filed suit in April 2012 claiming that it did not permit this transfer document and that it was done without Jomaps' owner's permission.  Its claims included trademark infringement and conversion of the mark.  D-Mand claimed that the unwritten transfer agreement was to transfer all of the assets of Jomaps and was not a temporary license, but a permanent transfer in consideration for the payment of the payables and other considerations.  More importantly, D-Mand relied on case law to argue that legally, the goodwill of Jomaps had passed to D-Mand, and therefore so had the trademark by operation of law, regardless of the nature of the verbal agreement or the lack of documentation. 

       For some reason, Jomaps argued that D-Mand's use of the M-1 mark was likely to confuse customers.  While likelihood of confusion is necessary to prove a trademark infringement claim under the Lanham Act, the facts were clear that only one company, D-Mand, was selling anything in the market called M-1.  Jomaps was a company that was no longer making or selling anything.

      What makes the case interesting from a trademark viewpoint is the fairly rare issue of when exactly a trademark is gone forever and a company cannot get it back in the case of a largely undocumented transfer.  Without any formal writings regarding the deal, the facts came down in many respects to a "he said, she said" situation over the duration and permanence of the sale or license of the trademark.  So the question became: Can a business "park" a trademark with another entity with consideration, without any written transfer or license, and then, after some period of time, take it back into the fold?   

       The legal question looks at a brand or trademark as an expression of the goodwill a product has acheved in the market.  Therefore, a brand is not a widget that can be moved around as easily as a tangible asset like a machine or other hard assets.  The brand stands for something, the people that make it, sell it, manage it and advertise it.  Therefore, despite the fact that no written corporate documents memorialized the transfer of the M-1 trademark, and without any written license, the court looked to a test of what in reality had happened with the brand.  A court looks to whether the management of the brand goes along with the trademark.  Is it manufactured, sold, managed, and advertised by the same people who did so under the previous company?

     In this case the answer was yes.  When Jomaps transferred M-1 to D-Mand, all of the people who had made, sold, managed and advertised the trademark moved with M-1 to D-Mand.  Jomaps stopped making any products, much less any mildewicides.  Even though there were no formal corporate legal documents executed between Jomaps and D-Mand to show the purchase and transfer of the trademark, in reality the goodwill that undergirds the trademark had moved completely from Jomaps to D-Mand, and there was clearly consideration for the transfer.  D-Mand had operated the M-1 brand and family of products exclusively for nearly two years before Jomaps demanded it back.  By then, the Court ruled, regardless of the factual dispute over what the two business people intended, it was too late to stop D-Mand from making and selling M-1 under the trademark that it had taken over.  The Court denied the Motion for an injunction, allowing D-Mand to continue making and selling