Trademark Due Diligence in Corporate Transactions

At least one trademark is often involved in a sale, merger, asset purchase, or similar corporate transaction of a business. Below are some of the steps that a buyer might undertake to investigate a seller’s rights in trademarks involved in corporate transactions.

1. Proper Original Owner

A trademark application, and the resulting trademark registration, filed in the name of the wrong owner may be void and invalid. See TMEP § 803.06. Some errors in the manner the applicant was listed in the original application can be corrected, but some cannot. See TMEP 1201.02(c). Therefore, it is important to check whether the original applicant of the trademark registration was correct and properly identified on the application.

For many applications, a copy of the original trademark application can be found in the USPTO’s Trademark Status & Document Retrieval (TSDR) system.

If the trademark registration is void for being filed in the name of an uncorrectably wrong entity, then the trademark registration’s value may be discounted, and consideration should be made of filing a new trademark application.

2. Proper Chain of Title

Once it is established that the trademark registration arose from an application naming the correct owner, then the next item to review is the chain of ownership from the original applicant to the current owner. Each assignment and transfer of the registration of the underlying trademark should be reviewed to ensure a proper chain of title to the current owner of the trademark registration.

Ideally all of the assignments and transfers should have been recorded (but sometimes they are not) at the USPTO so that a search of title can be made at the USPTO’s Electronic Trademark Assignment System (ETAS). If gaps, errors, or unreleased security interests in the chain of title exist, they can be remedied before closing.

3. Assignments Include Associated Goodwill of the Business

A trademark cannot be assigned/sold alone (known as a “naked assignment” or a “assignment in gross”) without the goodwill of the business associated with the mark. U.S. Trademark law provides, “A registered mark or a mark for which an application to register has been filed shall be assignable with the good will of the business in which the mark is used, or with that part of the good will of the business connected with the use of and symbolized by the mark.” 15 USC 1060.

A naked assignment is invalid. See Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 956 (7th Cir. 1992) (“the transfer of a trademark apart from the good will of the business which it represents is an invalid ‘naked’ or ‘in gross’ assignment, which passes no rights to the assignee”).

Therefore, each assignment in the chain of title from the original trademark registration owner should be reviewed to ensure that it contains a recitation that the goodwill of the business associated with the mark was transferred with the trademark to the assignee.

4. Currently Accurate Description of Goods/Services in Registration

Overtime businesses can add and/or drop products and services. It is ideal for the description of goods and services in a trademark registration to accurately and completely cover the goods and services that are now offered under the corresponding trademark. The older the trademark registration is, the more chance that change in conditions have arisen so that the description of goods and/or services in trademark registration(s) is out of alignment with the current goods and services.

If the registration(s) do not cover some of the currently offered goods or services, a new trademark application can be filed on the same mark covering the goods/services not covered by the current registration(s) (since a trademark registration cannot be amended to add goods or services).

If the current registration list goods/services not currently offered and not planned to be offered in the future, at the time for renewal of the registration, the description can be changed to remove goods/services no longer offered.

5. Unregistered Trademarks Specifically Listed

While the above points are directed to trademarks that are registered, unregistered trademarks should also be considered. Trademark rights can arise from use of a trademark in connection with goods/services, without any registration. For example, the Lanham Act protects unregistered distinctive trademarks used in commerce. 15 USC 1125(a).

Therefore, a trademark transfer document should identify unregistered trademarks that are being transferred, in addition to registered marks. Further, the goods and services corresponding to each unregistered mark should ideally also be identified in the transfer document.

These are some steps that a buyer can perform in a corporate transaction involving trademark registrations.

Note: reference to trademarks in this post also includes service marks.

Trademark Office Likelihood of Confusion Factors: The DuPont Factors

The trademark office (USPTO) will review a trademark application to determine whether the mark in that application is likely to cause confusion with another registered mark. And, if so, it will refuse registration of the application.

In particular, the relevant statute provides that an applied-for mark will be refused registration when it “consists of or comprises a mark which so resembles a mark registered in the Patent and Trademark Office… as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive.” 15 U.S.C. §1052(d).

The USPTO uses the factors provided in In re E. I. Du Pont de Nemours & Co., 476 F.2d 1357, 1361 (C.C.P.A. 1973) to evaluate whether there is a likelihood of confusion, which are:

(1) The similarity or dissimilarity of the marks in their entireties as to appearance, sound, connotation and commercial impression. 
(2) The similarity or dissimilarity and nature of the goods or services as described in an application or registration or in connection with which a prior mark is in use. 
(3) The similarity or dissimilarity of established, likely-to-continue trade channels. 
(4) The conditions under which and buyers to whom sales are made, i.e. “impulse” vs. careful, sophisticated purchasing. 
(5) The fame of the prior mark (sales, advertising, length of use). 
(6) The number and nature of similar marks in use on similar goods. 
(7) The nature and extent of any actual confusion. 
(8) The length of time during and conditions under which there has been concurrent use without evidence of actual confusion. 
(9) The variety of goods on which a mark is or is not used (house mark, “family” mark, product mark). 
(10) The market interface between applicant and the owner of a prior mark: 
(a) a mere “consent” to register or use. 
(b) agreement provisions designed to preclude confusion, i.e. limitations on continued use of the marks by each party. 
(c) assignment of mark, application, registration and good will of the related business. 
(d) laches and estoppel attributable to owner of prior mark and indicative of lack of confusion.
(11) The extent to which applicant has a right to exclude others from use of its mark on its goods. 
(12) The extent of potential confusion, i.e., whether de minimis or substantial. 
(13) Any other established fact probative of the effect of use.”

The weight given to these factors may vary in individual cases and all factors may not be relevant in every case. The USPTO sees the first and second factors as key when evaluating a trademark application, i.e. the similarities between the marks and the similarities between the goods.

Citations: In re E. I. Du Pont de Nemours & Co., 476 F.2d 1357, 1361 (C.C.P.A. 1973); TMEP 1207.01; 15 U.S.C.S §1052(d); In re Thor Tech, Inc., 113 USPQ2d 1546 (TTAB 2015).

Seventh Circuit Likelihood of Confusion Factors in Trademark Cases

To determine whether there is infringement in trademark cases, the question is whether there is a likelihood of confusion arising from the defendant’s use of a mark. Courts consider various factors to determine whether there is a likelihood of confusion. In the Seventh Circuit covering Illinois, Indiana, Wisconsin, federal courts consider the following factors:

1. the similarity between the marks in appearance and suggestion;
2. the similarity of the products;
3. the area and manner of concurrent use;
4. the degree of care likely to be exercised by consumers;
5. the strength of the plaintiff’s mark;
6. any actual confusion; and
7. the intent of the defendant to “palm off” his product as that of another.

The Seventh Circuit has also said that “These [factors] are useful insofar as they operate as a checklist to ensure that we do not overlook relevant evidence, but they are a means to an end, not an end in themselves.”

It also said, “No single factor is dispositive.” And “Courts may assign varying weight to each of the factors depending on the facts presented, though usually the similarity of the marks, the defendant’s intent, and actual confusion are particularly important.”

Citations: Bd. of Regents of the Univ. of Wis. Sys. v. Phx. Int’l Software, Inc., 653 F.3d 448, 454 (7th Cir. 2011); Autozone, Inc. v. Strick, 543 F.3d 923, 929 (7th Cir. 2008); Packman v. Chicago Tribune Co., 267 F.3d 628, 642 (7th Cir. 2001); Helene Curtis Indus. v. Church & Dwight Co., 560 F.2d 1325, 1330 (7th Cir. 1977).

TTAB Admits Wayback Machine Pages to Show Third Party Use of Mark

Tour Management Services Inc. sought to register CHARLESTON HARBOR TOURS for arranging travel tours and cruises and providing boat transport, among other services. Spiritline Cruise Lines opposed the application asserting that the mark was primarily geographically descriptive.

Spiritline sought to introduce printouts from the Wayback Machine of the Internet Archive (Archive.org) to establish that third party websites displayed “Charleston Harbor Tours” on various dates in the past. Spiritline provided a declaration from the office manager of the Internet Archive that the printouts were authentic. The Trademark Trial and Appeal Board (TTAB) admitted the printouts from the Wayback Machine into evidence. The TTAB found that the declaration established that the printouts qualified under the business record exception for hearsay.

The TTAB ultimately refused registration of the mark on the basis that CHARLESTON HARBOR TOURS was primarily geographically descriptive and had not acquired distinctiveness.

Citation: Spiritline Cruises LLC v. Tour Management Services, Inc., Op. No. 91224000 (TTAB Feb. 7, 2020).



Transferring Goodwill to a New Trademark: Using the Old and New Trademarks Together

Trademark owners develop goodwill associated with their trademarks by using the trademarks in connection with goods/services. Therefore, a name change risks loosing all the goodwill associated with the prior name in the marketplace. One way to mitigate this risk of loss is to use the old and new name together for a time. This will inform the marketplace that the new name is associated with the old. Hopefully some of the goodwill and recognition will transfer to the new name.

Recently Hitachi Power Tool rebranded as Metabo HTP. You can see the rebranding notice that was previously used below a miter saw in this Amazon listing:

This notice is very direct, providing a narrow to the new name and including the words “New Name.” They didn’t have to use “New Name”, but they did to be even more direct beyond the arrow.

You don’t have to use the “New Name” words. You could say Trademark A is now Trademark B. There are a number of options for trying to transfer the goodwill to a new name by using the old and new names together.

Unless the old brand is trying to escape a negative reputation by rebranding, the use of both the new and old trademark together for a time is a good method to try to transfer the goodwill and brand recognition developed under the old trademark to the new trademark.



Adding a Descriptive Word to a Mark Unlikely to Avoid Confusion When Common Words Are Strong

I previously wrote about the trademark application for BEAST MODE SOCCER. In that case, evidence of third party use was not close enough to weaken the two registered marks for BEAST MODE owned by retired NFL football player Marshawn Lynch.

Another issue in that case was whether the addition of SOCCER in the applied-for mark was sufficient to distinguish it from the registered marks. It was not.

The court said, “When one incorporates the entire arbitrary mark of another into a composite mark, . . . inclusion of a merely suggestive or descriptive element, of course, is of much less significance in avoiding a likelihood of confusion.” 

How was SOCCER word was descriptive of the applicant’s T-shirt goods? The applicant Copeland-Smith was a soccer coach. And he had been training soccer players under his mark BEAST MODE SOCCER, which was registered under another applciation for “coaching services in the field of soccer; providing group coaching and learning forums in the field of soccer.” 

The overlapping elements, BEAST MODE, were strong and the SOCCER element was weak as descriptive. Therefore, the addition of SOCCER to BEAST MODE was not sufficient to distinguish it from BEAST MODE and avoid a likelihood of confusion.

Case: In Re: Copeland-Smith, No. 2018-1968 (Fed. Cir. 2019).

Inventing Play-Doh: Repurposing an Obsolete Product

History provides numerous examples of what could be called “accidental” inventions– inventions that were discovered or developed for one problem or purpose while the inventor was working on something else. Examples include penicillin and the slinky, among reported others.

An article at the Smithsonian explains the origins of Play-Doh. The creation of the Play-Doh material was not an accident. Instead the product owner found a new use for an existing product.

The existing product was a compound originally used for wiping and removing soot from wallpaper. Demand was falling for this product as fuel sources for heating moved from dirtier coal to cleaner oil, gas, and electricity. Joseph McVicker’s company selling the wallpaper cleaner was struggling when his sister-in-law Kay Zufall, a nursery school teacher, found children liked molding the pliable compound into various shapes. Play-Doh as a childern’s product was born.

Zufall reportedly coined the Play-Doh product name as well.

Zukfall, as a teacher, saw the world and the product differently from her perspective working with children. Something that was probably not obvious to McVicker. This is an example of an idea born not from solitude, but from a mix of perspectives.

Third Party Use Not Close Enough to Goods of Registrant to Sufficiently Weaken Rights

David Copeland-Smith filed a trademark application on BEAST MODE SOCCER for T-shirts, which the USPTO refused based on two registered marks for BEAST MODE owned by retired NFL football player Marshawn Lynch. The registered marks covered the goods of “Men’s, women’s and children’s clothing, namely, shirts, sweatshirts; [and] headwear, namely hats, caps.”

Copeland-Smith argued the BEAST MODE mark was weak due to third party trademark registrations, applications, and uses of Beast Mode. The appeals court disagreed.

The seven third party registrations did not identify articles of closing, but rather pertained to ““computer software, dietary and nutritional supplements, beer, advertising and marketing consultancy, and entertainment in the nature of competitions in the field of fitness…” In other words, the goods/services of the third party registrations were not close enough to clothing to narrow Lynch’s rights in BEAST MODE.

Regarding uses, the Foreign websites identified by Copeland-Smith where of no probative value in determining likelihood of confusion in the US.

Further, many of the US websites with uses of Beast Mode were directed to goods and services other than clothing. The appeals court noted its prior decision where it said “T]he present analysis only involves goods like those being offered by the parties to the ‘relevant public,’ while third-party use outside of that relevant market is meaningless.”

Therefore, third party use of marks should be in connection with goods/services like those offered by the parties to have a good chance a narrowing trademark rights.

Case: In Re: Copeland-Smith, No. 2018-1968 (Fed. Cir. 2019)

Sports Fuel is Descriptive of Food Products for Athletes?

SportFuel sued Pepico and The Gatorade Company asserting that Gatorade’s use of Sports Fuel infringed its SportFuel trademark. The Seventh Circuit found Gatorade’s use of Sports Fuel was not infringing because Gatorade’s use was a descriptive use.

It appears that Gatorade used Sports Fuel in “GATORADE THE SPORTS FUEL COMPANY.” The court’s opinion provided this image of Gatorade’s use of Sports Fuel.

In finding Gatorade’s use of Sports Fuel descriptive, the court said “It requires no imaginative leap to understand that a company selling ‘Sports Fuel’ is selling a variety of food products designed for athletes.”

Is “fuel” so directly and immediately descriptive of food? I’m not so sure. Without considering market use, I think that fuel could be suggestive rather that descriptive of food or drinks. Other factors such as the alleged third party use and the manner of use in the slogan probably played a larger roll in the court’s conclusion that the use was descriptive.

Cite: SportFuel, Inc. v. PepsiCo, Inc., No. 18-3010 (7th Cir. Aug. 2, 2019).

Are Suggestive Logos More Effective?

Previously, I discussed whether a company or product name was predictive of future success. Now suggestive/descriptive nature of a logo may (or may not) also be a factor.

A recent study, reported in HBR, found that in certain circumstances, what the authors call “descriptive logos” positively influence brand evaluations, purchase intentions, and brand performance.

The study defines a descriptive logo as one that includes textual or visual design elements that communicate the type of product or service offered under the logo. For example, Burger King’s logo shown below is “descriptive” in that it contains burger bun where as the McDonald’s “M” logo is not.

The study found that as compared to non-descriptive logos, “descriptive” logos: (1) make brands appear more authentic in consumers’ eyes, (2) more favorably impact consumers’ evaluations of brands, and (3) more strongly increase consumers’ willingness to buy from brands.

What the authors call “descriptive logos,” I think could be better labeled as suggestive logos because admitting that your (word) mark is descriptive is generally not good. Further, on the spectrum of trademark strength, it may be more appropriate to call these logos suggestive than descriptive, at least in some cases.

Descriptive/suggestive logos may not be appropriate when a company sells goods or services in unrelated fields, such that a descriptive/suggestive logo for one line of products would not be appropriate or make sense for the companies’ other unrelated lines.