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Did Racebrook's Recent Trademark Auction Miss The Mark? The Perils Of Purchasing Intent-To-Use Trademark (ITU) Applications and Recycling Abandoned Trademarks

Summary/Conclusion
A number of ITU applications were recently auctioned with, arguably, disappointing results.  It remains to be seen whether trademarks acquired through the purchase of ITU applications are valid where the applications were filed solely for the purpose of selling the applications. 

Background – The Auction
Racebrook Marketing Concepts recently auctioned a number of pending, intent-to-use trademark (ITU) applications directed to well known, formerly abandoned trademarks.  An ITU application is a federal application for trademark registration for a mark that is not currently in use but for which you have a bona fide intent to use at a future date.

The available applications and issued marks at the auction included Collier's (a magazine published weekly from 1888 to 1957), Saturday Review (another weekly magazine which is no longer published), General Cinema (a nationwide chain of movie theaters that operated from 1935 until 2002), Infoseek (a search engine which is no longer in use), Branniff  (an airline that operated from 1928 until 1982) and Shearson (a series of investment banking and retail brokerage firms from 1902 until the discontinuation of the name in1994).

ITU applications for 170 discontinued product and corporate names were up for auction. Two dozen, or approximately 14%, were sold.  The high bid of $45,000 was for the Shearson mark.  Between the low number of marks sold and the approximately $150,000 raised, the auction had to be disappointing to the owners of the marks.

Two Reasons Why The Auction Was Not A Smashing Success – Legal and Marketing Concerns
We can think of at least two reasons as to why the auction was not a smashing success.

First, section 10 of the Lanham Act which governs federal trademark registrations, provides a restriction on the assignment (transfer of ownership in) of ITU applications.

Prior to the required filing of a statement showing actual use of the mark in commerce, the applicant may only assign an ITU application to a successor to the business of the applicant to which the mark pertains, where there is an existing, ongoing business.  In plain English, this forbids the assignment of ITU applications where the applicant does not have an existing business related to the mark.

The policy behind the law is to prohibit people from registering marks in the absence of actual use, solely for the purpose of selling the mark.  In a sense, this is trademark law's way of avoiding the cyber squatting issue that has run rampant in the world of the internet.

If there is no ongoing and existing business to which the mark pertains, the ITU application cannot be assigned.  Moreover, the case law (Clorox Co. v. Chemical Bank, 40 USPQ2d 1098) suggests the underlying application could be void.  Additionally, if there was never a bona fide intent to use the mark, the application was filed under false pretenses.

One possible way around this problem, and the method indicated on the auction's website, is for the seller of the ITU applications to first provide the purchaser with an interim license for the mark. The licensee's use of the mark would then be used to satisfy the use requirement. Once the use requirement is met, ownership of the application could then be transferred from the seller to the purchaser.  The mark may, however, be under a cloud if the applicant did not have, from the outset, the requisite intent. 

Second, while we may remember old, discontinued marks with a sense of nostalgia, nostalgia alone, absent a careful marketing and branding campaign, will rarely be sufficient to resurrect the goodwill of a bygone era.  Thus, any such marks would fetch a lower price than a live mark with accompanying, real goodwill.

This article was prepared by Jonathan Grad. Jonathan is an intellectual property lawyer and partner at Vidas, Arrett & Steinkraus. For help with your trademark matters, please contact Jonathan at 952-563-3010 or via email.

Disclaimer
This article should not be considered legal advice. Receipt of this article does not establish an Attorney-Client Relationship. We do, however, invite you to contact us if you would like us to represent you.

 

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