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Intent To Use Trademark Assignment Contract

Emerald Cities Collaborative, Inc. v. Roese, No. 2016-1703, 2016 WL 7210145 (Fed. Cir. Dec. 13, 2016) (not precedential)

The Federal Circuit’s recent decision in Emerald Cities Collaborative, Inc. v. Roese provides a clear indication that any agreement to assign a pending intent-to-use trademark application will be closely scrutinized to determine whether the transfer violates the statutory prohibition against trafficking in inchoate marks. 

Even an agreement, such as the one in this case, that explicitly purports to assign the mark only upon registration will be rejected if other provisions within the agreement transfer too much control to the assignee at the time of execution.  Thus, the very provisions a purchaser would typically include in a protectively drafted trademark assignment, if included in an assignment of an intent-to-use application, might very well cause the resulting registration to be forever vulnerable to cancellation.  Trademark owners should take this holding as a firm reminder that agreements to assign intent-to-use applications must be timed and structured with care and thoughtful counsel.

Section 10 of the Lanham Act, 15 U.S.C. Section 1060(a)(1), provides that no pending trademark application filed pursuant to Section 1(b), otherwise known as an intent-to-use application (an “ITU”), is assignable until the applicant notifies the United States Patent & Trademark Office that it has commenced use of the mark in commerce, either by filing a statement of use or amending the application to one based on use (together a “Statement of Use”).  (The sole exception to this rule, which does not apply in this case, concerns an assignment to a successor to the applicant’s business if that business is ongoing and existing.  See 15 U.S.C. § 1060(a)(1).)  The prohibition is intended to “prevent utilization of the intent-to-use system to traffic in marks” that lack any attendant goodwill.  S. REP. 100-515, 25, 1988 U.S.C.C.A.N. 5577, 5587.

Because of Section 10, purchasers of pending ITU applications from non-successor entities prior to the filing of a Statement of Use often will execute an agreement under which the assignment will take place upon registration or, at least, upon the filing of a Statement of Use, and not upon the agreement’s execution date.

In Emerald Cities Collaborative, the Trademark Trial and Appeal Board (the “Board”) cancelled Emerald Cities Collaborative Inc.’s (“ECC”) registration after Sheri Jean Roese (“Roese”), a defendant in an opposition brought by ECC, challenged the manner in which ECC had purchased the mark from the original applicant, an individual named Perry Orlando (“Orlando”).  Opposition No. 91197060, aff’d, No. 2016-1703, 2016 WL 7210145 (Fed. Cir. Dec. 13, 2016).  Roese demonstrated to the Board and then to the Federal Circuit that the agreement between ECC and Orlando, which was executed before the filing of a Statement of Use, was an assignment effective on the execution date.  Notably, several key provisions of the agreement explicitly indicated that they would not take effect until the application had matured to registration, and, on this basis, ECC’s counsel argued that the agreement was merely an agreement to assign the mark in the future, not an immediate assignment.  Nevertheless, the Board held, and the Federal Circuit affirmed, that the agreement, taken as a whole, appeared to instantly transfer “control and ownership of the . . . application in a ‘manner tantamount to an assignment.’” Emerald Cities Collaborative, Inc. v. Roese, No. 2016-1703, 2016 WL 7210145, at *5 (Fed. Cir. Dec. 13, 2016) (citing Board decision).  As such, the registration was held to have violated Section 10 of the Lanham Act and was cancelled.

The agreement, entitled “Trademark Assignment and License,” set out the terms of a transfer of the trademark THE EMERALD CITY from Orlando to ECC, with a license back from ECC to Orlando.  ECC urged the Court to consider the assignment and license provisions, both of which explicitly referenced the post-registration timing.  The “Assignment” paragraph read:

Orlando agrees to convey and assign unto ECC, all right, title and interest in and to the Mark and any and all derivatives thereof, together with any and all goodwill associated therewith, and the right to sue and recover damages and profits for past, present and future infringement, if any, related to the Mark, at such time as the Mark is registered at the [PTO] . . . .

Id. at *1 (emphasis added by Court).  The “License” paragraph read “Upon registration of the Mark by the [PTO] and completion of the transfer of the Mark to ECC, ECC agrees to license certain rights in the Mark to Mr. Orlando . . . .”  Id. (emphasis added).

However, applying Delaware’s law of contract interpretation (which governed the agreement), the Court looked beyond this language to the whole of the agreement to determine the true nature of the transfer.  In so doing, the Court identified a number of provisions that undermined the timing mentioned in the sections quoted above, including the following:

•  Regarding use of the mark “[b]etween the Effective Date and the Registration Date, Orlando may continue to use the Mark . . . ” and must use the mark by a date certain.

•  Upon receipt of a payment due “promptly” after execution, Orlando must provide ECC’s agent with an irrevocable Power of Attorney “to take over continued prosecution of the application.”

•  The agreement “commences on the Effective Date.”

•  Upon termination of the agreement, Orlando “shall promptly cease use of the Mark.”

•  Orlando must adhere to basic quality control requirements.

•  “Orlando shall not challenge ECC’s use of the Mark or support challenges by third parties, whether before or after the Registration Date.”

•  “Only ECC shall have the exclusive right to file oppositions or claims against the users of confusingly similar trademarks.”

Provisions such as these are typical in arm’s-length trademark assignments with phase-out or license-back components, and it is not surprising that a purchaser would want to obtain these protections vis-à-vis an assignor.  However, the Federal Circuit’s decision strongly indicates that purchasers must be wary of incorporating such terms in an ITU transfer agreement.  Instead, circumspect drafting and/or multiple agreements are likely required so as not to leave the subject registration forever vulnerable to cancellation, and the negotiated agreement moot.

Note:  The Federal Circuit indicated that its opinion is non-precedential, meaning that while parties may cite this case in future Federal Circuit proceedings, the Court will not be bound by its prior holding.  But, as a practical matter, it would be risky for putative assignees of ITUs to ignore the decision or its reasoning.


In the United States, one can file an intent-to-use (ITU) application, in effect reserving the mark and establishing a constructive priority date before the mark is actually used in commerce. The U.S. Patent and Trademark Office (USPTO) will not register an ITU application until the applicant files proof that it is using the mark in commerce. The applicant may do so in the form of an amendment to allege use before the Trademark Examiner approves the mark to be published for opposition, or in the form of a statement of use after the mark survives the opposition period and a Notice of Allowance is issued. An applicant has up to three years from the date of the Notice of Allowance to file a statement of use (SOU) to represent the mark is being used.

Section 10(a)(1) of the Lanham Act, also referred to as the anti-assignment provision of the Trademark Act, prohibits assignments of ITU applications prior to the filing of a statement of use (SOU) or amendment to allege use (AAU), with one exception. See 15 U.S.C. §1060(a)(1). It is possible to assign an ITU application if it is “an assignment to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing.” Among other factors that the courts and Trademark Trial and Appeal Board (TTAB) evaluate when determining the validity of an assignment of an ITU application, are the sufficiency of the transfer documents, whether the assignee is truly a successor to the business, whether the business is “ongoing and existing,” and whether the ITU was filed in the correct entity’s name. The Congressional intent behind enacting the prohibition of assignment of ITU’s was to prevent trafficking of or profiting from the sale of an ITU application. See The Clorox Co. v. Chemical Bank, 40 U.S.P.Q.2d 1098, 1100-01 (TTAB 1996).

Last summer’s TTAB decision in Central Garden & Pet Company v. Doskocil Manufacturing Company, Inc. Opposition No. 91188816 (TTAB August 16, 2013) (“Central”) serves as an excellent reminder that it is important to consider Section 10(a)(1)’s requirements when filing or acquiring ITU applications.

The Central Decision: In Central, All-Glass Aquarium Co., Inc. (“All-Glass”) filed an ITU application for the ZILLA mark on December 7, 2006 for aquariums, terrariums and other types of equipment. All-Glass was owned by a company named Pennington Seed, Inc. which in turn was owned by Central Garden. On June 26, 2007, All-Glass assigned its ITU application to Central Garden, and the registration was issued to Central Garden on February 19, 2008. However, All-Glass continued its business and did not transfer the business over to Central Garden.

Central Garden subsequently became involved in an opposition proceeding against a third party (Doskocil), and in response, Doskocil challenged Central Garden’s trademark rights, arguing that the assignment from All-Glass to Central Garden violated Section 10(a)(1). The TTAB concluded that the assignment from All-Glass to Central Garden did not qualify for the statutory exception to Section 10(a)(1) because the only thing that the entities exchanged was the mark and the “goodwill of the business connected to the mark.” The court noted that no portion of the business to which the mark pertained was transferred from All-Glass to Central Garden. In reaching that conclusion, the TTAB rejected the argument that cancellation of Central Garden’s registration ran counter to the purpose of Section 10, and found that the language of the statute was clear that an ITU application may only be assigned to a successor to the assignor’s business or at least the relevant part of it. Accordingly, the TTAB cancelled the mark. The effect of the TTAB’s ruling was twofold: not only did Central Garden lose its registration, but it lost its ability to claim priority (via the filing date of the ZILLA application) against Doskocil.

The TTAB’s rigid reading of Section 10 was initially set forth in Clorox Co. v. Chem. Bank, 40 USPQ 2d 1098, 1106 (TTAB 1996). In Clorox, an assignment of the ITU application was made from the trademark owner to its bank as collateral for a loan prior to the filing of the SOU. The assignment included a provision that once the loan was paid off, the ITU trademark application would be transferred back to the owner. The TTAB analyzed the language of the document at issue and found that, regardless of the parties’ intent, the agreement was an assignment of rights that violated Section 10(a)(1). The TTAB concluded that the application did not qualify for the statutory exception because there was no transfer of rights of the ongoing business to which the mark pertains, and the bank was not a successor in business to the company since the company was still going to operate its business. The TTAB ruled that the improper assignment voided the application, and that any resulting registration must be cancelled.

Other TTAB panels have reached a similar conclusion. In Railrunner N.A., Inc. v. New Mexico Department of Transportation (“NMDOT”) and New Mexico Mid-Region Council of Governments (“MRCOG”), Opposition No. 91172581 (TTAB, July 17, 2008) (not precedential) (“Railrunner”), MRCOG filed its ITU application in February 2005. In July 2007, MRCOG assigned its ITU application over to NMDOT before filing an AAU or SOU. An opposition proceeding was instituted which challenged the assignment. In response, NMDOT provided only the assignment and a brief affidavit as evidence of the succession of the business, and did not provide any detailed explanation of the transfer of the business or documents evidencing the succession of the business. The TTAB stated that it was incumbent upon the applicant to either provide documents evidencing the succession or to recite facts in an affidavit from which the fact-finder could conclude the transfer took place. The TTAB granted Railrunner’s summary judgment motion and voided the ITU application because the assignment of the opposed ITU application was not to a successor in business. Cases like Railrunner are a reminder that the acquiring party must ensure the sufficiency of the transfer documentation.

In Amazon Technologies, Inc. v. Jeffrey S. Wax, Opposition No. 91187118 (TTAB August 31, 2010), Mr. Freeland and Mr. Wax jointly filed an ITU application for AMAZON VENTURES in March 2000. Mr. Freeland assigned, in October 2008, his the entire right, title and interest in and to AMAZON VENTURES to Mr. Wax. In a latter opposition, Amazon Technologies argued that Freeland and Wax violated Section 10(a) because they had no ongoing and existing business; however the TTAB held that an assignment is defined as “[a] transfer or making over to another the whole of any property” and that in this case there was no transfer to “another” (as Mr. Wax was an original joint applicant and was now the sole remaining applicant). The TTAB ruled that the facts evidenced a change in ownership, which did not violate 15 U.S.C. § 1060(a)(1) because it was not an “assignment” that was prohibited under Section 10(a)(1).

Download: Intent to Lose? Be Wary of Pitfalls Involving Intent-to-Use Trademark Applications.

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