Updated: Mar 16, 2021
Will the real trademark owner please stand up?
When first starting out in business, it’s just you, yourself, and you, which makes it pretty easy to keep things straight. But at some point you form an LLC. Now you need to draw a distinction between yourself and the business. As time goes on, you may restructure even further. Now you’ve got a parent company and one or more subsidiaries and things start to get complicated. Which entity is the best strategic owner for your intellectual property?
This may not seem like a big deal until you get slapped with a Petition to Cancel your trademark. But by that time, it may be too late to fix it. This is exactly what happened to Floorco Enterprises, LLC.
Read on to learn why it matters who the real trademark owner is.
In Search of a Noble House
Floorco Enterprises LLC (Floorco) became the proud owner of a registered trademark for “Noble House” in November of 2011. All was good until Noble House Home Furnishings LLC (NHH) wanted that trademark for itself. In June of 2013, NHH filed a Petition to Cancel Floorco’s trademark.
There are several different ways to try to get someone else’s trademark cancelled. The one that NHH chose to argue was abandonment. Remember, one of the golden rules of owning a trademark is that you have to actually be using it. If the trademark hasn’t been used in three years, this can constitute “abandonment”. Which means someone else can come in and try to cancel your trademark.
Unfortunately for Floorco, the evidence showed that they weren’t actually using the trademark. Instead, their parent company, Furnco International was the one actually doing the marketing and making the sales. Floorco tried to argue that its parent company’s use should count for the purposes of avoiding abandonment, but the court didn’t buy it. Floorco’s trademark was cancelled, and NHH was able to register “Noble House” for themselves.
I’m sure that Floorco and Furnco would have done things differently had they known that the court would not treat parents and subsidiaries as one in the same. If your business is structured using parents/subsidiaries, here are some important takeaways for trademark strategy:
Parents and Subsidiaries are Separate Legal Entities
While your companies may consider themselves a “family” of businesses, it’s important to remember that under law, they are separate legal entities. This makes it crucial to be crystal clear on who owns what, especially when it comes to intellectual property.
The Key Question in Trademark Cases is Always About Source
The primary concern of the Trademark Office is that the public be able to distinguish the source of goods and services. Because of this, proper trademark ownership requires the trademark owner to control the “nature and quality” of the product. If someone else is really controlling the product, then the public is effectively being deceived regarding the true source.
So does this mean that both the parent and the subsidiary have to be using the mark or else it will be abandoned?
Thankfully, no. The Trademark Office does allow a trademark owner to rely on use by “related companies” in order to avoid abandonment. BUT the trademark owner still needs to control the “nature and quality” of the goods. So the issue for Floorco was not that parent company use never counts. The issue was that Floorco clearly was not the one making decisions and ensuring quality control. All of that was being done by Furnco. As a result, Floorco was not acting as the true “source” of the goods and services.
A Contract Could Have Fixed This
The big takeaway from the Noble House case is that if you want to rely on “related company” use, you may need to get yourself a trademark license agreement. And that trademark license agreement should make it crystal clear that the true trademark owner is still in control of the product.
Interestingly, the court felt that a license usually isn’t necessary if the parent is the trademark owner. This is because, by definition, the parent company usually controls the subsidiary. So if Furnco had been the trademark owner, things might have ended differently.
I’ve said this before but I’ll say it again: trademark is a strategy game. Deciding whether the parent or the subsidiary should register the trademark is a strategy decision to discuss with a good trademark lawyer. The right strategic decision can help you make sure that the trademark stays in the family.
Thanks for reading the Bevel Law Blog! While this information is hopefully helpful to you, nothing in this blog is intended to be legal advice. Always consult a lawyer before making any legal decisions based on topics in this blog.
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