Lack of "Use" Undermines Common-Law Trademark Claim

March 31, 2016

Following our last article about "use" and its relationship with the trademark application process, another case we came across further illustrates this concept, albeit in a more limited manner.

Weld-Tech and Aquasol Corp. both sell a plumbing apparatus called "EZ-Purge." After Aquasol filed for and received trademark registration for the EZ-PURGE mark, Weld-Tech sued claiming that it was the first to use that mark, although without trademark protection, and that Aquasol's use infringed on Weld-Tech's common-law trademark, obtained through Weld-Tech's use. Weld-Tech argued that even if Aquasol had obtained a trademark registration, Weld-Tech's prior use entitled it to some protection so long as the mark was eligible for registration.

The timing was as follows: Weld-Tech began marketing its product in late 2003 or early 2004 and made its first sale in late 2004. It filed a patent application in March 2004. On April 30, 2004, Aquasol filed a trademark application, based on Aquasol's intent to use the mark in commerce. The question before the court was which party had priority over the mark, Weld-Tech's common-law use or Aquasol's intent to use application.

The court in Weld-Tech Aps. v. Aquasol Corp. first explained that when two companies seek to protect the same mark priority is determined by the first to appropriate and use the mark in commerce so long as there is an intention to make continued use of the mark. Filing an intent to use the mark is sufficient for this showing. But here, Weld-Tech claimed to be the senior user of the mark, which could trump Aquasol's trademark registration.

The court explained that prior use without a registration requires actual use and not just intend to use. Even marketing that incorporates a mark is not enough when common-law rights are at issue, only actual use (typically, sales) suffices for that showing. Thus, because Weld-Tech's first sale was after Aquasol's registration application defeated any claim that Weld-Tech made based on common-law rights, and its claims were dismissed.

In this case, the nuances of the trademark process pitted an unregistered mark with actual sales against an intent to use application without sales. This case highlights the benefit of filing for a trademark registration even if no sales have yet been made.

Apple Refused Trademark Registration for IPOD Mark on its Instructional Pamphlet

March 21, 2016

Late in 2015, Apple's trademark application for "IPOD," as used in connection with the pamphlet or instruction manual that accompanies an iPod, was found by an appeals panel to not be "used in commerce" in connection with any good, and denied registration by the United States Patent and Trademark Office ("USPTO"). The brief discussion of how this decision was reached is instructional as to what an applicant must establish to satisfy the "use in commerce" element that is part of a trademark application process.

Apple had filed for a trademark for the IPOD mark as used on its iPod instruction manual inserts. The USPTO denied Apple's application, finding that the manual was merely instructional and not used in commerce as a "goods in trade." Apple appealed.

The Trademark Trial and Appeal Board ("TTAB") discussed generally the qualifications necessary for the issuance of a trademark registration. As part of that, the applicant must show either a use or intend to use of a good in commerce. Because a trademark is put in place by an owner of a good "'to identify and distinguish" that good and to indicate its source, those goods must be "used" in commerce. This ties that good to the producer in the marketplace and allows that producer to alone be associated with a specific good. To do that, it must be deemed a "good in trade" or commerce. Apple's IPOD pamphlets were not stand-alone goods in trade, but simply sold "incidental" to the iPod itself. As such, the IPOD mark as used on the pamphlet did not qualify for registration. The same refusal would be issued if an application sought protection for letterhead, for example.

Apple argued that because the pamphlets are exchanged or transported in commerce bearing the IPOD mark and that consumers understand the iPod brand, it should be eligible for registration. This, however, did not overcome the fact that the pamphlets were never sold individually but always with the iPod, as a means to use it, rendering them incidental to the iPod itself. Also relevant was the fact that Apple is not in the business of selling pamphlets.

The TTAB thus affirmed the refusal to issue a registration for the IPOD mark when used on the pamphlets.

Finding No Consideration Court Refuses to Enforce Non-Compete Agreement

December 29, 2015

NBTY, Inc. is a manufacturer and seller of vitamins and nutritional products. Piping Rock Health Products, LLC is a competitor run by NBTY's former CEO. Between the end of 2014 and the middle of 2015, a number of high-level NBTY employees resigned and went to work at Piping Rock. In 2011, while already employed, these individuals signed stock-option/trade secret agreements with Alphabet Holding Company, Inc., NBTY's parent. Under these agreements, the individuals were (i) able to purchase a number of shares of the common stock of Alphabet, vesting over a period of time, and (ii) learn NBTY's trade secrets. These agreements also contained restrictive covenants prohibiting the individuals from competing with NBTY for a one-year period following the end of their employment with NBTY and from revealing any of NBTY's business secrets. After they resigned and went to Piping Rock, NBTY sued to enforce these individuals' non-compete agreements.

Judge Emerson, sitting in the Commercial Division of Suffolk County, refused to enforce the non-compete provision. The court considered Delaware law (as provided for in the parties' agreements but noted that it largely tracked New York law), and found that the non-compete restrictions were not supported by valid consideration. This meant that these individuals received no additional benefit for agreeing not to compete and the agreements were therefore not enforceable against them. NBTY argued that the options and access to NBTY's trade secret were sufficient consideration. The court disagreed and stated that there was no evidence that these individuals did not have access to these secrets before they signed, and the options expired, unexercised, 90 days after they left NBTY. Thus, the court held that because the individuals had a choice between their continued employment with NBTY and exercising their benefits, or foregoing those benefits and competing, which they did, resulted in the individuals receiving no benefit in exchange for the non-compete agreements. The court noted further that while Delaware law allows consideration to be in the form of continued employment, the language of the agreements with NBTY specifically provided that NBTY made no promise of continued employment.

Finally, the court also invalidated the non-compete agreements, finding that they were overbroad in restraining competition in North America, Europe and China.

While the court decision does not detail whether these individuals could have left NBTY and exercised their options-it seems like they could have-it also seems that these departing NBTY employees specifically did not act on their options so that they could argue the lack of consideration for the non-compete allowing them to move to Piping Rock. They were clearly thinking ahead.

NBTY, Inc. v. O'Connell, et al.

Recent News on Arson Science

December 28, 2015

A short while back, we wrote about fire science being debunked. Recent news highlights this phenomenon.

Long-held Beliefs about Arson Science Have Been Debunked

December 15, 2015

The ABA Magazine has a fascinating write-up about arson and fire science that has been called into question by subsequent research. And while it is freeing long-convicted people from jail, some fire investigators are reluctant to move past the outdated science.

For more information about Han Tak Lee's appeal that freed him from prison after 25 years for allegedly setting a fire that killed his daughter, look here.

Court Grants Discharge of Residential Mortgage after Foreclosure Action Is Dismissed

December 10, 2015

In 2005, a property owner borrowed $452,000 with which to buy a residential property. After the borrower's default, that lender assigned the loan to HSBC. HSBC commenced a foreclosure action which was dismissed in 2007 for failure to serve the borrower. HSBC waited until 2009 to file a second foreclosure action. That action was conditionally dismissed in 2012 because HSBC had not shown proof that a Notice of Default had been served upon the borrower, as required by the loan documents. The conditional dismissal allowed HSBC 60 days within which to provide the required proof, or the case would be dismissed automatically. In 2013, noting that no such proof had been filed with the court, the second foreclosure lawsuit was formally dismissed. In 2014, the borrower sold the property to plaintiff, Ellery Beaver, LLC. Fourteen months after the case was dismissed, HSBC sought its restoration against the borrower. The court denied HSBC's request.

Thereafter, Ellery Beaver, LLC sought a court order discharging HSBC's mortgage claiming that the statute of limitations for a foreclosure action to be commenced had expired and the property should not be encumbered by an unenforceable lien. HSBC argued in opposition that because the first lawsuit was dismissed for failure to serve the borrower the time period to sue could not have commenced when that first lawsuit was filed. The Court disagreed, finding that the date of service was not relevant to the statute of limitations consideration. What mattered was the date when HSBC accelerated the loan, which could not have been later than when HSBC commenced the first foreclosure action, in 2005. Thus, the six year limitation period expired in 2012, six years from 2005, and HSBC's loan would be discharged and the mortgage canceled.

Ellery Beaver, LLC v. HSBC Bank USA, N.A.

Laws Struggle to Keep Up as Hoverboards' Popularity Soars

December 3, 2015

The New York Times has an important write-up, with information that may not be widely known, including the assessment of fines on riders.

Laws Struggle to Keep Up as Hoverboards' Popularity Soars


Court Compels Cablevision to Disclose Identify of Parties Posting to Yelp.com

October 26, 2015

Gerald L. Cohen, D.D.S sought to force Cablevision to disclose the identity of an individual who posted negative comments to Yelp.com. Cohen intended to use that information to commence a lawsuit for defamation against the poster. Previously, Yelp.com had been compelled to provide to Cohen the IP address of the poster, which lead Cohen to discover that Cablevision had set up the account at that IP address. With that information in hand, Cohen asked the Court to force Cablevision to disclose that person's identity. The Court found that Cohen had demonstrated an injury and meritorious claim and was entitled to this information notwithstanding the ordinary expectation of a poster's privacy. The Court would not allow unchecked speech, finding that the "use of electronic speech requires a balancing of the two interests, namely free expression versus the right to respond to such expression. Free speech in the electronic age is not unfettered."

Guest Post: Avoid LegalZoom

October 8, 2015

This post was authored by Trippe Fried, Esq., and appeared at http://www.sourcedgeneralcounsel.com/news/2015/8/16/its-like-the-plague-why-entrepreneurs-should-avoid-legalzoom.

Though LegalZoom purportedly offers a low-cost alternative for routine legal matters, in reality it sells only one thing: A false sense of security. And let's dispense at the outset with the myth that it is self-serving for a business lawyer to be critical of an incorporation service. There is usually more to be made in attorneys' fees helping clients clean up the messes LegalZoom (or Clerky, or the like) leave behind than handling routine incorporations. But it still needs to be stressed: LegalZoom's "why use a lawyer when you don't need one" logic is disingenuous, misleading, and potentially very costly.

You don't need a lawyer, accountant, or service to incorporate. Anyone can do it by visiting the official government website of the jurisdiction of formation. Some states like New York and New Jersey offer self-explanatory online filing; others like Delaware and California provide easy to complete forms that you submit by mail. Follow the instructions and . . . Voila! . . . you're business is incorporated.

Starting a business is about forming relationships. You have new partners, co-owners, vendors, customers, and investors. The rights and responsibilities of each need to be discussed, clearly established, and then documented. A lawyer's ability to guide clients toward well-defined, workable, and mutually beneficial relationships and then to capture the spirit and intent of the parties in writing is indispensable. A well-drafted contract is tailored to the signatories' specific needs and easily understood by them without consulting counsel. The boilerplate, one-size-fits-all tomes LegalZoom cranks out look nice but are often confusing to the point of uselessness and contain pages of superfluous language. Just this week the owners of two different companies with which I work learned that the canned documents they used to incorporate prior to hiring me, while voluminous and very official looking, contained provisions that could prove very costly because they didn't meet the specific needs of the businesses and their owners.

This is not to say that a business should spend a lot on legal services at the start-up phase. Quite the contrary: The key is to find out what your business needs. Triage is part of the process: Don't pay now for services that won't be necessary until a later date. But simply buying a bunch of documents and assuming you're covered is foolish. Entrepreneurs - that is, people serious about starting a successful business - know better than to use form-fillers for legal advice.

Buyer Not Obligated to Close on Property for Which He Does Not Have Exclusive Use

August 25, 2015

A buyer entered into to a contract to purchase a penthouse co-op apartment for $27.5 million. Part of the unit being purchased included a terrace, which was to be for the buyer's exclusive use. Between contract and closing, this exclusive use was questioned as the board intended to convert the roof to a common area and provide access to the roof through the penthouse terrace. Obviously, the buyer would not agree to that invasion of privacy necessary for roof access. The board provided conflicting authorizations and plan drawings, and had to be compelled to provide the co-op plans. The buyer informed the seller that it was canceling the contract and demanded the return of its down payment. The board then withdrew its demand for terrace access but refused to provide an unqualified statement that the roof was not common area, that no access would be provided for the terrace or that the board would not in the future raise this issue. Nonetheless, the seller refused to return the downpayment, claiming that the buyer was getting the co-op as described in the contract. The buyer disagreed and refused to close. Litigation followed over the $2.7 million downpayment. The trial court decided that the buyer's failure to appear at the closing and see what plan was delivered was a breach, and refused to direct the return of the downpayment.

The appellate court disagreed, and found that the seller's inability to provide an unqualified promise by the board not to convert the roof to a common area and allow the buyer private and exclusive use of the terrace supported a finding that the seller was unable to deliver the apartment as promised. The Court seemed unimpressed by the board's qualified promise not to interfere, given the board's prior conduct, and the buyer's need to interact with the board on some regular basis. The appellate court was concerned that a fight would erupt in the future and the Buyer should not be compelled to buy a "problem" property. All of this, supported the buyer's right to rescind the purchase contract.

Pastor v. DeGaetano, First Dept. 2015

Landlord Cannot Collect More than Actual Damages

August 12, 2015

Landlord and Tenant entered into a long-term commercial lease. After the Tenant vacated, Landlord terminated the lease, and sued to recover legal possession of the space and for rents that were then past due and owing. Landlord won that lawsuit. Thereafter, the Landlord commenced a second action seeking the amount that the Landlord would have collected assuming the completion of the full lease term.

The Court of Appeals confirmed the Landlord's attempt to recover that rent, but held that the Landlord could not recover more than the value of the lease. Because the lease allowed the Landlord to hold possession of the space and accelerate and collect the not discounted rent that would otherwise become due over the term of the lease, the Court determined that a hearing had to be held to decide if that amount, given that the Landlord had relet the space, was disproportionate to the Landlord's actual loss, even though the Landlord had possession but no duty to mitigate.

172 Van Duzer Realty Corp v. Globe Alumni Student Assistance Association, Inc.

Right to Privacy Is Not Absolute

July 14, 2015

As we discussed on this blog some time ago, an artist's freedom of expression may trump an individual's right to privacy. This issue has again reached the courts and this principle has been reaffirmed.

Defendant Arne Svenson surreptitiously photographed the residents of a neighboring building through its glass facade. After a year of this conduct, Svenson exhibited these photos in a gallery, including photos of private scenes, bragging that the subjects did not know they were being photographed. Plaintiffs objected, especially because some of the children that were photographed were identifiable. Svenson agreed to remove one of the photos, but not all of them. As time went on and these photos became public knowledge, plaintiffs sued Svenson, alleging invasion of privacy, among other claims. Svenson defended himself by claiming that the photographs were protected by the First Amendment. The lower court agreed, finding that the photographs were not just a business but a form of art. The family appealed.

The First Department traced the statutory background to the right to privacy law. The court noted that the broad language of the statute prohibited the use of one's '"name, portrait, picture or voice'" in advertising or trade. The Court explained that the term "advertising or trade" was drafted specifically to avoid running afoul of the First Amendment, which protects news or issues impacting the public. Those exceptions, wrote the court, are also extended to items protected under the First Amendment, including artistic expression. The only practical limitations are found where a photo that was not newsworthy was sold under the guise of something newsworthy or of importance to the public, or where the relationship between the expression and the subject of the image bore no reasonable connection.

In this case, there was no real dispute that the pictures were items of art, and despite the obvious profit motivation and questionable methods in obtaining the pictures, no violation of plaintiff's privacy could be found.

Failure to Show "Use" Defeats Trademark/Service Mark Registration

July 6, 2015

There has been recent discussion about what constitutes "use" of a mark when seeking trademark registration (and which applies equally to a service mark). This discussion has addressed the requirement that a proposed trademark be "used" or be "in use" when a trademark registration is filed with the United States Patent and Trademark Office ("USPTO"). Before we explore this, and a recent straight-forward case that explains this issue in an easy to understand setting, a brief background is necessary.

When filing a trademark application for Federal registration and protection with the USPTO, one must allege either "actual use" of the proposed mark in interstate commerce, or a bona fide "intent to use" the proposed mark in interstate commerce. There is no ability for a trademark applicant to reserve a trademark registration if there is neither an actual "use" or a real intent to use a particular mark or logo in connection with a commercial venture. (This is obviously different than reserving a domain name or address, which has no such requirement.) If actual "use" is alleged in the application, the applicant must show that use. If the applicant elects "intent to use" as the basis for the application, the applicant signs a statement supporting that intent and will be required to update the application once actual interstate "use" is established. It goes without saying that both the "use" and "intent to use" claims must be legitimate.

The viability of the applicant's alleged "use" was questioned in Couture v. Playdom, Inc., where Playdom sought the cancellation of Couture's registered service mark based on Couture's failure to actually use the PLAYDOM mark in connection with a viable business. The proof of use submitted to the USPTO by Couture in 2008, when Couture filed his application for PLAYDOM, included a screen shot of Couture's website, which stated that entertainment services of his company, PlaydomInc.com, would be offered. However, no actual services were offered by Couture or PlaydomInc.com until 2010.

In 2009, Playdom, Inc. filed an application for the PLAYDOM mark, which was rejected by the USPTO based on Couture's existing registration. Playdom then sought the cancellation of Couture's existing PLAYDOM registration claiming that in 2008, when Couture filed his application, he was not using the PLAYDOM mark in commerce sufficient to support Couture's claim of actual use of the mark. The Trademark Trial and Appeal Board agreed, and canceled Couture's mark, finding that in 2008, Couture did nothing more that advertise "his readiness" to provide services, but was not actually providing those services in commerce. Couture thereafter appealed the cancellation of his registration to the Federal Circuit.

The court commenced its decision by reviewing the Federal laws that govern trademarks and service marks, known as the Lanham Act. The court noted that a service mark is used in commerce when, as of the application's filing date, it is used "'on services when [1] it is used or displayed in the sale or advertising of services and [2] the services are rendered in commerce, or the services are rendered in more than one State or in the United States and a foreign country and the person rendering the services is engaged in commerce in connection with the services.'" '"The term 'use in commerce' means the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark.'" Preparation to use a proposed mark is not "use" in commerce, the mark must be used "'in conjunction with the services described in the application for the mark.'" Advertising of some future service (or good) can never be deemed sufficient use to support an application. The advertising must address an existing service to be included as the "use" alleged in an application.

With this lead, it is not difficult to guess the outcome. The court decided that property rights in a trademark do not exists unless the right is in connection with an established business with which the mark is used. In other words, any rights to a mark '"grows out of its use, not its mere adoption.'" To show use, one must actually provide the service. With this, the court found that in 2008 Couture was not using the PLAYDOM mark and affirmed the cancellation of Couture's registration.

As in many other technical areas, a detailed explanation and understanding is required. Please let us know if we can answer any trademark question or concern.

Real Estate Broker Entitled to Recover the Value of Its Services

March 2, 2015

Goli Realty Corp., commenced an action for the recovery of brokerage commissions. Goli sued Halperin claiming to have brought a buyer that was ready, willing and able to purchase certain real property that Halperin and his entity, SPJ LLC, were looking to sell. Goli prepared marketing packages for Hess Oil, Walgreens, and others, detailing the property's attributes. Hess and Walgreens responded with interest, and Goli showed the property to Hess. Hess had Goli send Halperin a proposal which provided for the minimum rent required by Halperin. Goli sent its commission agreement to Haleprin with Hess's proposal. Thereafter, Halperin contacted Hess directly. Shortly thereafter, Halperin informed Goli that he was not interested in a gas station as a tenant and claimed that Goli had promised to provide an agreement with Walgreens. A few days later, Goli presented Halperin with a proposal from Walgreens, also with the minimum rent. Goli claimed that Halperin agreed to proceed with negotiations with both prospective tenants and to consider how to buy an adjacent property. Despite what Goli had been told, it learned that Halperin had signed a lease with Hess. Goli sued for its brokerage commissions.

Reviewing how the Court discussed the facts and party testimony makes clear that it found Haleprin's testimony to not be credible. At one point, the Court states that outright. Among other things, the Court seemed troubled by Halperin's inability to explain why SPJ did not agree to a lease with Walgreens, as brokered by Goli, if Halperin would not accept a gas station tenant, especially as it ultimately signed with Hess.

At the end, the Court was able to find that an enforceable brokerage agreement existed despite the absence of a formal writing. There was no question that Goji was asked to find a tenant and did so, securing two acceptable tenants. Thus, Goji was entitled to the value of its services, which were the same as the commission that he demanded in his proposed brokerage agreement (even though the Court noted that those commission may have been a bit higher than market rates). The Court did not allow that amount to be awarded against the individual Halperin defendants, however, because Goji had done the work for SPJ, LLC.

This point is critical in any lawsuit as it highlights the importance of obtaining some security when dealing with entities. While Goli obtained an award of $293,962, that award was against SPJ, LLC only. If for some reason SPJ cannot pay that amount and has no assets, Goli collects little or nothing. Had Goli had some agreement with the individual defendants, collecting would be far less of a concern. At a minimum, the judgment could have been obtained against an individual and not just a potentially worthless entity.

This case does two things: It highlights the general rule that a broker is entitled to commissions if it is asked to find a tenant and does so, even if that agreement is not in writing. It also illustrates the pitfalls of entering into an agreement with an entity without any security or guaranty from the individuals behind that entity. The broker might be entitled to a fee but without the ability to collect from a defunct entity.

Transfer of Looted Company Held Valid

February 10, 2015

Steve Hong is the sole shareholder of Koryeo International Corp. Hong sued his mother, Kyung Ja Hong for looting Koryeo before she transferred the corporation to him.

Hong worked for the corporation after law school. His parents promised to transfer the corporation to him in exchange for his agreement to work for a minimal salary. After the death of Hong's father, Mrs. Hong assumed sole ownership and control of corporation. In 2012, Mrs. Hong transferred ownership and control of the corporation to Hong. Upon that transfer, Hong learned that the corporation's bank account held some $50,000, despite revenue in the millions of dollars. Hong and the Corporation sued his mother, claiming that she looted the corporation prior to its transfer, leaving him with a virtually worthless entity. Mrs. Hong sought dismissal of the claims.

Initially, the court found that because Mrs. Hong was the sole shareholder when she allegedly looted the corporation, the corporation could not be a plaintiff against her. The Court would not find anything wrongful in the corporation's actions, or claims of a wrong, when those actions were sanctioned by its sole shareholder. The Court then held that the vague promise to Hong, made 20 years before the transfer, was too indefinite to create a true contract. Moreover, found the court, Hong received exactly what he was promised--the corporation--and even if looted, that was all he was promised.

Keep in mind: There are few exceptions to the rule that any business agreement--even with one's mother--should be set out in a detailed writing. Oral or indefinite agreements are fertile grounds for long-term legal battles.