• Struggling Business That Keeps Trying Earnestly To Sell Trademarked Goods Can Protect Mark From Abandonment
  • September 5, 2006 | Author: Jonathan M. Eisenberg
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • A failing business that continues to transport and sell its trademarked goods to deplete the inventory can thereby avoid abandoning the mark, according to a recent ruling of the U.S. Court of Appeals for the Ninth Circuit. Electro Source, LLC v. Brandess-Kalt-Aetna Group, Inc.

    Beginning in 1995, Ronald Mallet had a business selling backpacks and luggage bearing a mark, registered with the U.S. Patent and Trademark Office, containing the word “pelican” and a design (the “Pelican Mark”). The business enjoyed moderate success at first, so Mallet ordered a large group of backpacks for retail sale. But the enterprise experienced a steep decline in 1997 and did not ever recover. Nonetheless, for the next five years, through 2002, Mallet continued to sell a few of the Pelican Mark backpacks each year at trade shows and out of the back of his car (while employed as a salesperson for other unrelated product manufacturers). He documented some but not all sales of the Pelican Mark backpacks.

    In August 2002, Mallet assigned the Pelican Mark and all goodwill from his business to Electro Source, LLC, which licensed use of the Pelican Mark back to Mallet. Thereafter, until December 2002, Mallet continued to try to sell off his inventory, before finally assigning the remaining inventory to Electro Source.

    Pelican Products, Inc. and Brandess-Kalt-Aetna Group, Inc. (together, “PPI”) manufacture, market and distribute a variety of products under the marks PELICAN, PELICAN PRODUCTS and PELI PRODUCTS. PPI has a registered U.S. trademark for WWW.PELICAN.COM.

    In 2002, Electro Source sued PPI in federal court in Los Angeles, CA for infringement of the Pelican Mark and other claims. PPI responded with counterclaims and affirmative defenses, including the assertion that Mallet had abandoned the Pelican Mark prior to assigning it to Electro Source.

    On a motion for summary judgment, the trial judge agreed with PPI that the Pelican Mark had been abandoned by Mallet, who therefore could not have effectively assigned the mark to Electro Source, meaning that Electro Source could not have enforceable rights in the mark.

    Electro Source appealed that ruling to the Ninth Circuit, which reversed, holding that on the record presented it could not be found that Mallet had abandoned the Pelican Mark.

    The Ninth Circuit restated the law that a trademark is deemed abandoned when its bona fide commercial use – i.e., use in the ordinary course of trade, as opposed to nominal use aimed merely at sustaining the mark – has been discontinued with intent not to resume such use. Nonuse of this sort for three consecutive years is considered prima facie evidence of abandonment. But if there is continued use, a prospective intent to abandon the mark or the underlying business does not decide the issue of abandonment. And “[e]ven a single instance of use is sufficient against a claim of abandonment of a mark if such use is made in good faith,” the Ninth Circuit stated, quoting a 36-year-old case.

    Accordingly, the Ninth Circuit found that, regardless of whether Mallet had intended to shut down his floundering business before assigning the Pelican Mark to Electro Source, Mallet could not abandon the Pelican Mark until he ceased all use of the mark, intending never to resume that use. The record reflected that, on the contrary, Mallet kept plugging away, displaying, attempting to sell, and in fact actually selling some Pelican Mark backpacks through 2002. Given the circumstances of a business drop-off (and Mallet’s ill health for part of the intervening years), Mallet’s modest but earnest sales efforts sufficed to defeat PPI’s abandonment defense on summary judgment.

    The Electro Source case provides useful guidance for any struggling company trying, at a minimum, to maintain its value for a turnaround or a buyout. Through good-faith attempts to continue selling goods or services under the mark that the company has established, even if the efforts yield only modest sales results, the company may be able to keep its mark alive.