Friday, July 11, 2014

Precedential No. 29: After Partnership Breakup, TTAB Declares FAIRWAY FOX Application Void Ab Initio

In this ownership dispute between former business partners over the mark FAIRWAY FOX for golf clothing, the parties invoked the Board's Accelerated Case Resolution (ACR) procedure. Nine months later, they had their decision. Opposer Conolty claimed that she was the prior user and owner of the mark. Applicant Conolty O'Connor LLC asserted that Ms. Conolty lacked standing and was barred from opposing the application by "unclean hands" as a result of "acting in bad faith," and by the doctrines of waiver and estoppel. The Board sided with opposer, deeming the opposed application void ab initio. Kristin Marie Conolty d/b/a Fairway Fox Golf v. Conolty O’Connor NYC LLC, 111 USPQ2d 1302(TTAB 2014) [precedential].


In mid-2008, Kristin Marie Conolty and Kathryn O’Connor began preparations to offer a line of upscale, fashionable golf clothing. Conolty designed the clothing and worked with vendors, while O'Connor assisted with or consulted in the design efforts. O'Connor provided most or all of the funds for the business, and had some responsibility for the business side of the endeavor, but Conolty had input into that side of the business as well. Some documents named the two as "founders" or "co-owners" of the business, and vendors and others viewed both as being associated with the Fairway Fox business.

In 2011, Applicant Conolty O'Connor LLC was formed, with O'Connor as the sole shareholder. However, there was no evidence that Conolty agreed that O’Connor should or would be applicant’s sole shareholder. It was not clear from the record whether Conolty was involved in applicant’s formation, other than proposing names for the entity and titles for herself and O’Connor, nor was it clear whether Conolty transferred, or intended to transfer, any part of the business to applicant.

After the LLC was formed, the two individuals continued to work together, even regarding the filing of the application here opposed. In January 2012 they both participated in the PGA Merchandise Show, where the first FAIRWAY FOX branded goods were sold. In May 2012, the two stopped working together. O'Connor apparently offered Conolty a 20% share of the business, but Conolty rejected that proposal. O'Connor suggested that they "continue to work on the day-to-day deliveries of the product so as not to damage the brand we have developed."

The parties then went on their separate ways, each selling clothing under the FAIRWAY FOX mark. The mark was never assigned, transferred, or licensed, and there were no documents addressing the disposition of the assets upon dissolution of their partnership or joint venture.

The decision: There was no question that opposer had standing, since she clearly had a real interest in this proceeding beyond that of a mere intermeddler, and a reasonable basis for her belief of damage. Although opposer pleaded only priority and likelihood of confusion, the Board found that the issue of ownership, which was the real crux of the case, was tried by the consent of the parties.

The Board concluded that the opposed application was void ab initio because applicant was not the sole owner of the mark. Prior to the first use of the mark in January 2012, Conolty and O’Connor were "by any practical measure, partners, who jointly controlled the quality of FAIRWAY FOX products and who were both, together, perceived as the source of FAIRWAY FOX products." Applicant is controlled by O'Connor, but she had only a joint interest in the mark with Conolty.

If the case is analyzed as a priority dispute, the result is "effectively the same." Any activities of the individuals prior to their break-up inured to the benefit of the jointly-owned business, not to either individual.

As to the asserted defenses, applicant did not pursue the bad faith/unclean hands defense. The claims of waiver and estoppel were not supported by the evidence, since any actions of Conolty vis-a-vis use of the mark or filing the application to register were undertaken in the context of the partnership, not with the intention that O'Connor should enjoy sole ownership of the mark and any registration.

And so the Board sustained the opposition.

Read comments and post your comment here.

TTABlog note:  Somehow I sense a lawsuit somewhere.

Text Copyright John L. Welch 2014.

2 Comments:

At 2:15 PM, Anonymous Anonymous said...

Anyone know a good guide or article on registering marks for new companies? Identifying the right owner of a trademark application can be tricky, and getting it wrong results in the registration being deemed void. Usually the early development of the brand is done by a handful of people. Then a business entity is formed somewhere along the way but it takes some time to transfer ownership of the bank accounts, the contracts, etc. to the business entity. And the trademark application is often filed at some point along that timeline when it's not clear who is "using" the mark at the time the application is filed.

 
At 3:42 PM, Blogger Pamela Chestek said...

To Anonymous 2:15 PM,

I'm not aware of any single document that gives specific guidance, nor is there a universal answer. Ideally the founders will realize the trademark is one of the business assets and deal with it appropriately, along with all the assets that developed during the course of early development. In the less than ideal situation, and you have been asked to file the application, I believe you have to satisfy yourself that the client indeed has the superior rights to the mark—although your asking the question suggests you are probably already doing a pretty good job because you're thinking about it. From my reading, these cases most often arise because a person (sometimes the lawyer too) holds the incorrect belief that he or she will gain ownership of the trademark by registering it.

I think this case is a good way to analyze the situation, under the law of business organizations, and is very similar to the outcome in one of my favorite cases, Lunatrex, LLC v. Cafasso, No. 1:09-cv-1272-DFH-DML, 2009 WL 4506321 (S.D. Ind. Dec. 1, 2009) (blogged at http://propertyintangible.com/2009/12/everyone-owns-mark-so-no-one-may-use-it.html). There are also two decisions in Third Education Group, Inc. v. Phelps, Nos. 07-C-1094, 07-C-1095 (E.D. Wis.), that take a similar approach (second decision here: http://propertyintangible.com/2009/12/act-two.html).

But a different fact pattern, like where various family members operate different restaurants as separate legal entities but all using the same name, may need a very different approach.

 

Post a Comment

<< Home