Thursday, April 07, 2016

Precedential No. 9: Use by Parent Company Does Not Save Subsidiary's Registered Mark from Abandonment

The Board granted a petition for cancellation of a registration for the mark NOBLE HOUSE for furniture, ruling that Respondent Floorco had abandoned the mark. The Board held that use of a wholly-owned subsidiary's registered mark by a parent entity does not inure to the benefit of the subsidiary when the parent controls the nature and quality of the goods. Noble House Home Furnishings, LLC v. Floorco Enterprises, LLC, 118 USPQ2d 1413 (TTAB 2016) [precedential].

Section 45 of the Trademark Act provides that a mark shall be deemed abandoned when its use has been discontinued with intent not to resume use. A period of three years of nonuse constitutes prima facie abandonment.

Here, the application underlying the challenged registration was filed under Section 1(b). Respondent Floorco filed its Statement of Use on August 18, 2011, claiming a first use date of December 3, 2010. The registration issued on November 1, 2011. The last sale of furniture under the NOBLE HOUSE mark was made on July 14, 2009, after which the products were "sporadically marketed," but without further sale.

Although sales ceased on July 14, 2009, the three-year period of nonuse for purposes of abandonment did not begin to run until the Statement of Use was filed, since an intent-to-use applicant "need not use its mark until it files its statement of use." Consolidated Cigar Corp. v. Rodriguez, 65 USPQ2d 1153, 1155 (TTAB 2002). The relevant period of nonuse, then, began on August 18, 2011. The evidence of subsequent nonuse established a prima facie case of abandonment.

Nonuse of a mark due to lack of demand may not constitute abandonment if the owner continues its marketing efforts. See, e.g., American Lava Corp. v. Multronics, Inc., 461 F.2d 836, 174 USPQ 107, 110-11 (CCPA 1972); Daybrook-Ottawa Corp. v. F.A.B. Manufacturing Co., 152 USPQ 441 (TTAB 1966). Respondent asserted that it had been marketing and advertising NOBLE HOUSE brand furniture as available for sale.

However, it was not Floorco that was marketing and advertising the products, but its parent corporation, Furnco. Moreover, the latter controlled the nature and quality of the furniture that may have been sold under the NOBLE HOUSE mark prior to the period of nonuse.

Section 5 of the Trademark Act provides when a mark is used legitimately by related companies, that use shall inure to the benefit of the registrant or applicant for registration. Section 45 defines "related company" as follows: "The term 'related company' means any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods and services on or in connection with which the mark is used."

The Board noted that in most cases the affairs of a subsidiary are controlled by the parent, and so no license or other agreement is needed regarding a mark owned by the parent and used by a subsidiary. A parent corporation "better fits the bill as the true owner" of the trademark. Here, however, Furnco authorized its subsidiary, Floorco, to be the owner of the registration. But parent Furnco did not meet the definition of a related company - i.e., an entity whose use of the mark is controlled by the registrant with respect to the nature and quality of the goods.

Accordingly, the advertising and marketing materials that identify Furnco International Corporation as the source of the NOBLE HOUSE furniture products cannot be deemed use of the mark by Respondent and cannot show that Respondent intended to resume use of the NOBLE HOUSE mark.

Therefore, the Board found that Respondent Floorco abandoned the mark NOBLE HOUSE by three years of nonuse with no intent to resume use.

Fraud: Petitioner also alleged that Floorco committed fraud on the USPTO when it submitted its specimen of use. The Board dismissed the claim because Floorco did not willfully make a material misrepresentation: it held the mistaken belief that, "whatever the legal significance of the parent's activities, they inured to Respondent's benefit." In short respondent did not intend to deceive the USPTO.

Read comments and post your comment here.

TTABlog comment: So, Floorco's mistaken reliance on Furnco's promotional materials was not Fraudco.

Text Copyright John L. Welch 2016.


At 9:09 AM, Anonymous Anonymous said...

My understanding here is that there may have been a legitimate basis for cancelling the registration based on non-use of the mark (particularly at the time that the Statement of Use was filed). Yet, the TTAB's basis for cancellation was that the wholly-owned subsidiary and the parent company are not related companies. SMH...

Again, I didn't read the opinion, but I get the distinct impression that the TTAB is trying to suppress these fraud claims for fear of opening pandora's box. In this case I think they arrived at "the right result" without allowing the claim of fraud or non-use.

Seriously, in an inter parte TTAB proceeding how do successfully argue that a wholly-owned subsidiary is not a related company with its parent?

When a registration is challenged in Canada in a post-registration proceeding, it is up to the registrant to prove use by the submission of sufficient evidence. This seems to be a more efficient manner of clearing out bad registrations than the lengthy and expensive inter parte proceedings we have in the U.S.

At 4:49 PM, Anonymous Mitch Stabbe said...

Different result if the subsidiary could say it had an oral license with the parent?

At 12:10 PM, Blogger Pamela Chestek said...

Damn. I've been waiting 15 years for this case.

At 7:13 PM, Anonymous Anonymous said...

Yes, I believe that if Respondent could establish that a licensing agreement existed (even an oral licensing agreement), the result would be different.


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