Trademark Assignments

Trademarks can be among the most valuable assets of a successful business, because they serve to identify the products or services of the business as authentic. They are also valuable to consumers for that very same reason: the consumer relies on the trademark to identify that the product or service comes from a reliable source.

Because of this dual function of trademarks, the courts developed the concept of assignment in gross, which subsequently was codified in the Lanham Act, 15 U.S.C. 1060. That doctrine prohibits trademark assignments without the associated goodwill, so that the consumer—who is relying on the trademark as an identifier of the source of the product—is not deceived into buying something that is not associated with the business that historically created the product. Marshak v. Green, 746 F.2d 927, 929 (2d Cir. 1984).

Trademark assignments in gross typically occur when a trademark is sold without any of the assets of the business that owns the trademark. The consequence of an assignment in gross is that the trademark assignment is invalid, and the purchaser of the trademark does not have the right to use it or protect it against infringement by other parties.

This can arise in a number of contexts. For example, a business that has purchased a trademark may bring a claim of trademark infringement to stop another business from using that mark. The business defending the suit may be able to show that the trademark is invalid because it was assigned in gross. See Inter State Net Bank v. NetB@nk, Inc., 348 F.Supp.2d 340 (D.N.J. 2004) (dismissing a claim for trademark infringement when the trademark was assigned in gross). Another scenario is that a debtor in bankruptcy will transfer its trademarks to a new entity attempting to prevent its creditors from obtaining the trademarks. See Impact Distributors, Inc. v. Cuzcatlan Beverages, Inc., 260 B.R. 48 (S.D. Fla. 2001) (invalidating trademark assignments as an assignment in gross from bankrupt debtor to related parties). Conversely, a creditor that has a judgment against a trademark owner may attempt to attach the trademark to sell it in satisfaction of the judgment. Marshak, 746 F.2d 927 (reversing an order directing levy of execution and sale of a registered trademark on the ground that the sale would constitute an assignment in gross).

Normally in determining whether there are trademark assignments in gross, courts will look for a transfer of assets associated with the trademark. But a transfer of assets is not always necessary. International Cosmetics Exchange v. Gapardis Health & Beauty, Inc., 303 F.3d 1242, 1246 (11th Cir. 2002). If no physical assets are transferred, the transfer will only be valid if the assignee’s products or services are “substantially similar” to those of the assignor and if “consumers will not be deceived or harmed.” Inter State Net Bank, 348 F.Supp.2d at 349.

For example, in Main Street Outfitters, Inc. v. Federated Department Stores, Inc., 730 F. Supp. 289, 291 (2d Cir. 1989), the seller, which owned and operated department stores, sold women’s coats under the Main Street trademark. It sold the mark to Federated Department Stores, without any transfer of tangible assets. Federated used the mark on apparel, including jackets and rain wear. The court held that the trademark assignment was valid because the assignee applied the mark to articles of apparel that were substantially the same as those that the assignor had sold under the mark.

The lesson of these cases is that trademark assignments require special care to be effective. A buyer of a trademark should take care to obtain other assets of the assignor related to the mark, or to apply it to goods or services that are substantially similar to those of the seller. Additionally, a business that is accused of trademark infringement would be wise to investigate prior trademark assignments to see if the assignment in gross doctrine provides a defense.