Does your company’s wholly-owned subsidiary own trademarks in its own name? Has your company acquired any companies that own trademarks? If so, your company’s use of those trademarks will not prevent cancellation of those trademark registrations unless you have proper trademark license agreements in place. This is exactly what happened to Floorco Enterprises, LLC’s NOBLE HOUSE trademark registration. In a precedential decision, the Trademark Trial and Appeal Board (“TTAB”) cancelled Floorco’s trademark registration because only Floorco’s parent company was using the trademark and there was no trademark license agreement in place between Floorco and its parent company.
In Noble House Home Furnishings, LLC v. Floorco Enterprises, LLC, Noble House petitioned to cancel Floorco’s trademark registration for the mark NOBLE HOUSE for furniture alleging that Floorco abandoned its trademark rights.1 118 U.S.P.Q.2d 1413 (T.T.A.B. 2016). This dispute came about because Noble House applied to register the mark NOBLE HOUSE HOME FURNISHINGS with a design for online retail store services and warehousing services for furniture. However, Noble House’s application was refused registration because the trademark office cited Floorco’s prior registration for the mark NOBLE HOUSE as a bar. To clear the path for its application to mature into a registration, Noble House petitioned to cancel Floorco’s registration alleging that Floorco abandoned its trademark based on non-use.
Despite lack of sales, Floorco argued that it had not abandoned the mark because it was still marketing and advertising its NOBLE HOUSE furniture. Floorco’s argument was unavailing because it was not Floorco that was marketing and advertising the NOBLE HOUSE furniture or controlling the nature and quality of the furniture at all. Rather, it was Floorco’s parent company, Furnco International Corporation that was using the mark while also controlling the use of the mark.
The Board noted, generally, if a parent company controls all of the affairs of a subsidiary, it may be presumed that the parent is exercising control over the nature and quality of goods and services sold by the subsidiary under a mark owned by a parent, such that an intra-company license agreement may not be necessary. However, this was not the case between Floorco and Furnco because it was the parent company that was using and controlling a mark owned by its subsidiary. The issue in the cancellation was whether a parent company’s use of a subsidiary’s trademark, without a licensing arrangement between them, inured to the benefit of the subsidiary. The answer is no.
The TTAB acknowledged that Furnco is the owner of Floorco, such that Furnco may also own Floorco’s NOBLE HOUSE registration. But, it was Floorco that was listed as the owner in the trademark registration (because no assignment of the mark was ever recorded) and it was Floorco that alleged it was using the NOBLE HOUSE mark in commerce to obtain registration. Because Floorco did not control any aspect of Furnco’s use of its trademark, the TTAB concluded that Floorco abandoned its trademark.
Takeaways: Companies should examine which entity is the listed owner of the trademark and which entity is actually using the trademark. If an entity other than the owner is solely using and controlling use of the mark, there must be a license agreement between them to ensure that the use will inure to the benefit of the owner.
If you are forming a new subsidiary, acquiring a company, or have acquired a company with trademarks, we, at Sheppard Mullin, can help to examine the ownership and use issues to ensure that your brand is protected.
[1] A mark is considered abandoned if the mark has not been used for three consecutive years and the mark owner does not intend to resume use. 15 U.S.C. § 1127. However, the lack of use of a mark because of the lack of demand for a product or service may not constitute abandonment if the mark owner continues to market its goods or services.