Guidance provided to purchasers of marks consisting of a person’s name

In JA Apparel Corp v Abboud (Case 08-3181-cv, June 10 2009), the US Court of Appeals for the Second Circuit has provided guidance to purchasers of trademark rights consisting of a person’s name as to the scope of the agreement that would be necessary to preclude entirely any use of the name and purchased mark for a commercial purpose, as well as what type of conduct constitutes a valid fair use to preclude a claim of trademark infringement.

 

In 2000 JA Apparel Corp purchased the trademark JOSEPH ABBOUD, among other marks, from the well-known menswear designer Joseph Abboud and his affiliated companies for $65.5 million. After the expiration in 2007 of a non-compete provision, Abboud publicly announced his plans to introduce a collection of high-end men’s clothing under the JAZ mark, noting that the initial roll out of the 'jaz' collection would refer to Abboud as the designer. In response to this announcement, JA sued Abboud and his related companies for trademark infringement, unfair competition, trademark dilution, deceptive trade practices and breach of contract. In response, Abboud claimed no breach of contract since the agreement did not preclude the use of his name for all commercial purposes, and otherwise primarily relied on the affirmative defences of fair use. 

 

JA moved for a preliminary injunction, which was consolidated with a trial on the merits. After a hearing, where the district court considered extensive extrinsic evidence, the court ruled in favour of JA, finding that Abboud had breached the purchase agreement and engaged in trademark infringement without a valid fair use defence. On appeal, the Second Circuit vacated the district court's decision and remanded the case for further determinations consistent with the Second Circuit's decision.

 

With regard to the breach of contract claim, the Second Circuit focused on the fact that while the trademark purchase agreement provided for the transfer of all names, trademarks, trade names, service marks, logos, insignia and designations identified on schedules attached to the agreement, the agreement did not expressly state that Abboud had conveyed “all of Abboud’s rights to use his name for commercial purposes”. Specifically, the Second Circuit recognized that:
 

“the fact that JA paid a large price for the Joseph Abboud brand […] does not necessarily mean that JA purchased the right to prohibit Abboud from using his name to refer to himself in a non-trademark sense."
 

Since there was no express prohibition on all use of the name for commercial purposes, the Second Circuit found the agreement capable of both parties’ interpretation and ambiguous, allowing for extrinsic evidence to be submitted to determine whether use of the name in the way Abboud proposed would constitute a breach of the agreement. While the Second Circuit did not require the district court to find in Abboud’s favour on remand, it did establish the general parameters for the lower court’s review of the extrinsic evidence.

 

Concerning the trademark infringement claim, the Second Circuit focused on the elements of the fair use defence, stating that "Abboud contended that he merely wanted to be able to use his name in advertising materials […] to be able to identify himself in text as the designer of the […] products" and that JA had conceded that it was not attempting to prevent Abboud from competing or even "personally presenting his new 'jaz' line to prospective purchasers". Rather, JA’s focus of concern centred on the advertisement of the new line explicitly referring to Abboud. 

 

In this regard, the Second Circuit cautioned the district court to review only the actual or proposed use of the Abboud name under fair use standards. Fair use required the consideration of the size and placement of Abboud’s name to determine any likelihood of confusion. Moreover, the Second Circuit noted that absent a finding of an express contractual prohibition to use the Abboud name for any commercial purpose, any injunction based on a claim of trademark infringement could not set forth a broad prohibition against use of the name, but should address whether the proposed or actual use complies with fair use principles. The fair use defence allowed only for a determination of the specifics of the use at issue. It did not permit a broad-ranging prohibition of any conduct referencing the Abboud name.

 

The decision highlights the pitfalls arising from the purchase of trademark rights where the mark consists of or contains a person’s name or other identifier. First, the purchaser must understand that the purchase of trademark rights alone may not preclude all commercial rights in a name. Second, regardless of the breadth of the prohibitions in the purchase agreement, the purchaser must give serious consideration to the impact of a subsequent fair use of the person’s name on the value of the trademark rights purchased. Commercial use and even non-commercial use may undermine the value of the purchased rights whether by creating a likelihood of confusion or by raising moral or other concerns in the marketplace about the brand.