Joint ownership of trademark rights disfavoured with acquisitions

In Yellowbook Inc v Brandeberry (Case 11-4267, February 27 2013), the US Court of Appeals for the Sixth Circuit has held that, when acquiring the assets of a business in its entirety, the purchaser is presumed to have acquired the entire ownership interest in the business’ trademark, even when the asset purchase agreement is silent on trademark rights.

In this case, a trademark infringement action was brought by a national yellow-pages publisher, Yellowbook, and the Sixth Circuit concluded that Yellowbook had acquired the entire ownership interest in the AMTEL trademark when it purchased a local Ohio phonebook business operating under that name.

The dispute over AMTEL’s chain of title began when defendant Steven Brandeberry purchased an Ohio phonebook business operating under the AMTEL mark. Brandeberry signed this first asset purchase agreement in his individual and corporate capacity as president of his business, American Telephone Directories. Brandeberry subsequently sold American Telephone Directories to another individual. In the second asset purchase agreement, all assets of American Telephone Directories were transferred to the purchaser in their entirety. Yellowbook subsequently purchased the business in its entirety. After Yellowbook began using the AMTEL mark, Brandeberry published a competing phonebook in Ohio under the same name.

Yellowbook filed suit, asserting claims of trademark infringement, tortious interference and abandonment. On summary judgment, the district court found in favour of Brandeberry on these claims. Because Brandeberry signed the first asset purchase agreement in his individual and corporate capacity, the district court held that Brandeberry and his business held joint ownership rights in the AMTEL mark. Thus, when Brandeberry subsequently sold his business, he still retained his personal interest in the AMTEL mark and retained his right to continue using the mark. The district court also rejected Yellowbook’s abandonment claim, concluding that abandonment was only a defence to trademark infringement and could not be used offensively. Yellowbook appealed.

On appeal, the Sixth Circuit reversed and remanded, concluding that “[j]oint ownership is disfavoured in the trademark context”. Because a trademark reflects the accumulated goodwill of a business, “when a business sells the entirety of its assets, the trade name is presumably one of these assets”. Further, the asset purchase agreements at issue were not structured as a sale of only certain assets and did not include licensing provisions. Thus, the court explained that it “will not presume the creation of jointly owned or non-exclusively licensed trademark rights, especially where dissipation of goodwill, and increased customer confusion, is inevitable”.

The Sixth Circuit also explained that abandonment could be asserted offensively in a trademark infringement action. To limit abandonment to a defence “would permit trademark users who abandoned their rights impunity from charges of infringement, regardless of the official registration and legitimate use in commerce of later users”. The court concluded that, even if Brandeberry retained any individual rights in the AMTEL mark, Brandeberry’s six years of non-use of the AMTEL mark was well beyond the three-year statutory presumption for abandonment.

The case shows that the nature and overall structure of the asset purchase agreement and the absence of licensing provisions are important factors to consider when evaluating whether trademark rights have been transferred exclusively or non-exclusively.

Rita J Yoon, McDermott Will & Emery LLP, Chicago