Unclean hands defence upheld in bakery/café mark case

In Worthington v Anderson, the US Court of Appeals for the Tenth Circuit has affirmed the dismissal of the plaintiffs' trademark infringement claim based on the doctrine of unclean hands.

Gary and Colleen Worthington on the one hand, and Robert Michael Anderson and Robert Henry Anderson on the other hand, jointly owned and operated several bakery/cafés under the name Kneaders. After three years of operation, they dissolved the business and submitted their disputes regarding the division of assets and liabilities to arbitration.

The arbitrator ordered:

• the Andersons to relinquish all rights in the KNEADERS mark;
  
  
• the Worthingtons to deed to the Andersons the property where the bakery equipment was located;
  
  
• the Andersons to pay the Worthingtons $1,000 per month as rent until the property deed was transferred; and
  
  
• the Worthingtons to pay certain outstanding loans related to the business on which the Andersons were guarantors.

Following arbitration, the Worthingtons sued the Andersons for trademark infringement based on the latter's continued use of the KNEADERS mark. The district court dismissed the Worthingtons' complaint under the doctrine of unclean hands: the court found that the Worthingtons (i) intentionally gave the Andersons a legally deficient deed, and (ii) failed to pay the outstanding loans, thereby hampering the Andersons' ability to obtain the necessary financing "to buy new signs, change their advertising or generally begin their new business".

On appeal to the US Court of Appeals for the Tenth Circuit, the Worthingtons submitted a number of arguments, including that the Andersons could not assert the unclean hands defence because of their own unlawful conduct in infringing the KNEADERS mark. The court of appeals, however, found the reasoning to be circular, noting that the defence of unclean hands would never be available to the defendant in a case in which a plaintiff were able to prove infringement. The court of appeals stated that (i) the purpose of the unclean hands defence in trademark cases is "to protect the court from granting relief to a plaintiff no better than the defendant [it] is suing", and (ii) to apply this defence as suggested by the Worthingtons would defeat this purpose.

The court stated that the key issue respecting the unclean hands defence was whether the Worthingtons' allegedly inequitable conduct was sufficiently related to the substance of their trademark infringement claim to give rise to this defence. The court explained that there are two types of "related conduct" that will permit the application of the unclean hands defence: (i) inequitable conduct by the plaintiff toward the public, such as deception in or misuse of the trademark, that would result in harm to the public, and (ii) inequitable conduct by the plaintiff toward the defendant in relation to the trademark. The court of appeals noted that the type of "related conduct" at issue in this case was the second type.

After finding that the Worthingtons acted inequitably by interfering with the Andersons' ability to obtain financing and therefore preventing them from fully divesting themselves of the KNEADERS mark, the court concluded that this conduct was sufficiently related to the Worthingtons' trademark infringement claim to support the application of the unclean hands doctrine. Accordingly, it affirmed the district court's dismissal.

Virginia S Taylor, Sheila D Rizzo and Olivia Maria Baratta, Kilpatrick Stockton LLP,
Atlanta