Introduction
Mark validity issues for registered marks originating with intent-to-use (1b) applications typically arise during cancellation and trademark infringement proceedings. Questions concerning the validity of registered marks originating from 1b applications may also arise during IP due diligence activities. Here, the potential acquirer of registered trademark rights will want to assure that the registered mark(s) has no red flags concerning its prosecution history as a 1b application which could result in cancellation down the road.
This blog discusses 1b trademark application considerations for ensuring any resulting registration is immune from cancellation traceable back to application prosecution issues.
Take Home Points.
1. All 1b applicants should ensure that appropriate documentation is in place as of the 1b application’s filing date to demonstrate the applicant’s bona fide intent to use the mark in commerce. This recommendation applies whether the 1b applicant is an individual or a business entity.
2. Trademark licensing agreements between a 1b applicant and a trademark licensee must include appropriate provisions to prevent them from being viewed as deficient “naked” licensing agreements. This requirement also applies to any trademark licensing agreement between a registered trademark owner and the licensee.
3. The rights in a 1b application can only be assigned after the Statement of Use (SOU) is filed except where the assignment is to a successor to the applicant’s business or a portion of the business to which the mark pertains. Assignments recorded with the USPTO are not reviewed for accuracy. The assignee as the acquiring party (and the party hoping to reap the benefits of the resulting registered marks) should ensure the sufficiency of the transfer documentation. See e.g., Railrunner N.A. v. New Mexico Department of Transportation, et al. Opposition No. 91172581 (TTAB. July 17, 2008) where the TTAB held that the assignment at issue, made before the filing of the 1b applicant’s SOU, was not to a successor of the applicant’s business; the subject mark was cancelled.
4. IP due diligence in corporate mergers and other IP acquisition transactions is essential to uncover any potential issues with the “integrity” of registered trademarks emanating from 1b applications. If such registered marks are a part of the planned transaction, documentary evidence should be gathered and maintained to establish that the applicant’s use of or the planned use of 1b marks was based on bona fide intent at the time the application was filed. Additionally, all assignment and licensing agreements which are involved in the proposed transactions should be reviewed to ensure they conform(ed) with requirements involving 1b applications. The same applies for reviewing trademarks resulting from 1a applications where the registered marks have since been assigned and/or licensed.
Discussion
To obtain a U.S. registered trademark, the applicant must establish that the mark is being used in commerce either within the U.S. or in foreign jurisdictions. This in-commerce requirement can be difficult to manage when the applicant is still in the process of developing a brand for the associated goods/services for which trademark registration is intended to be sought. For example, during the new product/service development period, another party could file a trademark application for a similar brand, making that application “first-in-line” for evaluation and possible registration by the USPTO. Imagine the frustration of spending money developing a brand only to be beaten to the punch when it comes to obtaining a registered trademark.
In recognition of the tension between brand development activities and U.S. trademark law requiring proof of use of the brand’s associated mark in commerce to obtain mark registration, US trademark law allows trademark applicants to file intent-to-use applications (commonly referred to as 1b applications as opposed to 1a “in commerce” applications) to obtain a constructive priority date before the proposed mark is ever actually used in commerce. 1b applications allow the applicants to “reserve” their mark while they are in the process of developing the products/services they intend to use in commerce under the registered trademark they are seeking.
A 1b mark application that is found to meet the requirements for trademark registration on the merits (e.g., no likelihood of confusion, not merely descriptive/generic, etc.) and survives the 30-day opposition period will receive a Notice of Allowance. The 1b mark will not, however, be registered until the applicant files a satisfactory Statement of Use (SOU) showing how the mark is being used in commerce. The 1b applicant who receives a Notice of Allowance has up to three years from the date the Notice of Allowance is issued to file a satisfactory SOU. Failure to file the SOU will result in abandonment of the mark.
Potential Pitfalls of 1b Applications: Bona Fide Intent and Ownership Issues
Despite their obvious advantages, 1b applications are associated with potential minefields related to bona fide intent to use issues and ownership issues. Regarding the former, the 1b applicant is required to declare on the application that the applicant has a bona fide intent to use the mark in commerce. The USPTO does not require prove of bona fide use and instead relies on the honesty of the applicant. On the other hand, failure to be able to later demonstrate this intent at the time the application was filed could result in cancellation of any resulting registered mark. Please click here for a more detailed blog on bona fide intent issues with 1b applications.
Regarding application and subsequent registered mark ownership issues, a 1b application may be found void ab initio for failing to specify the correct owner. Although rare, ownership issues typically arise when the applicant has come up with idea for a new product/service and is in the beginning stages of product/business development but has not yet set up a formal business entity (e.g., an LLC) under his/her state laws. The applicant may file the 1b application under his/her name to get the filing date. Individuals may of course run their own business as a sole proprietor and own registered marks. Indeed, the author has procured registered trademarks for individuals who offer services under their own name.
Most mark owners, however, will provide their products/services in commerce under the mark through a business entity. Some 1b individual applicants mistakenly believe that filing the application under their name is no problem because the application can be assigned to a later established business entity during prosecution of the application. U.S. trademark law, however, prohibits the assignment of 1b applications before the filing of the SOU showing use in commerce except where the assignment is to a successor to the applicant’s business or a portion of the business to which the mark pertains, if that business is existing and on-going. See TMEP § 501.01(a). The public policy behind this prohibition of assignment of 1b applications is to prevent trafficking of or profiting from the sale of applications by bad players (akin to cybersquatting when it comes to domain name registration by parties who have no intention of using the domain name themselves). The Clorox Co. v. Chemical Bank (TTAB 1996). Improper assignment/ownership may result in cancellation of a registered mark.
Courts have upheld assignments where the assignee is producing a product or offering a service substantially similar to that of the assignor or where there was a continuity of management, e.g., where the original individual applicant is also the sole manager of the later-established LLC. However, see e.g., Creative Arts by Galloway, LLC v. Christopher Brooks, d/b/a/ the Cab Calloway Orchestra (S.D.N.Y. 2012) where the court found there was no continuity of management because three new individuals in addition to the original 1b applicant were part of the assignee’s management team.
Alternatives to Assignment of 1b Applications During the Pendency of the Application
A 1b applicant may license the rights in the applied-for mark to a newly formed entity during prosecution of the application. A detailed license should be drafted with care to avoid problems resulting from naked licensing agreements. Click here for blog on naked trademark licensing. Use of the mark by the licensee-entity under the terms of a licensing agreement can form the basis for showing proof of use of the mark in commerce. This approach can pave the way for eventual assignment of the mark to the licensee-entity. To ensure that the requisite bona fide intent was present at the time the application was filed, the 1b applicant should have proper documentation establishing that the licensing of trademark rights was a genuine consideration.
Other Considerations: When a Conflicting Mark Is a Pending 1b Mark – Potential Substantial Application Prosecution Delays
Applied-for marks are first compared against registered marks for likelihood of confusion problems by the examining attorney. Where no problematic registered marks are found, the examining attorney will next look for problematic marks in pending applications, i.e, applications having a filing date earlier than the filing date of the application the examining attorney is evaluating. That is, all trademark applications are evaluated on a first come, first serve basis.
Accordingly, an earlier filed application may prevent prosecution of a later filed application if the examiner of the later filed application finds potential likelihood of confusion with the mark presented in an earlier filed application. Under such a situation, the USPTO’s examining attorney for a later filed pending 1a or1b application who finds a likelihood of confusion with an earlier filed pending mark may also suspend further prosecution until the earlier filed mark is either registered or abandoned. If the earlier filed mark is registered, the later filed mark may well be then be formerly rejected. The applicant will have the right to submit a legal argument in favor of registration during the suspension period or once a formal rejection has issued based on the now registered earlier filed application.
Regarding the scenario where the earlier filed application is also 1b application, any resumption of the prosecution of the later filed application where a likelihood of confusion problem with the earlier filed application has been identified, will be dependent upon the outcome of the earlier application’s prosecution history. For example, if a Notice of Allowance issues for an earlier filed 1b application, its applicant will have up to about 3 years to prove actual use in commerce by filing an SOU to the satisfaction of the examining attorney. Only if the earlier filed application becomes abandoned for failure of the applicant to ever file an SOU or timely file up to 5 extensions of time every 6 months, will prosecution of the later filed but suspended application resume if its prosecution was suspended.
That is, the later filed application may well remain in limbo unless its applicant can convince the examining attorney that there is no likelihood of confusion with the earlier filed application’s 1b mark. If not, the later filed application’s applicant will be faced with the possibility of a non-registrable brand if the earlier filed 1b mark is registered and even the possibility of infringement allegations by the applicant of the earlier filed 1b an application.
Using Trademark Knockout Search Assessments for Strategic Brand Development
No brand developer ever wants to start over. One way to reduce this possibility is to understand potential trademark registration issues before a lot of money is dropped on product/services/brand development. If a trademark knockout search suggests problematic likelihood of confusion problems with a registered or pending application, honestly assess the risks associated with the registration of your proposed brand/mark. In determining the risks, also consider infringement allegation risks. If you conclude the risk of non-registration and/or infringement risks are manageable, determine whether the potentially problematic mark is pending or registered. If the problematic mark is pending, understand that your own application’s examination may be suspended. Check the earlier of application’s prosecution history to determine if it is a 1b or 1a application and what the USPTO has said to date about registrability. If filing a potentially problematic 1b application, remember that a final registration decision on your own application could be delayed for several years depending on where the earlier filed 1b application is in its prosecution history. Better yet, consider if it would simply be better to start over with a new brand rather than face frustrating registration problems and a possible infringement lawsuit.
Conclusions
Branding is no easy task. The brand should be one that can be successfully registered as a trademark to enhance its overall value and have the legal rights afforded under the law. As discussed above, the trademark registration process needs to be done carefully to avoid issues down the road. Think and plan strategically while developing your brand within the confines of trademark registration requirements and achieving registration longevity.
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Susan Dierenfeldt-Troy
