Who Owns the Jelly Nailed to the Wall?
There are few legal holy messes like a dispute over trademark ownership. Sure, copyright and patent ownership disputes can be messy, but nothing like trademark ownership. And, sure, copyright ownership can be tricky, but it’s a walk in the park compared to trademark ownership. Here are some reasons why:
- There can normally be only one owner of a trademark for a given set of products in a given market.11Joint ownership of a trademark isn’t impossible, just really unusual. Why? That’s because a trademark serves as a link between products and a single source. In contrast, copyrights and patents can have multiple owners.12Indeed, copyrights can be sliced and diced in many interesting ways.
- But there can be multiple legitimate owners of trademarks for the same or similar products, if (a) they are geographically remote from each other AND (b) the later (“junior”) user isn’t on notice about the earlier use (which is often the case). Why? Because the point of a trademark is to prevent confusion, and there’s chance of confusion if different owners are far enough away from each other.13There are some common-sensical exceptions to this rule, e.g., travel-related industries. It will come as no surprise that the Internet has been undermining the concept of “geographically remote” uses. But there’s been no real re-assessment of the concept, which is deeply ingrained in trademark law. Copyrights and patents, by contrast, automatically have national scope.
- The owner of a trademark is the one who “actually uses” it for the products in the market. But often many hands are involved in “actually using” the trademark. For example, you might think the manufacturer would automatically own the trademark for its product, but often the distributor is. The manufacturer has the most control over quality, but the distributor is closer to the consumer. And, remember, there can only be one… By contrast, copyright and patent law focuses on a particular act of creation or invention, which involves a much more limited set of facts than commercial use.
- But wait! What about registration? Registration changes the ownership calculation in several ways, but I’ll get to that later. There no real equivalent in copyright and patent law.14Patents require government approval, so there’s nothing to register. Copyrights do not require registration, though registration is a very good idea.
The unholy mess I want to talk about involves a cover band called DOWNTOWN FEVER. It was started in 2007 in the Boston area and was fairly popular there. In 2008, a nightclub in Dallas invited invited Downtown Fever’s founder and bandleader (whom I’m just going to call the “bandleader”) to play a show in Dallas as DOWNTOWN FEVER. The nightclub already managed two in-house cover bands as part of its regular in-house entertainment. A year later, the nightclub offered to hire—as an employee—the bandleader to play cover music as DOWNTOWN FEVER, as part of the nightclub’s in-house entertainment. He did until 2014, when there was a falling out. The bandleader resigned his employment, and a lot of unpleasantries ensued, like a lawsuit.
Quality vs. Promotion: Who Owns the Trademark?
Can you see the problem? Between the bandleader and the nightclub, who owns DOWNTOWN FEVER in the Dallas area? The bandleader controls much of the band’s content—i.e., its quality—but the nightclub provides not only the venue but nearly all of the promotion and advertising. This is a lot like a dispute between a manufacturer and a distributor. If you are a Dallas area clubber, do you associate the DOWNTOWN FEVER’s quality entertainment services with the bandleader (or, more fuzzily, the musicians) or with the nightclub?
If DOWNTOWN FEVER was available for general hire and not tied to a particular nightclub, this would be an easy question. The bandleader would own the trademark. There’d be no reason to associate the band’s services with the nightclub. But that’s not the case here. If you wanted to hear DOWNTOWN FEVER, you had to go to the nightclub, where it was part of its in-house entertainment.
If the bandleader had come up with the DOWNTOWN FEVER concept and trademark while employed by the nightclub, this would also be an easy question. The trademark would belong to the nightclub. Normally, trademarks belong to employers, not employees, if for no other reason than that the consumers will tend to associate the large company, rather than the individual employee, with the product. Also, usually other employees will help control the quality of the product. But this case is, again, different. The bandleader controlled the quality of DOWNTOWN FEVER’s “product.” He was the very public face of the band, so clubbers really could associate the “product” with the employee.
But it’s not even this simple! That’s because the bandleader indisputably owned DOWNTOWN FEVER in the Boston area before he was hired away to Dallas. Normally, that wouldn’t matter: Boston and Dallas are “geographically remote” from one another. But remember the caveat: the later user must not be on notice about the earlier use. That’s not the case here. The nightclub obviously news about the bandleader’s use of DOWNTOWN FEVER. That’s probably one reason they hired him.
So, in a way, the bandleader “brought” the trademark over with him to Dallas. But he also knew he was going to be an employee of the nightclub. Does that mean he essentially “gave” the trademark to the nightclub by agreeing to be hired?15The one fact we can safely ignore is the 2008 performance. A single performance under a trademark in a particular market isn’t nearly enough to constitute a “commercial use” of the trademark in that market. Now, if the bandleader had followed up that performance with a lot of advertising for more performances later, then we might have something worth talking about… Alas, the documentation surrounding hiring the bandleader was sketchy and didn’t mention the trademark. Now that many years have passed, and both sides naturally remember what they agreed to differently…
A License to Confound
But we’re not done! I left out an important fact because I was concerned about your mental health and didn’t want to give you too much at once. So hold on! When the bandleader was hired, he told the nightclub that it had his permission to use DOWNTOWN FEVER. Or so the bandleader says. The nightclub denies this.
You might think this is a great fact for the nightclub, because it would support the idea that the bandleader “gave” the trademark to the nightclub. But, in fact, it’s the opposite. “Permission” means “license,” and the point of a license is to keep ownership, while letting someone else use the trademark. If you are a manufacturer, this is how you keep your trademark from your distributors: you license it to your distributors. Without this rule, many common commercial transactions would be fraught because you’d always be risking your mark when you use someone else to help you break into a market.16Classic case: Foreign company, already well-established abroad, wishes to break into the U.S. market, so it hires a U.S. company to import and distribute its goods, or perform its services. If it weren’t for this rule, the U.S. company would end up owning the trademarks in the U.S. OK, go us, but we also like foreign companies to introduce great new products to us.
Maybe all the bandleader said was, “It’s OK if you use the name of my band.” That might be good enough to be a license and not a transfer of ownership.
The Honeymoon Has to End Sometime….
Of course, nobody cared during the years everyone was happy. But they care deeply now. The bandleader formed his own DOWNTOWN FEVER band, and the nightclub continues to showcase its DOWNTOWN FEVER band. That is, legally and commercially speaking, an intolerable situation. The bandleader has also taken over social media and the website for the DOWNTOWN FEVER band.17Less cleverly, the bandleader copied the website and band logo, the copyrights for both of which indisputably belongs to the nightclub. He also took the nightclub’s customer lists, a trade secret that also indubitably belongs to the nightclub.
Both sides could have prevented much heartache by being careful at the beginning. The nightclub really has itself most to blame. If it had thought it through, it would have realized that, among other things, it wanted the trademark, along with everything else. Maybe it assumed the trademark would just somehow transfer naturally to it.
But you know how it is. When a deal is being struck, everyone’s happy. Worrying about something like a trademark seems not only petty but rude—and possibly a threat to the very deal that’s making everyone so happy. If you say, “Ha ha! Have some more champaign! Hey, what about the band name?” The response might be, “Who cares? Ha ha!” or “Sure, you can use it!”18NOT actually what you want to hear (as explained above)![/ref] or, worse, “What about it? It’s mine, man!” which would totally ruin the vibe.
This is why we have lawyers. They understand the vibe, but they sit in a vibe-free zone, sweating the small stuff. Because it might matter later, when the champaign isn’t flowing any more.19Or when the guy you’re drinking champaign with sells out to someone who (a) doesn’t know you, (b) doesn’t necessarily like you, and (c) is inclined to flyspeck the contract.
Still, it could have been worse for the nightclub! What if the bandleader had registered DOWNTOWN FEVER with the U.S. Patent and Trademark Office when he was still in Boston?20The nightclub actually registered the trademark with Texas (not the U.S.). This ends up not helping it very much with the ownership issue, though. Having said that, unlike most states, registration in Texas means something, if only because Texas is so large. Registrations give you three big advantages: (1) it puts everyone in the U.S., no matter how “geographically remote,” on notice of your use of the trademark for the listed goods and services; (2) it is makes the registrant the presumptive owner of the mark; and (3) it makes the trademark itself presumptively valid.
Of these three advantages, the second is most pertinent here. If the bandleader had a registration for DOWNTOWN FEVER, he would be the presumptive owner of the trademark. The presumption can be overcome, but the burden would be on the nightclub. When you look at how carefully balanced the facts are, it seems to me the presumption would tip the ownership question in the bandleader’s favor.
An interesting aspect of trademark registration is that, when you transfer ownership of the trademark, you normally also transfer ownership of the registration. And there’s a process for that, which involves a public filing of assignment. It would be hard for the nightclub to argue that it reasonably believed the bandleader was transferring ownership of DOWNTOWN FEVER to it, if it hadn’t insisted on an assignment of the registration, as well.
Maybe, if the bandleader had registered DOWNTOWN FEVER, the ownership issue would have been too big an elephant in the room to ignore. There would, after all, be a certificate saying who owns the trademark—but no assignment—and that owner wouldn’t have been the nightclub. That might have been enough to prod the nightclub to confront the ownership issue on the front end.
As it is, the bandleader didn’t register the trademark, and you can’t blame him, really. Cover bands really are local phenomena, and registrations are most useful for regional or national uses. But, I guess that’s the other lesson here: you never really know where your new business will take you (and your trademarks).
In case you were wondering: the lawsuit continues. It’s been pending since 2014, and the court found that almost every contested question was too close to call and so must to a jury. The trial is going on right now.
Thanks for reading!