Scott D. Locke, Partner and Chair of Dorf Nelson & Zauderer’s Intellectual Property Department, New York Law Journal, “The Trademark Anti-Trafficking Rule”

When starting a new business, many entrepreneurs spend a great deal of time choosing the brands that they will develop and the trademarks under which they will offer their goods and services.

In an effort to protect their rights, entrepreneurs, as well as others, may take advantage of a process that allows them to file their trademark applications with the United States Patent and Trademark Office (USPTO) before they begin to use their trademarks.

These types of applications, which are commonly referred to as intent-to-use applications, may be filed so long as an applicant has a bona fide intention to use the trademark in interstate commerce. 15 U.S.C. §1051(b).

Not uncommonly, entrepreneurs who are fond of the brand that they are going to develop will file a trademark application soon after coming up with the idea, identifying himself or herself or a newly formed company as the applicant, averring that he, she, they, or it has a bona fide intent to use the proposed trademark.

Unfortunately, coming to market often takes longer than one anticipates, and in order to attract capital or for other reasons, during their journey to market, many entrepreneurs are forced to form new companies, change the form of a company or take on partners.

Financially, doing any of these acts might make a great deal of sense; however, if any of these acts are taken before the initial applicant demonstrates use of the trademark to the USPTO, the applicant risks running afoul of trademark law’s anti-trafficking rule. 15 U.S.C. §1060.

Violation of the anti-trafficking rule can have a devastating effect, voiding trademark rights. In a recent decision, the Trademark Trial and Appeal Board (TTAB), recognized a time limit on claims to cancel trademarks that otherwise would be void under this provision. Thrive Natural Care Inc. v. Nature’s Sunshine Products, Inc., 2023 WL 5287181 (TTAB August 15, 2023).

The TTAB’s decision in Thrive provides a welcome bright line for trademark holders, but five years is a long time, and the decision should also serve as a reminder that one should be mindful of the risks associated with assigning intent-to-use trademark applications.

Intent-to-Use Trademark Applications

Entrepreneurs who seek trademark rights may file a trademark application either after they begin to use their trademark, (an “in use” application), 15 U.S.C. §1051(a), or prior to using the trademark, if they have a bona fide intention to use the trademark in connection with the goods and services recited in the trademark application (an “intent-to-use” application), 15 U.S.C. §1051(b).

In the case of an intent-to-use trademark application, the trademark will not be registered until an applicant has shown actual use in interstate commerce.

Congress introduced the intent-to-use process in 1988, when it passed the Trademark Law Revision Act of 1988. Prior to that time, applicants needed to have used their trademarks in commerce before registering them, but this led to a problem of applicants engaging in “the legal fiction of ‘token use’” prior to filing their applications. Dallas Basketball Limited v. John Carlisle, 2004 WL 2619576, *4 (TTAB Nov. 8, 2004). Consequently, Congress amended the Lanham Act to allow applicants to file intent-to-use trademark applications.

The Lanham Act’s Anti-Trafficking Rule

Prior to enacting the anti-trafficking rule, Congress recognized that the allowance of the filing of intent-to-use trademark applications might bring with it a temptation for people who did not have a bona fide intent to use the trademarks that were the subject of their applications, to file their applications with the intent of selling them.

To address this issue, Congress enacted the anti-trafficking provision to prohibit the assignment of intent-to-use trademark applications. Violation of this rule results in a void application and any resulting registration. Clorox Co. v. Chem. Bank, 40 U.S.P.Q.2d 1098, 1106 n.8 (TTAB 1996). Importantly and unlike in the case of most issues related to trademarks, the issue of whether a consumer would be confused or deceived is irrelevant. Central Garden & Pet Co. v. Doskocil Manufacturing Co., Inc., 2013 WL 4635990, *14 (TTAB Aug. 16, 2013).

This prohibition has two exceptions. First, an applicant may assign an intent-to-use trademark application while the application is pending, after the applicant has demonstrated use to the USPTO. 15 U.S.C. §1060. Second, an applicant may assign its trademark application prior to demonstrating use, “to a successor to the business of the applicant, or a portion thereof, to which the mark pertains, if that business is ongoing and existing.” Id.

Before addressing the exceptions, one should be mindful that the anti-trafficking rule is concerned not with whether there is an identity of applicant(s) prior to and subsequent to an assignment, but whether the transfer is to another. Central Garden & Pet Co. v. Doskocil Manufacturing Co., Inc., 2013 WL 4635990, *14 (TTAB August 16, 2013).

Thus, if an intent-to-use trademark application is originally filed by two joint applicants, and one of those joint applicants transfers his or her rights to the other joint applicant, there is no transfer to another within the statute and the anti-trafficking rule does not come into play. Teeter-totter, LLC v. Palm Bat International, Inc., 344 F. Supp. 3d 1100, 1108 (N.D. Cal. 2018); Amazon Technologies, Inc., v Wax, 95 U.S.P.Q.2d 1865, *9 (TTAB 2010).

By contrast, an assignment to a different, even if related corporate entity, is a transfer to another within the statute, and thus will run afoul of the anti-trafficking rule if one of the exceptions does not apply. Central Garden & Pet Co. v. Doskocil Manufacturing Co., Inc., 2013 WL 4635990, *16 (TTAB Aug. 16, 2013) (an intent-to-use application filed in the name of a first company that is a wholly owned subsidiary of a second company that is a wholly owned subsidiary of a third company, the assignment of the application from the first company to the third ran afoul of anti-trafficking rule).

Similarly, if an applicant of an intent-to-use trademark application is an individual who forms a corporate entity (e.g., an LLC) after filing his or her trademark application and assigns the trademark application prior to using the trademark in commerce, then even if the applicant is the sole owner of the corporate entity, the anti-trafficking rule comes into play. Sebastian Brown Productions LLC. v. Muzooka Inc., 2016 WL 949004, *11 (March 14, 2016).

Thus, applicants who, even for legitimate business reason, change their minds over time as to the structure of the entity under which they wish to bring products or services to market, they should be mindful that those benefit might come at a price, including the voiding of a trademark registration that issues from of an intent-to-use trademark application.

The On-Going and Existing Business Exception

The first exception is straightforward—did the applicant who filed the intent-to-use trademark application file a statement of use prior to transferring rights. The second exception, however, is more obtuse — whether the assignee is the “successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing or existing.” 15 U.S.C. §1060; Creative Arts by Calloway v. Brooks, 2012 WL 6732907 n.18 (S.D.N.Y. Dec. 27, 2012) (noting lack of clarity in the law).

The root of the lack of clarity is the clause “if that business is ongoing or existing” and it has been interpreted in two diametrically opposed ways. First, some courts and TTAB boards, have required that there must be an existing business under which goods or services were offered under the trademark.

As such, there can be no valid the statutory “if that” language is read as “provided that.” Second, at least one court and TTAB board has found that a transfer is valid even if no goods or services have been offered under the trademark, implicitly reading the “if that” clause as meaning that if there is a business under which goods and services are being offered under the trademark, that business cannot remain with the original applicant.

As example of the first line of decisions is Greene v. Ab Coaster Holdings, Inc., 2012 WL 4442749 (S.D. Ohio Sept. 25, 2012). In that case, the parties agreed that the assignment of the trademark at issue was made prior to the filing of the statement of use. The trademark registration was for the mark AB COASTER in connection with manually operated exercise equipment.

At the time of assigning the mark, the applicant was in the business of distributing wellness products such as massagers and developing the abdominal exercise machine that was to be offered under the AB COASTER trademark.

This development of a product was not an ongoing or existing business sufficient to invoked the exception to the anti-trafficking provision because at the time of the transfer “the mark was not in use.” See also Ocule, LLC v. Oculus VR, Inc., 2015 WL 3619204, *8 (C.D. Cal. Jun. 8, 2015) (exception to anti-trafficking rule did not apply when applicant never did any business using the trademark).

For guidance, the Greene court looked to the TTAB decision Railrunner N.A. Inc. v. New Mexico Department of Transportation, 2008 WL 8973295 (TTAB 2008), which held: “transfer is only permissible if the applicant actually has such a business, i.e., if the applicant is already providing the goods or services recited in the application.”

As explained further in Sebastian Brown Prods. LLC v. Muzooka, Inc., 2016 WL 949004, *11 (N.D. Cal. Mar. 14, 2016)“section 1060’s ‘on going and existing’ business exception to the anti-trafficking rule must be read in connection with the requirement that any assignment of trademark rights requires the assignment of goodwill and must require more than the assignment of good will alone.” Id. at *9.  Accordingly, under these court and TTAB decisions, the final “if” clause of the statute means that for the exception to be applicable at all, the assignor needed to have been using the trademark.

By contrast, the second set of decisions held that the anti-trafficking provision allows for the assignment of intent-to-use applications before actual use of the trademark with a business associated with the “intended” use of the mark. Vacation Rental Partners, LLC v. VacayStay Connect, LLC, 2017 WL 1150806, *6 (N.D. Ill. Mar. 28, 2017).

Pointing to a non-precedential TTAB decision, Exel Oyj v. D’Ascoli, 2008 WL 4354180 (TTAB Sept. 19, 2008), the Vacation Rental court held that although an applicant might not have used the mark in commerce by the time of assigning the trademark application at issue, it may have goodwill or existing business to the mark, e.g., relationships based on planned use of the mark, such that the assignment does not run afoul of the anti-trafficking provision. Vacation Rental Partners, 2017 WL at *6.

The TTAB in Exel Oyj further explained: “The anti-trafficking provision…merely requires that if the application is transferred prior to use of the mark, and the transferor remains an ongoing and existing business after the transfer, that the transfer be accompanied by that portion of the transferor’s business to which the mark pertained, i.e., that portion of the business that would have used the mark had there been no transfer.” Exel Oyj, 2008 WL at *7.

Therefore, under this line of reasoning, the ongoing and existing language refers to two scenarios, either of which would be exceptions to the anti-trafficking rule: (1) either the overall business was transferred; or (2) if the original applicant remained an ongoing business after the assignment, then the portion to which mark pertains were transferred.

In neither of these scenarios would the mark have needed to be in use prior to transfer. In contrast to the first line of decisions, which render the ongoing and existing business exception narrow, this second line of decisions allows applicants more flexibility in assigning their trademark rights.

Timing

The TTAB’s most recent discussion of the anti-trafficking rule addressed not whether a business was ongoing, but whether invocation of the rule was timely. In Thrive Natural Care Inc. v. Nature’s Sunshine Products, Inc., 2023 WL 5287181 (TTAB Aug. 15, 2023), the petitioner owned two registrations for the trademark THRIVE and sought to cancel a registration for SUBSCRIBE & THRIVE.

In a counterclaim, the respondent argued that an assignment of rights during prosecution of one of the petitioner’s registrations violated the anti-trafficking provision. The TTAB dismissed the counterclaim because it was brought more than five years after the registration had issued and the Lanham Act sets a time limit on cancellation proceedings that are more than five years old. Id. (citing 15 U.S.C. §1064).

Thrive provides a clear line for which a cancelation proceeding may be brought against a trademark or raised in a counterclaim against a registration that is cited by a petitioner in a cancelation proceeding. Clear lines are always helpful to litigants as they evaluate the strength of their cases in disputes. However, this time limitation will slow down the rate at which administrative decisions and caselaw will resolve the conflict between the interpretation of the ongoing and existing business exception to the trademark anti-trafficking rule.

Conclusion

The Lanham Act’s anti-trafficking provision has a goal of preventing people from creating a business out of filing and selling intent-to-use trademark applications.

The goal is laudable, but because both the TTAB and courts have not reached consensus about how to interpret the major exception to violations of this provision, trademark owners and litigants who own registrations that are less than five years old and that issued from intent-to-use applications that were assigned prior to the applicant having demonstrated use, both run the risk of having the registration being deemed void and need to be aware that predicting how either the TTAB or a court will interpret the exception will be difficult to predict.

To avoid the risk of the exception being interpreted narrowly, to the extent possible, trademark applicants should avoid assigning their intent-to-use trademark applications prior to demonstrating use to the USPTO.

This Article is also on Law.com: The Trademark Anti-Trafficking Rule

When starting a new business, many entrepreneurs spend a great deal of time choosing the brands that they will develop and the trademarks under which they will offer their goods and services.

In an effort to protect their rights, entrepreneurs, as well as others, may take advantage of a process that allows them to file their trademark applications with the United States Patent and Trademark Office (USPTO) before they begin to use their trademarks.

These types of applications, which are commonly referred to as intent-to-use applications, may be filed so long as an applicant has a bona fide intention to use the trademark in interstate commerce. 15 U.S.C. §1051(b).

Not uncommonly, entrepreneurs who are fond of the brand that they are going to develop will file a trademark application soon after coming up with the idea, identifying himself or herself or a newly formed company as the applicant, averring that he, she, they, or it has a bona fide intent to use the proposed trademark.

Unfortunately, coming to market often takes longer than one anticipates, and in order to attract capital or for other reasons, during their journey to market, many entrepreneurs are forced to form new companies, change the form of a company or take on partners.

Financially, doing any of these acts might make a great deal of sense; however, if any of these acts are taken before the initial applicant demonstrates use of the trademark to the USPTO, the applicant risks running afoul of trademark law’s anti-trafficking rule. 15 U.S.C. §1060.

Violation of the anti-trafficking rule can have a devastating effect, voiding trademark rights. In a recent decision, the Trademark Trial and Appeal Board (TTAB), recognized a time limit on claims to cancel trademarks that otherwise would be void under this provision. Thrive Natural Care Inc. v. Nature’s Sunshine Products, Inc., 2023 WL 5287181 (TTAB August 15, 2023).

The TTAB’s decision in Thrive provides a welcome bright line for trademark holders, but five years is a long time, and the decision should also serve as a reminder that one should be mindful of the risks associated with assigning intent-to-use trademark applications.

Intent-to-Use Trademark Applications

Entrepreneurs who seek trademark rights may file a trademark application either after they begin to use their trademark, (an “in use” application), 15 U.S.C. §1051(a), or prior to using the trademark, if they have a bona fide intention to use the trademark in connection with the goods and services recited in the trademark application (an “intent-to-use” application), 15 U.S.C. §1051(b).

In the case of an intent-to-use trademark application, the trademark will not be registered until an applicant has shown actual use in interstate commerce.

Congress introduced the intent-to-use process in 1988, when it passed the Trademark Law Revision Act of 1988. Prior to that time, applicants needed to have used their trademarks in commerce before registering them, but this led to a problem of applicants engaging in “the legal fiction of ‘token use’” prior to filing their applications. Dallas Basketball Limited v. John Carlisle, 2004 WL 2619576, *4 (TTAB Nov. 8, 2004). Consequently, Congress amended the Lanham Act to allow applicants to file intent-to-use trademark applications.

The Lanham Act’s Anti-Trafficking Rule

Prior to enacting the anti-trafficking rule, Congress recognized that the allowance of the filing of intent-to-use trademark applications might bring with it a temptation for people who did not have a bona fide intent to use the trademarks that were the subject of their applications, to file their applications with the intent of selling them.

To address this issue, Congress enacted the anti-trafficking provision to prohibit the assignment of intent-to-use trademark applications. Violation of this rule results in a void application and any resulting registration. Clorox Co. v. Chem. Bank, 40 U.S.P.Q.2d 1098, 1106 n.8 (TTAB 1996). Importantly and unlike in the case of most issues related to trademarks, the issue of whether a consumer would be confused or deceived is irrelevant. Central Garden & Pet Co. v. Doskocil Manufacturing Co., Inc., 2013 WL 4635990, *14 (TTAB Aug. 16, 2013).

This prohibition has two exceptions. First, an applicant may assign an intent-to-use trademark application while the application is pending, after the applicant has demonstrated use to the USPTO. 15 U.S.C. §1060. Second, an applicant may assign its trademark application prior to demonstrating use, “to a successor to the business of the applicant, or a portion thereof, to which the mark pertains, if that business is ongoing and existing.” Id.

Before addressing the exceptions, one should be mindful that the anti-trafficking rule is concerned not with whether there is an identity of applicant(s) prior to and subsequent to an assignment, but whether the transfer is to another. Central Garden & Pet Co. v. Doskocil Manufacturing Co., Inc., 2013 WL 4635990, *14 (TTAB August 16, 2013).

Thus, if an intent-to-use trademark application is originally filed by two joint applicants, and one of those joint applicants transfers his or her rights to the other joint applicant, there is no transfer to another within the statute and the anti-trafficking rule does not come into play. Teeter-totter, LLC v. Palm Bat International, Inc., 344 F. Supp. 3d 1100, 1108 (N.D. Cal. 2018); Amazon Technologies, Inc., v Wax, 95 U.S.P.Q.2d 1865, *9 (TTAB 2010).

By contrast, an assignment to a different, even if related corporate entity, is a transfer to another within the statute, and thus will run afoul of the anti-trafficking rule if one of the exceptions does not apply. Central Garden & Pet Co. v. Doskocil Manufacturing Co., Inc., 2013 WL 4635990, *16 (TTAB Aug. 16, 2013) (an intent-to-use application filed in the name of a first company that is a wholly owned subsidiary of a second company that is a wholly owned subsidiary of a third company, the assignment of the application from the first company to the third ran afoul of anti-trafficking rule).

Similarly, if an applicant of an intent-to-use trademark application is an individual who forms a corporate entity (e.g., an LLC) after filing his or her trademark application and assigns the trademark application prior to using the trademark in commerce, then even if the applicant is the sole owner of the corporate entity, the anti-trafficking rule comes into play. Sebastian Brown Productions LLC. v. Muzooka Inc., 2016 WL 949004, *11 (March 14, 2016).

Thus, applicants who, even for legitimate business reason, change their minds over time as to the structure of the entity under which they wish to bring products or services to market, they should be mindful that those benefit might come at a price, including the voiding of a trademark registration that issues from of an intent-to-use trademark application.

The On-Going and Existing Business Exception

The first exception is straightforward—did the applicant who filed the intent-to-use trademark application file a statement of use prior to transferring rights. The second exception, however, is more obtuse — whether the assignee is the “successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing or existing.” 15 U.S.C. §1060; Creative Arts by Calloway v. Brooks, 2012 WL 6732907 n.18 (S.D.N.Y. Dec. 27, 2012) (noting lack of clarity in the law).

The root of the lack of clarity is the clause “if that business is ongoing or existing” and it has been interpreted in two diametrically opposed ways. First, some courts and TTAB boards, have required that there must be an existing business under which goods or services were offered under the trademark.

As such, there can be no valid the statutory “if that” language is read as “provided that.” Second, at least one court and TTAB board has found that a transfer is valid even if no goods or services have been offered under the trademark, implicitly reading the “if that” clause as meaning that if there is a business under which goods and services are being offered under the trademark, that business cannot remain with the original applicant.

As example of the first line of decisions is Greene v. Ab Coaster Holdings, Inc., 2012 WL 4442749 (S.D. Ohio Sept. 25, 2012). In that case, the parties agreed that the assignment of the trademark at issue was made prior to the filing of the statement of use. The trademark registration was for the mark AB COASTER in connection with manually operated exercise equipment.

At the time of assigning the mark, the applicant was in the business of distributing wellness products such as massagers and developing the abdominal exercise machine that was to be offered under the AB COASTER trademark.

This development of a product was not an ongoing or existing business sufficient to invoked the exception to the anti-trafficking provision because at the time of the transfer “the mark was not in use.” See also Ocule, LLC v. Oculus VR, Inc., 2015 WL 3619204, *8 (C.D. Cal. Jun. 8, 2015) (exception to anti-trafficking rule did not apply when applicant never did any business using the trademark).

For guidance, the Greene court looked to the TTAB decision Railrunner N.A. Inc. v. New Mexico Department of Transportation, 2008 WL 8973295 (TTAB 2008), which held: “transfer is only permissible if the applicant actually has such a business, i.e., if the applicant is already providing the goods or services recited in the application.”

As explained further in Sebastian Brown Prods. LLC v. Muzooka, Inc., 2016 WL 949004, *11 (N.D. Cal. Mar. 14, 2016)“section 1060’s ‘on going and existing’ business exception to the anti-trafficking rule must be read in connection with the requirement that any assignment of trademark rights requires the assignment of goodwill and must require more than the assignment of good will alone.” Id. at *9.  Accordingly, under these court and TTAB decisions, the final “if” clause of the statute means that for the exception to be applicable at all, the assignor needed to have been using the trademark.

By contrast, the second set of decisions held that the anti-trafficking provision allows for the assignment of intent-to-use applications before actual use of the trademark with a business associated with the “intended” use of the mark. Vacation Rental Partners, LLC v. VacayStay Connect, LLC, 2017 WL 1150806, *6 (N.D. Ill. Mar. 28, 2017).

Pointing to a non-precedential TTAB decision, Exel Oyj v. D’Ascoli, 2008 WL 4354180 (TTAB Sept. 19, 2008), the Vacation Rental court held that although an applicant might not have used the mark in commerce by the time of assigning the trademark application at issue, it may have goodwill or existing business to the mark, e.g., relationships based on planned use of the mark, such that the assignment does not run afoul of the anti-trafficking provision. Vacation Rental Partners, 2017 WL at *6.

The TTAB in Exel Oyj further explained: “The anti-trafficking provision…merely requires that if the application is transferred prior to use of the mark, and the transferor remains an ongoing and existing business after the transfer, that the transfer be accompanied by that portion of the transferor’s business to which the mark pertained, i.e., that portion of the business that would have used the mark had there been no transfer.” Exel Oyj, 2008 WL at *7.

Therefore, under this line of reasoning, the ongoing and existing language refers to two scenarios, either of which would be exceptions to the anti-trafficking rule: (1) either the overall business was transferred; or (2) if the original applicant remained an ongoing business after the assignment, then the portion to which mark pertains were transferred.

In neither of these scenarios would the mark have needed to be in use prior to transfer. In contrast to the first line of decisions, which render the ongoing and existing business exception narrow, this second line of decisions allows applicants more flexibility in assigning their trademark rights.

Timing

The TTAB’s most recent discussion of the anti-trafficking rule addressed not whether a business was ongoing, but whether invocation of the rule was timely. In Thrive Natural Care Inc. v. Nature’s Sunshine Products, Inc., 2023 WL 5287181 (TTAB Aug. 15, 2023), the petitioner owned two registrations for the trademark THRIVE and sought to cancel a registration for SUBSCRIBE & THRIVE.

In a counterclaim, the respondent argued that an assignment of rights during prosecution of one of the petitioner’s registrations violated the anti-trafficking provision. The TTAB dismissed the counterclaim because it was brought more than five years after the registration had issued and the Lanham Act sets a time limit on cancellation proceedings that are more than five years old. Id. (citing 15 U.S.C. §1064).

Thrive provides a clear line for which a cancelation proceeding may be brought against a trademark or raised in a counterclaim against a registration that is cited by a petitioner in a cancelation proceeding. Clear lines are always helpful to litigants as they evaluate the strength of their cases in disputes. However, this time limitation will slow down the rate at which administrative decisions and caselaw will resolve the conflict between the interpretation of the ongoing and existing business exception to the trademark anti-trafficking rule.

Conclusion

The Lanham Act’s anti-trafficking provision has a goal of preventing people from creating a business out of filing and selling intent-to-use trademark applications.

The goal is laudable, but because both the TTAB and courts have not reached consensus about how to interpret the major exception to violations of this provision, trademark owners and litigants who own registrations that are less than five years old and that issued from intent-to-use applications that were assigned prior to the applicant having demonstrated use, both run the risk of having the registration being deemed void and need to be aware that predicting how either the TTAB or a court will interpret the exception will be difficult to predict.

To avoid the risk of the exception being interpreted narrowly, to the extent possible, trademark applicants should avoid assigning their intent-to-use trademark applications prior to demonstrating use to the USPTO.

This Article is also on Law.com: The Trademark Anti-Trafficking Rule