In 2010, Dan Liebman and Thomas Walters decided to join forces and open a restaurant in Louisville, Ky. Though not uncommon, the business partners neglected to address the ownership of the business’s trademark at the outset of their venture. A messy fight followed the shuttering of their joint venture, and fellow business owners should take note of three important lessons resulting from their sticky situation.
From honey to vinegar: The aftermath of a soured barbecue business
At the outset of their venture in 2010, Liebman, the restaurant’s financier, and Walters, a respected caterer, managed the restaurant. Based on a suggestion from Walters, the restaurant was named STAXX Roadhouse. The Louisville location opened its doors in November 2010, but shuttered by August 2011. During that time, the pair opened a second location in Frankfort, Ky. This second location remains in operation, but is now owned and operated by Liebman without Walters, as their business relationship soured.
In the summer of 2011, Liebman filed two U.S. trademark applications, one for STAXX and the other for STAXX BBQ. Walters, the imagination behind the name, believed he owned a stake in the trademarks. Rather than objecting to the registration of these trademarks through the procedures of the U.S. Patent and Trademark Office (USPTO), Walters emailed Liebman requesting that his name be added as an owner of the marks. Those requests were denied, and the marks ultimately registered in the fall of 2012.
Undeterred by these events, Walters continued using the name STAXX in connection with his personal and separate catering business. After all, he came up with the name, and, in his assessment, he used the name first. Walters claimed that in 2010, before the pair opened the initial STAXX restaurant, Walters created a Facebook page under the name “Furlong Catering and Staxx Catering” and separately used the email address email@example.com. In his rendition, the STAXX trademark was his before it was Liebman’s. The parties clearly disagreed.
Hog-tying your trademark rights under “common law”
Under U.S. trademark law, trademark rights are obtained by first using a mark in commerce. These rights are called “common law” rights, and they extend geographically as far as the mark is known and recognized by the consuming public. However, one could hold nationwide trademark rights by obtaining a federal registration from the USPTO. It is possible for the first user of a mark to own common law rights, while a subsequent user owns a federal registration. According to trademark law, prior common law rights can trump a federal registration, at least in those geographic regions where the common law rights exist.
Liebman, concerned that Walters’ separate and unauthorized use of the STAXX name would cause confusion in the marketplace, sued in a Kentucky federal court to stop his use. Liebman claimed trademark infringement and unfair competition under both federal and Kentucky state law. In response, Walters argued that his “prior use” of the STAXX name granted him common law rights superior to those obtained by Liebman via the federal registrations. The District Court disagreed and explained, “…the examples Walters provides of prior use are not sufficient to establish a common law right to the marks,” in part, because “there is no evidence that potential customers connected the marks with Walters’ services…” In other words, Walters’ first application of the name STAXX did not constitute “use” in the sense that he deserved trademark rights in the name. Consequently, Walters was preliminarily enjoined from using the STAXX designation.
Serving up lessons (with a side of barbecue)
The lessons from this case are three-fold.
- If you have a great idea for a business name, do not wait to consider protecting it.
One can obtain common law trademark rights through use of a mark in commerce. However, the definition of “use” is particular and sometimes complex. It requires more than being the first to imagine a name, and generally requires more than inconsistent and/or non-commercial use.
Even before you anticipate actually using a mark, you may file an intent-to-use trademark application with the USPTO, so long as you have a bona fide intent to use the mark in commerce. Upon registration, the rights in that mark relate back to the filing date of the application (which predates the first actual use of the mark). Had Walters exercised this option, he probably would not have been in this unenviable position.
- If multiple parties may have a claim of ownership, resolve those issues upfront (preferably in writing).
Even if it seems like nothing could cause the demise of your business partnership, take the time to sort out ownership details in writing at the beginning of the relationship. Knowledgeable legal counsel can help set you on the right path, creating clear legal documents that lay out the specifics of ownership, among other details.
- If you do not consider the first two lessons, a court may make the ultimate decision (and possibly get it wrong).
The specific facts in each case are important, and similar facts can be interpreted in different ways. For example, what if Walters had claimed ownership in the STAXX trademark because of his involvement in the initial Louisville restaurant (apart from his use of STAXX in his separate catering operation)? Walters managed the restaurant and had at least some control over the services provided under the mark. Therefore, Walters was arguably part owner in the name, regardless of his prior application of STAXX. Rather than discussing joint ownership, the court dichotomously viewed rights in the mark as between Liebman based on the STAXX restaurant venture and Walters based on his prior use of STAXX in connection with his personal catering operation. Of course, there may be additional facts we are not privy to, or arguments that went unconsidered, but it is important to note that there is always more than one recipe to follow when it comes to litigation.
If you are aiming to avoid a similar sticky situation or have questions about filing a trademark with the USPTO, please contact the Intellectual Property group at Bingham Greenebaum Doll LLP.
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