Haymaker Sports, Inc. v. Turian

BALDWIN, Judge,

dissenting, with whom RICH, J., joins.

I respectfully dissent from the majority’s decision based, as it is, on a conclusion that the assignment from the Avon Shoe Co. (Avon) to the escrowees, Block and Moran, constituted an assignment in gross of the trademark HAYMAKERS and, thus, rendered invalid the subsequent assignment from the escrowees to appellee, Herman Turian (Turian).

Knowledge of the facts as set forth in the record is critical to a proper understanding of the nature of the transactions between the parties. Avon 1 was a closely held corporation which had manufactured and sold shoes under the trademarks HAYMAKERS and HAYMAKERS by AVON since 1941. Federal registration had been obtained by Avon for both marks.

In the early 1960’s, Avon found itself in financial difficulties and unable to pay some $40,000 in legal fees arising from previous litigation with the appellant. In 1963, Avon and its creditor/attorneys entered into an agreement whereby the debt would be paid in installments based upon a percentage of Avon’s net profits. Additional terms of the agreement designated Block and Moran as escrowees for the purpose of collecting the amounts payable to the creditor law firm. 2 Under the agreement, the marks and their attendant goodwill were assigned by Avon to Block and Moran to serve as collateral security for the debt. The record clearly shows that Avon, the escrowees and the creditor/attorneys intended Avon to continue to use the marks in its business and that placing the marks in escrow was merely a means to prevent Avon from transferring the marks or dissipating the considerable goodwill which it had engendered in the marks. In the event of breach by Avon, the agreement directed the escrowees to assign the trademarks and their associated goodwill to the creditor law firm.

The parties performed under this agreement until early 1964 when Avon defaulted. On March 26, 1964, the assignment from Avon to the escrowees was recorded in the Patent and Trademark Office. The escrow-ees, however, did not reassign the marks to *263 the creditor law firm as the default provision of the agreement provided, but rather Avon and the creditor law firm agreed to a new payment schedule. This was accomplished in a second written agreement which reaffirmed the roles of Block and Moran as escrowees and provided that should Avon cease business operations, the escrowees were to assign the marks to any owner of Avon stock who would consent to continuing the payments. Avon’s business came to an end in late 1967 when only $1,800 of the debt was still outstanding. 3

In early 1968, Turian, 4 as an owner of Avon stock, entered into negotiations with the escrowees and the marks were assigned to him on July 11, 1968. Turian paid the remaining debt in August of 1968 and began to use the mark HAYMAKERS in late 1968 or early 1969 in connection with the sale of shoes.

The majority opinion focuses entirely on the trademark assignment from Avon to the escrowees and reasons that it was an assignment in gross because the escrowees never used the marks and did not acquire any of Avon’s business, equipment or inventory as part of the goodwill associated with the marks. On this basis, the majority concludes any subsequent transfer of title to the marks by the escrowees would also be “in gross” because the escrowees could transfer only bare legal title to the marks. I submit that this analysis fails to consider the assignment in the context of the actions of the parties involved. Consideration of these actions reveals the actual intent and effect of the agreements variously between Avon, the escrowees, the creditor law firm and Turian and leads me to the conclusion that, as a result of these actions, Turian acquired valid ownership of the marks and their associated goodwill.

In Syntex Laboratories, Inc. v. Norwich Pharmacal Co., 315 F.Supp. 45 , 166 USPQ 312 (S.D.N.Y.1970), the court stated the rationale for the requirement that a trademark must be transferred only in association with its goodwill was “the need, if consumers are not to be misled as a result of established associations with the mark, that the mark continue to be associated with the same or closely similar products after its assignment.” Id. at 55 , 166 USPQ at 319 . I certainly disapprove of any assignment which enables the assignee to mislead and defraud the public by associating a trademark with a substantially different business, product or goodwill. 1 J. McCarthy, Trademarks and Unfair Competition, § 18:1C (1973). But I feel all of the important circumstances surrounding an assignment must be considered before it is determined to be “in gross” in order to avoid an erroneous finding of invalidity because of a mere failure to comply with stereotyped formalities. Syntex, supra at 54 , 166 USPQ at 319 .

The record before us is replete with evidence that the parties intended the first agreement and the assignment to constitute an assignment of the mark to the escrowees and a simultaneous license for Avon. The words of the assignment stated Avon “does sell, assign, transfer and set over unto EUGENE J. MORAN and MAX BLOCK, JR., as ESCROWEES * * * any right, title and interest [in the marks].” The very designation of Block and Moran as escrow-ees manifests an intent by the parties that Avon enjoy full use of the mark. The testimony of both Block and Moran on the record also establishes that Avon was to use the marks as a licensee.

While generally the mere provision that an assignment of a trademark also conveys the goodwill associated with the mark is insufficient to constitute a valid assignment, I find the actions of the parties in this case resulted in a valid assignment with a license back to Avon. Avon was both assignor and licensee of the marks and *264 since Avon was to continue its use of the mark there was no need to transfer equipment, inventory or facilities to the escrow-ees. The end result of the transactions was that any purchaser of HAYMAKERS shoes received precisely what was bargained for, i. e., shoes manufactured and sold by Avon.

The majority finds the hiatus between the recording of the assignment on March 26, 1964 and the execution of the second agreement on April 7, 1964 as somehow significantly altering the relationship between Avon and the escrowees. Initially, I note that the recording provision in the statute is merely a device for providing constructive notice to potential bona fide purchasers. 1 J. McCarthy, Trademarks and Unfair Competition, § 18:2 (1973). Next, there is no evidence on the record that the escrowees terminated Avon’s license and, thus, the status quo was maintained. Also, the second agreement reaffirmed the license agreement in the provision controlling disposition of the mark should Avon cease business operations, and this further emphasizes that these events did not affect Avon’s right to use the marks.

When a trademark is licensed, the general rule is that the licensor must exercise control over the quality of the goods which the licensee sells in connection with the mark. J. McCarthy, supra § 18:14. Courts have, however, approved of certain licensing arrangements wherein the licensor relied upon the licensee to maintain the quality of the goods. Id. at § 18:17 and cases cited therein. I find the instant situation to be such an exception. Avon had continually used the marks for over twenty years and had established considerable goodwill in the marks. The assignment to the escrow-ees was temporary and was only to continue until such time as Avon paid off the debt. Also, Avon intended to reacquire the mark and, therefore, it possessed an obvious interest in maintaining its reputation of quality. These factors, when considered with Avon’s long time experience in the shoe manufacturing business and the lack of any showing of a deterioration in the quality of the shoes, demonstrate that Avon was in the best position to control quality and that it was clearly reasonable for the escrowees to rely thereon. Thus, I find the assignment to the escrowees and the license back to Avon were in full compliance with federal trademark law governing registrations and assignments.

The final issue to be considered is the effectiveness of the assignment of the marks to Turian after Avon had ceased business operations. The majority’s limited treatment of this issue concluded the assignment to be invalid because they found the earlier assignment to the escrowees invalid. The board, however, having found a valid assignment to the escrowees, considered the assignment to Turian in more depth, including the fact that Turian did not acquire Avon’s equipment, inventory or customer lists as tangible symbols of goodwill. As was stated by the Court in Syntex, the assignee need not always acquire such assets. Syntex, supra at 55 , 166 USPQ at 319 . In Syntex, as here, the assignor did not possess unique equipment or secret information which, if not transferred to the assignee, would prevent him from duplicating the products and completely satisfying the expectations of purchasers familiar with products associated with the mark before the assignment. The record in this case demonstrates that Turian had been involved in the shoe business since the 1940’s and as a former officer of Avon was thoroughly familiar with its product line, customers and business practices. I find in these factors a great deal more significance than a failure to acquire some sock linings, out of date shoe lasts and equipment for which Turian had no need.

I agree with the board’s opinion that Turian succeeded to complete ownership of the HAYMAKERS trademark through an unbroken chain of title. I would affirm the decision of the board denying appellant’s petition to cancel the registration.

. Avon is used in this opinion to refer to both Avon Shoe Co. and a wholly owned subsidiary, Haymaker Shoe Corp.

. Eugene J. Moran was the attorney for the creditor law firm and Max Block, Jr. had been Avon’s attorney during the previous litigation between Avon and Haymaker Sports, Inc.

. The amount of the original debt had been reduced to $14,000 by agreement of the parties.

. Turian was vice president of Haymaker Shoe Corp. until sometime in 1963 or 1964. His signature appeared on the assignment from Avon to the escrowees. Turian’s father appears to have controlled the operation of both Avon Shoe Co. and Haymaker Shoe Corp. and Turian’s stock holdings in Avon date back to the 1940’s.