08/19/16

IN THIS ISSUE

PARENT COMPANY’S UNLICENSED USE OF MARK NOT CREDITED TO SUBSIDIARY
NEW TRADE SECRETS LAW REQUIRES UPDATE TO CONFIDENTIALITY AGREEMENTS

PARENT COMPANY’S UNLICENSED USE OF MARK NOT CREDITED TO SUBSIDIARY

Timothy J. Lockhart

The U.S. Trademark Trial and Appeal Board (TTAB) has ruled that in the absence of a formal licensing arrangement, a parent company’s use of a mark owned by its subsidiary does not entitle the subsidiary to claim that use for the purpose of trademark registration. Noble House Home Furnishings, LLC v. Floorco Enterprises, LLC, 118 USPQ2d 1413 (TTAB 2016) [precedential].

In 2008 Floorco Enterprises, LLC (Floorco) filed an intent-to-use application to register NOBLE HOUSE as a trademark for furniture. A few months later, the U.S. Patent and Trademark Office (USPTO) issued a Notice of Allowance for the application, and after obtaining several extensions of time, Floorco filed a Statement of Use in 2011, which resulted in registration of the mark that year.

In 2012 Noble House Home Furnishings LLC (NHHF) filed an application to register the mark NOBLE HOUSE HOME FURNISHINGS LLC and Design for use with furniture and outdoor furniture. The USPTO refused to register NHHF’s mark, citing Floorco’s registration for NOBLE HOUSE. In 2013 NHHF filed a petition to cancel Floorco’s registration on the grounds that Floorco had abandoned its mark.

The evidence in the case showed that the last sale under the NOBLE HOUSE mark was made in 2009 and that furniture was “sporadically marketed” under the mark thereafter but without any further sales. But because the NOBLE HOUSE application was filed on the basis of an intent to use the mark, the three-year period for determining whether the mark had been abandoned did not begin to run until Floorco filed its Statement of Use in 2011.

If a trademark owner continues its marketing efforts, such action can avoid a finding that the mark has been abandoned even if the owner has made no sales under the mark. See, e.g., American Lava Corp. v. Multronics, Inc., 461 F.2d 836, 174 USPQ 107, 110-11 (CCPA 1972). Floorco asserted that despite its lack of sales, it had continued to advertise and market NOBLE HOUSE furniture.

The TTAB found, however, that Floorco’s parent company, Floorco International Corporation (FIC), not Floorco itself, had been using the mark in advertising and marketing materials. Because there was no formal licensing arrangement between the two companies whereby Floorco could control such use of the NOBLE HOUSE mark, including “the nature and quality of the goods rendered under the . . . mark,” the TTAB held that FIC’s use of the mark did not inure to the benefit of Floorco. Thus, such use did not enable Floorco to avoid a finding of abandonment.

The TTAB implied that its ruling might have been different if Floorco had a licensing arrangement with FIC whereby Floorco could exercise the rights and duties (including quality control) of a trademark owner. And because a parent company is presumed, even in the absence of a formal licensing arrangement, to be able to control the activities of its subsidiary, the ruling would likely have been different if FIC had been Floorco’s subsidiary and not the reverse. Thus, the NOBLE HOUSE decision underscores the importance of proper trademark ownership and licensing arrangements between parent and subsidiary companies.


NEW TRADE SECRETS LAW REQUIRES UPDATE TO CONFIDENTIALITY AGREEMENTS

David A. Kushner

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). Prior to the passage of this law, there was no federal cause of action for the misappropriation of trade secrets. Instead, trade secret litigation was governed by state law, with most states having adopted the Uniform Trade Secrets Act. Because of the lack of a federal remedy for trade secret theft, victims of such theft were (in most cases) unable to utilize the broad power of the federal courts as a tool to minimize the impact (and maximize the punishment) for trade secret misappropriation.  

After the passage of the DTSA, trade secret owners will for the first time have the option of bringing trade secret litigation under federal law and in federal court. Unlike federal patent and copyright law, the DTSA does not preempt state trade secret legislation, so a victim of misappropriation will be able to bring a claim under federal and state law.  

Under the DTSA (as under most state trade secret law) a plaintiff may recover damages for actual losses, unjust enrichment on the part of the defendant, or alternatively, a reasonable royalty related to the value of the misappropriated trade secret. As an additional remedy not available under most state laws, the DTSA grants federal courts the authority to double the damages awarded if the plaintiff shows that the misappropriation of the trade secret was done willfully and maliciously. Another advantage of the DTSA over state actions is that the DTSA authorizes courts to order law enforcement throughout the nation to seize property believed to contain the trade secrets, as long as such seizure is necessary “to prevent the propagation or dissemination of the trade secret.”

These additional remedies make the DTSA a powerful new tool for those affected by trade secret misappropriation.

Importantly, the DTSA provides employee immunity against criminal and civil liabilities for trade secret disclosures made to government officials or to an attorney for the sole purpose of reporting or investigating a violation of the law. As part of this new “whistleblower” protection, the DTSA requires businesses to provide notification of such immunity by placing a provision in any employment or independent contractor agreement containing confidentiality or trade secret provisions. If a business fails to provide the required notice, the business may not recover the double damages or attorneys’ fees typically allowed in a DTSA action.  

The notice requirement only applies to agreements signed after May 11, 2016, and entities that executed prior agreements do not need to sign new agreements as a result of DTSA. However, it is critical that businesses have their employment or intellectual property lawyers update their employment and independent contractor agreements to reflect the language required by the Defend Trade Secrets Act.

Advancing technology continues to make it easier to copy and transfer large amounts of information, often in a manner that is difficult to trace.   Thus, it is not surprising that potential trade secret theft has become a major issue for most businesses. Having a federal remedy for such violations will provide significant advantages to affected businesses.

To take advantage of the full scope of the federal protections, it is important that businesses update their confidentiality, intellectual property, and non-compete agreements, as well as any other agreements related to confidential information or trade secrets, to reflect the new required language.

It is also important to remember that a business seeking to prove trade secret theft under DTSA or state law will be required to show that it took reasonable efforts to maintain the secrecy of its trade secrets. Our firm’s lawyers have substantial experience advising companies on how to ensure that their trade secret protection strategies and policies are reasonable under the circumstances, and we welcome the opportunity to provide a consultation on this subject.

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