Subsidiaries of larger companies who are preparing to file a trademark application may want to think twice before deciding who to list as the Applicant. In April 2016, The United States Patent and Trademark Office’s Trademark Trial and Appeal Board (TTAB) issued a precedential decision canceling the trademark registration of a subsidiary because the parent company was the only one using the mark.
In Noble House Home Furnishings, LLC v. Floorco Enterprises, LLC, Noble House petitioned to cancel Floorco’s NOBLE HOUSE trademark registration for furniture on the grounds of abandonment. There are two elements required for an abandonment claim: (1) non-use of the mark and (2) no intent to resume use. However, if Noble House could demonstrate that Floorco had not used the mark for at least 3 consecutive years it would establish its prima facie showing of abandonment and force Floorco to produce evidence that it had used the mark or intended to resume use of the mark.
Floorco argued that it had not discontinued use of the mark and was still marketing the NOBLE HOUSE brand, providing evidence of marketing and advertising materials within the relevant 3 year period. However, its biggest flaw was that Floorco was not the entity marketing the brand, but this was being done by its parent company, Furnco.
As a defense, Floorco attempted to use Section 5 of the Trademark Act which states that a registered mark “may be used legitimately by related companies [and] such use shall inure to the benefit of the registrant, and such use shall not affect the validity of such mark.” However, the TTAB disagreed that Furnco fit the description of a “related company.” Under Section 45 of the Trademark Act, a “related company” is “any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods or services on or in connection with which the mark is used.” As typical in most parent-subsidiary relationships, Furnco controls Floorco, and not the other way around. Furnco also controls the nature and quality of the furniture sold under NOBLE HOUSE, therefore the TTAB found that Furnco is not a related company whose use of the mark can inure to the benefit of Floorco.
The TTAB did recognize the argument that Furnco, as the owner of Floorco, may also therefore own the NOBLE HOUSE registration, however dismissed this as Furnco’s decision to structure its business using a legally distinct subsidiary. As Floorco was the entity listed on the registration and the entity that submitted the Statement of Use alleging use in commerce, it was Floorco’s responsibility to maintain control over the mark. Therefore, the TTAB found that Floorco had abandoned its mark and issued a cancellation.
Given the outcome of this cancellation action, companies with multiple entities should be on alert. Companies should first confirm that the entity actually using and controlling the mark is the one listed on the registration. If not, to avoid cancellation of the trademark, the entities should consider entering into a trademark license or an assignment.