Walk the dusty aisles of the fiction section in a used bookshop (does anyone still visit used bookshops?) and you'll see piles of old novels by writers like Jim Clancy and James Clavell.

In the 1970s, the latter was a notably successful author of romantic historical fiction about Japan, as well as earlier having written screenplays, including for King Rat and The Great Escape. One of his novels now seemingly consigned to history? Shōgun. Another? Noble House.

Recently, at the USPTO's Trademark Trial and Appeal Board, furniture manufacturer Noble House Home Furnishings tried to consign another entity's version of Noble House to the dustbin of history. It petitioned the TTAB for cancellation of Floorco's mark Noble House for furniture on the basis of abandonment, Noble House Home Furnishings itself having marketed furniture under that same mark.

They won. In a precedential ruling in Noble House Home Furnishings, LLC v. Floorco Enterprises, LLC, Cancellation No. 92057394 (April 4, 2016), the TTAB granted Noble House's petition. And, notably, the Board held that use of a wholly-owned subsidiary's registered mark by a parent entity does not inure to the benefit of its subsidiary when the parent controls the nature and quality of the goods.

But there's some complexity behind the screen.

Before we launch with wild abandon into the riveting details of the case, let's revisit Section 45 of the Lanham Act. Section 45 provides that a mark shall be deemed abandoned when its use has been discontinued with intent not to resume use.

A period of three years of non-use constitutes prima facie abandonment. Section 5 of the Act provides that when a mark is used legitimately by related companies, that related use shall inure to the benefit of the registrant or applicant for registration. Section 45 also defines "related company" as any person or entity whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods and services on or in connection with which the mark is used.

Furnished with this knowledge, let's return to the instant case. Floorco filed its Statement of Use for the challenged registration on Aug. 18, 2011, claiming a first-use date of Dec. 3, 2010. The registration issued on Nov. 1, 2011.

But Floorco's last sale of furniture under the Noble House mark was made on July 14, 2009, after which the products were sporadically marketed by the registrant, but without actual additional sales.

Although sales ceased on July 14, 2009, the three-year period of non-use for purposes of abandonment did not begin to run until the Statement of Use was filed, since an intent-to-use applicant does not have to use its mark until it files its statement of use. The relevant period of non-use therefore began on Aug. 18, 2011.

Importantly, non-use of a mark due to lack of demand may not constitute abandonment if the owner continues its marketing efforts. This was an argument that Floorco asserted in its defense. It claimed that it had been marketing and advertising Noble House branded furniture as available for sale, but simply had not made any sales.

However, in examining the record, the Board pointed out that Floorco was not marketing and advertising products under the Noble House mark. Instead, its parent corporation Furnco was. In addition, Furnco controlled the nature and quality of the furniture that may have been sold under the Noble House mark prior to the period of non-use.

The Board noted that in most cases the affairs of a subsidiary are controlled by the parent, and so no license or other agreement is required regarding a mark owned by the parent and used by a subsidiary. Here, in contrast, Furnco authorized its subsidiary, Floorco, to be the owner of the registration. But Floorco did not meet the definition of a related company in that its use of the mark was not controlled by the registrant with respect to the nature and quality of the goods.

Therefore, in the Board's view, advertising and marketing materials that identified Furnco as the source of the Noble House furniture products cannot be deemed evidence of use of the mark by Floorco and did not show that Floorco intended to resume use of the mark. So the Board found for Noble House Home Furnishings, ruling that Floorco had abandoned it after three years of nonuse with no intent to resume.

Noble House Home Furnishings also alleged that Floorco committed fraud on the USPTO when it submitted its specimen of use. But the Board dismissed the claim. It felt Floorco did not willfully make a material misrepresentation and did not intend to deceive the USPTO, but rather held the mistaken belief that whatever the legal significance of the Furnco's activities, they inured to Floorco's benefit.

In this case, the Board may have arrived at the just result without allowing the claim of fraud or non-use. I have to wonder, too, if the Board is trying to suppress fraud claims for fear of opening a Pandora's box.

In reviewing the opinion, the question seems inescapable: How does one successfully argue in an inter partes proceeding at the USPTO that a wholly-owned subsidiary is not a company "related" to its parent? It seems to defy common sense.

I also wonder if the case might have been decided differently if Floorco had an oral license from Furnco to use the mark. We will never know, but it's wise to keep this case in mind when exploring potential causes of action to bring against registrations when one cannot easily tell which party—a subsidiary, related party, licensee, or parent—is using the mark instead of the person or entity that technically owns it.

Reprinted with permission from the September 26, 2016 edition of Inside Counsel© 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

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