Friday, 30 April 2010

Apparels and appellations

Author: Peter Jabaly (Rutgers Law School)

JA Apparel Corp. v Abboud, 07 Civ. 7787 (SDNY), 12 January 2010

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq035

This case highlights poor contract drafting and the inherent difficulty of segregating a trade mark from its namesake.

Legal context

In any transaction relating to trade marks, the rights and responsibilities of the respective parties do not exist in a vacuum but are related to the specific nature of the trade marks themselves. Where a trade mark which is the subject of a transaction incorporates or alludes to the name of one of the parties to the transaction, the drafting of the contract must take care to reflect both the intentions of the parties and the separate and distinct status of the trade mark. If this is not done, the resolution of any ambiguity becomes a matter for judicial construction.

Facts

Joseph Abboud and JA entered into a Purchase and Sale Agreement by which, in exchange for $65.5 million, Abboud agreed to ‘sell, convey, transfer, assign and deliver’ to JA Apparel ‘all of [his] right, title and interest in and to’ most pertinently, ‘the names, trademarks, trade names, service marks, logos, insignias and designations identified’ in the Agreement's Schedule. The name Joseph Abboud was included on the Schedule but, as the Court reasoned, ‘there [was] no evidence of any negotiations or discussions of the sale of Abboud's name as an asset distinct from the trademarks and related intellectual property’.

At the outset of the negotiations, Abboud became concerned about his ability to compete in the industry if he should choose to continue designing after the relationship with JA came to an end. In follow-up press releases, correspondences, and draft agreements, ‘names’ would be included as a target of the acquisition. However, the parties never addressed the term's inclusion or meaning.

The relationship soured after approximately 5 years. And, once the non-competition clause had expired, Abboud began to design and to market a brand new line of clothing, ‘Jaz’. This line of clothing was advertised as: ‘[the] new luxury collection created by the award-winning designer Joseph Abboud’ underneath the comparatively larger Jaz brand name; ‘a new composition by Joseph Abboud’ in bold next to the similarly sized Jaz brand name. Based on the advertisements, JA alleged trade mark infringement and breach of contract.

Analysis

A contract between sophisticated parties, negotiating at arm's length must be respected and a court should be ‘extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to include’ (Vt. Teddy Bear Co., Inc. v 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004); Belle Harbor Wash. Hotel, Inc. v Jefferson Omega Corp. (‘a written agreement that is complete, clear, and unambiguous on its face must be enforced in accordance with the plain meaning of its terms.’). A court determines a term's ambiguity since it is a question of law. If the court determines an ambiguity, then extrinsic evidence is properly admitted and all ‘surrounding facts and circumstances’ may be considered to ascertain the parties' intended meaning (U.S. Naval Inst. v Charter Comm'ns, Inc., 875 F.2d 245, 248 (1975)).

The parties presented equally persuasive interpretations of the agreement, provided no compelling extrinsic evidence of the sale of the Abboud name except in connection with the sale of IP, and provided no extrinsic evidence that indicated that Abboud had sold his personal name in connection with all commercial purposes. The Court accordingly concluded that Abboud sold the use of his name as a trade mark or brand name.

The Court eventually recognized that the assignment of the Joseph Abboud name in connection with the marks was dispositive of the non-assignment of his name for all commercial purposes. Mindful that this interpretation left the term ‘names’ in the schedule as surplusage, the Court noted that the rule against surplusage should be ‘applied with a grain or two of salt’ as the common technique is used to ensure all meanings are included, ‘not [necessarily] to convey a separate piece of information’ (JA Apparel Corp., 568 F.3d at 407 n 4 (J Sack, concurring)).

Though Abboud had not sold the personal use of his name with respect to every commercial use, he had sold his trade mark, the Joseph Abboud name. The Court therefore next determined whether trade mark infringement, and therefore breach of contract had occurred. To succeed in a trade mark infringement claim, the plaintiff is required to demonstrate the possession of a valid mark which is entitled to protection, and that the defendant's use of the mark is likely to cause confusion as to the origin or sponsorship of the good. The Court of Appeals had determined that the defendants had made a prima facie showing.

The Court next addressed Abboud's fair use defence, which allows for a modicum of confusion and is an absolute defence to a claim of trade mark infringement. To succeed, an infringer must demonstrate that the name or term is being used descriptively, other than as a mark, and in good faith (15 USC 1115(b) (4)). ‘Descriptive use is evidence in such situations "[w]here a mark incorporates a term that is the only reasonably available means of describing a characteristic of another's goods"’ (citing EMI Catalogue P'ship v Hill, Holliday, Connors, Cosmopulos, Inc., 228 F.3d 56, 65 (2d Cir. 2000)).

Use of a term to attract public attention is deemed trade mark use. Other considerations, such as size, font, cautionary language, and location, are important in determining whether the term is used descriptively or in a trade mark sense (Third Restatement of Unfair Competition 28 cmt. C). Lastly, the lack of good faith may be inferred from the defendant's breach of an agreement not to use the trade mark (Inst. for Scientific Info. v Gordon & Breach, Sci. Publishers, Inc., 931 F.2d 1002, 1009 (3d Cir. 1991)).

In the case of surnames, the circumstances are more closely scrutinized. A surname may acquire a secondary meaning, but that may not interfere with the business of another person bearing the same name. However, the right is not unlimited in a situation where the individual had sold the right to use the name. After reviewing the advertisements' proposed formats, the Court concluded that Abboud had infringed on the trade mark, and therefore, violating the contract. The Court ordered Abboud to use a disclaimer to limit the significant confusion that would be generated by some of the proposed advertisements. In summation, ‘Abboud may alert consumers that he is the designer behind the Jaz line, but he cannot do so in an "overly intrusive manner."’ (citing Madrigal Audio Labs, 799 F.3d at 823). Further, Abboud was enjoined from using his name as a trade mark. Abboud's counterclaims were dismissed on the basic premise that he had sold the right to use his name.

Practical significance

Even something as personal as a name may become IP, capable of being sold and forbidden to the person who was born with it. One who sells his namesake trade mark may not, after becoming overcome by remorse, find refuge in the argument that it is inextricably part of his personality; limitations may be placed on its use. Abboud failed to recognize that. He agreed to sell his brand name and the attendant good will generated by it. For that reason, he was severely limited in using his name without disclaiming his association with the Joseph Abboud brand. When a trade mark holder sells his trade mark, he is effectively foreclosed from re-entering the industry and capitalizing on that goodwill.

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