INTA Bulletin

March 15, 2012 Vol. 67 No. 6 Back to Bulletin Main Page

The Ties That Bind? Considerations in Drafting and Maintaining U.S. Trademark Consent and Coexistence Agreements

Consent agreements and coexistence agreements are indispensable tools for resolving present or possible future disputes between two parties about the use and/or registration of arguably similar marks for related goods or services. However, potential problems and unforeseen mischief can arise when a third party enters the scene. These problems can include assignees or successors (“successors”) who dispute inherited obligations and bystander nonparties who attempt to use publicly accessible consent or coexistence agreements to their own advantage. Trademark owners and their attorneys can help minimize such problems through drafting and monitoring techniques and proper diligence.

Consider the More Significant Legal Life of a U.S. Consent Agreement
In many countries, consent agreements often are no more than a concise statement of one party’s consent to registration of another party’s applied-for mark. Trademark offices, acting in the public interest, accept such consents, if at all, at their discretion in order to allow one party to overcome a citation of the other party’s mark. Once accepted, the useful life of the consent agreement can come to an abrupt end.

In the United States, however, consent agreements must do more than simply state the agreement of one party to registration of another party’s mark (a prohibited “naked agreement”) for acceptance by the U.S. Patent and Trademark Office (USPTO). Instead, the agreement must also address why the parties believe no likelihood of confusion exists (e.g., the marks travel in different channels of trade) and/or state measures the parties will take to avoid confusing consumers, all of which confers a longer and more consequential life span on the agreement.

Because U.S. trademark coexistence agreements and their more abbreviated relative, the consent agreement (both referred to here as “consent agreements”), play a more fundamental role in defining or redefining the scope of each party’s trademark rights, they are given great weight by the USPTO and the courts, and can also serve as evidence of no likelihood of consumer confusion. In re Four Seasons Hotel, Ltd., 26 U.S.P.Q.2d 1071 (Fed. Cir. 1993). The more robust legal life of these consent agreements necessarily raises considerations for trademark owners and practitioners about their continuing supervision and enforcement, especially in regard to nonsignatory third parties.

Practice Tip 1: Incorporate provisions for notice requirements to help reduce the possibility of disputes with successors.
In the United States, a party to a consent agreement can derive some measure of comfort in the knowledge that, with the exception of a trademark acquired as a result of a bankruptcy proceeding, a successor steps into the shoes of its predecessor or assignor, assuming relevant rights and obligations under an existing consent agreement. Premier Dental Prods. Co. v. Darby Dental Supply Co., 794 F.2d 850 (3d Cir. 1986). This is also true for a successor that acquires its trademark rights without notice: the successor is nonetheless bound by the terms of the consent agreement. California Packing Corp. v. Sun-Maid Raisin Growers of Cal., 64 F.2d 370 (C.C.P.A. 1933).

Of course, some successors that obtain their trademark rights without notice of an operative consent agreement may resist efforts to be bound by the agreement, maintaining that a lack of knowledge of the consent agreement at the time of the trademark’s conveyance and/or a lack of privity exempts them from the agreement’s terms (including terms that might otherwise limit the scope of the acquired trademark). Although those arguments will be unavailing, parties to the consent agreement should make efforts to reduce possibilities for later disputes with successors. One way to do this is by incorporating into the agreement adequate notice requirements for both the non-assigning party and the successor.

For example, the consent agreement can provide that in advance of an assignment or succession of a relevant trademark, the assigning party will provide adequate notice to the consent agreement’s other party and/or require a confirmation to the non-assigning party that the successor has been made aware of the obligations it will acquire under the agreement. The agreement may require that any assignment or succession documents expressly refer to the consent agreement, and that a copy of the consent agreement be attached as an exhibit to those documents. While these provisions may elude any practical enforcement in advance of the assignment, they may nonetheless help raise the prospective assignor’s awareness of the need to put the successor on notice of the agreement or otherwise face being in breach of the agreement.

Practice Tip 2: Provide for an express amendment of the trademark application forming the basis for the consent.
Absent a direct notice, the single most effective indirect form of notice to the successor of a consent agreement and its relevant restrictions is by means of an appropriate expression of those limitations within the official record of a related trademark filing. For example, the consent agreement may provide that as a condition of one party’s consent, the other party must amend its trademark application to include certain restrictions (such as on channels of trade). If at the time of a transfer of trademark rights the successor is not made aware of the agreement, the amended application will, at the very least, plainly convey to the properly diligent successor that the acquired trademark is subject to a restraint that is fully public and recognized by the USPTO.

Practice Tip 3: Consider addressing liability for a successor’s post-sale infringement.
Yet another kind of dispute can arise when the trademark successor violates the terms of a consent agreement by a post-sale infringement and the other party to the agreement seeks recovery against the assignor or predecessor party. While case law provides that such an effort will fail because trademark assignors are not liable for post-assignment acts of the successor, a party may wish to memorialize this principle in the agreement so that it is plainly understood.

Practice Tip 4: Consider an outright prohibition against assignments affecting important marks.
Because parties to a consent agreement may “contract between themselves for any legal purpose” that is not against public policy (Peyrat v. L.N. Renault & Sons, 247 F. Supp. 1009 (S.D.N.Y. 1965)), a consent agreement may prohibit not only an assignment of the trademark in question absent notice to the other party but an assignment altogether, rendering any effort to do so null and void. This alternative may be worth considering when the agreement concerns a significant trademark owned by the consenting party. However, as noted below, this kind of provision is not enforceable against an assignor or successor when the transfer occurs through a bankruptcy sale.

Of course, a trademark owner operating from a position of strength should carefully consider whether consent makes sense in situations where the registered mark is of key importance and successor compliance with a consent agreement would be vital.

Practice Tip 5: Periodically monitor activity of marks subject to consent agreements.
The most artfully drafted consent agreement may nonetheless be breached, not only as to use or registration obligations but also as to terms governing successors and assigns. Therefore, it may be advisable for a party periodically to monitor whether there have been any developments affecting ownership of an important mark that is subject to notice requirements. This can be done, in part, by checking the official trademark office website to determine whether any assignments have been recorded against the marks (although the assignment itself will not be accessible, information on any new owner will appear). Trademark owners may also wish to monitor compliance by examining the other party’s official website or by otherwise investigating use.

Practice Tip 6: Consider identifying a life expectancy for a consent agreement.
Consent agreements run the risk of being perpetual, even after a mark has been abandoned. Accordingly, a consent agreement’s express limitations (such as the ability of the owner of the mark to adopt future variations) live on, potentially to the benefit of bystander nonparties. Therefore, parties to a consent agreement may wish to consider incorporating language that makes it clear that the agreement will be effective until one of the parties’ marks has been “abandoned,” as that term is understood under the Lanham Act, 15 U.S.C. § 1127(b) (discussing abandonment as occurring when (a) use of a mark is discontinued with no intention to resume use, with three years of non-use serving as prima facie evidence of abandonment, or (b) when a trademark owner’s acts or its acts of omission result in a mark’s becoming generic).

Practice Tip 7: Consider adopting a short form of a larger consent agreement to avert problems with bystander nonparties.
When submitting a consent agreement to the USPTO to overcome an objection to registration, that agreement becomes part of the record of the application, which is readily accessible on the USPTO’s official website (under “Trademark Status and Document Retrieval” (TSDR)). Therefore, parties should consider what they wish to put on the public record, being mindful of information that the parties may not wish to disclose to a bystander nonparty.

Efforts by nonparties to use admissions in consent agreements to shield them from exposure to liability for their own use of a similar mark have met with mixed results. Some courts have not been persuaded by this argument, concluding that Rule 408 of the Federal Rules of Evidence, which renders statements made for settlement purposes inadmissible in court, also extends to completed agreements. Playboy Enters., Inc. v. Chuckleberry Publ’g, Inc., 486 F. Supp. 414 (S.D.N.Y. 1980) (refusing to consider earlier consent agreement between plaintiff and owner of PLAYGIRL magazine on the basis that it would undermine the policy of encouraging settlement promoted by Fed. R. Evid. 408). Instead, these courts have found that consent agreements are enforceable only by a party to the agreement and do not provide a blanket consent to nonparty uses of similar marks. In re Majestic Distilling Co., 315 F.3d 1311 (Fed. Cir. 2003) (rejecting appeal of party seeking to register the mark RED BULL for tequila on the basis that cited manufacturer of RED BULL malt liquor entered into earlier consent agreement permitting trademark registration of RED BULL for Scotch whiskey).

Nonetheless, some courts have been sympathetic to the argument that admissions in a consent agreement may serve as a form of estoppel against a party that made them. These courts conclude, for example, that parties to a consent agreement have the “right to contract away the public’s likelihood of confusion from their closely related products.” California Fruit Growers Exch. v. Sunkist Baking Co., 166 F.2d 971 (7th Cir. 1947) (defendant’s use of mark SUN-KIST for baking products permissible given agreement between two unrelated plaintiffs governing use of identical marks for highly similar food products). This approach was recently endorsed in a case where a plaintiff’s prior representations and a related consent agreement concerning use of its FREEDOM CARD mark for fuel services provided a basis for finding the mark CHASE FREEDOM for a fuel service card to be non-infringing. Freedom Card, Inc. v. JP Morgan Chase & Co., 432 F.3d 463 (3d Cir. 2005).

Therefore, parties that have more fully articulated their consent agreements to include, for example, detailed restrictions on each party’s current and future use and registration of their respective marks may wish to create an abbreviated version of the agreement which satisfies the USPTO’s minimal standards for acceptance for filing with the USPTO.

Practice Tip 8: Disclose the existence of relevant consent agreements in the sale of trademark assets and exercise due diligence in their acquisition.
Attorneys can help protect their clients from potential trademark infringement actions concerning acquired trademark assets subject to consent agreements or from potential breaches of representations and warranties in a sale of such assets by maintaining or acquiring information on marks subject to consent agreement limitations and disclosing or obtaining that information at the time of sale. Buyers of trademark assets should seek indemnification for breaches of the seller’s representations and warranties, and conduct proper due diligence prior to a sale. Because a consent agreement “fixes and defines” the scope of trademark rights, a seller’s failure to disclose the existence of a consent agreement can result in the seller’s liability for the breaching successor’s legal costs under such an indemnification, even though the seller could not otherwise be held directly liable for that infringement. Consequently, adequate recordkeeping and disclosure are imperative for the seller.

Considerations About Successors in the Context of a Bankruptcy Proceeding
When one party to a consent agreement files for bankruptcy, enforcement interests of the other party may conflict with the separate interest of bankruptcy law to convey to a future buyer a clear title of the debtor’s assets, free of any liens or encumbrances. For example, certain terms within a consent agreement that constrain assignments will be unenforceable. Under 11 U.S.C. § 365, drafters of consent agreements cannot avert a later bankruptcy sale of trademark assets by including terms that either prohibit assignment of the trademark in question or otherwise trigger termination of the agreement upon a bankruptcy filing by a party.

However, this does not foreclose possibilities for trademark infringement actions if the buyer expands the use or registration of the acquired trademarks beyond the boundaries established by the agreement. That result follows from a fundamental tenet of property and contract law, namely, that a party can convey to another party only what it owns. A & L Labs., Inc. v. Bou-Matic LLC, 429 F.3d 775 (8th Cir. 2005).

Consistent with this principle, consent agreements have been found to create limitations on trademark rights owned by one or both of the signatory parties. Specifically, a consent agreement “fixes and defines the existing trademark of each [party].” Waukesha Hygeia Mineral Springs Co. v. Hygeia Sparkling Distilled Water Co., 63 F. 438 (7th Cir. 1894). For example, if a party has agreed that its mark will be used only for commercial space heaters, it does not own an invulnerable right to use that mark for residential uses. If a buyer acquires that mark in a bankruptcy sale and begins to manufacture such goods, the non-debtor party, as a manufacturer of space heaters for residential use, may bring a trademark infringement action against the buyer because the buyer acquired rights in a mark limited to commercial space heaters.

Here, too, parties to a consent agreement may wish to monitor the USPTO website for change-of-title developments affecting burdened marks of particular interest. If ownership has been transferred transfer due to a bankruptcy sale without notice to the other party, that party is advised to contact the new owner to confirm that it is aware of the existing agreement and the limited scope of the trademark assets acquired by the successor through the bankruptcy sale.

In drafting and supervising consent agreements, it is important to consider the potential afterlife of the agreement in the hands of a successor. These considerations include notice requirements, control over future assignments, concerns about the possible use of included terms as admissions beneficial to bystander nonparties and the importance of due diligence and disclosure. Nonetheless, a consent agreement, in most cases, will be binding upon successors of a transferred trademark irrespective of whether the successor is on notice of the earlier agreement. In all cases, consent agreement restrictions placed on the use or registration of a trademark define or effectively redefine the scope of a trademark owner’s rights, and only those rights may be assigned.

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.

© 2012 International Trademark Association