Burgess v. Gilman
2007 WL 582562, 475 F. Supp. 2d 1051 (2007)
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Rule of Law:
The transfer of a service mark is valid and not an impermissible assignment in gross if it includes key assets sufficient to allow the new owner to continue the business in real continuity with its predecessor, thereby transferring the associated goodwill. Additionally, a government agency's temporary non-use of a forfeited mark does not constitute abandonment if the delay is excusable due to the unique deliberative and bureaucratic processes involved in managing seized assets.
Facts:
- The U.S. government seized the Mustang Ranch brothel business from its former owner, A.G.E. Corporation, through criminal forfeiture proceedings.
- The forfeiture implicitly included the "Mustang Ranch" service mark and its associated goodwill.
- From August 1999 to October 2003, a period of nearly four years, the government did not operate a brothel under the mark while it deliberated on how to dispose of the seized assets.
- During this period of non-use by the government, David and Ingrid Burgess began operating a new brothel nearby under the name "Mustang Ranch."
- The Bureau of Land Management (BLM), on behalf of the government, eventually sold the Mustang Ranch's assets, including its iconic pink buildings and the service mark, via an eBay auction.
- L. Lance Gilman, through his company Cash Processing Services (CPS), was the high bidder and purchased the mark and the buildings at the auction.
- Gilman moved the purchased buildings from their original location to a new site to operate a brothel under the Mustang Ranch name.
- The original physical land where the brothel stood was not part of the sale.
Procedural Posture:
- David and Ingrid Burgess sued L. Lance Gilman and his companies in the U.S. District Court for the District of Nevada, seeking a declaratory judgment that they had the right to the 'Mustang Ranch' service mark.
- Defendant Cash Processing Services (CPS) filed a counterclaim for trademark infringement.
- The district court granted a preliminary injunction in favor of the Plaintiffs (the Burgesses), preventing the Defendants from using the mark.
- Defendants (Gilman and CPS) appealed the preliminary injunction to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit affirmed the district court's grant of the preliminary injunction.
- The case returned to the district court, where the parties filed cross-motions for summary judgment, which were all denied.
- A bench trial was held before the district court to resolve the merits of the case.
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Issue:
Does a government agency's temporary non-use of a service mark seized through criminal forfeiture, followed by the sale of the mark along with key tangible assets but not the original business location, constitute an involuntary abandonment of the mark that allows a third party to claim it?
Opinions:
Majority - Edward C. Reed, Jr.
No. The government's actions did not constitute an involuntary abandonment of the mark because the sale was a valid transfer of goodwill and the period of non-use was excusable. First, the sale to Gilman was not an invalid assignment in gross because it included the goodwill of the business. The court found that the transfer of the unique and iconic buildings was sufficient to enable Gilman to 'go on in real continuity with the prior business' and recreate its unique atmosphere, thereby validly transferring the goodwill associated with the mark. Second, the government did not voluntarily abandon the mark through non-use. While the nearly four-year period of non-use established a prima facie case of abandonment, the court held this was rebutted because the government's delay was an excusable non-use. The government was placed in a unique and politically sensitive situation, requiring deliberation over the disposal of a notorious business, which excused the delay. Therefore, the mark was never abandoned, and Gilman's purchase was valid.
Analysis:
This case clarifies how traditional trademark principles of assignment and abandonment apply in the unusual context of government forfeiture of a business. The decision reinforces a modern, flexible interpretation of the rule against 'assignments in gross,' holding that the transfer of goodwill does not require the transfer of all tangible assets or the original location, so long as enough key assets are included to ensure continuity for the consumer. It also establishes an important precedent that a government entity's bureaucratic delay and deliberation can serve as a valid reason to excuse non-use of a trademark, preventing a finding of abandonment that might otherwise apply to a private entity. This protects public property rights from being inadvertently forfeited due to the slow pace of government action.
