Clark & Freeman Corp. v. Heartland Co. Ltd.
25 U.S.P.Q. 2d (BNA) 2030, 811 F. Supp. 137, 1993 U.S. Dist. LEXIS 191 (1993)
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Rule of Law:
A trademark assignment is invalid as an 'assignment in gross' if it is made without the accompanying goodwill, meaning the assignee cannot tack on the assignor’s prior use to establish priority if the assignee uses the mark on goods not substantially similar to those of the assignor, even if no tangible assets are transferred.
Facts:
- Defendants, Northern Sales, Inc., began using the name 'Heartland' in July 1985 for their sales of shirts, sweaters, trousers, and jackets.
- Sears, Roebuck & Co. (Sears) had been using the name 'Heartland' since 1983 in connection with the sale of women's boots.
- Plaintiffs, The Heartland Company, first commenced using the name 'Heartland' on April 26, 1986, for men’s shoes and boots.
- Plaintiffs later decided they wished to launch a clothing line under the 'Heartland' name.
- On December 4, 1986, Sears notified plaintiffs of its prior use of the 'Heartland' name and threatened opposition proceedings.
- Sears agreed to settle the matter by assigning the 'Heartland' name to plaintiffs in exchange for $15,000 on April 6, 1987.
- After the assignment, Sears immediately ceased manufacture and marketing of its 'Heartland' boots.
- Plaintiffs applied the assigned 'Heartland' mark to men's shoes and later to men's hiking boots.
Procedural Posture:
- Plaintiffs filed an application to register the 'Heartland' mark with the U.S. Patent and Trademark Office (USPTO) on July 3, 1986.
- The USPTO application was allowed and published in the official Gazette on November 25, 1986.
- Plaintiffs' mark was registered by the USPTO on July 28, 1987.
- Plaintiffs commenced this action in district court in 1992, seeking to enjoin defendants from using the 'Heartland' name for their products.
- Defendants filed a cross-claim in district court seeking an order cancelling plaintiffs’ trademark registration or requiring the issuance of a registration to defendants for its clothing products.
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Issue:
Does a trademark assignment, made without the transfer of tangible assets, allow an assignee to claim priority based on the assignor's earlier use if the assignee applies the mark to goods not substantially similar in nature to those previously associated with the assignor's mark?
Opinions:
Majority - MARTIN, District Judge
No, a trademark assignment without the transfer of tangible assets does not allow an assignee to claim priority based on the assignor's earlier use if the assignee applies the mark to goods not substantially similar to those previously associated with the assignor's mark. The Court found the assignment from Sears to plaintiffs to be an invalid 'assignment in gross' because the goods were not 'substantially similar' such that customers would not be deceived. An assignment is in gross if it is made without the accompanying goodwill, which typically means the assignee cannot 'step into the shoes' of the assignor and gain priority. The rationale behind this rule is to prevent fraud on the purchasing public, who reasonably assume a mark signifies the same thing regardless of who uses it. The court dismissed plaintiffs' argument that Sears' immediate cessation of use automatically transferred goodwill, stating that goodwill is not a mechanistic concept and mere forbearance is insufficient. The court applied the 'substantially similar' test, emphasizing that similarity in both quality and nature is required. It determined that women’s pixie boots (Sears' product) are substantially distinct from men’s shoes and hiking boots (plaintiffs' product), making it unlikely that consumers would consider a general reputation for footwear built by Sears in women's boots when buying men's shoes. The fact that plaintiffs were already using the mark before the assignment suggested they sought only the right to use the name, not its goodwill. Consequently, defendants established priority in the 'Heartland' name for clothing products. Furthermore, even if the assignment were valid, injunctive relief would be inappropriate because defendants adopted the mark in good faith, and plaintiffs had not 'bridged the gap' into defendants' product line by the time the action was commenced. The court denied both parties' requests for injunctions but allowed defendants to proceed with registration of 'Heartland' for clothing, finding that cancellation of plaintiffs' registration would be inequitable due to defendants' delay (laches), but that co-existence was possible.
Analysis:
This case clarifies the stringent requirements for a valid trademark assignment, particularly the 'assignment in gross' doctrine. It reinforces that goodwill is intrinsically linked to the nature and quality of the goods, not merely the name, and must transfer with the mark to prevent consumer deception. The ruling underscores that mere payment for a name, without a continuous association of that name with similar goods, is insufficient to transfer priority rights. It also highlights the equitable considerations in trademark litigation, showing that even a 'senior user' may be denied injunctive relief if they delay in asserting their rights while a junior user develops substantial goodwill in good faith in a distinct, albeit related, market.
