In an interesting and well-reasoned decision, the Ninth Circuit recently addressed whether a trademark is abandoned during a sell-off of inventory of trademarked goods, but before a complete cessation of the liquidation of trademarked inventory. The answer, it said, was NO.
The main dispute at issue in Electro Source LLC v. Brandess-Kalt-Aetna Group, Inc., No. 04-55844, -55909, -56648 (9th Cir. Aug. 14, 2006), was who owned a mark: a party that took an assignment from a trademark owner while the trademark owner's business was in the process of winding down and while he was slowly selling off remaining inventory; or an unrelated party that had been using the mark since before the assignment. The unrelated third party alleged that the assignee got no prior rights from the assignor because assignor abandoned the mark when he decided to wind-down the business and sell off his inventory of trademarked goods.
The 9th Circuit held that there was no abandonment. It explained that abandonment requires two elements: (1) discontinuation of "bona fide use of the mark in the ordinary course of trade"; and (2) intent not to resume such use. Taking the element of intent first, the 9th Circuit held that, so long as there is continued use, a "subjective intent to abandon the mark or business" or a "prospective declaration of intent to cease use in the future" by itself isn't enough to result in abandonment. The court concluded that "unless the trademark use is actually terminated, the intent not to resume prong of abandonment does not come into play."
As to whether there was a discontinuation of use, the 9th Circuit held that "abandonment requires complete cessation of trademark use." Further, "[e]ven a single instance of use is sufficient . . . if such use is made in good faith." It explained that "[g]ood faith nominal or limited sales of trademarked goods are sufficient . . . where the circumstances legitimately explained the paucity of sales." A wind-down or sell-off qualifies as "good faith" use. The court distinguished such "good faith" sales from sales taking place under a "trademark maintenance program," which are insufficient to avoid abandonment.