A 2004 New Jersey case held that an assignment in gross is invalid when there is no goodwill associated with the product or business. If there is no goodwill associated with a product or business, assigning a trademark- which is a symbol- may be deceitful to the public or an indication that the mark was abandoned. In these cases, the New Jersey district court held, the court will look to the "reality of the transaction" to determine whether goodwill was passed. Thus, one may think of invalid assignments in gross as a possible defense for trademark infringement claims.
In InterState Net Bank v. NETB@NK, Inc., 348 F. Supp. 2d 340 (Dist. Ct. NJ 2004), plaintiff was an Internet bank, and defendant was the assignee of a registered trademark that also offered Internet banking services. Plaintiff sued defendant seeking a declaratory judgment that the trademark was generic and should be cancelled. Defendant counterclaimed alleging trademark infringement and unfair competition under state law. The court entered judgment for the plaintiff and held that defendant, trademark assignee, had no valid infringement claim in this case.
The court first held that the mark assigned to defendant was indeed a generic mark. The term Netbank was generic for Internet banking, the court said. Yet, the court did not cancel defendant's assigned mark because there was a question of whether defendant's use of the mark was the same use that the third party registrant stated in its registration. Thus, the main issue became whether there was a proper trademark and trademark assignment in this case.
The district court, after reviewing the Lanham Act rules on abandonment of trademarks, stated that a trademark registration may be cancelled at any time if the registered mark is abandoned. 15 U.S.C.S. §§ 1064, 1115(b) (2). A trademark is considered abandoned when its holder suspends use with intent not to resume such use. 15 U.S.C.S. § 1127. The party that claims abandonment of a trademark must show, by clear and convincing evidence, that (1) the use of the mark was discontinued; and (2) that there is no intent to resume use within a reasonable foreseeable time in the future. 15 U.S.C.S. § 1127.
In this case, the mark was registered by a third party who registered the mark for "electronic payment services featuring a system of electronic money coupons that are exchanged by means of an on-line computer service." The third party registrant was a software engineering company that never used the mark in connection with Internet banking services. The third party used Netbank to provide real-time online payment services. The third party's services helped individuals and companies receive or make online payments, but it did not specifically offer banking services, e.i., checks, loans, banks accounts, interest payments.
The third party assigned its trademark rights on Netbank to defendant to be used in the Internet banking market in 1998. Defendant paid $100,000 for this trademark and its domain name. Plaintiff's Internet banking services became available in 2001. In 2002, defendant assignee threatened to file a lawsuit for trademark infringement against plaintiff. Instead, plaintiff filed this lawsuit seeking declaratory judgment that the mark Netbank was generic. The court held that the term Netbank was generic.
Regarding cancellation of the mark, the court ordered cancellation of the mark for abandonment. The court favored plaintiff's argument that the assignment of this mark was not valid because there was no real asset transferred from the third party to the defendant. Indeed, the court held, "[A]lthough transfer of physical or tangible assets is not required, an assignment of a trademark without the transfer of physical assets will only be upheld where the assignee is producing a product or providing a service which is substantially similar to that of the assignor and where consumers will not be deceived or harmed. The mere fact that an agreement purports to assign goodwill along with the trademark is insufficient. Rather, courts will look to the "reality of the transaction" to determine if goodwill has passed." Thus, transfer of goodwill is required when assigning a trademark right under New Jersey law. If no goodwill is transferred, the assignment is considered invalid. "[A] purported assignment of a trademark without goodwill is an invalid "assignment in gross." The prohibition against assignments in gross is intended to protect consumers. Use of the mark by the assignee in connection with a different goodwill and different product would result in a fraud on the purchasing public who reasonably assume that the mark signifies the same thing, whether used by one person or another," the court held.
Therefore, there was no proper assignment in this case because the third party did not transfer goodwill for an Internet banking service. Also, the trademark Netbank, as registered, was considered abandoned because it was not used for the purposes for which it was registered. Thus, the trademark Netbank could be ordered cancelled. The court said that, for trademark assignment purposes, generally similar products are not substantially similar if they are designed to cover different consumer groups. Even if defendant offered services similar to those offered by the third party, those services were not substantially similar to support the trademark assignment. Since the registered Netbank was abandoned and ordered cancelled, and the assignment was invalid, there was no trademark infringement in this case.
One can infer from this holding and its analysis that (1) invalid assignments in gross are definitely a defense for infringement cases; (2) that this defense requires proof that there was no transfer of goodwill- real assets; - and (3) that trademark assignments related to no-"substantially similar" products or services, especially when they related to Internet trademarks, should be carefully examined before an agreement is signed. It may be awkward to concretely define some Internet-related services and this factor may play a major role when entering into Internet-related trademark assignments.