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CLARK & FREEMAN CORP. v. HEARTLAND CO.

January 6, 1993

CLARK & FREEMAN CORP. and HEARTLAND SHOE COMPANY, INC. Plaintiffs
v.
THE HEARTLAND COMPANY LTD. and STEVEN KLINE Defendants.



The opinion of the court was delivered by: JOHN S. MARTIN, JR.

 JOHN S. MARTIN, JR., District Judge:

 This case involves the competing claims of two companies to the exclusive right to use the name "Heartland" in connection with their business operations. Defendants have been using the name since July of 1985 in connection with their sales of shirts, sweaters, trousers and jackets. Plaintiffs first commenced using the name "Heartland" on April 26, 1986 in connection with the sale of men's shoes and boots.

 Had each of the parties continued with their original operations, plaintiffs selling men's shoes and boots and defendants selling shirts, trousers and jackets, there would have been little need for either to seek the intervention of the Court. While some evidence of confusion was introduced at trial, such confusion was limited and not sufficient to justify interfering with the parties' continued operating in their separate lines of merchandise. Recently, however, plaintiffs have decided that they wish to launch a clothing line under the "Heartland" name and, thus, this lawsuit.

 Although plaintiffs began using the name "Heartland" after defendants, plaintiffs claim priority because in 1987 they obtained an assignment of the "Heartland" name from Sears, Roebuck & Co. which had used the name since 1983 in connection with the sale of women's boots. Plaintiffs *fn1" filed an application to register the "Heartland" mark with the U.S. Patent and Trademark Office on July 3, 1986. On November 25, 1986, the application was allowed and published in the official Gazette. Nine days later on December 4, 1986, Sears notified plaintiffs of their prior use of the "Heartland" name and threatened to bring opposition proceedings. Ultimately, Sears agreed to settle the matter by assigning the "Heartland" name to plaintiffs in exchange for $ 15,000. The settlement was affected on April 6, 1987, and, on July 28, 1987, plaintiffs' mark was registered by the U.S. Patent and Trademark Office.

 Since plaintiffs' own use of the name "Heartland" did not commence until after defendants' use of that trademark, plaintiffs can prevail in this action only if they have succeeded to the priority rights in the trademark "Heartland" which were enjoyed by Sears. Defendants contend, however, that the assignment of the trademark from Sears to plaintiffs was an assignment in gross and, therefore, plaintiffs may not tack on the period of Sears' prior use to defeat defendants' claim of priority.

 Generally, an assignment of a trademark and its accompanying goodwill will entitle the assignee to "step into the shoes" of the assignor, gaining whatever priority the assignor might have had in the mark. Money Store v. Harriscorp Fin., Inc., 689 F.2d 666 (7th Cir. 1982); G's Bottoms Up Social Club v. F.P.M. Industries, Inc., 574 F. Supp. 1490, 220 U.S.P.Q. 874, 879 (S.D.N.Y. 1983); 1 McCarthy, Trademarks and Unfair Competition 805 (2d ed. 1984); accord 15 U.S.C. § 1060. *fn2" However, where a trademark has been assigned "in gross," i.e. without the accompanying goodwill, then the assignment is invalid, Haymaker Sports, Inc. v. Turian, 581 F.2d 257 (C.C.P.A. 1978), and the "assignee" must instead rely upon his or her own use to establish priority. Merry Hull & Co. v. Hi-Line Co., 243 F. Supp. 45 (S.D.N.Y. 1965); see McCarthy, supra, at 807.

 Marshak v. Green, 746 F.2d 927 (2d Cir. 1984), discusses the rationale behind the assignment in gross rule: "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." Id. at 929; see Money Store; Pepsico, Inc. v. Grapette Co., 416 F.2d 285, 289 (8th Cir. 1969).

 Plaintiffs claim that the assignment is valid for two reasons: (1) Because Sears immediately ceased manufacture and marketing of its "Heartland" boots, there was an ipso facto transfer of goodwill to plaintiffs; (2) Because plaintiffs were applying the trademark to "substantially similar" goods, they had acquired the goodwill as well as the mark.

 Plaintiffs' first argument can be easily dismissed. Plaintiffs cite no case establishing the proposition that forbearance by the assignor operates to transfer goodwill ipso facto. See Greenlon, Inc. of Cincinnati v. Greenlawn, Inc., 542 F. Supp. 890, 895 (S.D. Ohio 1982) (discussing cases where assignor continued use in order to establish converse proposition); Hy-Cross Hatchery, Inc. v. Osborne, 303 F.2d 947, 950 (C.C.P.A. 1962) (using forbearance only as one element in transfer of goodwill determination). Indeed, if forbearance alone were sufficient, then discussion of "consumer deception" would be irrelevant, since an assignee could use the mark for any product desired as long as the assignor halted operations. Goodwill is not such a mechanistic concept.

 Plaintiffs' second contention presents a closer question. It is well established that "courts have upheld such assignments if they find that the assignee is producing a product or performing a service substantially similar to that of the assignor and that the customers would not be deceived or harmed." Marshak, 746 F.2d at 930; see Defiance Button Mach. Co. v. C & C Metal Prod., 759 F.2d 1053 (2d Cir.), cert. denied, 474 U.S. 844, 106 S. Ct. 131, 88 L. Ed. 2d 108 (1985) (same); Stetson v. Howard D. Wolf & Assoc., 1991 WESTLAW 149753 (S.D.N.Y.), aff'd, 955 F.2d 847 (2d Cir. 1992) (same). *fn3" This is the case even if no physical or tangible assets have been transferred. Defiance Button, 759 F.2d at 1059; Hy-Cross Hatchery, 303 F.2d at 950. The key question is whether plaintiffs produced a product "substantially similar" to that of Sears such that "the customers would not be deceived or harmed."

 For these purposes, it is not dispositive that plaintiffs' footwear is of high quality. It is not merely the quality of the product, but its similarity to that produced by the assignor that determines whether goodwill has been transferred. "[A] trademark may be validly transferred without the simultaneous transfer of any tangible assets, as long as the recipient continues to produce goods of the same quality and nature previously associated with the mark." Defiance Button, 759 F.2d at 1059 (emphasis added). Plaintiffs' argument that customers cannot be harmed or deceived either because their shoes are of such high quality or because they are available for inspection prior to purchase misses the mark; by that rationale, plaintiffs could have produced the finest quality jet engines under the mark "Heartland" and claimed to have acquired Sears' goodwill in ladies boots. Substantial similarity demands more than quality.

 Case law on "substantial similarity" is only moderately instructive, since the facts of each case are distinct and dispositive. Cf. Pepsico, Inc. v. Grapette Co., 416 F.2d 285 (8th Cir. 1969) ("A case by case treatment of the problem as specific facts present themselves is desirable"). Many cases have involved products that were virtually identical, thus easily satisfying the "substantial similarity" test. See, e.g., Marshak, 689 F.2d at 678 (service mark; money lending services); Glamorene Prods. Corp. v. Procter & Gamble Co., 538 F.2d 894, 895 (C.C.P.A. 1976) (dry cleaning detergent); Hy-Cross Hatchery, 303 F.2d at 950 (breeding chicks); Bambu Sales, 683 F. Supp. at 905-06 (cigarette paper).

 Some courts have found "substantial similarity" even though the products differed in some respects. In Main Street Outfitters v. Federated Dep't Stores, 730 F. Supp. 289 (D. Minn. 1989), "substantial similarity" was found to establish a goodwill transfer where the assignor had sold "all-weather coats and women's coats" and the assignee was using the mark on "various items of clothing including jackets, rain wear and various items of apparel." Id. at 290. The court found dispositive that "[assignee] conducted a business of selling apparel, especially women's apparel, as had ...


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