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The Marks Organization, Inc v. Robert Joles

March 18, 2011

THE MARKS ORGANIZATION, INC., PLAINTIFF,
v.
ROBERT JOLES, D/B/A GORDON CARPET, DEFENDANT.



The opinion of the court was delivered by: Wood, U.S.D.J.:

OPINION AND ORDER

Plaintiff, The Marks Organization, Inc. ("Plaintiff"), has moved for a preliminary injunction to prevent Defendant, Robert Joles, ("Defendant") from infringing Plaintiff's trade name, "Gordon Carpet."

A hearing was held on March 7, 2011 (the "Hearing"), where several witnesses gave testimony and were cross-examined.

Based on the evidence in the record, including the testimony given at the Hearing, and for the following reasons, the Court GRANTS Plaintiff's motion for a preliminary injunction.

I. Background

The parties' familiarity with the facts in this case is presumed. For the purposes of this Order, the court offers the following brief summary of undisputed facts, drawn from the parties' submissions, as well as testimony given at the Hearing:

In July 2008, Plaintiff purchased a carpet business located in Tappan, New York, from Gerald Gordon Carpet Specialists, Inc. ("GGCS") for $127,636.00. That business, started by Gerald Gordon, was called "Gordon Carpet." Gordon Carpet had been in business at that particular location since 1977, and GGCS's advertisements stated that Gerald Gordon had been in the carpet business since 1947. The Gordon Carpet trade name was not registered with either New York State or the U.S. Patent & Trademark Office. The Asset Purchase Agreement ("APA") governing the sale of the Gordon Carpet business to Plaintiff listed "all trade names" among the assets being purchased. The APA also expressly allocated $62,000 of the purchase price to good will, the largest allocation for a single item. The rest of the purchase price was allocated among furniture, fixtures and equipment; a restrictive covenant; a leasehold; and $12,636 allocated to "miscellaneous." The Bill of Sale for the purchase did not mention trade names, but did include good will among the assets being transferred.

After Plaintiff purchased the Gordon Carpet business, he changed the store's name to "Leader Carpet." There is another location of Leader Carpet located in Nanuet, New York. Plaintiff advertises his business in print and in the phonebook, and those advertisements state that the Tappan branch was "formerly Gordon Carpet." Plaintiff invested $200,000 in remodeling the store, and added hard surface flooring to the store's stock.

Defendant had been the general manager of Gordon Carpet since 1997, and retained that position after Plaintiff purchased the business. In June 2009, approximately one year after Plaintiff purchased the business, Defendant's employment was terminated. In September 2009, Defendant opened a store called "Gordon Carpet," located in Northvale, New Jersey, less than 1/3 of a mile away from Plaintiff's Tappan, New York location (i.e., the location of the original Gordon Carpet). Defendant advertised the opening of his store with advertisements and a direct mailing campaign that featured in bold print the name "Gordon Carpet," along with his photograph, labeled, "Rob Joles, Owner," and the phrases, "NEW LOCATION," "Same Low Prices, Same Great Service," and "We're Back & Better Than Ever."

Plaintiff contacted his attorney in September 2009 to ask him to take measures to stop the new store's use of the name "Gordon Carpet." Plaintiff then brought suit on December 31, 2009; the delay between the September call to Plaintiff's counsel and the December filing of this action was attributed by Plaintiff's counsel to his investigation of the relevant facts and law. After obtaining multiple extensions, Defendant moved to dismiss the complaint based on lack of personal jurisdiction over him in New York. After a protracted period of jurisdictional discovery, Defendant withdrew the motion on November 5, 2010. In the meantime, on September 1, 2010, the case, which had been proceeding before Hon. Stephen C. Robinson, was adjourned pending reassignment. On November 15, 2010, the case was reassigned to the undersigned.

II. Preliminary Injunction Standard

The Second Circuit recently revised the test for issuing a preliminary injunction, in accordance with the Supreme Court's decision in eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006). See Salinger v. Colting, 607 F.3d 68, 77 (2d Cir. 2010). Under the current test, in order to grant a preliminary injunction, a district court must determine that a plaintiff has shown:

(1) a likelihood of success on the merits; (2) that absent an injunction Plaintiff is likely to suffer irreparable injury that cannot be remedied with monetary damages; (3) that the balance of hardships tips in favor of Plaintiff; and (4) that "the public interest would not be disserved" by the issuance of an injunction. Salinger, 607 F.3d at 79-80 (quoting eBay, Inc., 547 U.S. at 391).*fn1

III. Analysis

A. Likelihood of Success on the Merits

The Court finds that Plaintiff has demonstrated a likelihood of success on the merits of his lawsuit.*fn2

Plaintiff's principal claim is one for trademark infringement under the Lanham Act. Section 43(a) of the Lanham Act states:

Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which . . . is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, . . . shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125(a).

To prevail on a trademark claim based on an unregistered trademark, a plaintiff "must demonstrate [1] that its unregistered . . . trade name is distinctive and [2] that numerous ordinary prudent purchasers are likely to be misled or confused as to the source of the product in question." Sunward Electronics, Inc. v. McDonald, 362 F.3d 17, 25 (2d Cir. 2004).

1. Plaintiff's Ownership of the Mark

As an initial matter, the Court must resolve whether Plaintiff has standing to bring this action (and this motion) by determining whether Plaintiff has exclusive rights to use the mark.

a. Plaintiff Purchased the Right to Use the Mark from GGCS

It is well settled that "[w]hen a business is sold as a going concern, trademarks and the good will of the business that they symbolize are presumed to pass with the sale of the business."

3 McCarthy on Trademarks and Unfair Competition § 18:37 (4th ed. 2011). See President Suspender Co. v. Macwilliam, 238 F. 159, 162 (2d Cir. 1916) ("A sale of a business and of its good will carries with it the sale of the trade-mark used in connection with the business, although not expressly mentioned in the instrument of sale."). Here, the APA included "trade names" among the assets being purchased, and allocated nearly half of the $127,636 purchase price to "Goodwill." The Bill of Sale also listed "good will" among the assets being transferred. Given these facts, as well as the general presumption that trade names and good will are transferred along with the sale of a business as a going concern, the Court concludes that Plaintiff became the legal owner of the "Gordon Carpet" trade name when it purchased the business in July 2008.

b. Plaintiff Has Not Abandoned the Trade Name

Throughout the litigation of this motion, Defendant has pressed the argument that Plaintiff was not using the "Gordon Carpet" trade name, and had thus abandoned it. The Court finds that Defendant has not demonstrated that Plaintiff abandoned the mark.

A plaintiff may not enforce rights in a trademark or trade name that it has abandoned. ITC Ltd. v. Punchgini, Inc., 482 F.3d 135, 146 (2d Cir. 2007) ("Once abandoned, a mark returns to the public domain and may, in principle, be appropriated for use by other actors in the marketplace . . . ."). Under the Lanham Act, A mark shall be deemed to be "abandoned" . . . (1) When its use has been discontinued with intent not to resume such use. Intent not to resume may be inferred from circumstances. Nonuse for 3 consecutive years shall be prima facie evidence of abandonment. "Use" of a mark means the bona fide use of such mark made in the ordinary course of trade, and not made merely to reserve a right in a mark.

15 U.S.C. § 1127. The party asserting abandonment bears the burden of persuasion with respect to both non-use and lack of intent to resume use in the reasonably foreseeable future. ITC Ltd., 482 F.3d at 146. The Second Circuit has held that, because abandonment involves a forfeiture of a property interest, the elements of the defense must be strictly proved, and statutory aid to such proof must be narrowly construed. Saratoga Vichy Spring Co., Inc. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980). See also Emmpresa Cubana Del Tabaco v. Culbro Corp., 213 F.R.D. 151, 156 (S.D.N.Y. 2003); Pilates, Inc. v. Current Concepts, Inc., 120 F. Supp. 2d 286, 295 (S.D.N.Y. 2000) (requiring clear and convincing evidence for abandonment defense). Defendant has not met this burden.

There is authority for the proposition that advertising a business as "formerly" another business does not constitute abandonment of the prior business name. See Am. Ass'n for Justice v. The Am. Trial Lawyers Ass'n, 698 F. Supp. 2d 1129, 1138-40 (D. Minn. 2010) (holding that a plaintiff's identification of itself as "Formerly the Association of Trial Lawyers of America" on its website, in advertisements, and in the e-mail signature blocks of some staff; its continued licensing of the ATLA mark to at least one licensee; the use of the ATLA mark in the names of several publications; and the maintenance of the website "www.atla.org," in order to direct consumers to the plaintiff's website; all served to defeat an abandonment defense); see also First Fed. Sav. & Loan Ass'n of Council Bluffs v. First Fed. Sav. and Loan Ass'n of Lincoln, 929 F.2d 382, 385 (8th Cir. 1991) (holding that "[t]he new savings and loan['s] plans to capitalize on First Federal Council Bluffs' good name by advertising itself as the 'former First Federal' . . . support[s] a continuation of the injunction [prohibiting the defendant's use of First Federal] for as long as the identification with the former institution is used by the new owners"); Alliant Energy Corp. v. Alltel Corp., 344 F. Supp. 2d 1176, 1187 (S.D. Iowa 2004) ("Despite a name change, a trademark may still possess significant goodwill and remain a valuable asset to a company . . . Even in cases such as the present one, where there are extensive efforts to notify the public of the name change, there is still the possibility that goodwill remains in the marks."). In addition, the Second Circuit has held that a lack of use for less than the statutory period does not give rise to the presumption of lack of intent to resume use. See Defiance Button Machine Co. v. C & C Metal Products Corp., 759 F.2d 1053, 1060 (2d Cir. 1985).

Plaintiff's use of the "Gordon Carpet" mark is sufficient to defeat an abandonment defense. Plaintiff's advertisements, where it identified its Tappan store as "formerly Gordon Carpet," plainly attempt to capitalize on the good will in the "Gordon Carpet" name by holding Plaintiff out as the successor to Gordon Carpet. This intention was reinforced by an advertisement Plaintiff issued just before the purchase of the business was finalized, featuring a photograph of Plaintiff's president standing arm-in-arm with Gerald Gordon, with the statement "Another New Era Begins At Leader Carpet -- Wishing Jerry Gordon All The Best With his New Ventures." In light of Plaintiff's express use of the "Gordon Carpet" name, and its evident intent to exploit the good ...


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