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for the Southern District of New York

Court Rules in Favor of Manufacturer Over Distributor in Lanham Act Dispute

In a September 10, 2013 ruling after a bench trial, Judge Marvin E. Aspen ruled in favor of plaintiff Excell Consumer Products Ltd. in its Lanham Act and state law claims over the the "Smartcandle" mark and related logos.  Defendants Structural Integrity Property Services, LLC and Smart Candle LLC had been Excell's distributor of battery-operated candles sold under the "Smartcandle" marks.  Excell had originally licensed the marks from a party referred to as SCK.  After the distribution arrangement between Excell and Structural ended, Structural asserted ownership of the marks, and sought to register them with the USPTO.  Excell asserted Lanham Act and state law unfair competition claims against Structural, which counterclaimed with like causes of action.

Judge Aspen found that since the parties essentially asserted mirror Lanham Act claims against each other, they had effectively conceded all the elements of the claims, so the dispute became one of ownership of the marks at issue. Excell argued three ways through which it had acquired the marks at issue:  (1) as a licensee from SCK; (2) as a purchaser from SCK under another agreement; and (3) as the acquirer of the marks after SCK abandoned them.  The Court rejected the first two grounds, but found in Excell's favor on the abandonment issue.

Judge Aspen noted that a mark is abandoned if the owner "'discontinues use with the intent not to resume such use in the foreseeable future,'" and that there is presumptive abandonment after three years of non-use.  Also according to the Court, "[o]nce abandoned, 'a mark returns to the public domain and may, in principle, be appropriated for use by other actors in the marketplace, in accordance with the basic rules of trademark priority.'"  Judge Aspen ruled that the marks had been abandoned because SCK was dissolved in 2007, "and there is no evidence that it ever resumed operations." 

Structural, Excell's distributor, had argued that it, not Excell, was the first registrant (and hence, owner) of the marks in the U.S. after SCK was dissolved.  To resolve this issue, the Court wrote that "'courts will look first to any agreement between the parties regarding trademark right,'" but in "'the absence of an agreement between the parties, the manufacturer is presumed to own the trademark.'"  Judge Aspen examined the relationship between Excell and Structural and concluded that Excell, as manufacturer, has superior rights to the marks at issue.

The Court thus held that since Excell owned the marks, Structural had engaged in unfair competition and other Lanham Act violations because of its use of the marks.  The Court further held, however, that "Structural acted in good faith without any intent to deceive or cause confusion," and denied Excell's claim for monetary damages and attorneys' fees.

In a May 5, 2014 ruling, Judge Aspen denied Structural's motion to alter or amend the judgment under Rule 59(e).  The Court found that Structural's motion raised a new argument that it had not made during the case or at trial, which is improper on a Rule 59 motion.   
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