It is well established that the mere registration of a term as a trademark does not establish that term as a valid trademark. Registration gives rise to a presumption of validity but such presumption is rebuttable. When a trademark is questioned, its validity must be established.50

The second case referred to above51 involved the mark "Lilliputian Bazaar," continuously used by Best & Company since 1879 and registered under the ten-year provision of the Act of 1905. It was contended by way of counterclaim that the mark was descriptive and should be canceled. The majority of the court, Judge Clark dissenting, declared by way of dictum that under the 1946 Act such a counterclaim would be entertained. The court actually held, however, that under the 1905 Act such a counterclaim could not be made and hence the matter could not be inquired into. However, the court held that the expression "Miller's Lilliputian Shoppe," used by a competing store across the street from the plaintiff, did not infringe the mark.

Each of the foregoing cases involves the defense of descriptiveness. This is a defense definitely foreclosed by "incontestability," with the single exception of a non-trade-mark descriptive use of the type covered by Section 33(b)(4).

SUMMARY

What is the real value of "incontestability"? As stated at the outset, final conclusions in this regard are now premature and will continue to be so for a period of some years. Nevertheless, it seems clear that the doctrine does afford the trademark owner a number of advantages. Moreover, it is hard to believe that the effect of "incontestability" will be to detract in any way from the protection otherwise associated with the mark. On the plus side of "incontestability" must also be weighed the fact that the Patent Office has been given a new and unequivocal statutory direction to refuse to entertain tardy cancellation proceedings based on the most frequently encountered reasons for cancellation, a doctrine that long ago should have been part of the trade-mark law. Moreover, foreclosing these defenses in an infringement action frees the trade-mark owner from the vagaries otherwise associated with the doctrine of laches and gives the trade-mark owner protection analogous to that accorded the record owner of realty. If our public policy is to continue to be that of encouraging rather than discouraging honesty in business and the establishment of good will associated with a mark, it seems obvious that from this standpoint "incontestability" is sound.

On the negative side of "incontestability" can be cited the plight of the innocent second user of a trade-mark who cannot come within the ambit of Section 33(b) (5) or Section 33(b)(6). Admittedly, there is a possibility of a harsh situation in this regard. But is it any harsher than the plight of the landowner who fails to discover an adverse possessor on his property until too late, or the purchaser of realty who fails to check the title records to determine the record owner? This is the price 50 National Nu Grape Co. v. Guest, 164 F. 2d 874, 876 (C.C.A. 10th 1947).

81 Best & Co. v. Miller, 167 F. 2d 374 (C.C.A. 2d 1948).

that must be paid for certainty in property law generally as well as in trade-mark law, and it is too late now to contend that the ultimate public good is not subserved by an appropriate period of limitations. Also on the negative side of “incontestability," a case may be made out for the rather large number of exceptions to the doctrine, and it may be that these will some day become important. However, the three principal defenses to trade-mark infringement-confusing similarity, geographicalness, and descriptiveness—are definitely foreclosed, and this alone provides a considerable degree of protection.

Whatever the ultimate outcome of the "incontestability" concept may be, it is believed clear that by these provisions of the new trade-mark law its authors made a valuable addition to the statutory law of trade-marks which will be of ultimate benefit to the public. If statutory or judicial modifications of the doctrine become necessary, it can be hoped that their character will be such as not to detract from the basic objective of increasing the reliability of trade-mark rights, an objective which dictated insertion of the "incontestability" provisions in the Act and which will in substantial measure be achieved by the present provisions.

TRADE-MARKS AND RELATED COMPANIES: A NEW CONCEPT IN STATUTORY TRADE-MARK LAW

LESLIE D. TAGGART*

The law of trade-marks grows slowly and without startling changes. It is not a creature of theory, but is fashioned from business and social actualities through necessity by courts and counsel. The legislature has followed this development; legislative enactments are largely codifications of the more desirable trends and developments of existing case law. The new Trade-Mark Act1 has as one of its purposes "to modernize the trade-mark statutes so that they will conform to legitimate present-day business practice." This is particularly true of the "related companies" provisions.

THE "RELATED COMPANY" PROVISIONS

The concept of the use of a trade-mark by “related companies" is new in the United States statutes, but it is not new at common law. The provisions in the Lanham Act grew out of business necessities and their recognition by the courts. The legislation was also influenced by the British statute and by the limitation on assignments of trade-marks.

The pertinent provisions of the Lanham Act are as follows:

Sec. 5. Use by related companies. Where a registered mark or a mark sought to be registered is or may be used legitimately by related companies, such use shall inure to the benefit of the registrant or applicant for registration, and such use shall not affect the validity of such mark or of its registration, provided such mark is not used in such manner as to deceive the public.1

Section 45 defines a "related company":

The term "related company" means any person who legitimately controls or is controlled by the registrant or applicant for registration in respect to the nature and quality of the goods or services in connection with which the mark is used.5

The well-established rule of trade-mark law is that a trade-mark means and distinguishes one particular seller's goods from the goods of other sellers; and if it does not distinguish that seller's goods, it is not a trade-mark. This rule describes the primary function of a trade-mark. This function has two results: the owner of the

* LL.B. 1934, Columbia University. Member of the firm of Chandler and Taggart, New York City. 1 Popularly known as the Lanham Act, approved July 5, 1946, 60 Stat. 427, 15 U. S. C. §§10511127 (1946).

2 H. R. REP. No. 603, 78th Cong., 1st Sess. 4 (1943).

8 The Trade Marks Act, 1938, 1 & 2 GEO. VI, c. 22; see infra.

4 60 STAT. 429, 15 U. S. C. §1055 (1946).

5

60 STAT. 443, 15 U. S. C. §1127 (1946).

trade-mark has the financial and other advantages or disadvantages of the consuming public's being able to distinguish his product; and the public has the opportunity of choice—namely, to buy or to reject the product distinguished by the trade-mark. If ordinary purchasers of the goods, buying them in the ordinary way, are likely to be confused by an alleged infringer's mark into believing that they are the goods of the plaintiffs, then the defendant is an infringer; otherwise he is not.

At first glance, the "related company" provisions seem to run counter to this basic function of a trade-mark, by permitting one not the owner of the mark to make or sell (or make and sell) goods bearing the mark. The statute recites certain definite limitations on such use.

NATURE OF A TRADE-MARK ASSIGNMENT

At common law, where one other than the original owner of a trade-mark used it, he was either an infringer or he had acquired a right to use the mark. The acquisition of a right to use a mark came either (1) by an assignment, (2) by an independent and honest use of the mark (as illustrated in Section 2(d) of the statute, the “concurrent registration" situation), (3) where the original owner had abandoned the mark and the next user adopted it without fraudulent intent, or (4) where the subsequent user acquired permission to use in situations illustrated by the "related company" sections of the Lanham Act. Items 2 and 3 are users adverse to the original owner's use; items 1 and 4 are users with the permission of the original owner. The decided cases concerning item 4, related companies, are few, while those concerning the assignment type, item 1, are numerous. While the two types are dissimilar except for the common element of permission of the owner, the courts have been influenced by the rules of assignments in formulating the rules for the use of a trade-mark by related companies.

The two broad rules of assignments are:

I. A trade-mark must be assigned with the good will of the business in which it is used. This rule is based on the assumption that where a whole business is transferred the new owner will continue it and sell the same goods under the same trade-mark. As a result, the public will obtain the same goods under the trade-mark that it has previously obtained under that mark. There will be no deception of the public. While generally true, the assumption is not always so. A new owner of a business frequently makes considerable changes in a product. It is generally advisable to inform the public of the assignment to prevent deception; and, under some circumstances, it may be obligatory to do so.8

6

See §10 of Lanham Act, 60 Stat. 431, 15 U. S. C. §1060 (1946); Halliday, Assignments under the Lanham Act, 38 T. M. Rep. 970 (1948).

Where the owner of the trade-mark radically changes his own product so that the public may be defrauded, his mark will not be protected. Renaud Sales Co. v. Davis, 22 F. Supp. 703 (D. Mass. 1938); Independent Baking Powder Co. v. Boorman, 175 Fed. 448, 454 (C. C. D. N. J. 1910).

* Alaska Packers' Ass'n v. Alaska Imp. Co., 60 Fed. 103 (C. C. N. D. Cal. 1894); Hazlett v. Pollack Stogie Co., 195 Fed. 28 (C. C. A. 3d 1912); for the strict early rule, see Stachelberg v. Ponce, 23 Fed. 430 (C. C. D. Me. 1885), and Partridge v. Menck, 2 Sandf. Ch. R. 622 (N. Y. 1848).

2. If the owner assigns the trade-mark without the good will of the business (known as “an assignment in gross"), the assignment transfers nothing to the assignee and may constitute an abandonment by the assignor.10

In these two rules of assignments, we find one basic concept: namely, that the court will not protect a trade-mark in the hands of an assignee where there is a deception of the public in the assignee's use of the mark. The corollary is that where the assignee's use does not deceive the consumer the assignment is good and the trade-mark will be protected on behalf of the assignee.

TYPES OF "RELATED COMPANY" SITUATIONS

The same basic reasoning was applied by the courts to "related company" situations prior to the Lanham Act. However, "related company" situations differ considerably from assignments. In an effective assignment, the assignor makes a complete conveyance of all his rights. On the contrary, in a "related company" situation, there is not a complete assignment, nor in fact is there any assignment. What is granted is a permission to use. This permission to use is girded with the restrictions placed on assignments. To be effective, a "related company" arrangement should constitute a "controlled license," with the right to the mark remaining in the owner and the "controlled licensee" making a specified use of the mark. The following are illustrations of "controlled licenses" of trade-marks:

11

Subsidiary companies. With the growth of business, it was often found essential for a business to be set up in more than one legal unit. Such necessity had no connection with trade-mark problems. Yet it was convenient and often necessary to have one trade-mark used by the whole business. In Keebler Weyl Baking Company v. J. S. Ivins' Sons, Inc.,11 various subsidiary corporations of one business unit used the trade-mark "Club Cracker" for soda crackers. In an infringement suit, the defendant pleaded that, since various subsidiaries used the mark, it did not indicate to the public one source of origin of the soda crackers, but various sources of origin, and that the trade-mark therefore was invalid. The court stated:

Keeping pace with industrial and business development the law has advanced a considerable distance from the earlier decisions which were made when small individual businesses, personally owned and personally managed, were the rule rather than the exception.12

The court then held that the validity of a trade-mark is not affected by its use by co-subsidiaries of the owner. The court pointed out that the subsidiary which owned the trade-mark supervised the manufacture of the crackers by the other subsidiaries, and had each of them manufacture in the same way. Had the business been in one corporation, the fact that the crackers were manufactured in different factories would

10

Corr v. Oldetyme Distillers, 118 F. 2d 919 (C. C. P. A. 1941).

Mayer Fertilizer & Junk Co. v. Virginia-Carolina Chem. Co., 35 App. D. C. 425 (1910); Buckeye Brewing Co. v. Burger Bros. Co., 28 U. S. P. Q. 235, 237 (1936).

117 F. Supp. 211 (E. D. Pa. 1934).

19 Id. at 214.