Company Cannot Assert TM Claim Based On Mark Owned by Company's Lone Shareholder

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By Tamlin H. Bason  


A lone shareholder of a company is unable to sustain a trademark infringement claim on behalf of that company when the subject trademark is registered in the individual's name, the U.S. District Court for the Eastern District of Louisiana held April 11 (Inflatable Zoo Inc. v. About to Bounce, E.D. La., No. 2:12-cv-01709-MLCF, 4/11/13).

A company and its shareholders are “distinct legal entit[ies],” the court said. Thus, the company lacked standing to assert a trademark infringement claim.

The court, however, declined to dismiss the company's federal and state law unfair trade practices claims. Although the Lanham Trademark Act of 1946 restricts trademark infringement claims to only persons that own a valid trademark, the legislation allows any person who believes that she will be harmed by another party's alleged unfair trade practices to assert a claim, the court noted. In this case, the company's allegation that another party was using an internet domain that was likely to result in confusion with the subject trademark “fall[s] squarely within the scope of the Lanham Act,” the court said.

The company's cybersquatting claim, however, was dismissed because only the registered owner of a trademark has standing to assert a claim under the Anticybersquatting Consumer Protection Act, the court said.

Mark Applies to Inflatable Bouncing Devices

Frank M. Scurlock registered the phrase “Space Walk” in 1985 for air inflated bouncing and jumping devices. Scurlock sold the products through The Inflatable Zoo Inc. d/b/a Space Walk.

The registration expired in 2005 and was cancelled in 2006. Scurlock reapplied for the mark in 2008 and it was reregistered in 2009.

About to Bounce L.L.C. is a New Orleans-based company that rents party supplies to consumers. When About to Bounce was formed, in 2007, the Space Walk registration had expired and had not yet been reregistered. Still, the products that Scurlock sold to About to Bounce all bore the Space Walk trademark.

At some point, About to Bounce registered the domain name Scurlock and Inflatable Zoo filed a lawsuit against About to Bounce alleging that its use of the domain name constituted unfair competition and trademark infringement under the Lanham Act, 15 U.S.C. §1125(a). The complaint also asserted claims under the Anticybersquatting Consumer Protection Act, 15 U.S.C. § 1125(d); and Louisiana Unfair Trade Practice Act, La. Rev. Stat. Ann. § 51:1401.

About to Bounce moved to dismiss Travel Zoo's claims under Rule 12(b)(6).

Travel Zoo Has No Standing to Assert TM Claims

“Under federal law, relief for trademark infringement is available only to the owners of federally-registered trademarks at the time the lawsuit was filed,” Judge Martin L. C. Feldman said.

In this case, Scurlock admitted that he, and not Travel Zoo, was the rightful owner of the Space Walk mark. However, Scurlock is the sole shareholder of Travel Zoo, and thus, the plaintiffs argued, the company should be allowed to assert a claim for trademark infringement with respect to the Space Walk mark. The court disagreed.

That Scurlock is the sole shareholder of Travel Zoo “does not save Inflatable Zoo's trademark infringement claim: a corporation is a separate and distinct legal entity from that of its shareholders,” the court said. It determined that the company failed to state a claim for trademark infringement and granted About to Bounce's 12(b)(6) motion with respect to that claim.

The court also dismissed Travel Zoo's ACPA claim. A federal cybersquatting claim, like a federal trademark infringement claim, can only be asserted by the party that owns the mark, the court said.

Unfair Trade Claim Survives

The court, however, declined to dismiss Travel Zoo's federal and state law unfair trade practices claims.

“Unlike trademark infringement, section 1125(a) permits 'any person who believes that he or she is likely to be damaged' by the proscribed conduct to bring a civil action,” the court said, quoting 15 U.S.C. §1125(a).

About to Bounce argued that Travel Zoo has no connection to the trademark and thus cannot possibly have standing. The court rejected this argument, noting that the complaint alleges that About to Bounce's domain name will result in confusion with Travel Zoo's products.

Moreover, the court said, “This domain name assists in the sale of defendant's services, causing damage to Inflatable Zoo's business reputation and Frank Scurlock's ability to use the mark effectively.” These alleged injuries “fall squarely within the scope of the Lanham Act,” the court said.

The complaint also asserts injury under Louisiana's Unfair Trade Practices Act, the court said. Like the Lanham Act's unfair trade provision, the state statute grants broad standing to any party that has been injured by an alleged unfair trade practice, the court said. Thus, Travel Zoo has standing to assert both federal and state law unfair trade practice claims.

Inflatable Zoo is represented by Stephen Kenneth Conroy of Conroy Law Firm, Metairie, La. About to Bounce is represented by Joelle Flannigan Evans of Schonekas, Evans, McGoey & McEachin, New Orleans.

By Tamlin H. Bason  

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