This colorful business dispute caught my eye because “false
advertising through use of a trademark” cases are so rare, and this opinion
shows why—courts are often unwilling to regulate use of a mark through false
advertising law.
Topek presently
has a lot, if not all, of the assets of Yankee Barn Homes, “a
nationally-recognized builder of custom-designed post and beam homes” founded
in 1969. In 2011, it was unable to pay
its creditors; its debt to its primary lender was secured by security interests
in virtually all of its assets, including its “intellectual property, trade
names, design templates, and goodwill” as well as its real property. Shortly after Yankee began experiencing
difficulties, Silverstein contacted it, and they signed a letter of intent “essentially
ceding control of Yankee to Silverstein.” The lender learned of the proposal
and refused to approve it, as was apparently its right under its security
instruments. Yankee and Silverstein
moved forward anyway; Silverstein began integrating its operations with Yankee’s
and began holding itself out to the public as Yankee Barn Homes.
The lender fought back, filing suit against
Silverstein. Yankee apparently realized
that it couldn’t actually follow through on its deal without the lender’s
approval, and conveyed to the lender all or virtually all of its assets. The lender then conveyed the same assets, including
all of Yankee’s general intangibles such as “copyrights, trademarks, and trade
names, including the name Yankee Barn Homes,” as well as its existing
inventory, machinery, manufacturing equipment, customer lists, computer
records, phone numbers, and ICC certifications—to Topek. Topek re-opened Yankee’s facility and rehired
many of Yankee’s former employees.
Soon thereafter, “Topek concluded that despite a state court
order directing Silverstein to stop doing so, Silverstein continued to exercise
(or attempt to exercise) control over former assets of Yankee and, in so doing,
was interfering with Topek’s ownership of those assets.” It intervened in the
ongoing lender-Silverstein litigation.
The state court in that case found that Yankee conveyed all
its real and personal property to the lender, and that the lender conveyed all
fixed assets to Topek. However,
Silverstein retained the phone numbers from the former Yankee; represented
itself to outside parties as “Yankee Barn Homes”; used Yankee certifications;
and interfered with Topek’s Facebook
page by claiming copyright infringement of photos used by Topek of Yankee Barn
Homes. The state court, finding likely
confusion and irreparable harm, enjoined Silverstein “from (A) representing to
anyone that [Silverstein] has purchased Yankee Barn Homes or has any authority
to act on behalf of Yankee Barn Homes; and (B) from using or exerting any
control over property owned by Yankee Barn Homes, including, but not limited
to, the Yankee Barn Home website.”
The present litigation mostly concerned Topek’s infringement
claims. I
will only discuss Silverstein’s motion for a preliminary injunction against
Topek’s allegedly false advertising.
Silverstein argued that, while Topek may have bought Yankee’s assets, it
didn’t buy the company by acquiring the stock, and therefore wasn’t a successor
in interest. Thus, it wasn’t entitled to “hold itself out to the public as ‘Yankee
Barn Homes,’ or say that it has been in business since 1969, or claim that it
has built award-winning homes throughout the country, or display pictures of
homes that it never actually built, or display testimonials from clients who
purchased their homes from what Silverstein considers to be the ‘true’ Yankee
Barn Homes.”
The court quickly distinguished Paper Thermometer Co. v. Murray, 2012 WL
194369, 2012 DNH 017 (D.N.H. Jan. 23, 2012), a reverse passing off case
involving a defendant who purchased plaintiff’s goods, re-labeled them,
represented to the public that it (rather than plaintiff) had engineered and
manufactured them, and then sold those products as its own. Topek argued that its purchase of Yankee’s
assets resulted in a “de facto merger,” reasoning that if Topek could be liable
for Yankee’s financial obligations, it necessarily can hold itself out to the
public as Yankee.
The court found this unpersuasive too; the cases about
successor liability weren’t really on point to a question about what name Topek
could sell under, or whether it could “claim to manufacture the same
high-quality homes today that Yankee Barn produced for many years.”
Fortunately, the court found guidance from Callman on Unfair
Competition. Callman says that it’s
patently misleading to advertise a
false date of establishment or to suggest, without warrant, that the reputation
of a newly established business is well-known to the public. Reference to an
early date of establishment suggests that the business is an experienced,
firmly established, successful and reliable concern. Therefore, the dispositive
question in any case is whether the business enterprise, as a unit, including
all its human elements and its corporeal and incorporeal values, has continued,
substantially unchanged, since its inception.....
Many status changes don’t break continuity. These include “its development from a small
craft shop to a big industrial unit; a change in its legal form, e.g., from
individual ownership to a partnership or corporation; a change of firm name or
trademark; a change of ownership; expansion to other lines of business;
bankruptcy; or the transfer of the old business to a new corporation.”
Retention of firm name or trademark also evidences continuity. “Such continuity, however, may be broken by
the removal of the business to another country, by its conversion to an
entirely different product line, or by its division into several parts
transferred to different successors.”
Silverstein didn’t allege any factors indicating a break in
business continuity, and several factors suggesting such continuity were
present. Topek bought all or virtually
all of Yankee’s assets, including domain names, copyrights, trademarks and
service marks, and goodwill. And it operated the same manufacturing facility
from which Yankee operated since 1972, using much of Yankee’s former
workforce. Since neither party
adequately addressed the relevant issues, and since Silverstein bore the
burden, the motion for preliminary injunction was denied.
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