Non-TM owner can plead false advertising claim for confusing use of TM it used to own

Desmond v. Taxi Affiliation Services LLC, 2018 WL 4589999, No. 17 C 8326 (N.D. Ill. Sept. 25, 2018)

Desmond is the Chapter 7 Trustee for the Bankruptcy Estate of Yellow Cab Affiliation, a former Chicago taxicab affiliation with over 1600 dues-paying members who licensed the design mark from YCA. He sued a bunch of defendants for allegedly engaging in a scheme to render YCA insolvent, so that it could not pay its creditors, and then establishing a new company that appropriated YCA’s valuable trade dress. After a passenger was injured in a taxi and sued YCA as a defendant, some of the defendants here allegedly established defendant TAS to prevent creditors from reaching YCA’s assets. For example, TAS collected and retained all payments from YCA members pursuant to their affiliation agreements with YCA, then transferred some of that money, disguised as “management fees” and “referral fees,” to YCA’s officers and directors; some defendants bought and sold taxicab medallions using YCA’s money but failed to distribute any of the profit to YCA.

After the injured passenger got a $26 million judgment against YCA in 2015, YCA filed for bankruptcy and TAS refused to provide further services, forcing YCA to shut down. Certain defendants quickly formed New YCA (Yellow Cab Association, Inc.) to solicit members away from YCA. New YCA used mobile data terminals and other taxicab equipment that belonged to YCA. New also YCA used the same color scheme and design mark that YCA had used, merely replacing “Affiliation” with “Association.” This allegedly tricked customers into believing that New YCA and YCA were one and the same.

Lanham Act and coordinate state claims: Trademark ownership is required for a likely confusion claim, but not for a false advertising claim. YCA doesn’t own the design mark at issue, so this was a false advertising claim. The allegations here satisfied Rule 9(b): the use of the color yellow, the design mark, and a similar name plausibly constituted a false statement of fact implying YCA’s affiliation with New YCA, and the other elements were sufficiently alleged, at least as against New YCA.