Thursday, January 31, 2019

Swinging for the fences: court finds fraud on PTO from false first use date

Anello Fence, LLC v. VCA Sons, Inc., 2019 WL 351899, No. 13-3074 (JMV) (JBC) (D.N.J. Jan. 28, 2019)

“This trademark case arises out of a family dispute over the use of the last name ‘Anello’ in competing outdoor fencing businesses in northern New Jersey.” And you could probably get a decent Hollywood movie out of it, or maybe even an HBO series. Steven Anello owns Anello Fence, and Steven’s cousins Vincenzo Jr., Salvatore, Christopher, and Anthony own VCA Sons, Inc. Anello Fence sued the defendants for trademark infringement, contributory trademark infringement, misrepresentation, false designation of origin, false advertising, unfair competition, unjust enrichment, and tortious interference. VCA counterclaimed for cancellation of trademark registration, false advertising, cybersquatting, and unfair competition; here the court grants summary judgment to VCA on Anello Fence’s claims.

In 1963, Emilio Sr. and Joseph Anello started a fencing company, Anello Brothers, Inc. Their younger brother, Vincenzo Sr., joined the business in 1971. Steven is Emilio Sr.’s son.  VCA’s owners are Vincenzo Sr.’s sons and Steven’s cousins. The parties compete directly and are located within a mile of one another. The litigation/arbitration history between them is extensive.

In 2003, after Joseph retired, the relationship between Emilio Sr. and Vincenzo Sr. began to deteriorate when they couldn’t agree on the business roles of their respective sons and decided that only one son each could work at Anello Brothers. Three of Vincenzo Sr.’s sons departed and started VCA Sons.  Emilio Sr. sued Vincenzo Sr., VCA, and Salvatore for, in essence, stealing business from Anello Brothers. The result was an order requiring that Anello Brothers be sold to a third party or liquidated and dissolved by the end of 2005.  In 2005, Steven moved to Florida and sold his own recently started New Jersey fencing company to VCA; his sale included a restrictive covenant prohibiting him from returning to the northern New Jersey fencing industry for a certain period.

In late 2006, Emilio Sr. unilaterally closed Anello Brothers. Steven returned to New Jersey and formed Anello Fence in March 2007. In April 2007, Steven paid VCA $30,000 to void his restrictive covenant. In 2010, Anello Fence applied for ANELLO on the Principal Register, claiming first use in 1963. After registration was refused as primarily merely a surname, and after only three and a half years in business, Anello Fence amended its application to allege that the mark had “become distinctive of the goods/services through applicant’s substantially exclusive and continuous use in commerce for at least the five years immediately before the date of this statement.” The service mark registration issued in 2011. In 2013, Anello Fence repeated the process for ANELLO FENCE (after five years of operation) and secured a registration for ANELLO FENCE in stylized lettering, with a triangle partially forming the letter “A” on the Principal Register.

In the meantime, in early 2011, Anello Brothers -- which had been “essentially defunct” since 2006 held a shareholders’ meeting at which Emilio Jr. joined with Vincenzo Sr. to oust Emilio Sr. from his position as president of the company. The remaining shareholders then decided to re-open Anello Brothers over Emilio Sr.’s objection. Steven quickly sued the principals of Anello Brothers to prevent them from using the Anello name, and secured a TRO. The lawsuit was then consolidated with two other actions between the parties, who agreed to binding arbitration.

All of the resulting arbitration decisions listed the same named parties: Steven, Vincenzo Sr., Catherine (Vincenzo Sr.’s wife), and Emilio Sr., but not VCA nor any of its principals. The arbitrator found that Emilio Sr. and Vincenzo Sr. were each entitled to 50% of the value, if any, of Anello Brothers, but declined to address the trademark question, which was being litigated in the instant case. The arbitrator noted that Anello Brothers closed in 2006; that Steven’s father, then the corporate president, had no objection to Steven’s use of the name; and that there was nonetheless no evidence of any assignment. Also, Vincenzo Sr. owned 50% and had contributed to the goodwill of the company, so the arbitrator declined to preclude Vincenzo Sr. from using the names Anello Brothers or Anello Brothers Fence Company (but requiring him to compensate Steven for post-2006 investments in the Anello goodwill as part of ending the TRO; after Vincenzo Sr. declined to pay the compensation, the arbitrator indicated that Vincenzo Sr. couldn’t use the name except as a family name and not a trade name), while noting that “the federal court may have jurisdiction and authority to consider and address this issue incident to the trademark litigation.”

The court, unsurprisingly, found that there was no collateral estoppel/issue preclusion from the arbitration rulings. The current parties weren’t present or in privity with those who were and the issues weren’t raised, actually litigated, and necessary to the prior judgment.

The court correctly noted that, because the litigation began within five years of registration for both marks, neither registration could become incontestable; any valid legal or equitable ground could be used to challenge their validity.  It then found that the registrations weren’t valid because they were procured through fraud.  [Ok, the court said “trademarks,” but it meant registrations.] Fraud requires clear and convincing evidence of a knowingly false, material representation with the intent to deceive the PTO. The “intent to deceive can be inferred from indirect or circumstantial evidence, indicating that the registrant actually knew or believed that someone else had a right to the mark.”

The court found the requisite fraudulent intent.  For the first mark, Steven claimed acquired distinctiveness based on use for at least five years, and that hadn’t happened. His claimed basis for the representation to the PTO was an assignment from Anello Brothers, but there was no assignment and Steven knew that.  “Formal assignments of trade names are not required, because the law presumes that when a business is conveyed, its trade name and goodwill are also conveyed.” But courts “must be cautious in scenarios that do not involve clear written documents of assignment” and must “[r]equir[e] strong evidence to establish an assignment ... to prevent parties from using self-serving testimony to gain ownership of trademarks.” The Anello Brothers business was never conveyed to Steven (in fact it was defunct and then revived in order to oust Emilio Sr. and reopen the business).  Nor would a naked assignment of the name without the goodwill have sufficed; thus, even if there had been a genuine issue of material fact as to assignment, “the trademark would nevertheless be invalid because it is undisputed that the actual Anello Brothers business was not transferred along with the mark.”  Steven claimed that Emilio Sr. assigned the rights to him, but (1) there wasn’t evidence of this; at most there was evidence that he didn’t object to use of the name, which isn’t an assignment, and (2) Emilio Sr. wasn’t a majority owner of Anello Brothers and therefore couldn’t consent.  By the time of his deposition, Steven admitted that he did not receive “any type of permission to use the name Anello” in his fence company from Anello Brothers and instead argued that the mark had been abandoned.

As for the ANELLO FENCE mark, that was applied for when Anello Fence had in fact been in business for over five years, but the statements to the PTO also claimed that the use was “substantially exclusive,” and Steven knew his cousins were competing with him in the northern New Jersey fencing industry during both of the relevant time periods and using the Anello name. This “substantially exclusive” assertion might potentially amount to fraud in both applications, but the claim of first use in 1963 was sufficient to cancel both registrations.  [I see the court’s point, but I do think the PTO tends to disregard claimed first use dates, whereas it does not disregard claims of five years of substantially exclusive use; I don’t think it would necessarily have been material to the PTO whether the date was 2007 or 1963 given that what’s at issue is a word mark, though for trade dress it might well have mattered.  A stronger basis for the finding of fraud for the second registration is the lack of substantial exclusivity plus the specific circumstances of the claimed first use here, which interact with each other.]

Anyway, the claimed first use in 1963 was “a knowingly false statement sufficient to cancel both marks’ registrations.”

VCA then argued that it had priority in the name Anello.  Without a registration, the rule is first in time, first in right.  Prior use can also justify cancelling a registration (a backstop to the fraud finding). VCA opened in 2003 and allegedly used the name Anello in ads since then; this was the use that Anello Fence argued was trademark infringement.  Anello Fence didn’t open until 2007. Anello Fence’s only argument was that the arbitration order barred VCA from using the name Anello, but the court disagreed.  Steven also knew that VCA had been around since 2003 and even sold his own business to VCA, then paid it to release its restrictive covenant. “The Court finds it incredible for Steven to now claim that he was not aware of Defendant’s prior use of Anello.” Even without that, VCA had superior rights in the Anello name.

Without valid marks, the remaining causes of action failed; although unfair competition and tortious interference can address harms beyond trademark infringement, in this case, the claims weren’t based on anything other than the facts underlying the infringement claim.

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