What rights can be left in an Abandoned Trademark?

Trademark law provides rights and protections for trademark owners as a result of continuous use of their marks in commerce. This means that a business must actively use the trademark to keep the rights alive and enforceable. As a general matter, when a trademark is no longer actively used by its owner, its protection under the common law and the Lanham Act ends. This cessation of use and rights is referred to as trademark abandonment. However, in some cases a trademark owner may retain residual goodwill in an abandoned trademark. Residual goodwill refers to the lasting association and recognition that a trademark retains in the minds of consumers even after the trademark has been abandoned or its use has ceased. This form of goodwill persists because consumers continue to associate the trademark with the original source, company, or product, despite its absence from the marketplace.

Understanding Trademark Abandonment and Residual Goodwill

Under Section 45 of the Lanham Act, a trademark is considered abandoned if its use ceases with no intent to resume such use. The Lanham Act provides that nonuse for three consecutive years constitutes prima facie evidence of abandonment. However, the concept of residual goodwill complicates this seemingly straightforward treatment. Even after a mark is abandoned, it may retain a marketplace presence, eliciting recognition from consumers and maintaining a measure of its original goodwill.

Residual goodwill embodies the public’s continued association of a mark with its original owner, even after the owner has ceased production or sales. As such, it represents the lasting value of the mark in the minds of consumers, despite its absence from the ordinary course of trade.

The Legal Implications of Residual Goodwill

Residual goodwill is not merely a concept, but has tangible consequences in trademark disputes. Courts and the Trademark Trial and Appeal Board (TTAB) have frequently grappled with its role in rebutting the presumption of abandonment. For example, in Ferrari S.p.A. Esercizio Fabbriche Automobili e Corse v. McBurnie, 11 U.S.P.Q.2d (BNA) 1843, 1851–52 (S.D. Cal. 1989)., the court recognized residual goodwill in the trade dress of Ferrari’s iconic car designs, noting their continued recognition in the marketplace long after active production had ceased.

This legal doctrine serves two purposes:

Protecting Consumer Interests: The lingering association of an abandoned mark with its original source can lead to consumer confusion if a new party adopts the mark without disclaimers or quality control. Courts have often emphasized the importance of minimizing such confusion in alignment with the Lanham Act's objectives​.

Safeguarding the Original Owner’s Reputation: If a new user capitalizes on the goodwill of an abandoned mark by attaching it to inferior products, it can tarnish the reputation of the original trademark owner, especially if the owner remains in business​.

Impact of Residual Goodwill in Abandoned Trademark for the Trademark Registration Process

Residual goodwill significantly impacts the trademark registration process by complicating determinations of abandonment and priority. When a trademark is presumed abandoned due to nonuse, residual goodwill may rebut this presumption, allowing the original owner to retain rights despite the cessation of active use. This poses challenges for new applicants attempting to register a mark that appears unused but retains consumer recognition. The Trademark Office and courts often assess residual goodwill by examining consumer perception, de minimis use, and how the brand is maintained in the public eye. For example, in the Ferrari case the court emphasized that the car designs were still on the road in the public eye and the Ferrari company was still providing parts for the vehicles.

For new applicants, the existence of residual goodwill can create legal hurdles, as they must demonstrate that the mark has lost its source significance. Conversely, owners of marks with residual goodwill must provide evidence of ongoing recognition or intent to resume use to safeguard their rights. The interplay between residual goodwill and registration ensures that consumer interests and marketplace integrity are preserved, but it also introduces complexity to the process.

Courts’ Approaches to Proving Residual Goodwill

Demonstrating the existence of trademark residual goodwill requires substantial proof, often involving evidence of consumer recognition, ongoing secondary markets, or continued advertising by the original owner. For instance, de minimis use—such as limited sales or production of related items—can support a finding of residual goodwill. In Peter Luger Inc. v. Silver Star Meats Inc. 63 U.S.P.Q.2d 1555, 1563 (W.D.Pa. 2002), a court concluded that residual goodwill persisted when the infringer’s unadvertised launch of a product led to significant sales increases, indicating sustained consumer recognition.

However, residual goodwill generally diminishes over time. In Hornblower & Weeks Inc. v. Hornblower & Weeks Inc., the TTAB held that 15 years of nonuse effectively extinguished any remaining goodwill, underscoring the limits of this doctrine​. Conversely, strong consumer recognition can sustain residual goodwill for decades, as in the Skippy peanut butter case, where residual goodwill rebutted abandonment after 23 years of nonuse​. Skippy Inc. v. CPC International Inc., 674 F.2d 209, 216 (4th Cir. 1982).

Challenges and Critiques

Critics of the residual goodwill doctrine argue that its subjective nature complicates its application. Courts must weigh a several factors, including the strength of consumer recognition, elapsed time, and the intent of the new adopter. This lack of standardization can lead to over reliance on inconsistent judicial reasoning.

Moreover, some assert that recognizing residual goodwill may hinder market competition by making it more difficult for companies to adopt marks deemed abandoned. By reducing the availability of marks for new entrants, this doctrine may inadvertently discourage commerce.

Practical Implications for Trademark Owners and Adopters

Trademark owners and potential adopters can both take proactive steps to navigate issues surrounding residual goodwill:

For Owners:

• Maintain control over the mark through licenses or limited uses, which can demonstrate intent to resume use and preserve goodwill.
• Carefully transition goodwill to new marks when rebranding, ensuring consumer loyalty follows the brand.

For New Adopters:

• Conduct due diligence to ensure no lingering goodwill exists, especially if the original owner remains active.
• Use disclaimers to mitigate consumer confusion and distance the new mark from the previous one​.

Residual Goodwill in Trademark Law

Residual goodwill remains an important consideration in the broader framework of trademark law. Courts will continue to wrestle with the balance between encouraging commerce and new business to establish brands and the enduring value of residual goodwill. The concept of residual goodwill will continue to shape the interplay between abandoned trademarks and the establishment and growth of new businesses.

If you are an entrepreneur and you have built or plan to build a business, it is in your interest to consult with a trademark attorney that understands the complexities of trademark law, including residual goodwill. Vetting your business name and branding at an early stage may make the difference between building a strong brand or facing a trademark infringement lawsuit.

Contact Sierra IP Law, PC for assistance with complicated trademark matters or issues in other areas of intellectual property law. Our attorneys have decades of experience in all areas of intellectual property. We handle trademark registration, trademark licensing, trademark disputes and litigation, and cancellation and opposition proceedings before the Trademark Trial and Appeal Board. Call us to schedule a free consultation.

© 2024 Sierra IP Law. The information provided herein is not intended to be legal advice, but merely conveys general information that may be beneficial to the public, and should not be viewed as a substitute for legal consultation in a particular case.