by Dennis Crouch
The Federal Circuit’s recent decision involving Paul Hobbs and Hobbs Winery raises a number of important issues for anyone investing in celebrities or influencers. In the case, early investors in Hobbs Winery were unable to prevent Mr. Hobbs from using his name in other wine ventures, even though a registered mark on PAUL HOBBS was owned by Hobbs Winery. This case was decided on statutory grounds – with a holding that minority owners in a company are not authorized to bring a TM cancellation to protect a mark held by the company. This is an important decision because it prevents the TTAB from being used to settle internal corporate management issues.
The names in this case are a bit confusing — often the case in trademark disputes. Winemaker Mr. Paul Hobbs founded Hobbs Winery. And the winery owns the registered mark PAUL HOBBS for wine. Hobbs Winery has several minority owners, including the petitioner here, McDermott Catena. Mr. Hobbs has also personally done separate deals with other wineries that now also bear his name, including Fructuoso-Hobbs (mark ALVAREDOS-HOBBS) and Hillick & Hobbs Estate (mark HILLICK AND HOBBS). The same trademark attorney handled all these cases for Mr. Hobbs through “his” various companies.
Although the opinion does not delve directly into the underlying issue, I expect that the 20% minority owners of Hobbs Winery would have liked a revenue cut from these new ventures. Failing to receive a cut, they resorted to court action, including filing cancellation proceedings against the competing marks.
The Lanham Act provides for cancellation of registered trademarks by petitioners who believe they are damaged by the registration. 15 U.S.C. § 1064 allows cancellations by “any person who believes that he is or will be damaged” by the registered mark. Historically, courts have interpreted this broad language as requiring petitioners to demonstrate a “real interest” in the cancellation proceeding and a “reasonable basis” for believing they will suffer damage. In Lexmark, the Supreme Court used slightly different words: Zone of Interest and Proximate Cause.
But, I should back up here — although the statute itself seems quite broad, the CCPA and Federal Circuit have limited its scope to protecting commercial interests. Although economists theorize trademark law as a consumer protection regime, the law generally provides remedies only to marketplace competitors—with the idea that the drive of capitalism and corporate ego will ensure that businesses self-regulate in the interest of protecting their brands and reputations. This approach presupposes that competitors, in their pursuit of market dominance, will zealously guard against any encroachments on their trademarks, thereby indirectly safeguarding consumer interests. Here, the court had to decide whether minority owners rights fit within the commercial side that is directly protected.
Zone of Interests and Proximate Causation: Appellate court’s analysis focused on two critical aspects: the zone of interests and proximate causation. To satisfy the zone-of-interests requirement, the appellant needed to demonstrate a legitimate commercial interest in the allegedly infringed mark. The court found that a mere minority ownership interest in a company that owns a trademark does not equate to a direct commercial interest in the mark itself.
Under those circumstances, in which Appellant’s only basis to challenge Appellees’ marks is its minority ownership interest in the owner of the allegedly infringed mark, and not its own commercial activity allegedly affected by Appellees’ marks, we conclude that it is not within the zone of interests entitled to seek cancellation of those marks under § 1064.
On the matter of proximate causation, the court held that any alleged injury to the appellant’s ownership stake was too derivative of potential injury to the winery and thus too remote to confer a statutory right of action for cancellation.
The alleged diminishment in value of Appellant’s ownership interest in Hobbs Winery due to Appellees’ use of their marks is suffered only as a consequence of an injury suffered by Hobbs Winery itself. That is, absent injury to Hobbs Winery’s PAUL HOBBS mark, there can be no injury to Appellant. Thus, because Appellant’s alleged injury is merely derivative of any injury suffered by Hobbs Winery, it is too remote to provide Appellant with a cause of action under § 1064.
Thus, the appellate court’s analysis underscores that without a direct commercial interest or independent harm, a party with merely derivative injuries lacks the standing necessary to seek trademark cancellation under § 1064.
As a sideline bit of the case, the court also considered whether it held Art III standing to hear the appeal — answering in the affirmative. Although the CAFC ultimately found that the McDermott Catena trust was not entitled to pursue the cancellation under § 1064, the court did find that the trust had Article III standing to appeal the TTAB’s decision in federal court. The CAFC explained that the trust had alleged a concrete and particularized injury-in-fact, namely the diminishment in value of its ownership interest in the Paul Hobbs Winery. The court reasoned this financial harm was actual or imminent, rejecting the appellees’ argument that a minority owner’s financial interest was too indirect. The CAFC found this injury was fairly traceable to the appellees’ registration of the challenged marks, which the trust alleged would harm the winery’s brand and thereby the value of the trust’s stake. Finally, the court noted the trust’s injury would be redressable by a favorable ruling ordering cancellation of the registrations. Thus, the trust successfully met the three core Article III standing requirements of injury-in-fact, traceability, and redressability, even though it ultimately lacked a statutory entitlement to cancellation under the zone-of-interests and proximate cause tests.
Celeb’s Name: The case here underscores that investing in a company built around a celebrity or influencer’s personal name-image-or-likeness comes with some amount of risk and lack of control. The individual may retain the right to use their own name and likeness in other ventures. Even if the company owns trademark registrations incorporating the celebrity’s name, this case illustrates that such marks may not provide complete control over the individual’s commercial activities. Although this case would have turned out differently if McDermott Catena had been a majority owner. Recall that the celebrity is not your fiduciary.
Opinion by Judge Lourie, joined by Judges Reyna and Chen.
Luca McDermott was represented by Kit Knudsen and David Commins, with Knudsen conducting oral arguments. Respondents were represented by John Dawson, Justin Hein and Kristin Mattiske-Nicholls of Carle Mackie Power & Ross LLP, with Dawson conducting oral arguments.
OT. Kappos and Hirschfeld on Terminal Disclaimer edict:
link to ipwatchdog.com
Why not style the petition as a derivative action under FRCP 23.1?
My question exactly.
“Recall that the celebrity is not your fiduciary.” But presumably the board members and officers (including Mr. Hobbs in that capacity, if he so serves) do have such a duty?
Can the TTAB entertain a derivative action? Never head of that.
Second, did the Board of the main company, the TM owner, authorize the use? Then it’s not a confusing use and not a basis for cancellation, even if that is a breach of fiduciary duty by the Board.
This really belongs in court as an internal corporate action.
I don’t think the Board decided anything directly, but has refused to take action.
“Can the TTAB entertain a derivative action?”
I don’t know if the Board has ever decided it can, but prima facie:
37 C.F.R. § 2.116 Federal Rules of Civil Procedure.
(a) Except as otherwise provided, and wherever applicable and appropriate, procedure and practice in inter partes proceedings shall be governed by the Federal Rules of Civil Procedure.
I’ve heard this story before, even before I began law school. I encourage readers (and wine drinkers) to open a bottle of Bully Hill’s Vineyard’s “Walter S. ██████” red or “Billy Goat” white and revisit the history of Coca Cola buying Taylor wines before firing its somewhat ornery owner.
Despite being enjoined from using his family name, he was required to label his product with the address of distribution — subsequently named “Taylor Way”.