Naked Licensing Defense Barred Where Licensee Previously Failed to Contest Trademark Validity

Considering which of two Washington, D.C., area plumbing, heating and air conditioning (HVAC) businesses was entitled to use the marks JOHN C. FLOOD and FLOOD in connection with their services, the U.S. Court of Appeals for the District of Columbia Circuit determined that licensee estoppel applied, barring the licensee from challenging the ownership rights of the successor in bankruptcy based on alleged naked licensing.  Flood v. John C. Flood, Inc., Case No. 10-7098 (D.C. Cir., Jun. 17, 2011) (Sentelle, C.J.).

Plaintiff John C. Flood (DC Flood) and defendant John C. Flood of Virginia (VA Flood) brought suit against each other to determine which company had the right to use the trademarks JOHN C. FLOOD and FLOOD for plumbing and HVAC services.   DC Flood was the successor-in-interest to the original owner of the marks, who began using the marks in the D.C. area in 1984.  Approximately four years later, the original proprietor of the marks expanded its operations into Virginia by incorporating VA Flood.  VA Flood had permission from the proprietor to use the marks JOHN C. FLOOD and FLOOD in connection with its services, but the parties to the present litigation disputed the scope of that license.  VA Flood had used the two disputed marks continuously since 1989 pursuant to that license.   

In 1991, the original proprietor of the marks filed for bankruptcy reorganization, although it continued operating and using the two disputed marks until a bankruptcy trustee was appointed.   In 1993, a bankruptcy trustee was appointed and FLOOD company operations ceased.  Despite this appointment, some of the prior owners of the original proprietor of the marks continued offering plumbing and HVAC services under other companies using the marks JOHN C. FLOOD and FLOOD, which still belonged to the original proprietor of DC FLOOD. 

The successor-in-interest, DC Flood, purchased the marks from the bankruptcy estate in 1995 and was incorporated in 1996.   In 2000, VA Flood obtained two trademark registrations for JOHN C. FLOOD and another for a logo incorporating that phrase.  When DC Flood learned of VA Flood’s trademark registrations, DC Flood filed a petition to cancel the registrations.  That cancellation proceeding was suspending pending disposition of a civil suit brought by VA Flood against DC Flood concerning rights to the marks in 2006. 

At the district court, VA Flood argued that it had priority over DC Flood because VA Flood had used the disputed marks continuously since its formation in 1989, whereas DC Flood did not begin using the marks until its incorporation in 1996.   VA Flood also argued that DC Flood did not acquire the FLOOD marks from the bankruptcy estate because the estate had already abandoned ownership rights when it created a “naked license” during bankruptcy.  On the parties’ motions for summary judgment, the district court held that DC Flood was entitled to summary judgment on all of VA Flood’s claims, finding that because DC Flood is the successor-in-interest to the original proprietor of the FLOOD marks, VA Flood is barred by the doctrine of licensee estoppel from asserting its naked licensing claim to obtain priority over the marks. 

The DC Circuit affirmed.   First, the court held that VA Flood’s abandonment claims were “irreparably harmed” by VA Flood’s failure to object to the sale of the marks by the bankruptcy trustee to DC Flood in 1995.  The court stated that if in 1995, VA Flood believed that the original proprietor’s trademark ownership had lapsed for naked licensing or any other reason, it should have objected to the sale of the marks by the bankruptcy trustee.  Instead, VA Flood tried to purchase the marks and was outbid by DC Flood.  “By offering to purchase the disputed marks,” the court noted, “[VA Flood] implicitly recognized the bankruptcy estate’s ownership [and validity] of those marks.”  Further, VA Flood also failed to object to the validity of the marks in 1996, when DC Flood issued a cease and desist demand to VA Flood that VA Flood stop using the marks without the distinguishing designator “of Virginia,” a condition VA Flood replied that it would accept.  While the court stated that it would not use this case as a vehicle to define the proper contours of the licensee estoppel doctrine in the circuit, based on the facts in the case, it was appropriate to apply licensee estoppel to bar VA Flood’s challenge to DC Flood’s ownership of the marks.    

The court held that VA Flood was not estopped, however, from claiming rights to use the modified mark JOHN C. FLOOD OF VIRGINIA, based on alleged abandonment or some other basis of priority or ownership.   Thus, the court remanded the case to the district court for determination of the ownership and priority rights of the parties concerning the modified trademark JOHN C. FLOOD OF VIRGINIA.