Court Orders Mongols To Give Up Clothing Bearing Government Seized Trademark

The trademark story du-jour was the decision by a California district court judge to issue an broad injunction order which essentially prevents members of the Mongols Motorcycle Club ("Mongols") from wearing any clothing bearing the Mongols’ trademarked logo. See Associated Press, ZDNet, and Portfolio.com.

The injunction came after the U.S. government indicted 79 members of the Latino motorcycle gang for racketeering. The government’s 177 page indictment describes the group as engaging in a criminal enterprise involving murder, torture, drug trafficking and other criminal offenses.

The government apparently was able to seize two registered trademarks that were owned by the Mongols. Up until March 26, 2008, Mongol Nation, an unincorporated association based in California, owned the word mark MONGOLS for “association services, namely promoting the interests of persons interested in the recreation of riding motorcycles” and the logo M.C. (and Design) for jackets and t-shirts (pictured above). While these marks were purportedly assigned to a California limited liability company named Shotgun Productions, LLC on March 26, 2008 (click here), a corrective assignment filed on October 13, 2008 raises some questions about the current ownership of the marks because it’s not exactly clear about the nature of the “corrective assignment.” Given the recent timing of the corrective assignment, it’s possible that title to the marks reverted back to the Mongols, which would explain the basis for the Feds’ seizure of the marks (as property of the Mongols). There is also the possibility that the Feds were able to tie in Shotgun Productions, LLC with the Mongols and seize the marks on that basis.

What has raised eyebrows with this court order is that when the court initially issued a temporary restraining order on Tuesday, the order apparently only barred the “sale and distribution” of goods bearing the Mongols trademark. However, language subsequently added stated that gang members and their affiliates “shall surrender for seizure all products, clothing, vehicles, motorcycles ... or other materials bearing the Mongols trademark, upon presentation of a copy of this order.”

The case is being described as the first ever where a government, through a court order, has taken over a gang’s identity through the seizure of the group’s trademarks. It remains to be seen how the government will actually proceed with any such seizures. The U.S. Attorney General’s Office is supposedly drafting up protocols for law enforcement agencies to follow in executing the seizures, which could begin as early as today or tomorrow.

Vegas™Esq. Comments:
Anyone who might have a problem with the government’s seizure of the Mongols’ trademarks should recognize that trademarks are intellectual “property” and thus can be seized like any other property owned by the Mongols such as the 60 motorcycles, mostly Harley-Davidsons, seized by the U.S. Marshal’s Services on Tuesday (each with an estimate value of $22,000). In addition, if the U.S. government is indeed the legal owner of the M.C. logo for jackets and t-shirts, then they can stop the sale and distribution of such goods bearing such mark (and can also prevent any other motorcycle group from naming itself Mongols).

What is more questionable is the use of such marks to stop people from wearing clothing that they already purchased. The media has described this as a first amendment issue, but in terms of whether wearing such clothing would constitute trademark infringement (and thus be rightfully subject to the typical seizure order – although apparently we are dealing with an atypical seizure order), the issue is more about the first-sale doctrine, which protects buyers of trademarked goods. Under the first-sale doctrine, after the trademark owner has sold its trademarked goods to a buyer, the owner cannot later use its trademark rights to control how the buyer uses those goods (the owner is said to have exhausted its trademark rights with respect to those goods, which is why the doctrine is sometimes referred to as the exhaustion doctrine).

So if you buy genuine Nike shoes, and then the government suddenly seizes all of Nike’s intellectual property assets, including Nike trademarks, the government cannot stop people from wearing their previously purchased genuine Nike shoes. In the case of those Mongols members who purchased clothing bearing the Mongols logo, such clothing goods were authorized goods at the time they were purchased by the members, so how can the government now dictate how the members can wear such clothing?

Perhaps an even more interesting question is if and how the government will exploit its newly acquired intellectual property. What steps is the U.S. government going to take in order to ensure that the “goodwill” that has been built up in the Mongols’ registered marks is continued? If the Mongols name is really connected to the alleged criminal activity, how is the government going to continue the tradition? But seriously, does the government really want to be involved in an association of members interested in motorcycles or get into the clothing business? [Those in Nevada may remember that the U.S. government, through the BLM, was in the brothel business (sort of) for a period of time when it owned the trademark Mustang Ranch acquired through a criminal forfeiture proceeding against the prior owners – the government never actually used the name in operating a brothel and eventually sold the trademark on eBay in 2003].

Finally, if the government does not do anything with the marks, then that could be construed as abandonment unless the government can show evidence that such nonuse is due to special circumstances which excuse such nonuse. Perhaps the government needs some time to look for the right motorcycle gang worthy enough to carry on the Mongols name.

[HT to Las Vegas Sun reporter Abby Goldman for bringing this story to my attention.]

Exclusive Licensee of Red October Candy Loses Trademark Infringement Lawsuit Against Importer

An appropos court decision to start off this first day of October.

A New York district court has ruled against a U.S. importer of several well-known Russian candy brands who sued a competitor importing the same candy brands for trademark infringement. The court concluded that the company lacked standing to sue for registered trademark infringement and concluded that the importer’s sale of goods, because they were genuine goods, were protected by the exhaustion doctrine from claims of false designation of origin. See Krasnyi Oktyabr, Inc. v. Trilini Imports et al, Case No. 05-cv-05359, 2008 U.S. Dist. LEXIS 74125 (E.D.N.Y. September 25, 2008).

Krasnyi Oktyabr (“Red October”) is a Brooklyn-based importer and distributor of Russian candy sold under the brand names Krasnyi Oktyabr, Rot Front and Babayevsky. These brands of candy are produced by three separate Russian companies all of which are owned by the Russian holding company, Obeyediyonne Conditery (“United Confectioners”).

On April 9, 1996, Red October entered into a license agreement with Moscow Confectionary Factory of Krasnyi Oktyabr (“Red October Moscow”), one of the three United Confectioners subsidiaries, which granted Red October the “exclusive license” to use the Krasnyi Oktyabr mark in the U.S. Based on this exclusive right, Red October filed for and in 1999 and 2001 obtained U.S. trademark registrations for, respectively, the word mark KRASNYI OKTYABR and design mark KRASNYI OKTABYR, both for candy, chocolate, and toffee goods.

In April 2005, for reasons not entirely clear from the court’s opinion, Red October entered into another agreement with Rot Front, another one of the United Confectioners subsidiaries – supposedly acting on behalf of United Confectioners – wherein Red October agreed to assign its rights to the “Krasnyi Oktyabr” trademarks to Red October Moscow and which purported to grant Red October the exclusive right to sell the Krasnyi Oktyabr, Rot Front, and Babayevsky brands of candy to the “Russian Ethnic Market” in the United States.

On or about April 5, 2005, Trilini Imports (“Trilini”), a New-York based importer of Russian goods, began importing into the U.S. the same three brands of Russian candy sold by Red October – having purchased the goods from third party Russian distributors who had obtained the candy directly from United Confectioners. Trilini continued to sell the candy despite receiving notice from United Confectioners in September 2005 that Trilini was not allowed to sell the three brands of candy for which Red October had the exclusive right to sell in the United States.

In November 2005, Red October filed suit against Trilini alleging trademark infringement and the usual supplemental state and common law claims. Trilini filed its own counterclaims for abuse of process, fraud, anti-trust violations, and tortious interference with prospective business relations. On cross-motions for summary judgment, the district court ruled in favor of Trilini with respect to Red October’s claims and ruled in favor of Red October on Trilini’s counterclaims. The court also lifted the previously imposed injunction against Trilini preventing it from selling its imported candy.

In his opinion, U.S. District Court Judge David Trager concluded that Red October lacked standing to bring an action under Section 32 of the Lanham Act (15 U.S.C. §1114) for infringement of the registered “Krasnyi Oktyabr” trademarks because Red October could not show that United Confectioners had been damaged by Trilini’s actions, and thus could not be acting as a “legal representative” of United Confectioners in the case. Furthermore, even if Red October could prove that United Confectioners had been damaged by Trilini’s actions, Red October could not show why United Confectioners was unable to participate in the litigation. Red October attempted to argue that Trilini’s actions could hurt its exclusive rights to sell the candy in the United States; however, the court noted that in the very same agreement which gave Red October that exclusive right to sell, Red October not only assigned over to United Confectioners its rights to the Krasnyi Oktyabr marks, but also assigned all potential infringement claims arising from such marks. As such, Red October had nothing which proved that it had any kind of exclusive enforcement rights to the Krasnyi Oktyabr marks that would grant it standing to sue under §1114.

With respect to Red October’s claim for false designation of origin under Section 43(a) of the Lanham Act (15 U.S.C. § 1125(a)), while the court found that Red October did have standing to bring this claim, the court held as a matter of law that there was no likelihood of consumer confusion because the goods were genuine goods from United Confectioners, and thus were protected by the exhaustion doctrine (or first-sale doctrine) which protects a party from claims of trademark infringement for the unauthorized sale of genuine trademarked goods. Red October attempted to argue that Trilini’s imported candy was not genuine because it was not subjected to the same quality controls standards as the candy imported by Red October. However, the court found that Red October lacked any evidence of specific quality control standards that differed between its imported candy and Trilini’s imported candy.

The court then proceeded to summarily dismiss the remainder of Red October’s claims for common law unfair competition, deceptive trade practices under New York law (N.Y. Gen. Bus. Law § 349), false advertising under New York law (N.Y. Gen. Bus. Law § 350), dilution under New York law (N.Y. Gen. Bus. Law § 360-l), and tortious interference with prospective business relations. The court also dismissed Trilini’s counterclaims for abuse of process, fraud on the USPTO, violation of anti-trust laws, and tortious interference with prospective business relations -- all primarily due to the lack of any evidence proving the necessary elements on those claims.