Electro Source, LLC v. Pelican Products

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ELECTRO SOURCE, LLC, a 
California limited liability
company,
Plaintiff-counter-defendant-
Appellant,
v. No. 04-55844
BRANDESS-KALT-AETNA GROUP,  D.C. No.
INC., an Illinois corporation, CV-02-07974-NM
Defendant-Appellee,
PELICAN PRODUCTS, INC., a
California corporation,
Defendant-counter-claimant-
Appellee.

ELECTRO SOURCE, LLC, a 
California limited liability
company,
Plaintiff-counter-defendant-
Appellee,
v. No. 04-55909
BRANDESS-KALT-AETNA GROUP,  D.C. No.
INC., an Illinois corporation, CV-02-07974-NM
Defendant-Appellant,
PELICAN PRODUCTS, INC., a
California corporation,
Defendant-counter-claimant-
Appellant.

9587
9588 ELECTRO SOURCE v. PELICAN PRODUCTS
ELECTRO SOURCE, LLC, a 
California limited liability
company,
Plaintiff-counter-defendant-
Appellee,
No. 04-56648
v.
BRANDESS-KALT-AETNA GROUP,  D.C. No.
CV-02-07974-NM
INC., an Illinois corporation,
Defendant-Appellant, OPINION
PELICAN PRODUCTS, INC., a
California corporation,
Defendant-counter-claimant-
Appellant.

Appeal from the United States District Court
for the Central District of California
Nora M. Manella, District Judge, Presiding
Argued and Submitted
April 4, 2006—Pasadena, California
Filed August 14, 2006
Before: Sidney R. Thomas, M. Margaret McKeown, and
Marsha S. Berzon, Circuit Judges.
Opinion by Judge McKeown
ELECTRO SOURCE v. PELICAN PRODUCTS 9591
COUNSEL
Larry C. Russ, Russ, August & Kabat, Los Angeles, Califor-
nia, for Electro Source, LLC.
Gregory B. Wood, Fulbright & Jaworski, LLP, Los Angeles,
California, for Brandess-Kalt-Aetna Group, Inc. and Pelican
Products, Inc.
OPINION
McKEOWN, Circuit Judge:
Is a summary judgment determination of abandonment
appropriate when the record supports an inference that the
trademark holder—a small, troubled business—continued to
transport and sell trademarked goods in the ordinary course of
trade as part of a good faith effort to deplete inventory? The
answer is no, because the trademark law requires both discon-
tinuance of all bona fide trademark use in the ordinary course
of trade and an intent not to resume such use. 15 U.S.C.
§ 1127. Legitimate commercial transport or sales of trade-
marked goods, even for a failing business, are sufficient to
defeat a claim of abandonment.
Ronald Mallett owned federal Trademark No. 2,073,287
(the “Pelican Mark”), consisting of the word “pelican” below
an outline of a flying pelican in a circle, for a backpack/
9592 ELECTRO SOURCE v. PELICAN PRODUCTS
luggage line. His business had enjoyed some modest success
but later was set back by dwindling prospects. Nonetheless,
Mallett kept plugging, selling a few backpacks and promoting
them at trade shows for several years until he assigned the
Pelican Mark to Electro Source, LLC (“Electro Source”).
Because he continued to transport and sell his trademarked
goods in commerce, he never ceased using the Pelican Mark.
The district court concluded, however, that Mallet’s use of the
mark while depleting his inventory was neither bona fide nor
in the ordinary course of trade, and that he therefore aban-
doned the mark. In reaching its decision, the district court
improperly weighed evidence at the summary judgment stage
and applied a mistaken legal standard. We reverse the district
court’s cancellation of the mark and its determination that
Mallett abandoned the Pelican Mark before assigning it and
remand for further proceedings.
BACKGROUND
In 1995, Mallett began selling goods under the Pelican
Mark. The mark was primarily designed by Mallett’s friend
Tom Robbins, who lived in Thailand and had access to manu-
facturing facilities. After working out an unwritten “hand-
shake” agreement, Robbins agreed to manufacture Pelican
Mark products overseas, while Mallett agreed to design, mar-
ket, and sell the goods in the United States.
On November 20, 1995, Mallett filed an application to reg-
ister the Pelican Mark with the United States Patent and
Trademark Office. In 1997, the Pelican Mark issued as Trade-
mark No. 2,073,287, covering wallets, backpacks, totebags,
and luggage.
Mallett transported and sold goods branded with the Peli-
can Mark from 1995 through 2002. At first, sales were prom-
ising. According to Mallett, his business was building up a
reputation for making quality goods, including “the best back-
ELECTRO SOURCE v. PELICAN PRODUCTS 9593
pack in the business.” Mallett employed sales representatives
to sell his products in 1996 and 1997.
In response to this promising trend, Mallett placed a very
large order with Robbins in 1996. Unfortunately, sales did not
meet expectations, and the 1996 inventory order was not
depleted until 2002. Sales dropped sharply in 1997 and 1998.
Disappointed with the sales, Robbins parted ways with Mal-
lett in 1998.
Mallett suffered another setback in 1998, undergoing multi-
ple surgeries that spanned the entire calendar year. During this
time, Mallett’s business took a sharp turn for the worse. His
flagging sales required him to fire his sales representatives,
and he no longer used invoices or letterhead with the Pelican
Mark. Instead, he began making “on the spot” sales for cash,
only some of which he documented. Also, because his busi-
ness failed to show a profit, he ceased to segregate the busi-
ness income on his tax returns. By late 1998, Mallett was
selling backpacks at a steep discount.
In 1999, Mallett took a job selling products as a commis-
sioned salesman for various manufacturers, including No
Fear, Billabong, and Koko Island. Although his arrangement
with Koko Island was subject to a non-competition agree-
ment, Mallett continued to market his remaining Pelican Mark
inventory on the assumption that his products (backpacks and
totes) did not compete with the Koko Island goods (shorts,
hats and shirts).
From 1999 to 2002, Mallett tried to sell Pelican Mark prod-
ucts out of the trunk of his car to Koko Island customers. Mal-
lett also went to a Florida trade show twice a year (as he had
been doing since 1995) to market his products. Documented
sales of Pelican Mark goods were made during this time; Mal-
lett also claims that many other undocumented cash transac-
tions were made as well.1 Although Mallett’s enterprise was
1
Mallett declared that he can document sales of Pelican Mark products
between 1995 and 2001: 1995, 6027 units; 1996, 5821 units; 1997, 1939
9594 ELECTRO SOURCE v. PELICAN PRODUCTS
not as successful as he had hoped, his goods always bore the
Pelican Mark and, according to Mallett, his business contin-
ued to enjoy the reputation of having the “best-made” back-
pack.
Mallett testified that he continued to sell products out of his
car and travel bi-annually to the Florida trade show until he
assigned the Pelican Mark, along with all the goodwill of the
business, to Electro Source on August 5, 2002. In return for
the assignment, Electro Source paid Mallett $15,000 and a
grant-back license to use the Pelican Mark on certain goods,
subject to maintenance of product quality. At the time of the
assignment, Mallett had at least ten boxes of inventory bear-
ing the Pelican Mark. Using his license, Mallett continued to
market Pelican Mark goods until finally, in December 2002,
he sold his remaining inventory to Electro Source.
Pelican Products, Inc. and Brandess-Kalt-Aetna Group, Inc.
(collectively “PPI”) manufacture, market, and distribute a
variety of products under the trademarks “Pelican Products,”
“Pelican,” and “Peli Products.” PPI also registered the mark
“www.pelican.com.” Electro Source commenced suit against
PPI in 2002, setting forth a variety of claims, including trade-
mark infringement of its Pelican Mark. PPI responded with
various counterclaims and defenses alleging, among other
things, that Mallett had abandoned the Pelican Mark prior to
the assignment to Electro Source. PPI moved for summary
judgment. The district court agreed with PPI that the Pelican
Mark had been abandoned, thus rendering the subsequent
assignment to Electro Source ineffective. The court ordered
cancellation of the Pelican Mark but denied PPI’s application
for attorneys’ fees. Electro Source appeals the determination
units; 1998, 593 units; 1999, 187 units; 2000, 660 units; and 2001, 72
units. These numbers exclude undocumented sales, such as “on the spot”
cash sales, sales made at the bi-annual Florida trade show, or other sales
to a “number of stores.”
ELECTRO SOURCE v. PELICAN PRODUCTS 9595
of abandonment and the cancellation order, and PPI cross-
appeals the denial of attorneys’ fees.
ANALYSIS
This appeal focuses on a single legal question: does the
Lanham Act mandate a finding of trademark abandonment
where the record on summary judgment supports an inference
that the trademark holder persisted in exhausting excess
inventory of trademarked goods at reduced prices through
good faith marketing and sales, despite the decline of his busi-
ness?2 To answer this question, we begin with § 1127 of the
Lanham Act, giving its words their plain and ordinary mean-
ing. See United States v. TRW Rifle 7.62X51mm Caliber, One
Model 14 Serial 593006, 447 F.3d 686, 689 (9th Cir. 2006).
2
PPI, as the party asserting abandonment, is required to “strictly prove”
its claim. Prudential Ins. Co. of Am. v. Gibraltar Fin. Corp. of Cal., 694
F.2d 1150, 1156 (9th Cir. 1982) (“Abandonment of a trademark, being in
the nature of a forfeiture, must be strictly proved.”); see also Doeblers’
Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 822 (3rd Cir. 2006) (“A party
arguing for abandonment has a high burden of proof: . . . ‘abandonment,
being in the nature of a forfeiture, must be strictly proved.’ ”); Cumulus
Media, Inc. v. Clear Channel Commc’ns, Inc., 304 F.3d 1167, 1175 (11th
Cir. 2002) (“Because a finding of abandonment works an involuntary for-
feiture of rights, federal courts uniformly agree that defendants asserting
an abandonment defense face a ‘stringent,’ ‘heavy,’ or ‘strict burden of
proof.’ ”). The Ninth Circuit has not spoken as to what “strictly proved”
means, but at least one district court has required “clear and convincing
evidence” of abandonment. eMachines, Inc. v. Ready Access Memory,
Inc., 2001 WL 456404, at *5 (C.D. Cal. 2001). We do not need to flesh
out the contours of the “strict proof” standard because our resolution of
this summary judgment appeal rests on the proper legal construction of
§ 1127 and the determination that factual issues preclude summary judg-
ment in favor of PPI. See Playboy Enters., Inc. v. Netscape Commc’ns
Corp., 354 F.3d 1020, 1024 (9th Cir. 2004) (trademark appeal reversing
grant of summary judgment and passing on a legal question because there
was a genuine issue of material fact and under either interpretation of the
legal issue, the case could proceed).
9596 ELECTRO SOURCE v. PELICAN PRODUCTS
I. SECTION 1127 OF THE LANHAM ACT DEFINES TRADEMARK
ABANDONMENT AS REQUIRING DISCONTINUANCE OF
TRADEMARK USE AND INTENT NOT TO RESUME SUCH USE
The Lanham Act defines abandonment as (1) discontinu-
ance of trademark use and (2) intent not to resume such use:
A mark shall be deemed to be “abandoned” if . . . the
following occurs:
(1) When its use has been discontinued with intent
not to resume such use. Intent not to resume may be
inferred from circumstances. Nonuse for 3 consecu-
tive years shall be prima facie evidence of abandon-
ment. “Use” of a mark means the bona fide use of
such mark made in the ordinary course of trade, and
not made merely to reserve a right in a mark.
15 U.S.C. § 1127 (emphasis added).
Neither “bona fide use” nor “ordinary course of trade” is
defined in the statute. Both phrases, however, also appear in
the statute’s definition of “use in commerce,” which provides:
The term “use in commerce” means the bona fide
use of a mark in the ordinary course of trade, and
not made merely to reserve a right in a mark. For
purposes of this chapter, a mark shall be deemed to
be in use in commerce—
(1) on goods when—
(A) it is placed in any manner on the
goods or their containers or the displays
associated therewith or on the tags or
labels affixed thereto . . . and
(B) the goods are sold or transported in
commerce . . . .
ELECTRO SOURCE v. PELICAN PRODUCTS 9597
Id. (emphasis added). Because “trademark” is defined under
the statute in part by the “bona fide intention to use [it] in
commerce,” id., and because both “use in commerce” and
“use” for the purposes of abandonment mean “bona fide use
. . . in the course of ordinary trade,” the meaning of “use” for
the purposes of abandonment necessarily signifies “use in
commerce” and thus includes the placement of a mark on
goods sold or transported. See Money Store v. Harriscorp
Fin., Inc., 689 F.2d 666, 676 (7th Cir. 1982) (construing “use”
in the definition of “abandonment” in an earlier, but similar,
version of the Lanham Act as meaning “use in commerce”).
[1] Section 1127 thus provides that “use” of a trademark
defeats an allegation of abandonment when: the use includes
placement on goods sold or transported in commerce; is bona
fide;3 is made in the ordinary course of trade; and is not made
merely to reserve a right in a mark. Critically, for present pur-
poses, nothing in the plain meaning of § 1127 excludes from
the protections of the statute use of a trademark by a strug-
gling or even a failing business that meets these requirements.
PPI does not challenge the fact that good faith sales of
goods bearing the Pelican Mark were made during the critical
time period (from 1998, when Mallett’s business was clearly
suffering, until the Pelican Mark was assigned to Electro
Source in 2002). Instead, PPI argues that “those transactions
were not made and could not have been ‘bona fide’ trademark
uses because they were not made by or in connection with any
business to which goodwill accrued” in light of Mallett’s
alleged intent to abandon his business after his inventory was
depleted.
3
We note that “bona fide” is not defined in § 1127. Black’s Law Dictio-
nary provides two similar definitions for “bona fide”: “1. Made in good
faith; without fraud or deceit. 2. Sincere; genuine.” Id. at 186 (8th ed.
2004). These definitions are unsurprising, as the term “bona fide” in com-
mon parlance means “ ‘made or carried out in good faith; sincere.’ ” Nike,
Inc. v. McCarthy, 379 F.3d 576, 582 (9th Cir. 2004) (quoting THE AMERI-
CAN HERITAGE COLLEGE DICTIONARY 158 (3d. ed. 2000)).
9598 ELECTRO SOURCE v. PELICAN PRODUCTS
The district court implicitly adopted PPI’s formulation,
which is predicated on prospective abandonment. In its sum-
mary judgment order, the district court correctly recited the
elements of abandonment, but went on to weigh the evidence
and “find, as a matter of law, that Mallett abandoned” the Pel-
ican Mark because Mallett’s sales, characterized as attempts
to merely “rid oneself of inventory,” were not bona fide uses
in the ordinary course of trade.
[2] This summary judgment conclusion was erroneous for
two reasons. Although it acknowledged that abandonment is
generally a factual issue, see Rivard v. Linville, 133 F.3d
1446, 1449 (Fed. Cir. 1998), in resolving the issue the court
weighed evidence and drew inferences against Mallett as to
his intent and as to what constituted sales in the ordinary
course of trade. This approach contravenes the rule on sum-
mary judgment that all reasonable inferences are to be made
in favor of the non-moving party. See McLaughlin v. Liu, 849
F.2d 1205, 1208 (9th Cir. 1988).4 In addition, the district court
did not hew to the strict statutory standard for abandonment,
which requires complete discontinuance of use, even for a
business on its way out. If there is continued use, a prospec-
4
In cases where there is a presumption of abandonment from nonuse,
see § 1127 (“Nonuse for 3 consecutive years shall be prima facie evidence
of abandonment.”), a mere statement declaring an intent not to abandon,
or an intent to resume, use is not dispositive. See id. (“Intent not to resume
may be inferred from circumstances.”); Rivard, 133 F.3d at 1448-49
(affirming summary judgment finding of abandonment where there was a
presumption of abandonment from nonuse); Silverman v. CBS Inc., 870
F.2d 40, 46-48 (2nd Cir. 1989) (affirming finding of abandonment after a
trial on the merits where there was a presumption of abandonment from
nonuse); Uncas Mfg. Co. v. Clark & Coombs Co., 309 F.2d 818, 819-20
(1st Cir. 1962) (same); Anvil Brand Inc. v. Consol. Foods Corp., 464 F.
Supp. 474, 481 (S.D.N.Y. 1978) (finding an unrebutted inference of aban-
donment from nonuse after a trial on the merits). In this case, however,
there has not been a trial on the merits, and abandonment cannot be pre-
sumed at the summary judgment stage, in light of Mallett’s sworn declara-
tions and documentary evidence attesting to his continued use of the
Pelican Mark through sales and trade show appearances.
ELECTRO SOURCE v. PELICAN PRODUCTS 9599
tive intent to abandon the mark or business does not decide
the issue of abandonment.
II. SECTION 1127 REQUIRES INTENT NOT TO RESUME
TRADEMARK USE
[3] Abandonment under § 1127 requires an intent not to
resume trademark use, as opposed to a prospective intent to
abandon the mark in the future. This distinction is not merely
semantic. An intent not to resume use presupposes that the
use has already ceased—the first prong of the abandonment
statute. In contrast, a prospective intent to abandon says noth-
ing about whether use of the mark has been discontinued. See
Exxon Corp. v. Humble Exploration Co., 695 F.2d 96, 102
(5th Cir. 1983) (distinguishing “intent to abandon” from “in-
tent not to resume use”); KeyCorp v. Key Bank & Trust, 99
F. Supp. 2d 814, 827 (N.D. Ohio 2000) (“While intent to
abandon was the touchstone of legal abandonment in early
common law cases, the Lanham Act requires a showing of
‘intent not to resume,’ rather than ‘intent to abandon.’ ”).
Of course, we recognize that “[n]othing in the statute enti-
tles a registrant who has formerly used a mark to overcome
a presumption of abandonment arising from subsequent non-
use by simply averring a subjective affirmative ‘intent not to
abandon.’ ” Imperial Tobacco Ltd. v. Philip Morris, Inc., 899
F.2d 1575, 1581 (Fed. Cir. 1990). However, a prospective
declaration of intent to cease use in the future, made during
a period of legitimate trademark use, does not meet the intent
not to resume standard. Thus, the district court’s collapsing of
the standards was at odds with the statute.
[4] Consequently, unless the trademark use is actually ter-
minated, the intent not to resume use prong of abandonment
does not come into play. See Money Store, 689 F.2d at 675-
76. In Money Store, a trademark holder decided to stop using
its trademark, yet continued to make some good faith use of
the mark on billboard displays until it sold and assigned the
9600 ELECTRO SOURCE v. PELICAN PRODUCTS
mark. Id. at 669-70. The court held “[t]he statutory definition
makes clear . . . that abandonment requires discontinuance of
use . . . . Although United’s use of the mark may have
declined by the date of the assignment, any use . . . of the
mark was ‘in commerce’ ” and defeats abandonment. Id. at
675-76. The question, then, is whether Mallett ceased use of
the mark before assignment, not whether Mallett harbored an
intent to cease use in the future.
III. LEGITIMATE TRADEMARK USE DEFEATS ABANDONMENT
[5] The district court erred in failing to recognize that, as
a threshold matter, abandonment requires complete cessation
or discontinuance of trademark use. See § 1127; see also Doe-
blers’ Pa. Hybrids, Inc., 442 F.3d at 823 (holding that a trade-
mark was not abandoned because “[t]he simple fact is that the
use of [the trademark] never ceased”).
[6] Our decision in Carter-Wallace, Inc. v. Proctor & Gam-
ble Co. offers a bright line rule: “Even a single instance of use
is sufficient against a claim of abandonment of a mark if such
use is made in good faith.” 434 F.2d 794, 804 (9th Cir. 1970).
In Carter-Wallace, the trademark holder made nominal sales
over a period of four years in order to maintain the mark
while the trademark rights were litigated in court:
During the period of the above litigation and thereaf-
ter defendant sold deodorant products with the mark
SURE, albeit in small quantities. Defendant has not
advertised or promoted SURE deodorant other than
by listing the product in trade directories. Defen-
dant’s sales of SURE deodorant were not made for
profit but for the purpose of continuing the business
. . . so that the SURE mark would be available for
use on a major advertised product when the legal
problems . . . were resolved.
Id. at 798.
 ELECTRO SOURCE v. PELICAN PRODUCTS 9601
We rejected the argument that the trademark had been
abandoned because “only nominal” sales were made “with the
sole intent of sustaining the mark.” Id. at 803. Rather, we held
that the mark had not been abandoned because the trademark
holder “proferred [sic] legitimate business reasons for its
action” in waiting for the trademark ownership issues to be
fully litigated and resolved.5 Id. at 803-04 (citing Mendes v.
New England Duplicating Co., 94 F. Supp. 558, 560 (D.
Mass. 1950), aff’d, 190 F.2d 415 (1st Cir. 1951)); see also
Drop Dead Co. v. S.C. Johnson & Son, Inc., 326 F.2d 87, 93-
94 (9th Cir. 1963) (holding that the transport of a single trade-
marked product is sufficient to constitute a use in commerce).
[7] Good faith nominal or limited commercial sales of
trademarked goods are sufficient, we held, to avoid abandon-
ment, where the circumstances legitimately explained the pau-
city of the sales. See also Anvil Brand Inc. v. Consol. Foods
Corp., 464 F. Supp. 474, 481 (S.D.N.Y. 1978) (recognizing
that “circumstances may . . . justify a proponent’s limited use
of a mark and still permit the registrant to maintain its trade-
mark rights,” citing Carter-Wallace).6
5
Consistent with Carter-Wallace, we held in Karl Storz Endoscopy Am.,
Inc. v. Surgical Technologies, Inc., that “ ‘use in commerce’ appears to
contemplate a trading upon the goodwill of or association with the trade-
mark holder.” 285 F.3d 848, 855 (9th Cir. 2002). This requirement
attempts to distinguish activities that may be made in good faith, but none-
theless do not constitute a trademark use. The question is whether the
transaction was one that could trade upon the goodwill or association with
the trademark. For example, in Karl Storz, “a mere repair of a trademarked
good, followed by return of the good to the same owner . . . does not con-
stitute a ‘use in commerce’ ” because there was no trademark use—a
transaction designed to trade upon the goodwill or association with the
trademark. Id. In contrast, good faith sales or transport of trademarked
goods in commerce typically employ or envision promoting the goodwill
associated with the trademark.
6
In contrast, “[a] trademark maintenance program obviously cannot in
itself justify a minimal sales effort, or the requirement of good faith com-
mercial use would be read out of the trademark law altogether.” La Societe
Anonyme des Parfums le Galion v. Jean Patou, Inc., 495 F.2d 1265, 1273
9602 ELECTRO SOURCE v. PELICAN PRODUCTS
The district court did not follow Carter-Wallace’s principle
that a single legitimate sale satisfies the use criteria of § 1127.
Instead the court assumed that declining sales, discounted
sales, depletion of inventory, and the decision not to sue
potential infringers were factors that, in combination, were
tantamount to discontinuance of bona fide use in the ordinary
course of trade. The court made that determination as a matter
of law in the face of obvious factual disputes.
This approach suffers from two difficulties: it is at odds
with Carter-Wallace and reflects a rather cramped view of
“bona fide” and “the ordinary course of trade.” The district
court assumed, and PPI argues, that once Mallett decided to
discontinue his business, a fact which he disputes, and liqui-
date his goods bearing the Pelican Mark, any sales or trans-
port of the trademarked goods were not a “bona fide”
n.10 (2nd Cir. 1974). Similarly, the sale of a trademarked item cannot be
a trademark use if not made in the ordinary course of trade. See id. at
1272-73 (holding, after a trial on the merits, that the “meager trickle of
business” of 89 sales in 20 years was not a trademark use because under
the circumstances, the sales were designed solely to establish and maintain
the trademark right and were inconsistent with commercial exploitation);
Uncas, 309 F.2d at 819 (upholding the district court’s finding of abandon-
ment after a trial on the merits where, following nonuse of a mark before
a merger, the clear and undisputed evidence showed that the acquiring
company had “no intention of making and selling the [trademarked
goods]” or doing business in the business area of the trademark); Osh-
man’s Sporting Goods, Inc. v. Highland Import Corp., 16 U.S.P.Q.2d
1395, 1397 (T.T.A.B. 1990) (finding that a mark was abandoned in the
face of nonuse for several years after 1983, where the trademark holder
stopped ordering or importing the trademarked item, stopped advertising
the item for sale, had no plans to resume use of the mark, and there were
no records of shipments or sales after 1983); Anvil, 464 F. Supp. at 481
(finding that no trademark use existed where, after a trial on the merits,
the evidence clearly showed that left-over trademark labels of a discontin-
ued line were affixed to random promotional shirts, reasoning “[i]t cannot
be said that the use of the label on the promotional shirts was in any way
intended as an inducement of the sale . . . [n]or was the application of the
label made as a purposeful act of the merchandising management”).
ELECTRO SOURCE v. PELICAN PRODUCTS 9603
trademark use. The notion underlying this assumption is that
goodwill cannot legitimately attach to a business that may be
discontinued at a later date because trademark law requires an
existing business to which goodwill could attach. But that is
not so. Trademark use does indeed require an existing busi-
ness, see Siegel v. Chicken Delight, Inc., 448 F.2d 43, 48 n.2
(9th Cir. 1971) (“a trade-mark does not confer upon its owner
the right to prohibit a competitor’s use of the mark unless the
owner himself uses the mark in connection with an existing
business”), but it does not follow that a failing, yet ongoing,
business automatically abandons its mark although it is still in
business.7 Even a declining business retains, may benefit
from, or may continue to build its goodwill until it shuts its
doors or ceases use of its marks.
Alternatively, PPI’s argument assumes that when the deci-
sion is made to liquidate inventory and close out a trade-
marked line, any use beyond that point is not “in the ordinary
course of trade.” We disagree. Although the facts here do not
unambiguously show that Mallett decided to abandon his
business, even assuming that he did, the Pelican Mark was not
abandoned until he actually discontinued use of the trademark
with intent not to resume such use. See § 1127.
Because the abandonment inquiry is tied to the unique cir-
cumstances of each case, it is appropriate to look at the total-
ity of the circumstances to determine if genuine, albeit
limited, usage of the mark qualifies a trademark use “in the
ordinary course of trade” under § 1127. The factors that guide
courts in examining trademark use in the context of trademark
registration are instructive:
7
As we know from the seminal Supreme Court trademark case, United
Drug Co. v. Theodore Rectanus Co., “[t]here is no such thing as property
in a trade-mark except as a right appurtenant to an established business or
trade in connection with which the mark is employed.” 248 U.S. 90, 97
(1918). This principle does not, however, exclude a business that is not
going gangbusters.
9604 ELECTRO SOURCE v. PELICAN PRODUCTS
In applying this approach, the district courts should
be guided in their consideration . . . by factors . . .
such as the genuineness and commercial character of
the activity, the determination of whether the mark
was sufficiently public to identify or distinguish the
marked service [or product] in an appropriate seg-
ment of the public mind as those of the holder of the
mark, the scope of the [trademark] activity relative
to what would be a commercially reasonable attempt
to market the service [or product], the degree of
ongoing activity of the holder to conduct the busi-
ness using the mark, the amount of business trans-
acted, and other similar factors which might
distinguish whether a service [or product] has actu-
ally been “rendered in commerce”.
Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1159 (9th
Cir. 2001); see also Paramount Pictures Corp. v. White, 31
U.S.P.Q.2d 1768, 1774 n.8 (T.T.A.B. 1994) (the phrases “use
in commerce” and “use in the ordinary course of trade” are
“flexible enough to encompass various genuine but less tradi-
tional trademark uses . . . . [and] reflect[ ] the possibility that
use may be interrupted due to special circumstances.’ . . .
‘[T]he Committee recognizes that the ordinary course of trade
varies from industry to industry.’ . . . Congress’ intent that the
revised definition still encompass genuine, but less traditional,
trademark uses must be made clear.’ ”) (internal quotation
marks omitted) (quoting congressional reports and testimony
from the legislative history of § 1127).
Evaluating whether a use is in “the ordinary course of
trade” is often an intensely factual undertaking. For a case
like this, one involving a waning business, it is useful to con-
sider the term in the bankruptcy context. In that arena, finan-
cial distress and failure are ubiquitous and yet sales made
under those circumstances may still be “ordinary.” In the
bankruptcy context,
ELECTRO SOURCE v. PELICAN PRODUCTS 9605
creditors are not required to prove a particular uni-
form set of business terms, rather, “ordinary business
terms” refers to the broad range of terms that
encompasses the practices employed by those debt-
ors and creditors, including terms that are ordinary
for those under financial distress. Only a transaction
that is so unusual or uncommon “as to render it an
aberration in the relevant industry,” falls outside the
broad range of terms encompassed by the meaning
of “ordinary business terms.”
In re Jan Weilert RV, Inc., 315 F.3d 1192, 1198 (9th Cir.
2003) (citations omitted).
The same general notion merits consideration in the trade-
mark context. Indeed, it is not unusual for a troubled or failing
business to sell and assign its trademark, along with the corre-
sponding goodwill and the remaining business. See Money
Store, 689 F.2d at 669-70; Carter-Wallace, 434 F.2d at 798.
Some business and financial firms even specialize in rescuing
troubled companies, rehabilitating the business, and capitaliz-
ing on their goodwill and intellectual property, including
trademarks. If trademark protection were stripped the minute
a company runs into financial trouble or decides to liquidate,
the two cornerstone interests in trademark would be defeated
—protection of the public through source identification of
goods and protection of the registrant’s investment in the
trademark. See United Drug, 248 U.S. at 97-98; State of Idaho
Potato Comm’n v. G & T Terminal Packaging, Inc., 425 F.3d
708, 715 (9th Cir. 2005) (“Trademarks protect the public from
confusion by accurately indicating the source of a product.”);
New Kids on the Block v. News Am. Pub., Inc., 971 F.2d 302,
305 (9th Cir. 1992) (describing the Lanham Act as protecting
against the unfair use of a rival’s mark, where “the infringer
capitalizes on the investment of time, money and resources of
his competitor”).
[8] Looking at the circumstances of this case, we evaluate
the legal requirements for abandonment against the record of
9606 ELECTRO SOURCE v. PELICAN PRODUCTS
Mallett’s sales and his transport of Pelican Mark goods, mak-
ing all reasonable inferences in favor of Electro Source as the
non-moving party. See Liu, 849 F.3d at 1208. There are no
allegations that Mallett’s activities were feigned, non-
commercial, insufficiently public, or made merely to reserve
the mark. See § 1127. Neither are there allegations that Mal-
lett’s efforts were unreasonable in relation to his
circumstances—a continuing yet failing business trying to sell
excess inventory—or to the relevant market. See Chance, 242
F.3d at 1159; Carter-Wallace, 434 F.2d at 803-04. To the
contrary, the record suggests that in the ordinary course of his
small, struggling business, Mallett transported and publically
displayed his Pelican Mark goods over a number of years in
an earnest effort to sell them, and made actual sales. These are
core trademark activities that necessarily contemplate trading
upon the goodwill of the mark.
[9] In sum, the record does not support summary judgment
in favor of PPI on the claim of abandonment. We therefore
reverse the district court’s grant of summary judgment as to
abandonment and vacate the order cancelling the Pelican
Mark. See Prudential Ins. Co. of Am., 694 F.2d at 1156
(vacating cancellation order because evidence of use defeated
abandonment claim).
IV. ATTORNEYS’ FEES CROSS-APPEAL
[10] PPI is no longer a prevailing party. Its cross-appeal on
attorneys’ fees is moot in light of our disposition of abandon-
ment and cancellation. Interstellar Starship Servs., Ltd. v.
Epix Inc., 184 F.3d 1107, 1112 (9th Cir. 1999). We therefore
affirm the district court’s denial of attorneys’ fees.
REVERSED as to the grant of summary judgment in favor
of PPI on abandonment and cancellation of the trademark, and
REMANDED for proceedings consistent with this opinion.
AFFIRMED as to the denial of attorneys’ fees. Costs on
appeal shall be awarded to Electro Source.