Condom Sense v. Jamal Alshahabi

REVERSE. RENI)ER. AFFIRM; Opinion issued December 21, 2012.
In The
Qtiurt uf Appiat
Fifth 3itritt uf xa at Jat1a
No. 05- 10-0 1024-CV
CONDoM SENSE, INC., MRSK, INC., MRK, INC., MKSK, LLC, MARSTEK, LLC,
SKCMK, LLC, AND N1SCK 121, LLC, Appellants
V.
JAMAL ALSHALABI A/K/A MIKE EDWARDS, GREG SMITH, MONSERRAT SMITH,
.J&J NO-LIMIT, INC., CONDOMS ETC., LLC, CONDOM SENSATION DALLAS LLC,
CONDOM EXPRESS, LLC, AND COMOROS, [IC, Appellees
On Appeal from the County Court at Law No. 2
i)allas County, Texas
Trial Court Cause No. 06-17938-b
OPINION
Before Justices Lang, Murphy, and Myers
Opinion By Justice Murphy
This multi-party dispute involves one federal and four Texas service mark registrations using
the words “Condom Sense.” Appellant Condom Sense, Inc. (CSI) is the named holder of those
registrations. CSI and the additional appellants, who are individual management companies owning
and operating Condom Sense retail stores in the Dallas area, sued appellees seeking damages and
an injunction to prevent use of the marks. The trial court granted judgment for appellees, ordering
the cancellation of the marks. This appeal followed. We reverse the judgment regarding
cancellation of the four Texas service mark registrations but otherwise affirm the judgment.
1, INTRO1)UCTION
Trademark infringement law is part ol the broader law of unfair competition. Mose/ev v, V
Sic rd ( (uaIat,’iIc. In..)37 1. J.S. 4 I S. 425 (2003): 1 1
,iion Va! ‘I Think of i’v.. Laredo. Icr. i.
Nat 7 Bank affix., Austin. Thx., 909 F.2d 839, 843 n. 10 (5th Cir. 1990). That law prohibits uses of
trademarks. service marks, trade names, and trade dress that are likely to cause contusion as to the
source ol the product or service. Scc Mo.%dIcy, 537 U.S. at 428. Infringement law serves two roles:
one is to protect the consumer from being misled by the use of infringing marks; the other is to
protect the in esiment in a mark made by the owner See Qualitex Co. i’. .1aobson Prods., Co.. 513
U.S. 159. 1 6364 (1 95): Mishawaka I?ithber & Woofc’,i Mfr Co. r. S. S. Kresge Co.. 3 16 U.S. 203.
205 (1942) (noting infringement law recognizes the value of symbols; if one “poaches upon the
commercial magnetism of the symbol” created by the owner. “the owner can obtain legal redress”):
see aI.o King-Sire, Inc. ‘. Frank’s King Si:e C/allies, mc,. 547 F. Supp. 1138, 1149 n.3 (S.D. Tex.
1982),
Appellants’ claims are governed by the Trademark Act of 1946. also known as the Lanham
Act, see 15 U.S.C.A. 1051—1127 (West 2009), the Texas Trademark Act, see Thx, Bus, & COM.
CODE ANN. § 16.0l—.3 1 (West 2011), and Texas common law, Congress enacted the Lanham Act
to provide for national protection of marks used in interstate and foreign commerce, See Park ‘N
Fly, Inc. v. Dollar Park & F/v. Inc., 469 U,S, 189, 193 (1985). The Texas legislature similarly
enacted legislation to confer statewide protection for the owner of a mark. See TEx. Bus. & C0M.
CODE ANN, § 16.15(b): Hot-fled. Inc. v. .Sa/eiioiise Habitats (Scot.). LtL, 333 S.W.3d 719. 730 (Tex.
The Texas Trademark Act was reccilied during the 2012 regular legislatise session. The change in law. hoever. does not affect any suit.
proceedmg. or appeal pending on September I. 20 2. the elfectise date ot the Act. 5cc Acts of 2011. 52nd Leg.. R.5.. ch. 563. § I. 4. 2(111 Tex.
Sess. Law Serv. 1365. 1377 (current version Tex. Bis. & COM. CODE Ays. * 16.00!—. I07i. We therelOre sOIl apply the fotmer law in our
at
discussion and analysis.
——
•rp- 1 lou’toIl I I si Dist, I 2010. pet, denied). The Texas Trademark Act was derived from the
Model Stale [radeinaik 13i11 dralled by the United States Trademark Association in 1949. which was
revised in I 964 and 1992. See Lv,von Corp. v, (vvfrd Clothes, Inc., 109 F3d 1070, 1081(5th Cir,
1997), And the Texas common law elements ol unfair competition. including trademark, “are no
different than those under federal trademark law.” Al/Am. Builders, Inc. v.A/lAm. Siding of Dallas,
Inc., 991 S.W,2d 384. 488 (Tex App.—Fort Worth 1999, no pet.); see
. (1/50 Hot-lIed. Inc., 333
S .W.3d at 730: iiorsc.vhoe Bay Resort Sales Co. i’. Lake Lyndon B. Johnson Iniprot’ement Corp.. 53
S .W.3d 799, 806 n.3 (Tex. App.—-Austin 2(101 pet. (lenied): Zapata C’orp. v. Zapata irading hit ‘1,
.
Inc., 841 S,W.2d 45,47 (Tex .App.—Houston 114th Dist.l 1992. no writ). Courts therefore look to
the Lanham Act and cases thereunder for generally accepted principles of substantive trademark law
and to discern meaning and interpretation of the state law provisions .5cc KLN Steel Prods. C’o. v.
(‘NA Ins. Cos., 278 S.W.3d 429, 440—41 (Tex. App.—San Antonio 2008, pet. denied).
Although olten used interchangeably, the words trademark, service mark, and trade name
have different meanings. See Am. Legion v. Matthew. 134 F.3d 498. 499 (7th Cir. 1998) (noting
‘imlost of the time ‘trademark’ and ‘trade name’ operate as synonyms”). A trademark is a
designation, including any word, name, symbol, or device, used by a person to identify his goods and
distinguish them From goods produced by another. IS U.S.C.A. § 1127; TEx. Bus. & COM. CODE
ANN. § 16.01 (a( 5): Blue Be/I. I,ic. t’. Farah Mf. Co.. 508 F.2c1 1260, 1264 (5th Cir. 1975). A
service mark is essentially a trademark that is used in connection with services: it is a designation
used by a person to identify his services and distinguish them from the services of another. 15
The proposition that Texas courts should look to fderal eases k)r guidance also is evidenced in the recodified version of the Texas Trademark
Act. The stated intent of the recodified version was to bring Texas trademark laws “into alignment with federal trademark infringement and dilution
laws, as contained in the model legislation.’ House Comm. on Business & Industry, Bill Analysis. 2nd Leg.. R.S. (2011>. To that end, the
construction given to the Lanham Act “should he examined as persuasive authodty for interpreting and construing” the Texas Act Acts of 2011,
52nd Leg., R.S., ch. 563. 3.2011 Tex. Sess. Law Scrv. 1377.
—3—
US.CA. § 1127; TEx, 1105. & COM, Conu ANN. § 16.01(a)(4), Trademarks and service marks are
separately defined in the applicable statutes, hut their definitions closely track each other, and they
are L’overned by identical standards. Sec .4ma:inç’ Spacc. Inc. r. i11c!ri Mini Su,raç’e. 608 F.3d 225.
236 n,l0 (5th Cir, 2010); see also RESiATEMENT (THIRD) OF UNFAIR COMPETITION § 9 cmt. f
19c5): I MCCARTHY ON TRADEMARKS 4: 14. at 4— 16 (“For all practical purposes. both trademarks
and service marks are subject to the same substantive rules of validity and infringement.”): cf 15
U.S.C.A. § 1053 Cservice marks shall be registrable, in the same manner and with the same effect
as are trademarks, and when registered they shall be entitled to the protection provided in this chapter
in the case of trademarksL The term “mark” includes any trademark or service mark. 15 U.S.C. A.
§ 1127: TEx, Bus. &COM, CODE ANN. § 16.0i(a)(2).
A trade name is any designation adopted and used by a l)el’son to identify his business; it
represents the goodwill that has been built over time by the user. 15 U.S.C.A. § 1127: TEx. Bus. &
COM. CODE ANN. § i6.01(a)(6): Thompson v. Thompson Air Gonditioning & Heating, Inc., 884
S.W.2d 555. 558(Tex. App.—Texarkana 1994, no pet.). Unlike trademarks orservice marks. which
are used to identify and distinguish the goods or services provided, a trade name is used to identify
and distinguish the business itself from other entities. See 15 U.S.C.A. § 1127.
A registered mark is one that has been registered in the United States Patent and Trademark
Office (USPTO) or in the office of the secretary of state of Texas; trade names are not subject to
registration, unless they also are used as marks. See 15 U.S.C.A. § 1127; TEx. Btis. & COM. CODE
ANN. § 16.08(c). 16.10. Rights in a mark, however, grow (Jut of use of the mark in commerce, not
from mere registration. See Union Nat’l Bank of Tex., Laredo, 909 F.2d at 842; Blue Bell, Inc., 508
F.2d at 1265: cf: 15 U.S.C.A. § 1127 (use of mark means “hona fide use of such mark”). Those
rights are retained for as long as the use of the mark continues, or as long as nonuse of the mark is
-4-
smtably explained, See 1 5 U.S.C.A. * 105K. Like oilier rights that depend UOfl use. rights in a mark
may be lost by abandonment, laches, or acquiescence. Hanover Star Milling Co. v, Mercaif 240
LI .S. 403. 4 I X— 19 (19 1(0. vu persLdcd by statute as stated in Park ‘N Fly. Inc.. 469 U.S. at 200.
II. FACTU AL BAC KGROUND
A. The 4
‘
C ondom Sense” Service Marks
The primary service mark at issue in this case is “Condom Sense,” which is presented with
and without a circle desien. When used, the circle is positioned around the two words and is said
to represent a condom.
The Condom Sense mark was trst registered as a trademark in 1989 by a company called
Ansell Incorporated, later renamed Ansell l-iealthcare Products, LLC. Ansell rnanufacttLres latex
products. including condoms. and it registered the trademark “Condom Sense” with the USPTO for
use in class 10 prophylactics. Ansell used the trademark on packaging for its Lifestyle brand
condoms with the tagline: “LIFESTYLES. . . It’s a Matter of Condom Sense!”
In August 1992, Ansell filed an intent-to-use application,
3 seeking federal registration of the
mark as a service mark for use in class 42, retail store services. At that time. Ansell did not have a
retail storefront or otherwise use the mark in connection with retail store services. But in its
application, it stated a hona-fide intention to do so. Ansell received notice that the Condom Sense
service mark was allowed for registration by the USPTO in mid-1994. The USPTO registered the
mark to Ansell on June 1 3, 1995. In 2005. Ansell assigned its entire interest and goodwill in the
class 42 mark to appellant CSI. That assignment and the surrounding events will be described in
more detail below.
The “intento-use’ provision of the nham Act allows an applicant to seek registration without using a mark in commerce so long as the
3
applicant has “a bona fide intention, under circumstances showing the good faith of such person. to use a trademark in commerce....” 15 u.s.c...
* 1051 (b)( I). Once a “notice of allowance” for the mark is issued, the applicant has six months to use that mark in commerce, Id. * 1051 (d)( It.
—5—
Alter acquiring the lederal registration of the Condom Sense mark by assgnnien1. CSI then
registered that mark with and without the circle design in Texas. It also registered two additional
marks in Texas: (1’) the phrase “Condom Sense Est. I 990” with a circle design and (2 the phrase
“Condom Sense Stores with the circle design. In all, CSI registered four services marks in Texas.
each dated April 19, 2007.
B, The Parties
The parties are competitors in the adult novelty and gift industry and use the service marks
in connect ion with their retail stores. The parties also identify their stores by the name “Condom
Sense” featuring the circle design.
1. Appellants
Appellant (‘SI is a Texas corporatlon that holds the federal and state registrations for the
Condom Sense mark, as well as the additional state-registered marks. The remaining appellants are
individual management companies that own and operate six Condom Sense retail stores in Dallas
and the surrounding areas. The entities that operate the retail stores claim the right to use the
Condom Sense service marks and name through CSI.
The principals affiliated with appellants are Steven Kahn (Kahn) and his mother, Marcia
Kahn (Marcia). According to Kahn. he developed the concept of the circle design around the words
“Condom Sense,” and he used that concept in connection with the first Condom Sense store he
opened in 1992. That store was located at 3609 Greenville Avenue in Dallas. Kahn operated that
location through his management company SKCS Rubber, Inc., which is not a party to the lawsuit
or this appeal. Kahn sold condom-related items as well as provided literature about condom usage
hach appellant operates one Condom Sense location. The distinction among appellants concerning which entity operates which Condom Sense
4
retail location, however, is immaterial to our analysis.
—6—
and sexually t tans nutted diseases. Kuhn touted this store as heine the irst store of its kind in [)allas.
The Internet domain names wwwcondomsensecom and wwwcondomsensestores.com are afhliated
with the Kahns retail locations.
2 Appellees
Appel Ice NI ike Edwards, formerly known as Jamal Aishalahi. is the principal aft] hated with
appeflee J&J NoLirnit, Inc., a rexas corporation established in January 2001. At the time the
lawsuit was Filed. Edwards. through J&J NoLirnit. operated one Condom Sense store. Appellees
Greg and Monserrat Smith are the principals affiliated with the remaining appellees, which are
individual entities that own and operate multiple Condom Sense locations. Although Monserrat
Smith shares ownership of the operating companies with her husband, she does not participate in
running the stores. Greg Smith bought the couples first Condom Sense store from Edwards in 2004.
In addition to adult novelties and other gifts. the stores operated by appellees also sell drug
paraphernalia and smoking supplies. Appellees claim they received their right to use the Condom
Sense mark at any location through a purchase and sale agreement between Edwards and SKCS
Rubber in 1997. That agreement will be discussed in more detail below.
Appellees have several domain names containing the words “Condom Sense” that all link
to one wehsite. The website was created by Greg Smith, who also is responsible for the webs ite’s
content.
C. The License Agreement Between Ansell and CS!
In early 1992, Ansell became aware of Kahn’s use of Ansell’s federally registered service
mark in connection with the 3609 Greenville store and notified Kahn that it considered such use to
‘Like the appellant entities, each f the rematnmg appellee entlOes owned by the Smiths operate one Condom Sense store. Again, the distinction
of which entity operates which Condom Sense location has no effect on our analysis.
—7—
be lnauth( ritcd. Kahn responded by uttering to purchase the mwk Rather than sel the mark to
Kahn, Ansell agreed to grant Kahn limited rights to use its mark through a license agreement.
Neeot iations between Ansell and Kahn over the terms of the license agreement began some
t hue in I 902 and continued through early I 994. with Ansell repeatedly communicating to Kahn its
desire to finalize the agreement. Ansell considered the license agreement to be a “high priority” and
“critical” for the protection of its mark. After informing Kahn in March 1994 that Ansel I would stop
Kahn’s unauthorized use of its mark it negotiations were not concluded. Ansell and CSI finally
entered into a license agreement. dated April I I 994. Kahn signed the agreement as president of
CSI.
Under the terms of the license agreement. Ansell granted CSI a limited right to use the
Condom Sense mark in connection with the retail sale ol condoms and related goods. In exchange
for the right to use the mark, CSI was required to pay Ansell royalties calculated at one percent of
gross sales (less sales tax) on a quarterly basis. The license granted to CSI was not automatically
renewable. Rather, the license was for a period of five years with the option to renew for an
additional five-year period if CSI gave written notice of its intent to renew sixty (lays before the
agreement expired and was not in default under any term or condition of the agreement. If CSI did
not exercise its option to renew, the agreement would expire at the end of the five-year term. Any
modilications or amendments to the agreement were required to be in writing.
Based on Ansell’s dealings with the Kahns during the negotiations period, Ansell limited
CSI’s rights to use the Condom Sense mark in several respects. For example, CSI could use the
mark only at “not more than two (2) retail locations” within the Dallas metropolitan area.
6 The
1n 1993, while negotiations with Ansell were ongoing, the Kahns opened a second Condom Sense store in Dallas, which was owned and
6
operated by Marcia. That store used the Condom Sense mark.
—8—
agicement iIso was mm assignable and did not contain any clause permitting (‘SI to grant
sublicenses br use of the Condom Sense mark or trade name. in addition, Ansell could revoke
(‘Si’s license upon written notice ii. among other things. (‘SI (11(1 not pay royalties or breached any
provision ol the agreement and tailed to cure the breach.
The license agreement emphasized that Ansefl held the exclusive right, title, and interest in
and to the mark and the goodwill associated with the mark belonged solely to Ansel!. CSI was
prohibited under the agreement from representing it had ownership in the mark. Rather. CS l’s usc
of the mark expressly inured to the benefit of Ansell. (‘SI also was prohibited from contacting any
third party, making demands or claims, instituting a suit, or taking any other action related to
infringing or improper use of the mark without first obtaining written consent trom Ansell. The right
to take action against any infringing or improper use remained with Ansell. CS! was required to
notify Ansell in writing of any activity that constituted infringement or improper use of Ansell’s
mark.
Kahn did not make the first royalty payment due just after the license agreement was signed.
And according to Ansell’s former trademark administrator, Laura Gier, she had to hound” the
Kahns on several occasions because both Kahn and Marcia were delinquent in making the required
royalty payments for both stores. Despite receiving continued demands for payment from Ansell.
the Kahns did not pay any royalties after the third quarter of 1996. Kahn agreed he ceased paying
royalties at some point but claimed he reached an agreement with Ansell that he no longer had to pay
royalties because he was such a large purchaser of Ansell’s products. Gier was unaware of any
agreement with the Kahns to waive the requirement to make royalty payments and stated any such
arrangement would have been in writing. Ansell never sued CS! or the Kahns to collect past due
royalties.
Ansell’s only use of the mark in commerce in connection with retail store services was CSI’s
ant hunted use under the license areeineiit In its \eriiicd statement ol use filed with the USPTO
tollowmg the June 1994 notice of allowance, Ansell listed the date of the license agreement, April
1994. as the date of Ansell’s first use of the mark in commerce in retail store services .Although
AnscIl made attempts lo license the mark to others, it was unable to secure another licensee. CS!
was the only licensed user of the mark. And from the time Ansell registered the Condom Sense
mark for use iii retail store services until the time it assigned the mark to CSI in 2005, Ansell never
directly used the class 42 mark in commerce. In January 2001, Ansell filed a declaration of
continued use with the USPTO. stating the service mark had been in continuous use in retail store
services br the preceding five years and was still in use.
D. Sale of the 3609 Greenville Location to Edwards
In 1997. Kahn, through SKCS Rubber, sold to Edwards the Condom Sense store located at
3609 Greenville. The sale was memorialized in a purchase and sale agreement. dated August 20,
1997 (the 1997 agreement). Kahn signed the 1997 agreement as SKCS Rubber’s president.
In the “Recital” portion of the agreement, the parties described the reason for the agreement
as follows:
IEdwardsl desires to purchase and jSKCS Rubber I desires to sell, as a going concern,
the leasehold, improvements, inventory and goodwill, as well as the non-exclusive
right to use of the name, of “Condom Sense” a Dallas Retail establishment, located
at 3609 Greenville Avenue, Dallas, TX 75206.
The parties then detailed the subject matter of the sale under the “Purchase and Sale” heading:
lEdwardsl shall purchase from ISKCS Rubberj on the terms and conditions set forth
in this Agreement:
a) All the stock in trade merchandise of said business:
b) All the fixtures, equipment and other tangible assets of said business as
—10—
\hown oti the inventory attached hereto as Exhibit “A’’ and incorporated herein by
reference for all purposes:
c ) All the trade, goodwill, and other intangible assets of said business.
mclndine the non—exclusive riehi to use of the trade name, Condom Sense.
The “right to use of the trade name” was a “non-exclusive right” because Marcia continued to
operate the Condom Sense store she owned at a different location. The 197 agreement provided
further that it was binding on Edwards’s heirs, successors, and assigns.
Edwards paid S60,(X)0 for “all the properties, assets, and rights” of the business, with
approximately SI 5.50(3 of the purchise price representing the store’s inventory. Edwards considered
the right to use of the Condom Sense name to b about seventy-five percent of what he purchased
because he did not plan to operate a store at the 3609 Greenville location in the future. Edwards
financed a portion of the purchase price through a promissory note, which he paid in full by
September 1998.
The license agreement between Ansell and CSI was in effect at the time of the sale, hut the
1997 agreement contains no reference to Ansell or CSI’s limited rights under the license agreement.
Nor does the 1997 agreement mention any obligation to pay royalties to Ansell. SKCS Rubber
expressly warranted it owed no obligation and had contracted no liabilities related to the business,
which would affect the consummation of the purchase and sale.
Edwards owned and operated the Condom Sense store at 3609 Greenville until March of
1999 when he sold the business to another individual, who is not a party to the lawsuit. That
purchase and sale included the inventory, office equipment, fixtures, and other related assets used
in the business. The agreement for this purchase and sale did not mention any intangible assets of
the business, such as any right to use of the name Condom Sense. But according to Edwards, he sold
the new owner what was sold to him: the physical assets and inventory related to the store and the
—Il—
ruht to use the name. The new owner later closed the 3609 Greenville store.
E, Disagreement Over the Scope of the 1997 Agreement’s “Right to Use” Provision
Between 200() and 2008, the Kahns opened six new Condom Sense stores in and around
1)allas, with one of those stores later closine. In 20() 1. Edwards also opened a new Condom Sense
store in Deep Ellum, a neighborhood located near downtown Dallas. The Deep Ellum location was
operated by J&J No-Limit.
The Kahns took the position that the opening of the 1)eep Ellum store constituted
inlrmgemcnt of their service mark and name. On October ii. 2001. their lawyer sent Edwards a
letter demanding Edwards discontinue using the Condom Sense mark and name at the Deep Ellum
store. Specifically, the Kahns’ lawyer advised Edwards that since December 1991, the Kahns “have
become the exclusive owner of the Condom Sense trade name for novelty stores.’ And based on the
“substantial goodwill” the Kahns had built in the mark, they “must enforce their rights” in the mark
and name. They gave Edwards four days to provide written assurances that he would discontinue
use: they threatened to enlorce their rights in court if he did not comply.
Contrary to the Kahns’ position, Edwards believed he purchased the “non-exclusive right to
use” of the name “Condom Sense” and any associated marks when he entered into the 1997
agreement and paid $60,000. He also believed he retained the right to use the name and open
additional stores even after he sold the store at 3609 Greenville.
After receiving the October 2001 letter, Edwards spoke with Maria Ramos, a friend and
paralegal. Ramos reviewed the letter and the 1997 agreement and then contacted the Kahns’ lawyer.
She notified the lawyer that Edwards’s interpretation of the 1997 agreement differed from the Kahns’
interpretation—that is, Edwards believed the right to use the mark and name was not limited to the
one store located at 3609 Greenville. The lawyer responded on October 16, 2001 by forwarding
12—
Ramos cpie’ ul Assumed Name (‘ertilicales tiled h Kahn in I ) 1 and 20() I lie ako intorined her
.
that it was his “understanding that j Edwards j purchased the right to use the name Condom Sense’
at the store located at 3(O9 Greenville only.” Edwards failed to comply with the demand, and no
leal action was commenced at that time.
Thereafter, in 2003, Edwards opened another Condom Sense store on Cedar Springs Road.
This prompted the Kahns’ lawyer to send a second cease and desist letter, dated March 6. 2003. In
this letter, the lawyer advised Edwards he was retained to resolve Edwards s ‘‘unauthorized use of
I the Kahns’ brand name.” The letter set a deadline ol thirty (lays to address the problems and again
threatened to “expedite legal proceedings” if Edwards failed to comply.
The lawyer also attached a “detailed description of the problem” in which he described (I
Kahn’s concept and development of the “brand” (which was a combination (>1 the name Condom
Sense, logo, and popularity of Kahn’s “pioneering concept”), (2) the sale of 3609 Greenville and
“limited” right to use of the name, and (3) claims that Edwards “seriously harmed” the “brand.” In
the attachment, the lawyer explained that Kahn sOI(1 the 3609 Greenville location because the
locatioH was too small to support what Kahn thought this type of adult novelty store should offer its
clients. He continued: “IKahnI sold jEdwards} this store with the expressed understanding between
I the parties, established through many meetings” that Edwards “would only use the BRAND at that
location” and Kahn “would continue to open up new stores under I thej BRAND” in Dallas.
The lawyer claimed in the attachment that within a year of the sale, Edwards harmed the
Condom Sense name by failing to pay vendors, which affected Kahn’s ability to open new stores,
and by stocking and advertising drug paraphernalia. The lawyer also claimed that after closing the
founding store on Greenville. Edwards “surreptitiously began operating new stores in other locations
using the BRAND to which 1Edwardsi only had a limited right of use for the original location.”
—13—
In Deccmher Th( )3, CSI. S K( ‘S Ruhher, and the Kahns filed suit against Edwards and J&J
NoLimit, asserting Edwards had breached the 1997 agreement and asking that Edwards cease using
the “trade name ‘Condom Sense’ at all locations where I Edwards/J&J No—Limit have opened such
businesses. lhcv also asked that Edwards he enjoined from opening additional stores under the
name Condom Sense. The Kahns did not notify Ansell of Edwards’s alleged infringing or improper
use of the Condom Sense mark before they sent the cease-and-desist letters or filed the lawsuit.
F. The Smiths Purchase Two Condom Sense Locations from Edwards
While the lawsuit was pending. Edwards and J&J No—Limit sold the Deep Ellum and Cedar
Springs locations to appellees Condoms Etc., LLC and Condom Sensation Dallas, LLC, two entities
affiliated with the Smiths. Greg Smith signed the Asset Purchase Agreement. dated January 1, 2004.
as president of those entities.
Smith’s companies paid $300,000 for “all of the assets of the two retail stores doing business
as Condom Sense,” which included the fixed assets in each store as well as Edwards’s “right, title,
and interest in and to the trade name Condom Sense and any names derived from or bearing a
resemblance thereto anti any related trademarks, trade names. service marks and other trade rights
.“ The purchase agreement specifically provided that:
jJ&J No-Limit I owns or releases or otherwise possesses a transferable right to use
all assets used in the conduct of the Business as conducted immediately before the
date of this Agreement. For the buyer to enjoy the use of the trade name “Condom
Sense,” IJ&J No-Limit I agrees and hereby assigns to the extent necessary the
Agreement of August 20. 1997 between [Edwardsj and SKCS Rubber. Inc.
Although the agreement referenced the lawsuit filed by the Kahns, it affirmatively stated the “use
of the name Condom Sense does not infringe the rights of any third party.” Smith believed there was
nothing in the 1997 agreement that prohibited or limited the ability to expand the business.
—14—
After purchasing the Deep Ellum and Cedar Springs locations, the Smiths opened a new
Condom Sense store at 2017 Greenville, which later closed due to fire damage. They also changed
the name of another adult novelty store they owned at 3615 Greenville from “Red Hot Funwear” to
Condom Sense. In 2004 or 2005, Ethvards and Smith also opened an adult novelty store on Preston
Road called “Behind Closed Doors.” They changed the name of the Preston Road store to Condom
Sense after operating under the former name for one year. The Deep Ellum store later closed its
doors.
G, Ansell’s Assignment of the Mark
In May 2001, Ansell hired Geralyn Monroe as its Global Intellectual Property Manager.
Monroe was responsible for managing Ansell’s trademark portfolio, which consisted of
approximately 6500 registered marks. According to Monroe, Ansell did not have anyone in the
position of trademark administrator from the time Gier left in 1996 until the time Monroe was hired
in 2001.
When Monroe first started, she was not aware of Ansell’s license agreement with CS!. But
in November 2004, she received a letter from the Kahns’ lawyer informing her of the lawsuit the
Kahns had filed against Edwards and J&J No-Limit and attaching documents related to the sale of
the 3609 Greenville location to Edwards. After speaking with the Kahns’ lawyer, she pulled the files
related to the license agreement from Ansell’s archives. In those files, Monroe found no
correspondence from Kahn about the sale of the 3609 Greenville location to Edwards in 1997.
Rather, the November 2004 letter was the first correspondence Ansell received about that sale.
Monroe did not find any approval from Ansell that would have allowed Kahn to sell or assign the
non-exclusive right to use the mark.
—15—
The fiyst time Edwards became aware of Ansell was in December 2004 when he received a
letter signed by Monroe on behalf of Ansell informing Ii im of Ansell’ s registration and use of the
Condom Sense mark in connection with retail store services. Monroe advised Edwards that Ansell
considered his use of the mark to constitute infringement and demanded that Edwards immediately
slop all use Ausell sent a second cease and desist letter to Edwards on Januar 12. 2005.
.
Around that same time, both Kahn and Edwards expressed interest in acquiring the federal
class 42 service mark from Ansell. Monroe characterized the decision to sell the mark as a “no
brainer” because Ansell was not using the inark it was “either sell it or let it go.” Ansell ultimately
sold the mark to CSI for $4,000.
The sale of the mark to CSI was memorialized in an “Assignment of Trademark” dated
Fehruary 2. 2005. which was filed with the USPTQ. Pursuant to the terms of the assignment. CSI
acquired all of Ansell’s “rights, title, and interest in and to the Mark, together with all of the goodwill
of the businesses and business concepts symbolized thereby, as well as the registration and other
rights, including common law rights,” Ansell may have related to the mark. CSI also acquired
Ansell’s “claims for damages for reason of past infringement” of the mark and the “right to sue for
and collect the same for its own use and enjoyment.”
Within days of the Ansell assignment. CSI. SKCS Rubber, and the Kahns tiled a motion for
voluntary nonsitit of their action against Edwards and J&J NoLimit. The trial court signed the order
granting the motion on Febniary 8. 2005.
H. Appellants File This Lawsuit
Nearly two years after the 2003 lawsuit was nonsuited, appellants filed their original petition
and application for temporary restraining order and temporary and permanent injunctions against
appellees, alleging claims for trademark infringement under the Lanham Act and Texas common
—16--
law, cvberpiracy under the Lanham Act, unfair competition under the Lanham Act and Texas
common law, and trademark dilution under the Lanham Act. Appellants sought damages and an
order enjoining and restraining appellees from using the name Condom Sense to identity appellees’
businesses or the Condom Sense mark in coimection with appellees’ products or services,
Appellants also asked for an order requiring appellee.s to transfer their registrations of appellees’
domain names to appellants. The trial court denied appellants application for temporary injunction
on March 1, 2007.
Aller the lawsuit was filed, CSI filed its applications for state registration of the tour service
marks. Therealler, in their amended pleadings, appellants added claims for infringement tinder the
Texas Trademark Act based on the four service marks CS! registered with the state. Appellants’
third amended petition and application for permanent injunction, filed February 24, 2009. was the
live pleading at the time of trial. They nonsuited their dilution cause of action before trial.
Appellees generally denied appellants’ allegations and asserted various affirmative defenses,
including acquiescence. estoppel. laches. limitations, unclean hands, abandonment, and fraud.
Appellees also alleged the 1997 agreement, which was attached to appellants’ petition, was
ambiguous. By counterclaim, appellees sought cancellation of CS[’s state and federal registrations:
(1) for the four Texas marks because CS! engaged in fraudulent conduct in the procurement of those
marks, and (2) for the federal mark because that mark was abandoned before it was assigned to CS!
and because it was fraudulently procured. Appellees asked for costs and attorney’s fees incurred in
canceling the service mark registrations.
The case was tried to the bench, and the trial court rendered judgment in favor of appellees.
Specifically, the trial court determined (I) appellants failed to establish their causes of action for
infringement, unfair competition, and cyberpiracy: (2) the 1997 agreement provided appellees with
17—
consent I tr use of ihe mark: ( ) ;\nell was nt0 usiin. the mark at the time it submitted its 20() I
declaration ol cont i inied use: (4 ) the federal! retnstered mark had been abandoned no kiter han May
2004; and (5) when (‘SI submitted its state registrations, it failed to disclose on the application
appellees’ claim of a right to use the marks in Texas. The trial court’s May 17. 2010 final judgment
ordered that appellants take nothing on their claims against appellees. The court also ordered the
cancellation of the federal service mark registration under I 5 U.S.C.A. § 1119 and the [our Texas
mark registrations under Tix. Bus. & COM. Coou ANN. § I 6.2$(h2 ). The trial court’s findings of
fact and conclusions of law in support of its judgment consisted of 108 factual findings and forty
legal conclusions. This appeal followed,
III, DISCUSSION
Appellants raise six issues on appeal in which they ask this Court to reverse the trial court’s
judgment and remand the case for an award of damages and the granting of an injunction to pre’ent
appellees continuing infringement and improper use related to the marks. Appellants’ Irst and
second issues relate to appellees’ counterclaims. They assert the trial court abused its discretion
when it cancelled the registrations of CSI’s state and federal service marks. In their third issue,
appellants contend the trial court abused its discretion when it rendered judgment against them on
their claims for infringement and unfair competition because appellants presented evidence that
appellees use of the Condom Sense mark was without CSI’s or Ansell’s permission and confused
the public. They also contend in their fourth issue that the trial court abused its discretion by finding
appellants did not present sufficient evidence to establish their cause of action for cyherpiracy.
7
The AntiCyhersquatting Consumer Protection Act seeks to prevent cyheWiracy, also commonly refeed to as cybersquatting. See 15 U.S,C,A.
7
* 1125(d). Cyhersquatteis are those who register domain names of weliknown trademarks and then try to profit from the marks See Virtual Works.
Inc. v. Volkswagen o[iSrn.. Inc., 238 F.3d 264.267(4th Cir. 2001). Acts of cyberpiracy or cybersquatting generally refer to the “deliberate. had4aith,
and abusive registration ol iniemet domain names in violation of the rights iif trademark owners.’’ hi. (intemal quotations omitted).
—18—
Appellants assert in their fifth and sixth issues that the trial court abused its discretion when it
concluded their causes of action were barred by laches, acquiescence. unclean hands, and other
equitable defenses issue five) as well as the statuteof limitations (issue six) because appeilees failed
to present any evidence to support these defenses.
A. Standard .f Review
We apply an abase of discretion standard of review to resolve the issues presented in this
case. See. e.g.. Patsy s Italian Rest., Inc. v. litmus, 658 F.3d 254, 264 (2d Cir. 2011) (trial court’s
decision to order cancellation of registered mark); Exron Corp. v. Ckcford Clothes, Inc., 109 F.3d
1070, 1082 & n.16 (5th Cir. 1997) (court’s decision on laches). Under this standard, we look to
whether the trial court acted unreasonably; that is, did the trial court act in an arbitrary manner or
without reference to any guiding rules or principles. Walker i Gntierrc. 111 S.W.3d 56.62 (Tex.
2003); Downer v. Aquamarine Operators. Inc., 701 S.W.2d 238,241—42 (Tex. 1985). With respect
to factual matters, a trial court abuses its discretion if, under the record, it reasonably could have
reached only one decision and failed to do so. Moroch v. Collins, 174 S.W.3d 849. 864 (Tex.
App..—Dallas 2005, pet. denied). A trial court does not abuse its discretion ifthere is some evidence
of a substantive and probative character to support the decision. See id. at 857; see also All Am.
Builders, Inc. i’. AllAnt Siding ofDallas, Inc., 991 S.W.2d 484,487 (Tex. App.—Fort Worth 1999,
no pet) (no abuse of discretion if court makes decision based on conificting evidence and some
evidence supports the court’s determination). Because a trial court has no discretion in determining
what the law is or applying the law to the facts, a clear failure by the trial court to analyze or apply
the law correctly will constitute an abuse of discretion. Walker v. Packer, 827 S.W.2d 833, 840
(rex. 1992) (orig. proceeding).
-19-
A trial court’s fact findings are reviewable for legal and factual sufficiency of the evidence
by the same standards we apply in reviewing the evidence suppor ini a jury’s answer. Moroch, 174
S.W3d at 857. Under an abuse of discretion standard, legal and factual sufficiency grounds
constitute factors in which we may gauge whether the trial court abused its discretion, Id,; Beaumont
Bank, NA. v, Buller, 806 S.W.2d 223, 226 (Tex, 1991); All Am. Builders, Inc., 991 S,W.2d at 487
(“Legal and factual sufficiency challenges are not independent grounds for reversal, but are factors
to be considered in assessing whether the court has abused its discretion.”). In determining whether
a trial court abused its discretion because the evidence is legally or factually insufficient to support
the decision, we first look to whether the trial court had sufficient evidence upon which to exercise
its discretion and then look to whether the trial court erred in its application of that discretion.
Moroch, 174 S.W.3d at 857. Under the second step, our inquiry is based on the elicited evidence;
we ask: Did the trial court make a reasonable decision’? Id.
“When an appellant attacks the legal sufficiency of the evidence to support an adverse finding
on an issue on which it did not have the burden of proof, it must demonstrate that no evidence
supports the finding.” Hoss v. Alardin, 338 S.W.3d 635. 640 (Tex. App.—Dallas 2011, no pet.).
In conducting our review, we look at all the evidence, in the light most favorable to the judgment,
to determine whether the fact finder could reasonably have formed a firm belief or conviction that
the finding was true. City of Keller v. Wilson, 168 S.W.3d 802, 822, 827 (Tex. 2005). Evidence is
legally sufficient if it would enable reasonable and fair-minded people to reach the verdict under
review. Id. at 827.
We are mindful in a sufficiency review that the fact finder is the sole judge of the credibility
of the witnesses and the weight to be given their testimony. Id. at 819; Double Diamond, Inc. v.
Saturn, 339 S.W.3d 337, 344 (Tex. App.—Dallas 2011, pet. denied). We may not substitute our
—20--
J1id!Jnent br the Fact tinder’ . e en if we would reach a different answer on the evidence. [)oiiblc
Diamond, 1n4’, 339 S.W3d at 344,
A trial court’s conclusions of law are not binding on this Court; rather, we are free to draw
our own legal conclusions. IJarltnen Irria1ion 1)1st. Cameron Cntv. No, I e. (‘aprock Cominc lix
(‘orp., 49 S.W.3d 520. 53() (Tex. App.(orpus Christi 2001, pet. denied. We conduct a tie novo
review of a trial court’s legal conclusions, determining whether the trial court correctly drew the
legal conclusions from the facts, See BMC Software Beig,, N. V v. Marchand, 83 S.W.3d 789, 794
(Tex. 2002); Compass Bank v, MFP Fin. Sen’s., Inc.. 152 S.W.3d 844, 851 (Tex. App.—Dallas
2005. pet• (lenled). And we will uphold the trial court s legal conclusions if the judgment can he
sustained on any legal theory supported by the evidence. See BMC .Software. 83 S.W.3d at 794;
Young v. Giun/ry, 322 S.W.3d 731, 741 (Tex. App.—Dallas 2010, no pet.). A trial court’s
conclusions of law may not he challenged for factual sufficiency and will not be reversed unless they
are erroneous as a matter of law. Stable Energy, L.P. i’. Newherrv. 999 S.W.2d 538. 547 (Tex.
App.—Austin 1999. pet. denied). Incorrect legal conclusions “will not require reversal if the
controlling l’indings of fact will support a correct legal theory.” Id.; see also Wells I’argo Bank. Nw..
NA. v. RPK CapitalXVI, L.L.c., 360 S.W.3d 691. 706 n.5 (Tex. App.—Dallas 2012, no pet.).
B. Counterclaims: Cancellation of State and Federal Service Mark Registrations
Appellants challenge the trial court’s cancellation of CSI’s state and federal service mark
registrations in their first two issues. Under both the Lanharn Act and the Texas Trademark Act.
courts have the power to order the cancellation of service mark registrations. See 15 U.S.C.A.
§ 1119; TEx. Bus. &C0M. CODE ANN. § 16. l6(a)(4); see also Cent. Mfç., Inc. v. Brett, 492 F.3d 876,
$83 (7th Cir. 2007) (section 1119 “arms the court with the power to update the federal trademark
register to account for a mark’s actual legal status (or lack thereof) after it has been adjudicated”);
—21—
Kim’Size, Inc. y, I rank ‘s Kin’ Size C1othc, liw, 547 F. Supp. 1. I 3S, I I 676 (SD. Tex, 1982).
[he Lanham Act and the fexas Tiadeinurk Act hoth list several irouiids that may support
cancellation of a registration Sec 1 5 U.S.C.A.
. I 064: TEx, Bus, & ( M. CnDu ANN, 16. 1600(4).
For example. a registration may be cancelled if the registered mark has been abandoned.” 15
U.SC.A. § 1064(3): fEX. l3tJS. & COM. (‘ODE ANN. § 16.1 6(a)(4)(A), or “was obtained
fraudulently.” 15 U.S.C.A. § 1064(3); TEX. Bus. & COM, CODE ANN. § 16. I 6(aX4)(D).
1. Issue One: Cancellation of the Four Texas Service Mark Registrations
Appellees pleaded that each of the four Texas mark registrations should he cancelled because
CSI obtained the state registrations by fraud in violation of section 16.28 of the Texas Business and
Commerce Code. They alleged the fraud related to statements CSI had made on each application
[or registration that “no other person is entitled to use the mark” despite the fact that CSI was in
litigation with appellees over appellees’ use of the marks .At trial, appellants stipulated that “I alt
no time during the pi’ocess of seeking the Texas marks, (lid I appellants I disclose to the State of Texas
I appellees I ongoing use of the Condom Sense marks or the current lawsuit in which [appellees’ I
right to use such marks is at issue.” Appellants also stipulated that they did not otherwise contradict
their statements that no other person was entitled to use the marks.
The trial court found that when the Texas registrations were sought, (1) appellants were
aware of appellees’ use of the marks; (2) appellants did not disclose this use, the existence of the
lawsuit, or the fact there was a dispute over the right to use the marks; and (3) the Texas application
for service mark registration expressly requests information about use by others of the marks for
which a registration is sought. The trial court also found CST “obtained its Texas Condorn Sense’
service mark registrations fraudulently” and concluded such registrations were to be cancelled. The
trial court did not award appellees any attorney’s fees incurred in canceling the registrations. See
—22—
Tux, Bus, & (‘aM, Uo1E ANN. § l628)( 1) (person injured by fraudulent procurement of
registration univ recover damages. including attorney’s Fees).
Appellants contend the na! court abused its discretion by canceling the registratIon of each
Texas service mark because appellees failed to present any evidence or “at a minimum, suFficient
evidence” to etahIish that, CS! “knowingly made Fraudulent representations on its applications for
registration. They also argue there is no evidence to support the necessary Finding that appellees
were injured by the registration of the Texas marks as required by section 16.28 of the Texas
Business and Commerce Code.
Section 16.28 prohibits a person Irorn procuring an application or registration of a mark by
knowingly making a false or fraudulent representation or declaration. Id. § 16.28(a). Under that
section.
A person injured by the false or fraudulent procurement of an application or
registration may sue the person who violated Subsection (a) of this section in a
district court having venue and
I ) recover from him damages resulting from use of the fraudulently
registered mark, plus costs of suit. including attorneys’ fees; and
(2) have the registration cancelled.
Id. § 16.28(h); cJ: id. § 16.25(a) (“A person who believes that he is or will he damaged by a
registration under this chapter may sue to cancel the registration in a district court having venue.”).
Appellees bear the burden of establishing the requirements of section 16.28(b)—that is, that (1) they
were ‘persons injured” by (2) the false or fraudulently procured application or registration. See
Kin g-Sice, Inc., 547 F. Supp. at I 167—68 (court can cancel trademark registration if defendant
establishes ground for cancellation in section 16. 16(a)(4)); cano v. Macarena, 606 S.W.2d 718, 723
(Tex. Civ. App.—Corpus Christi 1980. writ dism’d) (defendant has burden to establish certificate
—23—
ol registration should he cancelled).
Although the trial court made numerous findings related to whether the registrations were
fraudulently procured to support appellees’ fraud cancellation claim, there are no hndings related
to whether appellees were “persons injured” by CSI’s alleged fraudulent procurement. Appellees’
arguments on appeal address only the evidence supporting the “false or fraudulent procurement”
prong of section 16,28; they do not point us to any evidence, nor did we find any, to show they were
injured or otherwise harmed by CSI’s fraud in the procurement of the registrations. Without a
showing of injury or harm under section l628 by appellees, the registrations were not properly
cancelled, Accordingly, we conclude the trial court abused its discretion when it cancelled CSI’s
four Texas service mark registrations and sustain appellants’ first issue.
2. Issue Two: Cancellation of the Federal Service Mark Registration
Appellees also counterclaimed for cancellation of CSFs federal service mark registration
because the registration of the mark by Ansell(l) was abandoned prior to Ansell’s assignment of the
mark to CSI and (2) was issued and maintained through fraud. Appellees’ fraud allegation was based
on Ansell’s failure to disclose on its statement of use that Ansell’s “claimed use of the mark was
solely through a licensee.” They alleged Ansell’ s registration was maintained through fraud because
of Ansell’ s statements on its 2001 declaration of continued use that the mark “has been in continuous
use” in retail store services for five consecutive years even though Ansell had never directly used the
mark for retail store services and the license agreement by which Ansell’s only licensee used the
mark expired on April 1, 1999. Those allegations also supported appellees’ contention that Ansell
abandoned the mark by nonuse before assigning the mark to CSI in 2005. The trial court made
findings and conclusions in favor of appellees on both grounds asserted for cancellation of the
federal registration. Our focus, however, is on the abandonment claim because that claim resolves
—24—
appellants’ ec )nd ISSUC.
As to abandonment, the trial court found 1) the license areement between Ansell and CSI
expired on March 31, 1999; (23 CSI did not enter into any other license agreement with Ansell other
than the original expired license agreement: (3) Ansell never directly used the service mark in
commerce: (4) once the license arcemciit expired. any commercial use ol the mark by Ansell ceased
and CS1’s continued use was unauthorized and constituted infringement; (5) Ansell did not use the
service mark in commerce between April 1, 1999 and February 2, 2005 or have any intent to do so;
and (6) at the time of the February 2, 2005 assignment of the mark to CS!, Ansell “had no business
goodwill associated with the ‘Condom Sense’ service mark in Class 42 because Ansell had made
no commercial use of the mark since April 1. 1999.” The trial court also found that by no later than
May 2004, Ansell had abandoned the class 42 Condom Sense mark and concluded that at that time,
the mark was no longer valid.
a. Applicable Law
Under the Lanham Act, a party may seek cancellation of a registered mark at any time if the
registered mark has been abandoned by the mark’s owner. 15 U.S.C.A. § 1064(3), 11 15(b)(2).
“Abandonment is trademark law’s way of recognizing that jtjrademark rights flow from use.”
Cumulus Media. Inc. v. C/ear Channel Commc ‘ns, Inc., 304 F.3d 1167, 1173 (11th Cir. 2002)
(quoting AinBrit. Inc. v. Kraft, InL 81 2 F.2d 153 1. 1550 (11th Cir. 1986)). Because these rights
result from the use of the mark in commerce and not from mere registration of the mark, “the owner
of a mark will lose his exclusive rights if he fails actually to use it.” Sands, Taylor & Wood Co. v.
Quaker Oats Co., 978 F.2d 947, 954—55 (7th Cir. 1992) (citing 15 U.S.C.A. § 1127).
A party seeking cancellation of a registration based on abandonment must prove that the
owner of the mark both (1) discontinued use of the mark and (2) did not intend to resume its use in
—25—
the reasonably foreseeable future. See Vais Arms, Inc. v. Vais, 383 F.3d 287, 293 (5th Cir. 2004);
Silverman v. CBS Inc., 870 R2d 40,45 (2d Cir. 1989); see also 15 U.S.C.A. § 1127 (mark deemed
abandoned when “its use has been discontinued with intent not to resume such use).t Intent not to
resume use of a mark may he inferred from the circumstances. 1 5 U.S.C.A. § 1127. The “use”
required is the hona fide use of the mark in commerce, Id,
Nonuse of a mark for a period of three consecutive years constitutes prima facie evidence of
abandonment. Id. The prima facie case “eliminates the challenger’s burden to establish the intent
element of abandonment as an initial part of this j case and creates a rebuttable presumption that the
registrant abandoned the mark without intent to resume or commence use under the statute.” Rivard
v. Linville, 133 F.3d 1446, 1449 (Fed. Cir. 1998) (internal quotations omitted). This presumption
shifts the burden to the owner of the mark to produce evidence of actual use during the relevant time
period or intent to resume or commence use, although the ultimate burden of proof remains with the
party asserting cancellation. Id.; Emergency One, Inc. v, Am. FireEagle, Ltd., 228 F.3d 531, 536(4th
Cir. 2000). This means the owner must proffer sufficient evidence to support a reasonable jury
finding of “the nonexistence of the presumed fact.” ITC Ltd. v. Punchgini, Inc., 482 F.3d 135, 149
(2d Cir. 2007). Vague or subjective assertions of possible future use are not enough to defeat a claim
of abandonment. Vais Arms, Inc.. 383 F.3d at 294 (selfserving statements of intent to resume use
not enough); Silverman, 870 F.2d at 47. Evidence of the owner’s renewal of the registration of the
mark also is insufficient to rebut the prima facie proof of abandonment. AmBrit, Inc., 812 F.2d at
Appellants maintain appellees must prove their claim of abandonment by “clear and convincing evidence.” citing Commands of Ch,’ist
Copyright Corp. v. Devon Park Restoration Branch a/Jesus Christ’s Church, 683 F. Supp. 2d 1006, 1017 (W.D. Mo, 2010). There is some
disagreement in the courts, however, on the proper burden of proof. For example, some courts describe the challenger’s burden of proof as ‘heavy”
or requiring “strict proof.’ See, e.g.. Cumulus Media, Inc., 304 F.3d at 1175. Other courts require the challenger to establish abandonment by a
preponderance of the evidence. See e.g., Emergency One, Inc. v. Am. EireEagle, Lid., 228 F.3d 531 536 (4th Cir. 2000): Cerveceria
Centroamericana,S.A, v. (‘erveceria India, Inc.. 892 F.2d 1021, 1023 (Fed. Cir. 1980). We express no opinion on which standard is the correct
standard because even under a heightened standard, appellees proved their claim of abandonment.
—26—
1550.
b. Analysis
Appellanis contend the trial court abused its discretion by canceling the lederal registration
based on abandonment because the court’s findings and conclusions are not supported by sufficient
evidence. Specifically, appellants argue the trial court ignored the evidence presented at trial
showing the license areenient did not expire in lY9. Appellants maintain Kahn’s testimony
established “the license agreement was extended beyond the I 99 date” and that CSI “continued to
operate the mark with the pernhission ot AnselL they claim appellees presented “no witnesses with
ersonal knowledge who could contradict” this testimony. Appellants also maintain the extension
of the license agreement was “implicitly testified to by Ansell” when it filed its 2001 declaration of
continued use because Ansell relied on appellants’ use of the mark to support the declaration.
Appellees respond that the evidence presented at trial clearly established the license agreement
expired at the end of its fiveyear term and from that point forward. Ansell made no further use ol
the mark in commerce for retail store services,
ft bears noting that the qtmestion of whether the license agreement expired is crucial to the
determination of whether Ansell abandoned the mark before the February 2005 assignment. That
is because the parties agree that Ansell’s rights in the mark can be maintained through the use by a
licensee and that Ansell relied on its licensee’s use to support its registration of the mark for retail
store services. The parties also agree CSI was the only entity to which Ansell granted a license to
use the mark and that appellants have used the mark continuously since the first Condom Sense retail
location opened in the early 1990s. So, if the license agreement remained in force, Ansell did not
Appellees maintain, however, that the
9 usvro’s rules of practice require the registrant to disclose that the use is through another and a failure
to make this disclosure constitutes fraud.
—27—
ahando the mark. lint ii the license aereemein expired as the trial court loufld, then Ansell s use
1)1 the mark ceased.
The license agreement between AnseH and (‘Si granted CSI a license to use the mark for a
five-year term, which began on April 1, 1994. The agreement contained an option to renew for an
additional term hut required CS! to exercise that option by providing written notice of its intent to
renew sixty days before the term expired. If CSI did not do so, the agreement would expire by its
terms.
The trial court heard testimony from two of Ansell’s trademark administrators. Gier and
Monroe; Monroe testified as Ansell’s corporate representative. Gier was the administrator at the
time the license agreement came into effect, Gier testified that during her tenure, CSI was the only
licensed user of the mark and that she was unaware of any agreements with CS! or the Kahns to
extend the license agreement beyond the initial five-year term. Gier also confirmed she did not
extend a verbal license to the Kahns.
Monroe testilled she first learned of the license agreement with CS! in November 2004 after
receiving correspondence from the Kahns’ lawyer. Monroe testified that in her review of Ansell’s
records, she found nothing to show that CSI’s license was renewed or extended after it expired in
1999. In particular. she found no sixty-day written intent to renew sent by CS1 or the Kahns as
required by the terms of the license agreement. And she found nothing in Ansell’s records
suggesting the Kahns received a verbal renewal of the license.
Monroe also testified that renewal of the license agreement was conditioned upon other
factors, such as the licensee being current with its royalty payments. Yet Monroe testified she found
no response from the Kahns to Ansell’s correspondence about delinquent royalty payments. She
confirmed that Ansell’s records showed no royalty payments were made by Kahn after 1995, and no
—28—
loyalties were paid by either Marcia or her son alter September I N6. Monroe did not lint! anything.
in the file indicating Ansell followed up with the Kahns on the issue of royalties. She revealed that
Ansell did not have any procedures in place that could be implemented in the event of a default on
royalty payments. Monroe testified that although Kahn helieved he “made good” on the rest of the
royalty payments, he never provideti any documentation to that died.
l3ased on her review of the license agreement and related records, Monroe testified that
Ansell’s position was that the license agreement had expired in 1999. She specifically conveyed that
position to the Kahns’ lawyer in correspondence dated November 2, 2004, stating “lylou will notice
that the j license I agreement was for a term of 5 years. therefore lithe terms of the agreement were
met this agreement would have expired in l999.’ She then asked that Kahn “fulfill the terms of the
expired agreement” so they could move forward, (Emphasis added). She repealed that position in
an email to appellants’ trial counsel explaining the events leading tip to Ansell’s decision to sell the
mark. Monroe wrote:
Since I Kahn I no longer had licensed rights to the mark, we were free to sell it to
anyone ince we werent Isici using the mark we would have had to abandon the
registration, that June, 1 believe, which was when the renewal was due, SO selling was
a no brainer.
Monroe verified that Ansell’s only retail use of its service mark was through CS! as a licensee and
testified that there were no other uses by AnseH to support the January 2001 declaration of continued
use in the context of retail store services.
Appellants argue Monroe’s testimony does not contradict Kahn’s testimony that the license
agreement was extended because “she acknowledged that she had no personal knowledge of whether
or not the license was extended, but that it was possible an oral extension could have been granted.”
Although Monroe testified she was not aware of any conversations Kahn may have had with others,
—29—
such as Ansell’s outside counsel, in the time before she was hired, she also testi0ed that “knowing
Ansell,” she did not think “anybody would grant a verbal” license to Kahn for the use of the mark.
In addition, the express language of the license agreement stated that any modifications or
amendments to the license agreement were required to be in writing.
Kahn testified the extension of the license was based on his continued purchasing of Ansell’s
products and his conversations with Ansell through business dealings. But it was within the trial
court’s prerogative to credit Monroe’s testimony against him and in favor of abandonment. Despite
testifying to his business dealings with Ansell, Kahn could not point to any communications with
Ansell from 1998 through 2004 about licensing. Tellingly, Marcia testified that she (1) was unaware
of any other agreement between CSI and Ansell, (2) did not know why royalties were not paid, and
(3) cannot point to any communications between her or her son and Ansell between April 1999 and
2004. Marcia also did not remember any documents that would counter Ansell’s contention that the
license agreement expired in 1999.
Appellants argue that evidence of an extension of the license “implicitly” comes from the
January 2001 declaration of continued use; they reference a handwritten note on a letter from Ansell
to outside counsel transmitting material related to the declaration. The note read: “Laura - Call
Condom Sense Marsha jsicl.” Appellants maintain that if Ansell no longer had a relationship with
appellants after 1999, “there would be no reason for Ansell to be contacting them as part of the
declaration process.” But appellants did not present any evidence that a representative of Ansell
actually contacted Marcia in 2001; Marcia could not remember any communications with Ansell
between 1999 and 2004. Nor did they produce any evidence that the material submitted in support
of the declaration related to the Condom Sense retail stores owned by the Kahns. At best, this
evidence shows Ansell’s last contact with the Kahns may have been in January 2001.
—30—
In addition to the assertion that the license agreement was extended, appellants make several
assertions from which they claim the trial court could have inferred that Ansell was using the mark,
Appellants first rely on the events surrounding the assignment of the mark: they maintain that if the
mark had been abandoned, “there would have been no reason for [Edwards J to attempt to purchase
the mark” from Ansell. Appellants also point to the representation made by Ansell in the assignment
that Ansell “has adopted, used, and is using” the Condom Sense mark. Appellants also rely on
inferences from the cease-and-desist letters Monroe sent to Edwards in December 2004 and January
2005. The letters instructed Edwards to cease infringing on the mark, which appellants claim
evidences “Ansell’s use of the mark in January 2005,” Tn addition, Monroe wrote that Ansell “has
been using” the mark in connection with retail store services.
Although the assignment and letters state that Ansell was “using” the mark, that evidence is
contradicted by Monroe’s own testimony stating Ansell had stopped using the mark. Specifically,
Monroe testified that Ansell had never used the mark for retail store services, Ansell’s only use
supporting its registration was through the use authorized under the license agreement, and as of
November 2, 2004 (three months before the assignment was signed and one month before the first
cease-and-desist letter), Ansell’s position was that the license agreement with CS! had expired in
1999 and therefore, neither CS! nor the Kahns had any licensed rights to the mark. Monroe testified
that Ansell sold the mark to Kahn because Ansell would not have had a valid registration for the
mark “if it wasn’t for the use of Mr. Kahn’s storefront,” adding that because Ansell did not have a
storefront and was not using the mark, “it’s either sell it or let it go.” Appellants provide no
explanation for the inconsistency.
Appellants further point to Monroe’s corporate representative testimony related to the
documents supporting Ansell’s January 2001 declaration of continued use. In a letter from Ansell
—31—
to outside counsel, an Ansdil representative provided a list of materials that supported the
declaration, including four issues of Ansell’s newsletter “Condom Sense” that were dated in 1999
and 2000. Appellants maintain the newsletters show Ansell’s use of the mark in retail store services
because Monroe testified these news letters could have been distributed and placed on shelves in
retail stores. I3ut Monroe also testified she was not aware that the newsletter had been in existence
and affirmed that since she started with Ansell in May 2001, she did not recall seeing a
contemporaneous newsletter going out under the name “Condom Sense.” Monroe further clarified
that Ansell’s statements of use in the declaration would not refer to anything other than the use
provide by the Kahns’ retail stores.
Appellants claim appellees desire “to discount” evidence that appellants “have used and
advertised the mark for almost two decades.” Our focus, however, is on Ansell’s use of the mark
for retail store services between 1999 and the time it sold the mark in 2005, CSI’s use of the mark
was defined in the license agreement; once the license to the mark ended, Cs! had no right to
continued use of the licensed mark. Any subsequent use by appellants constituted infringement, not
use. See Prof’l Golft’rs Ass ‘ii of Am. v. Bankers Lif & Cas. Co., 514 F.2d 665, 670 (5th Cir. 1975);
see also Sound Surgical Techs., LLC u. LeonardA. Rubinstein. M.D.. P.A., 734 F. Supp. 2d 1262,
1270 (M.D. Fla. 2010).
In addition to the findings related to the expiration of the license agreement and Ansell’s
nonuse of the mark after that time, the trial court also found that by no later than May 2004, Ansell
had abandoned the class 42 Condom Sense mark. Monroe conceded she had no personal knowledge
of anything that happened before she started employment with Ansell in May 2001. Referring to the
January 2001 declaration of continued use, Monroe testified that Ansell could have received material
from the Kahns to support the declaration (although the January 2001 letter to Ansell’s outside
—32—
coi insel listing the documents supporting the declaration does not relerence material related to the
Kahns’ Condom Sense stores), Monroe affirmed that at the time Ansell filed the 2001 declaration
ol continued use, there were no other licensees or any direct use ol the mark by Ansell as of the (late
ol the declaration that would support use ol the Condom Sense mark for retail store services. She
further testified that afler she started employment with Ansell in May 2001, Ansell’s only use of the
service mark in the retail category had been through the use of the licensee.
Based on our review of the evidence before the trial court, we conclude a reasonable fact
tinder coukl have concluded the license agreement expired as of March 3 1 . 1999 .See All Am.
Builders, Inc., 991 S.W.2d at 487 (court acts within discretion when it makes decision based ofl
conflicting evidence). When the license agreement expired at that time, Ansell’s vicarious use of
the mark also ended.
From the time the license agreement expired until the time of the assignment in February
2005, Anseli had not used the mark for at least three consecutive years.
° This is true regardless of
1
whether the trial court identified a period beginning in April 1999 (at the time the license agreement
expired) or May 2001 (the time when Monroe started employment at Ansell). Once the three-year
period of nonuse was shown, the statutory presumption of abandonment arose, triggering appellants’
burden to produce evidence of actual use or an intent to resume or commence use. See Emergency
One. Inc.. 228 F.3d at 536; Silverman, 870 F.2d at 47. That is, appellants were required to adduce
sufficient evidence to permit a reasonable fact finder to conclude that, in the three-year period of
nonuse, Ansell nevertheless maintained an intent to resume use of its registered mark in the
Even if appellants assenion that Ansell as using” the mark in Januai 2005 when Monroe sent the last cease-and-desist letter to Edwards
0
was correct, AnseIl’s subsequent use in 2005 does not retroactively cure its past abandonment See flrjf, by-., X12 F.2d at 1550 (a mark may be
cancelled for abandonment even alter holder resumes use of the mark). Nor does it show that Ansell intended to use the mark during the period of
nonuse. hi.
—33---
reasonably twcsceable I uture. IT( Lid., 4<2 I 3d at I 4). We conclude appellants did m)t overcome
the presumption.
As explained above, appellants’ arguments that Ansell was “using” the mark fail because
they were contradicted by Monroe’s testimony and the trial courl ‘s related findings. Appellants’
remaining argument is that Ansell’s attempts to license the mark to others constItutes evidence of
its intent to use the mark.
We agree that evidence of attempts to license a mark can rebut a presumption of nonuse .See
.Sunds. Thy/or & Wood Co., 978 F.2d at 956. l3iit the only evidence of attempts to license the mark
to others in this case was brief testimony from Monroe in which she stated, “lwje’ve made attempts
to license to others, hut they weren’t interested. Monroe does not provide a time frame during
which Ansell attempted to find other licensees. See ITC Ltd., 482 F.3d at 149 n.9 (noting that where
mark owner seeks to rebut presumption, the evidence of the “mark holder’s intent to resume use of
the mark must be formulated during the three-year period of non-use”). Nor did she identify any
potential licensees of the mark. Rather. Monroe testified she was unaware of AnselFs doing
anything. such as “going out and trying to generate potential licensees,” “any efforts by Ansell to
build up any goodwill” in the mark, or any plans by Ansell from May 2001 forward “to go out and
drum up licensees for use of the Condom Sense mark in the retail Class 42 arena.” Appellants
submitted no other evidence to support the existence of any purported licensing attempts by Ansell.
The trial court reasonably concluded that this testimony, without more, was not sufficient evidence
from which an intent to resume use of its registered mark could be reasonably inferred. Id. at 150.
hi this case. the evidence presented to the trial court showed no bona fide use of the mark by
Ansell and no intent to resume use in the reasonably foreseeable future. See Vais. Inc.. 383 F.3d at
293. Accordingly, we conclude the trial court acted within its discretion when it cancelled the
—34—
I ederal set ice mark reisl rat ion because ol abandoninejit. We overrule appellants second Issue.
Based on our resolution of this issue. we need not resolve whether the federal service mark
registration was issued and maintained hy fraud because of Ansell’s failure to disclose that its use
was throuih its licensee. ,S’ee Thx. R. Alp. P. 47. 1
C. Issue Five: AppeIlees Affirmative l)efenses
The 1997 agreement is the stalling point to the events leading up to this lawsuit. Thai is
because Edwards contends the 1997 agreement gives him and his assigns, like the Smiths,
permission to use the Condom Sense name and mark at any location, not just the location at 3609
Greenville. And based on this claimed right. appellees named their retail locations Condom Sense
and used the service mark in connection with their businesses. Appellants disagree with appellees’
contention and claim the 1 9)7 agreement gave Edwards permission to use the Condom Sense name
only at the store located at 3609 Greenville. They maintain that any use outside of the scope of the
1997 agreement constitutes infringement, unfair competition, and cyherpiracy.
Although the parties offer dillerent interpretations of the 1997 agreement as it relates to
appellants’ claims, we need not resolve that conflict at this time because we conclude that based on
the evidence presented at trial, it was reasonable for the trial court to determine appellants’ claims
were barred by laches,
0 Appellants argue in their fifth issue that appellees presented no evidence
to support any of their asserted affirmative defenses, including laches and other equitable defenses.
They maintain the trial court therefore abused its (liscretion by concluding appellants were barred
I
We recogni/e that the trial court did not expressly conclude that laches bars appellants’ causes of action and on that basis, appellees chose
not to address appellants’ contentions elated to laches. The trial court, however, did make findings ol lact related to the laches defense omitted
conclusions of law elating to laches therelore would be relevant to this legal theory. ‘rhus, although the trial court made no legal conclusion regarding
shether appellants’ causes of action were barred by aches, we will consider sshether the judgment can be affinsted on this basis. Sec Wills Fuigo
Honk. 360 S.W.3d at 706 n.5:Stahht’ Enerç’v. LI’.. 999 S.W.2d at 547: ‘t l,r’onop’d i. Lskew, 731 S.W.2d 24. 131—32 (Tex. App-—Austin 1987.
writ reid n.r.e)(noting appellate court is hound toassuine the validity of the judgment, requiring us to”construe thejudgmeni itself and any attendant
findings of fact and conclusions of law in a way that sustains the judgment” and assuming “the trial court determined lasorabk to the judgment any
omitted findings of fact or conclusions of law necessary to the relief ordered’
—35—
Iroin rccoverin on their causes of action because of these defenses.
1, Applicable Law
A laches defense embodies the principle that “equity aids the vigilant and not those who
slumber on their rights.” iVat ‘I Avs ii of (iou 1 Emps. u. City Pub. .Serv. Bd. olSon Antonio. Tev. 4()
F.3d 698, 708 (5th Cir, 1994). Unlike statutes of limitations, “laches is not . . . a mere matter of
time; but principally a question of the inequity ot permitting the claim to be enforced
Ho/mbcrç’ ‘. /lnnbrc(IU. 327 U.S .392. 396 (1946). \ laches defense operates to estop the owner
of the mark from asserting its rights in the mark under state or federal law. i)ial-4 Mattress
Operating Corp. v. Mattress Madness, Inc., 841 F. Supp. 1339, 1355—56 (E.D.N.Y. 1994); Gul/
Cob. & Santa Fe Rv. Co. i. McBride, 322 S.W.2d 492, 500 (Tex. 1958) (op. on reh’g>. The defense
does not deprive the mark’s owner of the right to use the mark. hut it may deprive the owner of any
remedy for infringing uses by others. Dial-A -Mattress Operating Corp., 841 F. Supp. at 1355—56:
R1:STATEMENT (THIRD) oF UNFAIR COMPETITION § 31 cmt. a. Laches is applicable to claims under
the Lanham Act, as well as claims at common law and under state trademark registration statutes.
See 15 U.S.C.A. § 111 5(b)(9): Saratoga Vie/jr Spring Co. i’. Lehman, 625 F.2d 1037, 1040—41 (2d
Cir. 1980). The Lanham Act expressly provides that awards of injunctive and monetary relief are
subject “to the principles of equity.” IS U.S.C.A. § 1116(a), 1117(a): Proctor & Gamble Co. v. .J.L.
Prescott Co., 102 F.2d 773. 780 (3d Cir. 1939) (laches may act to bar both monetary and prospective
injunctive relief); see also Qaddura v. Indo-European Foods, Inc., 141 S.W.3d 882, 889 (Tex.
App.—Dallas 2004, pet. denied) (“The remedies available for trademark infringement are based on
principles of equity.”).
Courts commonly define laches as ‘“an inexcusable delay that results in prejudice to the
defendant.” Elvis Presley Enters., Inc. v. Capece, 141 F.3d 188, 205 (5th Cir. 1998) (quoting
—36—
( Oift(il Props. tm. r. (‘onmui.% Pii. Inc., 752 l.2d 145. I 53 (5th (‘jr. I 985)). Fhe defense consists
ol three interrelated elements I hat the paliv assert iii the dcl ense must prove: (1) an unreasonable
delay in asser1in a right or claim: (2) that is not excused: and (3) that results in undue prejudice to
the defendant. See Armco, Inc. v. Armco Burglar Alarm Co., 693 F.2d 1 155, 1161(5th Cir. 1982);
Zapata Corp. e. Zapata Trading Int’l, Inc., 841 S.W.2d 45, 50 (Tex. App.—Houston I 14th Dist.j
1992, 110 Wi’it) N(C (llS() (xu!f, (ala. (( S(liita Fe 1?’. Ca., 322 S.W.2d at 500 (laches results from “an
unreasonable delay which has worked injury to another person). The period of laches begins when
the owner of the mark had knowledge of the allegedly infringing use. Ellis Presley Enters.. 131 F.3d
at 205; E.tvo,i Corp. e. (2txfrd (‘lathes, Inc., 109 F.3d 1070, 1082 (5th Cir. 1997). Given the
elements of laches, “it is plain that the time spectrum for their application is critical.” Armco, Inc.,
693 F.2d at 1161. Any acts after receiving a cease and desist letter are at the defendant’s own risk
because it is on notice of the owner’s objection to such acts. Elris Presley Enters., 131 F.3d at 205.
Because laches is an equitable doctrine, its application depends on the facts of the particular
case. See Brown i. Cont’l C’an Co.. 765 F.2d 810. 814 (9th Cir. 1985): Evo hit’!. Inc. i’. SS (aptaiii
John, 443 F.2d 1144, 1150 (5th Cir. 1971) (existence of laches to be determined by court “after
weighing the equities as they appear from the facts of each case”). A trial court generally enjoys
“considerable discretion” in deciding whether to apply the doctrine of laches to the claims pending
before it. iVat’l Ass’n o/ Goi’’t Einps.. 40 F.3d at 707. A court’s decision on laches is therefore
reviewed for an abuse of discretion. See id; see also (Jtvtri Clothes, Inc., 109 F.3d at 1082 &
n.16; Clamp Mfc. Co. i’. EncoMfç’. Co., 870F.2d512,514(9thCir. 1989): REsTATEMENT(Ti-HRD)
OF UNFAIR CoMPETITIoN § 31 cmt. a.
2. Analysis
There appears to be no factual dispute regarding when appellants first had knowledge of
—37—
Edwardss use olhc Condom Sense mark. winch they considered to he outstde the scope of the I 997
areement. Uhe parties dispute the legal conclusion to he drawn from the facts. In 20() I, Edwards,
tlirouuh J&J NoLimit. opened a new condom Sense store located in Deep Ellum. and on October
I I 2U0 I, the Kahns’ lawyer sent Edwards a cease and desist letter demanding that he discontinue
.
this use of the name and mark. Edwards (Ihrouh Ramos) responded to the Idler and communicated
that he believed that based on his interpretation of the 1997 agreement. he had the right to use the
name and mark and open additional Condom Sense stores. The Kahns’ lawyer notified Edwards on
October 16, 2001 that Edwards’s “right to use” was limited.
Based on this evidence, the trial court reasonably found that by October 16, 2001 at the latest,
appellants had knowledge that Edwards’s position on the scope of the rights conferred in the 1997
agreement differed from appellants’ interpretation Specifically, the trial court found that
. on that
date, appellants had knowledge that Edwards was taking the position that the 1997 agreement did
not limit his use of the Condom Sense name and associated marks to only one store located at 3609
Greenville. Thus, because of the inherent relationship between appellants’ causes of action and the
scope of the “right to use” provision in the 1997 agreement, October 16. 2001 is the date from which
to measure appellants’ knowledge of the alleged infringing use. See Elvis Presley Enters., 141 F.3d
at 205. Appellants filed this suit on December 13, 2006, over five years after they first alleged
Edwards’s use outside the 1997 agreement constituted infringement.
Appellants do not offer a different date from which to begin the laches period or otherwise
chal lenge the trial court’s October 16, 2001 finding. Appellants seek to excuse their delay, however,
because a “cease and desist letter was sent in 2001 .“ And they sent Edwards another cease and desist
letter in 2003 after Edwards opened a second Condom Sense location. They maintain the cease and
desist letters sent to Edwards defeat the laches defense because appellees were aware of their
—38—
object ions bitt ‘‘acterl at their own risk in contintlii1 to use the mark and to opefl new stores.
The fact that appellants sent cease and desist letters does not, as a matter ol law, void a laches
dclense. Sec :l/’raham v. Aitha (‘iii Omega, 816 F. Supp. 2d 357. 362 N.D. Tex. 2011). Rather,
the question of whether laches applies depends on the particular facts of the case. See Esso Int’l,
Inc., 443 F.2d at 1150. Here, the hicts show the cease and desist letters sent by the Kahns asserted
ownership rights in the mark that they did not have at that time. Belore CS! received an assignment
of the federal mark and re2istercd the lour service marks iii Texas, CS F was a licensee of Ansell. As
a licensee. CSI did not receive title to the mark, hut rather, it received a “transfer of limited rights.
less than the whole interest which might have been transferred.” lcine Valve & Fittings Co. v.
Wayne, 386 F. Supp. 1162, 1165 (S.D. Tex. 1974). As noted in the previous section, Ansell had
abandoned its service mark registration by no later than May 2004. So, until May 2004 and
including the time when the Kahns sent the cease and desist letters to Edwards in 2001 and 2003.
title to the mark remained with Ansell.
In particular. the Kahns asserted in the October II. 2001 cease and desist letter that “Is lince
as early as December, 1991, [the Kahns and CSII have become the exclusive owner of the Condom
Sense trade name for novelty stores.” (Emphasis added). Monroe testified that based on her
understanding of Ansell’s rights in the mark at that time and the license agreement, including the
events leading up to the license agreement. the statements made in the October 20() 1 letter were not
true statements. She testified it was Ansell’s responsibility to decide what to do with potential
infringers. Ansell was unaware that the Kahns’ lawyer had sent this letter to Edwards. and she found
nothing in Ansell’s records from the Kahns or CS! informing Ansell of the alleged infringement.
The first time Ansell learned of Edwards’s potential infringement was November 2004.
—39—
Ihe cease and desist letter the Kahns’ lawyer sent Edwards in March 2003 made similar
representations regarding the Ka1ins or CS I’ s ownership rights. The letter shited that Kahn was the
“recogntied pioneer of the adult novelty store concept in the country. The letter added that Kahn
“started Condom Sense, Inc. in 1992, developed the look of the logo and shortly thereafter obtained
the riht to use the trademark Condom Sense.” The letter does not mention that he received the right
to use Irom Anselh rather he claimed his “pioneering concept at that time was “new.” Appellants
provide no authority for their contention that a cease and desist letter defeats a laches defense when
the object ions made in the letter are based on a misrepresentation of the rights to a mark.
In December 2003. the Kahns, along with CSI and SKCS Rubber, took it one step further and
filed suit against Edwards and J&J NoLimit, asserting a breach of contract action and asking that
Edwards cease using the Condom Sense name. But based on AnseIls rights in the mark, which the
trial court found still remained until May 2004, neither the Kahns nor CSI had the right to sue for
potential infringement. Further, that lawsuit was then voluntarily nonsuited a little over a year later.
The trial court found the voluntary nonsuit of that lawsuit was not consistent with appellants’
attempts to preclude appellees use of the name and mark asserted in this lawsuit. The trial court
also found that the voluntary nonsuit of its claims implicitly indicated to appellees “that nothing
would be done about j appellees I purportedly infringing use of the Condorn Sense’ name and/or
associated marks.” The trial court’s findings are reasonable given the evidence before it that Ansell
had title to the mark throughout the time the Kahns and CS! were asserting their rights to the mark.
Appellants offer another excuse for the delay. They argue Kahn testified he did not file suit
after learning in 2001 of the use at the Deep Ellurn location because “he believed the Deep Ellum
store would not survive, which later proved to be true.” But this strategy of not acting at that time
conveyed the message that the Kahns did not intend to follow up on their challenges to Edwards’s
-40-
use, Kahns inaction also conveyed the message that because of the 1997 agreement. Edwards’s use
was authorized. A strategy of inaction does not justify sleeping on your rights or provide an
explanation for the delay in bringing suit. The 2003 cease and desist letter followed the previous
threat of legal action, which was not pursued at that time even though Edwards (11(1 not stop using
the Condom Sense name and mark (because he considered his use to authorized under the 1997
azreeinenl).
In the context of laches, courts often use analogous statutes of limitations to create a
“presumption of lathes.” See Tandy Corp. v. Malone & Hyde, Inc., 769 R2d 362, 365 (6th Cir.
I 9X5 ); see also Ovxtird Clothes, Inc.. 109 F.3d at I 082 it 1 7. Under this principle, it is “presumed
a cause of action is barred if it is brought outside the limitations period and is “alive” if brought
within the limitations period. See Tandy Corp., 769 F.2d at 365: Oxxftrd Clothes’, Inc., 109 F.3d
at 1082 n. 17; Layton Pure Food Co. v. Church & Dwight Co., 182 F. 35, 40 (8th Cir. 1910) (except
under “unusual conditions or extraordmary circumstances,” court applying analogous statute of
limitation will not bar damages remedy in infringement case if limitation statute would not bar the
action). Thus, if the analogous statute of limitations has elapsed, there is a strong presumption that
plaintiff’s delay in bringing the suit for monetary relief is not reasonable. See Tandy Corp., 769 F.2d
at 365—66.
In this case, the trial court applied a four-year statute of limitations and determined appellants
had four years to challenge Edwards’s “interpretation of the 1997 Agreement andlor seek to limit
his use of the ‘Condom Sense’ [name] and/or associated marks . . . to the 3609 Greenville Avenue
location.” Although appellants contest the trial court’s conclusion that their claims were time-barred,
arguing the trial court misinterpreted the law because relief is not barred for causes of action that
constitute continuing torts (issue six), they do not contend their claims are governed by a different
-41-
imitations period. ,S’cc (lIC’ Co,ii,ncrcia/ *1sseL, LL C’. . Sioiicç’ute ,//.. LP. 234 S.W.3d 72,
,
736 ( Ex App —Dallas 2007, pet dcnid) (unchalkngul findings ai. binding on appellatt_ coult
unk.ss umli us .stahlishul is iii thu of lass oi noes iduiu. suppolt’ the hudimj (1 Mat ‘ Ka Itu
r. lVebcr. 601 F. Supp. 2d 839, S59—6() (N .D.Tex, 2( )f)) ( “In Texas. a I anham Act violation is
governed by the four year statute of limitations under Texas law.’”) (quoting Edmark Indus,, SD’I.
BHD. v. S. Asia Int’l (H.K.) Ltd., 89 F. Supp. 2d 840. 836 (ED. Tex, 2000)L Because appellants
liled suit over five years alter they gained knowledge of the alleged infringing use, there had been
an unreasonable delay in bringing suit. The cease and desist letters asserting claims of ownership
were contradicted by the evidence before the trial court of Ansell’s rights to the mark, and therefore
(lid not suffice to avoid laches in the five years before they filed this lawsuit.
Appellees must also show the existence of undue prejudice. “Whether phrased as ‘reliance’
or prejudice’, the effect is the same—the defendant has done something it otherwise would not have
done absent the plaintiff’s conduct.” Conan Props., Inc.. 752 F.2d at 153. In this case, the evidence
shows that because appellants did not resolve the disagreement over the use authorized under the
1997 agreement. Edwards built up the business and entered into transactions with the Smiths under
the assumption that the name and associated marks could be used. Specifically, in reliance on
Edwards’s position under the 1997 agreement, Smith paid $300.000 for two Condom Sense
locations, including the right to rise the name and mark, and opened other stores in reliance on that
same position. Edwards and Smith also entered into an arrangement for Edwards to run another
adult novelty store, which they later renamed Condom Sense, and used the mark. The trial court also
found appellees reasonably relied on CSI’s voluntary nonsmt of the 2003 lawsuit in investing in and
—42--
(leVeIopin and pr()lflOt ing the Condoaii Sense name.
To show that the trial court abused its discretion, appellants must demonstrate that no
evidence supports the trial court’s findings, floss, 338 S.W,3d at 640. But on these facts and
weighing the equities, we cannot say the trial court abused its discretion.
Finally, we recognize that the use of the words “Condom Sense” in the domain names
registered by appellees relate to appellants’ claim ol cyberpiracy Smith testified he was the person
.
who created appellees’ websites and therefore, it was not until after January 2004, when he first
purchased the two Condom Sense locations, that appellees’ websites were up and running. To the
extent it can he argued i,hat appellants (lid not unreasonably delay in asserting this claim, we
conclude it was reasonable br the trial court to determine appellants’ claims were barred by their
unclean hands.
The doctrine of unclean hands “closes the doors of a court of equity to one tainted with
inequitableness or had faith relative to the matter in which he seeks relief. however improper may
have been the behavior of the defendant. Precision Instrument M/1. (a. v. Autoniotii’e il/lain. Mach.
Co., 324 U.S. 806. 814 (1945). The plaintiff’s alleged wrongdoing will not bar relief unless the
defendant also establishes harm or injury from the plaintiff’s conduct. See Mitchell Bros. Film Grp.
i. Cinema Adult Theater, 604 F.2d 852, 863 (5th Cir. 1979). Unclean hands is a defense to Lanham
Act claims and unfair competition. See !leal!hpoint, Ltd. ‘. Ethex Corp., 273 F. Supp. 2d 8 17, 849
(W.D. Tex. 2001).
We also recognize that in other contexts, the elements ol laches under Texas law are “(I) unreasonable delay by one having legal or equitable
ights tn asserting them, and (2) a good aith change of position by another to his detriment because of the delay.’ City of I”ort Worth v..Io/,ncon,
355 S.W.2d 400. 403 (‘l’ex. 1964). In this action for infringement, we applied the elements of aches as other courts have done in this context. See
/opoto Coip.. 541 S.W.2d at 47. 50 (“A common law trademark infringement action under Texas law presents no dilierence in issues than these
underfederaltradenuuk actions:’). The trial courtexprcssly 0undthat”aJtallrelevanttimes, appelleesj havehad agood faith belief that they hase
the right to use the ‘Condom Sense’ name andior associated marks.” So regardless of whether the harm element is defined as “undue prejudice” or
a ‘‘good faith change of position to his detriment.” appellants failed to demonstrate that no evidence supports the trial court’s finding See I1os, 335
S.W3d at ô40.
—43—
When Kahn sold the 3f( )O ( reenvi lIe location to Edwards. lie had already entered into I he
license agreement with Ansell. That agreement did not permit Kahn or CS! to assign or sub—license
the mark . Acting on his own, Kaim sold another party. Edwards, the rights CS! acquired in the
license agreement. But u jiiless a licensor explicitly grants its licensee the right to suh—l icense the
licensed mark, any putative sub-license is invalid as a matter of law,” CLT Logistics i’. Rieer 11/.
Brands, 777 F. Supp. 2d 1052, 1066 (ED, Mich. 201 1). Monroe testified the license agreement did
1101 permIt ESI and Kahn to act as they did .5 lie also testified neither CS I nor the Kahns inkwmed
Ansell that the 3b09 Greenville location had been sold; again, she was not even aware of appellees
until the Kahns sent her the 1997 agreement in November 2004.
Then, based on the rights he bought from Kahn. Edwards sold the right to use the name to
the Smiths. Both Edwards and the Smiths have expanded on those rights. Thus, the original sale
and each subsequent sale were all based on something that nobody had a right to do in the first place.
The trial court specifically found the license agreement (lid not provide CSI with the ability to grant
sublicenses for the use of the Condom Sense name or mark and that Ansell never gave CSI
permission to assign its rights as licensee tinder the license agreement.
Appellants recognize that SKCS Rubber “did not have any authority to give jEdwardsj the
right to use Ansell’ s federally registered mark.” But that is what Kahn. as SKCS Rubber’s president,
did. In addition, that argument was made in the context of appellants’ assertion that l)eCause the
1997 agreement only refers to the “use of the name. ‘Condom Sense,” not the service mark,
Edwards did not buy “any right to use the mark containing the words ‘Condom Sense’ with a circle
design: (Emphasis added). Appellants maintain a “trade name is not synonymous with a service
mark or trademark.” Nothing in the record, however, shows that the parties ever made such a
distinction. Rather, the record shows the parties used the terms trademark, service mark, and trade
—44—
name synonymously Appellants agree that if a trade name is also used as a service mark, then it
.
may be reeistered.
The trial court tound appellants “condtict with respect to the Condom Sense’ naine and/or
associated marks has been inequitable and marked by a want of good faith” and concluded
appellants’ claims were harred by their own unclean hands. Based on the record before us. we
cannot say the trial court abused its discretion in reachin2 this conclusion. There is no question that
the act of selling something that. they did not have the right to sell, directly relates to appellants’
assertions of rights in the service mark and name in this case. Sec Precision Iiistrunient Mfr Co..
324 U.S. at 514 (1945) (misconduct must he relative to the matter in which relief is sought); see tilso
RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 29. As stated above, appehlees incurred
economic expense in moving forward with their concept of adult novelty stores. Accordingly, we
overrule appel hints’ fifth issue.
Based on our resolution of appellants’ fifth issue. we need not address appellants’ third,
tourth, and sixth issues. See TEx. R. App. P. 47. 1.
IV. CONCLUSION
Appellants’ issue regarding cancellation of the Texas registrations is sustained because
appellees failed to present any evidence, and the trial court irtade no findings, on the required proof
of appellees’ injury resulting fwrn the registrations. The trial court’s cancellation of the federal
registration based on abandonment, however, was stipported by the evidence and was within the trial
court’s discretion as the fact finder. The evidence also supports the trial court’s judgment based on
appellees’ defenses of laches and unclean hands. Accordingly, we reverse the trial court’s judgment
regarding cancellation of the four Texas service mark registrations but affirm the judgment in all
other respects.
—45—
JUSTICE
101024F.P05
I
(!tutrt iii ;na1i
Fiftij t1itrirt øf ixa at a1ta
JUDGMENT
CoNDOM SENSE. iNC.. MRSK, INC.. Appeal from the County Court at Law No. 2
MRK. INC.. MKSK. LLC. MARSTEK. of Dallas County, Texas. (Tr.Ci.No. 06-
LLC, SKCMK, LLC. AND MSCK 121. 17938-B).
LLC. Appellants Opinion delivered by Justice Murphy.
Justices Lang and Myers participating.
No. 05-10-01024-CV V.
JAMAL ALSIJALABI A/K/A MIKE
EDWARDS, GREG SMITH,
MONSERR \T SMITH J&J NO-LIMfl
INC.. CONDOMS LLC. CONDOM
SENSATiON DALLAS LLC, CONDOM
EXPRESS, LLC. AND COMOROS. LLC,
!\ppel lees
In accordance with this Court’s opinion of this date, that portion of the trial court’s May 17,
21)10 judgment ordering the cancellation of Texas service mark registration numbers 800784273, for
the mark “Condom Sense.” 800784280, for the mark “Condom Sense & Design,” 800784307, for
the mark “Condom Sense Est, 1990 & Design.” and 800784313, for the mark “Condom Sense Stores
& Design” is REVERSED and judgment is RE%DERED that appellees Jamal Alshalabi a/k/a Mike
Edwards, Greg Smith, Monserrat Smith, J&J No-Limit, Inc., Condoms Etc.. LLC, Condom
Sensation Dallas LLC, Condom Express, LLC, and Comoros, LLC take nothing on their
counterclaim seeking cancellation of the four Texas mark registrations. We AFFIRM the trial
court’s judgment in all other respects.
It is ORDERED that appellees Jamal Aishalabi a/k/a Mike Edwards. Greg Smith. Monserrat
Smith, J&J No-Limit. Inc.. Condoms Etc., LLC. Condom Sensation Dallas LLC, Condom Express,
LLC, and Comoros, LLC recover their costs of this appeal from appellants Condom Sense, Inc.,
MRSK, Inc.. MRK. Inc., MKSK. LLC, Marstel, LLC, SKCMK, LLC. and MSCK 121. LLC.
Judgment entered December 21, 2012.
MARY MIJT PHY
JUSTiCE