Non-TM owner can plead false advertising claim for confusing use of TM it used to own

Desmond v. Taxi Affiliation Services LLC, 2018 WL 4589999,
No. 17 C 8326 (N.D. Ill. Sept. 25, 2018)
Desmond is the Chapter 7 Trustee for the Bankruptcy Estate
of Yellow Cab Affiliation, a former Chicago taxicab affiliation with over 1600
dues-paying members who licensed the design mark from YCA. He sued a bunch of
defendants for allegedly engaging in a scheme to render YCA insolvent, so that
it could not pay its creditors, and then establishing a new company that
appropriated YCA’s valuable trade dress. After a passenger was injured in a
taxi and sued YCA as a defendant, some of the defendants here allegedly
established defendant TAS to prevent creditors from reaching YCA’s assets. For
example, TAS collected and retained all payments from YCA members pursuant to
their affiliation agreements with YCA, then transferred some of that money,
disguised as “management fees” and “referral fees,” to YCA’s officers and
directors; some defendants bought and sold taxicab medallions using YCA’s money
but failed to distribute any of the profit to YCA.
After the injured passenger got a $26 million judgment
against YCA in 2015, YCA filed for bankruptcy and TAS refused to provide
further services, forcing YCA to shut down. Certain defendants quickly formed
New YCA (Yellow Cab Association, Inc.) to solicit members away from YCA. New
YCA used mobile data terminals and other taxicab equipment that belonged to
YCA. New also YCA used the same color scheme and design mark that YCA had used,
merely replacing “Affiliation” with “Association.” This allegedly tricked
customers into believing that New YCA and YCA were one and the same.
Lanham Act and coordinate state claims: Trademark ownership
is required for a likely confusion claim, but not for a false advertising
claim. YCA doesn’t own the design mark at issue, so this was a false advertising
claim. The allegations here satisfied Rule 9(b): the use of the color yellow,
the design mark, and a similar name plausibly constituted a false statement of
fact implying YCA’s affiliation with New YCA, and the other elements were
sufficiently alleged, at least as against New YCA.

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