Swinging for the fences: court finds fraud on PTO from false first use date

Anello Fence, LLC v. VCA Sons, Inc., 2019 WL 351899, No.
13-3074 (JMV) (JBC) (D.N.J. Jan. 28, 2019)
“This trademark case arises out of a family dispute over the
use of the last name ‘Anello’ in competing outdoor fencing businesses in
northern New Jersey.” And you could probably get a decent Hollywood movie out
of it, or maybe even an HBO series. Steven Anello owns Anello Fence, and
Steven’s cousins Vincenzo Jr., Salvatore, Christopher, and Anthony own VCA
Sons, Inc. Anello Fence sued the defendants for trademark infringement,
contributory trademark infringement, misrepresentation, false designation of
origin, false advertising, unfair competition, unjust enrichment, and tortious
interference. VCA counterclaimed for cancellation of trademark registration,
false advertising, cybersquatting, and unfair competition; here the court
grants summary judgment to VCA on Anello Fence’s claims.
In 1963, Emilio Sr. and Joseph Anello started a fencing
company, Anello Brothers, Inc. Their younger brother, Vincenzo Sr., joined the
business in 1971. Steven is Emilio Sr.’s son. 
VCA’s owners are Vincenzo Sr.’s sons and Steven’s cousins. The parties
compete directly and are located within a mile of one another. The
litigation/arbitration history between them is extensive.
In 2003, after Joseph retired, the relationship between
Emilio Sr. and Vincenzo Sr. began to deteriorate when they couldn’t agree on
the business roles of their respective sons and decided that only one son each
could work at Anello Brothers. Three of Vincenzo Sr.’s sons departed and
started VCA Sons.  Emilio Sr. sued
Vincenzo Sr., VCA, and Salvatore for, in essence, stealing business from Anello
Brothers. The result was an order requiring that Anello Brothers be sold to a
third party or liquidated and dissolved by the end of 2005.  In 2005, Steven moved to Florida and sold his
own recently started New Jersey fencing company to VCA; his sale included a
restrictive covenant prohibiting him from returning to the northern New Jersey
fencing industry for a certain period.
In late 2006, Emilio Sr. unilaterally closed Anello
Brothers. Steven returned to New Jersey and formed Anello Fence in March 2007.
In April 2007, Steven paid VCA $30,000 to void his restrictive covenant. In
2010, Anello Fence applied for ANELLO on the Principal Register, claiming first
use in 1963. After registration was refused as primarily merely a surname, and
after only three and a half years in business, Anello Fence amended its
application to allege that the mark had “become distinctive of the
goods/services through applicant’s substantially exclusive and continuous use
in commerce for at least the five years immediately before the date of this
statement.” The service mark registration issued in 2011. In 2013, Anello Fence
repeated the process for ANELLO FENCE (after five years of operation) and
secured a registration for ANELLO FENCE in stylized lettering, with a triangle
partially forming the letter “A” on the Principal Register.
In the meantime, in early 2011, Anello Brothers — which had
been “essentially defunct” since 2006 held a shareholders’ meeting at which Emilio
Jr. joined with Vincenzo Sr. to oust Emilio Sr. from his position as president
of the company. The remaining shareholders then decided to re-open Anello
Brothers over Emilio Sr.’s objection. Steven quickly sued the principals of
Anello Brothers to prevent them from using the Anello name, and secured a TRO.
The lawsuit was then consolidated with two other actions between the parties, who
agreed to binding arbitration.
All of the resulting arbitration decisions listed the same
named parties: Steven, Vincenzo Sr., Catherine (Vincenzo Sr.’s wife), and
Emilio Sr., but not VCA nor any of its principals. The arbitrator found that Emilio
Sr. and Vincenzo Sr. were each entitled to 50% of the value, if any, of Anello
Brothers, but declined to address the trademark question, which was being
litigated in the instant case. The arbitrator noted that Anello Brothers closed
in 2006; that Steven’s father, then the corporate president, had no objection
to Steven’s use of the name; and that there was nonetheless no evidence of any
assignment. Also, Vincenzo Sr. owned 50% and had contributed to the goodwill of
the company, so the arbitrator declined to preclude Vincenzo Sr. from using the
names Anello Brothers or Anello Brothers Fence Company (but requiring him to
compensate Steven for post-2006 investments in the Anello goodwill as part of
ending the TRO; after Vincenzo Sr. declined to pay the compensation, the
arbitrator indicated that Vincenzo Sr. couldn’t use the name except as a family
name and not a trade name), while noting that “the federal court may have
jurisdiction and authority to consider and address this issue incident to the
trademark litigation.”
The court, unsurprisingly, found that there was no
collateral estoppel/issue preclusion from the arbitration rulings. The current
parties weren’t present or in privity with those who were and the issues
weren’t raised, actually litigated, and necessary to the prior judgment.
The court correctly noted that, because the litigation began
within five years of registration for both marks, neither registration could
become incontestable; any valid legal or equitable ground could be used to
challenge their validity.  It then found
that the registrations weren’t valid because they were procured through fraud.  [Ok, the court said “trademarks,” but it
meant registrations.] Fraud requires clear and convincing evidence of a
knowingly false, material representation with the intent to deceive the PTO. The
“intent to deceive can be inferred from indirect or circumstantial evidence,
indicating that the registrant actually knew or believed that someone else had
a right to the mark.”
The court found the requisite fraudulent intent.  For the first mark, Steven claimed acquired
distinctiveness based on use for at least five years, and that hadn’t happened.
His claimed basis for the representation to the PTO was an assignment from
Anello Brothers, but there was no assignment and Steven knew that.  “Formal assignments of trade names are not
required, because the law presumes that when a business is conveyed, its trade
name and goodwill are also conveyed.” But courts “must be cautious in scenarios
that do not involve clear written documents of assignment” and must
“[r]equir[e] strong evidence to establish an assignment … to prevent parties
from using self-serving testimony to gain ownership of trademarks.” The Anello
Brothers business was never conveyed to Steven (in fact it was defunct and then
revived in order to oust Emilio Sr. and reopen the business).  Nor would a naked assignment of the name
without the goodwill have sufficed; thus, even if there had been a genuine
issue of material fact as to assignment, “the trademark would nevertheless be
invalid because it is undisputed that the actual Anello Brothers business was
not transferred along with the mark.” 
Steven claimed that Emilio Sr. assigned the rights to him, but (1) there
wasn’t evidence of this; at most there was evidence that he didn’t object to
use of the name, which isn’t an assignment, and (2) Emilio Sr. wasn’t a
majority owner of Anello Brothers and therefore couldn’t consent.  By the time of his deposition, Steven
admitted that he did not receive “any type of permission to use the name
Anello” in his fence company from Anello Brothers and instead argued that the
mark had been abandoned.
As for the ANELLO FENCE mark, that was applied for when
Anello Fence had in fact been in business for over five years, but the
statements to the PTO also claimed that the use was “substantially exclusive,”
and Steven knew his cousins were competing with him in the northern New Jersey
fencing industry during both of the relevant time periods and using the Anello
name. This “substantially exclusive” assertion might potentially amount to
fraud in both applications, but the claim of first use in 1963 was sufficient to
cancel both registrations.  [I see the
court’s point, but I do think the PTO tends to disregard claimed first use
dates, whereas it does not disregard claims of five years of substantially
exclusive use; I don’t think it would necessarily have been material to the PTO
whether the date was 2007 or 1963 given that what’s at issue is a word mark,
though for trade dress it might well have mattered.  A stronger basis for the finding of fraud for
the second registration is the lack of substantial exclusivity plus the
specific circumstances of the claimed first use here, which interact with each
other.]
Anyway, the claimed first use in 1963 was “a knowingly false
statement sufficient to cancel both marks’ registrations.”
VCA then argued that it had priority in the name
Anello.  Without a registration, the rule
is first in time, first in right.  Prior
use can also justify cancelling a registration (a backstop to the fraud finding). VCA opened in 2003 and allegedly used the name Anello in ads
since then; this was the use that Anello Fence argued was trademark
infringement.  Anello Fence didn’t open
until 2007. Anello Fence’s only argument was that the arbitration order barred
VCA from using the name Anello, but the court disagreed.  Steven also knew that VCA had been around
since 2003 and even sold his own business to VCA, then paid it to release its
restrictive covenant. “The Court finds it incredible for Steven to now claim
that he was not aware of Defendant’s prior use of Anello.” Even without that,
VCA had superior rights in the Anello name.
Without valid marks, the remaining causes of action failed;
although unfair competition and tortious interference can address harms beyond trademark infringement, in this case, the
claims weren’t based on anything other than the facts underlying the infringement
claim.

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