December 2011 / January 2012 Issue
L.F.P. IP, Inc. v. Hustler Cincinnati, Inc.,
2011 WL 5024356 (S.D. Ohio Oct. 20, 2011)
This case arose out of a dispute over the ownership and use of the HUSTLER mark by brothers Larry and Jimmy Flynt, who for years were engaged in a series of lawsuits over the ownership of the family business and use of the HUSTLER trademark. Larry Flynt sued his brother Jimmy after he discontinued making royalty payments pursuant to a license that allowed Jimmy to use the HUSTLER mark for retail stores in Ohio.
On entering summary judgment for Larry Flynt, the court noted that while Jimmy Flynt may have initially used the HUSTLER mark for the Hustler stores with the implicit permission of the Hustler enterprise, the nature of that use fundamentally changed “by mutual consent” once Jimmy paid licensing fees to Larry in 2004. Whatever the parties’ arrangement was when Jimmy Flynt first opened the Cincinnati store, once Jimmy agreed to begin making license payments for use of the HUSTLER mark in connection with the Cincinnati store, that earlier agreement was subsumed by the 2004 tacit license with Larry for use of the HUSTLER mark. The court further noted that Jimmy Flynt could not raise a “naked license” defense based on the doctrine of licensee estoppel.
Larry Flynt began using the HUSTLER mark in the early 1970s and first registered the HUSTLER mark in 1975. Since that time, he has used and registered many other HUSTLER marks himself or through the Larry Flynt Revocable Trust and L.F.P. IP, Inc. (“LFP”) (collectively “Larry”).
In the four decades since Larry began using the HUSTLER mark, Larry’s brother Jimmy Flynt (“Jimmy”) and his family members have either worked for the Hustler enterprise and/or owned or operated corporations associated with the enterprise. In 1997, Jimmy opened Hustler News and Gifts in Cincinnati, Ohio, without a license from Larry and without paying Larry for the use of the HUSTLER name. Hustler News and Gifts later became Hustler Cincinnati, Inc. (“Hustler Cincinnati”). The Cincinnati store that Jimmy opened was the first retail store to use the Hustler name. In 2001, Jimmy opened another store, Hustler Hollywood, in Monroe, Ohio, and formed Hustler Hollywood Ohio, Inc. (“HH Ohio”) to operate the Monroe store. Unlike the Cincinnati store, HH Ohio did have a written license with Larry for use of the HUSTLER name, under which HH Ohio paid licensing fees to Larry. In 2004, the previous relationship Larry and Jimmy maintained between Hustler Cincinnati and LFP changed and became parallel to the arrangement the Monroe store had with LFP. There was a written but unsigned license agreement covering Hustler Cincinnati dated November 1, 2004. And, even without an executed agreement, Hustler Cincinnati paid LFP a lump-sum figure for “backdated” licensing fees, and began paying licensing fees going forward.
In 2007, following a series of family disagreements, Jimmy was fired from the family business and immediately ceased paying licensing fees for use of the HUSTLER mark in connection with the Ohio stores. Larry then sued Jimmy for false designation of origin and unfair competition under federal and state law.
Larry moved for summary judgment on infringement of the HUSTLER marks by Jimmy. In his motion, Larry sought a permanent injunction with respect to his trademark claims based on Jimmy’s unauthorized use as a former licensee.
Jimmy crossed-moved for summary judgment. Jimmy’s position was that Larry could not prohibit him from using the HUSTLER mark because Jimmy was the senior user of the HUSTLER mark in connection with a retail store, and his early license-free use in connection with the Cincinnati store was done with Larry’s implicit permission. Jimmy also took the position that the parties’ subsequent licensing arrangement was the result of a “sham” transaction.
The court noted that although Jimmy may have initially used the HUSTLER mark for the Hustler stores at issue with the implicit permission of the Hustler enterprise, the nature of that use fundamentally changed “by mutual consent” once Hustler Cincinnati paid licensing fees to Larry in 2004. That arrangement lasted for years “uninterrupted and without protest . . . until family dynamics soured their relationship” and Jimmy refused to pay licensing fees. The court further found that the parties’ “objective conduct” demonstrated that the Cincinnati store operated in the same manner as the Monroe store, and, thus, whatever the parties’ arrangement was prior to 2004 was subsumed by the parties’ agreement that year, under which Jimmy made license payments to Larry for Jimmy’s use of the HUSTLER mark in connection with the Cincinnati store.
With regard to Jimmy’s argument that the license at issue constituted an unenforceable “naked” license based on a lack of quality control on the part of the licensor, the court agreed with Larry that the level of control required is “minimal,” and found convincing evidence of “quality control efforts” undertaken by other members of the Flynt family at the Monroe and Cincinnati stores. The court further noted that the “family interconnectedness present in the Hustler enterprise” was sufficient to satisfy the control requirement. In addition, the court cited the purpose of the control requirement, namely, the protection of the public from goods lacking the normal quality of goods sold under a trademark, and found that neither party had suggested that the quality of Hustler goods differed in any way among Hustler retail stores around the country.
The court further noted that Jimmy could not raise a “naked license” defense based on the doctrine of licensee estoppel. As the court noted, the “licensing arrangement that Jimmy entered into operates as an acknowledgment that Larry owns a valid ‘Hustler’ mark and, by extension, that Jimmy does not.” Consequently, “[t]he implied license thus prohibits Jimmy from raising any defense he may have had prior to entering the arrangement.” The court dismissed Jimmy’s arguments that licensee estoppel applies only to “written, clear and signed licensing agreements.” Once Jimmy licensed the HUSTLER mark from Larry, he “effectively extinguished any claim he may have had to use the Hustler trademark in connection with the Hustler Cincinnati store or to challenge Larry’s conduct in connection with the mark.”The court agreed with Larry that a likelihood of confusion existed as a matter of law where a former licensee continues to use a licensed trademark after the licensing arrangement has ended. Summary judgment was thus entered for Larry.
This decision is a reminder that the licensee-estoppel doctrine may foreclose a challenge by a licensee against a licensor regarding the validity and ownership of a trademark covered by the license. This case is interesting because it applies the licensee-estoppel doctrine in the context of a “naked license” defense by the licensee.