A Non-Exclusive Trademark Licensee Needs an Explicit Right To Sue for Trademark Infringement

Abstract

A Georgia federal court found that a non-exclusive trademark licensee did not have sufficient rights to independently sue for trademark infringement without the licensor, and more so where the licensing agreement did not contain a “right to sue.”

Background

D.H. Pace (“Pace”) sells garage doors manufactured by Overhead Door Corporation (“ODC”) under a non-exclusive license to use the trade name “Overhead Door Company of [Geographic Name]” to promote and sell ODC’s products. Pace advertises with the trade names “Overhead Door Company of Atlanta” and “Overhead Door Company of Kansas City.”

OGD Equipment Company, LLC (“OGD”) is a Texas company that began operating as “Overhead Garage Door.” OGD provides residential and commercial property owners with door installation, repair, and replacement. OGD promotes itself as offering “overhead door service across the nation.”

In 2017, OGD sued ODC seeking a finding that “Overhead Garage Door” was generic. The parties settled, and OGD agreed to cease using “Overhead Garage Door” as a trade name unless it is preceded with “OGD.” ODC agreed to not direct its distributors or licensees to take any legal action against OGD unless OGD breached the settlement agreement.

In early 2020, Pace sued OGD for trademark infringement and unfair competition, alleging that OGD’s use of “Overhead Garage Door LLC” misleads and confuses customers in Atlanta and Kansas City. OGD countered that the terms “overhead,” “overhead door,” and “overhead doors” are generic therefore unprotectable under trademark law.

The D.H. Pace-OGD Decision

Specific to Pace’s claims, the court considered two issues: standing to sue under the Lanham Act and Pace’s rights to the marks.

As to Pace’s standing to sue, the court explained that the Lanham Act protects persons against unfair competition, and the statute makes actionable deceptive and misleading use of marks. Here, Pace asserted that its reputation and goodwill in the Atlanta and Kansas City market were injured when ODG’s use of similar marks misled a widespread of customers to obtain service from ODG. The misled customers complained to Pace regarding the poor services that they had received from ODG—thinking that Pace poorly serviced them. The court agreed and found Pace met the requirements for standing under the statute.

As to Pace’s rights in the marks, the court found that Pace, as a non-exclusive licensee, lacked sufficient rights to bring its claims under the Lanham Act or common law trademark infringement. First, the court considered the language of the license between Pace and ODC. If a license contains language granting the licensee a right to sue under the mark, the licensee can independently enforce the mark under both the Lanham Act and common law. Absent such language, however, the licensee is foreclosed from suing on the mark. Here, the license granted Pace only the “right to use” the names, for example, “Overhead Door Company of Atlanta,” “Overhead Door Company of Kansas City,” and “Overhead Door” in connection with purchasing and reselling ODC products. Nothing under the license provided Pace with a right to sue. The court relied on precedent where a licensee was found not to have sufficient rights to independently sue where the licensee had the right to use. In that agreement, the licensee was obliged to inform the licensor of illegal use of the mark, prompting the licensor to file suit and compensate the licensee for its losses resulting from the infringement.

Beyond the contractual language of an agreement, the court also noted that a non‑exclusive licensee simply does not possess sufficient rights in the licensed mark to bring forth claims of infringement. With respect to any claims under common law, the court explained that a licensee’s common law rights merge into and become the property of the licensor. Thus, a licensee’s prior claims are lost or merged into the license when he accepts his position as a licensee. Ultimately, because Pace’s rights stemmed from its license with ODC, Pace could not independently maintain its claims.

ODG also argued that Pace was barred from bringing its trademark action because ODC voluntarily discharged its claims when ODC entered in the settlement agreement with ODG. The court agreed with ODG. Although the settlement agreement expressly providing that current and future licensees, distributors, and resellers were not bound by the settlement agreement, ODC’s discharge of its claims was binding on Pace because Pace’s claim were premised entirely on Pace’s derivative rights.

Having found that Pace did not have the right to independently sue, Pace’s and ODG’s other claims were rendered moot by the court.

Strategy and Conclusion

If a licensee wishes to have the right to sue under the licensed mark, it should consider including an explicit grant to such a right in the license agreement. Simply informing a licensor of infringing conduct is not enough.

Further Information

The D.H. Pace Company decision can be found here.