Interstate Net Bank v. Netb@Nk, Inc., Civil Action No. 01-1324 (JBS).

CourtUnited States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
Writing for the CourtSimandle
Citation348 F.Supp.2d 340
PartiesINTERSTATE NET BANK, Plaintiff, v. NETB@NK, INC. and Netb@nk, Defendants.
Decision Date14 December 2004
Docket NumberCivil Action No. 01-1324 (JBS).
348 F.Supp.2d 340
NETB@NK, INC. and Netb@nk, Defendants.
Civil Action No. 01-1324 (JBS).
United States District Court, D. New Jersey.
December 14, 2004.

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Ronald J. Shaffer, Esq., Maureen C. Shay, Esq., Fox Rothschild LLP, Atlantic City, NJ, and Carl D. Poplar, Esq., Cherry Hill, NJ, for Plaintiff.

John J. Levy, Esq., Amelia Carolla, Esq., Montgomery, Mccracken, Walker & Rhoads, Esqs. Cherry Hill, NJ, and Todd E. Jones, Esq., Ryan T. Pumpian, Esq., Powell, Goldstein, Frazer & Murphy, LLP Atlanta, GA, for Defendants.


SIMANDLE, District Judge.

This matter comes before the Court upon Plaintiff inter State Net Bank's motion for summary judgment against Defendants NETB@NK, INC., and NETB@NK (now known as NetBank, Inc., and NetBank, respectively, and referred to collectively herein as "Defendants"). Plaintiff filed the underlying action on March 20, 2001, seeking a declaratory judgment that the term "NETBANK" (the federal registration of which had been acquired by Defendants) is generic and merely descriptive, that Plaintiff's use is not likely to cause confusion, and that Defendant's trademark registration should be cancelled. Defendants thereafter asserted counterclaims for trademark infringement, false designation of origin, false advertising, trademark dilution, and cyber piracy under the Lanham Act; declaratory judgment; and trademark infringement, trademark dilution, and unfair competition under New Jersey law. This Court previously determined, upon Plaintiff's motion for summary judgment, that the term NETBANK, for which Defendants have a registered trademark, is generic when applied to internet banking, interState Net Bank v. NetB@nk, Inc., 221 F.Supp.2d 513, 525 (D.N.J.2002), but declined to cancel NETBANK's

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registration, without prejudice to renewal of the motion after suitable discovery was concluded.

Plaintiff now moves for summary judgment on Defendants' remaining federal claim for infringement of Federal Trademark Registration No. 1,913,750 for NetBank and Defendant's remaining state law claim for unfair competition, and for cancellation of the NETBANK registration. The disposition of Plaintiff's noninfringement motion turns upon the question whether Defendants received their assignment of the NETBANK mark through an invalid "assignment in gross" in which the goodwill in that mark was not passed in the reality of the transaction. For the reasons discussed below, Plaintiff's motion will be granted.


Plaintiff and Defendants are among a growing number of internet banks offering their services to customers primarily or exclusively over the internet. From the aspect of the Defendants, the story begins in May 1994, when Software Agents, Inc., a software engineering consulting company founded by Robert Houston, introduced the "NetBank," described as "an electronic payment system that allows computer users to pay for on-line information services by using `electronic payment coupons.'" (Certification of Maureen C. Shay, Ex. 1.) The NetBank system was designed to provide a solution to the need for online "pocket change" in small increments which would enable an online business to accept payment from its customers in a real-time transaction. (Shay Cert. Ex. 1; Ex. D, Deposition of Robert K. Houston, 35:11-36:15.) The 1994 press release, which announced the availability of the NetBank stated:

The NetBank solves the problem of selling information electronically and collecting payment on a pay-per-use basis. With the NetBank, customers may provide payment to the merchant at the same time the service is requested. There is no need for a customer to pre-establish credit terms with the merchant, nor must the merchant bill the customer for later payment.

(Shay Cert., Ex. 1.) The system was designed to provide any computer user with an e-mail address the ability to buy and sell information over the Internet. (Id.) Customers later were able to use the service to sell physical goods such as printed books. (Shay Cert., Ex. D at 28:18-29:3.)

In July 1994, Boardwatch Magazine, a magazine targeted to electronic bulletin board operators, ran an article with an extensive description of how the NetBank and its electronic money coupons, called "NetCash", system operated as a solution to the need for "pocket change to buy little things online." (Shay Cert., Ex. 2.) NetCash was initially obtained by calling a 900 telephone number with a modem. The caller would then be issued a $10 NetCash "coupon" and would be charged $10 on his phone bill. (Id.) The method of obtaining NetCash was later changed to allow customers to obtain the electronic coupons by sending a check, money order, or other funds transfer to Software Agents. (Shay Cert., Ex. D at 22:1-22:14.) Customers could obtain NetCash in any dollar amount up to $100. (Shay Cert., Ex. 4.)

The "electronic money coupons" were unique alphanumeric identifiers which would demonstrate to a merchant that the customer had purchased a NetCash coupon in a specified dollar amount which the merchant could accept for payment. (Shay Cert., Ex. D at 96:11-97:15.) The requirement to use the electronic coupons remained constant throughout the use of the service. (Id. at 36:1-36:2.) Merchants were required to sign a service agreement

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with NetBank and were prohibited from selling any product or service over $100. (Shay Cert., Ex. 4.) To convert NetCash to real money, Software Agents would send the merchant a check for the amount in the merchant's account after subtracting a processing fee. (Id.; Ex. D at 16:20-16:21.)

Software Agents filed an application to register NETBANK as a service mark on July 13, 1994, claiming a date of first use in commerce of May 26, 1994. (Shay Cert., Ex. 5.) The mark was registered on August 22, 1995 for "electronic payment services featuring a system of electronic money coupons that are exchanged by means of an on-line computer service" in International Class 36. (Id.)

The NetBank system was marketed to merchants and touted as providing "an automated payment collection system for companies and individuals ... selling products or services via electronic mail or online service." (Shay Cert., Ex. 4.) Apparently, the NetBank service did not achieve much acceptance in the marketplace. During its period of operation, approximately 150 merchants registered with the NetBank service and an estimated 2,000 to 3,000 customers used the service to purchase goods or services from those merchants. (Shay Cert., Ex. D at 15:17-15:20.) Software Agents was not a bank, did not intend to establish a bank and did not apply the mark to banking services. (Id. at 122:10-122:15.) Moreover, Software Agents did not offer checking, savings or other bank accounts, did not extend loans and did not pay interest. (Id. at 18:19-20:12.) The NetBank service thus did not resemble any usual banking service.

In 1995, T. Stephen Johnson and W. James Stokes, two banking industry consultants, conceived of an idea to form an internet-only bank. (Shay Cert., Ex. H at 9:2-9:22.) Internet Organizing Group, Inc. ("IOG") was incorporated in February 1996 to own and operate an internet-only federal savings bank subsidiary they would form under the trade name Atlanta Internet Bank ("AIB"). (Shay Cert., Ex. 6.) From its inception, in October 1996, AIB provided all of the services associated with an internet banking platform, including checking accounts, money market accounts, certificates of deposit, and online bill payment services. (Id.; Ex. H at 14:1-14:4.) AIB offered its internet banking services through its website,, under the mark Atlanta Internet Bank and simply "b@.nk." (Shay Cert., Ex. 6; Ex. C at 30:18-30:20.) IOG filed a trademark application to register the mark "b@.nk" for "providing retail banking services over the internet." (Shay Cert., Ex. 7 at NB004263.) Online bill payment was one component of the services AIB offered as an internet bank.

Electronic bill payment, including online bill payment, is intended to free up a customer's time by providing the ability to direct payments from their checking account electronically rather than by hand writing and mailing numerous checks. (Shay Cert., Ex. 46; Ex. F. at 37:23-38:1.) Online bill payment is a stand-alone service that may, but need not, be provided as part of banking services offered via the internet. (Deposition of David P. Luney at 37-43; Deposition of Timothy J. Patneaude at 11.) Defendants' online bill payment service has been outsourced and provided by CheckFree Corporation ("CheckFree") since its inception in 1996. (Id. at 14:5-14:10.)

To obtain access to Defendants' online bill payment, the customer is first required to open a checking account with the bank. (Shay Cert., Ex. 46.) Once consumers are enrolled in online bill payment, they add payees to their payee list and then can

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schedule recurring or one-time payments to the payees. (Id.) Defendants utilize the "process date good funds model" of CheckFree's online bill payment service. (Shay Cert., Ex. E at 24:5-24:9.) In that model, the customer indicates the date on which payment should be processed for individual bills. (Id. at 10:14-11:2.) Defendants recommend that customers schedule payments at least 5 business days prior to the bill's due date. CheckFree requests authorization for that payment from the customer's bank, insuring that there are "good funds" available in the customer's checking account to make the payment. (Id. at 22:21-24:23.) Upon authorization, CheckFree executes the payment by transmitting the funds to the payee via an electronic transfer from a CheckFree account or via a paper check drawn on the CheckFree corporate account, and the customer's account is separately debited for the amount. (Id. at 24:17-25:13.)

Unlike Software Agents' NetBank system, the bill pay service provided by Defendants is...

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