Movie Mania Metro, Inc. v. GZ DVD's Inc.

• Decision Date: 09 September 2014
• Docket Number: Docket No. 311723.
• Citation: 306 Mich.App. 594,857 N.W.2d 677,112 U.S.P.Q.2d 1661
• Parties: MOVIE MANIA METRO, INC. v. GZ DVD's INC.
• Court: Court of Appeal of Michigan — District of US

306 Mich.App. 594

857 N.W.2d 677

112 U.S.P.Q.2d 1661

MOVIE MANIA METRO, INC.

v.GZ DVD's INC.

Docket No. 311723.

Court of Appeals of Michigan.

Submitted Dec. 4, 2013, at Detroit.

Decided Sept. 9, 2014, at 9:15 a.m.

Aubrey H. Tobin, Attorney at Law, PC (by Aubrey H. Tobin ), for plaintiff.

Kim Corbin, PLLC (by Kim Corbin), for defendants.

Before: METER, P.J., and CAVANAGH and SAAD, JJ.

Opinion

SAAD, J.

Plaintiff appeals the trial court's order that granted summary disposition to defendants. For the reasons stated below, we affirm.

I. NATURE OF THE CASE

This case is a claim for trademark infringement. As our Court recently explained in Janet Travis, Inc. v. Preka Holdings, LLC, Michigan law has offered protection of trademark rights for the benefit of

business owners, and the consuming public. Business owners, who invest significant amounts of money and effort to convince consumers to identify their marks with their products and services, needed a remedy against competitors who sought to free ride on this accumulated goodwill by copying or pirating already established marks. Consumers, who associated and expected a certain level of service and quality with certain marks, needed protection from imposters who copied or pirated already established marks to “pass off” their goods and services as those of the business associated with the marks. [Janet Travis, Inc. v. Preka Holdings, LLC, 306 Mich.App. 266, 267–268, 856 N.W.2d 206 (2014) (citation omitted).]

Trademark law, therefore, involves “the advancement of two distinct but related interests: the private right of the trademark holder to prevent others from using its mark to pass off the others' goods or services as the trademark holders, and the public right to protection from this deceptive practice.” Travis, 306 Mich.App. at 268, 856 N.W.2d 206.

Because the right of a trademark holder to its trademark is a by-product of these two interests, trademark rights are a special kind of intellectual property in that the mark holder's right to exclusive use of its mark is tempered by and dependent on the perceptions of the consuming public. For a mark to serve as a trademark and be entitled to legal protection, the consuming public must be able to use the mark to “distinguish a good as originating from a particular source.”¹ If the consuming public is unable to use the mark to distinguish a good as originating from a particular source, the mark does not function as a trademark and is thus not entitled to legal protection. Trademark rights are thus inherently mutable because they are dependent on whether the consuming public is able to use the mark to distinguish a good or service as originating from a particular source.

Consumer perception of a mark can be shaped by many factors, including the actions of the mark holder. Normally, as in Travis, the mark holder realizes the valuable nature of its trademark and will thus make every effort to ensure that, in the minds of consumers, the mark remains associated with the mark holder's products and services, and the mark holder's products and services alone. But on occasion, as here, a mark holder, through its own actions or omissions, destroys the value of the trademark by severing the link in the mind of the consumer between the mark holder's mark and the particular product or service. In other words, a mark holder's actions can cause its mark to no longer function as a trademark, and thus not be entitled to legal protection.

One common way that a mark holder may engage in this mark-destroying process is “naked licensing,” or the practice of “allowing others to use [its] mark without exercising ‘reasonable control over the nature and quality of the goods, services, or business on which the [mark] is used by the licensee’.”² If other businesses are using the mark holder's mark, and operate independently and with little to no oversight from the mark holder, consumers will be unable to use the mark to distinguish goods and services bearing the mark as originating exclusively from the mark holder. In other words, a mark that is the subject of naked licensing can no longer function as a trademark and is accordingly not the proper subject of legal protection. In the parlance of trademark law, naked licensing destroys a mark's “distinctiveness” and renders it “not valid”³ as a trademark.

Because this practice prevents consumers from being able to use the mark to identify goods and services as the products of a specific business, courts have refused to protect marks that are subject to naked licensing at common law, under Michigan law, and under federal law. Initially, both state and federal courts did so by holding that nakedly licensed marks were not valid trademarks and thus not properly protectable under trademark law. After revisions to the federal Lanham Act⁴ in 1988, however, most federal decisions now hold that nakedly licensed trademarks have been “ abandoned,” while state courts continue to hold, under statutory and common law, that nakedly licensed trademarks are not valid.

This case requires us to make this doctrinal distinction between state and federal law. The Lanham Act explicitly states that naked licensing constitutes “abandonment” of a trademark, in that trademark holders who engage in naked licensing relinquish all rights to their mark.⁵ The Michigan trademark and service mark act (Trademark Act)⁶ does not state that naked licensing constitutes abandonment of a trademark and instead defines abandonment to mean mere nonuse, or implied nonuse, of the trademark.⁷ Accordingly, a mark holder that engages in naked licensing of its trademark “abandons” the trademark under the Lanham Act, but does not “abandon” the trademark under the Trademark Act. Nevertheless, a mark holder that engages in naked licensing is not able to sustain a trademark-infringement claim under the Trademark Act or at common law because the naked licensing of a mark renders that mark not valid as a trademark.

Plaintiff is a mark holder that engaged in naked licensing of its mark, “Movie Mania,” for more than five years with multiple parties. It nonetheless sued defendants, who used the “Movie Mania” mark a decade after the first instance of plaintiff's naked licensing, for trademark infringement, under both the Lanham Act and the Trademark Act. The trial court granted defendants' request for summary disposition on the theory that plaintiff's naked licensing constituted abandonment of the “Movie Mania” mark under both the Lanham Act and the Trademark Act.

We affirm this decision, but the trial court reached the right result for the wrong reasons. Naked licensing constitutes abandonment under the Lanham Act, but it does not constitute abandonment under the Trademark Act's more narrow definition of that term. Even so, plaintiff's action for infringement fails because its naked licensing of “Movie Mania” has made the mark not valid, and defendants' use of the mark does not make it liable for trademark infringement under the Trademark Act.

We therefore reject plaintiff's arguments on appeal and affirm the order of the trial court.

II. FACTS AND PROCEDURAL HISTORY

Plaintiff operated a video-rental business in metro Detroit, and began using the name “Movie Mania” in commerce in 1989. It subsequently registered the “Movie Mania” mark with the appropriate Michigan department in 1996. Thereafter, plaintiff acted as a promiscuous licensor and allowed various unaffiliated parties in the Detroit area to use the “Movie Mania” mark in conjunction with those parties' video-rental businesses.

This lawsuit is the product of a series of such licensing transactions, which began in 1999. In that year, plaintiff sold one of its Movie Mania locations to another company, CLD, Inc, which sought to continue the store's video-rental business. Plaintiff allowed CLD to continue to use the “Movie Mania” mark for $1 in annual royalties. Yet the licensing agreement placed almost no restrictions on the use of the mark, nor did it contain standards on advertising or store operations, or include any requirements related to the rental or sale of merchandise at the CLD-owned Movie Mania.

CLD sold its Movie Mania store to Adnan Samona in 2005. Samona contacted plaintiff and asked permission to continue use of the “Movie Mania” mark, which plaintiff granted. Plaintiff did not require Samona to sign a licensing agreement or pay any royalty fee in return for use of the mark. Nor did plaintiff object or contact Samona as he expanded his business in 2006 and 2007, purchasing another, unaffiliated video-rental store and changing its name to “Movie Mania.”⁸ Again, as in its dealings with CLD, plaintiff provided Samona with almost no restrictions on the use of the mark, nor did it set standards on advertising or store operations or outline requirements related to the rental or sale of merchandise at the Samona-owned Movie Mania.

In 2010, Samona closed his St. Clair Shores Movie Mania location and sold its business assets to defendants. As Samona had done in 2005 when he purchased CLD's Movie Mania store, defendant Sandra A. Zielke contacted plaintiff to ask permission to continue use of the “Movie Mania” mark. One of plaintiff's officers told Zielke that defendants could not use the mark unless they paid a fee and signed a licensing agreement. Defendants did not acquiesce to plaintiff's request and opened a video-rental store bearing the “Movie Mania” mark one block away from Samona's original location. In January 2011, plaintiff told defendants that “Movie Mania” was a registered Michigan service mark (actually, it was not—as noted, its registration expired in 2006 because plaintiff failed to renew the registration) and demanded that defendants cease and desist use of the mark. Plaintiff did not reregister the “Movie Mania” mark until an even later date, April 18, 2011, which further demonstrates that it places little value in its mark.

Plaintiff then initiated this action against defendants in the Macomb Circuit...