In Noble House Home Furnishings, LLC v. Floorco Enters., LLC, 118 USPQ2d 1413 (TTAB 2016), a registration was owned by a subsidiary but the mark at issue was not used by the subsidiary, and was only used by the parent company. Use by the parent company in this situation was insufficient to constitute use by the owner of the mark that could support the registration.
In general, if a parent company owns a mark and controls all the affairs of a subsidiary who uses the mark, it is presumed that the parent exercises control over the nature and quality of the goods sold by the subsidiary under the parent-owned mark. In that situation, an intra-company license is not necessary; but the reverse is not true. In the Noble House case, the subsidiary owned the registration but had no control over the nature or quality of the goods used by the parent, and had no agreement in place concerning use of the mark.
In most situations, the inherent nature of the parent’s overall control over the affairs of a subsidiary will be sufficient to presume that the parent is adequately exercising control over the nature and quality of goods and services sold by the subsidiary under a mark owned by the parent, without the need for a license or other agreement. If there is any doubt on that score in a particular situation, it can be made clear by a proper trademark license agreement between parent and subsidiaries.
Noble House, 118 USPQ2d at 1421. The benefit of the parent’s use cannot be said to inure to the benefit of the subsidiary. Thus, because the subsidiary was not using the mark and had not used the mark for more than three years, the registration was cancelled on the grounds of abandonment.
The relevant law is found at Section 5 of the Lanham Act: 15 U.S.C. §1055, titled Use By Related Companies Affecting Validity And Registration:
Where a registered mark or a mark sought to be registered is or may be used legitimately by related companies, such use shall inure to the benefit of the registrant or applicant for registration, and such use shall not affect the validity of such mark or of its registration, provided such mark is not used in such manner as to deceive the public. If first use of a mark by a person is controlled by the registrant or applicant for registration of the mark with respect to the nature and quality of the goods or services, such first use shall inure to the benefit of the registrant or applicant, as the case may be. (emphasis added)
While a subsidiary is generally a “related company” to a parent company, a parent company is not a “related company” to a subsidiary; and as illustrated by Noble House, a parent’s use does not count as use in commerce by a subsidiary, absent a written agreement between the parties. In Noble House, the registrant’s parent entity, not the registrant, marketed and advertised the goods. Also, the registrant’s parent company, not the registrant, controlled the nature and quality of the goods that may have been sold prior to commencement of the period of non-use. The continuing marketing efforts of a parent entity do not inure to the benefit of its wholly owned subsidiary when the two entities are not “related companies” under Section 5 of the Lanham Act, and absent a written agreement.
An important focus is the identification of the party that controls that nature and quality of the goods and services used under the mark. See, Smith Int’l. Inc. v. Olin Corp., 209 USPQ 1033, 1044 (TTAB 1981) (“Section 5 of the statute provides that a mark may be used legitimately by related companies, and, if such companies are controlled as to the nature and quality of the goods on which the mark is used by the related companies, such use inures to the benefit of the applicant-owner.”). If an entity other than the owner is solely using and controlling use of the mark, the parties must consider that there should be a license agreement between them to ensure that the use of the mark at issue will inure to the benefit of the owner of the mark.
On a related note, in an adversarial proceeding at the USPTO, a parent company cannot rely on a registration owned by a wholly owned subsidiary, although it can rely on use by said subsidiary. The subsidiary would have to be a party to the proceeding in order to rely on the rights stemming from a registration owned by it. Likewise, a subsidiary may not rely on a registration owned by a parent in an adversarial proceeding in the USPTO if the parent is not a party to the proceeding. See, Hunt Control Systems Inc. v. Koninklijke Philips Electronics N.V., 98 USPQ2d 1558 (TTAB 2011).
In a situation where you have sister companies or some other common ownership between two companies, it should be noted that such companies are not considered to have the same pecuniary interest with respect to another company whose only relationship is common ownership. In other words, a company may not have standing to object to third party use of a mark owned by another company whose only relationship is common ownership. Compuclean Marketing and Design v. Berkshire Products Inc., 1 USPQ2d 1323 (TTAB 1986).
Thus, it is recommended to review the relationships between the parties that own trademarks and the parties that use trademarks. If there is any doubt as to whether the parties are “related companies” under the Lanham Act, it is recommended that written trademark license agreements be put in place.