Lawn care Co. Progressive Lawn Managers loses appeal against the Lawn Managers in an issue of Martial Settlement Agreement

Date Published: Jun 21, 2021

The Lawn Managers and Progressive Lawn Managers (“Progressive”) are owned by Randy Zweifel (“Zweifel”) and Linda Smith (“Smith”) respectively engaged in the business of lawn care. Before the incorporation of Progressive, Zweifel and Smith were spouses and operated the Lawn Managers for 20 years in the St. Louis Area. But later, they got divorced and signed a Martial Settlement Agreement (“MSA”) incorporated in the decree of Circuit Court of Jefferson. Under Section 5 of the MSA, Smith granted her 50% share of the company to Zweifel and barring some commercial & residential accounts and business equipment, all the rights, title and interest were granted to Zweifel. As per Section 5.06 of the MSA for the development of a new business, both parties agreed that Smith can use the corporate name “Lawn Managers” for two years after marriage by establishing a new lawn care company with the term “Progressive”. Smith started using the name Lawn managers and purchased the equipment for her new business by using the credit of Lawn Manager by assurance that Zweifel would not be liable for the purchase. Subsequently, after two years, discontinued the use of that name and started using the name Progressive. In 2013, Smith filed a contempt motion against Zweifel and subsequently cross motions were filled by each party which was settled by a written agreement on 25-July-2014 to amend some terms of the licensing agreement relating to the limitation on obtaining new business having effectiveness of 2 years. After 2015, when Smith was to stop using the name, Lawn Manager registered that word “Lawn Manager” as a trademark and sent Progressive a notice considering the logo of Progressive as an infringement of trademark. Despite the notice, Progressive didn’t amend the logo. Subsequently, Lawn Managers sued Progressive for trademark infringement under the Lanham Act at the United States District Court for the Eastern District of Missouri (“District Court”) and claimed injunction and monetary relief. In its defense, Progressive asserted for cancellation on ground due to the “naked license” and a defense of unclean hands. The district court found Progressive guilty since after expiration of the date of licensing agreement i.e., 31st-Dec-2020, Progressive continued using the mark without consent which caused confusion in the minds of the consumers. Hence, an injunction and decree of damages was granted by the Court. Discontent with the decision of the district court, Progressive filled this appeal at the United States Court of Appeals for the Eighth Circuit (“Appellate Court”) (Lawn Managers Inc v Progressive Lawn Managers Inc 959 F.3d 903 (8th Cir 2020)). In the appeal, Progressive didn’t challenge the finding of the district court regarding trademark infringement, but contented that Zweifel granted the naked license to Smith and the district court also rejected the defense of unclean hand and abused its discretion to award damages. The appellate court pointed out that, generally, the trademark owner has a duty to control the quality of their trademark to prevent public deception.

For any party to succeed, on naked licensing, “a party must establish that the licensor did not retain sufficient control over its licensee to guarantee consistent quality of the services provided under the mark.” With convincing evidences, it is necessary that such naked licensing results in involuntary trademark abandonment and forfeiture of trademark. For determining sufficient control, the court must evaluate whether the licensor “(1) retained contractual rights to control the quality of the use of its trademark; (2) actually controlled the quality of the trademark’s use; or (3) reasonably relied on [the licensee] to maintain the quality.”

The appellate court observed that, there are extraordinary circumstances involved in this licensing agreement. The licensing agreement was the result of a divorce and Smith could use the credit of Lawn Managers to purchase the equipment for her new business. The district court’s rejection of the unclean hands allegation was based on the interpretation of the agreement. It is cardinal rule in case the contract is ambiguous that the intention will be gathered from this. The district court also found that “practice of the parties and the contract conditions render the license arrangement more than a naked license.” So, there is a special relationship for the trademark holder to control the products. Here in case there is operation of the same business for a fixed period of time. So, the appellate court affirmed the decision of the district court and held that the Martial Separation Agreement is not a model trademark transaction which emerged from the contentious divorce of two people. But, a trademark is also public rights because when rights of trademark get abused the rights of the public get lost by the deception of the mark. The expected quality and quantity of products and services of the public may be hampered as well. The trademark possesses a message that the owner is controlling the nature and quality of the sold products or services and the Lawn Manager is not wrong in claiming infringement of trademark because the licensing agreement expired. If the owner does not prevent the misuse of the trademark in the hands of others, then the public will be deprived from its most effective protection against misleading by the misuse of a trademark. Here, Progressive is impersonating Lawn Managers’ mark without giving any guarantee that the goods and services were the same and could lead to harm to the right of the public which the trademark seeks to protect. Hence, for all these reasons, the appellate court affirmed the judgment of the district court.

Lawn Managers Inc v Progressive Lawn Managers Inc 959 F.3d 903 (8th Cir 2020).