Lessons Learned from a Gum Licensing Agreement

In 1999, three years after the set expiration of the 1980 agreement, Topps brought suit against Stani (and parent company Cadbury) on the grounds that Stani's continued use of Topps' formulas to manufacture the gum constituted misappropriation of trade secrets. Stani, in response, argued that although it was not using Topps' formulae, it had the right to do so after the expiration of the 1980 agreement, and that it transferred these technologies and the trademarks to its parent company, Cadbury. The District Court granted summary judgment to Stani, finding that the 1980 agreement, read in conjunction with the 1976 license agreement and the escrow agreement, unambiguously gave Stani the right to continue using Topps' technology even after expiration of the 1980 agreement and that such activities did not constitute breach of contract or misappropriation of trade secrets.

The Second Circuit's Decision

The Second Circuit Court of Appeals reversed the decision, finding that summary judgment was inappropriate because the 1980 agreement was ambiguous. The agreement did not contain terms expressly granting or denying Stani the right to Topps' formulas after expiration of the license. On one hand, the agreement stated that “[t]he TOPPS Trademarks and the TOPPS technology,” which included the formulae, “shall remain the exclusive property of TOPPS or its assigns.” Further on, the agreement only granted the right to Stani to use the formula “during the continuance” of the agreement. This language suggested that Stani had no right to continue using Topps' formulas after the expiration in 1996. On the other hand, there was no language expressly stating that Stani's right to the technology would end upon expiration. By contrast, the early termination provisions of both the 1976 and the 1980 agreements provided that Stani would have no further right “to use any of the TOPPS trademarks or the TOPPS technology except for use in connection with selling and disposing of Licensed Products on hand.”

While the issue of territoriality was not fully examined in Topps, the Second Circuit did note the role of Argentine law in evaluating the 1980 Escrow Agreement. The District Court had reasoned that if Stani did not have the right to continue using Topps' formulae after the expiration of the license, this would have put Stani out of business. Furthermore, absent the transfer of Topps' formulae, the assignment of Topps' trademarks would have amounted to nothing more than a transfer “in gross” and thus would have been invalid under current trademark law. However, the Court of Appeals pointed out that such an interpretation relied on the U.S. principle that the transfer of a trademark cannot be divorced from its goodwill. Here, Argentine law, which allows for assignments in gross, and not U.S. law, should have been legally controlling since the agreement related to the assignment of Argentine trademarks. The court also raised the possibility that the parties had intended an assignment in gross despite the uncertain legal implications of such a transfer.

International Trademark Law and Treaties, Goodwill

International trademark law and treaties have generally taken a less conservative approach to trademark assignments. The majority of countries allow for trademark assignments in gross, or make no distinction between the two. The trademark assignment provisions of TRIPS and NAFTA allow for trademark assignments in gross. However, some countries do still require that the sale of a business specifically include the transfer of the goodwill embodied by the business.

In recent years, U.S. courts have also generally been more pragmatic in interpreting the goodwill factor of a particular assignment. In some cases, as long as the assignee does not implement product changes that would pose a risk to the public or deceive consumers, and the goods and services being offered by the assignee were substantially similar to those originally offered by the assignor, the goodwill will be considered to have been transferred. See, e.g., Vitorria N. Am., L.L.C. v. Euro-Asia Imports, Inc., 278 F.3d 1076 (10th Cir. 2001) (upholding an assignment between U.S. bicycle tire company and importer's predecessor because continuity in the use of the mark and consumer impressions remained unchanged).

In Topps, the Court of Appeals noted that the trademark assignment did not necessitate the transfer of Topps' formulae. The goodwill requirement would have been satisfied as long as Stani could produce a “substantially similar [product such that] consumers would not be deceived or harmed.” Marshak v. Green, 746 F.2d 927, 930 (2d Cir. 1984). Likewise, in Visa U.S.A. v. Birmingham Trust Nat'l Bank, 696 F.2d 1371 (Fed. Cir 1982), an assignment of the mark O.K. for check-cashing services by a grocery store chain to a credit card company was valid, since the goodwill to which the mark pertained related to a service which was ancillary to both businesses, not merely grocery store services, and there was no legitimate reason to believe consumers would be harmed. See also Glamorene Products Corp. v. The Procter and Gamble Company, 538 F.2d 894 (C.C.P.A. 1976) (holding an assignment of the trademark BOUNCE for a dry cleaning detergent to be valid and not an assignment in gross).

One Final Lesson

One final lesson from this case is the need for the parties to consider the full contractual implication of any assignment of marks and the corresponding goodwill factor. As in the present case, there is often much ambiguity in defining the goodwill and intent of the parties.

Daretia Austin is the Director of Trademarks for Time Warner Inc. She can be reached at [email protected].

More than a decade after the license agreement between The Topps Company and Stani expired, the question of who owns the rights to manufacture and distribute the original Bazooka' bubble gum formula in South America is still unresolved. The Topps Company, Inc. v. Cadbury Stani S.A.I.C. f/k/a Productos Stani Sociedad Anonima Industrial y Comercial, 526 F.3d 63 (2d Cir. 2008). The lesson learned from the licensing arrangement that began in 1956 is that the license agreement and any proceeding agreements need to precisely state which party owns the rights to the technology upon expiration or early termination of the license, and that such terms should be mutually agreeable.

Factual History

The original 1957 agreement allowed for a 20-year term in which Topps was to provide to Stani “the know-how, formulae, processes and techniques used by Topps” to manufacture and distribute the gum in Argentina, Bolivia, Chile, Paraguay, and Uruguay, in exchange for royalties. In 1976, a new agreement was executed allowing for Stani's continued use of Topps' “manufacturing, technology, marketing concepts and techniques, administrative and consultive assistance and trademark use” for a 10-year term, with an option to extend for another 10 years. In 1980, Topps and Stani entered into two further agreements, an escrow agreement and an Amended and Restated License Agreement, outlining terms similar to the 1976 agreement, but extending the license until 1996. However, while the 1976 agreement specified the products as “Licensed Products utilizing Topps Technology,” the 1980 agreement only specified “Licensed Products.” The escrow agreement held that unless Stani defaulted under the 1980 license agreement, “Topps [would transfer] legal title to the registration in Argentina of the trademarks 'Bazooka', 'Topps' and related trademarks” to Stani upon expiration of the license agreement. Stani in turn paid $100,000 for the escrow agreement.

In 1999, three years after the set expiration of the 1980 agreement, Topps brought suit against Stani (and parent company Cadbury) on the grounds that Stani's continued use of Topps' formulas to manufacture the gum constituted misappropriation of trade secrets. Stani, in response, argued that although it was not using Topps' formulae, it had the right to do so after the expiration of the 1980 agreement, and that it transferred these technologies and the trademarks to its parent company, Cadbury. The District Court granted summary judgment to Stani, finding that the 1980 agreement, read in conjunction with the 1976 license agreement and the escrow agreement, unambiguously gave Stani the right to continue using Topps' technology even after expiration of the 1980 agreement and that such activities did not constitute breach of contract or misappropriation of trade secrets.

The Second Circuit's Decision

The Second Circuit Court of Appeals reversed the decision, finding that summary judgment was inappropriate because the 1980 agreement was ambiguous. The agreement did not contain terms expressly granting or denying Stani the right to Topps' formulas after expiration of the license. On one hand, the agreement stated that “[t]he TOPPS Trademarks and the TOPPS technology,” which included the formulae, “shall remain the exclusive property of TOPPS or its assigns.” Further on, the agreement only granted the right to Stani to use the formula “during the continuance” of the agreement. This language suggested that Stani had no right to continue using Topps' formulas after the expiration in 1996. On the other hand, there was no language expressly stating that Stani's right to the technology would end upon expiration. By contrast, the early termination provisions of both the 1976 and the 1980 agreements provided that Stani would have no further right “to use any of the TOPPS trademarks or the TOPPS technology except for use in connection with selling and disposing of Licensed Products on hand.”

While the issue of territoriality was not fully examined in Topps, the Second Circuit did note the role of Argentine law in evaluating the 1980 Escrow Agreement. The District Court had reasoned that if Stani did not have the right to continue using Topps' formulae after the expiration of the license, this would have put Stani out of business. Furthermore, absent the transfer of Topps' formulae, the assignment of Topps' trademarks would have amounted to nothing more than a transfer “in gross” and thus would have been invalid under current trademark law. However, the Court of Appeals pointed out that such an interpretation relied on the U.S. principle that the transfer of a trademark cannot be divorced from its goodwill. Here, Argentine law, which allows for assignments in gross, and not U.S. law, should have been legally controlling since the agreement related to the assignment of Argentine trademarks. The court also raised the possibility that the parties had intended an assignment in gross despite the uncertain legal implications of such a transfer.

International Trademark Law and Treaties, Goodwill

International trademark law and treaties have generally taken a less conservative approach to trademark assignments. The majority of countries allow for trademark assignments in gross, or make no distinction between the two. The trademark assignment provisions of TRIPS and NAFTA allow for trademark assignments in gross. However, some countries do still require that the sale of a business specifically include the transfer of the goodwill embodied by the business.

In recent years, U.S. courts have also generally been more pragmatic in interpreting the goodwill factor of a particular assignment. In some cases, as long as the assignee does not implement product changes that would pose a risk to the public or deceive consumers, and the goods and services being offered by the assignee were substantially similar to those originally offered by the assignor, the goodwill will be considered to have been transferred. See, e.g., Vitorria N. Am., L.L.C. v. Euro-Asia Imports, Inc. , 278 F.3d 1076 (10th Cir. 2001) (upholding an assignment between U.S. bicycle tire company and importer's predecessor because continuity in the use of the mark and consumer impressions remained unchanged).

In Topps, the Court of Appeals noted that the trademark assignment did not necessitate the transfer of Topps' formulae. The goodwill requirement would have been satisfied as long as Stani could produce a “substantially similar [product such that] consumers would not be deceived or harmed.” Marshak v. Green , 746 F.2d 927, 930 (2d Cir. 1984). Likewise, in Visa U.S.A. v. Birmingham Trust Nat'l Bank , 696 F.2d 1371 (Fed. Cir 1982), an assignment of the mark O.K. for check-cashing services by a grocery store chain to a credit card company was valid, since the goodwill to which the mark pertained related to a service which was ancillary to both businesses, not merely grocery store services, and there was no legitimate reason to believe consumers would be harmed. See also Glamorene Products Corp. v. The Procter and Gamble Company , 538 F.2d 894 (C.C.P.A. 1976) (holding an assignment of the trademark BOUNCE for a dry cleaning detergent to be valid and not an assignment in gross).

One Final Lesson

One final lesson from this case is the need for the parties to consider the full contractual implication of any assignment of marks and the corresponding goodwill factor. As in the present case, there is often much ambiguity in defining the goodwill and intent of the parties.

Daretia Austin is the Director of Trademarks for Time Warner Inc. She can be reached at [email protected].