Appeal court finds prior settlement does not impact future trademark licensees

In Overhead Door Company of Kansas City v Overhead Garage Door Equipment Company, LLC (Case 22/10985 (Fed Cir, 22 August 2023)), the US Court of Appeals for the 11th Circuit ruled that under certain circumstances, a trademark licensee can bring a claim against a third-party for unfair competition under the Lanham Act, even if the licensing agreement does not expressly authorise it to do so.

Case details

The appeal involved three parties: DH Pace Company, Overhead Door Corporation (Overhead) and Overhead Garage Door (OGD). All three companies are involved in selling and servicing garage doors. Pace is a licensee of Overhead and, under its licence, is permitted to advertise and promote the trade name OVERHEAD DOOR COMPANY. OGD is a competitor of Overhead and Pace

Prior to the current appeal, Overhead and OGD were involved in litigation concerning OGD’s alleged trademark infringement and unfair trade practices. This resulted in a settlement and, as part of this, OGD and Overhead could not bring suits against each other. However, the terms were not expressly binding on any current or future licensees of Overhead.

In the current litigation, Pace filed suit against OGD for unfair competition in violation of Section 43(a) of the Lanham Act – deceptive trade practices and various state trademark infringement violations. Pace alleged that OGD was leading consumers to believe that it was the same company as or was affiliated with Overhead (Pace’s licensor).

In response, OGD moved for summary judgment, which the district court granted, ruling that the licensing agreement between Pace and Overhead was a contractual bar to relief because the agreement did not affirmatively give Pace the right to sue. Further, as a non-exclusive licensee, Pace lacked standing to bring its suit. The district court held that because Pace’s trademark rights were derived from a licensing agreement with Overhead, and by discharging rights in the prior settlement with OGD, Overhead also discharged Pace’s right to sue.

Disagreements and debates

Through a de novo review, the 11th Circuit disagreed with the district court’s grant of summary judgment against Pace. As the district court recognised, under Section 43(a) of the Lanham Act, parties other than the owner of the mark can bring suit. However, the district court barred Pace’s claims based on the licensing agreement, Pace’s status as a non-exclusive licensee and the settlement agreement between OGD and Overhead. In reversing, the 11th Circuit held that none of these reasons were sufficient to bar Pace’s claims.

According to the 11th Circuit, the licensing agreement did not bar Pace from suing since there was no contractual term imposing a bar. While a licensee’s right to sue can be restricted, there was nothing in the licensing agreement at issue that limited Pace’s right to sue. The agreement did not address trademark enforcement or either party’s ability to sue.

The 11th Circuit explained that the district court had misread its 2019 decision in Kroma Makeup v Boldface Licensing. Rather than requiring that a licensing agreement contain a right-to-sue provision in order for a licensee to bring a Lanham Act claim, Kroma simply acknowledged that a licensing agreement between two parties can limit a licensee’s otherwise far-reaching ability to bring a claim under the Lanham Act and explained that courts must use “basic principles of contract interpretation” to determine what rights and obligations a licensing agreement may otherwise impose on parties. Correctly applying Kroma, the court concluded that there was no contractual bar to sue because nothing in the licensing agreement barred Pace from bringing a Lanham Act claim.

Key takeaways

Regarding Pace’s status as a non-exclusive licensee, the 11th Circuit explained that standing is not limited to trademark registrants as specified in Section 32(1) of the Lanham Act. Since Pace’s suit was brought under Section 43(a), parties other than the owner of the mark can bring suit if they would suffer adverse consequences from the alleged violation of Section 43(a).

The 11th Circuit held that the settlement agreement between Overhead and OGD did not bar Pace from filing suit since the agreement stipulated only that Overhead and OGD were precluded from suing each other. The agreement not to sue was not made binding upon current or future licensees. The court rebuffed OGD’s argument that Pace’s rights were derivate and not directly conferred by the license agreement. As it explained: “a licensee’s § 43(a) claim under the Lanham Act is not barred where a registrant’s claim may be otherwise barred by a separate contract between the registrant and a third-party.” Applying the plain language of the settlement agreement, the court found nothing that would bar Pace from bringing its claims.