Right of First Refusal in Trademark Agreement not Sufficient to Vest Ownership Rights in Trademark: Tenth Circuit | Practical Law

Right of First Refusal in Trademark Agreement not Sufficient to Vest Ownership Rights in Trademark: Tenth Circuit | Practical Law

In Derma Pen, LLC v. 4EverYoung Ltd., the US Court of Appeals for the Tenth Circuit reversed the US District Court for the District of Utah's denial of Derma Pen's request for a preliminary injunction prohibiting 4EverYoung from using the DERMAPEN trademark in the US. The Tenth Circuit expressly rejected the lower court's conclusion that Derma Pen was not likely to prove a protectable interest in the DERMAPEN trademark because the termination of the parties' agreement triggered 4EverYoung's right of first refusal to purchase Derma Pen's rights in the mark.

Right of First Refusal in Trademark Agreement not Sufficient to Vest Ownership Rights in Trademark: Tenth Circuit

by Practical Law Intellectual Property & Technology
Published on 12 Dec 2014 • USA (National/Federal)
In Derma Pen, LLC v. 4EverYoung Ltd., the US Court of Appeals for the Tenth Circuit reversed the US District Court for the District of Utah's denial of Derma Pen's request for a preliminary injunction prohibiting 4EverYoung from using the DERMAPEN trademark in the US. The Tenth Circuit expressly rejected the lower court's conclusion that Derma Pen was not likely to prove a protectable interest in the DERMAPEN trademark because the termination of the parties' agreement triggered 4EverYoung's right of first refusal to purchase Derma Pen's rights in the mark.
On December 9, 2014, the US Court of Appeals for the Tenth Circuit issued an opinion in Derma Pen, LLC v. 4EverYoung Ltd., reversing the US District Court for the District of Utah's denial of a preliminary injunction against 4EverYoung Ltd.'s use of the DERMAPEN trademark (No. 13-4157, (Dec. 9, 2014)). The Tenth Circuit reasoned the district court erroneously determined that the accused infringer, 4EverYoung was likely to succeed on the merits of Derma Pen's trademark infringement claim arising out of a breached sales distribution agreement.
The parties' sales distribution agreement granted Derma Pen the exclusive right to sell a micro-needling device in the US under the DERMAPEN mark and reserved to 4EverYoung the right to use the mark in the sale and distribution of the micro-needling product throughout the rest of the world. The agreement provided that, upon its termination, 4EverYoung had the right of first refusal to purchase Derma Pen's US rights in the DERMAPEN mark.
When Derma Pen terminated the agreement, 4EverYoung sought to exercise its right to purchase the US rights to the DERMAPEN trademark. The parties could not agree on terms, however, and 4EverYoung began using the trademarks in the US. Derma Pen sued 4EverYoung for trademark infringement and sought a preliminary injunction prohibiting 4EverYoung's US use of the mark.
The district court, finding that Derma Pen's interest in DERMAPEN was waning in view of the termination of the distribution agreement and 4EverYoung's right of first refusal, denied Derma Pen's request on the basis that 4EverYoung was likely to prevail on the merits of the case.
On appeal, 4EverYoung argued:
  • The termination of the parties' distribution agreement extinguished Derma Pen's trademark rights.
  • The agreement's reciprocal non-infringement clause gave 4EverYoung a concurrent right to use the DERMAPEN trademark in the US.
The Tenth Circuit rejected these arguments and determined that the district court misinterpreted the relevant clause of the sales agreement. In particular, the Tenth Circuit noted:
  • The contract provision that provides that Derma Pen would offer to sell the trademark rights to 4EverYoung only makes sense if Derma Pen retained ownership rights in the trademark that it could offer to sell.
  • 4EverYoung's reliance on its right of first refusal was unavailing because until an actual sale of Derma Pen's trademark rights takes place, Derma Pen likely remains the owner of these rights.
  • Despite 4EverYoung's claims that Derma Pen breached the agreement by failing to complete the sale of the trademark rights, a contractual breach would not abrogate Derma Pen's property rights in DERMAPEN or result in an automatic transfer of these trademark rights to 4EverYoung.
  • Derma Pen likely has a continuing protectable interest in the trademark, even if the mark's monetary value is waning, an observation that, even if true, has no bearing on Derma Pen's likelihood of success.
The court concluded that the district court erred in finding that Derma Pen was unlikely to succeed on the merits of its infringement claim because of the likelihood, in view of the record, that:
  • Derma Pen is the owner of the US trademark rights until they are sold.
  • No sale has taken place.
Accordingly, the Tenth Circuit concluded that the district court erred in its assessment of Derma Pen's likelihood of succeeding on its infringement claim, and reversed and remanded the matter to the district court for reconsideration of the remaining preliminary injunction factors of irreparable injury, balancing of the equities and the public interest.