Trademarks and Deceptive Practices
Due Diligence Exercise
March 16,1998

Instructions: This exercise is a multiple choice quiz, worth a total of 20 points. The quiz is open- book and you may use any written material you wish, but you must work alone. Choose only one answer from the alternatives presented for each question and circle the letter corresponding to that answer. If you believe that more than one answer is correct, choose the answer that represents the best of the alternative answers. All statutory references are to the Lanham Act unless otherwise indicated.

1. The Robots is a musical group organized by promotor; Bo Benton, to represent a musical style made famous in Washington, D. C., in the early 1990's. The group is composed of six teenagers, handpicked by Mr. Benton to be the first members of The Robots; none of the teenagers has ever performed before. The group is distinguished by the fact that, like robots, the performers look and sound identical to one another and move in synchronized fashion. Mr. Benton chooses all the music to be performed by the group, and he selects costuming and otherwise controls the look of the group. After a six-month nationwide tour, Mr. Benton concludes that the teenagers require too much hands-on management, and he decides to rid himself of this responsibility.

(2pts.) 1. 1 You are legal counsel for a record label interested in buying the robot concept and musical style of the group along with its name from. Mr. Benton; your client is not interested in the services of the original group members but does wish to include in the purchase Mr. Benton's consulting services for one year. You have been informed that the original performers object to the sale and want to continue touring as The Robots, under their own management. You advise your client that

(a) The original group members probably own the name, "The Robots."

(b) The sale would constitute an assignment in gross.

(c) Mr. Benton probably owns the name, "The Robots."

(d) The original group members may continue to perform under the name, "The Robots," but only in Washington, D. C.

(e) The name, "The Robots," is generic and, therefore, has no value.

(2pts.) 1.2 While your client is considering the purchase described above, the musical style represented by The Robots loses popularity and the group is forced into bankruptcy. The trustee in bankruptcy proposes to sell all assets associated with the group to your client; your client remains interested in acquiring the name, "The Robots," but now plans to use it to market recordings of squeaky machinery (apparently, these sounds scare away crows when broadcast over loudspeakers in cornfields). You advise your client that:

(a) The sale would constitute an assignment in gross.

(b) The name, "The Robots," is generic and, therefore, has no value.

(c) The bankruptcy court's authorization of the sale will protect the assignment from unenforceability for any deficiencies under trademark law.

(d) As long as the sale includes the group's costumes and all its instruments and other equipment, the assignment is valid.

(e) The assignment will be valid if it recites that the sale of assets is made to the record label along with the goodwill associated therewith.

2. Your client, Tangy Dawgs, Inc., is negotiating with Acme Food Co., a spice manufacturer, to license use of the trademark "Zowie," which Acme uses in con unction with chili powder; your client would like to manufacture hot dogs saturated with chili powder under the trademark "Zowie Dawgs." You are Tangy Dawg's lawyer and your due diligence investigation has revealed the following facts. On August 5, 1990, Acme obtained an assignment -from an unrelated entity of a section 1 (b) application for registration of the mark "Zowie" on the Principal Register; the application had been filed on March 1, 1990. On December 5, 1991, Acme began using the mark "Zowie" in commerce in conjunction with the sale of chili powder; shortly thereafter, Acme filed a Verified Statement of Use with the U. S. Trademark Office and a registration issued.

(2pts.) 2.1 Your due diligence investigation has revealed that a competing spice manufacturer has been using "Zowie" in commerce in conjunction with chili powder since July 19, 1991. You advise your client that:

(a) Acme's competitor will not be able to enjoin Tangy Dawg's use of the mark "Zowie Dawgs."

(b) The contemplated license will be a naked license.

(c) Acme's priority date for rights in the mark "Zowie" is March 1, 1990.

(d) Acme's priority date for rights in the mark "Zowie" is August 5, 1990.

(e) Acme does not own prior rights in the mark "Zowie" and the registration is void.

(2pts.) 2.2 Acme purchases its competitor's business during the license negotiations, but your client withdraws from the negotiations. Soon thereafter, Acme announces its intention to cease manufacturing chili powder solely because the country from which it obtains its main ingredient is undergoing civil war. Tangy Dawgs informs you that it can obtain the ingredient because it has a good relationship with rebels in the war torn country, and it now wants to market "Zowie Dawgs" chili powder-saturated hot dogs in the U. S., without a license. You advise your client that:

(a) Its contemplated action might expose it to liability for infringement.

(b) Acme's actions do not constitute abandonment of the mark "Zowie."

(c) Acme's priority date for rights in the mark "Zowie" is July 19, 1991.

(d) All of the above.

(e) None of the above.

3. Spiffy, Inc., a manufacturer of high quality, expensive pocket watches is negotiating to sell its business to your client. In the course of conducting a due diligence investigation, you discover that Spiffy manufactures a popular model marketed under the mark "Oyster," which mark has belonged for many years prior to Rolex, Inc., a manufacturer of luxury wristwatches. Spiffy tells you that, four years ago, the CEO of Rolex purchased an "Oyster" pocket watch and wrote a letter to Spiffy complimenting the company on the quality of the product and urging the company to "keep up the good work."

(2pts.) 3.1 Despite the increasing popularity of the pocket watch, Rolex has never objected to Spiffy's use of the mark "Oyster"; nevertheless, your client is concerned about buying the business only to encounter such an objection. You advise your client that:

(a) In accordance with section 45, Rolex has abandoned the mark "Oyster."

(b) Rolex has acquiesced in Spiffy's use of the mark "Oyster."

(c) Rolex has abandoned its mark for failure to maintain the chain of title.

(d) The mark "Oyster" is not inherently distinctive for watches of any type.

(e) All of the above.

With regards to Spiffy's business, your client requests that you negotiate a non-exclusive license agreement with Rolex for your client's use of the mark "Oyster" in conjunction with pocket watches. The agreement contains quality control provisions allowing Rolex access to your client's factory at any time, upon reasonable notice. During the course of the license, Rolex occasionally asks to see advertising for the product but never visits the factory or examines the actual pocket watches. The license is due to expire soon, and you have learned that Rolex adopts a similar approach with respect to other licensees of the mark "Oyster." Assuming the necessity of the license initially, you advise your client that:

(a) Renewal of the license is unnecessary due to the 3 year presumption in section 45.

(b) Renewal of the license is necessary because Rolex has not announced plans to abandon the mark "Oyster."

(c) Renewal of the license is unnecessary because Rolex has abandoned the mark through naked licensing.

(d) All of the above.

(e) None of the above.

4. You are legal counsel for TopHogs, Inc., a domestic manufacturer of motorcycles. Your client is negotiating with Groundhogs Co., a Delaware corporation engaged in the manufacture of motorscooters, for the purchase of the distinctive scent of lillies found in the exhaust of Groundhog's "Lilly" line of motorscooters. TopHogs wants to purchase the right to use the scent in conjunction with a line of motorcycles to be targeted at the under-30, female segment of its market.

(2pts.) 4.1 During the course of your due diligence investigation, you uncover a utility patent assigned to Groundhogs for the structure of the combusiton engine used in "Lilly" motorscooters; the patent recites that combustion from such an engine lends a floral scent to the exhaust. You advise your client that your primary concern is:

(a) Whether or not a scent can function as a trademark at all.

(b) Whether or not the scent is inherently distinctive.

(c) Whether or not sufficient secondary meaning has attached to the scent.

(d) Whether or not the named inventor owns a trademark in the scent.

(e) Whether or not the scent is functional.

(2pts.) 4.2 Subsequently, Groundhog's engineers assure you that, although combustion of the motorscooter engine does result in a floral-scented exhaust, the scent is not that of lillies; the lily scent is added to the exhaust prior to emission through an unpatented process. Groundhog's research shows that no other motor vehicle with a lilly-scented exhaust has ever been on the market; Groundhog has maintained no records of its advertising costs or sales figures. You advise your client that:

(a) A scent cannot act as a trademark.

(b) If it purchases the scent, the absence of records will defeat any showing of distinctiveness TopHogs might have to make in the future.

(c) Although not certain, if it purchases the scent, TopHogs should not be required to prove secondary meaning in the future.

(d) All of the above.

(e) None of the above.

5. You are in-house counsel for The Bank of Detroit and have been asked to draft an agreement which would give your client a security interest in the trademark "Glox" for floor wax in exchange for a loan of $100,000 to Glox Products, Inc. The initial draft of the document prepared by your associate recites in pertinent part: "Glox Products, Inc., hereby assigns all right, title, and interest in the trademark 'Glox,' U. S. Registration No. 123,456 for 'Glox' for floor wax, the product formula, and Glox Products' customer list for the product, inconsideration for a loan in the amount of $100,000." The document further recites that the loan is to be repaid in accordance with an attached schedule and that, upon receiving the final payment, the Bank will reconvey the items previously assigned to it.

(2pts.) 5.1 You ask the associate to redraft the document because:

(a) The Bank does not intend to engage in the manufacture of floor wax during the term of the loan and, so, the document contemplates an assignment in gross.

(b) The document as presently drafted will separate the goodwill from the mark.

(c) The assignment must be conditioned upon default under the loan in order to preserve the validity of the mark.

(d) -

(e) None of the above.

(2pts.) 5.2 In the course of conducting due diligence for the Bank, you learn that Glox Products obtained rights to the trademark "Glox" through an assignment from a predecessor-in-interest. Glox's predecessor obtained the existing federal registration for the mark; no assignment from the predecessor to Glox Products was ever filed in the U. S. Trademark Office. Once the security interest agreement is drafted to your liking, what problem do you anticipate in attempting to record the document with the Trademark Office?

(a) The Trademark Office will refuse to record your document because the chain of title for the mark has not been maintained in the Office's records.

(b) The Trademark Office will refuse to record your document because the filing is not necessary in order to perfect your security interest.

(c) The Trademark Office will refuse to record your document unless it makes reference to the equipment necessary to produce floor wax.

(d) The Trademark Office will refuse to record a document from an entity not listed on the registration certificate.

(e) The Trademark Office will lose your document.