A trademark cannot be separated from the goodwill of a business

An attempt to simultaneously sell a restaurant and license associated intellectual property has led to ten years of litigation in state and federal court. Michael Shwartz and his family owned and operated the Camellia Grill restaurant on Carrollton Avenue (the “Carrollton restaurant”) for decades. He operated the business – the single restaurant – through a wholly owned corporation, Camellia Grill, Inc. In 1999, Shwartz formed CGH for the sole purpose of owning federally registered Camellia Grill trademarks.

In 2006, Shwartz agreed to sell the Carrollton restaurant to Hicham Khodr. On August 11, in the “Bill of Sale,” Shwartz sold to Uptown Grill, L.L.C. all his “right, title and interest in and to the… tangible property located within or upon” the Carrollton restaurant, including “all furniture, fixtures and equipment, cooking equipment, kitchen equipment, counters, stools, tables, benches, appliances, recipes, trademarks, names, logos, likenesses, etc., and all other personal and/or movable property… located within or upon the property.”

On August 27, in the “License Agreement,” CGH licensed to The Grill Holdings, L.L.C. (“TGH”) the right to use certain defined “Marks.” These “Marks” included “all ‘Camellia Grill’ marks on file with the USPTO” and “all ‘trade dress’ associated with the ‘Camellia Grill’ Restaurant,” as well as blueprints, menus, and recipes. Section 5 of the License Agreement provides that the “Licensee acknowledges and agrees that all of the Licensor’s right, title and interest in and to the Marks shall remain the property of the Licensor.” The License Agreement also bound TGH’s affiliates and related companies.

In 2009, Khodr opened a Camellia Grill location in Destin, Florida, which eventually failed. In 2010, Khodr opened a location on Chartres Street in New Orleans (the “Chartres restaurant”).

Following state court litigation that ended in the termination of the License Agreement, Khodr filed a declaratory action to determine the parties’ respective rights in the Camellia Grill trademarks within or upon the Carrollton restaurant. Shwartz filed a separate action asserting trademark and trade dress infringement claims and breach of contract claims based on the continued use of Camellia Grill-related intellectual property following the termination of the License Agreement. The cases were consolidated.

Khodr moved for, and the district court granted, summary judgment on the question of ownership of trademarks within or upon the Carrollton restaurant. The district court held that the Bill of Sale transferred “ownership of the trademarks associated with the operation of the Camellia Grill restaurant on Carrollton Avenue to Uptown Grill.” The court also held sua sponte that the Bill of Sale transferred all Shwartz’s rights in the Camellia Grill trademarks to Uptown Grill and entered judgment for Khodr on all claims.

Shwartz appealed, and this court affirmed the district court’s first holding but reversed and remanded on its second. The court held that the Bill of Sale “clearly and unambiguously transfers to Uptown Grill the trademarks within or upon the Carrollton Avenue location.” However, because Khodr had not asked the district court to make its second holding, this court reversed and remanded for further proceedings.

The district court ultimately ruled that the Bill of Sale assigned all Camellia Grill trademark rights to Khodr, as well as trade dress rights associated with the Carrollton restaurant. The court then found that Shwartz was unable to sustain his trade dress infringement claim on the merits. Alternatively, the court held that even if Shwartz could sustain his trademark and trade dress infringement claims, he was not entitled to monetary damages.

With respect to the Shwartz’s breach of contract claims, the court found that the parties were still bound by the License Agreement. The court stated in a footnote that because “the parties have consistently treated the License Agreement as valid and binding,” it would “give effect to their agreement to the extent permissible under the law.” The court held that the use of the trademarks at the Chartres restaurant following the termination of the License Agreement was a breach of that contract. However, the court found that Shwartz could not prove breach of the agreement as to any putative trade dress.

Finally, after a bench trial, the court found that the operation of the Chartres restaurant during two discrete time periods constituted a breach of the License Agreement. The court then found that Shwartz had not proved any compensable damages, so denied any such award. The court enjoined TGH, Uptown Grill, and the company that owned the Chartres restaurant (Chartres Grill, LLC) from employing the Camellia Grill trademarks identified in the License Agreement “at any location other than the Carrollton Location.” Shwartz timely appealed the district court’s various adverse rulings.

The district court denied Shwartz’s motion for summary judgment on its ownership of the Camellia Grill trademarks other than at the Carrollton restaurant. The court held that the Bill of Sale assigned all Camellia Grill trademark rights to Khodr because (1) prior to the Bill of Sale, the trademarks had been used only at the Carrollton restaurant, (2) Shwartz made no effort to operate another Camellia Grill-branded restaurant before or since the Bill of Sale, and (3) the Bill of Sale assigned all goodwill and marks associated with the Carrollton restaurant to Khodr.

Shwartz contends that the court erred for several reasons. First, Khodr repeatedly represented that he would not dispute ownership of the trademarks outside the Carrollton restaurant. Second, federal registration of the marks affords Shwartz a presumption of ownership and nationwide protection. Third, the district court’s ruling does not take into account the License Agreement.

Khodr’s position is hard to pin down. In his briefing, he acknowledges the agreement not to use the trademarks at any location other than the Carrollton restaurant (i.e., the injunction), and argues that whether Shwartz’s purported use of the trademarks supports ownership is “of no consequence.” However, at oral argument Khodr contended that the Bill of Sale was “all-encompassing” and did in fact assign all Camellia Grill trademark rights to him.

The Bill of Sale conveyed all Shwartz’s “right, title and interest” to the “trademarks, names, logos, likenesses, etc. . . . located within or upon” the Carrollton restaurant. This court previously held that the Bill of Sale clearly “transfers to Uptown Grill the trademarks within or upon the Carrollton Avenue location.” Shwartz, 817 F.3d at 258. The question now is whether Shwartz retained any interest in the trademarks. He did not.

A trademark is a designation that identifies the source of goods and services and that has no independent significance separate from the goodwill of the business it symbolizes. As a technical matter, a trademark cannot be separated from the goodwill of a business. So, when an entire business is sold, as here, the goodwill and associated trademarks are necessarily transferred absent certain conditions not present here. Thus, the Bill of Sale unambiguously sold all rights to the Camellia Grill trademarks, and we cannot look to parol evidence to find otherwise.

A trademark “only gives the right to prohibit the use of it so far as to protect the owner’s good will” and so “cannot be sold or assigned apart from the goodwill it symbolizes.” Thus, trademark ownership and the related goodwill “impliedly pass with ownership of a business, without express language to the contrary.” Moreover, to retain ownership after the sale of the business associated with the trademark, “the owner’s intent to resume producing substantially the same product or service must be manifest, some portion of the goodwill of the previous business must remain with the owner, and resumption of operations must occur within a reasonable time.”

When selling an entire business, the rights to associated trademarks are necessarily sold unless at least two conditions are met: (1) the contract expressly reserves some right and interest in the trademark, and (2) the seller retains some of the business’s goodwill. The latter condition is the most important, as no rights to trademarks can exist without the related goodwill.

Having already sold to Khodr the Carrollton restaurant’s real property, Shwartz sold “all of his right, title and interest in and to” all “furniture, fixtures and equipment, cooking equipment, kitchen equipment, counters, stools, tables, benches, appliances, recipes, trademarks, names, logos, likenesses, etc., and all other personal and/or movable property owned by Shwartz located within or upon the real property.” The only Camellia Grill business was the Carrollton restaurant.

So, all goodwill associated with Camellia Grill was connected to the business sold to Khodr as a going concern. No goodwill was expressly retained or remained to which otherwise free-floating trademark rights could attach, and Shwartz has never argued that he retained some part of the business’s goodwill. Without looking outside the four corners of the Bill of Sale, and given the technical understanding of the term “trademark,” the contract unambiguously transfers “all of Shwartz’s right, title, and interest” in the Camellia Grill trademarks.

Finding that Shwartz retained some rights in the Camellia Grill trademarks would be contrary to a fundamental purpose of trademarks: identifying a single source of a product or service. If Shwartz sold all trademark rights to Khodr in the Bill of Sale, then Shwartz could not turn around and license these rights in the License Agreement. Shwartz cannot sustain his claims of trademark ownership on the basis of the License Agreement.