Messy Shot Converts to a HOLE IN ONE in Cancellation Involving Claim Tried by Consent

The Trademark Trial and Appeal Board recently examined the distinction between applications filed under Section 1(a) and Section 1(b) of the Trademark Act in determining whether the issue of lack of bona fide intent to use was tried by consent under Federal Rule of Civil Procedure 15(a).

In Hole In 1 Drinks, Inc. v. Lajtay, the Board found that an individual’s underlying application based on Section 1(b) was void ab initio because the individual, a co-founder of Hole-In-One Drinks, LLC, lacked an intent to use the HOLE IN ONE mark himself as of the filing date of the application. But the Board had to navigate through several hazards on the course to arrive at this outcome.

Facts

Respondent Michael Lajtay testified that he started the HOLE IN ONE project in January 2015. On January 24, 2015, he filed an intent-to-use application under Section 1(a) in his own name for the HOLE IN ONE mark. However, Petitioner Hole In 1 Drinks, Inc.’s president, Darryl Cazares, testified that he entered into a business relationship with Lajtay as business partners for the purpose of creating, developing, marketing and selling a sports drink beverage targeted to the golf industry called HOLE IN ONE in or about January 2015.

This understanding seems to be confirmed in a January 31, 2015 email from Lajtay to a consultant writing a business plan for Hole In One Beverages, LLC in which Lajtay states that Cazares is his business partner. The business plan reflects that “Hole In One, Inc. is a California Corporation and is the exclusive manufacturer and marketer of Hole In One Performance Drink branded beverages,” and was founded by Lajtay and Cazares. The business plan also notes that the HOLE IN ONE application was initially filed by Cazares and Lajtay. Lajtay conceded that Cazares was a “co-founder, a business partner, in the Hole-In-One endeavor,” although there were no signed agreements between himself and Cazares, and Lajtay does not recall ever terminating the membership of Cazares in Hole-In-One Drinks, LLC.

Lajtay also testified that while he was present at every sale of HOLE IN ONE-branded beverages, Hole-In-One was always the one selling the products under the name Hole-In-One Drinks, LLC, and customers paid Hole-In-One Drinks, LLC. Third parties also testified that Lajtay created the HOLE IN ONE brand, trademark, packaging design, and energy drink formula.

Hole in 1′s Allegations

Hole In 1’s petition to cancel, filed April 6, 2017, include the following allegations:

(6) The true facts are that the HOLE IN ONE mark in the Registration at issue was actually owned by a partnership between Registrant “Michael Latjay” [sic] and “DARRYL CAZARES,” … In particular, both Mr. Latjay [sic] and Mr. Cazares agreed to own the HOLE IN ONE mark jointly. However, Mr. Latjay [sic] proceeded to file and obtain the Registration at issue in his sole name without the consent and knowledge of Mr. Cazares. …

(7) Clearly, only the owner of a mark may register the mark and the Registrant, Michael Latjay [sic], was not the sole owner of the HOLE IN ONE mark at the time of filing. Because the Registration at issue should have listed both Michael Latjay [sic] and Darryl Cazares as either joint applicants or as a partnership, the Registration at issue is void ab initio and should be cancelled.

The Board noted that the petition also mistakenly alleged that Lajtay filed his application under Section 1(a), not Section 1(b). And this is where the case rolls into the rough: Where an application originally filed based on a bona fide intent to use under Section 1(b), and two parties are claiming rights in the same mark, as in this case, “the issue is whether the applicant of the intent-to-use application had a bona fide intent to use the mark, not whether it owned the marks as of the filing date of the application.” This is because ownership of a mark arises through use of the mark, and in an application under Section 1(b), either the mark has not yet been used, or the applicant is not claiming use of the mark. Citing its 2019 precedential decision in Norris v. PAVE: Promoting Awareness, Victim Empowerment, 2019 USPQ2d 370880 *4 (TTAB 2019), the Board concluded that “a claim that an applicant, or in this case [Lajtay], was not the rightful ‘owner’ of the mark when the application was filed is not available when the application, as originally filed, is not based on use of the mark in commerce.” Having found there is no statutory basis for the claim, the Board gave no further consideration to Hole In 1’s nonownership claim.

But this did not curtail Hole In 1’s drive. Citing Norris, the Board explained that it has previously held that “the same operative facts regarding parties claiming superior rights based on shared circumstances may support different claims depending on whether they arise in a use-based application, in which case the appropriate claim is lack of ownership, or in an intent-to-use application, in which case the appropriate claim is lack of bona fide intent to use.”

Analysis

The Board then examined whether the parties tried by implied consent a claim that Lajtay lacked a bona fide intent to use the HOLE IN ONE mark by himself under Federal Rule of Civil Procedure 15(b)(2). Fed. R. Civ. P. 15(b)(2) states, in pertinent part, “[w]hen an issue not raised by the pleadings is tried by the parties’ express or implied consent, it must be treated in all respects as if raised in the pleadings.” In Morgan Creek Prods., Inc. v. Foria Int’l, Inc., 91 USPQ2d 1134, 1138 (TTAB 2009), the Board found that an issue was tried by implied consent where the non-offering party (1) raised no objection to introduction of evidence on the issue and (2) treated the evidence as being of record in its brief, or discussed the issue in its brief as if it was part of the original allegations.

In its examination of the pleadings and evidence under Fed. R. Civ. P. 15(b)(2), the Board determined that Hole In 1 intended to allege that Lajtay did not have a right to file his application due to a lack of bona fide intent to use the HOLE IN ONE mark by himself because Hole In 1 pleaded the appropriate facts to support a lack of bona fide intent to use claim, but mistakenly referred to the ownership of the mark. The Board also noted that the Norris case clarifying that a nonownership claim is not available when the application is not based on use in commerce under Section 1(a) did not issue until 2019, after Hole In 1 filed its petition to cancel. Examining the record, the Board determined that Lajtay was aware that the dispute centers on which person(s) or entity had a bona fide intent to use the HOLE IN ONE mark at the time of filing, and there was no reason for Lajtay to object to any testimony or evidence because “it was the same testimony and evidence for either the nonownership claim or a lack of a bona fide intent-to-use claim.” Basically, had Hole In 1 properly pleaded a claim of lack of a bona fide intent to use, the litigation would have proceeded unchanged. The Board then deemed the pleadings amended under Fed. R. Civ. P. 15(b) to assert a claim of lack of bona fide intent to use.

Finally, the Board determined that Lajtay and Cazares jointly had a bona fide intention to use the HOLE IN ONE mark at the time Lajtay filed the underlying application, and the application should have identified Lajtay and Cazares as joint owners, since it was filed before Hole-In-One, LLC was established. The Board also cautioned that “trademark rights are not gained by creating a mark, but through use of the mark,” and the existence of the LLC through which Lajtay intended to conduct business “cannot be turned on and off at will to suit the occasion.” Based on the record, the Board could not find anything to suggest that Lajtay himself intended to use the HOLE IN ONE mark in his own name and not through Hole-In-One Drinks, LLC, and accordingly held that the underlying application for Lajtay’s registration was void ab initio for lack of a bona fide intent to use the mark.

The case is Hole In 1 Drinks, Inc. v. Lajtay, 2020 TTAB LEXIS 9 (TTAB 2020)