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Splitting trademarks between businesses in a corporate transaction presents unique challenges for corporate lawyers and trademark attorneys alike. A recent case on key is Baldwin Piano Inc. v. Deutsche Wurlitzer GmbH, decided by the U.S. Court of Appeals for the 7th Circuit on Dec. 16, 2004. The story goes back to 1985, when the venerable Wurlitzer Co., producer of pianos, organs, and jukeboxes, was split up. An Australian company, Nelson Group Holdings Pty Ltd., acquired Deutsche Wurlitzer GmbH, the business producing Wurlitzer jukeboxes. The Wurlitzer piano and organ business continued under the same brand under separate ownership and control. Experienced trademark counsel know that splitting rights in a trademark between separate owners is tricky. The risk of mishandling trademarks in corporate transactions is high. The consequences range from weakened rights to total abandonment of valuable trademarks with long-term licensing and litigation problems in between. These problems can arise when the transaction involves a part of business operated under a house mark. Assuming, for example, that the goal of the transaction is to sell certain subsidiaries as they are currently operated while continuing in business with the other subsidiaries, what happens to the house mark? The most discordant outcome is that ownership of a mark by unrelated companies for similar goods may destroy the mark. Short of that, valuable rights may be weakened, hindering enforcement against other parties who adopt the same mark. TOO MANY PRODUCTS Marketing personnel seem to have an intuitive understanding of the problem: Too many products coexisting under the same brand may damage or destroy the marketing value of the brand. The attorneys for the 1985 Wurlitzer transaction also recognized the risk of splitting ownership in the mark, and they employed a common solution. The parent company retained ownership of the Wurlitzer mark, while the purchasers of the jukebox business received perpetual, royalty-free license. The clear intent was this: to mimic outright ownership to the fullest extent possible without splitting the mark between two separate masters. With that legal slight of hand, the lawyers achieved their clients’ desired results. Or so they thought. Years later, Baldwin Piano acquired the Wurlitzer piano and organ business, along with ownership of the Wurlitzer mark. Under Illinois law, as well as the law of some other states, licenses for an indefinite term may be terminated at will, notwithstanding the apparent intent of the parties to create a perpetual license. Keying in on this technicality, and presumably unhappy being bound to a royalty-free agreement, Baldwin Piano abruptly told Deutsche Wurlitzer that its license was canceled, effective immediately. Baldwin filed suit for trademark infringement the same day. When the lower court agreed with Baldwin Piano and enjoined Deutsche Wurlitzer from using the Wurlitzer mark on jukeboxes, wiping away the carefully considered intent of the parties in 1985 with a rag of technicality tucked deep in Illinois law, my partners Sanjiv Sarwate and Brett August sought relief from the 7th Circuit. NO MBA NEEDED Writing for a unanimous panel, Judge Frank Easterbrook reversed the lower court, in a decision that challenges courts to recognize the realities of the market. Judges need not hold an MBA, he wrote, but they should be “alert citizens of a market-oriented society so that they can recognize absurdity in a business context” (quoting Beanstalk Group Inc. v. AM General Corp.(7th Cir. 2002)). Judge Easterbrook’s decision probes deeper than mere legal interpretation of the Wurlitzer license: “[T]he 1985 transaction as a whole is hard to understand unless Deutsche Wurlitzer received an enduring rather than evanescent interest in using the Wurlitzer mark on jukeboxes. . . . A sale subject to a provision such as ‘The Wurlitzer Company reserves the right to end your use of the trademark, and thus abrogate all going-concern value of this product line, at any time and for no reason’ would not have been commercially viable, unless Deutsche Wurlitzer’s assets were being sold for scrap value only. The transaction makes economic sense as the sale of a line of business only if Nelson Group (the buyer, recall) enjoys protection against opportunistic behavior by Deutsche Wurlitzer’s former parent. When there is a choice among plausible interpretations, it is best to choose a reading that makes commercial sense, rather than a reading that makes the deal one-sided.” There is much more to the legal analysis of the Wurlitzer contract, making the decision a worthy subject of study for corporate and trademark counsel engaged in similar transactions. In a broader sense, the decision should be reassuring to business clients in its emphasis on the need of courts to focus on the reality of the deal in dispute. Whether other courts will play in tune remains to be heard. Mark V.B. Partridge ( [email protected]) is a partner in the Chicago office of Pattishall, McAuliffe, Newbury, Hilliard & Geraldson. He specializes in trademark, copyright, and unfair competition law, and is the author ofGuiding Rights: Trademarks, Copyright and the Internet . This article originally appeared on Law.com, an ALM Web site.

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