The SCOW Docket: Bibs, a hanky, and a suit

Note: We are crunching Supreme Court of Wisconsin decisions down to size. The rule for this is that no justice gets more than 10 paragraphs as written in the actual decision. The "upshot" and "background" sections do not count as part of the 10 paragraphs because of their summary and very necessary nature. We've also removed citations from the opinion for ease of reading, but have linked to important cases cited or information about them.  

The case:  Ted Ritter v. Ted Farrow 

Majority: Justice Jill Karofsky (24 pages), joined by Justices Rebecca Grassl Bradley, Rebecca Dallet, and Brian Hagedorn

Dissent: Justice Patience Roggensack (24 pages) joined by Justices Ann Walsh Bradley and Annette Ziegler

Karofsky

The Upshot

​It is a well-settled legal principle that trademarks and their associated goodwill pass with the sale of a business. Therefore, we conclude as a matter of law that: (1) the Association did not acquire the Bibs Resort marks in 1998; and (2) the Farrows became the exclusive owners of the Bibs Resort marks in 2006 when they purchased the resort management business from the Ritters. Consequently, since the circuit court did not apply the well-settled principles surrounding trademarks and trade names, we reverse the grant of summary judgment to the Ritters and the Association and remand to the circuit court ....

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Background

The subjects of this case are a logo depicting a pair of red bib overalls with a handkerchief hanging out of the back pocket and the names "Bibs Resort" and "Bibs." These designations relate to a lakefront resort in St. Germain, Wisconsin, and we are asked to determine their ownership.

The three parties involved in this case are: (1) Ted and Carolyn Ritter, original owners of Bibs Resort; (2) Tony and Arlyce Farrow, purchasers of the Ritters' resort management business; and (3) Bibs Resort Condominium, Inc., the condominium association at Bibs Resort ("Association"). The Farrows claim that they assumed ownership of the Bibs Resort marks when they purchased the Ritters' resort management business, and that the Ritters subsequently infringed on those marks. The Ritters and the Association disagree with the Farrows. 

The circuit court granted summary judgment to the Ritters and the Association.... The circuit court concluded that the Bibs Resort marks "became part of" the Association in 1998 when the resort was converted to a condominium form of ownership. Finding that no one exclusively owned the Bibs Resort marks after that conversion, the circuit court ruled that the Farrows could not have become exclusive owners of the marks when they purchased the Ritters' resort management business in 2006. The court of appeals affirmed on other grounds, ruling that the 1998 resort-to-condominium conversion resulted in the Ritters impliedly transferring the Bibs Resort marks to the Association. The court of appeals reasoned that because of that transfer, the Ritters no longer owned the marks and, as a result, could not have sold them to the Farrows in 2006....

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In November 2008, unbeknownst to any of the other unit owners, the Farrows filed an "Application for Registration of Marks" with the Office of the Secretary of State of Wisconsin, seeking to register a "pair of red bibs with a kerchief sticking out of pocket" and the resort name of "Bibs." In February 2010, the Farrows filed another application, seeking to register the mark "Bibs Resort."

Several months later, the Ritters filed an action against the Farrows which set in motion the decade of litigation that preceded this appeal. The Farrows counterclaimed with multiple causes of action, including trademark infringement. The circuit court eventually dismissed all of the Ritters' claims, and the case proceeded to trial on the Farrows' counterclaims....

The circuit court granted summary judgment to the Association and the Ritters...The circuit court concluded that: (1) "Bibs Resort" was a trade name; (2) the name Bibs Resort "became part of" the Association at the time of the 1998 conversion; (3) although there were disputed issues of fact as to whether the marks were transferred to the Farrows as part of the 2006 sale, that dispute was immaterial because the Ritters did not have exclusive ownership of the marks in 2006; and (4) because each individual condominium owner held rights to "Bibs Resort," no one held exclusive ownership. The Farrows appealed. 

The court of appeals affirmed the circuit court on different grounds, concluding that, in 1998, the Ritters impliedly transferred the name "Bibs Resort" to the Association when they converted their resort to a condominium form of ownership; consequently, the Ritters could not have transferred ownership of the name "Bibs Resort" to the Farrows in 2006.... 

The guts

We begin by emphasizing that the Bibs Resort marks indicate the source of the provided goods or services. That is, the Bibs Resort marks represent the resort management services that the Ritters' business continuously provided from Bibs Resort's founding in 1986 until 2006....

Because the Ritters provided ongoing and uninterrupted resort services, returning customers were able to identify their services, and the associated goodwill, with the Bibs Resort marks. Having established this link between the Bibs Resort marks and the resort management services they symbolized, we turn to the Association's argument about the 1998 resort-to-condominium conversion. ...

The Association asserts that the Bibs Resort marks were tied to the resort's real property and thus automatically transferred when the Ritters recorded the Declaration and converted the property to a condominium. This argument violates the longstanding principle that marks cannot exist separate and apart from the goodwill of the product or service they symbolize: the resort management services....

Even assuming, incorrectly, that the Bibs Resort marks can be separated from the resort management services they represent, there is no evidence that the Bibs Resort condominium's bylaws conferred on the Association the ability to own any items of intangible property and it is undisputed that the Association never provided goods or services in the resort management service industry....

The Ritters also signed a bill of sale that transferred the personal property and business equipment necessary to operate the resort management business to the Farrows. The parties confirmed the sale of the entirety of the Ritters' resort management business to the Farrows in subsequent documentary filings with the State. Indicative of selling their business to the Farrows, Ted and Carolyn Ritter changed their business name from "Bibs Resort, Inc." to "Ritter Enterprises, Inc...." 

​Following the "old and clear rule, universally followed," the Bibs Resort marks and their associated goodwill passed from the Ritters to the Farrows in 2006 with the sale of the resort management business.... 

To summarize, the language in the 2006 documents clearly shows that the Ritters sold the Farrows the entirety of their resort management business, which included the associated goodwill and exclusive ownership of and rights to the Bibs Resort marks. The offer to purchase made explicit the Farrows' intention to purchase the goodwill that was inextricably associated with the resort management services. The bill of sale signed by the Ritters further indicates that the resort management business and related goodwill were transferred together in accordance with longstanding practice. The Report of Business Transfer filed by the Ritters and the joint letter the parties sent to the DOR subsequent to the sale provide even more evidence demonstrating the parties' intent to transfer the goodwill and trade names from the Ritters to the Farrows. Based on the ample evidence in the record and well-settled trademark and trade name law, the ownership of the Bibs Resort marks passed with the sale of the Ritters' resort management business in 2006.

The Dissent 

The majority opinion errs when it fails to apply summary judgment methodology, which is the same for us as it is for the circuit court, and thereby ignores uncontested material facts developed during summary judgment. Those uncontested facts preclude Anthony and Arlyce Farrows' (the Farrows) claim for tradename or trademark infringement. The majority opinion compounds its error when it ignores the common law of Wisconsin in regard to what must be shown at summary judgment to make or defeat a prima facie claim of infringement of tradename or trademark and relies instead on federal case law that is grounded in the Lanham Act....

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The Ritters deny the Farrows' allegations and affirmatively allege that in order to proceed with a claim of infringement, the Farrows must have the right to exclusive use of the name, Bibs Resort, and its logo, which they do not have.... 

The Ritters moved for summary judgment dismissing the Farrows' infringement claim. They provided the affidavit of Carolyn Ritter, which is based on her personal knowledge. To her affidavit, they attached documents showing that since at least 1998, when Bibs Resort Condominium was formed, others in addition to the Ritters have had the right to use the name, Bibs Resort, and its logo.

Her affidavit averred that when individual units in Bibs Resort Condominium were sold in 1998, 2002 and 2006, the unit owners were given the right to use the name, Bibs Resort, and its logo to advertise rentals of their individual cottages. The documents attached to the affidavit showed that the Town of St. Germain also used the name, Bibs Resort Condominium, when it taxed individual unit owners, and the Vilas County Department of Health issued rental permits to unit owners for property known as Bibs Resort.  The affidavit also attached pictures of signs showing directions to the location of "Bibs Resort"; the signs used the BIBS Resort logo too.  Those advertisements were created, maintained and paid for by the condominium association for Bibs Resort Condominium.

These submissions made a prima facie case for dismissal of the Farrows' infringement claim because the undisputed, material facts demonstrated that in 2006 the Ritters no longer had the right to exclusive use of the name, Bibs Resort, or its logo; and therefore, the Ritters could not transfer the right to exclusive use of the name or logo to the Farrows. The Farrows submitted nothing in opposition to the Ritters' submissions in support of their motion for summary judgment dismissing the Farrows' infringement claim. 

The case now before us was properly dismissed by the circuit court in a well-reasoned opinion.  At summary judgment, it became apparent that based on uncontroverted material facts, the Farrows' counterclaim for infringement failed. It failed because the Farrows never provided any evidentiary proof that the Ritters had the right to exclusive use of the name and logo for Bibs Resort at the time of the Farrows' 2006 purchase. The right to exclusive use of a tradename/trademark is required to sue for infringement. The only proof on the right to exclusive use was uncontroverted. Carolyn Ritter averred, based on personal knowledge, that she and her husband had dispersed the right to use Bibs Resort and its logo to others long before their 2006 transaction with the Farrows.....

The majority opinion leads itself into error because it misstates the dispositive issue in the case, saying: "These designations relate to a lakefront resort in St. Germain,  Wisconsin, and we are asked to determine their ownership."  And it repeats this concept frequently, "we must ascertain whether the circuit court applied the well-settled principles of trademark and trade name law in determining the exclusive owner of the Bibs Resort marks." And further, "the Farrows owned the Bibs Resort marks as of 2006 when they purchased the Ritters' business."

The word "ownership" creates a foundational problem in the majority's analysis because the analysis does not recognize that for ownership to matter in an infringement claim, it must include ownership of the right to exclusive use of the name and logo. 

The majority opinion also ignores summary judgment methodology even though it acknowledges it is to apply the same methodology as the circuit court applied.36 If the majority opinion had not skipped this critical step, it may have avoided error. 

However, the majority also relies on federal case law when a tradename or trademark has been registered under the Lanham Act, where the right to exclusive use is presumed once registration has occurred. The common law of Wisconsin requires the claimant in an infringement action to prove it has the right to exclusive use. The opinion also gets all tangled up in asserted connections between goodwill and tradenames, which issues are not relevant to the dispute before us.

The full decision in this case, Ted Ritter v. Tony Farrow, is here.