This ease involves a trademark dispute between a German company that developed a product and an American company that distributed it. Both companies claim ownership of two trademarks associated with the product. The American company, TMT North America (“TMT-2”), asserts that it now owns the trademarks because the German company, The Magic Touch GmbH
1
(“TMT GmbH”), acted inequitably when TMT-2 purchased the assets of the prior U.S. distributor, a company also named TMT North America (“TMT-1”). Both parties consented to disposition by a magistrate judge (pursuant to 28 U.S.C. § 686(c)), and after an evi-dentiary hearing, the magistrate judge issued a preliminary injunction in favor of TMT-2.
See TMT North America, Inc. v. The Magic Touch GmbH,
No. 96 C 4502,
I. History
TMT GmbH is a German company that has developed a specially-coated paper for use in transferring images onto fabrics. Col- or photocopiers can transfer images onto the paper, and with the use of heat and pressure, the images can be transferred from the paper to the fabric. In 1990, TMT GmbH entered into an agreement with TMT-1, making TMT-1 the exclusive North American distributor of TMT GmbH’s image transfer products. The distribution agreement stated that TMT-1 was “required to display the trademark and instructions supplied by TMT [GmbH] on all promotional materials, packaging and any other related materials produced by [TMT-1] in a manner agreed upon by both parties prior to production.” TMT GmbH thereafter shipped the image transfer paper to TMT-1, which distributed the paper under the two trademarks at issue in this case, “The Magic Touch” and “The Magic Touch .... my one and only.” Initially, TMT GmbH shipped the paper in its final form to TMT-1 for distribution. By the beginning of 1992, however, TMT GmbH began to ship only rolls of the raw paper from its French manufacturer, and TMT-1 would then have the paper converted into individual sheets and packaged for sale.
Early on in this contractual relationship, TMT-1 filed an application to register “The Magic Touch ... my one and only” with the U.S. Patent and Trademark Office. TMT-l’s president and vice president both testified that they always understood TMT GmbH to own the trademarks, but TMTl’s chairman of the board, Martin Schwartz, filed a federal trademark application that listed TMT-1 as the owner. Schwartz had discussions with TMT GmbH’s principal, Juergen Hagedorn, regarding the registration, but it is unclear whether Hagedorn knew the registration was in TMT-l’s name rather than TMT GmbH’s. Schwartz testified that Hagedorn knew TMT-1 was filing on its own behalf, but Hagedorn denied such knowledge.
Over approximately the next two years, TMT-l’s business did not go well. At one point in 1991, Hagedorn scheduled a meeting with TMT-1 to discuss conditions for continuing the business relationship. One of the conditions Hagedorn put on the agenda was for “[a]ll trademark applications” to be assigned to TMT GmbH. The agenda, however, *880 did not state specifically which applications would have to be assigned, nor did it state whether GmbH expected the trademark rights themselves (as opposed to the trademark applications) to be transferred.
When TMT-1 fell behind in its payments to TMT GmbH, three new investors were recruited to put money into either TMT-1 or its distribution arm, TMT Services, Inc. All three of these investors testified that they understood TMT-1 to own the trademarks and that Hagedorn, who was involved with recruiting the investors, never said anything to suggest otherwise. In late 1992, one of these investors, along with three new investors, formed TMT-2 which acquired the assets of TMT-1. In the Asset Purchase Agreement, TMT-1 explicitly represented that it owned and was transferring the trademarks. TMT GmbH was not a party to the Asset Purchase Agreement, but it did enter into a Memorandum of Agreement with the TMT-2 investors. The Memorandum called for the parties to sign a distributorship agreement and for the new company to pay TMT GmbH substantial consulting fees.
One of the new investors, Jerald Lavin, testified that his discussions with Hagedorn regarding the new arrangements led him to believe that TMT-1 had owned the trademarks. Hagedorn, by contrast, pointed to two drafts of a distribution agreement that Lavin prepared in November 1992 following the Memorandum of Agreement. Those drafts state that TMT GmbH “warrants and represents that it has sole right and interest in the ... registrations (Exhibit B) of trademarks” to be assigned to TMT-2 as part of the distributorship agreement. No exhibits, however, are attached to the drafts, leaving it somewhat uncertain whether Lavin was referring to the trademarks at issue in this litigation.
Despite these drafts, TMT GmbH and TMT-2 were unable to negotiate a distributorship agreement. In February 1993, TMT GmbH sent TMT-2 a letter terminating the Memorandum of Agreement and a second letter stating that “no Intellectual Art, Patents and/or Trademarks and/or related rights have been traded, transferred, provided and/or assigned.” Both parties, meanwhile, attempted to secure federal trademark registrations. In February 1993, TMT-1 filed a federal trademark application for “The Magic Touch” (which was granted in 1994), and in April 1993, TMT GmbH filed its own federal trademark application (which apparently was unsuccessfill). Nonetheless, TMT GmbH and TMT-2 continued their distribution relationship without a written contract until June 1996 when TMT-2 terminated its distributorship and filed suit against TMT GmbH. TMT-2 now has its own source of the raw paper product and thus no longer needs TMT GmbH’s paper.
TMT-2’s complaint pleaded numerous counts against TMT GmbH, invoking § 43(a) of the Lanham Act (15 U.S.C. § 1125(a)), § 35 of the Lanham Act (15 U.S.C. § 1117), and the state common-law torts of unfair competition and interference with business relationships. TMT-2 specifically requested a declaratory judgment establishing its ownership of the trademarks, both preliminary and permanent injunctive relief preventing TMT GmbH from using the marks in any way, and damages. TMT GmbH responded by filing 13 similar counterclaims, and both parties filed motions for preliminary injunctions.
In January 1997, the magistrate judge held a lengthy evidentiary hearing. In March, the magistrate judge ruled that TMT-2 was entitled to a preliminary injunction. The magistrate found the evidence convincing that “TMT GmbH knew that TMT-1 claimed ownership of the marks and intended to assign the marks in the Asset Purchase Agreement.” Although TMT-l’s use and registration did not transfer ownership of the marks to TMT-1, the magistrate judge found that Hagedorn’s silence towards TMT-2 regarding the trademarks was ineqmtable conduct that, under the doctrines of acqmescence and eqmtable estoppel, could cause TMT GmbH to lose its rights to the marks. The magistrate judge therefore ruled that TMT-2 had shown a likelihood of prevailing on the merits and that TMT-2 would face irreparable harm without an injunction. In addition, the magistrate judge found that based on the public’s identification of the trademarks with TMT-2 rather than TMT GmbH, both the balance of *881 harms and the public interest weighed in favor of TMT-2.
II. Analysis
A. Standard of Review
When considering a motion for a preliminary injunction, a district court must first determine whether the moving party has demonstrated 1) some likelihood of prevailing on the merits, and 2) an inadequate remedy at law and irreparable harm if preliminary relief is denied. If the movant demonstrates both, the court must then consider 3) the irreparable harm the nonmovant will suffer if preliminary relief is granted, balanced against the irreparable harm to the movant if relief is denied, and 4) the public interest, meaning the effect that granting or denying the injunction will have on nonparties.
Grossbaum v. Indianapolis-Mavion County Building Authority,
B. Applicable Law
As an initial matter, we should clarify what law provides the rule of decision for this case. Each party raised both federal statutory and state common-law claims in its pleadings, but the magistrate judge did not specify in her memorandum decision precisely which causes of action were the basis for the preliminary injunction. This lack of specificity is somewhat understandable “because federal and state laws regarding trademarks and related claims of unfair competition are substantially congruent.”
International Order of Job’s Daughters v. Lindeburg and Co.,
C.Merits
Section 43(a) of the Lanham Act creates a federal civil remedy against any person who uses in commerce “any word, term, name, symbol, or device” or “any false designation of origin” if it “is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person.” 15 U.S.C. § 1125(a)(1). “Since the purpose of a trademark, whether federally registered or unregistered, is to designate the origin of goods, the infringement of such a trademark is actionable under section 43(a), provided the other requirements of the section are met.”
W.T. Rogers Co.,
To determine whether an injunction is warranted to prevent either TMT-2 or TMT GmbH from violating § 43(a), we must first determine whether either party has used (or might in the future use) a “false designation of origin” regarding some product in commerce. For a party to show a
false
designation of origin, however, there
*882
must be a
true
designation of origin. In a § 43(a) ease, therefore, a preliminary question is always whether someone has used a word or symbol to identify goods such that the word or symbol refers (at least in the eyes of the law) only to that person’s goods.
Cf. Thomas & Betts Corp. v. Panduit Corp.,
This question is often framed as who “owns” a particular trademark. Strictly speaking, however, trademarks are not ordinary property interests. The anti-assignment-in-gross rule, for example, limits their transferability, prohibiting the assignment of trademark rights separate from the business with which the trademark has been associated.
See Money Store v. Harriscorp Finance, Inc.,
Nonetheless, trademark rights are clearly analogous to property interests. A trademark gives a seller “a ‘property right’ in his mark of identification, appurtenant to his property rights in the goods he so marks, enabling the ‘owner’ of the trademark to enjoin [an] imposter from continuing misrepresentations.”
Walt-West Enterprises, Inc.,
Consumers, in other words, benefit from trademarks, and sellers will develop trademarks only with the protection of the law. One of the ways that the law extends the benefits of trademarks and protects incentives to develop them is by allowing trademark owners to license the use of their marks to distributors and franchisees. Such licensing allows more information to be conveyed to more consumers without the licensor having to risk losing title to its mark.
See
2 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 18:63 (4th ed.1997). Indeed, trademarks would be of much less value to society if only vertically-integrated firms could safely take advantage of trademark law’s protections. Similarly, trademark law creates a presumption that, in the absence of an assignment of trademark rights, a foreign manufacturer retains all rights to a trademark even after licensing the use of the trademark to an exclusive U.S. distributor.
See Global Maschinen Gmbh v. Global Banking Systems, Inc.,
Turning finally to the facts of the present case, the magistrate judge found that TMT GmbH originally owned the trademarks and that the initial distribution agreement “implicitly licensed TMT-1 for the duration of the agreement to use the marks then owned by TMT GmbH.” Moreover, the magistrate judge concluded that TMT-l’s registration of the marks (and even the notice given to Hagedorn of the registration) did
*883
not indicate transfer of ownership of the marks “in the context of the relationship between [TMT-1 and TMT GmbH] at the time.”
2
Based on our review of the record and the applicable case law, we agree with these conclusions. The parties certainly did not expressly agree to transfer the marks, and the evidence is speculative even with regard to any implied transfer.
3
See Automated Prods., Inc. v. FMB Maschinenbauge-sellschaft mbH & Co.,
The magistrate judge went on to find, however, that TMT GmbH’s conduct towards TMT-2 caused TMT GmbH to forfeit its rights to the marks. Although it was TMT-1 that made the representations of ownership to TMT-2, the magistrate judge found that TMT GmbH (through Hagedorn) knew of TMT-l’s representations yet did nothing to correct them in order to induce investment by TMT-2’s investors. The magistrate judge did not make an explicit finding regarding whether Hagedorn himself represented that TMT-1 owned the marks, but the magistrate judge did state at a later hearing that TMT-2’s witnesses were “almost, if not altogether, sure that Hagedom himself had told investors that TMT-1 owned the marks.” Moreover, the magistrate judge found that these investors “relied on Juergen Hagedorn’s representations, or lack thereof, when they entered into the Asset Purchase Agreement.” As an appellate court reviewing a cold record, we must accord deference to the magistrate judge’s findings of fact. In this case particularly, the allegations and cross-allegations have a “he said, she said” quality that makes the magistrate judge’s findings regarding witness credibility crucial to the resolution of this case. The magistrate judge clearly found TMT-2’s version of events more credible than TMT GmbH’s, and we will not second guess the magistrate judge on that credibility determination.
*884
We disagree with the magistrate judge, however, regarding the legal implications of her factual findings. More specifically, we do not think the evidence can support a preliminary injunction against TMT GmbH. The magistrate judge ruled in favor of TMT-2 by applying an amalgam of trademark law doctrines. More specifically, the magistrate judge framed the issue as “whether Juergen Hagedorn’s conduct caused TMT GmbH to lose its rights through acquiescence (implied agreement to transfer) or equitable estop-pel.” Now we are the first to admit that trademark law is often far from clear and that it “may create as much confusion in the courts as it eliminates in the marketplace.”
Walt-West Enterprises, Inc.,
On the one hand, the magistrate judge reasoned that Hagedorn’s conduct was tantamount to an implied agreement to transfer ownership of the marks to TMT-2. Such an implicit agreement would make TMT-2 the exclusive owner and allow TMT-2 to enjoin all other uses of the marks. We do not think, however, that the magistrate judge’s own findings of fact are sufficient to support a conclusion that this case involved such a complete transfer of rights. Assignments of trademark rights do not have to be in writing, but an “implied agreement to transfer” requires conduct manifesting agreement, not just conduct that might be characterized as being shady or otherwise inequitable. See 2 McCarthy, supra, § 18:4. Indeed, one prominent trademark commentator suggests that without documentary evidence, an as-
signment “may be proven by the clear and uncontradicted oral testimony of a person in a position to have actual knowledge.”
Id.; see also Diebold, Inc. v. Multra-Guard, Inc.,
no written contract from which to determine ownership.
See Ilapak,
*885
On the other hand, the magistrate judge’s decision was also based on equitable doctrines, most notably acquiescence. Specifically, acquiescence refers to “cases where the trademark owner, by affirmative word or deed, conveys its implied consent to another.” 4 McCarthy,
supra,
§ 31:41;
see also SunAmerica Corp. v. Sun Life Assurance Co. of Canada,
But even assuming that TMT GmbH did acquiesce and that TMT-2 did innocently rely upon TMT GmbH’s consent, acquiescence is at most a
defense
that TMT-2 may invoke against TMT GmbH. Trademark law is unmistakably clear that “[a] laches or acquiescence defense does not divest the trademark owner of the right to use the mark but may deprive him or her of any remedy for infringing uses by others.”
Dial-A-Mattress Operating Corp. v. Mattress Madness, Inc.,
A defense of abandonment, by contrast, does result in the loss of trademark rights against the world.
Sweetheart Plastics,
Naked licensing law is full of contradictory strains, with some authorities requiring strict oversight by licensors and others taking a more lenient approach.
See generally
2 McCarthy,
supra,
§ 18:55. We tend towards the view taken by the Restatement (Third) of Unfair Competition, which advocates a flexible approach but allows licensors to rely at least somewhat on the reputation and expertise of licensees.
See
Restatement (Third) of Unfair Competition § 33 emt. c (1995). In this case, TMT GmbH’s control of the manufacture of the basic product
(ie.,
the transfer paper), along with the absence of evidence indicating inadequate quality control by TMT-2, suggests that TMT-2 has not met the “heavy burden on [a] person asserting a lack of reasonable control by a licensor,”
id.
TMT-2 nonetheless argues that American consumers now perceive TMT-2 as the provider of The Magic Touch products and that the trademarks therefore identify only TMT-2 as the entity responsible for the products. Such consumer identification with the licensee, however, will frequently be the case when trademarks are licensed. As dis
*886
cussed above, trademarks are useful to society because they convey information about product quality, and it is this information about the quality of products, not their sellers’ reputations, that trademark law
primarily
protects. See 2 McCarthy,
supra,
§ 18:40. Admittedly, licensing always entails some loss of control over product quality. If a licensor maintains reasonable control over product quality, however, consumers ultimately do rely upon the licensor’s quality control. Absent a significant deviation from the. licensor’s quality standards, a licensor does not forfeit its trademark rights through licensing agreements.
See Kentucky Fried Chicken,
If abandonment therefore does not work, TMT-2 has only an acquiescence defense against TMT GmbH, meaning that TMT-2 cannot enjoin TMT GmbH and that TMT GmbH cannot enjoin TMT-2. Acquiescence cases are thus “distinguishable from ordinary trademark infringement actions, in which complete injunctions against the infringing party are the order of the day.”
SunAmerica II,
Denying both parties injunctive relief, however, “is not a comfortable posture for the Court to assume” because it “is tantamount to holding that both parties are free to offer their products for sale in the same marketplace.”
Johanna Farms,
Coach House,
So when this case goes back to the District Court, no future preliminary injunction based on acquiescence should issue unless TMT GmbH (as the senior user) demonstrates that inevitable confusion would result from dual use of the marks. Factual findings regarding likelihood of confusion are, of course, subject only to clear error review,
see Scandia Down,
The District Court’s preliminary injunction is Vacated, and this case is Remanded for further proceedings consistent with this opinion.
Notes
. GmbH is the acronym for "Gesellschaft mit beschrankter Haftung,” which translated literally from German means "company with limited liability.” A GmbH is typically a privately-held company and is a procedurally less stringent form of company than a German stock corporation, or Aktiengesellschaft (AG). A GmbH is somewhat analogous to an American limited liability company. See generally Ingrid Lynn Lenhardt. The Corporate and Tax Advantages of a Limited Liability Company: A German Perspective, 64 U. Cin. L.Rev. 551 (1996).
. If anything, the magistrate judge’s decision may actually have been too favorable towards TMT-1. The magistrate judge, for example, stated that one of the new investors in TMT-1 "testified that he was assured during one or more conversations, either by Juergen Hagedom or in his presence, that TMT Services owned the trademarks.” A closer look at this investor’s testimony, however, reveals it to be somewhat more ambiguous:
Q____ What did [Hagedom] say regarding trademark ownership that you recall?
A. No. 1, that I owned part of the trademark, okay. The — and-
Q. Those were the words he used?
A. Yes, yes. And because of that trademark, the ownership of that trademark, the company could then sell franchises using that trademark as the basis, as the crux, of that sale of the franchise, to keep everything consistent and to keep that name in front of people.
Q. Do you understand the distinction between ownership of a trademark and the right to distribute trademark products?
A. Probably not in a legal sense, no.
Q. So in that sense you don’t — you don't know whether TMT Services owned the trademark or had the right to distribute the trademark product?
A. My impression was it was both, that you could not, in fact, distribute the franchises and sell a franchise and develop the name without owning the product itself. There would be no reason to spend time doing that unless you owned the trademark itself because that's what you were selling.
Of course, it is both possible and logical that a distributor might have a license to use the trademark only during the distributorship. See generally 2 McCarthy § 18:63-64. It is also frequently the case that the licensee will attempt to "holdover” and retain the trademark even after the distributorship has ended. See, e.g., Gorenstein,874 F.2d at 435 ; Hank Thorp, Inc. v. Minilite, Inc.,474 F.Supp. 228 , 238 (D.Del.1979).
. The magistrate judge later held a hearing on a motion by TMT GmbH to reconsider her original decision. At that hearing, the magistrate judge appears to have changed her original conclusion, now stating that "ownership was transferred to TMT1 by implicit agreement to do so.” We have had a hard time figuring out from the transcript what might have caused this apparent shift of position. Regardless, we find that any conclusion that ownership was transferred to TMT-1 by implied agreement cannot stand for the same reasons (stated below) that we reject the magistrate judge’s original conclusion that ownership was impliedly transferred to TMT-2.
. TMT-2 also cites cases such as
Ilapak Research & Dev.
S.A.
v. Record SpA,