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									 Case 3:03-cv-00707-ECR-RAM          Document 262    Filed 11/20/2006   Page 1 of 12



 1   FRITZ CLAPP (California Bar # 99197)
     Attorney at Law
 2   544 Pawali Street
     Kihei, Maui, HI 96753
 3   Telephone: (916) 548-1014
     Facsimile: (888) 467-2341
 4
     Of Counsel:
 5   M. JEROME WRIGHT (Nevada Bar # 463)
     Attorney at Law
 6   326 W. Liberty Street
     Reno, NV 89501
 7   Telephone: (775) 322-8678
     Facsimile: (775) 322-0973
 8
     Attorneys for Plaintiffs
 9

10                               UNITED STATES DISTRICT COURT
11
                                     DISTRICT OF NEVADA
12

13   DAVID and INGRID BURGESS, husband              CASE NO. CV-N-03-707-ECR(RAM)
     and wife, and SHERWIN M. FELLEN, an
14   individual,
15                 Plaintiffs,                      PLAINTIFFS’ TRIAL BRIEF
            vs.
16

17   L. LANCE GILMAN, CASH ADMIN-
     ISTRATION SERVICES, LLC, CASH
18   MANAGEMENT SERVICES, LLC, CASH
     PROCESSING SERVICES, LLC, and CASH
19   ASSET MANAGEMENT SERVICES, LLC,
20                 Defendants,
21

22
     AND RELATED COUNTERCLAIMS

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      PLAINTIFFS’ TRIAL BRIEF                                                          Page i
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 1                                             TABLE OF CONTENTS
 2

 3   I.     INTRODUCTION ................................................................................................... 1
 4          A.       Nature of case ............................................................................................... 1
 5          B.       Factual summary .......................................................................................... 1
 6          C.       Issues to be decided ...................................................................................... 2
 7   II.    LEGAL AUTHORITY ............................................................................................ 2
 8          A.       Trademarks are not property ........................................................................ 2
 9          B.       Trademarks may be transferred only with business goodwill ...................... 3
10          C.       Transfers in gross of trademarks are invalid and constitute abandonment .. 3
11          D.       New user of abandoned mark does not infringe ........................................... 4
12   III.   DEFENDANT ACQUIRED NOTHING IN PURPORTED TRANSFER ............. 5
13          A.       Government failed to preserve goodwill of business ................................... 5
14          B.       Government dismantled the business and its assets ..................................... 5
15          C.       No goodwill existed at time of transfer to Defendant .................................. 6
16   IV.    PLAINTIFF ACQUIRED RIGHTS IN THE MARK BY BONA FIDE USE ....... 7
17          A.       Plaintiff reasonably determined mark had been abandoned ......................... 7
18          B.       Plaintiff commenced use of the mark for brothel services ........................... 8
19          C.       Plaintiff’s use is consistent with public association of the mark .................. 8
20   V.     CONCLUSION ....................................................................................................... 9
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      PLAINTIFFS’ TRIAL BRIEF                                                                                              Page ii
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 1                                                   TABLE OF AUTHORITIES
 2   Cases
 3   Am. Steel Foundries v. Robertson, 269 U.S. 372 (1926) ..................................................                                      2
 4   Archer Daniels Midland Co. v. Narula, 2001 U.S. Dist. LEXIS 9715 (N.D.
 5              Ill. July 12, 2001) ...................................................................................................            6
 6   California. Cedar Products Co. v. Pine Mountain Corp., 724 F.2d 827 (9th
 7              Cir. 1984) ...............................................................................................................         4
 8   E&J Gallo Winery v Gallo Cattle Co., 955 F.2d 1327, 1337 (9th Cir. 1992) ..................                                                   3
 9   Glow Industries, Inc. v. Lopez, 273 F. Supp. 2d 1095 (C.D. Cal. 2003) ..........................                                              6
10   Hough Manufacturing Corp. v. Virginia Metal Industries, Inc., 453 F.Supp.
11              496, 203 U.S.P.Q. 436 (E.D. VA 1978) ................................................................ 6, 7
12   Jewel Tea Co., Inc. v. Kraus, 187 F2d 278, 88 USPQ 14 (CA 7 1950) ............................                                                2
13   La Fayette Brewery v. Rock Island Brewing Co., 87 F.2d 489,
14              24 CCPA 925 (1937) .............................................................................................                   3
15   Marshak v. Green, 746 F.2d 927 (2d Cir. 1984) ..............................................................                                  3
16   Merry Hull & Co. v. Hi-Line Co., 243 F. Supp. 45 (S.D.N.Y. 1965) ..............................                                               6
17   Mister Donut of Am., Inc. v. Mr. Donut, Inc., 418 F.2d 838 (9th Cir. 1969) ...................                                                3
18   Sugar Busters LLC v. Brennan, 177 F.3d 258 (5th Cir. 1999) .........................................                                          3
19   The Money Store v. Harriscorp Finance, Inc., 689 F.2d 666 (7th Cir. 1982) ..................                                                  6
20   United Drug Co. v Theodore Rectanus Co., 248 U.S. 90 (1918) .....................................                                             2
21   Statutes
22   15 U.S.C. § 1060 ..........................................................................................................................     3

23   15 U.S.C. § 1127 .......................................................................................................................... 4, 8

24   Other authorities
25   Restatement (Third) of Unfair Competition (1995) .........................................................                                    2
26   Callmann, The Law of Unfair Competition, Trademarks and Monopolies
27              (3d ed 1969) ...........................................................................................................           4
28   McCarthy, Trademarks and Unfair Competition (2d ed. 1984) ....................................... 3, 6

      PLAINTIFFS’ TRIAL BRIEF                                                                                                             Page iii
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 1   I.     INTRODUCTION
 2          A.     Nature of case.
 3          At issue in this trademark case is the right to use the mark MUSTANG RANCH for
 4   legalized brothel services; defendants claim such right by assignment from the federal
 5   Bureau of Land Management, while plaintiffs claim the right by having used the mark in
 6   commerce for brothel services after its former use had been abandoned.
 7          B.     Factual summary.
 8          The evidence at trial will establish the following facts which are dispositive of the
 9   issues to be decided:
10          1.     On August 9, 1999, the federal government (acting through the IRS) seized
11   and closed the brothel business known as MUSTANG RANCH and formerly operated by
12   the Confortes/AGE.
13          2.     After seizing and closing the brothel business, the government made no
14   attempt to operate the business, sell the business as a going concern, or license its mark.
15          3.     The government conducted a series of auctions of the items of personal
16   property comprising the tangible assets on the Mustang Ranch property, beginning
17   December 14, 2002 and continuing through July or August, 2003.
18          4.     In February, 2003, the IRS transferred the Mustang Ranch property to the
19   Bureau of Land Management (“BLM”) with a prohibition that it not be used as a brothel.
20          5.     In April, 2003, plaintiffs Burgess began using the MUSTANG RANCH
21   mark in connection with their brothel business.
22          6.     In October, 2003, BLM conducted an online eBay auction of the Mustang I
23   building and “the World Famous Mustang Ranch trademark” in which defendant Gilman
24   was the high bidder at $145,000.
25   //
26   //
27   //
28   //


      PLAINTIFFS’ TRIAL BRIEF                                                                 Page 1
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 1          C.      Issues to be decided.
 2          1.      Whether the MUSTANG RANCH mark was abandoned by Conforte/AGE
 3   and/or by the government.
 4          2.      Whether the transfer to defendant Gilman was an invalid assignment in
 5   gross, without the goodwill of the business.
 6          3.      Whether plaintiff Burgess’ use of the MUSTANG RANCH mark is adequate
 7   to establish priority over all later users.
 8   II.    LEGAL AUTHORITY
 9          A.      Trademarks are not property.
10          The key principle which must be applied in this case is that trademarks are not
11   rights which are capable of transfer in gross as patents, copyrights and trade secrets are.
12   Trademarks are not intellectual properties. The law of trademarks is usually regarded as
13   only a part of the broader field of unfair competition. See, e.g., Jewel Tea Co., Inc. v.
14   Kraus, 187 F2d 278, 88 USPQ 14 (CA 7 1950), on rehearing 187 F2d 278, 88 USPQ 507
15   (CA 7 1950). Section 43(a) of the Lanham Act is generally considered an unfair
16   competition statute. The law of trademarks is set forth and discussed in Chapter 3 of the
17   Restatement of the Law, Third, Unfair Competition (1995).
18          This distinction was clearly stated by the Supreme Court nearly a century ago,
19   affirming section 10 of the Lanham Act’s predecessor (“the 1905 Act”): “The asserted
20   doctrine is based upon the fundamental error of supposing that a trade-mark right is a right
21   in gross or at large, like a statutory copyright or a patent from an invention, to either of
22   which, in truth, it has little or no analogy." United Drug Co. v Theodore Rectanus Co., 248
23   U.S. 90, 97 (1918). "There is no such thing as property in a trade-mark except as a right
24   appurtenant to an established business or trade in connection with which the mark is
25   employed." Id.
26          "There is no property in a trade-mark apart from the business or trade in connection
27   with which it is employed." Am. Steel Foundries v. Robertson, 269 U.S. 372, 380 (1926).
28          Accordingly, it may be misleading to refer to a trademark’s “chain of title.”

      PLAINTIFFS’ TRIAL BRIEF                                                               Page 2
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 1         B.     Trademarks may be transferred only with business goodwill.
 2         As the Lanham Act states the principle, a mark is "assignable with the goodwill of
 3   the business in which the mark is used, or with that part of the goodwill of the business
 4   connected with the use of and symbolized by the mark." 15 U.S.C. § 1060. The purpose
 5   behind requiring that goodwill accompany the assigned mark is to maintain the continuity
 6   of the product or service symbolized by the mark and thereby avoid deceiving or confusing
 7   consumers. 1 J. McCarthy, Trademarks and Unfair Competition § 18:1(C) (2d ed. 1984).
 8   E&J Gallo Winery v Gallo Cattle Co., 955 F.2d 1327, 1337 (9th Cir. 1992).
 9         "The law is well settled that there are no rights in a trademark alone and that no
10   rights can be transferred apart from the business with which the mark has been associated."
11   Mister Donut of Am., Inc. v. Mr. Donut, Inc., 418 F.2d 838, 842 (9th Cir. 1969).
12         C.     Transfers in gross of trademarks are invalid and constitute abandonment.
13         A purported assignment of a trademark without goodwill is an invalid "assignment
14   in gross." Sugar Busters LLC v. Brennan, 177 F.3d 258, 265 (5th Cir. 1999). The
15   prohibition against assignments in gross is intended to protect consumers. "Use of the
16   mark by the assignee in connection with a different goodwill and different product would
17   result in a fraud on the purchasing public who reasonably assume that the mark signifies
18   the same thing, whether used by one person or another." Marshak v. Green, 746 F.2d 927,
19   929 (2d Cir. 1984).
20         Where a corporation owning a trademark used in connection with beer was disabled
21   by state law from manufacturing and selling beer, and the business was liquidated rather
22   than transferred as a going concern, real estate being sold to one individual, personal
23   property to another, and the naked trademark to a third, it was held, in La Fayette Brewery
24   v. Rock Island Brewing Co., 87 F2d 489, 24 Ct Cust & Pat App (Pat) 925 (1937), that the
25   transfer and discontinuance of business amounted to an abandonment of the mark by the
26   assignor.
27   //
28   //

      PLAINTIFFS’ TRIAL BRIEF                                                             Page 3
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 1         According to Section 45 of the Lanham Act:
 2         A mark shall be deemed to be "abandoned" if either of the following occurs:
                   (1) When its use has been discontinued with intent not to resume such
 3         use. Intent not to resume may be inferred from circumstances. Nonuse for 3
           consecutive years shall be prima facie evidence of abandonment. "Use" of a
 4         mark means the bona fide use of such mark made in the ordinary course of
           trade, and not made merely to reserve a right in a mark.
 5                 (2) When any course of conduct of the owner, including acts of
           omission as well as commission, causes the mark to become the generic
 6         name for the goods or services on or in connection with which it is used or
           otherwise to lose its significance as a mark. Purchaser motivation shall not
 7         be a test for determining abandonment under this paragraph.
 8         15 USC § 1127.
 9         Paragraph (b) of this Section is basically a codification of the modern objective
10   theory of trademark abandonment. It recognizes that "[intent] is obviously inconsequential
11   when . . . goodwill has already been lost." 3 R. Callmann, The Law of Unfair Competition,
12   Trademarks and Monopolies § 79.2 at 519 and fns 83-85 (3d ed 1969). It is the dying out
13   of good will that determines whether or not abandonment has taken place under the
14   objective theory. Once a mark's associative significance is lost, no injury can be done
15   either to its former user or to the public by permitting another to use it. Paragraph (a)
16   codifies the doctrine of inferred abandonment, and in effect adds a statutory rule of
17   evidence by making three years nonuse prima facie abandonment.
18         It should be noted that the resumption of use, or the intent to resume, must be by the
19   trademark’s former user or “owner” and not by its assignee or other party (such as the
20   government in this case after seizing the business from the owner). Neither the statute nor
21   case law provides for resumption of use by anyone other than the trademark owner, to
22   avoid abandonment from non-use, nor is the intent of any other person or entity relevant.
23         D.     New user of abandoned mark is entitled to ownership.
24         "[T]he first party to use an abandoned trademark in a commercially meaningful way
25   after its abandonment, is entitled to exclusive ownership and use of that trademark."
26   California Cedar Products Co. v. Pine Mountain Corp., 724 F.2d 827, 830 (9th Cir. 1984).
27   3 Callmann, Unfair Competition, Trademarks and Monopolies § 79.4.
28   //

      PLAINTIFFS’ TRIAL BRIEF                                                              Page 4
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 1   III.   DEFENDANT ACQUIRED NOTHING IN PURPORTED TRANSFER
 2          A.     Government failed to preserve goodwill of business.
 3          When the government seized the assets of the Mustang Ranch, the business was
 4   licensed by the State of Nevada as a legal brothel and it possessed goodwill from decades
 5   of continuous operation providing brothel services to the public.         The business had
 6   employees, contractors and management. It had an established clientele and sources of
 7   business referral, such as its telephone number, taxicab drivers, and hotel bellmen.
 8          It would have been possible, had it not been against federal government policy, to
 9   operate the brothel business through a trustee or keeper until the business could be sold
10   intact with its property and goodwill, or at least to license the use of the mark. The IRS
11   had authority to do any of these things, but it proceeded instead to destroy the business and
12   abandon its goodwill. While this choice was understandable, it nevertheless had legal and
13   practical consequences.
14          Evidence at trial will show that the government abandoned the telephone number of
15   the business, its license, and its sources of business referral, making no attempt to maintain
16   or preserve the goodwill of the business.
17          B.     Government dismantled the business and its assets.
18          Not only did the government fail to undertake any measures to preserve the
19   essential elements of the business, it dismantled and liquidated the business by selling off
20   the personal property and eventually disposed of the real property as well. Such conduct
21   was an unequivocal abandonment of the business and its goodwill.
22          These assets of the business formerly known as the Mustang Ranch were sold to
23   separate buyers: the Mustang II building; personal property and memorabilia; inventory of
24   goods bearing the MUSTANG RANCH mark; signage with the MUSTANG RANCH
25   mark; all the furniture, fixtures and equipment of the business.
26          In February 2003, the IRS transferred to BLM the property that had not yet been
27   liquidated. The inter-agency agreement refers only to land, buildings and water rights,
28   with no mention of any business or goodwill. Nevertheless, later that year the enterprising

      PLAINTIFFS’ TRIAL BRIEF                                                               Page 5
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 1   employees of BLM attempted to sell the famous trademark.
 2          When the government finally disposed of the last remaining building (which had
 3   been slated to be demolished) and what was described as the famous trademark, it chose an
 4   online eBay auction which is the purest form of a naked transfer, giving absolutely no
 5   preference to buyers who would provide any continuity of services, continuity of
 6   management, or consistency of the services with which the mark was originally associated.
 7   Such a transfer, had it been valid, would have resulted in a fraud on the public who
 8   reasonably assume that the mark signifies the same thing, whether used by one person or
 9   another.
10          C.     No goodwill existed at time of transfer to Defendant.
11          By the time BLM finally conducted the auction in which Defendant was the
12   purchaser, the elements necessary to conduct the business formerly known as MUSTANG
13   RANCH were no longer intact. The licenses had lapsed, the business referral sources had
14   been abandoned, the personal property comprising the business assets had been sold, and
15   the real property location could no longer be used for such a business. The effect of these
16   acts and omissions on the part of the government was to destroy the business and its
17   goodwill. Nothing remained to which goodwill could attach.
18          The mere fact that an agreement purports to assign goodwill along with the
19   trademark is insufficient. Glow Industries, Inc. v. Lopez, 273 F. Supp. 2d 1095, 1108 (C.D.
20   Cal. 2003) (citing The Money Store v. Harriscorp Finance, Inc., 689 F.2d 666, 676 (7th
21   Cir. 1982)). Rather, courts will look to the "reality of the transaction" to determine if
22   goodwill has passed. Archer Daniels Midland Co. v. Narula, 2001 U.S. Dist. LEXIS 9715
23   (N.D. Ill. July 12, 2001).
24          In determining whether an assignment is "in gross," "the test is whether the assets
25   bought are sufficient to enable the buyer to go on in real continuity with the past." Merry
26   Hull & Co. v. Hi-Line Co., 243 F. Supp. 45, 51 (S.D.N.Y. 1965); 1 McCarthy Trademarks
27   and Unfair Competition § 18.9, at 818-19.
28          Exactly on point is the case of Hough Manufacturing Corp. v. Virginia Metal

      PLAINTIFFS’ TRIAL BRIEF                                                             Page 6
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 1   Industries, Inc., 453 F.Supp. 496, 203 U.S.P.Q. 436 (E.D. VA 1978), in which the
 2   bankruptcy trustee auctioned off the bankrupt’s tangible business assets, and then months
 3   later, sold what was described as the trade name and trademark of the business. The court
 4   held that:
 5          where, as here, all business operations cease and the tangible assets
            necessary for the resumption of business operations are separated from the
 6          good will of the business, the trade names and trademarks of that business
            cease to be protectable, exclusive property rights. Accordingly, the Trustee's
 7          purported assignment to plaintiff of VMP's trademark and trade name, some
            six months after the sale of VMP's manufacturing and production assets, is in
 8          the Court's view invalid for purposes of conferring upon plaintiff the right to
            exclusive use of the VMP name and mark. Id., at 501-502.
 9
10          Just as the trustee in Hough could pass no greater rights in the trademark than he
11   possessed, BLM could not transfer to Defendant the goodwill of a business that had been
12   dismantled and scattered.      Accordingly, BLM made no representation or warranty
13   regarding the subject of the assignment. Defendant acquired no goodwill and no rights in
14   the trademark of the business formerly known as Mustang Ranch.
15   IV.    PLAINTIFF ACQUIRED RIGHTS IN THE MARK BY BONA FIDE USE
16          A.     Plaintiff reasonably determined mark had been abandoned.
17          The long and colorful saga of the Mustang Ranch and the Confortes prior to the
18   governement seizure of their property and business was well known to Plaintiff David
19   Burgess, who had been a manager of their brothel business two decades earlier. With his
20   wife Ingrid Burgess, he had established a new brothel business across the road from the
21   Confortes’ Mustang Ranch and called it “Old Bridge Ranch.”
22          The disposition of the famous trademark was of great interest to Plaintiffs, and they
23   carefully monitored the government’s seizure and closing of the Mustang Ranch business.
24   It was their intent to use or acquire the trademark for their own business if that were
25   possible.
26          When it was apparent that the government was taking no steps to preserve or
27   continue the former business, and after a reasonable time to be assured the mark had been
28   abandoned (over 3 ½ years), Plaintiffs proceeded to use it and to register that use.

      PLAINTIFFS’ TRIAL BRIEF                                                                 Page 7
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 1          B.     Plaintiff commenced use of the mark for brothel services.
 2          "Use in commerce" means bona fide use of a mark in the ordinary course of
 3          trade, and not merely to reserve a right in the mark. ... A mark is deemed to
 4          be used on services when it is used or displayed in the sale or advertising of
 5          services and the services are rendered in commerce. 15 U.S.C. 1127
 6          Beginning in April, 2003, Plaintiffs began using the MUSTANG RANCH mark to
 7   refer to brothel services supplied at Plaintiffs’ business. Due to the state’s restrictions on
 8   advertising brothel services, Plaintiffs were limited in the manner of use, but the
 9   permissible uses which they employed were: using the former Mustang Ranch’s telephone
10   number, answering calls with a “Mustang Ranch” greeting; placing roadside signage with
11   the MUSTANG RANCH mark; fabricating and selling “Mustang Ranch” promotional
12   goods; and sponsoring promotional events in the name of “Mustang Ranch.”
13          This usage by Plaintiffs was bona fide use in commerce as the statute defines it.
14          C.     Plaintiff’s use is consistent with public association of the mark.
15          Since the MUSTANG RANCH mark was descriptive of the location of both the
16   Conforte/AGE business and Plaintiffs’ business (near the freeway exit named “Mustang”),
17   and because Plaintiffs could provide continuity of services based upon their longstanding
18   familiarity with the Conforte/AGE business, it was natural and logical that Plaintiffs adopt
19   the mark without confusing or misleading the public. The established associations of the
20   location and quality of services were maintained, which serves the public purpose for
21   which trademarks exist.
22   //
23   //
24   //
25   //
26   //
27   //
28   //

      PLAINTIFFS’ TRIAL BRIEF                                                                Page 8
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 1   V.     CONCLUSION
 2          The facts compel a finding that the government and/or Conforte/AGE abandoned
 3   the goodwill and mark prior to the purported transfer in gross to Defendant. The facts also
 4   clearly establish Plaintiffs’ bona fide use of the mark in commerce after its abandonment
 5   by the prior user.
 6          The court should therefore maintain the status quo, by making permanent the
 7   injunction prohibiting Defendants’ use of the mark, and by declaring Plaintiffs’ ownership
 8   of the mark by virtue of use in commerce.
 9
10   Dated: November 20, 2006                        Respectfully submitted,
11

12
                                                     FRITZ CLAPP
13                                                   California State Bar No. 99197
                                                     Admitted pro hac vice
14
                                                     M. JEROME WRIGHT
15                                                   Nevada State Bar No. 463
16                                                   Attorneys for Plaintiffs
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      PLAINTIFFS’ TRIAL BRIEF                                                             Page 9

								
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