Designed to prevent "trafficking" in trademarks, Section 10 of the Trademark Act, 15 U.S.C. §1060, prohibits the assignment of an intent-to-use trademark application before a party has filed an acceptable amendment to declare use or statement of use of the mark (except to the successor to the business of the trademark applicant, or to the successor to that portion of the business with which the trademark will be used). The act further requires that the business, or the portion thereof assigned, must be ongoing and existing.

In a case of first impression, the Trademark Trial and Appeal Board recently addressed the ramifications of premature assignment of an intent-to-use application in The Clorox Company v. Chemical Bank, U.S.P.Q. (TTAB 1996). In Clorox, the petitioner sought to cancel a registration, claiming that the underlying intent-to-use application was prematurely assigned. The respondent -- while noting that the application was assigned -- nevertheless argued that the intent of the parties, when executing the assignment, was to create a security interest; that the prohibition against assigning intent-to-use applications is to prevent trafficking; that respondent retained a bona fide intention to use the mark; that inasmuch as the parties intended to create a security interest, the activity which Section 10 was designed to prohibit was not present; that the intent of the parties, not the form of the "assignment" document, should prevail; and that, accordingly, cancellation of the registration was inappropriate. Moreover, the respondent pointed out that Section 10 of the Trademark Act does not stipulate the penalty for a premature assignment of an intent-to-use application, and argued that in this case -- where the parties were not engaged in trafficking -- the penalty should entail invalidating that assignment not canceling the trademark registration.

The board, however, rejected the respondent's arguments. Strictly interpreting the Section 10 prohibition, it noted that the respondent's trademark agreement did in fact constitute an outright assignment. Regarding the respondent's arguments about the appropriate penalty for premature assignment, theboard found that Congress' purpose in drafting Section 10 was to prevent trafficking. After reviewing the legislative history of the statute, itconcluded that Congress intended for prematurely assigned intent-to-use trademark applications, as well as any resulting registration, to be voided. Thus, the respondent's registration was canceled.