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Journey’s ‘Messy’ Feud Fueled by Trademark Fight, Contracts (2)

March 31, 2020, 10:01 AMUpdated: March 31, 2020, 3:21 PM

The trademark feud embroiling the rock band Journey is in many ways a familiar story of bands struggling to untangle valuable rights when they split or disagree, spurred by big egos and even bigger piles of money.

Millions are at stake for the classic lineup of Journey, whose 1981 hit “Don’t Stop Believin’” is the most downloaded song from the 20th century. The dispute is complicated by an allegedly fraudulent corporate takeover and an unusual structure of entities owning and operating the trademark on the band’s name.

The squabble offers lessons on the importance of forming companies with clear governance structures and clearly assigning intellectual property rights—lessons that don’t just apply to music, attorneys say.

“I would imagine that lots of small businesses, say a bakery, would have the same issue,” trademark attorney David Bell of Haynes and Boone LLP said. “It’s just that within the music industry, especially, the name is so central to the continued success of the band and so important that, inevitably, if there’s going to be a dispute, it’s going to be a big fight.”

Journey co-founder and guitarist Neal Schon and keyboardist Jonathan Cain claim two band members orchestrated a “coup” to take control of the Journey trademark and extract millions in royalty payments. The two want California Superior Court declarations that they have exclusive, perpetual rights to the trademark and at least $10 million in damages for breach of fiduciary by bassist Ross Valory and drummer Steve Smith, according to the March 3 complaint.

‘Forensic’ Layer

The trademark tug-of-war could hinge on the care taken to craft decades-old contracts, including whether all rights owners signed off on a perpetual license to use the band’s name royalty-free.

An entity called Nightmare Productions Inc. owns the “Journey” trademark. According to the complaint, it has six equal shareholders: Schon, Cain, Smith, Valory, former vocalist Steve Perry and former band manager Walter Herbert.

The dispute began when Valory and Smith expressed a desire to retire and allegedly forged Cain’s electronic signature on notices of a shareholder meeting. The notices said the meeting in two weeks would include votes to expand the board from Cain, Schon and Valory to all six shareholders and elect officers. The notices of the Feb. 13 meeting, where the board expansion passed with four shareholder votes, “blindsided” Schon and Cain, the lawsuit said.

The complaint called Valory and Smith’s plan “not only malicious, but also very ill-conceived” because Nightmare doesn’t control the Journey trademark. In 1985, Nightmare granted Elmo Partners—made up of Schon, Cain and Perry, who left the band in 1997—an irrevocable license for as long as any of the three kept the band playing, according to a purported copy attached to the complaint.

Nevertheless, the complaint said Valory and Smith—both fired in 1985 before reuniting with the band a decade later—sought control of Nightmare to “extract wind-fall payments from Journey” through control of the mark. It added that neither “made significant creative contributions to Journey.”

Valory’s attorney, Richard L. Charnley, said he didn’t understand why the plaintiffs asked for declaratory judgment since, to his knowledge, Valory has never claimed a right to control the Journey mark.

But if conflict over whether Nightmare or Elmo controls the mark develops, a key question will be the validity of the perpetual license, attorneys said.

A trademark can’t be licensed without all owners approving, said Aaron Swerdlow, an entertainment transactional attorney with Weinberg Gonser LLP. With Nightmare the sole owner, the question becomes whether all its necessary components approved the license as Schon and Cain contend. It only has the signatures of the three Elmo partners and former band manager Herbert representing Nightmare.

It’s unclear from documents in the complaint whether Nightmare’s governance structure delegated Herbert the authority to license the mark, or whether all band members with rights to the mark at the time agreed, as the suit contends.

“There’s an added layer of forensic investigation to figure out who owned the original license, and were the individuals who gave that original license the full owners,” Swerdlow said.

Trademark rights ultimately depend on use, with registration serving as a record. A trademark like a band name, barring other agreements, generally falls to “the individual or entity that exercised control over the underlying performance services,” and “the quality and goodwill,” trademark attorney Anna Naydonov of Finnegan Henderson Farabow Garrett & Dunner LLP said. She said the case is “more structured” with clear ownership and a license that, on its face, seems “pretty ironclad.”

“In my opinion this case will turn on whether the license agreement is valid,” said Naydonov, who has worked trademark cases involving various rock bands. “It’s going to turn on the interpretation of the licenses, versus who owns the mark in the first place.”

Managing Fallout

Band names, including Beach Boys, Lynyrd Skynyrd and Creedence Clearwater Revival, have often been the object of fights after a split or death. For example, Creedence frontman John Fogerty sued his former bandmates over their new band “Creedence Clearwater Revisited” in 1996. He secured a temporary injunction that the Ninth Circuit overturned in 1997 before the parties settled, only to later repeatedly face off in court in ensuing years.

Band name marks are becoming more valuable with the rising importance of online presence, search engines and algorithms that direct streaming traffic, Bell said.

Bell agreed with other attorneys that this case could center on “piercing the corporate veil.” Schon and Smith could assure control of the mark by demonstrating the license’s validity or by refuting the legitimacy of the alleged takeover of Nightmare, he said.

“I could see this one being messy, unless the defendants quickly back down and become satisfied,” Bell said.

Mark Barondess of Miller Barondess LLP, attorney for Schon and Cain, said Smith and Valory have “put themselves into a position that’s irreversible.”

“Both John and Neal are very understanding people, but that understanding has its tolerances,” Barondess said. “The actions of the defendants have exceeded their tolerances.”

Meanwhile, Charnley said if Schon and Cain had a problem with the Feb. 13 meeting notice and vote, they “should take that up with Nightmare.” He said he didn’t understand why Nightmare wasn’t the principal defendant or why Schon and Cain thought Valory and Smith wanted control of the mark.

Lewis R. Miller of Miller Barondess, who also represents the plaintiffs, said Valory and Smith explicitly told his clients that using the trademark to extract royalties is “why they wanted to take over Nightmare.”

The potentially expensive fight may not only affect shares of the Journey pie, but also the size of it, Swerdlow said. Legal squabbles can turn off fans; Creedence Clearwater Revival’s acrimony made Swerdlow like the band less, he said.

“It hurts the band overall to have this dirty laundry aired out. It’s best for the band to figure it out, settle on some licensing stream,” Swerdlow said. “When you think of the band you want to think ‘Don’t Stop Believing.’ You don’t want to think of a trademark battle.”

(Updated with attorney comment; earlier version corrected the spelling of Neal Schon's first name)

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editors responsible for this story: Bernie Kohn at bkohn@bloomberglaw.com; John Hughes at jhughes@bloomberglaw.com

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