Developments In NC State Trademark Law

When I last wrote about SCI North Carolina Funeral Services, LLC v. McEwen Ellington Funeral Services, Inc., Judge Murphy had entered a TRO against the Defendants for trademark infringement over their use of the McEwen name in their funeral home business.  The case seemed cut and dried then, and it looked like that the Defendants had no defense to the infringement claim.

Last week, Judge Murphy entered a preliminary injunction in the same case in 2013 NCBC 11, this time over the Defendants' vigorous defense.  The second time around was a much closer call. 

The case involves the McEwen name, which is the middle name of Defendant Carl Ellington. When the Defendants sold the funeral homes that they had operated under the McEwen name to the Plaintiffs, they included in the sale the rights to all "trademarks, tradenames (including all trade names under which [they] did business."  McEwen was the last name of Carl J. McEwen, the founder of McEwen Funeral Services, Inc.

Several years after their sale, the Defendants opened a new, competing funeral home under the McEwen name and this trademark infringement lawsuit ensued.

 

Although Judge Murphy had entered a TRO in the first round of litigation, this time he was confronted with a 99-year old North Carolina Supreme Court decision, Zagier v. Zagier, 167 N.C. 616, 83 S.E. 913 (1914) which held that "[a]s a rule, a trade-mark cannot be taken in a surname. . . ."  Id. at 617, 83 S.E. at 913.

But Zagier also held that the seller operating a business under his surname can "conclude himself from the further use of it in a similar way."

The "Likelihood Of Confusion" Test Was Inapplicable

So could the Defendants use the McEwen name without infringing on the Plaintiffs' rights?  In the TRO proceeding, Judge Murphy had ruled that there was a likelihood of confusion if they did so.  

But at the preliminary injunction stage, Judge Murphy backed off that well-known federal trademark infringement standard, saying that he was "unconvinced . . . that the application of North Carolina's common law requires the adoption of the 'likelihood of confusion' test."  Op. ¶39 & n.5.

He ruled that "when a surname is already in use in the name of a corporation, a subsequent 'corporation might be created by and operated under the same [name], when not in the same locality, in the absence of proof of an intent to injure the first named corporation or to avail itself fraudulently of the other's good name and reputation.'"  Op. ¶40 (quoting Bingham School v. Gray, 122 N.C. 699, 707, 30 S.E. 304, 304-05 (1898)).

It was somewhat of a thin record on which to find a fraudulent intent, but Judge Murphy found that to be suggested by the following facts:

  • Defendants had begun their funeral home operations at a location previously used by Plaintiffs for the same services,
  • The sign posted at that location used script similar to that of Defendants' sign in the location,
  • Defendants had decorated the lobby of one of their locations with the same portrait of the McEwen founder that is displayed in the lobby of some of Defendants' funeral home locations, and
  • Defendant Carl Ellington had not used his middle name (McEwen) in other business contexts until the Defendants began competing with the Plaintiffs.

Op. ¶46.

Embellishing on the factor of the sudden use of the middle name, the Court said "the fact that a person inexplicably changes the use of their middle name when they enter into a competing endeavor suggests to the Court that there was an intent to acquire the existing company's good will and reputation."  Op. ¶47.

Did it make a difference that the Defendants had registered a trademark in the McEwen name with the North Carolina Board of Funeral Services and the North Carolina Secretary of State?  No, because the state trademark statute says that:

registration does not authorize the use . . . of a name in violation of the rights of any third party under . . . the trademark act of this State, or other statutory or common law, and is not a defense to an action for violation of any of those rights

N.C. Gen. Stat. §55D-20(e).

The Defendants were preliminarily enjoined from engaging in:

any and all activities that use the McEwen name in the provision of funeral services within Charlotte, Mint Hill, Pineville, and Monroe.

Those are the areas where Plaintiffs have operated under the McEwen name.

 

Funeral Homes In Charlotte Battle Over Trademark Infringement

You don't see a trademark infringement action in the Business Court every day, let alone a TRO decision, but a case with both came along last Friday in SCI Carolina Funeral Services, LLC v. McEwen Ellington Funeral Services, Inc.  Moreover, this was a common law trademark case, with no federal registration -- or even a state registration -- involved.

The Defendants had previously operated funeral homes under the McEwen name in the Charlotte, North Carolina area.  In 1986, they sold those funeral homes, and their trademarks and trade names, to the Plaintiffs.

Then, notwithstanding their agreement, the Defendants opened a funeral home under the McEwen name and began advertising under that name as well.  They also registered a trade name with the North Carolina Board of Funeral Services as McEwen Ellington Funeral Services.  

There's very little North Carolina state law on trademark infringement, but Judge Murphy found enough to enter a temporary restraining order against the Defendants.

He held, relying on a 1907 North Carolina Supreme Court decision, that "North Carolina common law protects corporations' trade names," stating that

It is well settled that an exclusive right may be acquired in the name in
which a business has been carried on, whether the name of a partnership or
of an individual, and it will be protected against infringement by another
who assumes it for the purpose of deception, or even when innocently
used without right, to the detriment of another; and this right, which is in
the nature of a right to a trade-mark, may be sold or assigned. 

Op. ¶9 (quoting Blackwell’s Durham Tobacco Co. v. American Tobacco Co., 145 N.C. 367, 374, 59 S.E. 123, 127 (1907).

Then, although there's no reported state court decision on when a trademark infringement plaintiff has shown the likelihood of confusion necessary to prevail, Judge Murphy relied on a federal decision from the Western District of North Carolina holding that the factors to be considered are:

1) the strength or distinctiveness of the mark; 2) the similarity of the two
marks; 3) the similarity of the goods/services the marks identify; 4) the
similarity of the facilities the two parties use in their businesses; 5) the
similarity of the advertising used by the two parties; 6) the defendant’s
intent; and 7) actual confusion.

Op. ¶10 (quoting Wachovia Bank & Trust Co. v. Crown Nation Bancorporation, 835 F. Supp. 882, 886(W.D.N.C. 1993)).

If that standard sounds familiar, that's because it is, and drawn from the Fourth Circuit Court of Appeals' often cited opinion in Pizzeria Uno v. Temple, 747 F.2d 1522, 1527 (4th Cir. 1984)).

Given that the Plaintiffs had shown that their McEwen mark was distinctive, the marks in question appeared to be similar, the funeral services provided by the parties were identical, the parties use similar facilities, the parties' advertising is similar, and that one of the Defendants had registered and operated under the challenged mark with the intent to cause confusion among the consuming public, it was any easy step to enjoin the Defendants from using the McEwen name in connection with funeral services.

It's hard to tell how the Defendants defended this pretty clear case of infringement, given that they didn't even file a brief in opposition to the motion for a TRO.

 

4th Circuit High-Fives Georgia Pacific in enMotion Towel Dispenser Case

If you have visited the restroom in an office building in the last five years, chances are you've had the opportunity to use Georgia Pacific's hands-free paper towel dispenser known as "enMotion."  In a published opinion released yesterday, the Fourth Circuit generally ruled in GP's favor on trademark infringement, tortious interference, and unfair and deceptive trade practices claims.

The enMotion dispenser (pictured here) operates through an electronic motion sensor that dispenses towels without any physical contact from the user's hands.  The dispenser was designed for use with a proprietary paper towel sold exclusively by GP, one that the Fourth Circuit described as having "a soft-fabric like feel created by using a through-air-dried (TAD) process."  (Our own end-user experience confirms that these towels are quite supple, as commercial paper towels go).  The dispensers are not sold, they are leased to distributors, who are permitted to sub-lease them to end-users (like office buildings).  The leases and subleases require the end users to use only GP's towels in the dispensers.  The towels themselves are a non-standard size.

The defendant designed and manufactured a competing paper towel in the exact same non-standard size, but with a "slick, scratchy feel," and marketed it to users of the enMotion dispensers.  Those towels did not fit any other dispenser on the market.

GP sued in the Eastern District for trademark infringement, Lanham Act and common law unfair competition, and tortious interference with contract, and the defendant counterclaimed for unfair and deceptive trade practices.  Judge Boyle granted summary judgment in favor of the defendant on GP's claims and in favor of GP on the defendant's unfair & deceptive counterclaim.

The Fourth Circuit vacated and remanded everything except the counterclaim.  Without delving too deeply into the trademark issues, suffice it to say that the court was convinced that a fact issue existed due to statistical evidence of substantial consumer confusion as to the source of the towels, combined with evidence of the defendant's intent to "stuff" the GP dispensers with its own towels.

As for the tortious interference claim, the district court ruled that the defendant's conduct was legitimate competition and was therefore justified, creating a qualified privilege under North Carolina law.  The Fourth Circuit vacated that ruling with two caveats.  First, GP's claim would be limited to tortious interference with contracts between GP and its distributors because GP did not have contractual relations with the end users themselves.  Second, GP could prevail only if it also prevailed on its trademark claims.  Success on those claims would make the defendant's conduct illegal, which would destroy the qualified privilege.

Finally, the Fourth Circuit affirmed the dismissal of the defendant's unfair & deceptive trade practices counterclaim (describing the district court's reasoning with the Blackstonian phrase "right on the money").  Although the defendant claimed that GP's attempts to exclude other towel manufacturers from its dispensers was unfair or deceptive, the court held that GP entered into its leases "in good faith, openly, and transparently."  Moreover, the defendant had shown no actual injury because it had been successful in competing with GP in the marketplace.

Full Opinion

Fourth Circuit Rules No Infringement On OBX Trademark: OBX Is In The "Linguistic Commons" As A Reference To North Carolina's Outer Banks

In the 1930's, North Carolina began an ad campaign describing the state as "Variety Vacationland."  UNC's Wilson library says that the advertising resulted in a "growing number of visitors to places like Asheville, Pinehurst, and the Outer Banks" and that it "heightened their reputation as excellent vacation areas."

What do places like Pinehurst and the Outer Banks have to do with business litigation in North Carolina?  The answer is in the Fourth Circuit Court of Appeals' opinion yesterday in OBX-Stock, Inc. v. Bicast, Inc.  The OBX case involves a trademark referencing the Outer Banks, and it discusses an earlier Fourth Circuit opinion addressing the "Pinehurst" trademark.

The Plaintiff had conceived of the OBX abbreviation to designate the Outer Banks of North Carolina, placing it on stickers, t-shirts, and other items. The Plaintiff was so successful that a broad variety of businesses began using the term as a shorthand designation for the Outer Banks.  The result, said Judge Niemeyer, was that "[t]he initials OBX are omnipresent in the Outer Banks and are universally understood as an abbreviation for 'Outer Banks.'"

The Defendant came into Plaintiff's crosshairs when it began selling stickers using the term OBXtreme "to denote the wide variety of extreme sports available at the Outer Banks."  The Plaintiff, which held four federally registered trademarks for OBX, sued for infringement.  It lost at summary judgment and the Court of Appeals affirmed.

The reason was that OBX wasn't identified with any product.  Instead, it was merely descriptive of a geographical location.  The Court held that the term had become so widely and generally used that it had "entered the 'linguistic commons' as an often-used, everyday abbreviation of 'Outer Banks.'"  Thus, In order to prevail, the Plaintiff needed to show that its descriptive mark had secondary meaning associated not with the Outer Banks, but with Plaintiff's products.  The Court said that there was no such evidence.

In an interesting sidelight, the Fourth Circuit held that OBX couldn't rely on its federal registrations because "the PTO only grudgingly issued the registrations after intervention by North Carolina's congressional delegation."  The registrations had been rejected five times by the PTO based on its determination that OBX "had become nothing more than an alternative to Outer Banks and the terms were used 'interchangeably.'"  The Court said that "quick process through the PTO," conversely, would "weigh[] in favor of validity."

In the earlier case involving the "Pinehurst" trademark, Resorts of Pinehurst, Inc. v. Pinehurst Nat'l Corp., 148 F.3d 417 (4th Cir. 1998), the Fourth Circuit held that Defendant had infringed by using "Pinehurst" in connection with its competing golf resort.  Pinehurst is a geographic location also, so what was the difference from the OBX case?  In Resorts of Pinehurst, the Court found the secondary meaning lacking in OBX, holding that the "Pinehurst" mark "had a clear secondary meaning in consumers' minds, making it an enforceable trademark even if it might have been geographically descriptive.  Resorts of Pinehurst communicated its name to the consuming public effectively to associate the name with a private provider of golf courses and golf services, and not the geographical location in North Carolina."

My partners Reid Phillips and David Sar represented the prevailing Defendant.

Preliminary Injunction Denied In Case Under North Carolina Trademark Registration Act

Today, the Business Court denied Plaintiff's Motion for a Preliminary Injunction in a state law trademark dispute between competing jewelry stores.  The Order in Windsor Jewelers, Inc. v. Windsor Fine Jewelers, LLC, 2009 NCBC 2 (N.C. Super. Ct. Feb. 16, 2009) dissolved a Temporary Restraining Order which had previously been entered in the case.  I wrote about the entry of the TRO back in November 2008.

Defendant bought two jewelry stores in Charlotte, planning to rename them "Windsor Fine Jewelers."  Plaintiff, which operates a single jewelry store in Winston-Salem under the name "Windsor Jewelers," sought to enjoin the use of the Windsor name in the Charlotte area.  It argued that it had sold jewelry there and that the use of the Windsor name would infringe on its common law trademark rights and its service mark registered under the North Carolina Trademark Registration Act.

Judge Diaz applied federal Lanham Act principles in deciding whether Windsor Jewelers had a sufficient market presence in the Charlotte area to warrant injunctive relief.  He said that "North Carolina's common law is no different" from federal law in determining the rights of a senior user. Op. n.7.

The established tests for injunctive relief when a senior user sues a junior user are "(1) the 'market penetration' test, which applies where the senior user actually uses its mark in the market in which it seeks an injunction; or (2) the 'zone of natural expansion' test, which applies where the senior user has not actually penetrated the market, but may be likely to do so."  Op. ¶70.

Windsor Jewelers failed the market penetration test.  Although it had averaged annual sales in Mecklenburg County of $66,024 over a fifteen year period, the level of sales had fluctuated over that time and the sales were inconsequential when measured against the total sales of jewelry in that area. Mecklenburg County jewelery stores had sold $138,578,260 of jewelry in 2006, for example, much of it undoubtedly available for much less now in area pawnshops. 

Further leading to the Plaintiff's lack of success was that it had completed only 88 transactions in Mecklenburg County in 2006, but the average jewelry store there completed 1,718 transactions.  Plaintiff also hadn't done any advertising targeted at the Charlotte market. 

The Winston-Salem jeweler also struck out on the zone of natural expansion test.  Although it presented evidence that it had "considered" opening a Charlotte store, Judge Diaz found that Plaintiff had not taken any concrete steps to enter the Charlotte market. 

This opinion adds to the precious little bit of law under the North Carolina Trademark Act.   

Brief in Support of Motion for Temporary Restraining Order

Brief in Opposition to Motion for Preliminary Injunction

Reply Brief in Support of Motion for Preliminary Injunction 

Temporary Restraining Order Entered In Trademark Dispute Between Jewelers

The first round in a trademark dispute between two jewelers over the right to use the name "Windsor Jewelers" went to a WInston-Salem, North Carolina company.  Judge Diaz entered a Temporary Restraining Order  yesterday in Windsor Jewelers, Inc. v. Windsor Fine Jewelers, LLC, enjoining the Defendants from using the Windsor name for jewelry stores they had purchased in North Carolina.

Plaintiff Windsor has been operating in Winston-Salem for more than 25 years.  It has no federal trademark rights, but does have a service mark registered under the North Carolina Trademark Registration Act.  Plaintiff's only bricks and mortar location is in Winston-Salem, but it sells jewelry throughout the state, including in the Charlotte area.

The Defendant operates jewelry stores in multiple locations, and says it is one of the "Top Ten Independent Jewelers In America."  In its home state, Georgia, those stores are operated under the name "Windsor Jewelers." Defendant has used that name even longer than the North Carolina Plaintiff, but it apparently has no trademark registration. 

The dispute arose when Defendants purchased three jewelry stores in Charlotte in December 2006 and proposed to operate them under the name "Windsor Fine Jewelers." Defendants had approached the Plaintiff and offered to buy its store as well. In the course of those discussions, Plaintiff says the Defendants admitted "that it would be a conflict to expand into the North Carolina market using the 'Windsor' name without Plaintiff's permission or without" acquiring the Plaintiff. 

When the acquisition discussions broke down, Defendants offered to pay $750,000 simply to buy Plaintiff's tradename.  Plaintiff refused, and Defendants proceeded to rename their new Charlotte stores as "Windsor Fine Jewelers."

The lawsuit, and the TRO, followed.   The TRO says that:

Defendants' intent to confuse the consuming public is clear, as (notwithstanding that they have used the name Windsor Jewelers in Georgia and South Carolina) they were aware of Plaintiff's trademark registration in North Carolina when they selected Windsor Fine Jewelers as the name for their NC based stores, and indeed, attempted to purchase the Plaintiff's business and mark before announcing that they intended to change the name of their NC-based stores to Windsor Fine Jewelers.

Op. ¶3.  The TRO enjoins Defendants from use of the Windsor name in North Carolina, and also calls for all advertising materials which use the Windsor name in association with Defendants' Charlotte stores to be destroyed.

The Order itself is very short, so you'll have to look at the Briefs (linked below), if you would like to know more about the interesting state law trademark issues raised by this case.  There's a preliminary injunction hearing set for November 25th.  If that goes forward, perhaps we'll get a full opinion on some of the rarely addressed issues in the area of North Carolina trademark law.

Brief in Support of Motion for TRO

Brief in Opposition to Motion for TRO