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Sophisticated Purchaser Defense Avoided Where Pre-sale Confusion Is Harmful

Charles E. Bruzga
© 2009 Charles E. Bruzga

This article was originally published in The Trademark Reporter, as well as the Journal of the Patent and Trademark Society.*

I. Introduction

Assume a client complains that a competitor has just started selling twenty thousand dollar, custom-designed, racing boats under the trademark RINKO, similar to WRINKO, your client’s established trademark for high performance, recreational boats costing sixteen thousand dollars. The client complains that this is likely to cause confusion amongst potential buyers, and will naturally result in lost sales. In fact, however, any such confusion would only be temporary since the high cost of the goods involved would cause buyers to act in a sophisticated way [1] and learn the identity of the source [2] of any boat they purchase by the time a purchase is made.

Query: Would an action under the Lanham Act [3] to enjoin the competitor’s use of RINKO be successful against a defense that the sophistication of the buyers guarantees lack of confusion at the point-of-purchase [4] According to an evolving line of case law, discussed in this article, such a Lanham Act action could be successful, but would depend on whether your client is substantially harmed by pre-sale confusion. Substantial harm, in turn, would be determined by making a traditional inquiry into whether actionable confusion-Le., a likelihood of confusion-exists.

II. Harmful, Pre-sale Confusion, Luring Away Potential Buyers of Expensive Goods or Services, Violates the Lanham Act

Case law supporting the view that harmful, pre-sale confusion over trademarks for expensive goods or services violates the Lanham Act exists in the Second, Third, Fourth and Eighth federal judicial circuits.

A. Second Circuit

The most extensive case law on point exists in the Second Circuit Court of Appeals, and a particularly articulate description of actionable harm occasioned by pre-sale trademark confusion is found in the Second Circuit case of Mobil Oil Corp. v. Pegasus Petroleum Corp. [5]

In Mobil Oil Corp., the circuit court affirmed a district court’s issuance of an injunction against the use of Pegasus Petroleum [6] as a trade name for trading in oil. [7] The use of PEGASUS (signifying the mythical Greek flying horse) for a business engaged in oil trading was considered to infringe Mobil Oil Corporation’s federally-registered flying horse symbol [8] used in the related area [9] of selling petroleum products. [10]

The Mobil Oil court noted that the trial court’s finding of likelihood of confusion was not based on point-of-sale confusion, “but rather on the likelihood that Pegasus Petroleum would gain crucial credibility during the initial phases of a deal.” [11] The court noted that, due to such “crucial credibility,” an oil trader might listen to a “cold” phone call from Pegasus Petroleum, made to solicit customers. [12]

“Crucial” credibility was what the second user must gain from pre-sale confusion to show actionable harm, according to the Mobil Oil court. [13] What is crucial in the oil trading context, however, where deals are often initiated with a phone call, for example, may well differ in other contexts.

The Second Circuit Court of Appeals, in an earlier case, Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., [14] defined the type of harm occasioned by pre-sale trademark confusion that was actionable under the Lanham Act. The Lois Sportswear court relied on an earlier Second Circuit case, Grotrian, Helfferich, Schulz, Th. Steinweg Nachf. v. Steinway & Sons. [15]

In the Lois Sportswear decision, a trademark stitching pattern for the rear pocket of expensive [16] designer jeans was held infringed [17] by the use of a similar stitching pattern also for designer jeans. As against the infringer’s argument that labeling of the jeans with their source would eliminate point-of-sale confusion, [18] the Lois Sportswear court held that amongst “other forms of likely confusion that are equally actionable” [19] was that of “[confusing] consumers into thinking that [the infringer] is somehow associated with [the trademark owner] or has consented to [the infringer’s] use of the stitching pattern regardless of labeling.”[20] Such prohibited confusion is of the pre-sale variety since the Lois Sportswear court also found that most labels are discarded after the sale of jeans.[21]

The Lois Sportswear court, in support of the foregoing holding, discussed the actionable harm occasioned by pre-sale trademark confusion found in the Steinway & Sons [22] case as “bootstrapping of a trademark owner’s goodwill by the use of a substantially similar mark,” [23] noting that a trademark infringer would thereby “attract” potential customers. [24]

B. Third Circuit

A pair of district court cases from the Third Circuit Court of Appeals each support the view that harmful, pre-sale confusion over trademark use may be actionable under the Lanham Act despite sophistication of potential purchasers.

In Television Enterprise Network, Inc. v. Entertainment Network, Inc., [25] the district court preliminarily enjoined the use of TEN for television programs as an infringement of a first user’s identical, unregistered [26] service mark TEN for the same type of services. [27] As against the second user’s argument that likelihood of confusion was lacking because the television programs were expensive, [28] the court held, in the alternative, that: “Even if the confusion is cured at some intermediate point before the deal is completed, the initial confusion may be damaging and wrongful.” [29]

In the second, earlier, case from the Third Circuit, the district court in Koppers Co. v. Krupp-Koppers GmbH [30] granted injunctive relief against use of the service mark and name KRUPP-KOPPERS for engineering design services, holding such use to violate a first user’s Lanham Act rights in the mark KOPPERS for similar services. In reaching its decision, the Krupp-Koppers court rejected a “sophisticated purchaser” defense [31] and, in describing the “nature of the forbidden confusion,” found that the first user would be harmed by the second user’s “secur[ing] wrongful initial business contacts” by its use of KOPPERS. [32]

C. Fourth Circuit

An early “sophisticated purchaser” case providing some support for the view that likely pre-sale confusion may be actionable under the Lanham Act is the Fourth Circuit Court of Appeals case of Communications Satellite Corp. v. Comcet, Inc. [33] The Comcet court held that COMCET for computers used in data communication infringed the established use of COMSAT for satellite communications. In a portion of the Comcet case nominally concerning trade name infringement, but applying the same legal standard as for service mark infringement, [34] the Comcet court noted that: “Only a most perceptive ear can avoid initial confusion between the names when they are spoken, and rumor, which is often more destructive of good will than fact, most frequently travels by word of mouth.” [35] This finding was one of several bases on which the Comcet court held that likelihood of confusion existed. [36]

D. Eighth Circuit

In Blaw-Knox Co. v. Siegerist, [37] the earliest case reported in this article, a district court in the Eighth Circuit held that harmful, pre-sale trademark confusion was prohibited under the Lanham Act. Such confusion actionably harmed [38] the trademark owner according to the Blaw-Knox court, because it gave the infringer the “opening or opportunity . . . to interest prospective customers in [the alleged infringer’s] equipment.” [39]

The Blaw-Knox court further qualified its finding of harm by observing that the “damaging effect” of the “opportunity or opening” to interest potential customers gained by the infringer “lasts long after the initial confusion has disappeared.” [40] Blaw-Knox, therefore, involved more than superficial harm on the first user.

Although the goods involved in Blaw-Knox were expensive, [41] a sophisticated purchaser defense was apparently not made. The rationale of Blaw-Knox, however, would appear applicable to defeat such defense in an appropriate case.

III. Relatively Harmless, or Insubstantial, Pre-sale confusion, not Luring Away Buyers, Avoids the Reach of the Lanham Act

The First Circuit Court of Appeals decision in Astra Pharmaceutical Products, Inc. v. Beckman Instruments, Inc. [42] supports the view that actionable harm does not result from pre-sale confusion which is insubstantial and, therefore, incapable of significantly harming a trademark owner. The Astra Pharmaceutical case involved the use of the trademark ASTRA by a first user for medical drugs, and the use of the identical term by a second user for blood analyzer equipment.

A “sophisticated purchaser” defense prevailed [43] in the Astra Pharmaceutical case, despite proof of actual pre-sale confusion. [44] As noted by the court, the record lacked evidence that any temporary confusion “had any effect whatever on the ultimate decision of a purchaser whether to buy a particular product.” [45] Such temporary, pre-sale confusion was, in other words, insubstantial, or relatively harmless.

That the pre-sale confusion in Astra Pharmaceutical was insubstantial is shown, inter alia, by two basic differences in trademark use found by the court: both the products and the channels of trade at issue were disparate. [46] Medical drugs identified by the ASTRA trademark were sold to pharmacies, [47] whereas blood analyzer machines identified by the ASTRA mark were sold to chemical laboratories. [48] A pharmacist’s initial confusion over the trademark ASTRA would thus be expected to be slight and have little or no effect on the pharmacist’s ultimate decision to purchase a particular drug, because the reputation and quality of a blood analyzer machine would be largely irrelevant to the pharmacist when selecting a drug. [49]

In assessing the differences between the products and channels of trade, the Astra Pharmaceutical court was making a traditional inquiry into whether a likelihood of confusion existed, and was guided by a set of factors prescribed for this purpose by the First Circuit Court of Appeals in Pignons S.A. de Mecanique de Precision v. Polaroid Corp. [50] In fact, all of the other cases involving pre-sale confusion discussed in this article applied a likelihood of confusion test. [51]

IV. Conclusion

To answer the hypothetical posed in the introduction above, it would be necessary to determine whether the pre-sale confusion harms the client significantly. Actionable harm would exist, according to a growing body of case law, where the competition derives a crucial credibility from association with the trademark owner so as to lure potential customers away from the trademark owner.

On the other hand, relatively harmless, pre-sale trademark confusion, not luring away potential customers, would not be actionable. Among the more important questions that should be considered are whether the client’s high performance recreational boats significantly overlap in market appeal with the competitor’s racing boats, and whether the respective boats are advertised and sold through the same channels. Affirmative answers would suggest harm.

* 78 TMR 659 (1988) and 71 JPTOS 32 (1989)

[1] This view is reflected in the case law. Eg, Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd., 627 F2d 628, 631, 207 USPQ 89, 91 (CA 2 1980); McGregor-Doniger, Inc. v. Drizzle, Inc., 599 F2d 1126, 1137, 202 USPQ 81, 92 (CA 2 1979) (“The greater the value of an article the more careful the typical consumer can be expected to be”). This view is shared by commentators in the field. Eg, 3A R. Callmann, The Law of Unfair Competition, Trademarks and Monopolies §20.10 (4th ed 1983) (“Expensive and valuable articles. . . are normally bought only after comparison and analytical investigation”); 2 J. Thomas McCarthy, Trademarks and Unfair Competition §23:28A (2nd ed 1984) (“[T]he reasonably prudent buyer is assumed to take more care in purchasing ‘expensive’ items which he buys infrequently, than in buying everyday, relatively inexpensive items”) (footnote omitted).

[2] Trademark law protects against consumer confusion as to the source, or origin, of goods and services. University of Pittsburgh v. Champion Products, Inc., 686 F2d 1040, 1047, 215 USPQ 921, 926 (CA 3 1982) (In the “classic” trademark case, “if the public could reasonably believe the [junior, or second, user’s] product to be the product of the senior, the junior may be enjoined”), cert denied 459 US 1087 (1982); see Lindy Pen Co. v. Bic Pen Co., 725 F2d 1240, 1246, 226 USPQ 17, 20-21 (CA 2 1984), cert denied 105 S Ct 955, 226 USPQ 23 (1985) (district court improperly assessed only confusion as to origin). Trademark law also protects against confusion leading consumers to believe that a junior user is somehow associated with a senior user, or that the junior user’s trademark use is sponsored by the senior user. Lindy Pen, id at 1246, 226 USPQ at 20-21; Champion Products, id at 1047-48,215 USPQ at 926-28 (tracing development of trademark law prohibiting confusion as to association or sponsorship of goods or services).

[3] The present article focuses on the Federal Trademark (Lanham) Act §§1-45, 15 USC §§1057-1127, although the principles discussed herein state common law actions.

[4] According to a simplistic view, which is believed superseded by the case law discussed in this article, such a “sophisticated purchaser” defense would prevail without regard to harm from pre-sale confusion. Refreshment Machinery, Inc. v. Reed Industries, Inc., 196 USPQ 840, 843 (TTAB 1977) (as long as confusion eliminated “before an irrevocable decision [to purchase) is made,” sophisticated purchaser defense succeeds) (dictum).

[5] 818 F2d 254, 2 USPQ2d 1677 (CA 2 1987).

[6] Id at 260, 2 USPQ2d at 1682.

[7] Id at 257, 2 USPQ2d at 1680.

[8] Ibid.

[9] Id at 257-58, 2 USPQ2d at 1680.

[10] Id at 255, 2 USPQ2d at 1678.

[11] Id at 259, 2 USPQ2d at 1681.

[12] Ibid.

[13] Ibid.

[14] 799 F2d 867,230 USPQ 831 (CA 2 1986).

[15] 523 F2d 1331, 186 USPQ 436 (CA 2 1975).

[16] Lois Sportswear, supra note 14 at 875 fn 5, 230 USPQ at 837 (price was “almost one-hundred dollars”). The Lois Sportswear court held that the typical buyer was “sophisticated with respect to jeans buying.” Id at 875, 230 USPQ at 837.

[17] Id at 876,230 USPQ at 838.

[18] Id at 872, 230 USPQ at 834.

[19] Ibid.

[20] Id at 872, 230 USPQ at 835.

[21] Id at 873, 230 USPQ at 835.

[22] The Steinway & Son case, supra note 15, involved the famous Steinway pianos, id at 1342. 186 USPQ at 445, the purchasers of whom were “sophisticated,” id at 1341, 186 USPQ at 444.

[23] Lois Sportswear. supra note 14 at 872. 230 USPQ at 835.

[24] Ibid.

[25] 630 F Supp 244, 229 USPQ 47 (D NJ 1986).

[26] Protection for the unregistered service mark in Entertainment Network was successfully sought under the Lanham Act, §43(a), 15 USC §1125(a), see id at 245, 229 USPQ at 48. the test for infringement of the unregistered mark being held the same as for a registered mark-ie, “likelihood of confusion,” ibid.

[27] Id at 248, 229 USPQ at 50.

[28] Id at 247, 229 USPQ at 49. The expense of the services involved was analyzed as “indicative of the care and attention expected of consumers when making a purchase,” which is one of several factors set forth in Scott Paper Co. v. Scott’s Liquid Gold, Inc., 589 F2d 1225, 1229, 200 USPQ 421, 425 (CA 3 1978), and quoted in Entertainment Network, id at 245, 229 USPQ at 48.

[29] Ibid.

[30] 517 F Supp 836,210 USPQ 711 (WD Pa 1981).

[31] Id at 845, 210 USPQ at 718-19.

[32] Id at 844, 210 USPQ at 718.

[33] 429 F2d 1245, 166 USPQ 353 (CA 4 1970), cert denied 400 US 942, 167 USPQ 705 (1970).

[34] The court applied a “likelihood of confusion” test to both the trade name and service mark claims, id at 1251, 166 USPQ at 357 (trade name) and at 1253, 166 USPQ at 358-59 (service mark), and expressly noted that the “issues overlap” as between the trade name and service mark claims, id at 1252, 166 USPQ at 358.

[35] Id at 1251, 166 USPQ at 357.

[36] Ibid.

[37] 300 F Supp 507, 157 USPQ 36 (ED Mo 1968), affd and modfd in part 414 F2d 375, 163 USPQ 74 (CA 8 1969).

[38] The Blaw-Knox court described the harm as the infringer’s gaining an “unfair competitive advantage.” Id at 513, 157 USPQ at 40.

[39] Ibid.

[40] Ibid.

[41] Cf id at 515, 157 USPQ at 42 (equipment found “expensive” in context of assessing amount in controversy to satisfy jurisdictional minimum).

[42] 718 F2d 1201, 220 USPQ 786 (CA 1 1983).

[43] Id at 1206-07. 220 USPQ at 790-91.

[44] Id at 1207-08, 220 USPQ at 791-92. Proof of actual confusion is usually considered strong evidence of likelihood of confusion. Roto-Rooter Corp. v. O’Neal, 513 F2d 44, 45-46, 186 USPQ 73, 74 (CA 5 1975) (“best evidence”); E. Remy Martin & Co. v. Shaw-Ross International Imports, Inc., 756 F2d 1525, 1529, 225 USPQ 1131, 1134 (CA 11 1985) (“well settled” point of law) (dictum). See generally Callmann, supra note 1, §20.06; McCarthy, supra note 1, §23.2.

[45] Id at 1207, 220 USPQ at 791.

[46] Id at 1208, 220 USPQ at 792.

[47] Id at 1206, 220 USPQ at 790.

[48] Ibid.

[49] Cf id at 1206, 220 USPQ at 791 (hospital pharmacy “will always make a careful determination of the source of the drug before it will be listed on the hospital formulary”).

[50] 657 F2d 482, 487, 212 USPQ 246, 250 (CA 11981). The Pignons factors considered by the Astra Pharmaceutical court, and generally applied in trademark actions, were: (1) the similarity of the marks; (2) the similarity of the goods; (3) the relationship between the parties’ channels of trade; (4) the relationship between the parties’ advertising; (5) the classes of prospective purchasers; (6) evidence of actual confusion; (7) the defendant’s intent in adopting its mark; and (8) the strength of the plaintifrs mark. Astra Pharmaceutical, supra note 42 at 1205, 220 USPQ at 789.

[51] Mobil Oil Corp., supra note 5 at 256, 2 USPQ2d at 1679 (set of factors); Lois Sportswear, supra note 14 at 871, 230 USPQ at 834 (refers to set of factors); Steinway & Sons, supra note 15 at 1336, 186 USPQ at 440 (set of factors); Entertainment Network, supra note 25 at 245-46, 229 USPQ at 48 (set of factors); Krupp-Koppers, supra note 30 at 841 fn 3, 210 USPQ at 716 (set of factors); Comcet, supra note 33 at 1252, 166 USPQ at
358; Blaw-Knox, supra note 37 at 512, 157 USPQ at 40.