Circuit City Stores, Inc. v. CarMax, Inc.

• Decision Date: 22 January 1999
• Docket Number: No. 97-4104,97-4104
• Citation: 165 F.3d 1047
• Parties: CIRCUIT CITY STORES, INC., et al., Plaintiffs-Appellees, v. CARMAX, INC.; Philip Artz; Harold Artz, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1047

165 F.3d 1047

49 U.S.P.Q.2d 1507

CIRCUIT CITY STORES, INC., et al., Plaintiffs-Appellees, v. CARMAX, INC.; Philip Artz; Harold Artz, Defendants-Appellants.

No. 97-4104.

United States Court of Appeals,

Sixth Circuit.

Argued Sept. 21, 1998.

Decided Jan. 22, 1999.

Richard M. Knoth (argued and briefed), Jayne L. Jakubaitis (briefed), Arter & Hadden, Cleveland, OH, Nancyellen Keane (briefed), Glen Allen, VA, for Plaintiff-Appellee.

Bruce O. Baumgartner (argued and briefed), Baker & Hostetler, Raymond Rundelli (briefed), Benesch, Friedlander, Coplan & Aronoff, Cleveland, OH, for Defendants-Appellants.

Before: MERRITT, JONES, and SILER, Circuit Judges.

MERRITT, J., delivered the opinion of the court, in which SILER, J., joined. JONES, J. (pp. 1056-57), delivered a separate concurring opinion.

OPINION

MERRITT, Circuit Judge.

In this action, the plaintiffs, Circuit City companies, sue the defendants, CarMax, Inc., Philip Artz and Harold Artz, for trademark infringement and unfair competition under the Lanham Act §§ 32, 45(a), 15 U.S.C.A. §§ 1114, 1125(a). Circuit City also sues under Ohio law for deceptive trade practices and unfair competition. Circuit City's claims stem from the defendants' use of the "CarMax" service mark which Circuit City had duly registered on the federal Principal Register. The defendants pled an affirmative defense of senior use of the CarMax mark and also brought a counterclaim against Circuit City for fraudulent registration. The District Court entered judgment for Circuit City and awarded injunctive relief against the defendants.

The issue on appeal is whether the District Court erred in rejecting the defendants' affirmative defense that they were the senior user of the CarMax mark. Specifically, the defendants argue that the District Court's factual findings were clearly erroneous with regard to the extent of the defendants' prior use of the CarMax mark. The defendants also argue that the District Court wrongly required proof of secondary meaning in order to establish a common law right of ownership in the CarMax mark. In the alternative, the defendants claim that the District Court applied the wrong legal standard for injunctive relief because the Court presumed that Circuit City would suffer irreparable injury without requiring a specific showing that Circuit City was likely to enter the defendants' market. The defendants also argue that the District Court erred by admitting certain evidence relevant to Circuit City's good faith defense to the defendants' fraud counterclaim. We agree with the District Court in this fact-intensive case that the defendants were simply unable to show a sufficient use of the "CarMax" mark to give them an intellectual property right superior to Circuit City's.

I. BACKGROUND

This case requires a detailed recitation of the facts. All of the plaintiffs' claims stem from the defendants' use of the CarMax mark in connection with their used car business in Northeast Ohio. The defendant CarMax is an Ohio corporation with its principal place of business in Willoughby, Ohio. The defendants Harold Artz and his son Philip incorporated CarMax in 1990. The defendants formed the CarMax name by combining the names of Philip's two sons, Carson and Max. Prior to incorporating CarMax, the Artzes were in the new car dealership business in the greater Cleveland area. By the late 1980s, they referred to their businesses as the "Artz Auto Group." The Artzes incorporated CarMax with the intention of expanding into the sales of used cars. The Artzes leased a facility in Willoughby in 1990 for this purpose. Around the same time, the Artzes obtained a "Budget Rent A Car" license to establish a rental car business in Willoughby. Both the rental car and used car businesses began operating in November 1990 out of the Willoughby facility leased by the defendants. The Artzes also established a nominal new car business in the Willoughby facility in order to circumvent a town ordinance prohibiting the sale of used cars except by new car dealers.

The plaintiffs include Circuit City Stores, Inc., Circuit City Stores West Coast, Inc., C-Max Auto Superstores, Inc. and CarMax the Auto Superstores (collectively referred to as "Circuit City"). Circuit City chose the name "CarMax" as the service mark for its concept of used car superstores developed in 1991. On June 22, 1993, Circuit City filed an "intent to use" application with the United States Patent and Trademark Office with the hope of registering the mark on the Principal Register. Circuit City opened its first CarMax auto store in Virginia in September 1993, and it obtained federal registration of the CarMax mark on December 12, 1995.

The defendants have made continued use of the CarMax mark since Circuit City's application for federal registration of the mark on June 22, 1993. On September 11, 1996, Circuit City filed a complaint against the defendants for trademark infringement and unfair competition under the Lanham Act §§ 32, 45(a), 15 U.S.C.A. §§ 1114, 1125(a). Circuit City also brought claims of unfair competition and deceptive trade practices under Ohio Rev.Code Ann. § 4165.02 (West 1998) and Ohio common law. The defendants answered Circuit City's complaint and offered an affirmative defense, claiming that they were the senior user of the CarMax mark in Northeast Ohio. The defendants alleged that they "adopted and began using the trade name 'CarMax' at least as early as June 1991," which was two years prior to Circuit City's intent to use application to the Trademark and Patent Office. The defendants also brought a counterclaim against Circuit City, alleging that Circuit City fraudulently obtained federal registration of the CarMax mark and name. The District Court had jurisdiction over Circuit City's suit under 28 U.S.C. § 1338(a), (b). District Court Judge David D. Dowd, Jr. conducted a bench trial of all the parties' claims and counterclaims in June 1997.

At the trial, the defendants offered evidence of their use of the CarMax mark between the 1990 incorporation of CarMax and Circuit City's application for registration in June 1993, i.e., the "relevant time period." Much of the defendants' evidence pertained to their alleged use of the CarMax mark in radio advertisements during the relevant time period. The defendants claim that local radio stations carried a rotation of advertisements for the Artz Auto Group, which included CarMax as well as the new car dealerships owned by the defendants. Philip Artz testified that the defendants advertised on the FM stations of WDOK, WMMS, WQAL and WNCX and their AM sister stations as well. Artz submitted a transcript of one of the alleged advertisements, which read:

Are you ready for a new car, but when you visited the dealership came down with a bad case of sticker shock, then you need to come see us at CarMax in Willoughby. CarMax cures sticker shock. We have a huge inventory of late model used cars, most with the remainder of the factory warranty, all quality inspected. CarMax offers low milage (sic) used cars and we save you thousands off the price of a new car. Why by (sic) a new car when you can save thousands on a late model, low mileage used car at CarMax. If you cant (sic) tell the difference why pay the difference? So if you have come down with a bad case of sticker shock, come see us, were (sic) conveniently located on the corner of Erie and Vine in Willoughby. At CarMax we have the cure for sticker shock.

Philip Artz had found this transcript in his business files, and he testified that he wrote it himself for use on the radio sometime during the relevant time period. Though Artz was not certain of precisely when the advertisement aired over the radio, he was confident that it was sometime in the "early 1990's" because the advertisement's themes were consistent with the defendants' marketing strategies at the time.

Philip Artz also testified to the frequency of radio advertisements during the relevant time period. Artz estimated that the radio stations played a total of three hundred advertisements a month for the Artz Auto Group. Of these three hundred advertisements, anywhere between fifteen and twenty-five percent were for CarMax. Artz did not present any documentary evidence of advertising arrangements between the radio stations and the defendants, but he did claim that he could "make a pretty good guess" of the total monthly advertisements for the Artz Auto Group and CarMax's share of those ads. Artz testified that he did not ordinarily keep records of the advertising deals with the radio stations because he conducted such business on a "trade basis" rather than in cold cash. Artz alleged that the defendants basically traded cars to the radio stations in return for advertising air time.

Two radio company officials also offered testimony on the defendants' CarMax advertisements during the relevant time period. Tom Embrescia, owner, chairman, and president of WDOK FM and its sister station WRMR AM, testified that he entered into an agreement with Philip Artz in 1991 to exchange $100,000 of annual advertising for the use of two cars. Embrescia entered into the same agreement with the defendants in both 1992 and 1993. Embrescia claimed that this deal allowed the defendants anywhere from twenty to forty commercials a month on WDOK and forty to seventy commercials a month on WRMR. Around twenty five percent of these commercials, in Embrescia's estimation, were for CarMax. Embrescia testified that he was able to remember that CarMax was part of the ad rotation in light of the unique and personal roots of the CarMax name. Embrescia distinctly recalled discussing CarMax with Philip Artz when they were negotiating the advertising arrangement because Artz had explained to him then that the CarMax name stemmed from the names of his two sons. Embrescia also testified that he remembered hearing CarMax ads on both WDOK and WRMR. Embrescia did not produce any...