Checkpoint Sys. v. Check Point Software Tech.

• Citation: 269 F.3d 270
• Decision Date: 19 October 2001
• Docket Number: No. 00-2373,00-2373
• Parties: (3rd Cir. 2001) CHECKPOINT SYSTEMS, INC., APPELLANT v. CHECK POINT SOFTWARE TECHNOLOGIES, INC
• Court: U.S. Court of Appeals — Third Circuit

Page 270

269 F.3d 270 (3rd Cir. 2001)

CHECKPOINT SYSTEMS, INC., APPELLANT v. CHECK POINT SOFTWARE TECHNOLOGIES, INC.

No. 00-2373

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued April 5, 2001

Filed October 19, 2001

On Appeal from the United States District Court for the District of New Jersey D.C. Civil Action No. 96-CV-03153 (Honorable Jerome B. Simandle) [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Roberta Jacobs-meadway, Esquire (argued), Akin, Gump, Strauss, Hauer & Feld, One Commerce Square, Suite 2200 2005 Market Street Philadelphia, Pennsylvania 19103, Attorney for Appellant.

Bruce P. Keller, Esquire (argued), Debevoise & Plimpton, 919 Third Avenue New York, New York 10022, Attorney for Appellee.

Before: Scirica, Ambro and GIBSON,^* Circuit Judges

OPINION OF THE COURT

Scirica, Circuit Judge

In this Lanham Act case, plaintiff Checkpoint Systems, Inc. alleges Check Point Software Technologies, Inc. infringed on its trademark and engaged in unfair competition in violation of 15 U.S.C. SS 1114, 1125(a). Finding no likelihood of confusion between Checkpoint Systems's and Check Point Software's marks, the District Court found no Lanham Act violation. We will affirm.

I.

A.

Plaintiff Checkpoint Systems, Inc. has been manufacturing and distributing commercial electronic security control systems since 1967.¹ Its devices are designed to track the physical location of goods and are sold to retailers to prevent merchandise theft. It is one of the two dominant manufacturers in the retail security products market. Since 1967 Checkpoint Systems has used the "CHECKPOINT" mark, which is registered with the United States Trademark office.²

Checkpoint Systems primarily sells four types of security monitoring devices: (1) electronic article surveillance systems; (2) access control systems; (3) closed circuit television systems; and (4) radio frequency identification devices. Its principal and most successful products are electronic article surveillance systems designed to alert retailers when items are removed from confined areas. Primarily used to prevent theft of merchandise from stores and books from libraries, these systems consist of circuited tags, electronic sensors, and deactivation equipment. The systems work by placing circuited tags on merchandise which are deactivated at the time of sale. If the tags are not deactivated, an alarm sounds. Electronic article surveillance systems cost between $2000 and $5000, plus the cost of individual tags. A large retail chain, including many of Checkpoint Systems's current clients, may spend over $20 million a year on this technology.

Checkpoint Systems also manufactures electronic access control systems in the form of security cards that permit selected personnel to have access to restricted areas. Checkpoint Systems intends to use these electronic access control systems to make "smart cards" that will enable log-on access to computers and will facilitate monitoring of physical access to restricted areas. This product was in the development stage when this lawsuit commenced.

Checkpoint Systems also sells closed circuit television systems that monitor activity within confined areas and transfer data to remote locations for employee audit and inventory management security teams. Although these systems currently transfer data and images over traditional telephone lines, Checkpoint Systems intends to transfer this data over customers' computer networks. These closed circuit products can be integrated with other computer systems, including other security application programs.

In 1997, Checkpoint Systems began developing radio frequency identification devices with the view to creating "intelligent tags" for merchandise to carry information on "merchandise history." This radio technology would permit greater information storage than currently available on traditional bar code technology. These systems cost from $80,000 to $140,000.

The sale of electronic article surveillance systems to retail, industrial, institutional and government users comprises 90% of Checkpoint Systems's business. Revenues for article surveillance systems amounted to $365-380 million in 1999; revenues for access control systems were $15 million. Checkpoint Systems's electronic article surveillance systems have a 30% market share, but its systems dominate the drug store segment with a 70% market share. Its largest competitor is Sensormatic Electronic Corporation, which has a 45% share of the overall market.

Checkpoint Systems promotes its products primarily through its direct sales force, trade shows, direct mailings to security systems dealers and its internet website. It spends $8 million annually on advertising and marketing. The trade shows in which it advertises are targeted to security professionals and retailers. Checkpoint Systems concentrates its print advertising in two magazines: Security³ and Today's Facility Manager.

The "CHECKPOINT" trademark is displayed prominently on all of Checkpoint Systems's products including all security tags, sensors, computer screens and access control cards. Checkpoint Systems is a public company whose stock is traded on the New York Stock Exchange under the symbol "CKP."

B.

Defendant Check Point Software Technologies, Inc. writes computer programs that protect and manage access to information. Check Point Software's principal product is "firewall" technology. Firewalls are computer systems that prevent unauthorized internal or external entry into computer networks. Check Point Software's firewall systems regulate data by acting as a screen between a business's private computer networks (intranets) and the wider Internet. These systems are sophisticated software applications that cost $2,999 for a single firewall and hundreds of thousands of dollars for more complicated systems. Check Point Software firewall products must be installed and maintained by computer network information specialists.

At the time Check Point Software was founded in Israel in 1993, its founders were unaware of Checkpoint Systems. They adopted the "Check Point" mark because they believed their computer firewall technology, which limited access to data, resembled military check points that prevent access to restricted areas.

Check Point Software is recognized as a leader in the firewall market with 40% of the worldwide market share. In 1997, it expanded its product line beyond network security products to include "network management products." This software enables customers to design their own computer network security programs that can be integrated with Check Point Software programs. Check Point Software also sells "private networking software" which enables consumers to encrypt internal data so that outside users in the wider internet community will be unable to access this data when transmitted over unsecured public channels.

In its promotional materials, Check Point Software markets itself as active in the corporate security industry. Its products are installed as a part of the overall network design or "architecture" of a business's computer system. They are not functional software applications that can be purchased by a consumer and installed at will.

Check Point Software uses "Check Point" as its trade name. It has used this mark in several manifestations including, "CHECK POINT," "Checkpoint," and "CHECKPOINT."

Check Point Software promotes its network security products through trade shows, direct advertising, educational seminars, and its web site. The trade shows and seminars in which it advertises are targeted to the Internet and computer network markets. These exhibitions do not include physical security manufacturers or their products. It also advertises in two widely circulated computer trade magazines, PC Week and Network World. Its computer security programs are sold predominately to institutional and corporate clients. Check Point Software's principal competitors are computer companies like Cisco Systems and Network Associates. Check Point Software is a public company whose stock is traded on the NASDAQ under the symbol "CHKP."

C.

In early 1996, Checkpoint Systems attempted to register the internet domain name www.checkpoint.com, but discovered it was registered by Check Point Software. After its request to discontinue use was rebuffed, Checkpoint Systems filed suit alleging trademark infringement and unfair competition under the Lanham Act. In a non-jury trial, the District Court held Check Point Software neither violated the Lanham Act nor infringed Checkpoint Systems's trademark. Examining likelihood of confusion, the District Court applied the factors enumerated in Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 463 (3d Cir. 1983), finding that only one factor--the strong similarity between the parties' marks--favored plaintiff Checkpoint Systems. With respect to the other Lapp factors, the court found the litigants operated in different and non-competing segments of the broad corporate security industry and that the level of consumer care in making purchasing decisions counseled against a finding of likely confusion. After determining the parties employed different marketing techniques in different industries, the court found there was no evidence that the two markets are converging. The court also found the few instances of misdirected correspondence and "minor degree of investor confusion" along with the failure to prove the existence of a single instance of a mistaken purchasing decision based on mark confusion weighed heavily against finding a Lanham Act violation. Additionally, the District Court held there was insufficient evidence of reverse confusion.⁴

In this appeal, Checkpoint Systems contends the District Court improperly evaluated the Lapp factors in its likelihood of confusion analysis. In particular, Checkpoint...