Donald F. Duncan, Inc. v. Royal Tops Manufacturing Co.

• Citation: 343 F.2d 655
• Decision Date: 04 May 1965
• Docket Number: No. 14575.,14575.
• Parties: DONALD F. DUNCAN, INC., Plaintiff-Appellee, v. ROYAL TOPS MANUFACTURING COMPANY, Inc., and Randy Brown, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

343 F.2d 655 (1965)

DONALD F. DUNCAN, INC., Plaintiff-Appellee, v. ROYAL TOPS MANUFACTURING COMPANY, Inc., and Randy Brown, Defendants-Appellants.

No. 14575.

United States Court of Appeals Seventh Circuit.

March 3, 1965.

Rehearing Denied May 4, 1965.

Stanley M. Cahn and Cummings & Wyman, Chicago, Ill., for defendant-appellant Randy Brown.

Maxwell E. Sparrow, Mark H. Sparrow and Sparrow & Sparrow, New York City, for defendant-appellant Royal Tops Mfg. Co., Inc.

Owen J. Ooms, Chicago, Ill., for plaintiff-appellee, Roy A. Lieder, Gravely, Lieder & Woodruff, St. Louis, Mo., of counsel.

Before SCHNACKENBERG, KNOCH and MAJOR, Circuit Judges.

En banc.

MAJOR, Circuit Judge.

This action was brought by plaintiff (appellee) against defendants¹ for alleged trademark infringement of its registered trademarks, "Yo-Yo," "Genuine Duncan Yo-Yo" and "Butterfly," unfair competition, false representation of goods and unauthorized use of plaintiff's trademarks. Defendants by answer denied all allegations of the complaint relevant to plaintiff's claim for relief.

Following a lengthy trial, the Distict Court entered its findings of fact, conclusions of law and a judgment order in favor of plaintiff, from which defendants appeal.

While numerous contested issues are argued in this Court, we think the principal ones arise from plaintiff's contention (1) that defendants by reason of a license agreement entered into between plaintiff and Royal are estopped to deny the validity of the trademarks, and (2) that defendants by reason of a consent decree to which plaintiff and Royal were parties are bound under the doctrine of res judicata to recognize their validity. Only if issues (1) and (2) are decided adversely to plaintiff do we reach defendants' contention that plaintiff's trademark "Yo-Yo" is invalid as a generic and descriptive name.

On July 23, 1948, plaintiff's predecessor (a co-partnership) entered into an agreement with Louis Marx & Company, Inc. and Charmore Company, whereby the licensor granted them a license to use the trademark "Yo-Yo." The agreement provided that "should Marx abandon the manufacture or/and sale of the bandalore types of toy spinning tops, manufactured and sold by it, then Duncan shall have the right to cancel the license granted herein upon thirty (30) days' notice in writing given to Marx."

In 1951, Royal's predecessor brought an action for declaratory judgment in the District Court for the Northern District of Illinois, by which it sought a cancellation of plaintiff's registration, "Yo-Yo," on the ground that it was the generic or a descriptive name of the article upon which it was used. Brown was not a party to this action.

On September 14, 1955, plaintiff entered into a license agreement with Royal by which it granted to Royal "an exclusive and non-transferable right to use Licensor's trade-mark, `Yo-Yo,' on or upon or in association with bandalore tops." This agreement provided, "The parties hereto agree that they will enter into appropriate papers in the United States District Court in the aforesaid litigation referring to the action for declaratory judgment wherein said trade-marks shall be held to be valid and existing."

On November 21, 1955, a consent judgment was entered which found plaintiff to be the owner of the trademark registrations for "Yo-Yo" and for "Genuine Duncan Yo-Yo." The judgment recited, "Each of the above trademarks is applied and used in connection with a discshaped top manipulated up and down on a string, more commonly known as a bandalore top or quiz." The judgment determined that the trademarks "are valid."

On September 6, 1961, plaintiff's attorney directed a letter of cancellation to the Marx and Charmore Companies, the licensees named in the 1948 license agreement stating, "Please consider this letter as the thirty-days' written notice." This notice was given as required by a provision contained in that agreement.

We need not cite or discuss cases which support the general rule that a trademark licensee is estopped to dispute validity or that a consent decree, the same as any other decree, is binding on the parties. Royal contends that these rules are not applicable because plaintiff, as an inducement for the 1955 license agreement, fraudulently represented that there was no outstanding license agreement when as a matter of fact it knew or should have known the 1948 agreement with Louis Marx & Company, Inc. and Charmore Company was in force and effect. In any event, Royal argues that the license agreement was invalid because of a mutual mistake as to a material fact and that the consent decree was entered as a result of and as provided for in the license agreement and was, therefore, tainted with the same fraud or mutual mistake.

Plaintiff's response to these contentions is based upon a finding by the District Court, "This license referring to the 1948 license to Marx and Charmore was cancelled by mutual agreement in 1952," and "Correspondence between Marx and plaintiff indicates an acknowledgment of the cancellation of 1952." In our judgment, these findings as well as the argument predicated thereon are clearly erroneous and must be rejected.

Plaintiff in support of its cancellation theory relies upon the testimony of Donald Duncan, Sr., that the license was cancelled in 1952 by mutual agreement in a conversation with Marx. Admittedly he gave no thirty-day written notice of cancellation as required by the Duncan-Marx agreement. Nor was such a notice given until 1961, when it was given by plaintiff's attorney. Plaintiff attempts to bolster its contention on this score by inferences drawn from correspondence between Duncan and Marx following the alleged oral cancellation. An examination of this correspondence as a whole completely negates the inferences which plaintiff professes to discern. For instance, on July 14, 1961, the attorneys for Marx wrote plaintiff, stating, "Our client is licensed by you to use the name `Yo-Yo' as provided in the 1948 agreement." On July 26, 1961, Marx wrote plaintiff, "We have an agreement to that effect (our right to use the name `Yo-Yo') giving us full permission to use it." (This is the same Marx with whom Duncan claimed to have had the oral agreement of cancellation in 1952.)

Even after plaintiff's counsel gave written notice of cancellation in his letter of September 6, 1961, Marx was still contending that its 1948 agreement with plaintiff was in effect. In response to the written notice of cancellation, the attorneys for Marx wrote that they "* * * consider this attempted cancellation to be without validity or effect." It may be that when plaintiff's counsel gave written notice of cancellation in 1961, he was without knowledge of the alleged oral cancellation in 1952, or if he had such knowledge, recognized it as futile. In this connection it is pertinent to note that Donald F. Duncan, Jr., plaintiff's president, testified that to his knowledge the 1948 agreement with Marx and Charmore had not been cancelled and was still in full force and effect in 1955, when the license agreement was entered into between plaintiff and Royal.

Thus, the conclusion is inescapable that the 1948 license agreement between plaintiff and Marx and Charmore was in full force and effect at the time plaintiff entered into a license agreement with Royal and granted to it "an exclusive" right. Royal's president, Joseph T. Radovan, testified that he would not have settled Royal's suit against plaintiff for declaratory judgment if he had known there was an outstanding license agreement with some other company. The most charitable characterization which can be made of plaintiff's misrepresentation is that it was a mutual mistake, relied upon by Royal to its prejudice. The license agreement relied on is, therefore, invalid. General Finance Corp. et al. v. Keystone Credit Corp. et al., 50 F.2d 872, 878 (4th Cir.); Almon Heath v. A. B. Dick Co., 253 F.2d 30, 35 (7th Cir.); Foster v. Carlin, 218 F.2d 795, 801 (4th Cir.).

Furthermore, plaintiff, on June 28, 1961, gave Royal formal notice of cancellation of the license agreement, and it has been held that an estoppel by a licensee to deny the validity of licensor's trademark expires with the license. Bucky et al. v. Sebo et al., 208 F.2d 304, 305; Eskimo Pie Corp. v. National Ice Cream Co., 6 Cir., 26 F.2d 901, 902.

Plaintiff's contention relative to res judicata is based on the fallacious contention, as stated on brief, that "as a result of that decree — 1955 consent decree — an agreement — license agreement between plaintiff and Royal — was entered into." The Court embraced this error by finding, "Pursuant to that decree 1955 consent decree a license agreement was entered into in which Royal Tops' predecessor was given the right to use the trademark `Yo-Yo' * * *." Both the contention and the finding are manifestly erroneous. The consent decree was entered into as a result of and pursuant to the license agreement rather than vice versa. The latter was entered into September 14, 1955, and the former November 21, 1955, more than two months later. Moreover, the license agreement, as previously shown, expressly provided for the entry of the consent decree.

During the pendency of the action for declaratory judgment and after the parties had expended much time and effort in preparation for trial, plaintiff proposed to Royal that it would grant an exclusive license on the condition that Royal recognize the validity of plaintiff's trademark, which was done by the license agreement, later embodied in the consent decree. Thus, the consent decree inherited all the infirmities of the license agreement. In our judgment, it furnishes no legal basis for an application of the doctrine of res judicata.

Our discussion so far relative to license estoppel and res judicata has pertained to defendant Royal. What we have said applies with even greater cogency to defendant Brown, who was not a party to the 1955 license...