Flavor Corporation of America v. Kemin Industries, Inc.

• Decision Date: 11 March 1974
• Docket Number: 73-1339 and 73-1519.,No. 73-1338,73-1338
• Citation: 493 F.2d 275
• Parties: FLAVOR CORPORATION OF AMERICA, Plaintiff-Appellee and Cross-Appellant, v. KEMIN INDUSTRIES, INC., and Rolland W. Nelson, Defendants-Appellants and Cross-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

493 F.2d 275 (1974)

FLAVOR CORPORATION OF AMERICA, Plaintiff-Appellee and Cross-Appellant, v. KEMIN INDUSTRIES, INC., and Rolland W. Nelson, Defendants-Appellants and Cross-Appellees.

Nos. 73-1338, 73-1339 and 73-1519.

United States Court of Appeals, Eighth Circuit.

Submitted October 19, 1973.

Decided March 11, 1974.

Rehearings and Rehearings Denied April 10, 1974.

William E. Lucas, Chicago, Ill., for Flavor Corp. of America.

Donald H. Zarley, Des Moines, Iowa, for Kemin Industries, Inc.

Before LAY, BRIGHT and WEBSTER, Circuit Judges.

Rehearings and Rehearings En Banc Denied April 10, 1974.

WEBSTER, Circuit Judge.

This is an appeal and cross-appeal from the order of the District Court granting limited injunctive relief in favor of appellee Flavor Corporation of America (FCA), holder of the registered trademark "PESTLUR", and against appellant Kemin Industries, Inc. (Kemin), holder of the common law trademark "LURE".¹

The trial court found that Kemin had adopted its "LURE" mark in good faith without prior knowledge of FCA's "PESTLUR" and had acquired superior common law trademark rights in ten states prior to the registration of "PESTLUR". "PESTLUR" was held to be a descriptive mark which had acquired a secondary meaning both before and after registration in Georgia and Florida. The court accepted a prior determination by the Court of Customs and Patent Appeals (CCPA) that the marks were so confusingly similar as to cause a likelihood of confusion, but found that Kemin's "LURE" mark as used in commerce infringed FCA's "PESTLUR" only in Georgia and Florida. The court enjoined Kemin from using its "LURE" mark for animal and rodenticide feed flavorings in competition with "PESTLUR" in those two states and later construed the order to prohibit Kemin from advertising in national periodicals which might reach potential customers there.

Both parties have raised numerous arguments on this appeal, but the principal issues are: (1) whether a finding of the Court of Customs and Patent Appeals in a trademark cancellation proceeding operates as collateral estoppel in a subsequent trademark infringement action; and (2) whether FCA's "PESTLUR" mark is descriptive of a flavoring additive for rodenticides designed to attract pests rather than a fanciful mark entitled to incontestable status under the Lanham Act, 15 U.S.C. § 1065. We conclude that the trial court's determination of these issues was correct and affirm. Judge William C. Stuart's well reasoned opinion is reported at 358 F. Supp. 1114 (S.D.Iowa 1973).

FCA and Kemin both manufacture flavor additives for animal feeds and rodenticides. The portion of their businesses devoted to rodenticide flavorings is very minor compared to their animal feed flavoring business. FCA was organized in 1946 and began producing flavorings for animal feeds for which it used the trademark "NECTAR". In 1956, it added "PESTLUR", a flavor additive for rodenticides and pesticides.² FCA's total sales of "PESTLUR" between 1956 and 1971, when this action was filed, amounted to $17,013.

Rolland Nelson worked as a regional sales manager for FCA from 1958 until the end of 1961, serving as acting sales manager for the entire operation during the last few weeks of his employment. Nelson left FCA to form Chemical Industries, Inc. in early 1962; the name was later changed to Kemin Industries. Kemin sold the same type products as FCA and was in competition for the same class of customers. At the outset of its operation, Kemin adopted the trademark "LURE" for its animal flavoring additives, which it used with specific animal products, i. e., "PIG LURE", "CATTLE LURE", "CAT LURE", etc. Kemin also produced "RAT LURE", a flavoring additive for rodenticides, in direct competition with FCA's "PESTLUR". Sales of "RAT LURE" have been nominal and are insignificant even when compared to sales of "PESTLUR".

"PESTLUR" was registered on the Principal Register of the Patent Office September 22, 1964. In October FCA sent a formal notice of infringement to Kemin. Kemin had registered its "LURE" mark with the State of Iowa in 1962, but had made no effort to register with the United States Patent Office until late 1964. Its application to register "LURE" on the Principal Register was denied because the mark was deemed merely descriptive of Kemin's goods. In February, 1966 Kemin registered "LURE" on the Supplemental Register, whereupon FCA petitioned to cancel that registration. The Trademark Trial and Appeal Board (TTAB) granted the petition and cancelled the "LURE" registration, and on May 6, 1971 the CCPA found "no error" in the TTAB decision, affirming the cancellation order. Kemin Industries, Inc. v. Flavor Corp. of America, 440 F.2d 1375, 58 CCPA 1180 (1971). FCA promptly filed this action in the Northern District of Illinois; venue was subsequently transferred to the Southern District of Iowa.

I

The first question presented on this appeal is whether, in an infringement action, Kemin is collaterally estopped from challenging factual determinations of the CCPA in the earlier cancellation proceeding. In cancelling the "LURE" registration, the TTAB held that flavoring additives for animal feed were in the same channel of trade as flavoring additives for rodenticides because they were promoted through a common trade publication and at least one company manufactured both products and would be a prospective purchaser of both products. The TTAB also held:

Insofar as the marks are concerned the phonetic equivalent of the word "LURE", comprising Kemin\'s mark, is the characterizing feature of FCA\'s marks "PESTLUR" and "RODENTLUR", and it is our opinion that this feature of similarity between the marks is such as would be reasonably likely to cause confusion or mistake or to deceive.

Kemin appealed to the CCPA pursuant to 15 U.S.C. § 1071(a), thereby waiving its right to a de novo hearing in federal district court under 15 U.S.C. § 1071(b). The CCPA affirmed.

Judge Stuart held the doctrine of collateral estoppel was applicable to those factual questions actually decided by the CCPA, and hence Kemin was estopped from challenging the CCPA's holding that the marks were so confusingly similar as to cause a reasonable likelihood of confusion. 358 F.Supp. at 1121.

The doctrine of collateral estoppel is a corollary of the broader doctrine of res judicata. Restatement of Judgments, §§ 47, 48. The doctrines are premised on the well recognized principle that "public policy and the interest of litigants require that there be an end to litigation." Kithcart v. Metropolitan Life Ins. Co., 119 F.2d 497, 500 (8th Cir. 1941), cert. denied, 315 U.S. 808, 62 S.Ct. 793, 86 L. Ed. 1207 (1942). The Supreme Court has on numerous occasions defined and distinguished these doctrines.³ In Southern Pacific R. R. Co. v. United States, 168 U.S. 1, 18 S.Ct. 18, 42 L.Ed. 355 (1897), the Court said:

The general principle announced in numerous cases is that a right, question or fact distinctly put in issue, and directly determined by a court of competent jurisdiction, as a ground of recovery, cannot be disputed in a subsequent suit between the same parties or their privies; and even if the second suit is for a different cause of action, the right, question or fact once so determined must, as between the same parties or their privies, be taken as conclusively established, so long as the judgment in the first suit remains unmodified.

168 U.S. at 48-49, 18 S.Ct. at 27.

In Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898 (1948), after discussing the effect of res judicata, the Court further explained collateral estoppel:

But where the second action between the same parties is upon a different cause or demand, the principle of res judicata is applied much more narrowly. In this situation, the judgment in the prior action operates as an estoppel, not as to matters which might have been litigated and determined, but `only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered.\' . . . Since the cause of action involved in the second proceeding is not swallowed by the judgment in the prior suit, the parties are free to litigate points which were not at issue in the first proceeding, even though such points might have been tendered and decided at that time. But matters which were actually litigated and determined in the first proceeding cannot later be relitigated. Once a party has fought out a matter in litigation with the other party, he cannot later renew that duel. In this sense, res judicata is usually and more accurately referred to as estoppel by judgment, or collateral estoppel.

333 U.S. at 597-598, 68 S.Ct. at 719.

The parties in the instant appeal agree that res judicata is inapplicable because an infringement action and a cancellation proceeding are different causes of action. Our inquiry is therefore limited to the applicability of the more narrow doctrine of collateral estoppel. Professor Moore states:

The essence of collateral estoppel by judgment is that some question or fact in dispute has been judicially and finally determined by a court of competent jurisdiction between the same parties or their privies. Thus the principle of such an estoppel may be stated as follows: Where there is a second action between parties, or their privies, who are bound by a judgment rendered in a prior suit, but the second action involves a different claim, cause, or demand, the judgment in the first suit operates as a collateral estoppel as to, but only as to, those matters or points which were in issue or controverted and upon the determination of which the initial judgment necessarily depended. (footnotes omitted)

1B J. Moore & T. Currier, Moore\'s Federal Practice ¶ 0.441(2), at 3777 (2d ed. 1965).

The parties in this appeal are the same as those who appeared before the CCPA, it was within the CCPA's jurisdiction to determine whether "PESTL...