Blue Bell, Inc. v. Farah Mfg. Co., Inc.

• Decision Date: 27 February 1975
• Docket Number: No. 74-1131,74-1131
• Parties: BLUE BELL, INC., Plaintiff-Appellant, v. FARAH MANUFACTURING COMPANY, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1260

508 F.2d 1260

185 U.S.P.Q. 1

BLUE BELL, INC., Plaintiff-Appellant, v. FARAH MANUFACTURING COMPANY, INC., Defendant-Appellee.

No. 74-1131.

United States Court of Appeals, Fifth Circuit.

Feb. 27, 1975, Rehearing Denied April 4, 1975.

John B. Luscombe, Jr., El Paso, Tex., Alfred P. O'Hara, Marie V. Driscoll, New York City, for plaintiff-appellant.

J. Malcolm Harris, El Paso, Tex., William C. Conner, Henry W. Koster, New York City, for defendant-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before GEWIN, AINSWORTH and GEE, Circuit Judges.

GEWIN, Circuit Judge:

In the spring and summer of 1973 two prominent manufacturers of men's clothing created identical trademarks for goods substantially identical in appearance. Though the record offers no indication of bad faith in the design and adoption of the labels, both Farah Manufacturing Company (Farah) and Blue Bell, Inc. (Blue Bell) devised the mark 'Time Out' for new lines of men's slacks and shirts. Both parties market their goods on a national scale, so they agree that joint utilization of the same trademark would confuse the buying public. Thus, the only question presented for our review is which party established prior use of the mark in trade. A response to that seemingly innocuous inquiry, however, requires us to define the chameleonic term 'use' as it has developed in trademark law. ¹

After a full development of the facts in the district court both parties moved for summary judgment. The motion of Farah was granted and that of Blue Bell denied. It is not claimed that summary judgment procedure was inappropriate; the controversy presented relates to the application of the proper legal principles to undisputed facts. A permanent injunction was granted in favor of Farah but no damages were awarded, and Blue Bell was allowed to fill all orders for garments bearing the Time Out label received by it as of the close of business on December 5, 1973. For the reasons hereinafter stated we affirm.

Farah conceived of the Time Out mark on May 16, after screening several possible titles for its new stretch menswear. Two days later the firm adopted an hourglass logo and authorized an extensive advertising campaign bearing the new insignia. Farah presented its fall line of clothing, including Time Out slacks, to sales personnel on June 5. In the meantime, patent counsel had given clearance for use of the mark after scrutiny of current federal registrations then on file. One of Farah's top executives demonstrated samples of the Time Out garments to large customers in Washington, D.C. and New York, though labels were not attached to the slacks at that time. Tags containing the new design were completed June 27. With favorable evaluations of marketing potential from all sides, Farah sent one pair of slacks bearing the Time Out mark to each of its twelve regional sales managers on July 3. Sales personnel paid for the pants, and the garments became their property in case of loss.

Following the July 3 shipment, regional managers showed the goods to customers the following week. Farah received several orders and production began. Further shipments of sample garments were mailed to the rest of the sales force on July 11 and 14. Merchandising efforts were fully operative by the end of the month. The first shipments to customers, however, occurred in September.

Blue Bell, on the other hand, was concerned with creating an entire new division of men's clothing, as an avenue to reaching the 'upstairs' market. Though initially to be housed at the Hicks-Ponder plant in EL Paso, the new division would eventually enjoy separate headquarters. On June 18 Blue Bell management arrived at the name Time Out to identify both its new division and its new line of men's sportswear. Like Farah, it received clearance for use of the mark from counsel. Like Farah, it inaugurated an advertising campaign. Unlike Farah, however, Blue Bell did not ship a dozen marked articles of the new line to its sales personnel. Instead, Blue Bell authorized the manufacture of several hundred labels bearing the words Time Out and its logo shaped like a referee's hands forming a T. When the labels were completed on June 29, the head of the embryonic division flew them to EL Paso. He instructed shipping personnel to affix the new Time Out labels to slacks that already bore the 'Mr. Hicks' trademark. The new tags, of varying sizes and colors, were randomly attached to the left hip pocket button of slacks and the left hip pocket of jeans. Thus, although no change occurred in the design or manufacture of the pants, on July 5 several hundred pair left EL Paso with two tags.

Blue Bell made intermittent shipments of the doubly-labeled slacks thereafter, though the out-of-state customers who received the goods had ordered clothing of the Mr. Hicks variety. Production of the new Time Out merchandise began in the latter part of August, and Blue Bell held a sales meeting to present its fall designs from September 4-6. Sales personnel solicited numerous orders, though shipments of the garments were not scheduled until October.

By the end of October Farah had received orders for 204,403 items of Time Out sportswear, representing a retail sales value of over $2,750,000. Blue Bell had received orders for 154,200 garments valued at over $900,000. ² Both parties had commenced extensive advertising campaigns for their respective Time Out sportswear.

Soon after discovering the similarity of their marks, Blue Bell sued Farah for common law trademark infringement and unfair competition, seeking to enjoin use of the Time Out trademark on men's clothing. Farah counter-claimed for similar injunctive relief. The district court found that Farah's July 3 shipment and sale constituted a valid use in trade, while Blue Bell's July 5 shipment was a mere 'token' use insufficient at law to create trademark rights. ³ While we affirm the result reached by the trial court as to Farah's priority of use, the legal grounds upon which we base our decision are somewhat different from those undergirding the district court's judgment.

Federal jurisdiction is predicated upon diversity of citizenship, since neither party has registered the mark pursuant to the Lanham Act. ⁴ Given the operative facts surrounding manufacture and shipment from EL Paso, the parties agree the Texas law of trademarks controls. In 1967 the state legislature enacted a Trademark Statute. ⁵ Section 16.02 of the Act explains that a mark is 'used' when it is affixed to the goods and 'the goods are sold, displayed for sale, or otherwise publicly distributed.' Thus the question whether Blue Bell or Farah established priority of trademark use depends upon interpretation of the cited provision. Unfortunately, there are no Texas cases construing 16.02. This court must therefore determine what principles the highest state court would utilize in deciding such a question. In view of the statute's stated purpose to preserve common law rights, ⁶ we conclude the Texas Supreme Court would apply the statutory provision in light of general principles of trademark law.

A trademark is a symbol (word, name, device or combination thereof) adopted and used by a merchant to identify his goods and distinguish them from articles produced by others. Lanham Act 45, 15 U.S.C. 1127; Clairol, Inc. v. Gillette Co., 270 F.Supp. 371 (E.D.N.Y.1967); see Vernon's Tex.Code Ann., Bus. & Comm. 16.01(5) (1968). Ownership of a mark requires a combination of both appropriation and use in trade, United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141 (1918). Thus, neither conception of the mark, Rolley, Inc. v. Younghusband, 204 F.2d 209 (9th Cir. 1953); Modular Cinemas of America, Inc. v. Mini Cinemas Corp.,348 F.Supp. 578 (S.D.N.Y.1972), nor advertising alone establishes trademark rights at common law. ⁷ Minnesota Mining and Manufacturing Co. v. Minnesota Linseed Oil Paint, Inc., 229 F.2d 448, 43 CCPA 746 (1956); Consumers Petroleum Co. v. Consumers Co. of Illinois, 169 F.2d 153 (7th Cir.), cert. denied, 335 U.S. 902, 69 S.Ct. 406, 93 L.Ed. 437 (1949); Gray v. Armand Co., 58 App.D.C. 50, 24 F.2d 878 (1928). Rather, ownership of a trademark accrues when goods bearing the mark are placed on the market. Wallace & Co. v. Repetti, 266 F. 307 (2d Cir.), cert. denied, 254 U.S. 639, 41 S.Ct. 13, 65 L.Ed. 451 (1920).

The exclusive right to a trademark belongs to one who first uses it in connection with specified goods. McClean v. Fleming, 96 U.S. 245, 24 L.Ed. 828 (1877); 3 R. Callman, Unfair Competition, Trademarks and Monopolies 76.2(c) (3d ed. 1969). Such use need not have gained wide public recognition, Kathreiner's Malzkaffee Fabriken v. Pastor Kneipp Medicine Co., 82 F. 321 (7th Cir. 1897); Waldes v. International Manufacturers' Agency, 237 F. 502 (S.D.N.Y.1916), and even a single use in trade may sustain trademark rights if followed by continuous commercial utilization. Ritz Cycle Car Co. v. Driggs-Seabury Ordnance Corp., 237 F. 125 (S.D.N.Y.1916).

The initial question presented for review is whether Farah's sale and shipment of slacks to twelve regional managers constitutes a valid first use of the Time Out mark. Blue Bell claims the July 3 sale was merely an internal transaction insufficiently public to secure trademark ownership. After consideration of pertinent authorities, we agree.

Secret, undisclosed internal shipments are generally inadequate to support the denomination 'use.' Trademark claims based upon shipments from a producer's plant to its sales office, and vice versa, have often been disallowed. Sterling Drug, Inc. v. Knoll Chemische Fabriken, 159 U.S.P.Q. 628 (TTAB 1968); Black Panther Co., Inc. v. Godfrey L. Cabot, Inc., 121 U.S.P.Q. 533 (TTAB 1949); L & C Hardtmuth, Inc. v. Koh-I-Noor Pencil Factory,101 U.S.P.Q. 492 (Comm'r 1954); Prctor and Gamble Co. v. Jacqueline Cochran, Inc., 102 U.S.P.Q. 492 (Comm'r 1954); ...