Adray v. Adry-Mart, Inc.

• Decision Date: 15 February 1996
• Docket Number: ADRY-MAR,INC,No. 93-55930,93-55930
• Citation: 76 F.3d 984,37 U.S.P.Q.2d 1872
• Parties: , 96 Daily Journal D.A.R. 1722 Lottfie "Lou" ADRAY; Adray's CBS Premiums, Inc., Plaintiffs-Appellants, v.; Parvis Navi; E. Matinkhoo; Einola Mateen; Musad Hakim, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 984

76 F.3d 984

37 U.S.P.Q.2d 1872, 96 Daily Journal D.A.R. 1722

Lottfie "Lou" ADRAY; Adray's CBS Premiums, Inc. Plaintiffs-Appellants, v. ADRY-MART, INC.; Parvis Navi; E. Matinkhoo; Einola Mateen; Musad Hakim, Defendants-Appellees.

No. 93-55930.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 6, 1995.

Decided Oct. 19, 1995.

As Amended on Denial of Rehearing

and Suggestion for Rehearing

En Banc Feb. 15, 1996.

Franklin D. Ubell, Price, Gess & Ubell, Irvine, California, for plaintiffs-appellants.

Anton Arbisser, Kaye, Scholer, Fierman, Hays & Handler, Los Angeles, California, for defendants-appellees.

Before: BROWNING, D.W. NELSON and HAWKINS, Circuit Judges.

OPINION ^*

JAMES R. BROWNING, Circuit Judge:

Both Lottfie "Lou" Adray and Adry-Mart, Inc. operate consumer electronics stores under the name "Adray's" in Southern California. Lou Adray sued for trademark infringement and unfair competition under state and federal law and filed this appeal from the final judgment. We reverse in part and remand.

I. Facts

Lou Adray has operated an "Adray's" discount electronics store in Orange County since 1968. Except for a two to three year period in the mid-1970's, other members of the family operated other "Adray's" stores in Southern California until 1979, when they sold their businesses, including the right to use the "Adray's" name, to Adry-Mart, which has since operated several "Adray's" stores in Los Angeles County. In 1989 Adry-Mart opened a new "Adray's" store in Torrance, prompting Lou Adray to file this suit. Adry-Mart then opened another "Adray's" store in Lakewood, about five miles from Orange County, and Lou Adray moved for a preliminary injunction. The district court prohibited Adry-Mart from advertising its Lakewood store in Orange County or from opening any "Adray's" store in that county. Adry-Mart violated the advertising injunction, and the district court prohibited any media advertising by Adry-Mart of its Lakewood "Adray's" store.

The district court bifurcated Lou Adray's equitable and damage claims. A jury trial on the damage claim resulted in a verdict for Adry-Mart. After a bench trial on the equitable claims, the district court determined that Lou Adray and Adry-Mart had established secondary meaning for the "Adray's" mark in Orange County and Los Angeles County respectively and that Adry-Mart's operation of its Lakewood and Torrance stores in Los Angeles County had not created a likelihood of confusion with Lou Adray's store in Orange County. The court entered an injunction limiting each party's advertising.

On appeal, Lou Adray challenges several jury instructions relating to his damage claim and the court's findings and remedy relating to his equitable claim.

II. Damage Claim

A. Actual Confusion as Proof of Secondary Meaning

The pertinent instruction did not list actual confusion among the factors the jury should consider in determining whether Lou Adray had established secondary meaning in the "Adray's" mark. The failure to include actual confusion was error: the law clearly establishes that "actual confusion is an indicium of secondary meaning," American Scientific Chem. v. American Hosp. Supply, 690 F.2d 791, 793 (9th Cir.1982); the record contained substantial evidence of actual confusion; and Lou Adray specifically requested the inclusion of this factor.

Adry-Mart contends the error was harmless because some customers came to Lou Adray's store under the mistaken belief that it was affiliated with Adry-Mart--suggesting that Adry-Mart and not Lou Adray's store had established secondary meaning. See Bank of Texas v. Commerce Southwest, Inc., 741 F.2d 785, 789 (5th Cir.1989) (holding that evidence of actual confusion in which customers came to plaintiff's bank believing it to be associated with defendant did not support finding of secondary meaning for plaintiff). However, the record reflects incidents in which customers thought that Adry-Mart advertisements were placed by Lou Adray's store, and others in which customers tried to return items purchased at Adry-Mart stores to Lou Adray, thinking the other stores were affiliated with his store. Moreover, in the trial of the equitable issues, the district court relied in part on evidence of actual confusion to find Lou Adray had established secondary meaning, suggesting the jury might have done the same if the secondary meaning instruction had included the factor of actual confusion. ¹ We cannot say the error was harmless.

B. Geographic Scope of Secondary Meaning

Because Lou Adray was entitled to protection for the "Adray's" mark only in the area within which he had established secondary meaning, the district court correctly instructed the jury to award damages only if Lou Adray established secondary meaning in the "market area[s]" in which Adry-Mart operated its Torrance and Lakewood "Adray's" stores. See Bank of Texas, 741 F.2d at 789 (plaintiff is entitled to protection in all of Dallas County only if he can establish secondary meaning in the entire area); see generally 3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 26.10 (3d ed. 1994) [hereinafter McCarthy ] (rationale for requiring secondary meaning in a particular area before a descriptive mark user can preclude another from using the mark in that area).

Fuddrucker's, Inc. v. Doc's B.R. Others, Inc., 826 F.2d 837 (9th Cir.1987), is not to the contrary. We held that Fuddrucker's, a national chain, was not required to establish secondary meaning in a particular disputed area if it could "show that its trade dress had acquired secondary meaning among some substantial portion of consumers nationally," id. at 844; Lou Adray does not claim he could demonstrate secondary meaning in the "Adray's" mark nationally. Moreover, in Fuddrucker's the alleged infringer had adopted its mark in bad faith with the intention of capitalizing on Fuddrucker's goodwill, id., and bad faith adoption of a mark is a generally recognized exception to the requirement that secondary meaning be shown in a disputed area. See 3 McCarthy § 26.03. Lou Adray does not assert that Adry-Mart adopted the "Adray's" mark in bad faith. See id. § 26.10 (distinguishing Fuddrucker's on similar grounds from cases requiring a showing of secondary meaning in a certain area).

Adray argues the instructions erroneously barred any recovery unless Adray established secondary meaning throughout the geographic or economic boundaries of Lakewood and Torrance and were "fatally" ambiguous as to whether political or economic boundaries were to be considered. We agree with Adry-Mart that the instructions simply required that Adray establish secondary meaning in some part of the market areas of the Adry-Mart stores. Any confusion arising from the use of the word "geographic" rather than "market" can be addressed at retrial.

C. Willful Infringement as a Prerequisite to an Award of Defendant's Profits

Adray argues on appeal that the district court erred in instructing the jury that it must find willful infringement before awarding defendant's profits to Adray. An instruction that willful infringement is a prerequisite to an award of defendant's profits may be error in some circumstances (as when plaintiff seeks the defendant's profits as a measure of his own damage, Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1407-09 (9th Cir.1993)), but was appropriate on the record in this case. Adray conceded that he did not seek to recover Adry-Mart's profits as a measure of his own lost sales, since he disclaimed any intent to seek damages based on lost sales. See October 2, 1992 Transcript at 170. In these circumstances, Adray could recover Adry-Mart's profits only if the infringement was willful. Lindy Pen, 982 F.2d at 1405-09.

D. Corrective Advertising

An award of the cost of corrective advertising, like compensatory damage awards in general, is intended to make the plaintiff whole. It does so by allowing the plaintiff to recover the cost of advertising undertaken to restore the value plaintiff's trademark has lost due to defendant's infringement. Zazu Designs v. L'Oreal, S.A., 979 F.2d 499, 506 (7th Cir.1992). We have approved recovery of corrective advertising expenditures incurred before trial. See, e.g., U-Haul Int'l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1041 (9th Cir.1986).

Relying on Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365, 1374-76 (10th Cir.1977), Lou Adray seeks to recover the cost of prospective corrective advertising--the amount he would be required to spend in the future to dispel the confusion caused by defendant's infringement. We have affirmed an award of prospective advertising costs in Cher v. Forum Int'l., Ltd., 213 U.S.P.Q. 96, 103 (C.D.Cal.), aff'd. in pertinent part, 692 F.2d 634, 640 (9th Cir.1982). The district court declined to award such costs on the ground that prospective costs should be allowed only where the plaintiff demonstrates he was financially unable to conduct a corrective advertising campaign before trial. We see no reason to so limit the availability of essentially compensatory damages. Prospective costs may be difficult to determine precisely and present a danger of overcompensation if they exceed the value of the mark; see Zazu, 979 F.2d at 506; however, the burden of any uncertainty in the amount of damages should be borne by the wrongdoer, Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 265, 66 S.Ct. 574, 580, 90 L.Ed. 652 (1945); Story Parchment Co. v. Paterson Co., 282 U.S. 555, 563-64, 51 S.Ct. 248, 250-51, 75 L.Ed. 544 (1931), and overcompensation can be avoided by appropriate limitation in the instructions. Accordingly, Lou Adray is entitled to a jury instruction permitting a prospective corrective advertising award. The instruction should direct the jury to award such damages only to the extent that the amount of money needed for corrective advertising does not exceed the damage to the value of Lou Adray's...