768 F.2d 1001 (9th Cir. 1985), 81-5232, Transgo, Inc. v. Ajac Transmission Parts Corp.

Docket Nº:81-5232, 81-5691, 82-5161 and 82-5162.
Citation:768 F.2d 1001
Party Name:227 U.S.P.Q. 598, 1985 Copr.L.Dec. P 25,836 TRANSGO, INC., Plaintiff-Appellee/Cross-Appellant, v. AJAC TRANSMISSION PARTS CORP., Fairbanks Racing Automatics, and Jerry Jacoby, Defendants-Cross-Appellants/Appellees, and Fairbanks America, Inc., and Joseph P. Lupo, Defendants-Appellees. Nos. 80-5659 to 80-5661, 80-5707, 81-5102, 81-5230 to
Case Date:January 15, 1985
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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768 F.2d 1001 (9th Cir. 1985)

227 U.S.P.Q. 598,

1985 Copr.L.Dec. P 25,836

TRANSGO, INC., Plaintiff-Appellee/Cross-Appellant,

v.

AJAC TRANSMISSION PARTS CORP., Fairbanks Racing Automatics,

and Jerry Jacoby, Defendants-Cross-Appellants/Appellees,

and

Fairbanks America, Inc., and Joseph P. Lupo, Defendants-Appellees.

Nos. 80-5659 to 80-5661, 80-5707, 81-5102, 81-5230 to

81-5232, 81-5691, 82-5161 and 82-5162.

United States Court of Appeals, Ninth Circuit

January 15, 1985

Argued and Submitted March 9, 1984.

As Amended on Denial of Rehearing

and Rehearing En Banc

Aug. 15, 1985.

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John E. Kelly, Woodland Hills, Cal., for plaintiff-appellee, cross-appellant.

James W. Geriak, William L. Respess, Lyon & Lyon, Los Angeles, Cal., for defendants-cross-appellants, appellees.

Gene S. Winter, St. Onge, Steward, Johnston & Reens, Stamford, Conn., for defendant-appellees.

Appeal from the United States District Court for the Central District of California.

Before WALLACE and ALARCON, Circuit Judges, and HARDY, [*] District Judge.

ALARCON, Circuit Judge:

Ajac Transmission Parts Corp. (Ajac), Jerry Jacoby (Jacoby), and Fairbanks Racing Automatics (Fairbanks) appeal from (1) the judgment entered against them after trial by jury for copyright and trademark infringement, unfair competition, false designation of origin and conspiracy, (2) the award of attorney's fees, (3) the denial of their post-trial motions and (4) separate orders of the district court finding them in contempt. Transgo, Inc., (Transgo) has cross-appealed from (1) the judgment entered in favor of appellants on the claim that Fairbanks violated Transgo's trade dress rights by copying its color codes for springs and its instruction sheets and by engaging in false advertising and (2) from the order of the district court imposing sanctions against Fairbanks and its president. We affirm.

I

  1. FACTUAL BACKGROUND

    In order that the parties' legal contentions can be more readily understood, we set forth the facts in some detail. In doing so, we have resolved conflicts in the evidence in favor of the party who prevailed on a particular claim.

    1. Evolution of Transgo's "Shift Kit"

      Gilbert Younger (Younger) began working with automatic transmissions in 1951 as a mechanic for a Ford dealership. In 1956, he acquired his own automatic transmission rebuilding shop.

      Around 1961, Younger invented two different valve body kits for the Ford 2-speed automatic transmission and began manufacturing them the next year. He called his products Valve Body Repair Kits, Valve Body Rebuilding Kits, or Valve Body Calibration Kits. He did not obtain a patent for his inventions.

      Transmission rebuilders regard the valve body as the "brain" of an automatic transmission. Countervailing pressures are created in the valve body when springs on the one hand, and hydraulic fluid coming through a separator plate on the other,

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      exert their forces on pistons. These pressures determine the transmission's shifting characteristics. Automatic transmission manufacturers strive for a smooth shift, so that passengers will not feel the gears' movements. A firmer shift, however, can improve car performance. The shift can be altered by replacing the springs and separator plate installed by the manufacturer with one of Younger's valve body kits.

      Younger developed a reputation as an expert in the transmission trade. Among transmission rebuilders, he was known as "Mr. Shift." He was invited to lecture to other rebuilders at seminars sponsored in different parts of the country by the Automatic Transmission Rebuilders Association, the Automobile Parts Rebuilders Association, and the Automotive Service Counsel. He used the lectures to attempt to create a demand and a market for his valve body kits.

      He would also gather information at these meetings concerning rebuilders' problems with different types of automatic transmissions. When he was not lecturing, Younger gathered information concerning transmission problems by telephone. Transgo's instruction sheets contained the telephone number of its research division. Rebuilders were invited to telephone for assistance with any transmission problem. Younger and his staff developed a line of valve body kits to solve problems with different types of automatic transmissions. By 1976, the line had grown from two to twenty-four. A Transgo valve body kit generally consists of a separator plate, discretely colored springs, check valves, gaskets, and an instruction sheet.

      The valve body kit for each type of transmission was arbitrarily assigned a set of identifying numbers or letters. For example, the kit for a "Torque-Flight" transmission was identified as "TF." Kits would be marketed under a product designation consisting of "SK" for "Shift Kit" and the identifying letters. Thus, a valve body kit to improve Torque-Flight transmissions was given the product model designation "SK-TF."

      Along with developing valve body kits, Younger's group developed instruction sheets to guide rebuilders in the installation of replacement parts. The development of some instruction sheets took as much time as did the development of the parts themselves. The first instruction sheets used photographs from factory manuals or factory charts of the particular transmission the kit was designed to improve. Later, Younger did his own camera work. Younger's picture appeared on the instruction sheets.

      About 1966, Younger decided to capitalize on his reputation by associating his nickname, Mr. Shift, with his valve body kits, and he began referring to them as "shift kits" in conversations with customers. In 1969, he began placing the name "Shift Kit" on the packages for his products.

      In the transmission trade, distributors buy valve body kits in bulk and repack them in packagings that simulate the packagings used by the original equipment manufacturers. This is done so that transmission rebuilders can organize their shelves by putting all the products for a certain transmission model together. Distributors generally do not display the product manufacturer's name on the package in order to prevent rebuilders from ordering directly from the manufacturer. In accordance with this trade practice, Younger permitted distributors to repackage his valve body kits without displaying his name on their package. He recognized that a distributor had the implied right to use the name shift kit when he purchased the product from Younger.

      In 1969, Younger developed a line of valve body replacement components called "Reprogramming Kits." These kits were designed for use in high performance engines, hot rodders, drag racers and by car enthusiasts. Reprogramming kits go on the shelves of "speed shops," where a car enthusiast can purchase them for self-installation. A separate division of Transgo manufactures these high performance products. Other manufacturers of comparable

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      kits such as J.C. Whitney and Company and Hurst Performance, were referring to their products as shift kits when Younger's reprogramming kits were introduced to the high performance market.

      By 1976, Transgo was the sole manufacturer of valve body kits for automatic transmissions of ordinary passenger cars. They were distributed throughout the United States and Canada. Transgo also sold directly to a customer in Australia and several world-wide exporters.

      Ninety percent of Transgo's sales came from valve body kits. In 1975, the sales of shift kits totalled about $750,000.

    2. Evolution of the Fairbanks "Shift Kit"

      Ajac was formed in 1966 by Jerry Jacoby, who was its president and sole stockholder. Ajac purchases transmission parts from various manufacturers, repackages them, and sells them under its own name to transmission rebuilders and to other distributors. It has approximately 3,000 accounts world-wide, the majority of which are transmission rebuilders. Most of Ajac's sales result from telephone orders.

      For ten years after Ajac started doing business in 1966, it sold Transgo valve body replacement kits for passenger cars. During that period, Ajac purchased $200,000 worth of valve body kits from Transgo.

      Fairbanks, Inc., the parent company of Fairbanks Racing Automatics, had been in the business of producing high performance automatic transmission and replacement components since the mid-1950s. However, it did not manufacture replacement parts for passenger car transmissions. In 1974, several distributors of automatic transmission parts, including Ajac, suggested to Joseph Lupo, the president of Fairbanks, that his company expand into the automatic transmission parts field. To help Lupo make a decision whether his company should get into that field, Jerry Jacoby gave him Transgo's price list, which he had previously treated as confidential, a list of customers for shift kits and information regarding which of Transgo's kits sold best. On several occasions between 1974 and April 1976, Fairbanks purchased sets of Transgo's shift kit line from Ajac. Fairbanks also called the Transgo "hot line" several times to see how Transgo solved problems. Ajac's vice-president asked Lupo to set up a "hot line" which would be available to rebuilders who had questions about Fairbanks' kits or about rebuilding transmissions in general.

      About October, 1976, Fairbanks began to manufacture and sell a line of valve body kits for passenger cars. The...

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