874 F.2d 95 (2nd Cir. 1989), 727, Murphy Door Bed Co., Inc. v. Interior Sleep Systems, Inc.

Docket Nº:727, 837, Dockets 88-7877, 88-9043.
Citation:874 F.2d 95
Party Name:10 U.S.P.Q.2d 1748 The MURPHY DOOR BED CO., INC., Plaintiff-Appellee, v. INTERIOR SLEEP SYSTEMS, INC., d/b/a Murphy Beds, etc., Murphy Bed Co. of America, Inc. in Florida, Murphy Bed Co. of America, Inc. in Georgia, and Frank Zarcone, Individually, Defendants-Appellants.
Case Date:May 01, 1989
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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874 F.2d 95 (2nd Cir. 1989)

10 U.S.P.Q.2d 1748

The MURPHY DOOR BED CO., INC., Plaintiff-Appellee,

v.

INTERIOR SLEEP SYSTEMS, INC., d/b/a Murphy Beds, etc.,

Murphy Bed Co. of America, Inc. in Florida, Murphy

Bed Co. of America, Inc. in Georgia, and

Frank Zarcone, Individually,

Defendants-Appellants.

Nos. 727, 837, Dockets 88-7877, 88-9043.

United States Court of Appeals, Second Circuit

May 1, 1989

Argued Feb. 16, 1989.

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Bruce E. Lilling, White Plains, N.Y. (Talay Hafiz, Lilling & Greenspan, White Plains, N.Y., Cord Flint, Greenville, S.C., of counsel), for defendants-appellants.

Leon Friedman, New York City (Robert I. Skoy, Mineola, N.Y., of counsel), for plaintiff-appellee.

Before LUMBARD and MINER, Circuit Judges, and SPRIZZO, District Judge. [*]

MINER, Circuit Judge:

Defendants-appellants appeal from a judgment entered in the United States District Court for the Eastern District of New York (Mishler, J.), awarding plaintiff, the Murphy Door Bed Company ("Murphy" or "Murphy Co."), $6330 with interest in damages for breach of contract, $801,161 in compensatory damages and $25,000 in punitive damages for trademark infringement and unfair competition. The judgment includes a permanent injunction enjoining all defendants from use of the Murphy name.

Murphy is incorporated in New York and has its principal place of business there. Each of the defendant corporations is incorporated either in Florida or Georgia and each has its principal place of business in the state where it is incorporated. Defendant Frank Zarcone is a citizen of Florida. Jurisdiction therefore properly was invoked in the district court under the diversity of citizenship statute, 28 U.S.C. Sec. 1332. The district court determined that defendants had committed a breach of contract by failing to pay for goods received, and by using the name Murphy bed without authorization, such use having also been found to constitute trademark infringement and unfair competition. The damages were assessed against defendants Frank Zarcone and Interior Sleep Systems, Inc. ("ISS"). The $6330 award apparently is not contested on appeal. Plaintiff cross-appeals from the judgment, seeking to subject defendants Murphy Bed Co. of America, Inc. in Georgia ("MBCA Ga.") and Murphy Bed Co. of America, Inc. in Florida ("MBCA Fl.") to the damages awards.

We hold that "Murphy bed" is a generic term, having been appropriated by the public to designate generally a type of bed. Consequently, defendants could not have infringed on plaintiff's trademark, alleged to be Murphy bed, and the district court erred in finding trademark infringement. We agree with the district court, however, that defendants breached their contractual obligation to refrain from using the term Murphy bed after termination of their distribution agreement with the Murphy Co. Further, we agree with the district court that defendants engaged in unfair competition by passing off beds of their own manufacture as beds of the Murphy Co. Accordingly, we affirm the court's entry of a permanent injunction prohibiting defendants from use of the term Murphy bed.

As to remedy for damage to Murphy by trademark infringement and unfair competition, the district court, constrained by a stipulation of the parties to limit compensatory

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damages to defendants' profits gained from improper use of the Murphy name, awarded plaintiff compensatory damages based on defendants'gross profits. We hold that in awarding damages for unfair competition--damages for trademark infringement are inappropriate in this case--defendants' profits should be calculated by deducting all costs attributable to items sold in violation of plaintiff's rights. Accordingly, we remand the case for recalculation of damages based on defendants' net profits. Additionally, because the punitive damages award was based on findings of trademark infringement as well as unfair competition, without apportionment, we remand the case for reformulation of punitive damages. Finally, we do not decide the issue raised on cross-appeal, because the extent of the judgment's coverage now may be properly specified by the district court.

BACKGROUND

At the turn of this century, William Lawrence Murphy invented and manufactured a bed that when not in use could be concealed in a wall closet. By using a counter-balancing mechanism, the bed could be lowered from or raised to a closet in a wall to which the bed is hinged. In 1918, the United States Patent Office granted Mr. Murphy a patent for a "pivot bed," which was substantially similar to the wall bed. Mr. Murphy incorporated in New York in 1925 as the Murphy Door Bed Company and began to sell the wall bed under the name of "Murphy bed." Since its inception, the Murphy Co. has used the words Murphy and Murphy bed as its trademark for concealed beds. Other manufacturers of wall beds generally describe their products as "wall beds," "concealed beds," "disappearing beds," "authentic adjustable hydraulic beds" and the like, but rarely as Murphy beds. In fact, at least twice, when independent companies marketed their products as Murphy beds, Murphy complained to them and, as a result, the companies refrained from further deliberate use of the term Murphy bed.

On March 23, 1981, and again on November 16, 1982, the Patent and Trademark Office ("PTO") denied the Murphy Co.'s application to register the Murphy bed trademark. The PTO examining attorney explained that the words "Murphy bed" had become generic and that the phrase Murphy bed was "merely descriptive of a characteristic of the goods." In August 1984, the Trademark Trial and Appeal Board ("TTAB") affirmed the denial of registration. See In re Murphy Door Bed Co., Inc., 223 U.S.P.Q. 1030 (T.T.A.B.1984). The TTAB noted that "Murphy bed has for a long period of time been used by a substantial segment of the public as a generic term for a bed which folds into a wall or a closet." Id. at 1033.

In December 1981, Frank Zarcone, on behalf of ISS and himself, entered into a distributorship agreement with the Murphy Co. and became the exclusive distributor of the Murphy bed in the four Florida counties of Broward, Dade, Palm Beach and Monroe. The agreement, in the form of a letter signed by both Murphy and Zarcone, provided in part that:

4) ... Interior Sleep Systems will pay for material purchased within 30 days of date of Murphy's invoice....

5) --Whenever the Murphy name is used, it must be in capital letters and identified by the word trademark or TM adjacent to Murphy. Cabinets or other material not furnished by Murphy will not be promoted or sold as Murphy products.

* * *

8) --Upon termination of this agreement Interior Sleep Systems, Inc. agrees to discontinue the use of the name "Murphy bed".

After learning of the TTAB's 1984 decision denying Murphy's application for trademark registration, Zarcone formed MBCA Ga...

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