Joseph Bancroft & Sons Co. v. Shelley Knitting Mills, 12774.

CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)
Citation268 F.2d 569
Decision Date02 July 1959
Docket NumberNo. 12774.,12774.

Harry Shapiro, Philadelphia, Pa., for appellant.

Alfred C. Aurich, Philadelphia, Pa. (Robert T. McCracken, C. Russell Phillips, Andrew R. Klein, Philadelphia, Pa., on the brief), for appellee.

Before GOODRICH, KALODNER and HASTIE, Circuit Judges.

KALODNER, Circuit Judge.

Two issues are presented in this appeal from the District Court's Order granting a preliminary injunction.

They are:

(1) Did the District Court abuse its discretion in granting a preliminary injunction?

(2) Was the sweep of the preliminary injunction so broad as to constitute reversible error?

The facts, necessary to disposition, may be summarized as follows:1

Plaintiff, Joseph Bancroft & Sons Co., ("Bancroft"), a Delaware corporation having its principal place of business in that state, is the owner of the trademark "Ban-Lon",2 characterizing a crimped nylon yarn. Bancroft also holds a license from a patentee of machinery for crimping nylon yarn which is not here involved. It licensed numerous yarn spinners (throwsters) to crimp nylon yarn. It neither invented nylon filament yarn nor owns exclusive rights to crimped nylon filament yarn. Bancroft itself manufactures only from 1,000 to 2,000 pounds of crimped nylon a year.

Bancroft also licensed knitters who purchased crimped nylon yarn from its licensed spinners. These licenses permitted the knitters to use on their varied products the name "Ban-Lon" on hang tags displaying also the picture of a kitten on a pillow, and on labels sewn into the products. Three hundred of four hundred knitters licensed by Bancroft manufactured sweaters. Bancroft itself does not manufacture sweaters.

The licenses to knitters specified conditions under which they could use the "Ban-Lon" trademark.

Defendant, Shelley Knitting Mills, Inc. ("Shelley"), is a corporation of the State of Pennsylvania having its principal place of business in that State. It manufactures sweaters. Under an oral understanding in the early part of 1955, Shelley was granted permission by Bancroft to use the trademark "Ban-Lon" on its sweaters, and received written authorization to do so by letter dated November 11, 1955. Subsequently Bancroft and Shelley entered into one-year license agreements on July 18, 1956 and August 6, 1957. Both license agreements had expired at the time of the entry of the District Court's Order of September 11, 1958 here at issue. The August 6, 1957 agreement, however, was still in effect when the action which resulted in this appeal was filed on July 26, 1958.

The 1957 agreement conditioned Shelley's use of the "Ban-Lon" trademark during its term upon its maintenance of quality standards therein specified by Bancroft. It provided, in substance, among other things, that Shelley (1) submit to Bancroft two sweaters of each style proposed to be manufactured by it for testing and quality control evaluation; (2) sell under the "Ban-Lon" trademark only sweaters equal to the standards of the sample sweaters previously submitted for approval and approved; (3) ensure that its sweaters showed "satisfactory workmanship, appearance, hand, and shall be satisfactory construction for the type of stitch, yarn, size and end use planned, based upon the judgment of Joseph Bancroft and Sons Company", and, (4) use its own trademark "in prominent association with" the "Ban-Lon" trademark whenever the latter was used.

In April 1957, while the 1956 license agreement was still in effect, Bancroft notified Shelley that it would be required to use a minimum of 28 stitches per inch in the manufacture of any new styles after that date. Prior to April 1957 Bancroft had not specified any minimum stitch requirement. The 28-stitch count was specified because Bancroft's research staff had ascertained that it would eliminate undesirable excessive pilling3 and fuzzing.

After the August 6, 1957 license agreement, here involved, was signed, Bancroft again, between August 26, 1957 and March 13, 1958, on five occasions, advised Shelley of its specification of the 28-stitch count. During this period, and a later date, May 28, 1958, Shelley submitted sample sweaters to Bancroft for approval which met its 28-stitch count requirements, and which were approved.

Complaining that Shelley was selling, under the "Ban-Lon" trademark, sweaters not in conformity with the samples submitted or its quality control standards, Bancroft filed suit on July 26, 1958, seeking preliminary and final injunctions and other relief. Three causes of action were stated: (1) infringement of Bancroft's trademark "Ban-Lon"; (2) unfair competition, and, (3) breach of contract.

In its complaint Bancroft specifically charged Shelley with violating prescribed quality control standards in that it failed to conform to the 28-stitch count and size requirements. It also alleged use of unauthorized hang tags.

At the hearings upon preliminary injunction, Bancroft offered in evidence samples of Shelley's sweaters which had been approved upon submission as containing the 28-stitch count. It also adduced testimony that on February 21, 1958, an examination of fourteen sweaters, selected at random, in Shelley's inventory, disclosed that ten had a stitch count varying from 24 to 26 stitches per inch. It was further testified that in July and August 1958 Bancroft purchased fourteen of Shelley's sweaters at various stores throughout the country; that thirteen of the sweaters, offered in evidence, had less than a 28-stitch count; their labeled sizes and measurements varied from .2 of an inch (acceptable to Bancroft), to 1.7 of an inch, and unauthorized hang tags4 were attached to the sweaters.

With respect to the thirteen sweaters Bancroft's witnesses were unable to say whether they had been manufactured subsequent to specification of the 28-stitch count, and admitted that their manufacture could have preceded it.

It was also testified in Bancroft's behalf that it had spent more than $1,000,000 in advertising its trademark "Ban- Lon" since 1954 and that in addition, fiber producers, spinners, sweater manufacturers and stores, had expended several times that amount in advertising the same trademark. Bancroft's testimony also established that licensed spinners paid Bancroft a royalty based on the market price of the basic nylon filament which they processed; licensed knitters, such as Shelley, paid no royalty to Bancroft. Spinners, as well as knitters, however, were required by their licenses to maintain standards of quality established by Bancroft in order to use its trademark. Quality standards were changed from time to time by Bancroft in accordance with research programs which it pursued at an annual cost of $150,000.

Shelley, in its behalf, adduced testimony, which may be summarized as follows: it had manufactured under its license agreements with Bancroft, more than 2,000,000 sweaters bearing the sewed-in label and hang tag "Ban-Lon" trademark and only eight sweaters had been returned by purchasers; in order to manufacture these sweaters Shelley purchased $500,000 new equipment in 1955, 1956 and 1957 and bought approximately $2,884,000 of "Ban-Lon" yarn from licensed spinners during the years stated; it spent $50,000 in 1956 and $75,000 in 1957 advertising the name "Ban-Lon"; it was impossible for Shelley to meet Bancroft's 28-stitch count and manufacture sweaters profitably on its machines; if Shelley were to make sweaters with a 28-stitch count on its machines it could not obtain the proper size measurement for them; Bancroft's specification of a 28-stitch count was "not based on any substantial factual test"; Shelley's sweaters, even though they contained less than a 28-stitch count, were good and marketable; subsequent to the filing of Bancroft's suit on July 26, 1958 Shelley had on hand, on July 31, 1958, 28,449 dozen sweaters, manufactured at a cost of approximately $948,000; the August 6, 1957 license agreement authorized Shelley to use its own trademarks "Temi" and "Claremont" in association with Bancroft's trademark "Ban-Lon"; Shelley was "one of the largest Ban-Lon producers"; and, finally, Shelley's customers (jobbers and retailers) never specified any stitch count.

The District Court, after hearings on September 4th and 6th, 1958, rendered its Opinion on September 11th in which it adopted all the Findings of Fact and Conclusions of Law proposed by Bancroft and, with modifications, several Findings of Fact and Conclusions of Law submitted by Shelley. In addition, the District Court stated some of its own Findings of Fact and Conclusions of Law. Simultaneously, with the filing of its Opinion, the District Court entered an Order granting the preliminary injunction in the following terms:

"* * * It Is Ordered, Adjudged and Decreed that the defendant, its officers, servants, employees, attorneys, agents, and each of them, be enjoined preliminarily, and until further order of this court, from
"(a) using the trademark `Ban-Lon\' on or with reference to any products which are of quality inferior to the standards prescribed by plaintiff and which have not been approved by plaintiff;
"(b) directly and indirectly distributing, selling or advertising such inferior quality products under or by reference to the trademark `Ban-Lon\';
"(c) directly or indirectly distributing, selling or advertising any products bearing any mark or name which colorably imitates plaintiff\'s trademark `Ban-Lon\'; or
"(d) using any labels or hang tags bearing plaintiff\'s trademark `Ban-Lon\' unless and until approval for the use thereof shall first have been obtained from plaintiff;
conditioned upon the filing by plaintiff of a bond in the amount of $75,000.00;
"And It Is Further Ordered that defendant\'s Motion for Preliminary Injunction filed August 4, 1958, is Denied."

The preliminary injunction was...

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