Zazu Designs v. L'Oreal, S.A.

• Decision Date: 28 December 1992
• Docket Number: No. 91-2842,91-2842
• Citation: 979 F.2d 499
• Parties: , 24 U.S.P.Q.2d 1828 ZAZU DESIGNS, a partnership, Plaintiff-Appellee, v. L'OREAL, S.A., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 499

979 F.2d 499

61 USLW 2296, 24 U.S.P.Q.2d 1828

ZAZU DESIGNS, a partnership, Plaintiff-Appellee, v. L'OREAL, S.A., Defendant-Appellant.

No. 91-2842.

United States Court of Appeals Seventh Circuit.

Argued May 1, 1992.

Decided Nov. 2, 1992.

As Amended Nov. 6, 1992.

Rehearing and Suggestion for Rehearing En Banc Denied Dec. 28, 1992.

James T. Fitzgibbon (argued), Angelo J. Bufalino, C. Michael Kendall, Lockwood, Alex, Fitzgibbon & Cummings, Chicago, Ill., for plaintiff-appellee.

Thomas P. Sullivan (argued), Thomas F. Cotter, Jenner & Block, Richard A. Schnurr, Owen J. Murray, Marshall, O'Toole, Gerstein, Murray & Bicknell, Chicago, Ill., Russell H. Falconer, Brendan J. O'Rourke, Doreen Leavens, Parker H. Bagley, Brumbaugh, Graves, Donohue & Raymond, New York City, for defendant-appellant.

Before CUDAHY, POSNER, and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

In 1985 Cosmair, Inc., concluded that young women craved pink and blue hair. To meet the anticipated demand, Cosmair developed a line of "hair cosmetics"--hair coloring that is easily washed out. These inexpensive products, under the name ZAZU, were sold in the cosmetic sections of mass merchandise stores. Apparently the teenagers of the late 1980s had better taste than Cosmair's marketing staff thought. The product flopped, but its name gave rise to this trademark suit. Cosmair is the United States licensee of L'Oreal, S.A., a French firm specializing in perfumes, beauty aids, and related products. Cosmair placed L'Oreal's marks on the bottles and ads. For reasons the parties have not explained, L'Oreal rather than Cosmair is the defendant even though the events that led to the litigation were orchestrated in New York rather than Paris. L'Oreal does not protest, so for simplicity we refer to Cosmair and L'Oreal collectively as "L'Oreal."'

L'Oreal hired Wordmark, a consulting firm, to help it find a name for the new line of hair cosmetics. After checking the United States Trademark Register for conflicts, Wordmark suggested 250 names. L'Oreal narrowed this field to three, including ZAZU, and investigated their availability. This investigation turned up one federal registration of ZAZU as a mark for clothing and two state service mark registrations including that word. One of these is Zazu Hair Designs; the other was defunct.

Zazu Hair Designs is a hair salon in Hinsdale, Illinois, a suburb of Chicago. We call it "ZHD" to avoid confusion with the ZAZU mark. (ZHD employs an acute accent and L'Oreal did not; no one makes anything of the difference.) The salon is a partnership between Raymond R. Koubek and Salvatore J. Segretto, hairstylists who joined forces in 1979. ZHD registered ZAZU with Illinois in 1980 as a trade name for its salon. L'Oreal called the salon to find out if ZHD was selling its own products. The employee who answered reported that the salon was not but added, "we're working on it". L'Oreal called again; this time it was told that ZHD had no products available under the name ZAZU.

L'Oreal took the sole federal registration, held by Riviera Slacks, Inc., as a serious obstacle. Some apparel makers have migrated to cosmetics, and if Riviera were about to follow Ralph Lauren (which makes perfumes in addition to shirts and skirts) it might have a legitimate complaint against a competing use of the mark. Sands, Taylor & Wood Co. v. Quaker Oats Co., 24 U.S.P.Q.2d 1001, 1011 (7th Cir.1992). Riviera charged L'Oreal $125,000 for a covenant not to sue if L'Oreal used the ZAZU mark on cosmetics. In April 1986, covenant in hand and satisfied that ZHD'S state trade name did not prevent the introduction of a national product, L'Oreal made a small interstate shipment of hair cosmetics under the ZAZU name. It used this shipment as the basis of an application for federal registration, filed on June 12, 1986. By August L'Oreal had advertised and sold its products nationally.

Unknown to L'Oreal, Koubek and Segretto had for some time aspired to emulate Vidal Sassoon by marketing shampoos and conditioners under their salon's trade name. In 1985 Koubek began meeting with chemists to develop ZHD'S products. Early efforts were unsuccessful; no one offered a product that satisfied ZHD. Eventually ZHD received acceptable samples from Gift Cosmetics, some of which Segretto sold to customers of the salon in plain bottles to which he taped the salon's business card. Between November 1985 and February 1986 ZHD made a few other sales. Koubek shipped two bottles to a friend in Texas, who paid $13. He also made two shipments to a hair stylist friend in Florida--40 bottles of shampoo for $78.58. These were designed to interest the Floridian in the future marketing of the product line. These bottles could not have been sold to the public, because they lacked labels listing the ingredients and weight. See 21 U.S.C. § 362(b); 15 U.S.C. §§ 1452, 1453(a); 21 C.F.R. §§ 701.3, 701.13(a). After L'Oreal's national marketing was under way, its representatives thrice visited ZHD and found that the salon still had no products for sale under the ZAZU name. Which is not to say that ZHD was supine. Late in 1985 ZHD had ordered 25,000 bottles silkscreened with the name ZAZU. Later it ordered stick-on labels listing the ingredients of its products. In September 1986 ZHD began to sell small quantities of shampoo in bottles filled (and labeled) by hand in the salon. After the turn of the year ZHD directed the supplier of the shampoo and conditioner to fill some bottles; the record does not reveal how many.

After a bench trial the district court held that ZHD'S sales gave it an exclusive right to use the ZAZU name nationally for hair products. 9 U.S.P.Q.2d 1972 (N.D.Ill.1988). The court enjoined L'Oreal from using the mark (a gesture, since the product had bombed and L'Oreal disclaimed any interest in using ZAZU again). It also awarded ZHD $100,000 in damages on account of lost profits and $1 million more to pay for corrective advertising to restore luster to the ZAZU mark. Finding that L'Oreal had infringed ZHD'S mark intentionally and used "oppressive and deceitful" tactics in the litigation, the court awarded an additional $1 million in punitive damages, topped off with $76,000 to cover ZHD'S legal expenses. (L'Oreal has changed law firms for the appeal; its current counsel did not participate in the events that the district judge found to be unethical.)

Between the filing of the opinion and the entry of judgment, L'Oreal made a motion under Fed.R.Civ.P. 52(b) for an additional hearing. It wanted to present evidence that it believed would show the judge that he misunderstood the actions and motives of its lawyers. The court denied this motion without comment and entered judgment. Not dissuaded, L'Oreal served an all-but-identical motion within ten days of the judgment. Two years later the court granted this motion. After taking additional evidence the court modified some of its findings, but not its judgment. 1991 WL 128694, 1991 U.S.Dist. LEXIS 9433. ZHD won an additional $92,000 in legal fees to compensate for the cost of the new hearing. L'Oreal at last appealed, and the parties have ignored a potential problem: a second post-trial motion does not extend the time for appeal. Charles v. Daley, 799 F.2d 343 (7th Cir.1986). But because only one of these motions was filed after the judgment, it suspended the judgment's finality and makes the appeal timely, even though the denial of the first motion shows that the duplicate was unlikely to succeed. United States v. Ibarra, --- U.S. ----, 112 S.Ct. 4, 116 L.Ed.2d 1 (1991).

I

Federal law permits the registration of trademarks and the enforcement of registered marks. Through § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), a provision addressed to deceit, it also indirectly allows the enforcement of unregistered marks. But until 1988 federal law did not specify how one acquired the rights that could be registered or enforced without registration. That subject fell into the domain of state law, plus federal common law elaborating on the word "use" in § 43(a). Two Pesos, Inc. v. Taco Cabana, Inc., --- U.S. ----, ----, 112 S.Ct. 2753, 2757, 120 L.Ed.2d 615 (1992); id. --- U.S. at ----, 112 S.Ct. at 2766-67 (Thomas, J., concurring). See also 15 U.S.C. § 1127 (" 'trademark' includes any word ... used by a person"). At common law, "use" meant sales to the public of a product with the mark attached. Trade-Mark Cases, 100 U.S. 82, 94-95, 25 L.Ed. 550 (1879); Menendez v. Holt, 128 U.S. 514, 520-21, 9 S.Ct. 143, 143-44, 32 L.Ed. 526 (1888). See also Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 414, 36 S.Ct. 357, 360, 60 L.Ed. 713 (1916); United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 97, 39 S.Ct. 48, 50, 63 L.Ed. 141 (1918).

"Use" is neither a glitch in the Lanham Act nor a historical relic. By insisting that firms use marks to obtain rights in them, the law prevents entrepreneurs from reserving brand names in order to make their rivals' marketing more costly. Public sales let others know that they should not invest resources to develop a mark similar to one already used in the trade. Blue Bell, Inc. v. Farah Manufacturing Co., 508 F.2d 1260, 1264-65 (5th Cir.1975); see also William M. Landes and Richard A. Posner, Trademark Law: An Economic Perspective, 30 J.L. & Econ. 265, 281-84 (1987). Only active use allows consumers to associate a mark with particular goods and notifies other firms that the mark is so associated.

Under the common law, one must win the race to the marketplace to establish the exclusive right to a mark. Blue Bell v. Farah; La Societe Anonyme des Parfums LeGalion v. Jean Patou, Inc., 495 F.2d 1265, 1271-74 (2d Cir.1974). Registration modifies this system slightly, allowing slight sales plus notice in the register to substitute for substantial sales without notice. 15 U.S.C. § 1051(a). (The legislation in 1988 modifies the use requirement further, but we disregard this.) ZHD'S sales...