Affiliated Hospital Products, Inc. v. Merdel Game Mfg. Co.

• Decision Date: 31 March 1975
• Docket Number: No. 236,D,236
• Citation: 513 F.2d 1183
• Parties: AFFILIATED HOSPITAL PRODUCTS, INC., Appellant, v. MERDEL GAME MANUFACTURING COMPANY et al., Appellees. ocket 74-1171.
• Court: U.S. Court of Appeals — Second Circuit

Page 1183

513 F.2d 1183

185 U.S.P.Q. 321

AFFILIATED HOSPITAL PRODUCTS, INC., Appellant, v.MERDEL GAME MANUFACTURING COMPANY et al., Appellees.

No. 236, Docket 74-1171.

United States Court of Appeals Second Circuit.

Argued Jan. 15, 1975.

Decided March 31, 1975.

William D. Durkee, Arnold, White & Durkee, Houston, Tex., Alan T. Bowes, Kenyon & Kenyon, Reilly, Carr & Chapin, New York City, for appellant.

John D. Tully, Warner, Norcross & Judd, Grand Rapids, Mich., Robert E. Wagenfeld, Staten Island, N. Y., for appellees.

Before WATERMAN, FRIENDLY and GURFEIN, Circuit Judges.

WATERMAN, Circuit Judge:

Affiliated Hospital Products, Inc.(Affiliated) filed an amended complaint on January 23, 1970 in the United States District Court for the Southern District of New York seeking damages for alleged unfair competition and breaches of contract, for rescission of a court-filed stipulation, for an accounting, for the delivery and destruction of the alleged offending materials, and for permanent injunctive relief.Affiliated alleged that the defendants had injured it in various ways: (1) by breach of contract governing the respective uses of the parties in the words Carom and Caroms and Carrom and Carroms; (2) by infringement of Affiliated's trademark Carrom; (3) by infringement of Affiliated's trademark Kik-it; (4) by infringement of Affiliated's copyright of a rulebook for Carroms and for other games played on its gameboard; and (5) for unfair competition.On January 23, 1970 Merdel Game Manufacturing Company(Merdel) filed an answer denying the allegations of Affiliated.In an amended answer, filed August 5, 1970, Merdel stated as an affirmative defense the res judicata effect of a consent judgment, entered March 2, 1967, upon a stipulation filed in the United States District Court for the Western District of Michigan and also the stipulated agreement, itself, between the parties as to the use Merdel could make of the word Carom.

After a bench trial, Judge Tyler, on April 30, 1973, dismissed the claims of Affiliated with the exception of damages for breach of contract by Merdel as to one use of the word Carom.Damages for this breach were to be determined at a later hearing.By letter of May 21, 1973, Affiliated stated that it "prefers an early appeal, and therefore chooses not to proceed at the present time on such a limited issue."Thereafter Judge Tyler entered a final order dismissing all of Affiliated's claims.Affiliated limits its appeal to three general issues: infringement of its trademarks Carroms and Kik-it; infringement of its copyrighted rulebook; and rescission of the 1967 agreement.Affiliated has not pursued its claim for money damages for breach of contract or its unfair competition claim.

We affirm the decision below.

The appellant, Affiliated Hospital Products, Inc.(Affiliated), through its Carrom Division and its predecessors in interest, has been manufacturing and marketing games for children for many years.Carroms, a tabletop pool game, has been marketed by Affiliated since the late 1800's.Involved in this suit is the alleged misuse of the trademark Carrom, ¹ owned by Affiliated, and the alleged violation of appellant's copyright of its copyrighted rule book for Carroms.²Affiliated also manufactures a tabletop soccer game called Kik-it, the subject of the other trademark involved in the present action.³The appellee, Merdel Game Manufacturing Company(Merdel), whose motivating figures are former employees of Affiliated, has been marketing similar games, including the 100 Play Game Board and Kick'er, since 1961.⁴The 100 Play Game Board includes a carom board, as the game's carton makes clear, as well as a rulebook for caroms and related games.Kick'er is, like Kik-it, a tabletop soccer game.

In 1963, Affiliated sued Merdel for, among other things, ⁵ infringement of its registered trademark Carrom.Trial commenced in late February 1967.After two days of trial the parties negotiated an agreement, dated March 2, 1967, which led to the settlement of the action and its dismissal with prejudice.The agreement provides in relevant part:

The parties hereto, by their respective attorneys, hereby stipulate and agree as follows:

1.The defendants stipulate that plaintiff's trademark registration No. 49,996 is valid and agree not to use the words Carrom or Carroms as a trademark.If the words Carrom or Carroms ceases to be a trademark, there shall be no restriction on the defendants' use thereof.

2.Plaintiff stipulates that it will not object to the use of the word Carom or Caroms by the defendant where such use is no more prominent than the use on the date of this stipulation.The defendants agree that they will not expand such use for the period of three years from this date.The defendants agree as part of the foregoing that they will not use the word Carom or Caroms during such three-year period to describe their game board.At the termination of such three-year period there shall be no restriction on the use of the words Carom or Caroms by the defendants.

It is clear from the record in the Michigan proceedings that the stimulus to settle was the possibility of a judicial decision invalidating Affiliated's trademark.⁶In exchange for Merdel's unrestricted right to use the word Carom after March 2, 1970, Affiliated received valuable present consideration: Merdel's recognition of the trademark's validity, dismissal with prejudice of Merdel's counterclaim, and the stipulated limitation on Merdel's use of the term Carom for a three-year period.

After the 1967 agreement Merdel continued to use the word Carom on its price lists, catalogues, invoices and cartons.In 1969 Merdel changed its carton so that the carton end flaps read "100 Play Game Board(Carom & Crokinole)" which made the word Carom visible when cartons were stacked in retail stores.And, of course, after March 1970 Merdel has, in reliance upon the terms of the stipulation, greatly expanded its use of the word Carom.

The 1967 agreement controls the rights of the respective parties in the use of the word Carom; and, preliminary to any claim of trademark infringement, Affiliated must demonstrate conduct by Merdel sufficiently grave to warrant rescission of that agreement.Absent grounds for rescission, Merdel has had since March 2, 1970, the right to use the word Carom, and Affiliated has only the right to compensatory damages for breach of the agreement.It is clear that not every breach of contract will justify rescission, but rather this remedy will be permitted only when, as one court has stated, "the complaining party has suffered breaches of so material and substantial a nature that they affect the very essence of the contract and serve to defeat the object of the parties."Nolan v. Williams Music Co., 300 F.Supp. 1311, 1317(S.D.N.Y.1969), aff'd sub nom.Nolan v. Sam Fox Publishing Company, Inc., 499 F.2d 1394(2 Cir.1974).See, also, In Re Waterson, Berlin & Snyder Co., 48 F.2d 704(2 Cir.1931);Corbin on Contracts § 1253(2d ed. 1964).

Affiliated argues that Merdel had used the term Carom prior to 1967 in ways then unknown to Affiliated and that these pre-agreement uses, hidden to Affiliated, emerged after the 1967 agreement and lay outside the fair intendment of the agreement.It claims that this initial ignorance of actual usage misled Affiliated into entering into the stipulated agreement and thus provides grounds for rescission.Judge Tyler found, and we agree, that the parties intended to cover promotional activity centered on the word Carom.It is clear that Affiliated knew, or should have known, that Merdel's use of the word was not solely limited to the carton labeling, the use of which Affiliated now claims it was aware, but rather extended to other, standard, promotional devices.⁷Merdel's use of the word Carom in its catalogues, price lists, and other advertising was fairly within the scope of the agreement.

In the years prior to the agreement, Merdel variously described its 100 Play Game Board on its customer invoices.The legends "100 Play Game Board,""100 Play Game Board(Carom & Crokinole)," and "100 Play Carom Board" all appear typewritten on invoices during this period.Although not within the scope of promotional activity, and perhaps unknown to Affiliated at the time of entering into the agreement, this usage, which continued after the agreement, appears unexceptionable.The invoices were in response to the placement of orders by customers, who were in turn responding to Merdel's advertising.The invoices therefore were not a source of possible further confusion between the products.Although this use was a use hidden to Affiliated at the time of entering the agreement, the carom description on the invoices represents an insignificant intrusion by Merdel which is insufficient to warrant rescission of the contract on the basis of unilateral mistake in the formation of a contract.SeeUnited States Plywood Corp. v. Hudson Lumber Co., 113 F.Supp. 529(S.D.N.Y.1953), appeal dismissed, 210 F.2d 462(2 Cir.1954);Williston on Contracts §§ 1573, 1578(3rd ed. 1970).It was not necessary that Affiliated be aware of each specific item of Merdel's use of the word Carom: It was enough that Affiliated knew that Merdel was making considerable use of the word in many phases of its promotional and marketing activities.In this light, it is evident that the invoices provide no ground for rescission of the agreement.

Affiliated also urges that during the three-year period there was a substantial breach of the agreement by Merdel in its use of the word Carom which justifies rescission.During the...