American Tel. and Tel. Co. v. Winback and Conserve Program, Inc., 94-5305

Decision Date09 December 1994
Docket NumberNo. 94-5305,94-5305
Citation42 F.3d 1421
PartiesAMERICAN TELEPHONE AND TELEGRAPH COMPANY v. WINBACK AND CONSERVE PROGRAM, INC., a New Jersey corporation; Alfonse G. Inga, an individual, American Telephone and Telegraph Company ("AT & T"), Appellant. Third Circuit
CourtU.S. Court of Appeals — Third Circuit

Frederick L. Whitmer (argued), Francine A. Franklin, Pitney, Hardin, Kipp & Szuch, Morristown, NJ, and Edward R. Barillari, AT & T Corp., Basking Ridge, NJ, for appellant.

H. Curtis Meanor (argued), Lawrence S. Coven, Martha Lewis Marcus, Podvey, Sachs, Meanor, Catenacci, Hildner & Cocoziello, P.C., Newark, NJ, and Charles H. Helein, Helein & Waysdorf, P.C., Washington, DC, for appellees.

Before: GREENBERG and McKEE, Circuit Judges, and POLLAK, District Judge *.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

In this case, the American Telephone and Telegraph Company ("AT & T") seeks to hold the defendants-appellees--Winback and Conserve Program, Inc. ("Winback") and Alphonse G. Inga--liable for acts of unfair competition by the defendants' sales representatives. The district court, in an Opinion and Order dated May 12, 1994, denied AT & T's application for a preliminary injunction, finding that Winback and Inga exerted insufficient control over the sales representatives to justify the imposition of liability upon Winback and Inga. AT & T v. Winback & Conserve Program, 851 F.Supp. 617 (D.N.J.1994) ("Winback "). Because we find that the district court committed errors of law in denying AT & T's motion for a preliminary injunction against Winback and Inga, we will vacate the Order of the district court and we will remand the matter for further proceedings.

I. Introduction and Factual Background 1

AT & T is a long-distance telecommunications carrier that, as part of its marketing strategy, uses a variety of service marks and trademarks, including the initials "AT & T" and the AT & T "globe" symbol. AT & T markets and sells telecommunications services to customers, and its rates and practices are governed by tariffs it files with the Federal Communications Commission. Not only does AT & T provide services to "end-users"--customers who purchase service for themselves--but, pursuant to a 1976 FCC ruling, AT & T offers long distance telecommunications services it provides under a tariff for resale. See In the Matter of Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities, 60 F.C.C.2d 261 (1976); In the Matter of Regulatory Policies Concerning Resale and Shared Use of Common Carrier Domestic Public Switched Network Services, 83 F.C.C.2d 167 (1980); Winback, 851 F.Supp. at 618. The resale market works as follows: Resellers, or aggregators, subscribe to AT & T programs which provide large discounts for high volume purchases of AT & T telecommunications services. The resellers then sell the services to individual businesses that do not generate sufficient volume to qualify individually for the high-volume discounts. Thus, by providing the services to these end-users, resellers make a profit while end-users receive access to the AT & T network at a significantly lower cost than if they purchased services from AT & T directly. Under some programs--including the one at issue on this appeal--AT & T bills the end-users directly and they make payments directly to AT & T. Also, pursuant to some resale agreements, the end-users receive the services associated with access to the AT & T network directly from AT & T. 2 Nonetheless, in the resale business, only the reseller is a customer of AT & T; the end-users are customers of the reseller and not of AT & T Appellee Winback is a reseller of 800 inbound telecommunications services and appellee Inga is its president. As a matter of convenience, hereafter we usually will refer to both simply as Winback. Winback offers end-users access to the AT & T 800 inbound network at a discount price. As are other resellers, Winback is both a customer and a competitor of AT & T.

This case really began in April 1992, when AT & T filed a complaint and application for a temporary restraining order alleging that one of Inga's other companies, One Stop Financial, Inc., was infringing on AT & T's trademarks and service marks, falsely representing that it was affiliated with AT & T and passing itself off as AT & T. 3 The parties resolved the case by entering into a Consent Final Order and Injunction, filed on May 7, 1992, which enjoined One Stop and its officers, directors, employees and agents from engaging in such practices. 4 In September 1993, AT & T filed a motion to hold One Stop in civil contempt of the Consent Order. One Stop and Inga defended by arguing that their sales and marketing representatives, over whom One Stop had no control, were responsible for any infringing acts. 5 Consequently, as a result of AT & T's application, on September 27, 1993, the Final Order and Injunction was amended to obligate One Stop to serve each of its sales agents with a copy of the Order, and, in turn, to obligate each of the primary agents to serve the Order upon all subagents they had authorized to market under the name One Stop Financial, Inc.

Soon after the amended Final Order was filed, AT & T filed a second application to hold One Stop and Inga in contempt, this time basing its claim for relief on allegedly infringing activity on the part of Winback, Inga's other company (and the corporate defendant in the instant action). Winback, 851 F.Supp. at 620. The district court informed the parties that the motion for contempt would not be heard until discovery was completed. AT & T responded by filing this action, on December 13, 1993, against Winback and Inga, alleging false designation of origin, passing off, and unprivileged imitation in violation of section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a), as well as various state common law claims. AT & T sought, among other relief, temporary restraints, and preliminary and permanent injunctions. The district court held a hearing on AT & T's application for a temporary restraining order on December 15, 1993. See Order To Show Cause With Temporary Restraints, app. at 366. On December 17, 1993, the district court issued a temporary restraining order enjoining and restraining "Defendants, together with their officers, agents, servants, employees, attorneys and all persons in active concert or participation with them" from:

(a) employing any oral communication, advertisement, label, sign, flyer, envelope or correspondence or any other written documentation that falsely designates the origin of Defendants' goods or services as being those of the American Telephone and Telegraph Company or of AT & T, or that is likely to cause confusion as to whether Defendants' goods or services are sponsored by, or affiliated with the American Telephone and Telegraph Company;

(b) engaging, producing, creating, encouraging, aiding or abetting any oral communication, advertisement, label, sign, flyer, envelope, correspondence or any other oral or written communication which enables Defendants to pass off their goods or services as being those of the American Telephone and Telegraph Company.

Order to Show Cause at 3-4, app. at 367-68. The Order prevented the defendants and their agents from "introducing into ... commerce ... any document promoting or identifying Winback and Conserve Program, Inc., which does not conspicuously identify Winback and Conserve Program, Inc. as a corporation through the use of the abbreviation, 'Inc.' and which does not identify a business mailing address." Id. Finally, Winback was ordered to serve a copy of the Order upon its primary agents (identified in an Appendix to the Order) who in turn were obligated to serve the Order on any sub-agents they had employed to do Winback's marketing. The court in that Order set a return date for a hearing on AT & T's application for a preliminary injunction. Winback answered AT & T's complaint on January 18, 1994. After expedited discovery, full briefing, and the submission of detailed affidavits, the district court held a hearing on AT & T's application, between March 1 and March 11, 1994.

At the hearing, much of the testimony described Winback's method of attracting customers. The evidence demonstrated that Winback employs no marketing or sales people on its staff. Rather, it attracts business solely through the use of sales networks and/or marketing representatives. Specifically, it uses about 50 different marketing agencies, which in turn employ or contract with scores more individual sales representatives. The representatives work out of their own offices, and receive no supplies, equipment or space from Winback. Winback compensates these representatives purely on a commission basis, and the representatives are under no minimum obligation to Winback. Indeed, many representatives market for various resellers. This does not mean, however, that there is little connection between the agents and Winback. The agents are supplied with forms which AT & T requires to be completed to transfer customers to Winback's services (the transfer forms). Until October 13, 1993, these forms contained the initials "AT & T" and the AT & T globe symbol. On that date, AT & T ordered the resellers to delete those references. These forms also make reference to Winback. Moreover, at least one of the representatives contacts Inga on a regular basis, and Inga attempts to "polic[e]" the agents to avoid misrepresentations. Winback, 851 F.Supp. at 619.

Generally, as the evidence before the district court demonstrated, sales representatives contact end-users and present them with the Winback plan. The representatives then send prospective customers various forms, including a facsimile cover sheet, informational documents, the transfer form, and a Main Billed Telephone Numbers Location List ("main billed form"). Interested end-users complete the...

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