Beacon Mut. Ins. Co. v. Onebeacon Ins. Group

• Decision Date: 12 July 2004
• Docket Number: No. 03-2671.,03-2671.
• Citation: 376 F.3d 8
• Parties: The BEACON MUTUAL INSURANCE COMPANY, Plaintiff, Appellant, v. ONEBEACON INSURANCE GROUP, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

376 F.3d 8

The BEACON MUTUAL INSURANCE COMPANY, Plaintiff, Appellant, v. ONEBEACON INSURANCE GROUP, Defendant, Appellee.

No. 03-2671.

United States Court of Appeals, First Circuit.

Heard June 8, 2004.

Decided July 12, 2004.

Appeal from the United States District Court for the District of Rhode Island, William E. Smith, J Steven E. Snow, with whom Michael A. Gamboli, Robert K. Taylor, and Partridge Snow & Hahn LLP were on brief, for appellant.

Dalila Argaez Wendlandt, with whom Steven A. Kaufman and Ropes & Gray were on brief, for appellee.

Before SELYA, Circuit Judge, PORFILIO,^* Senior Circuit Judge, and LYNCH, Circuit Judge.

LYNCH, Circuit Judge.

This is a case of first impression for this circuit on several issues under the Lanham Act, 15 U.S.C. § 1051 et seq.

The plaintiff, formerly known as the State Compensation Insurance Fund, was chartered in 1990 by the Rhode Island legislature as the workers' compensation insurer of last resort in the state. In 1992, it adopted the name The Beacon Mutual Insurance Company ("Beacon Mutual") and, since then, has sold workers' compensation insurance in Rhode Island under the marks "The Beacon Mutual Insurance Company," "Beacon Insurance," and "The Beacon," with an accompanying lighthouse logo. The name change was brought about by increased competition following the resolution of a crisis in the state workers' compensation market.

In June 2001, the defendant OneBeacon Insurance Group ("OneBeacon"), which sells various forms of commercial insurance nationwide, switched to its current name and adopted a lighthouse logo as well, albeit in a different font and arrangement. The name change resulted from the sale of the company, then called CGU Corporation, to another company; the terms of the sale required CGU to change its name. OneBeacon is a direct competitor of Beacon Mutual in the Rhode Island market for workers' compensation insurance.

Beacon Mutual brought suit one month after OneBeacon's name change, alleging violations of the Lanham Act, 15 U.S.C. § 1125(a), and state trademark laws. On November 14, 2003, the district court granted summary judgment in favor of OneBeacon on all counts on the ground that Beacon Mutual had not demonstrated a substantial likelihood of confusion. Beacon Mut. Ins. Co. v. OneBeacon Ins. Group, 290 F.Supp.2d 241, 252 (D.R.I.2003). Beacon Mutual now appeals.

For likelihood of confusion to be actionable, the "confusion has to exist in the mind of a relevant person." Astra Pharm. Prods., Inc. v. Beckman Instruments, Inc., 718 F.2d 1201, 1207 (1st Cir.1983). The primary issue in this appeal is the relevance of evidence submitted by Beacon Mutual showing 249 instances of confusion between the two companies in the sixteen months following OneBeacon's adoption of its current name. Most of the confusion involved misdirected premium checks, claim forms, medical records, and legal correspondence. OneBeacon argues that those incidents do not demonstrate confusion among relevant persons because the confused persons were not those who made purchasing decisions and there was no evidence that their confusion caused Beacon Mutual to lose sales. OneBeacon's argument impermissibly narrows the scope of the court's inquiry into both the harm suffered by the plaintiff and the persons among whom confusion exists.

We hold that the type of commercial injury actionable under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), is not restricted to the loss of sales to actual and prospective buyers of the product in question. Confusion is relevant when it exists in the minds of persons in a position to influence the purchasing decision or persons whose confusion presents a significant risk to the sales, goodwill, or reputation of the trademark owner. This holding is consistent with our existing case law, under which post-sale confusion is actionable. See I.P. Lund Trading, ApS v. Kohler Co., 163 F.3d 27, 44 (1st Cir.1998). We also hold that relevant commercial injury includes not only loss of sales but also harm to the trademark holder's goodwill and reputation. See 3 McCarthy on Trademarks and Unfair Competition § 25:5 (4th ed. 1996) [hereinafter, McCarthy].

On summary judgment, all reasonable inferences must be drawn in favor of the non-moving party, Beacon Mutual. Here, a factfinder could reasonably infer that the misdirected communications (1) showed confusion among purchasing companies, their covered employees, consulting physicians and other health care providers, third-party insurers, attorneys for claimant employees, and courts handling such claims, and (2) had caused commercial injury to Beacon Mutual in the form of, inter alia, delays in claims processing, mistaken cancellations of coverage for failure to pay premiums, delayed reimbursements of health care providers, improper disclosure of confidential medical records, and risk of potential legal penalties for purchasers, covered workers, and providers. Reasonable inferences could be drawn that these problems had damaged Beacon Mutual's goodwill and reputation. Reasonable inferences could also be drawn that these problems had led or would lead to lost sales, although the drawing of such inferences is not necessary to survive summary judgment in light of the other forms of commercial injury present in this case. Because inappropriate legal standards were employed both as to the substantive application of trademark law and as to the drawing of inferences on summary judgment, we reverse the grant of summary judgment and remand for proceedings consistent with this opinion.

I.

The following facts are described in the light most favorable to Beacon Mutual, the non-moving party. Zyla v. Wadsworth, 360 F.3d 243, 246 (1st Cir.2004).

Beacon Mutual is the largest writer of workers' compensation insurance in Rhode Island, collecting over $118 million in premiums in 2001. It has used its marks and lighthouse logo since June 24, 1992, but never registered them. Over the years, Beacon Mutual has steadily increased its advertising and promotional expenditures to build its brand, spending close to $1.4 million in 2001. Beacon Mutual says that these promotional activities, most of which involve displaying its marks, are necessary to maintain its position in an increasingly competitive market. According to a consumer survey submitted by Beacon Mutual on summary judgment, many Rhode Island consumers now associate the mark "The Beacon" with Beacon Mutual. Beacon Mutual offers its workers' compensation insurance through agents as well as through direct sales.

OneBeacon, formerly known as CGU Insurance, began using its current name and lighthouse logo nationally in early June 2001. A Boston-based corporation that sells commercial insurance nationwide, OneBeacon offers workers' compensation insurance in Rhode Island on a much smaller scale than Beacon Mutual, collecting around $1 million in workers' compensation premiums in 2001. OneBeacon says that workers' compensation insurance is not a profitable line of business for it in Rhode Island and that it offers the product only as a convenience to its existing customers. The workers' compensation coverage offered by OneBeacon is comparable to that offered by Beacon Mutual and is sold at rates that are the same or higher than Beacon Mutual's.

Beacon Mutual and OneBeacon share addresses that sound similar. Beacon Mutual is located at One Beacon Center, Warwick, Rhode Island, and OneBeacon is located at One Beacon Street, Boston, Massachusetts. Counsel for OneBeacon informed us at oral argument that Beacon Mutual was already located at its current address when her client began using the name "OneBeacon" in June 2001.

On July 5, 2001, Beacon Mutual brought a four-count trademark infringement action against OneBeacon in the Rhode Island Superior Court. Count I alleged unfair competition under the Lanham Act, 15 U.S.C. § 1125(a); Count II alleged unfair competition under Rhode Island common law; Count III alleged service mark infringement under Rhode Island common law; and Count IV alleged trademark dilution under R.I. Gen. Laws § 6-2-12.

OneBeacon removed the case to federal court and then moved for summary judgment, arguing that all four counts should be dismissed because there was no likelihood of confusion.¹ OneBeacon relied principally on the fact that it sells workers' compensation insurance exclusively through licensed independent insurance agents. OneBeacon submitted a telephone survey showing that those agents understand the difference between the two companies and that those agents typically guide consumers, whom the agents said do not ordinarily express a preference for a particular brand of workers' compensation insurance, through the purchasing process. OneBeacon argued that if its agents are not confused, purchasers guided by those agents are unlikely to be confused either. Moreover, OneBeacon argued that to the extent that confusion exists among non-purchasers or potential purchasers before the point of sale, such confusion is not actionable because "it cannot possibly cause the harm that the trademark laws are meant to prevent: economic harm to Beacon Mutual in the form of lost sales."

Beacon Mutual opposed summary judgment, arguing that, contrary to OneBeacon's assertion, confusion need not be tied specifically to lost sales or to the state of mind of purchasers at the point of sale to be actionable. Confusion, Beacon Mutual argued, is relevant where it adversely affects the trademark owner's commercial interests. Here, Beacon Mutual argued, at a minimum, the goodwill and reputation of Beacon Mutual were harmed by actual confusion among Rhode Island employers, workers, health care providers, third-party insurance companies, attorneys, and courts.

Beacon Mutual submitted an affidavit by Michael Lynch, vice president of legal services for Beacon Mutual, stating that shortly after OneBeacon's name change, Beacon Mutual began receiving misdirected...