Century Distilling Co. v. Continental Distilling Corp.

• Decision Date: 17 June 1953
• Docket Number: 10717.,No. 10716,10716
• Parties: CENTURY DISTILLING CO. v. CONTINENTAL DISTILLING CORP. (two cases).
• Court: U.S. Court of Appeals — Third Circuit

205 F.2d 140 (1953)

CENTURY DISTILLING CO. v. CONTINENTAL DISTILLING CORP. (two cases).

Nos. 10716, 10717.

United States Court of Appeals Third Circuit.

Argued May 7, 1953.

Decided June 17, 1953.

Rehearing Denied July 21, 1953.

Joseph S. Clark, Jr., Philadelphia, Pa. (Barnes, Dechert, Price, Myers & Rhoads, Philadelphia, Pa., Arthur E. Newbold, III, Philadelphia, Pa., Miller, Westervelt, Johnson & Thomason, Peoria, Ill., Donald G. Beste, Peoria, Ill., on the brief), for Century.

Robert T. McCracken, Philadelphia, Pa. (Leonard L. Kalish, Philadelphia, Pa., Earl Jay Gratz, Philadelphia, Pa., on the brief), for Continental Distilling Corp.

Before BIGGS, Chief Judge, and GOODRICH and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge.

In this trade-mark infringement suit both the adjudged infringer, Century Distilling Company (Century), and the infringed, Continental Distilling Corporation (Continental), appeal. The former would have us hold that it need not account for profits or damages despite the finding of infringement, the latter that its award is inadequate.

Continental, a Delaware corporation, was organized in April, 1933, as a subsidiary of a corporation which had been manufacturing alcohol since 1912. With the repeal of prohibition in December, 1933, Continental began to sell Dixie Belle and Dixie Beaux gin to the public,¹ engaging in an extensive advertising campaign on behalf of Dixie Belle in 1933 and 1934. On February 13, 1934, Continental registered the trademarks Dixie Belle and Dixie Beaux with the United States Patent Office.² Although both marks were to be applied to other distilled alcoholic beverages as well as gin, we are here chiefly concerned with the use of the mark Dixie Belle on gin and gin products.

Century, an Illinois corporation, was organized in November, 1933, as a subsidiary of a grain and feed corporation. It began the sale of bottled liquors early in 1934 and on September 24, 1934, filed an application in the Patent Office for registration of the trade-mark Dixiana, claiming to have used the mark since September 10, 1934. Continental filed a notice of opposition thereto within two months. On March 9, 1935, Century applied for another registration, this time for the trade-mark Dixie Dew, claiming to have used the mark since February 20, 1935. Again Continental promptly filed a notice of opposition to the application alleging, as in the case of Dixiana, that this mark infringed its own prior-registered marks, Dixie Belle and Dixie Beaux. On October 28, 1936, after the taking of evidence, both notices of opposition were sustained by the Examiner of Trade-Mark Interferences. These decisions were affirmed by the Assistant Commissioner of Patents on July 2, 1937. In the meantime Continental had tried without success to persuade Century to discontinue voluntarily its use of the marks Dixiana and Dixie Dew.³ Century manufactured and sold Dixie Dew whiskey and Dixiana gin until June 30, 1939, the date on which we affirmed the lower court's interlocutory decree. Dixie Dew whiskey constituted approximately 30% of the total number of cases of all liquors sold by Century during the period covered by the account. In 1943 Century sold its business to another distilling corporation at a substantial profit.

On July 28, 1937, Century brought suit against Continental under Section 4915 of the Revised Statutes, as amended,⁴ for a determination of its right to register the two trade-marks. Continental counter-claimed for an injunction and an accounting. The district court, in an interlocutory decree filed June 27, 1938, dismissed the bill on procedural grounds. With respect to the counterclaim the court held that Century's marks Dixiana and Dixie Dew infringed Continental's Dixie Belle and Dixie Beaux, that Century's marks were a colorable imitation of Continental's, that they were calculated or liable to cause confusion, mistake or deception in the minds of the public, that both Century's and Continental's goods were of the same descriptive character and properties and were sold in interstate commerce. It concluded that Century's use of the marks constituted an infringement and ordered "the usual accounting" to be taken on reference to a master. On appeal to this court, 1939, 106 F.2d 486, the decree was affirmed.⁵ The United States Supreme Court denied certiorari, 309 U.S. 662, 60 S.Ct. 581, 84 L.Ed. 1010. It is conceded, however, that the propriety of ordering an accounting was not argued during any of the above proceedings.

The accounting before the master commenced early in 1940. In June, 1943, Century moved the district court for a modification of the interlocutory decree, arguing that under the then recently decided case of Mishawaka Rubber & Woolen Mfg. Co. v. S. S. Kresge Co., 316 U.S. 203, 62 S.Ct. 1022, 86 L.Ed. 1381, it was not liable to Continental for profits on its sales of Dixie Dew whiskey. The motion was denied. The master filed Parts I and II of his report on November 17, 1948, and Part III on February 21, 1951. Altogether almost 10,000 pages of testimony were taken. On December 20, 1951, the district court entered judgment against Century on Continental's counterclaim in the amount of $129,296.20. This figure represents 25% of Century's profits ($110,248.95) on its sales of Dixiana and Dixie Dew products during the accounting period (June 30, 1935, to June 30, 1939), plus interest and costs. The only item of damages to Continental which had been included in the master's award was disallowed by the court. As stated, Century appeals on the ground that it need pay none of its profits on account of the infringement while Continental is dissatisfied with the award, contending that it is entitled to all Century's profits on the infringing goods plus several items of damages. Century also argues that the master erred in disallowing certain overhead charges as a deduction from profits. Both parties contest various other items allowed or disallowed by the master and the court below on this accounting.

This action is governed by Sections 16 and 19 of the Trade-Mark Act of 1905, 15 U.S.C. §§ 96 and 99⁶.

Century's Appeal

Century does not, and indeed cannot, dispute the determination of infringement, but argues that it has established that there was no palming off, no fraud and no confusion of source and therefore it should not be held to account for even 25% of its profits on the infringing goods. Reliance is placed on cases holding that while an injunction is proper where an infringement has been found no accounting will be ordered absent a showing of confusion. See, for example, Straus v. Notaseme Hosiery Co., 240 U.S. 179, 36 S.Ct. 288, 60 L.Ed. 590; Durable Toy & Novelty Corp. v. J. Chein & Co., 2 Cir., 1943, 133 F.2d 853, certiorari denied, 320 U.S. 211, 63 S.Ct. 1447, 87 L.Ed. 1849; Coca Cola Co. v. Snowcrest Beverages, Inc., D.C.Mass.1946, 64 F.Supp. 980, affirmed, 1 Cir., 1947, 162 F.2d 280, certiorari denied, 332 U.S. 809, 68 S.Ct. 110, 92 L.Ed. 386.

Despite a brilliantly presented argument on its behalf Century's fundamental difficulty of necessity remains, namely, that in order for it to prevail we must reverse the district court's (and master's) findings of fact as being clearly erroneous or hold that as a matter of law an accounting should never have been ordered. The facts on which the findings are based and the applicable law do not justify either course.

Under the rule of the Mishawaka case, supra, which it is agreed governs these situations, the infringer, in order to reduce the profits for which he would otherwise be answerable, must show to what extent they are "demonstrably not attributable to the unlawful use." The master was aware that Century's burden was a difficult one, stating that if the equities and burden of proof were reversed he would not hesitate to reduce the recoverable profits even further than he did. He also pointed out that while accuracy in this type of case is impossible of attainment Century had not shown that more than 75% of its profits on Dixie Dew whiskey was not attributable to infringement. The master properly noted that if a windfall is to result from the failure to achieve mathematical precision in gauging the percentage of the infringer's sales not attributable to confusion it belongs to the wronged, not the wrongdoer. See Mishawaka Rubber & Woolen Mfg. Co. v. S. S. Kresge Co., 316 U.S. 203, 207, 62 S.Ct. 1022, 86 L.Ed. 1381. The court below accepted the master's 25% figure. After an examination of the evidence we cannot say that this constituted clear error.

It is true, of course, that if the district court in 1938 had refused to order an accounting Century would not have been held liable for a portion of its profits — assuming the court would not have been reversed on appeal. The fact is that the question of Century's liability for profits or damages was not argued to the trial court at that time nor to us on appeal. In the circumstances the statute required that an accounting be had. At the very least, it cannot be said that as a matter of law Continental was not entitled to such accounting.

Century contends that we are not bound by the law of the case insofar as the interlocutory decree directed an accounting of profits and damages. We agree that in a proper setting — one in which there could be no showing of pecuniary harm to the infringed — it may be the appellate court's duty to vacate an order of accounting, even after fifteen years' litigation. In our view this is not such a case. It is Century's belief that the evidence adduced before the master coupled with the comments of the lower court conclusively show that there was no confusion. As we have earlier stated, under the Mishawaka rule the burden was on Century to prove the fact that its profits were not attributable to the infringement. It is possible that had Continental been saddled with the burden of affirmatively demonstrating the converse it would...