Church of Scientology Intern. v. Elmira Mission of Church of Scientology

• Decision Date: 23 June 1986
• Docket Number: D,No. 537,537
• Citation: 794 F.2d 38,230 U.S.P.Q. 325
• Parties: , 230 U.S.P.Q. 325 CHURCH OF SCIENTOLOGY INTERNATIONAL, a corporation; Religious Technology Center, a corporation; and Scientology Missions International, a corporation, Plaintiffs-Appellants, v. The ELMIRA MISSION OF THE CHURCH OF SCIENTOLOGY, a corporation, a/k/a Church of Scientology, Mission of Elmira, a/k/a Dianetics Center, a/k/a Scientology Elmira, a/k/a Center for Creative Learning; Harry Palmer, an individual; and Avra Honey-Smith, an individual, Defendants-Appellees. ocket 85-7693.
• Court: U.S. Court of Appeals — Second Circuit

Page 38

794 F.2d 38

55 USLW 2068, 230 U.S.P.Q. 325

CHURCH OF SCIENTOLOGY INTERNATIONAL, a corporation Religious Technology Center, a corporation; and Scientology Missions International, a corporation, Plaintiffs-Appellants, v. The ELMIRA MISSION OF THE CHURCH OF SCIENTOLOGY, a corporation, a/k/a Church of Scientology, Mission of Elmira a/k/a Dianetics Center, a/k/a Scientology Elmira, a/k/a Center for Creative Learning; Harry Palmer, an individual and Avra Honey-Smith, an individual, Defendants-Appellees.

No. 537, Docket 85-7693.

United States Court of Appeals Second Circuit.

Argued Dec. 6, 1985.

Decided June 23, 1986.

Michael C. Elmer, Washington, D.C. (Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C., Paul J. Yesawich, III, Kevin J. Arquit, Harris, Beach, Wilcox, Rubin and Levey, Rochester, N.Y., Thomas M. Small, Fulwider, Patton, Rieber, Lee & Utecht, Los Angeles, Cal., of counsel), for plaintiffs-appellants.

Mark S. Nunn, Rochester, N.Y. (Weidman & Jordan, Rochester, N.Y., of counsel), for defendants-appellees.

Before LUMBARD, CARDAMONE and WINTER, Circuit Judges.

CARDAMONE, Circuit Judge:

This appeal is from a denial of a preliminary injunction. 614 F.Supp. 500. Appellants, who had licensed appellees to use their registered trademarks, later terminated the appellees' authority. When the former licensees continued their now unauthorized use, appellants brought a Lanham Act suit and sought a preliminary injunction. The issue in this case is whether in the licensor/licensee context irreparable harm automatically flows from a finding of unlawful use and consumer confusion. Common sense plainly suggests that when a terminated franchisee's continued use of its former franchisor's trademarks results in demonstrated consumer confusion, the franchisor has been irreparably harmed. Hence, we reverse the order denying a preliminary injunction and direct its issuance.

I

The facts are largely undisputed. Plaintiffs-appellants are three California corporations: Church of Scientology International (CSI) is the "Mother Church" for its 33 churches and 80 Missions in the United States; Scientology Missions International (SMI) is the head of the Missions; and Religious Technology Center (RTC) is the owner and protector of the trademarks and service marks of the religion of Scientology. Defendants-appellees are Harry Palmer and Avra Honey-Smith, residents of Elmira, New York, and the Elmira Mission of the Church of Scientology, a New York corporation. L. Ron Hubbard was the founder of and--until his recent death on January 24, 1986--reputedly controlled the Church of Scientology. Defendant Harry Palmer has since 1972 operated an authorized Scientology Mission in Elmira. In 1975 the Elmira Mission incorporated under the name "the Elmira Mission of the Church of Scientology" and the following year it was granted a license to use all Scientology trademarks and service marks held and controlled by Mr. Hubbard. In exchange for that right, defendants were to pay ten percent of its income as a tithe to the Mission Office. Six years later Mr. Hubbard allegedly assigned his rights in all Scientology trademarks to RTC, which had been organized especially to own and protect all Scientology trademarks.

RTC immediately increased the licensing fee. On September 9, 1982 defendants signed a new License Agreement requiring them to pay 15 percent of their income as well as additional fees to RTC in order to continue using the Scientology trademarks. The following day defendants renounced the agreement, but continued to use the marks and to pay the former ten percent tithe. When in November 1984 defendants ceased making any payments to the Mission Office, appellants promptly moved for arbitration provided for under the agreement. Upon defendants' refusal to appear or participate, a default judgment was rendered by the arbitrator against them on November 14, 1984. As further efforts to resolve the dispute were unsuccessful, appellants on March 25, 1985 filed a complaint in the United States District Court for the Western District of New York (Telesca, J.) and sought a preliminary injunction. Plaintiffs' complaint broadly alleges claims for relief under the Trademark Act of 1946 (the Lanham Act), 15 U.S.C. Secs. 1051-1127 (1982), specifically Secs. 1114(1) and 1125(a), and pendent actions under New York laws relating to trade and service marks, trade names, dilution, unfair practices and breach of contract. The application for a preliminary injunction, limited to the Lanham Act claims, seeks to enjoin defendants from continuing to use appellants' marks pending the trial of the action.

The district court denied the motion on August 1, 1985. The court noted that a preliminary injunction may be granted only if the plaintiff makes a showing of irreparable harm. It concluded that the presumption of irreparable harm which arises from a demonstration by a trademark plaintiff of a likelihood of confusion is rebuttable. The district judge then found plaintiffs had not sufficiently shown that defendants' use of the trademarks would in any way damage the business or reputation of the Church of Scientology. The district court further found inconsistencies in our traditional rule that a trademark plaintiff almost inevitably satisfies the required irreparable harm prong upon showing that the use of his mark or name by someone else in connection with the sale or offer of goods and/or services nearly identical to those of the trademark-owner is likely to cause consumer confusion. The district court denied the preliminary injunction having found irreparable harm absent. It did not therefore reach or consider the likelihood of success prong. This expedited appeal followed.

II

A. Irreparable Harm

1. Traditional Rules

An appellate court may reverse the grant or denial of a preliminary injunction only when the district court has abused its discretion, by misinterpreting the law, by committing a clear error of fact, or by erroneously fashioning the substance or form of the injunction. Coca-Cola v. Tropicana Products, Inc., 690 F.2d 312, 315-16 (2d Cir.1982). A preliminary injunction should be granted where the moving party demonstrates (1) irreparable harm and (2) either (a) a probability of success on the merits or (b) sufficiently serious questions going to the merits to make them fair grounds for litigation and a balance of hardships tipping decidedly in the moving party's favor. Id. at 314-15; Power Test Petroleum Distributors v. Calcu Gas, 754 F.2d 91, 95 (2d Cir.1985).

For many years we have consistently held that a preliminary injunction should usually issue when the use of a mark creates a likelihood of confusion in the consumers' minds as to the ownership or sponsorship of a product. Our cases clearly say that establishing a high probability of confusion as to sponsorship almost inevitably establishes irreparable harm. Proof of such confusion also serves as additional evidence with respect to the separate finding that must be made of plaintiff's likelihood of success on the merits. Standard & Poor's Corp. Inc. v. Commodity Exchange Inc., 683 F.2d 704, 708 (2d Cir. 1982); see, e.g., Matter of Vuitton et Fils S.A., 606 F.2d 1, 4 (2d Cir.1979) (per curiam); Omega Importing Corp. v. Petri-Kine Camera Company, 451 F.2d 1190, 1195 (2d Cir.1971). These rules govern in the ordinary case. The implication of the phrase that irreparable harm "almost inevitably" follows from likelihood of confusion leaves the door slightly ajar perhaps for those few cases in other trademark contexts where irreparable harm does not follow. The district court may have thought that this was one of those rare cases. But in a licensor/licensee case the reasons for issuing a preliminary injunction for trademark infringement are more compelling than in the ordinary case. When in the licensing context unlawful use and consumer confusion have been demonstrated, a finding of irreparable harm is automatic.

Appellants licensed their marks to defendants and then, according to the undisputed facts in the record, terminated defendants' authority to use them under the terms of a written contract between the parties. As holders of numerous federally registered trademarks and service marks, appellants are entitled to a strong presumption of their marks' validity and of ownership. See American Home Products v. Johnson Chemical Co., 589 F.2d 103, 107 (2d Cir.1978). Moreover, when defendants obtained a license to use the marks--first in the mid-1970s from L. Ron Hubbard and later in 1982 from RTC--they acknowledged the marks' validity and appellants' superior rights to them.

Such acknowledgment strongly reinforces appellants' claim that infringement would be caused if defendants, as former licensees, continued their use of the marks after their authorization to do so had been terminated. Burger King Corp. v. Mason, 710 F.2d 1480, 1492-93 (11th Cir.1983), cert. denied, 465 U.S. 1102, 104 S.Ct. 1599, 80 L.Ed.2d 130 (1984). The record reveals that defendants continue their unlawful use of the identical marks registered to appellants. Appellants clearly were and continue to be interested in the use of their marks in Elmira, since it was the Scientology Church itself which first licensed defendants as an authorized Scientology Mission, thereby evincing an interest in the Elmira market. In light of these undisputed facts, the district court found that consumer confusion would be caused by defendants' use of appellants' marks. Although the district court implied that appellants would probably succeed on the merits, it made no explicit finding on this point.

2. Rule Applied By The District Court

In finding that no irreparable harm would be caused to appellants if the injunction were denied, the district court read our cases as creating an inconsistent pattern. This conclusion was bottomed on its interpretation of two recent decisions, Citibank, N.A. v. Citytrust, 756 F.2d...