Computer Care v. Service Systems Enterprises, Inc.

• Citation: 982 F.2d 1063
• Decision Date: 20 November 1992
• Docket Number: 91-2183,Nos. 91-1932,s. 91-1932
• Parties: , 25 U.S.P.Q.2d 1020 COMPUTER CARE, Plaintiff-Appellee/Cross-Appellant, v. SERVICE SYSTEMS ENTERPRISES, INC. and Larry Aronson, Defendants-Appellants/Cross-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1063

982 F.2d 1063

61 USLW 2376, 25 U.S.P.Q.2d 1020

COMPUTER CARE, Plaintiff-Appellee/Cross-Appellant, v. SERVICE SYSTEMS ENTERPRISES, INC. and Larry Aronson Defendants-Appellants/Cross-Appellees.

Nos. 91-1932, 91-2183.

United States Court of Appeals Seventh Circuit.

Argued Feb. 25, 1992.

Decided Nov. 20, 1992.

Jean Maclean Snyder (argued), Joshua W. Yaker, Ann H. Theodore, D'Ancona & Pflaum, Chicago, IL, for plaintiff-appellee.

Charles A. Valente, Steven R. Peltin (argued), Richard A. Sloan, Altheimer & Gray, Chicago, IL, for defendants-appellants.

Before CUDAHY, COFFEY and RIPPLE, Circuit Judges.

CUDAHY, Circuit Judge.

Computer Care and Service Systems Enterprises, Inc. are both engaged in the auto service "reminder letter" business. These businesses use a computer program to generate letters on behalf of auto dealerships and repair shops reminding car owners when their cars are in need of some service, such as an oil change or a tune up. Computer Care brought this suit against Service Systems alleging that Service Systems had violated section 43(a) of the Lanham Act ¹ by infringing the trade dress of Computer Care's reminder letters, sales brochure and monthly reports. The suit also charged Service Systems with making representations in its sales calls that were false as to Service Systems, although true as to Computer Care. In addition, Computer Care claimed that Service Systems had misappropriated certain trade secrets, in violation of state law. The district court granted Computer Care's motion for a preliminary injunction on the trade dress and trade secret claims. The court did not however, enjoin Service Systems from continuing to make the false representations alleged by Computer Care. Service Systems appeals from the district court's grant of preliminary relief, and Computer Care cross appeals from the court's decision not to grant relief on the false advertising claim. We affirm in part, reverse in part and remand for further proceedings.

I.

Computer Care was founded by Robert Kaufman, who still runs the company, in 1977. The company now has approximately 2,000 customers nationwide. Most of Computer Care's customers are car dealerships, although the company also services oil change shops and repair shops. Each month Computer Care sends computer-generated letters on behalf of these customers to car owners whose cars are due for service reminding them that work is due. Computer Care also provides its customers (the dealers) with computer-generated reports that show the dealer the amount of business the reminder letters are generating. Once a month the Computer Care representative delivers three basic reports to the dealer: a "Profit Builder Response Analysis," which shows the revenue generated by Computer Care's system; the "Work Due Schedule," which shows the dealer which customers received reminder letters and which services were indicated as being due; and the "Transaction Analysis," which tallies servicing done during the last month by type of service, showing the number of times each service was performed that month. Computer Care also uses a four-page brochure entitled "Win or Lose!" to sell its business to potential customers.

Computer Care entered the Chicago market in June of 1989, when it hired Timothy Riordan and Patrick O'Rourke to act as sales representatives in the area. Riordan, a personal friend of Kaufman, had worked for Computer Care off and on for approximately ten years in other areas of the country. O'Rourke was a friend of Riordan with whom Kaufman was unfamiliar. At the time Riordan became a Chicago sales representative for Computer Care, he was also working for Larry Aronson and William Feldgreber, who later became the president and vice president of Service Systems, selling advertising space in a magazine they published.

At some point, Riordan told Aronson about Computer Care's business. Aronson became interested in starting a similar business. Riordan provided Aronson and Feldgreber with copies of Computer Care's sample reminder letter, its sales brochures, its computer-generated monthly reports, its sales presentation book and other materials that Computer Care sales representatives make available to customers. Riordan also played an audiotape of a Computer Care sales presentation for Aronson, and delivered a presentation to Aronson and Feldgreber. Finally, Riordan supplied Aronson and Feldgreber with a list of customers whom he and O'Rourke had contacted on behalf of Computer Care, to ensure that Service Systems would not call on them.

On December 8, 1989, Riordan and O'Rourke signed up Service Systems' first customers. (Although Riordan and O'Rourke were invited to join the new business, they ultimately declined to do so, and ceased working for Service Systems.) By May of 1990, Service Systems was using a four-page sales brochure called "Maintain or Fail." In June of 1990, Service Systems sent out its first reminder letters to car owners. Shortly thereafter, Service Systems sent its first monthly reports to its customers. Like Computer Care, Service Systems used three reports: a "Service System Monthly Report," which shows the revenue generated by Service System's service; a "Service Schedule," which lists the customers who were sent reminder letters and what services those customers are due; and a "Repair Order Analysis," which shows the services that were done during the previous month and how many times each was performed.

In October of 1990, Computer Care filed this lawsuit against Service Systems. Computer Care alleges that Service Systems has violated section 43(a) of the Lanham Act by (1) infringing Computer Care's trade dress in its sales brochure, reminder letters and monthly reports; and (2) making advertising claims that are false as to Service Systems but true as to Computer Care, thereby "deceiv[ing] customers into believing that their service is Computer Care and not Service Systems." Plaintiff's Post-trial Brief at 8 (Dec. 24, 1990). Computer Care also claims that Service Systems misappropriated certain trade secrets belonging to Computer Care. Computer Care sought broad injunctive relief against Service Systems and the other defendants.

After an evidentiary hearing at which Service Systems presented no live testimony, the district court found that Computer Care had demonstrated a "substantial probability" of prevailing on the merits of its trade dress infringement and trade secret misappropriation claims. Computer Care v. Service Sys. Enter., Inc., 761 F.Supp. 1333, 1336 (N.D.Ill.1991). The court also found that Computer Care had established the other criteria necessary for issuance of a preliminary injunction. ² The court therefore enjoined Service Systems, Aronson and their agents and employees from (1) "continuing to operate Service Systems' business by utilizing" five elements ³ of Computer Care's system that the court found to be Computer Care trade secrets; and (2) "using, in any manner whatsoever," the "Maintain or Fail" brochure, any reminder letter with certain features found in Computer Care's reminder letters and its three monthly reports. Id. at 1338.

With respect to the false advertising claim, the court rejected Computer Care's contention that Service Systems' false statements "deceive customers" in the manner alleged by Computer Care. The court concluded, however, that "whether or not" such activity is actionable under the Lanham Act, it is "unfair competition that ... violates Illinois law." Id. at 1334. Nevertheless, the court failed to grant an injunction prohibiting Service Systems from continuing to make false advertising claims.

We review a district court's decision granting or denying a preliminary injunction under the deferential "abuse of discretion" standard. Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 12 (7th Cir.1992); see also Lawson Products, Inc. v. Avnet, Inc., 782 F.2d 1429, 1437 (7th Cir.1986). A district court "abuses its discretion when it commits a clear error of fact or an error of law." Abbott Labs., 971 F.2d at 13. Thus, factual findings are reviewed under the clearly erroneous standard and conclusions of law are reviewed de novo. Schwinn Bicycle Co. v. Ross Bicycles, Inc., 870 F.2d 1176, 1181 (7th Cir.1989); Lawson Products, 782 F.2d at 1437.

II.

" 'Trade dress' refers to the total image of a product, including features such as 'size, shape, color or color combinations, texture, graphics, or even particular sales techniques.' " Roulo v. Russ Berrie & Co., 886 F.2d 931, 935 (7th Cir.1989) (quoting John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 980 (11th Cir.1983)); see also Abbott Labs., 971 F.2d at 20; Vaughan Mfg. Co. v. Brikam Int'l, Inc., 814 F.2d 346, 348 n. 2 (7th Cir.1987). In order to prove trade dress infringement, the plaintiff must establish that: (1) its trade dress is "inherently distinctive" or has acquired "secondary meaning"; (2) the similarity of the defendant's trade dress to that of the plaintiff creates a "likelihood of confusion" on the part of consumers; and (3) the plaintiff's trade dress is "non-functional"; Roulo, 886 F.2d at 935; see also Abbott Labs., 971 F.2d at 20; Schwinn Bicycle, 870 F.2d at 1182-83. The third element, that of "functionality," is actually an affirmative defense on which the defendant bears the burden of proof. Abbott Labs., 971 F.2d at 20; W.T. Rogers Co. v. Keene, 778 F.2d 334, 338 (7th Cir.1985).

Service Systems argues that Computer Care failed to establish a likelihood of success on the merits of its trade dress claim because (1) Computer Care's reminder letter, brochure and monthly reports are not inherently distinctive and (2) Service Systems' versions of those documents do not pose a likelihood of confusion on the part of consumers. Service Systems also contends that Computer Care's monthly reports are not entitled to trade dress protection because they are functional.

A. Distinctiveness

Computer Care's "Win or...