Educational Subscription Service, Inc. v. American Educational Services, Inc.

• Decision Date: 11 June 1982
• Docket Number: Docket No. 54529
• Citation: 320 N.W.2d 684,115 Mich.App. 413
• Parties: , 219 U.S.P.Q. 557 EDUCATIONAL SUBSCRIPTION SERVICE, INC., Plaintiff-Appellant Cross-Appellee, v. AMERICAN EDUCATIONAL SERVICES, INC., and Irving Lesher, III, Defendants- Appellees Cross-Appellants.
• Court: Court of Appeal of Michigan — District of US

Page 684

320 N.W.2d 684

115 Mich.App. 413, 219 U.S.P.Q. 557

EDUCATIONAL SUBSCRIPTION SERVICE, INC., Plaintiff-Appellant Cross-Appellee, v. AMERICAN EDUCATIONAL SERVICES, INC., and Irving Lesher, III,

Defendants- Appellees Cross-Appellants.

Docket No. 54529.

Court of Appeals of Michigan.

Submitted March 4, 1982.

Decided April 21, 1982.

Released for Publication June 11, 1982.

Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, for plaintiff-appellant cross appellee.

Fraser, Trebilcock, Davis & Foster, P. C., Lansing, for defendants-appellees cross appellants.

Before CAVANAGH, P. J., and ALLEN and PENZIEN, ^* JJ.

ALLEN, Judge.

This unfair competition suit filed under the common law and the Michigan corporate name statute, M.C.L. Sec. 450.1212; M.S.A. Sec. 21.200(212), involves two competing corporations each engaged in the solicitation of subscriptions to magazines and each with its home office in Lansing. Hereinafter, "defendant" shall refer to the corporate defendant only. On October 7, 1980, the trial court issued a comprehensive written opinion holding (1) that defendant's corporate name did not violate the Michigan corporate name statute, (2) that except for the corporate symbol "AES", defendant's name, marketing techniques, and other identifying features did not constitute unfair competition under the common law, and (3) that the corporate symbol "AES" was confusingly similar to plaintiff's symbol "ESS". The trial court enjoined defendant's use of the symbol "AES", but did not award damages. From a judgment entered pursuant to said opinion, plaintiff appeals the trial court's holdings (1) and (2). Defendants cross-appeal the trial court's holding (3).

Plaintiff, Educational Subscription Services (ESS) started business in Lansing in 1962 and was incorporated in 1967. From 1968 until January, 1974, defendant Irving Lesher was its executive officer. In January, 1974, Lesher resigned his position with ESS and incorporated his own competing concern, American. The Michigan Department of Commerce (Corporations and Securities Bureau) determined that the names "American Educational Services" and "Education Subscription Service" were not "confusingly similar" within the meaning of M.C.L. Sec. 450.1212; M.S.A. Sec. 21.200(212). This determination was made by applying the following administrative standard: "Whether the two names would be deceptive or misleading in the minds of ordinary persons with ordinary intelligence."

ESS and American operate in the same educational market: each company seeks magazine subscriptions from students and educators at all grade levels through college, on a nationwide basis. They offer the same mix of magazines at similar prices. Both companies use the "packet mailing" technique for promoting magazine subscriptions. This technique requires the companies to mail thousands of order cards to "key persons" (administrators, faculty, etc.) at all types of educational institutions. The key persons are requested to distribute the cards to students (typically by posting the cards on bulletin boards). The cards themselves contain (1) multicolored horizontally arranged pictures of the magazines available for subscription and (2) a space for the prospective subscriber to indicate his name, address, choice of subscription and method of payment. The reverse side of each card is a business reply postcard bearing the name and address and zip code of the subscription agency. American used the packet mailing technique from the very outset of its operations in 1974; the format of its cards was similar to that of ESS and other subscription agencies.

The packet mailing technique was pioneered by ESS during the 1960's. ESS's president, Shri Kumar Poddar, publicized the details of the packet mailing technique in a New York Times article in August, 1971. By 1973, the technique was used by several additional magazine subscription services, including Campus Subscriptions (Campus) and Student Subscriptions Services (Student). Between 1973 and 1978, the following additional companies used the "packet mailing" technique: University Subscription Services (University), American Collegiate Marketing (Collegiate), Washington Educational Service (Washington), University Supplies of America (Supplies), National School Subscription Center (National), and Synergistic Marketing Corporation (Synergistic), as well as defendant herein, American. Since 1977, National and Collegiate have been subsidiaries of American.

The magazine subscription agencies using the packet mail technique received mail which evidenced considerable confusion:

(1) Synergistic received mail from customers and publishers intended for ESS, American and other competitors. Such misdeliveries amounted to 500 to 750 items per year.

(2) National received many pieces of mail intended for competitors, including mail intended for ESS and American. The instances of customer confusion were similar to those reported by ESS.

(3) Collegiate also received mail intended for competitors; the nature of misdirections and confusion were similar to that reported by ESS, American and Synergistic.

(4) From early 1975 to July 1978, American received about 1,300 misdeliveries of mail intended for noncompeting businesses. American also received 276 pieces of mail addressed to competitors, 115 (42%) of which were intended for ESS.

(5) From early 1974 to mid-1977, ESS received (a) 272 pieces of mail evidencing customer confusion between ESS and American; and (b) 132 additional pieces of mail clearly addressed to and intended for American but misdirected by postal employees to ESS. Of the 272 pieces of mail evidencing customer confusion between ESS and American, 185 of these involved the inclusion of literature from one of the companies in an envelope preaddressed to the other.

ESS also received letters intended for competitors other than American. ESS did not provide the court with any data on the number of letters intended for such other competitors.

ESS made a substantial investment in its corporate symbol "ESS" in an attempt to get the public to identify that symbol with its corporate name, Educational Subscription Services. Each of its packet mail order cards bore the following inscription: ¹

ESS

Educational Subscription Service

South Point Plaza

Lansing, Michigan, 48910

During the first part of 1974, American used the following inscription on its order forms and cards:

AES

American Educational Services

409 Lentz Court

Lansing, Michigan, 48917

American voluntarily discontinued the use of the symbol "AES" in mid-1974. Since then, its order cards have contained the following modified inscription:

American

American Educational Services

409 Lentz Court

Lansing, Michigan, 48917

When defendant Lesher was at ESS, he signed solicitation form letters (mailed to key persons) with the phrase "executive director" appearing after his name and the word "cordially" before his signature. Form letters which he wrote on behalf of American, starting in 1974, also bore these features. American's letters also combined the following additional features similar to those of ESS: (1) an underlined introductory sentence before the salutation; (2) a closing sentence stating that students will appreciate the recipient's thoughtfulness in distributing the order cards; (3) frequent use of block indented paragraphs; and (4) postscript messages after the signature. However, the style of American's letters was not a carbon copy of ESS's letters. There were significant dissimilarities. ESS used white paper; American used brown or tan paper most of the time. On more than two-thirds of its sample letters, ESS printed in bold face the motto "so that more may learn". American did not use any similar motto. Instead, eight of its series of 16 letters bore the phrase "American Scholarship Program" in heavy type. Furthermore, all but one of American's series of letters bore the phrase "double the difference cash refund" if a subscriber could find a competing agency offering a subscription at a lower price. This latter phrase was unique to American's literature and was consistently emphasized by use of capital letters or exclamation marks.

ESS's gross sales reached a peak of about $1 million (annual figure) in 1974, declining to about $720,000 in 1977. During the same period, the number of orders received by ESS was cut in half. ESS's response rate (orders received divided by number of cards mailed) declined 72% between 1970 and 1977; about half of this decline took place before 1974, when American started to compete with ESS.

On December 16, 1974, ESS brought an action against American in Ingham County Circuit Court. ESS's complaint consisted of three counts: (1) Count I, alleging that American used a corporate name and symbol confusingly similar to that of ESS, contrary to M.C.L. Sec. 450.1212; M.S.A. Sec. 21.200(212); (2) Count II, alleging unfair competition (that American deliberately confused customers in an attempt to pass itself off as ESS); and (3) Count III, alleging that defendant Lesher stole confidential customer lists and other "trade secrets" from ESS when he left to form his own company.

On February 20, 1975, the trial court entered a preliminary injunction restraining American from using the corporate symbol "AES" in its advertising or on its order cards pending final resolution of the case. The case went to trial without a jury. During the trial, the court dismissed Count III, (relating to the alleged theft of customer lists and trade secrets). ESS has not appealed the trial court's dismissal of Count III. October 7, 1980, the court issued its opinion, finding that (1) American's corporate name was not confusingly similar to that of ESS; and (2) American's use of forms and marketing techniques similar to those of ESS did not amount to unfair competition. However, the court did find that the corporate symbol "AES" was confusingly similar to "ESS" and...