Hartford House Ltd. v. Hallmark Cards Inc.

• Decision Date: 20 November 1986
• Docket Number: Civ. A. No. 86-C-1458.
• Citation: 647 F. Supp. 1533
• Parties: HARTFORD HOUSE LTD., et al., Plaintiffs, v. HALLMARK CARDS INCORPORATED, et al., Defendants.
• Court: U.S. District Court — District of Colorado

647 F. Supp. 1533

HARTFORD HOUSE LTD., et al., Plaintiffs, v. HALLMARK CARDS INCORPORATED, et al., Defendants.

Civ. A. No. 86-C-1458.

United States District Court, D. Colorado.

November 20, 1986.

Harry G. Helkonian, Ronald Redcay, Los Angeles, Cal., Steven Briggs, Hutchinson, Black Hill & Cook, Boulder, Colo., for plaintiffs.

Andrea I. Williams, Andrew M. Low, Raymond P. Moore, Denver, Colo., for defendants.

ORDER

CARRIGAN, District Judge.

This is an action for alleged trade dress infringement commenced by the plaintiffs Susan Polis Schutz, Stephen Schutz, and Hartford House Ltd. doing business as Blue Mountain Arts ("Blue Mountain"), against the defendants Hallmark Cards Incorporated and Hallmark Marketing Corporation (hereafter collectively referred to as "Hallmark"). Plaintiffs allege that Hallmark designed and distributed for sale a line of greeting cards that are deceptively and confusingly similar to greeting cards manufactured and sold by the plaintiffs. Plaintiffs assert that the defendants have violated the Lanham Act Section 43(a), 15 U.S.C. § 1125(a), and are guilty of unfair competition and copyright infringement.

On October 24, 1986, an all day hearing was held on the plaintiffs' Motion for a Preliminary Injunction seeking to enjoin the defendants from marketing their Hallmark "Personal Touch" greeting card line on the ground that it consists of unauthorized copies of the plaintiffs' "Airebrush Feelings" and "Watercolor Feelings" lines of cards.

After studying the parties' voluminous briefs, I heard over six hours of testimony and argument on whether the plaintiffs are entitled to an injunction under the Lanham Act or Colorado unfair competition law, or both, to halt Hallmark's manufacturing and marketing of the allegedly infringing cards. In their preliminary injunction motion, the plaintiffs did not rely on their claims of copyright infringement and this order does not address those matters. This memorandum constitutes my preliminary findings of fact and conclusions of law as required by Rule 52(a), Fed.R.Civ.P. Obviously the findings and conclusions may be different after a trial on the merits.

Plaintiffs design, manufacture and sell greeting cards. Stephen Schutz and Susan Polis Schutz, the principals of Blue Mountain, began their business by selling posters from the back of a pickup truck while traveling across country. Susan composed poetry for the posters and Stephen created the background artwork.

In the mid-1970's, the Schutzes began producing greeting cards. Currently, their major card lines are "Airebrush Feelings" and "Watercolor Feelings." These lines have been on the market since 1981 and 1983, respectively. Blue Mountain has sold approximately 100 million cards and five million books of collected poetry.

Defendant Hallmark has produced greeting cards for more than seventy-five years. In June 1977, it began to manufacture and sell its Personal Touch line of greeting cards. Personal Touch cards on the market prior to April 1, 1986 are referred to as "first generation" Personal Touch.¹

Blue Mountain has been an enormously successful leader in the phase of the greeting card industry aimed at expressing very personal, strong emotions, and it has been said that Susan Polis Schutz is the "reigning star"² in this aspect of the greeting card business. Plaintiffs' commercial success did not go unnoticed by Hallmark, especially after Hallmark's first generation Personal Touch line failed to perform up to expectations in competition with Blue Mountain's cards.

According to an internal Hallmark document entitled "Personal Touch Creative Plan Outline," Blue Mountain was viewed by Hallmark as a serious competitive threat:

"Personal Touch was created with the intent of `displacing Blue Mountain.' A growing number of competitive cards have been filtering their way into Hallmark channels. Blue Mountain Art is frequently cited as one of the strongest competitive threats in terms of channel penetration."

Conversely, the Hallmark first generation Personal Touch cards posed little threat to Blue Mountain according to another Hallmark memorandum entitled "Executive Summary — Personal Touch vs. Blue Mountain Art Retail Test":

"Blue Mountain Art cards have a higher performance level than Personal Touch possibly due to:

— a greater awareness of the BMA design styling and brand name recognition."

In early 1986, Hallmark mounted an intense effort to capture the emotionally expressive non-occasion greeting card market. It conducted extensive research of the respective retail performance levels and strengths of the Personal Touch and Blue Mountain card lines. At one point, Hallmark even convened a panel of card dealers to suggest ways of improving its market position. A Hallmark internal memorandum summarizing the panel's recommendations concluded:

"The retailers think that Hallmark missed the mark on their attempt at alternative greeting cards. They think some of the offerings are good, but they will not displace Blue Mountain.... Hallmark should copy the alternative greeting cards offered by competitors.... Hallmark can either steal ideas from the other alternative greeting card companies or be innovative."

Hallmark did not choose the latter; it chose to imitate instead of innovate.

On April 1, 1986, Hallmark introduced as replacements for much of its Personal Touch line a series of cards now commonly referred to as the "second generation" Personal Touch cards. Plaintiffs claim that these "second generation" cards infringe on their trade dress protected under the Lanham Act.

A. The Lanham Act.

Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), provides in relevant part as follows:

"Any person who shall affix, apply, or annex, or use in connection with any goods or services or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce... shall be liable to a civil action ... by any person who believes that he is or is likely to be damaged by use of any such false description or representation."

Section 43(a) creates a federal cause of action for trade dress infringement. John F. Harland Co. v. Clarke Checks Inc., 711 F.2d 966, 980 (11th Cir.1983). Product design may constitute protectable trade dress under § 43(a):

"Courts have long recognized that recovery under § 43(a) is not restricted to federally registered trademarks, but extends to "words, symbols, collections of colors and designs, or advertising materials or techniques" that the purchasing public has come to associate with a single source. RJR Foods, Inc. v. White Rock Corp., 603 F.2d 1058, 1059 (2d Cir.1979). See also Perfect Fit Industries, Inc. v. Acme Quilting Co., 618 F.2d 950 (2d Cir.1980); J.T. McCarthy, Trademarks and Unfair Competition § 15.3 (1973)." Harlequin Enterprises Ltd. v. Gulf & Western Corp., 503 F.Supp. 647, 649 (S.D.N.Y.1980).

To prevail on a trade dress infringement claim under § 43(a), a plaintiff must prove three basic elements:

1) That the features of the trade dress are primarily non-functional;

2) That the trade dress has secondary meaning; and,

3) That the competing products' respective trade dresses are confusingly similar, thus giving rise to a likelihood of confusion among consumers as to their sources. Black & Decker Mfg. Co. v. Ever-Ready Appliance Mfg. Co., 518 F.Supp. 607, 616 (E.D.Mo.1981).

1. Functionality.

A functional feature is one that "is essential to the use or purpose of the article or that affects the cost or quality of the article." Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 850-51 n. 10, 102 S.Ct. 2182, 2187 n. 10, 72 L.Ed.2d 606 (1982), citing Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964); Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 59 S.Ct. 109, 83 L.Ed. 73 (1938). An essential or utilitarian product feature must remain in the public domain to foster the policies of competition and product improvement. If the feature is non-essential, however, and serves to identify the source of the goods, it is protectable trade dress. United States Golf Association v. St. Andrews Systems, Data-Max, Inc., 749 F.2d 1028 (3d Cir.1984).

This comparative analysis of utilitarianism versus source identification requires a balancing of sometimes conflicting social interests. Functional features are not legally protected methods of identification, regardless of their association with the manufacturer, because their usefulness in identifying the product's source is outweighed by the public's interest in product refinement and development. That public interest in product improvement is served by granting competitors free access to a product's functional features. Id.

The only product features which should be classified as functional, therefore, are those utilitarian aspects which are essential to the product's use. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 850-51 n. 10, 102 S.Ct. 2182, 2187 n. 10, 72 L.Ed.2d 606 (1982). Competitive necessities that embody superior designs for the product's use are functional, particularly if only a limited number of superior designs are available. In re Morton-Norwich Products, Inc., 671 F.2d 1332 (Cust. & Pat.App.1982).

An exception to the right to copy exists, however, when it is demonstrated that alternative designs are available, the product can serve its purpose without incorporating the feature in question, and the feature or features are established symbols of source identification. Id. at 1337-38. Competition must occasionally defer to the policy protecting non-essential design originality.

No mechanical test exists to assess a feature's functionality. Instead, I must balance the divergent social interests of competition and source identification by...