Japan Telecom, Inc. v. Japan Telecom America Inc.

• Decision Date: 24 April 2002
• Docket Number: No. 00-56012.,00-56012.
• Citation: 287 F.3d 866
• Parties: JAPAN TELECOM, INC., a California corporation, Plaintiff-Appellant, v. JAPAN TELECOM AMERICA INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

287 F.3d 866

JAPAN TELECOM, INC., a California corporation, Plaintiff-Appellant, v. JAPAN TELECOM AMERICA INC., Defendant-Appellee.

No. 00-56012.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 8, 2001.

Filed April 24, 2002.

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Paul D. Gruen of the Law Offices of Jose Mariano Castillo, Los Angeles, CA argued for appellant Japan Telecom, Inc. Jose Mariano Castillo of the same firm and Ben K. Takahashi of Takahashi Law Corporation, Los Angeles, CA, assisted on the brief.

Victor H. Polk, Jr. of Bingham Dana LLP, Boston, MA, argued for appellee Japan Telecom America, Inc. Rheba Rutkowski, of the same firm, assisted on the brief.

Appeal from the United States District Court for the Central District of California, Gary A. Feess, District Judge, Presiding. D.C. No. CV-99-04870-GAF.

Before: HALL, KOZINSKI and W. FLETCHER, Circuit Judges.

OPINION

KOZINSKI, Circuit Judge.

Japan Telecom, Inc. ("Japan Telecom") sells and installs telephone and computer networking equipment in the Los Angeles area. Japan Telecom is a California corporation, and a subsidiary of Hasegawa Company, Ltd., a small Japanese corporation. After Japan Telecom had been in business for fourteen years, a new kid on the block showed up: Japan Telecom America, Inc. ("Japan Telecom America"). Japan Telecom America is the United States subsidiary of Japan Telecom Company, Ltd., the third-largest telecommunications company in Japan. While Japan Telecom's business mostly involves the installation of telephone and computer networks, Japan Telecom America sells telecommunications transmission services, including both long-distance telephone and data.

Japan Telecom sued Japan Telecom America in federal court, alleging that Japan Telecom America's use of the "Japan Telecom" name constituted trademark infringement and unfair competition. Later, Japan Telecom sued Japan Telecom America in California state court for unfair competition and trade name infringement on the same theory. Japan Telecom America removed the state suit to federal court, and the district court consolidated the two actions. Japan Telecom's consolidated complaint alleges trade name infringement and unfair competition under the Lanham Act, unfair competition under California law, and "trade name violation under state law."

The district court granted Japan Telecom America's motion for summary judgment on all claims, holding that Japan Telecom had unclean hands. Japan Telecom appeals.

Unclean Hands

"Unclean hands is a defense to a Lanham Act infringement suit." Fuddruckers, Inc. v. Doc's B.R. Others, Inc., 826 F.2d 837, 847 (9th Cir.1987). Trademark law's unclean hands defense springs from the rationale that "it is essential that the plaintiff should not in his trade mark, or in his advertisements and business, be himself guilty of any false or misleading representation." Worden v. Cal. Fig Syrup Co., 187 U.S. 516, 528, 23 S.Ct. 161, 47 L.Ed. 282 (1903). To make out an unclean hands defense, a trademark defendant "must demonstrate that the plaintiff's conduct is inequitable and that the conduct relates to the subject matter of its claims." Fuddruckers, 826 F.2d at 847.

To show that a trademark plaintiff's conduct is inequitable, defendant must show that plaintiff used the trademark to deceive consumers, see Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165, 173 (9th Cir.1989) ("Bad intent is the essence of the defense of unclean hands.") (citing Wells Fargo & Co. v. Stagecoach Props., Inc., 685 F.2d 302, 308 (9th Cir.1982)); Republic Molding Corp. v B.W. Photo Utils., 319 F.2d 347, 350 (9th Cir.1963).

The district court held that Japan Telecom had unclean hands solely because "the name by which plaintiff calls itself is deceptive." Reasoning that the trade name "Japan Telecom, Inc." suggests a company of Japanese origin, the district court held that Japan Telecom's trade name is "primarily geographically deceptively misdescriptive." Further, because "Japan is noted for its electronics and telecommunications products," Japan Telecom's name "undoubtedly leads consumers to think of the country." The district found that this "deception is especially acute" because "plaintiff specifically targets the Japanese American community." Members of that community, the district court reasoned, are particularly susceptible to false claims of Japanese origin because they "may be interested in the country of origin" more than the rest of the purchasing public. The district court did not find that any consumers had actually been deceived.

The district court erred in finding that Japan Telecom's trade name is primarily geographically deceptively mis-descriptive. "Whether a mark is primarily geographically deceptively misdescriptive is a question of fact." In re Save Venice New York, Inc., 259 F.3d 1346, 1351 (Fed. Cir.2001). It may only be resolved on summary judgment if the evidence presented by both sides would permit the trier of fact to come to only one conclusion.

A mark is primarily geographically deceptively misdescriptive if "(1) the mark's primary significance is a generally known geographic location; and (2) consumers would reasonably believe the [marked] goods are connected with the geographic location in the mark, when in fact they are not." In re Save Venice New York, Inc., 259 F.3d at 1352.

The parties dispute whether the name "Japan Telecom, Inc." refers to a geographic location. While it is tempting to conclude that "Japan" means "Japan, the country," we cannot examine a trademark or trade name's individual words in isolation. See Filipino Yellow Pages, Inc. v. Asian Journal Publ'ns, Inc., 198 F.3d 1143, 1147-51 (9th Cir.1999). Using the name of a country in a trade name does not automatically make the trade name geographically descriptive; instead, we must look to whether consumers would reasonably believe that the term is being used geographically. See In re Save Venice New York, Inc., 259 F.3d at 1352.

The district court erred by ignoring Japan Telecom's evidence that consumers might understand the word "Japan" in its name as referring to a specific ethnic community, rather than the country. Japan Telecom argues that customers seeing its advertising are familiar with a convention of using the word "Japan" in a business' name to indicate that the business caters to Japanese-speaking customers. Japan Telecom offered an affidavit from Chieko Mori, the president of a company that publishes a telephone directory of businesses catering to the "local Japanese community in California." Mori stated that over eighty companies with the word "Japan" in their name — including "Japan Pilot Club," "Japan Landscaping, Inc.," and "Japan Printing Service" — advertise in Mori's directory, but only a few of those are affiliated with companies in Japan.

Japan Telecom America offered evidence that there is a pattern in the telecommunications industry of using the word "Telecom" after a country's name to signify geographic origin — such as "Deutsche Telecom," "China Telecom," and "British Telecom." Without any evidence of widespread knowledge of this pattern of naming countries, this does not establish that consumers would reasonably believe that Japan Telecom was connected with Japan. At best, it only raises an inference that Japan Telecom's trademark may have confused customers. On summary judgment, the district court must draw all inferences in the non-movant's favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir.2001). Japan Telecom presented contrary evidence on this point, and therefore created a triable issue of fact.

Japan Telecom America did not meet its burden of showing that customers "would reasonably believe [Japan Telecom's services] are connected with" Japan for yet another reason. In re Save Venice New York, Inc., 259 F.3d at 1352. Japan Telecom's business is primarily service-related: It installs and maintains telephone and computer networking equipment. Japan Telecom also acts as a sales agent for MCI, a well-known American long distance company. Incident to its services, Japan Telecom sells goods (like telephones and network routers), but there is no evidence that Japan Telecom marks those goods with "Japan Telecom." When services are performed on a customer's site, the customer is unlikely to associate the service with any geographic region other than where the services are performed. Because Japan Telecom can only perform its services in person and on customer premises, it is hard to see how a reasonable customer could conclude that the technician installing his new phone wiring just came off a jet from Tokyo, equipped with the very latest in Japanese wiring know-how.

The district court found that Japan Telecom's use of the word "Japan" played on a popular notion that Japan excels in telecommunications and electronics. But the court did not cite to any evidence that customers have such a favorable impression of Japan's telecommunications industry. Even if there were such evidence, it would hardly follow that the use of the name "Japan Telecom" misled consumers into inferring that Japan Telecom was affiliated with Japan. Our examination of the record reveals at best a disputed issue of fact on this question. We also find no evidence that the consumers Japan Telecom targets would be more likely to hold these views.

Trademark Infringement

To prevail on its infringement claim, Japan Telecom must have a protectable trade name. Trademark law groups terms into four categories: "(1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary or fanciful." Filipino Yellow Pages, 198 F.3d at 1146 (internal quotation marks omitted). Generic terms do not "relate exclusively to the trademark owner's product" because they are common words or phrases that "describe a class of goods rather than an individual product." New Kids on the Block v. New Am. Publ'g, Inc., 971...