Metro Traffic Control, Inc. v. Shadow Network Inc., 96-1153

• Decision Date: 07 January 1997
• Docket Number: No. 96-1153,96-1153
• Citation: 104 F.3d 336,41 USPQ2d 1369
• Parties: METRO TRAFFIC CONTROL, INC., Appellant, v. SHADOW NETWORK INC., and Citi Traffic Corp., Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

Page 336

104 F.3d 336

41 U.S.P.Q.2d 1369

METRO TRAFFIC CONTROL, INC., Appellant, v. SHADOW NETWORK INC., and Citi Traffic Corp., Appellees.

No. 96-1153.

United States Court of Appeals Federal Circuit.

Jan. 7, 1997.

Rehearing Denied Feb. 5, 1997.

Roberta Jacobs-Meadway, Panitch Schwarze Jacobs & Nadel, P.C., Philadelphia, PA, argued for appellant. With her on the brief was Karol A. Kepchar.

Arthur Makadon, Ballard Spahr Andrews & Ingersoll, Philadelphia, PA, argued for appellees. With him on the brief were Jamie B. Bischoff, and Robert R. Baron, Jr. Of counsel was Diane Elizabeth Brehm.

Before PLAGER, RADER, and BRYSON, Circuit Judges.

RADER, Circuit Judge.

Metro Traffic Control, Inc. (Metro Traffic) appeals the August 25, 1996, decision of the Trademark Trial and Appeal Board (the Board) denying Metro Traffic's petition to cancel Citi Traffic Corporation's (Citi Traffic) service mark Registration No. 1,363,743 for "SHADOW TRAFFIC." Metro Traffic seeks cancellation due to Metro Traffic's alleged prior use of the registered mark and Citi Traffic's alleged fraud in the procurement of its registration. Because the Board based its decision on a clearly erroneous factual finding, this court vacates and remands.

BACKGROUND

The factual background in this case is as congested as the streets of New York or Philadelphia during rush hour. This court, therefore, profits from the Board's guidance in navigating through the factual snarls and tangles.

The story begins in Philadelphia in 1976, when Michael Lenet founded a radio and television traffic reporting business. Mr. Lenet incorporated his traffic reporting business as Shadow Network, Inc., a Pennsylvania corporation (SNI-PA). SNI-PA used the "SHADOW TRAFFIC" mark to identify its traffic reporting services throughout the Philadelphia area.

In 1979, Mr. Lenet and Mark Goldman, the head of a New York media marketing company, embarked on a joint venture to establish a "SHADOW TRAFFIC" traffic reporting service in the New York area. The venture was incorporated in New Jersey as Shadow Network, Inc. (SNI-NJ). Although SNI-PA and SNI-NJ were separate corporate entities, the two companies cooperated on advertising and other aspects of their respective businesses. For example, the two companies shared employees, shared advertising accounts, and exchanged traffic information in overlapping geographic areas.

In January 1981, a rift arose between Mr. Lenet and Mr. Goldman and the two decided to separate. Mr. Lenet took control of SNI-PA and the "SHADOW TRAFFIC" operations in Philadelphia. Mr. Goldman took control of SNI-NJ and the "SHADOW TRAFFIC" operations in New York. Even after the split, however, SNI-PA and SNI-NJ continued to cooperate in soliciting advertising.

In October 1984, Rand Communications Corporation (Rand) purchased SNI-PA. Rand reorganized SNI-PA's traffic reporting business in Pennsylvania as Shadow Traffic Network, Inc. (STNI). STNI continued to use the "SHADOW TRAFFIC" mark to identify its services in Philadelphia as SNI-PA had done before it.

On January 14, 1985, SNI-NJ filed an application with the United States Patent and Trademark Office (PTO) for registration of the "SHADOW TRAFFIC" mark. In its application, SNI-NJ filed a declaration of one of its officers indicating that SNI-NJ was the owner of the "SHADOW TRAFFIC" mark. The declaration also stated that SNI-NJ had first used the mark on December 3, 1979, and that since that time it had been the "substantially exclusive" user of the mark. The application made no mention of SNI-PA's or STNI's use of the mark in Philadelphia dating back to 1976. On October 1, 1985, the PTO issued Registration No. 1,363,743 to SNI-NJ for "SHADOW TRAFFIC" for use in connection with "radio broadcasting of traffic and transit information."

In December 1986, several owners and directors of STNI formed Shadow Traffic Network, a New Jersey partnership (STNNJ), for the purpose of buying the assets and New York area traffic reporting business of SNI-NJ. STNNJ purchased all the assets of SNI-NJ, including Registration No. 1,363,743, on December 10, 1986.

STNNJ financed its acquisition of SNI-NJ, in part, through a bank loan from First Pennsylvania Bank. As security for the bank loan, the investors pledged certain collateral, including the assets of STNNJ. These assets comprised the tangible and intangible assets of the newly-acquired SNI-NJ, including the registered service mark "SHADOW TRAFFIC." Some of the investors in STNNJ also guaranteed their indebtedness by pledging their stock in STNI. Although a party to the transaction, STNI pledged none of its assets to secure the loan.

In 1990, STNNJ defaulted on its bank loan. In January 1990, First Pennsylvania Bank sold that part of the pledged collateral that had previously comprised SNI-NJ to Citi Traffic. The sale of SNI-NJ's assets to Citi Traffic included service mark Registration No. 1,363,743. The sale to Citi Traffic, however, did not include the pledged STNI stock. Instead, Mr. Allan Kalish purchased this stock in March 1990.

In September 1991, Metro Traffic purchased the Philadelphia assets and traffic reporting business of STNI. On its face, the purchase included all of STNI's common law service mark rights in the "SHADOW TRAFFIC" mark. Since that time, Metro Traffic has continued to use the "SHADOW TRAFFIC" mark to identify its services in Philadelphia, just as SNI-PA and STNI had done before it.

The present dispute arises from Metro Traffic's petition to cancel Citi Traffic's service mark Registration No. 1,363,743. That petition, originally filed by STNI on October 1, 1990, alleges that Metro Traffic had senior common law rights in the name "SHADOW TRAFFIC" arising from SNI-PA's first use of the name in Philadelphia in 1976. The petition also alleges that Citi Traffic's predecessor-in-interest fraudulently procured Registration No. 1,363,743 by intentionally concealing the fact that SNI-PA used the "SHADOW TRAFFIC" mark in Philadelphia as early as 1976.

The Board conducted a trial on the issues of priority of use, fraud in the procurement, and several defenses alleged by Citi Traffic, including laches, waiver, acquiescence, estoppel, licensee estoppel, unclean hands, in pari delicto, and bad faith. After trial, the Board concluded that Metro Traffic had established a prior and continuous use of the mark "SHADOW TRAFFIC" in the Philadelphia area, as well as likelihood of confusion with Citi Traffic's claimed use. Nonetheless, the Board determined that Metro Traffic still could not prevail on the priority issue because whatever common law rights it had established in "SHADOW TRAFFIC" were forfeited when the First Pennsylvania Bank foreclosed on the loan collateral. According to the Board:

Petitioner nonetheless cannot prevail here because it does not have priority.... [A]lthough petitioner may have continued to use the mark throughout the relevant period, whatever prior rights it had were relinquished following the 1990 default on the loan used for the purchase of SNI-NJ. As the security for that loan, the registration (and the registered mark) became the bank's property and was subsequently sold to respondent with petitioner's consent and waiver of any claim of defense it may have had in connection with the sale. Once petitioner ceased to own the registration, (and the registered mark), petitioner ceased having any claim to priority based on SNI-PA's first use in 1976, which was the basis for obtaining registration in the first place.

The Board then proceeded to address the fraud issue, concluding that Metro Traffic had not carried its burden of proof on that issue either. Weighing the testimony of witnesses before it, the Board concluded that any misstatements of fact made by SNI-NJ's declarant in the 1985 application were innocent and justifiable in light of the complex interrelationship between SNI-NJ and SNI-PA. The Board concluded that Metro Traffic had failed to prove by clear and convincing evidence that SNI-NJ had knowingly made false statements of fact with the intention of procuring a service mark registration. Metro Traffic filed this appeal.

DISCUSSION

Priority of Use

A person may petition to cancel a registered service mark on the basis of a prior use of the mark by someone other than the registrant. 15 U.S.C. §§ 1052(d), 1064 (1994); West Fla. Seafood, Inc. v. Jet Restaurants, Inc., 31 F.3d 1122, 1124-25, 31 USPQ2d 1660, 1662-63 (Fed.Cir.1994). The petitioner shows prior use with evidence that the registered mark "so resembles ... a mark or trade name previously used in the United States by another and not abandoned, as to be likely ... to cause confusion." 15 U.S.C. § 1052(d). A petitioner seeking cancellation on these grounds bears the burden of proving the alleged prior use by a preponderance of the evidence. West Fla. Seafood, 31 F.3d at 1125.

This court reviews factual findings underlying the Board's priority determination for clear error. Id. This court rejects a factual finding as clearly erroneous only when its review of the entire body of evidence leaves the firm conviction that a mistake has been made. Inwood Lab., Inc. v. Ives Lab., Inc., 456 U.S. 844, 855, 102 S.Ct. 2182, 2189, 72 L.Ed.2d 606 (1982); United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541-42, 92 L.Ed. 746 (1948). In this case, this court reaches that firm conviction with respect to the Board's finding that Metro Traffic did not show priority of use.

The Board correctly found that, regardless of the complex corporate interrelations among Metro Traffic and Citi Traffic...