Mister Donut of America, Inc. v. Mr. Donut, Inc.

• Decision Date: 04 December 1969
• Docket Number: No. 22116 and 22116-A.,22116 and 22116-A.
• Citation: 418 F.2d 838
• Parties: MISTER DONUT OF AMERICA, INC., Plaintiff-Appellant, v. MR. DONUT, INC., et al., Defendants-Appellees. MR. DONUT, INC., et al., Plaintiff-Appellants, v. MISTER DONUT OF AMERICA, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

418 F.2d 838 (1969)

MISTER DONUT OF AMERICA, INC., Plaintiff-Appellant, v. MR. DONUT, INC., et al., Defendants-Appellees.

MR. DONUT, INC., et al., Plaintiff-Appellants, v. MISTER DONUT OF AMERICA, INC., Defendant-Appellee.

Nos. 22116 and 22116-A.

United States Court of Appeals Ninth Circuit.

December 4, 1969.

COPYRIGHT MATERIAL OMITTED

David Wolf (argued), of Wolf, Greenfield & Hieken, Boston, Mass., Leonard H. Monroe, Los Angeles, Cal., for plaintiff-appellant Mister Donut of America, Inc.

Francis A. Utecht (argued), of Fulwider, Patton, Rieber, Lee & Utecht, Long Beach, Cal., for defendant-appellee Mr. Donut, Inc.

Before HAMLEY and BROWNING, Circuit Judges, and McNICHOLS,^* District Judge.

McNICHOLS, District Judge.

Appellant brought suit in the District Court alleging trademark infringement. Appellee answered and counterclaimed alleging fraud in the procurement of the trademark registration, and seeking both injunctive relief and attorney's fees. The trial court found against each party on the merits and dismissed both the complaint and counterclaim with prejudice. This appeal and cross-appeal were thereupon perfected.

Jurisdiction below was founded on 15 U.S.C., Sec. 1121; 28 U.S.C., Sec. 1338 (a) and (b); and 28 U.S.C., Sec. 1332. We have jurisdiction under 15 U.S.C., Sec. 1121 and 28 U.S.C., Sec. 1291.

Plaintiff-appellant, Mister Donut of America, Inc. (hereinafter for clarity, "plaintiff"), is a Massachusetts corporation with its principal place of business in that state and is primarily engaged in the promotion and franchising of retail doughnut shops under the name and style of Mr. Donut and Mister Donut. It began this business in Massachusetts in 1955 and now has more than 200 shops in numerous states ranging from coast to coast. Plaintiff's first California shop opened in 1966; there were at the time of trial five such shops operating in California.

Defendant-appellee, Mr. Donut, Inc. (hereinafter for clarity, "defendant"), is a California based corporation in the business of promoting and franchising retail doughnut shops using the name Mr. Donut and operating essentially a similar type of business as that of the plaintiff. Defendant opened its first shop in Orange County, California in December of 1957 and at the time of trial had seven franchised businesses located in various communities in Orange County.

The following chronology and factual situation is established by the record:

Plaintiff began to use the mark, Mister Donut in August, 1955; made sales in interstate commerce and applied to the United States Patent Office for registration of the mark pursuant to the provisions of the Trademark Act of 1946, codified as 15 U.S.C., Sec. 1051, et seq., and popularly known as the Lanham Act (hereinafter the "Act" or the "Lanham Act"). This initial application for registration was rejected by the Patent Office since research indicated that a like mark, Mr. Donut, had been previously registered to one Ragsdale of Everett, Washington in 1947. Plaintiff discovered that Ragsdale was deceased, but succeeded in purchasing an assignment of the Ragsdale rights from the estate, which assignment was duly recorded in the Patent Office on July 23, 1956, in accordance with the provisions of the Act. 15 U.S.C., Sec. 1060.

In October, 1957 (more than a year subsequent to the recordation of the Ragsdale assignment), defendant, without any actual knowledge of any prior use of the mark by anyone, first adopted the mark and, as indicated above, opened its first retail doughnut shop in California in December of that year.

On October 21, 1958, plaintiff secured a certificate of registration of the Mister Donut mark. (The trial court, rejecting the recording of the Ragsdale assignment, held that this date was the date of constructive notice of plaintiff's claim to the mark). By this time plaintiff had shops operating in Massachusetts, New York, Florida, Michigan and Virginia.

March 1, 1959, defendant franchised a second shop in Orange County and thereafter five more, in adjacent portions of the county, the opening being spaced over the following several years.

It appears that neither party was aware of the activities of the other until about 1963. In 1965, plaintiff opened a Western district office in Palo Alto, California and on April 23, 1966 the first California doughnut shop came into existence at Campbell, California. During 1966, three more shops were opened in California, not however, in Orange County. Plaintiff now proposes to establish retail doughnut shops in the Los Angeles and Orange County area. Undisputed evidence was presented at the trial to the effect that bona fide prospective franchisees, interested in operating in Orange County and the Los Angeles area, have, after discovering the competitive use of the mark by defendant, abandoned plans to open shops in the area.

It is further undisputed that the parties each make prominent use of the mark in advertising their respective doughnut shops. It is likewise conceded that the respective marks Mr. Donut and Mister Donut are confusingly similar as used on a retailing basis.

On the defendant's counterclaim the court found, and we think properly, that defendant was not entitled to attorney fees under 15 U.S.C., Sec. 1120, which provides:

"Any person who shall procure registration in the Patent Office of a mark by a false or fraudulent declaration or representation, oral or in writing, or by any false means, shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof."

Defendant contends that plaintiff's original purported sales in commerce were "contrived sales" and constituted fraudulent conduct. The proof indicated that boxes of doughnuts with labels MR. DONUT and MISTER DONUT were transported by an agent of plaintiff from Massachusetts to other states and sold in those states. The Lanham Act defines "use in commerce" at 15 U.S.C., Sec. 1127:

"For the purposes of this chapter a mark shall be deemed to be used in commerce (a) on goods when it is placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto and the goods are sold or transported in commerce * * *"

Such a sale as we find here has been held in this Circuit to be a use or transportation in commerce under the Act. Drop Dead Co. v. S. C. Johnson & Son, Inc., 326 F.2d 87, 93 (9th Cir. 1963). The trial court properly concluded that there was no false or fraudulent conduct in the registration by plaintiff of its trademark here in question and that no attorney fees were allowable.

The remaining and principal issues raised in this appeal are therefore limited to the alleged infringement against a federally protected trademark. We turn our attention to that question.

Plaintiff, of course, would like to have its trademark registration rights commence with the recording of the Ragsdale assignment on July 23, 1955, as this date is prior to any use of the offending mark by the defendant. The trial court held that the assignment by the Ragsdale estate to plaintiff was an assignment in gross and conveyed no rights. He based this determination on a finding of fact, supported by substantial evidence, that Ragsdale had disposed of his doughnut business in 1951 and had not used the mark thereafter. There was no pretense that the estate transferred any customer lists, merchandise, equipment, recipes, decals or other goods. Thusly he held that the assignor estate had no good will and therefore assigned none. The court concluded from this state of facts that the assignment was in gross and that the recording thereof was ineffective to grant any rights in the trademark and that as a matter of law the recording of the assignment was not constructive notice to the defendant. The District Court was correct in so holding. The law is well settled that there are no rights in a trademark alone and that no rights can be transferred apart from the business with which the mark has been associated. Such was the common law rule and is now made a part of the Lanham Act. 15 U.S.C., Sec. 1060¹; United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 97, 39 S.Ct. 48, 63 L.Ed. 141 (1918); Dresser Industries Inc. v. Heraeus Engelhard Vacuum, Inc., 395 F.2d 457, 464 (CA 3, 1967); American Foods, Inc. v. Golden Flake, Inc., 312 F.2d 619, 625 (CA 5, 1963); Uncas Manufacturing Co. v. Clark & Coombs Co., 200 F.Supp. 831, 835 (DC R.I., 1962), affirmed 309 F.2d 818; Avon Shoe Co. v. David Crystal, Inc., 171 F.Supp. 293, 301 (DC N.Y., 1959), affirmed 279 F.2d 607, cert. denied 364 U.S. 909, 81 S.Ct. 271, 5 L.Ed.2d 224; E. Leitz, Inc. v. Watson, 152 F.Supp. 631, 635 (DC 1957), affirmed 103 U.S.App.D.C. 74, 254 F.2d 777.

With the Ragsdale assignment being inoperative to provide plaintiff with a right in the MR. DONUT mark, the court went on to find, again on substantial evidence, that defendant first adopted the mark in an intrastate action in October, 1957, and began the use in a retail shop on December 3, 1957. It is clear that defendants' use has been continuous from that time on. On the other hand, plaintiff's first effective registration of the mark with the U. S. Patent Office was on October 12, 1958. The use of the conflictingly similar mark by defendants up to this date was found by the court to be without knowledge either actual or constructive of plaintiff's use. In this posture of the evidence the court held that, if the Lanham Act applied, the defendants had established the statutory defense provided in the Act against the charge of infringement of plaintiff's exclusive right to the mark. The Act provides (15 U.S.C., Sec. 1115(b) (5)) for a defense against infringement by a prior user in this language:

"(b) If the right to use the registered mark has become incontestable under section 1065 of this title, the registration shall be conclusive evidence of the registrant\'s exclusive right to use

...