Natural Footwear Ltd. v. Hart, Schaffner & Marx

• Decision Date: 27 June 1985
• Docket Number: 84-5002,Nos. 83-5883,s. 83-5883
• Citation: 760 F.2d 1383,225 USPQ 1104
• Parties: NATURAL FOOTWEAR LIMITED, A Corporation of the Province of Ontario Canada, v. HART, SCHAFFNER & MARX, a New York Corporation, and Roots, Inc., a New Jersey Corporation. ROOTS, INC., A New Jersey Corporation, Counterclaimant, v. Don GREEN and Michael Budman, Individuals, and Natural Footwear Limited, a Corporation of the Province of Ontario, Canada, Counterdefendants. Appeal of NATURAL FOOTWEAR LIMITED, Don Green, and Michael Budman, Plaintiff and Counterclaim Defendants. NATURAL FOOTWEAR LIMITED, A Corporation of the Province of Ontario Canada, v. HART, SCHAFFNER & MARX, a New York Corporation, and Roots, Inc., a New Jersey Corporation. ROOTS, INC., A New Jersey Corporation, Counterclaimant, v. Don GREEN and Michael Budman, Individuals, and Natural Footwear Limited, a Corporation of the Province of Ontario, Canada, Counterdefendants. Appeal of HART, SCHAFFNER & MARX and Defendant-Counterclaimant Roots, Inc.
• Court: U.S. Court of Appeals — Third Circuit

Page 1383

760 F.2d 1383

225 U.S.P.Q. 1104

NATURAL FOOTWEAR LIMITED, A Corporation of the Province of

Ontario Canada, v. HART, SCHAFFNER & MARX, a New York Corporation, and Roots,

Inc., a New Jersey Corporation.

ROOTS, INC., A New Jersey Corporation, Counterclaimant, v. Don GREEN and Michael Budman, Individuals, and Natural

Footwear Limited, a Corporation of the Province of

Ontario, Canada, Counterdefendants.

Appeal of NATURAL FOOTWEAR LIMITED, Don Green, and Michael

Budman, Plaintiff and Counterclaim Defendants.

NATURAL FOOTWEAR LIMITED, A Corporation of the Province of

Ontario Canada, v. HART, SCHAFFNER & MARX, a New York Corporation, and Roots,

Inc., a New Jersey Corporation.

ROOTS, INC., A New Jersey Corporation, Counterclaimant, v. Don GREEN and Michael Budman, Individuals, and Natural

Footwear Limited, a Corporation of the Province of

Ontario, Canada, Counterdefendants.

Appeal of HART, SCHAFFNER & MARX and

Defendant-Counterclaimant Roots, Inc.

Nos. 83-5883, 84-5002.

United States Court of Appeals, Third Circuit.

Argued July 20, 1984.

Decided April 19, 1985.

Rehearing Denied May 30, 1985.

As Amended May 31 and June 27, 1985.

John T. Dolan (argued), Arnold B. Calmann, Crummy, Del Deo, Dolan & Purcell, Newark, N.J., Baker & McKenzie, Chicago, Ill., John T. Dolan, Newark, N.J., Horst H. Werder, Chicago, Ill., Richard S. Zackin, Arnold B. Calmann, Brian J. McMahon, Newark, N.J., Leslie Bertagnolli, Chicago, Ill., On the Brief, for Natural Footwear, Ltd., Don Green & Michael Budman.

W. Thomas Hofstetter (argued), Patricia S. Smart, Pattishall, McAuliffe & Hofstetter, Chicago, Ill., William J. Heller, Stryker, Tams & Dill, Newark, N.J., for Hart Schaffner & Marx, and Roots, Inc.

Before SLOVITER and BECKER, Circuit Judges, and FULLAM, District Judge. ^*

OPINION OF THE COURT

BECKER, Circuit Judge.

This is a trademark infringement case in which two business concerns vie for the sole right to use the mark ROOTS for footwear and wearing apparel. Roots, Inc. ("Roots") is a northern New Jersey retail clothing operation which sells high quality clothing in several stores in northern New Jersey, and which has a scattering of mail order customers throughout the nation. Natural Footwear Limited ("Natural"), the other contending party, is a Toronto and Detroit-based footwear and apparel manufacturer which came into prominence in the 1970's by reason of its "Earth Shoe," a negative heel shoe which was the subject of a health fad. Natural registered the mark and opened numerous retail stores across the country, developed a high sales volume, and placed a large volume of advertising nationwide. Roots, however, claims that it has obtained common law trademark rights superior to the rights that flow from Natural's federal registration because of its prior use of the mark.

After trial, on the theory that Roots had prior rights to the ROOTS mark and that the mark, as applied to Roots' products, had already acquired secondary meaning in a national market, the district court awarded Roots a permanent nationwide injunction against Natural's use of the trademark ROOTS, ordered cancellation of Natural's federal registrations, and awarded Roots an accounting of Natural's profits. The court denied Roots' request for counsel fees. 579 F.Supp. 543. Natural has appealed, and Roots has cross-appealed.

We conclude that the district court's decision was without basis in fact or law; that Roots is a local New Jersey clothier whose advertising was primarily local in character and whose market penetration outside of New Jersey was, as a general matter, de minimis at the time of Natural's registration; that the district court's grant of a nationwide injunction constitutes a clear abuse of discretion; and that its award to Roots of an accounting of Natural's profits outside of New Jersey was completely unjustified, as was its cancellation of Natural's registered trademarks. We also will remand so that an appropriate injunction may be entered in favor of Natural and so that the district court may consider more fully the common law rights of the parties to use the ROOTS trademark on clothing. The denial of Roots' request for attorney's fees will, however, be affirmed.

We turn now to a summary of the facts underlying this case, which are central to its understanding. ¹ Following this, we will describe the procedural history leading to the present appeal.

I. FACTS

A. Roots: Its Mark and Merchandise

Roots, a retail clothing chain catering to what its president Perry Root, son of founder Adolph Root, refers to as an "upscale" clientele, began doing business in Jersey City in 1917. A second store was soon opened in Bayonne. These stores were relocated to Summit, New Jersey, in 1931.

Roots sells men's and women's clothing and shoes manufactured to its specifications by companies such as Hathaway, Hickey Freeman, Southwick and Gant. In 1950, Roots began applying permanent woven labels bearing the ROOTS name to this merchandise. Fifty percent of the merchandise sold by Roots over the past 20 years carried the "Roots" label alone; an additional 30 percent bore the ROOTS label along with a less prominent manufacturer's label.

Since 1965, Roots has been a wholly owned subsidiary of Hart, Schaffner and Marx, Inc. ("HSM"), under the name "Roots, Inc." ² In 1969, with the opening of a shoe store in Summit, and a store in Red Bank, Roots began to expand in northern New Jersey. The stores in Summit, including the shoe store, and in Red Bank were the only Roots stores open in 1973 when Natural registered the mark "ROOTS" and entered the footwear market in the United States. In 1977, Roots opened stores at the Riverside Mall in Hackensack, and in Morristown (both in New Jersey). In an attempt to improve its ability to compete with stores such as Brooks Brothers, and to pave the way for further expansion in New Jersey, Roots opened a store in Short Hills in 1981. With the exception of one or two occasions when merchandise from Roots was sold in Filene's basement in Boston, and an unsuccessful attempt to sell ties bearing the ROOTS label through other stores owned by HSM, only Roots stores have sold merchandise bearing the ROOTS label. As of 1983, there were five Roots stores in operation, all in northern New Jersey. ³

1. Geographical Extent and Volume of Roots' Out-of-State Sales

Roots' total sales, which include a small percentage of sales to out-of-state customers, increased steadily though usually modestly, each year from 1965 to 1982 when they amounted to $11,328,924. But in none of the years during this period for which documentation exists did Roots' sales to out-of-state customers amount to more than three percent of its total annual sales. Roots' out-of-state sales are attributable mainly to credit card purchases and mail orders for merchandise advertised in the Roots catalogue. Roots began to publish the catalogue, which remains its major national advertising effort, in 1956. At the same time it established a list of persons to whom the catalogue is regularly mailed. The mailing list includes names of Roots' credit card holders, persons who make purchases with cash or major credit cards, and persons who simply request that their names be added to the list. ⁴

Roots produced a computerized version of its mailing list for the years 1976 and 1980. The list includes 40,899 addresses from 43 states including New Jersey. Of that total 38,392 are New Jersey addresses. New Yorkers comprise the next largest group, with addresses of 1,093 catalogue recipients on the list. The only other significant concentrations of addresses are from Pennsylvania, Connecticut, and Florida. Each of these states is represented by fewer than 275 addresses. The 1980 list includes addresses from every state except Wyoming, but from many states there are only a handful. The preponderant number is from New Jersey. A much smaller number of addresses is from the metropolitan area of New York City. Many of the addresses identify former northern New Jersey customers who have moved to other states. ⁵ These lists are not customer lists. Roots has no systematic process for purging from the list names and addresses of those who have not made purchases within any particular period of time. An address is not deleted from the list unless mail is returned.

The Roots catalogue is intended primarily to acquaint customers with the store's new merchandise, but Roots does not regard itself as a mail order store. Its catalogues bear this out: they urge recipients to visit Roots in New Jersey and shop there. Some of the brochures, however, also list a 201 (northern New Jersey) area code phone number to which orders may be placed. Over half of the catalogues for the years 1956-1983 make no reference to either phone or mail orders. ⁶ Only the 1960 and 1979 catalogues contain actual mail order forms. Though it has no documentation, Roots attributes between $250,000 and $500,000 annually to mail order sales from out-of-state customers.

In the mid-1960s Roots began to issue its own credit card. ⁷ From 1965 until 1975, when the information was completely transferred to a computer, Roots maintained the names and addresses of its credit card holders in giant Rolodex files. Before its use was discontinued, the Rolodex contained approximately 25,000 names of Roots credit card holders residing both in and out of New Jersey. Each card stated the date when the Roots account was opened, and any change of address along with a date. Prior to 1974, there were 1,108 entries listing out-of-state addresses, with 544 of these cards showing a change from a former New Jersey address. Before the information was completely transferred to a computer, the Rolodex contained 1,432 cards bearing out-of-state addresses, with 620 cards showing a prior New Jersey address. The out-of-state addresses are from 46 states, with the major concentrations of these from New York, Pennsylvania, Connecticut, and Florida. ⁸

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