PaperCutter, Inc. v. Fay's Drug Co., Inc.

• Citation: 900 F.2d 558
• Decision Date: 04 April 1990
• Docket Number: D,336,Nos. 280,s. 280
• Parties: PAPERCUTTER, INC., Appellant-Cross-Appellee, v. FAY'S DRUG CO., INC., Appellee-Cross-Appellant. ockets 89-7461, 89-7509.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 558

900 F.2d 558

14 U.S.P.Q.2d 1450

PAPERCUTTER, INC., Appellant-Cross-Appellee, v. FAY'S DRUG CO., INC., Appellee-Cross-Appellant.

Nos. 280, 336, Dockets 89-7461, 89-7509.

United States Court of Appeals Second Circuit.

Argued Nov. 22, 1989.

Decided April 4, 1990.

Mark P. Stone, Stamford, Conn. (Eric Y. Munson, of counsel), for appellant-cross-appellee.

Richard Z. Lehv, Weiss Dawid Fross Zelnick & Lehrman, P.C., New York City (Barbara A. Solomon, of counsel), for appellee-cross-appellant.

Before OAKES, Chief Judge, TIMBERS and CARDAMONE, Circuit Judges.

OAKES, Chief Judge:

This is an appeal by a trademark holder from a judgment in favor of the defendant in an action alleging trademark infringement, with a cross-appeal by the defendant seeking cancellation of the plaintiff's registration of the trademark. The United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Chief Judge, after a bench trial, held in an oral ruling that there was no infringement of the trademark "PaperCutter" by the defendant's operation of its fourteen upstate New York stores named The Paper Cutter, but upheld the registration of the mark, finding that

[w]hile there's a strong [element] of description in the mark, and it may be a little bit weak, ... it has been shown to be associated by consumers with this source, or there was enough activity by these proprietors of the mark to lead one to infer that it must have been associated by at least some customers with a single source.

Taking this as finding that the mark was descriptive but nevertheless valid because it had acquired secondary meaning, we reverse on the cross-appeal, because the evidence is insufficiently strong under the authorities of this circuit to support a finding of secondary meaning. We agree with the district court, however, that there was no Plaintiff's principals are Dora Schaefer Cassety and Harold Cassety, who have for some years run an interior design firm on West 39th Street in Manhattan called Schaefer Cassety Inc. ("SCI"). Several years ago Harold Cassety began designing paper ornaments or "paper cuts" to send as promotional pieces to SCI customers. These cuts consisted of folded paper that became three dimensional when unfolded and that basically could be used as Christmas tree ornaments, free-standing party decorations, greeting cards, and perhaps in other ways as well.

infringement, even if this were a valid mark. Accordingly, we affirm on the main appeal.

In 1983, the Cassetys decided that their paper designs and cut-outs would make a good supplemental business, and they incorporated PaperCutter, Inc. PaperCutter made no sales in 1983, and in May 1984 the Cassetys exhibited prototypes of their paper cuts at a trade show in Manhattan. Among the displayed cuts were a static star, an art deco Santa, a small-starred fir tree, Santa's tuba, triple bells, an oval ornament, a stream of stars, and a bundled snowman. PaperCutter distributed catalogues and price lists at the trade show and took some orders at or after the show. The first shipment fulfilling the purchase orders was made on October 23, 1984, by which time PaperCutter had arranged to have an inventory manufactured by the use of a die-cutting machine. A large sign bearing the mark "Papercutter" with a logo showing a long pair of shears cutting paper was on display at the trade show.

The Cassetys' own figures indicate that PaperCutter made retail sales of $145 and wholesale sales of $2,968 in 1984; retail sales of $143.75 and wholesale sales of $4,545 in 1985; retail sales of $92 and a sale to the Boston Museum of Fine Art of $21,208 in 1986. Also in 1986, PaperCutter received a commission of $1,252.39 on a piece it designed for the Museum of Modern Art ("MOMA"), but the item did not bear any PaperCutter mark or label. PaperCutter's retail sales in 1987 were only $41, but it also received an additional $383 royalty from MOMA. Sales in 1988 were $110 on the eve of trial. PaperCutter never did any consumer advertising, and although the Cassetys claim that its lack of activity in 1986, 1987, and 1988 was due to defending against appellee's opposition proceeding in the United States Patent and Trademark Office, much of the original 1984 inventory of paper cuts remains unsold.

Defendant Fay's Drug Company, Inc., operates a chain of more than 150 "super drugstores" located in upstate New York, Pennsylvania, Connecticut, and Massachusetts, but none in the New York City metropolitan area. A trademark search conducted by defendant revealed, as of August 8, 1984, that there were books with the name Papercutting and Paper Cut-out Design, and that there were business titles including "Pappercutter, Inc.," the plaintiff's name, albeit misspelled, in Manhattan, "The Paper Cutter" in Newton, Massachusetts, and "Papercutters" in Greenville, South Carolina. A July 1985 update to the search report indicated that plaintiff had applied for a registered mark covering paper sculptures, paper ornaments, paper decorations, paper labels, paper tags, greeting cards, writing paper and envelopes, gift wrapping material and catalogues. Despite the findings of the initial search report, defendant went ahead with its plans to operate a chain of stores called The Paper Cutter, and opened its first store to the public in Albany on October 23, 1984, the same day that the plaintiff made its first shipment of paper cuts to a customer from the trade show. By the time of trial, defendant was operating fourteen The Paper Cutter stores, all in upstate New York.

On signs, in its advertising, and on the price stickers affixed to its goods, defendant uses a logo showing a short pair of scissors, perhaps children's scissors, about to cut a dollar sign, suggesting, as is the case, that The Paper Cutter stores sell at a discount their particular line of office supplies, party supplies, greeting cards, books, and novelties. As the district court found, in contrast to plaintiff's "highly artistic up-scale item involving genuine artistic effort are essentially items at the low end of the scale, [are] mass produced, fold-out type of things, such as center pieces for a graduation party; for a baby shower, one containing a stork; for graduation, containing a wise owl with an academic hat; and similar paper items all of which were sold with a brand name of the place of origin, which is not the defendant Paper Cutter or the plaintiff.

... [which] is highly priced," defendant's paper goods

On May 13, 1985, plaintiff filed an application to register its mark with the United States Patent and Trademark Office ("PTO"). On September 10, 1985, plaintiff's attorney wrote to the defendant, warning that defendant's use of the name The Paper Cutter constituted an infringement of plaintiff's trademark rights. Defendant responded to the plaintiff's letter that same month, denying that there was an infringement and suggesting that the parties execute a licensing agreement under which both would be allowed to use the name. Plaintiff never responded to defendant's suggestion.

On or about September 20, 1985, the PTO issued a notice of publication stating that plaintiff's proposed mark would be published on October 8, 1985, for purposes of opposition. The defendant filed a notice of opposition, and Trademark Opposition No. 73,750 was commenced on May 12, 1986. The opposition was later dismissed with prejudice by the PTO's Trademark Trial and Appeal Board, by order dated March 23, 1988, after defendant failed to file a response to plaintiff's motion to dismiss asserting that Fay's had no standing to maintain the opposition proceeding. Thereafter, on August 23, 1988, the United States Trademark and Service Mark Registration No. 1,501,275 was issued to PaperCutter.

Meanwhile, on December 18, 1987, plaintiff filed this action against defendant alleging common law trademark infringement and unfair competition under section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1988), and amended its complaint on November 7, 1988, after the registration of the mark, to add a claim for infringement of the registration. Defendant's answer to the amended complaint asserted various affirmative defenses and sought cancellation of the registration on grounds that plaintiff had never used PaperCutter as a trademark on its goods, that plaintiff's mark did not merit protection because it was descriptive and had not acquired secondary meaning, that plaintiff had made false statements and overstated the goods and services it offered in its application for registration of the mark, and that plaintiff had abandoned any rights to exclusive use of the mark under section 45 of the Lanham Act, 15 U.S.C. Sec. 1127 (1988), which provides that nonuse for two consecutive years is prima facie evidence of abandonment. We concern ourselves only with the descriptiveness of the mark and the proof of secondary meaning, consideration of all other defenses being unnecessary to resolution of this case.

DISCUSSION

We start with a few fundamentals. Although trademarks are often referred to as a form of property, or more specifically as "intellectual property," we recently reaffirmed that " '[t]here is no such thing as property in a trade-mark except as a right appurtenant to an established business or trade in connection with which the mark is employed.' " Pirone v. MacMillan, Inc., 894 F.2d 579, 581 (2d Cir.1990) (quoting United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 97, 39 S.Ct. 48, 50, 63 L.Ed. 141 (1918)). Beyond preventing a mark-holder's goods from being confused with those of others and preventing trade from being diverted to competitors through the use of misleading marks, therefore, an entity has no right to appropriate a particular phrase or word for its exclusive use in the marketplace.

However difficult of definition, the courts, including ours, have basically maintained four different categories of terms with respect to...