Philco Corporation v. Phillips Mfg. Co.

• Decision Date: 19 January 1943
• Docket Number: No. 7997.,7997.
• Citation: 133 F.2d 663
• Parties: PHILCO CORPORATION v. PHILLIPS MFG. CO.
• Court: U.S. Court of Appeals — Seventh Circuit

133 F.2d 663 (1943)

PHILCO CORPORATION v. PHILLIPS MFG. CO.

No. 7997.

Circuit Court of Appeals, Seventh Circuit.

January 19, 1943.

C. J. Hepburn, of Philadelphia, Pa., and Louis Goldman and Robert G. Dreffein, both of Chicago, Ill., for appellant.

Wilfred S. Stone and Louis A. Bisson, both of Chicago, Ill., Louis F. Gillespie, of Springfield, Ill., and Lionel V. Tefft, of Chicago, Ill., for appellee.

Before EVANS, MAJOR, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

This is a trade-mark infringement and unfair competition suit. Plaintiff filed its complaint to restrain the Phillips Manufacturing Company from using the word "Phill-Co" to identify its products. Plaintiff claimed that such use infringed its trade-mark "Philco" and constituted unfair competition through misappropriation of its trade-mark and trade-name "Philco". After a temporary restraining order was entered, the cause was referred to a Master in Chancery, who, after hearing the testimony and the stipulations of the parties, made certain findings and recommended that the restraining order be vacated. The District Court adopted the Master's findings of fact, confirmed his conclusions of law, and dissolved the temporary restraining order. To reverse the order, plaintiff appeals.

Plaintiff is a Pennsylvania corporation and defendant an Illinois corporation. Plaintiff's trade-mark "Philco" is registered in the United States Patent Office under the Trade-Mark Act of 1905, 33 Stat. 724, 15 U.S.C.A. § 81 et seq. Thus, jurisdiction of the District Court was based on three grounds — diversity of citizenship, with the jurisdictional amount involved; § 17 of the Trade-Mark Act of 1905, 33 Stat. 728, 15 U.S.C.A. § 97; and § 24(7) of the Judicial Code, 36 Stat. 1092, 28 U.S.C.A. § 41(7). Armstrong Paint & Varnish Works v. Nu-Enamel Corporation, 305 U. S. 315, 59 S.Ct. 191, 83 L.Ed. 195.

There is no controversy as to the substantial identity in appearance and absolute identity in sound of the marks "Philco" and "Phill-Co," and there is no question as to plaintiff's having appropriated and used its mark before defendant did. The only question is whether the goods upon which plaintiff and defendant use their respective marks are so similar that under the applicable law defendant's use of the mark "Phill-Co" will be enjoined.

Plaintiff has emphasized its claims of common law trade-mark infringement and unfair competition, rather than statutory trade-mark infringement under the Act of 1905. It contends that the applicable law on these nonstatutory questions is the law of each of the States in which the alleged common law trade-mark infringement and unfair competition occurred; it has apparently abandoned the position that federal law governs, although it urged this alternatively in its original brief. Defendant contends that only the law of Illinois is applicable. This was also the conclusion of the Master and the court below.

Although we affirm the order of the District Court vacating the temporary restraining order, the court's view of the applicable law was not altogether correct.

The determination of the applicable law in this case involves three questions: (1) Does the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, include suits in equity. (2) If so, should the doctrine include actions for trade-mark infringement and unfair competition. (3) If State law governs, which State is it whose law is to be applied.

First. In Erie R. Co. v. Tompkins, supra, the Supreme Court held that the Rules of Decision Act, § 34 of the Judiciary Act of 1789, 28 U.S.C.A. § 725, required a federal court whose jurisdiction was based on diversity of citizenship to apply the decisional as well as statutory law of the State in which the plaintiff's injuries were received. However, as was pointed out in Russell v. Todd, 309 U.S. 280, 287, 60 S.Ct. 527, 531, 84 L.Ed. 754, the Rules of Decision Act applies only to "trials at common law," not to suits in equity.

The decisions of the Supreme Court since the Erie case have established that the doctrine of that case applies at least to diversity cases involving equitable suits or remedies based upon underlying legal rights, or brought in aid or support of legal rights. Ruhlin v. New York Life Insurance Co., 304 U.S. 202, 58 S.Ct. 860, 82 L.Ed. 1290; New York Life Insurance Co. v. Jackson, 304 U.S. 261, 58 S.Ct. 871, 82 L.Ed. 1329; West v. American Telephone & Telegraph Co., 311 U.S. 223, 236, 61 S. Ct. 179, 85 L.Ed. 139, 132 A.L.R. 956. Trade-mark and unfair competition suits in equity are considered as brought in aid or support of legal rights. Menendez v. Holt, 128 U.S. 514, 523, 9 S.Ct. 143, 32 L. Ed. 526; Nims, Unfair Competition and Trade-Marks (3rd ed. 1929) 1019. Consequently, no objection may be raised to the application of the Erie doctrine here solely on the ground that this is a suit in equity.

Second. In the field of trade-mark infringement and unfair competition it has long been recognized that all rights originally existed by virtue of the common law of the several States. United States v. Steffens (Trade-Mark Cases), 100 U.S. 82, 92, 25 L.Ed. 550. Thus, in one sense, there has not been thought to be a federal general common law in the field. But in another sense there has been a federal general common law and cases have been "governed by federal law" within the meaning of the Erie doctrine, for federal courts have exercised independent judgment as to what "the common law" was in all cases in the field. The instant case requires us to draw the line between those cases still "governed by federal law" (federal courts make an independent determination of the law) and those "governed by State law" (federal courts are bound by the views of a particular State court).

For our purposes, cases brought in the federal courts in the field of unfair competition (not including Federal Trade Commission cases) may be divided into six categories:¹

Both trade-marks used in interstate commerce, and one or both registered in Patent Office.

(1) Infringement of a statutory trade-mark by use of a similar mark on goods of "substantially the same descriptive properties" within the meaning of the Trade-Mark Acts (2) (a) Unfair competition against statutory trade-mark through use of a similar mark on goods which might naturally be supposed to come from plaintiff, although not of the "same class" or of "substantially the same descriptive properties." (Probable confusion as to source without direct competition.) (b) Unfair competition through use of a trade-mark similar to plaintiff's trade name.

(3) Unfair competition other than through use of a trade-mark: (a) Use of trade name similar to plaintiff's statutory trade-mark. (b) Use of trade name similar to plaintiff's trade name. (c) Other forms of "passing off" of defendant's goods as those of plaintiff, such as imitation of get-up, label, package, or general appearance; express statement of connection between plaintiff and defendant; etc. (d) Unfair competition other than "passing off," such as betrayal of trade secrets, disparagement of rivals and their goods, instigation to breach of contract, molestation and physical interference, etc.

One or both marks used in intrastate commerce; or both unregistered in Patent Office (or held invalid under the Trade-Mark Acts) although used in interstate commerce.

(4) (a) Infringement of common law trade-mark. (b) Unfair competition through use, on goods of same descriptive properties, of mark similar to plaintiff's "secondary meaning" mark.

(5) Unfair competition as described in (2), supra, against common law trade-mark or "secondary meaning" mark.

(6) Unfair competition as described in (3), supra, against common law trade-mark or "secondary meaning" mark.

Classification of the cases along these lines makes it clear immediately that there is no serious question as to the applicable law except in the first and second categories. The others are governed by State law. This court so held with respect to (c) of the third category in Rytex Co. v. Ryan, 7 Cir., 126 F.2d 952, and Time, Inc. v. Viobin Corporation, 7 Cir., 128 F.2d 860, and with respect to (d) of the third category in Addressograph-Multigraph Corporation v. American Expansion Bolt & Manufacturing Co., 7 Cir., 124 F.2d 706. The Supreme Court held State law applicable in (a) of the fourth category in Pecheur Lozenge Co. v. National Candy Co., 315 U.S. 666, 62 S.Ct. 853, 86 L.Ed. 1103. The Supreme Court indicated the same holding with respect to (a) and (b) of the fourth category, as well as (c) of the third category, in Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 113, 59 S.Ct. 109, 83 L.Ed. 73, although it considered only federal precedents in its opinion. State law was held applicable in (a) of the sixth category in Folmer Graflex Corporation v. Graphic Photo Service, D.C., 44 F.Supp. 429, 433-434, and in (c) of the sixth category in the Pecheur case, the Graflex case, and Socony-Vacuum Oil Co. v. Rosen, 6 Cir., 108 F.2d 632.

Questions arising in cases of the first category relate to the four topics dealt with in some detail in the Trade-Mark Acts — registerability, infringement, defenses, and remedies — and the topic of validity (i. e., what is a valid "trade-mark" and what constitutes "ownership"). We believe that all such questions arising under the Act of 1905 are governed by federal law, since they involve the interpretation and application of a federal statute. Chesapeake & Ohio Ry. v. Martin, 283 U. S. 209, 212, 213, 51 S.Ct. 453, 75 L.Ed. 983; Awotin v. Atlas Exchange Bank, 295 U.S. 209, 211, 212, 55 S.Ct. 674, 79 L.Ed. 1393; Yonkers v. Downey, 309 U.S. 590, 596, 60 S.Ct. 796, 84 L.Ed. 964. Although the contrary position has been taken by two courts with respect to questions of validity, Mishawaka Rubber & Woolen Manufacturing Co. v. S. S. Kresge Co., 6 Cir., 119 F.2d 316, 322; Folmer Graflex Corporation v....