Phipps Bros. Inc. v. Nelson's Oil and Gas, Inc.

• Decision Date: 04 January 1994
• Docket Number: No. 18008,18008
• Citation: 508 N.W.2d 885,32 U.S.P.Q.2d 1139
• Parties: PHIPPS BROS. INC., d/b/a Country Corner Family Restaurant, Plaintiff and Appellant, v. NELSON'S OIL AND GAS, INC., d/b/a Nelson's Kountry Korner, Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 885

508 N.W.2d 885

32 U.S.P.Q.2d 1139

PHIPPS BROS. INC., d/b/a Country Corner Family Restaurant, Plaintiff and Appellant, v. NELSON'S OIL AND GAS, INC., d/b/a Nelson's Kountry Korner,

Defendant and Appellee.

No. 18008.

Supreme Court of South Dakota.

Argued March 16, 1993.

Decided Nov. 24, 1993.

Rehearing Denied Jan. 4, 1994.

Robert G. Mines, Hot Springs, and Jeremiah J. Davis of Dakota Plains Legal Services, Pierre, for plaintiff and appellant.

Donald A. Porter, Gene R. Bushnell of Costello, Porter, Hill, Heisterkamp and Bushnell, Rapid City, for defendant and appellee.

WUEST, Justice.

Plaintiff appeals from a circuit court's determination that there was no trademark infringement by Nelson's Kountry Korner against Country Corner Family Restaurant. We reverse.

FACTS

Arnold and Patricia Phipps (hereinafter Phipps) began operating the Country Corner Family Restaurant in Hot Springs, South Dakota in 1984. Prior to using the Country Corner name, Phipps obtained the permission of a Texas businessperson who ran several restaurants by the same name. The Country Corner Family Restaurant is well-known in the Hot Springs and southern Black Hills areas and has established good will and a positive reputation among residents in the area and enjoys substantial business from the tourist trade.

Defendant Nelson's Oil and Gas (hereinafter Nelson) operated three gas station/convenience stores, including restaurant service, under the name "Food n Fuel." These stores were in Edgemont, South Dakota, as well as the nearby towns of Lusk and Sundance, Wyoming. In 1990, Nelson was contacted by a Minnesota corporation with businesses using the same name and advised Nelson to cease using the name "Food n Fuel" due to a possible trademark infringement. Nelson held an employee contest to select a new name, and chose the name "Kountry Korner." Nelson was familiar with the Country Corner establishment in Hot Springs, and was questioned regarding the similarity of the two names prior to institution and promotion of the name change. Nevertheless, Nelson proceeded with plans to adopt the name "Nelson's Kountry Korner" for his businesses. ¹

The Country Corner Family Restaurant is a family-oriented establishment where patrons are seated at tables and served by waiters and waitresses. The Nelson Kountry Korner stores sell gasoline, petroleum products, toiletries and greeting cards and rent video cassettes. The South Dakota stores also sell liquor. Although Nelson urges that food service at the stores consists only of "fast food," the record reveals that the establishments are regularly promoted as restaurants serving breakfasts, pizza, chicken, ribs and other " 'Homemade' Daily Specials." Advertisements inform readers that food can be carried out or that they may be "Seated in Air Conditioned Comfort."

Phipps filed suit against Nelson for trademark infringement requesting monetary damages and an injunction to prohibit Nelson from continuing to use the name Kountry Korner. The trial court found for Nelson. Phipps appeals raising three issues which we address while noting additional facts where necessary.

ANALYSIS

It has been stated that in a trademark infringement case, "A 'trademark' is not that which is infringed. What is infringed is the right of the public to be free of confusion and the synonymous right of a trademark owner to control his product's reputation." James Burrough Ltd. v. Sign of the Beefeater, Inc., 540 F.2d 266, 274 (7th Cir.1976). South Dakota has adopted what is virtually the universal standard governing trademark infringement--whether there is a likelihood of confusion among consumers. Time Out, Inc. v. Karras, 392 N.W.2d 434, 438 (S.D.1986); see also 15 U.S.C. Sec. 1114; ² Sun Banks of Fla. v. Sun Fed. Sav. & Loan, 651 F.2d 311, 315 (5th Cir.1981); SquirtCo. v. Seven-Up Co., 628 F.2d 1086, 1091 (8th Cir.1980). "It is generally said that the relevant inquiry is whether an 'ordinarily prudent purchaser' would be likely to be misled or confused as to the source of the goods or services in question." Health Indus. v. European Health Spas, 489 F.Supp. 860, 866 (D.S.D. (1980)) (citing David Sherman Corp. v. Heublein, Inc., 340 F.2d 377 (8th Cir.1965)). "Actual confusion, while not required, is also strong evidence of the likelihood of confusion." Health Indus., 489 F.Supp. at 866 (citations omitted).

This court has addressed the standard of review, stating that, "Whether there may be a likelihood of confusion among consumers is a factual question" to be resolved by considering various factors related to the case at hand. Time Out, 392 N.W.2d at 438. The weight of authority is that likelihood of confusion is a question of fact. ³ However, some courts hold that likelihood of confusion is a question of law. See, e.g., Spheeris Sporting Goods v. Spheeris on Capitol, 157 Wis.2d 298, 459 N.W.2d 581, 586 (Wis.App.1990) ("Whether trade names are confusingly similar presents a question of law.") (citing Gaston's White River Resort v. Rush, 701 F.Supp. 1431, 1436 (W.D.Ark.1988)); Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560, 1565 (Fed.Cir.1987) ("The uniform precedent of this court is that the issue of likelihood of confusion is one of law." (citations omitted)); and Volkswagenwerk Ag v. Hoffman, 489 F.Supp. 678 (D.S.C.1980) (citing Baker v. Simmons Co., 307 F.2d 458, 461 (1st Cir.1962). ⁴ A number of other courts have found likelihood of confusion to be a mixed question of law and fact. See, e.g., Homeowners Group, Inc. v. Home Marketing Specialists, Inc., 931 F.2d 1100, 1107 (6th Cir.1991) ("Factual findings must be made with respect to the likelihood of confusion factors.... However, the further determination of whether a given set of foundational facts establishes a likelihood of confusion is a legal conclusion.") (citing Wynn Oil Co. v. Thomas, 839 F.2d 1183, 1186 (6th Cir.1988)); see also Alpha Indus., Inc. v. Alpha Steel Tube & Shapes, 616 F.2d 440, 443-44 (9th Cir.1980); and Sears, Roebuck & Co. v. Johnson, 219 F.2d 590, 591 (3rd Cir.1955). There is a split among the federal circuits as to the correct standard of review for the likelihood of confusion question for purposes of the Lanham Act; however, the U.S. Supreme Court refused to address the question. Frisch's Restaurants, Inc. v. Elby's Big Boy of Stuebenville, Inc., 670 F.2d 642 (6th Cir.1982), cert. denied, 459 U.S. 916, 103 S.Ct. 231, 74 L.Ed.2d 182 (1982) (White, J., dissenting; stating that "Because there is a split in the lower courts on this question ... I would grant certiorari to resolve the conflict." (citations omitted)). It has been suggested that were the Supreme Court to address the question, that Court would most likely categorize likelihood of confusion as a mixed law and fact question. ⁵

We are persuaded by analysis like that of the Ninth Circuit in Alpha, stating that "[i]n assessing whether there is likelihood of confusion, a court first considers numerous factors and then, based thereon, determines whether there exists a likelihood of confusion." Alpha, 616 F.2d at 443. Similarly, the Third Circuit stated in Sears that "the dispute here is not as to the basic facts, but as to what inference (i.e., ultimate fact) should reasonably be derived from the basic facts." Sears, 219 F.2d at 591. These analyses of the likelihood of confusion question are in accord with our own analysis of such questions. See Permann v. Department of Labor, 411 N.W.2d 113, 118 (S.D.1987). In Permann, we stated that " 'mixed questions of law and fact [are] questions in which the historical facts are admitted or established, the rule of law is undisputed, and the issue is whether the facts satisfy the statutory standard, or to put it another way, whether the rule of law as applied to the established facts is or is not violated.' " Id. (quoting Pullman-Standard v. Swint, 456 U.S. 273, 289 n. 19, 102 S.Ct. 1781, 1790 n. 19, 72 L.Ed.2d 66, 80 n. 19 (1982)).

Thus, we hold that the question of likelihood of confusion is a mixed question of fact and law. To the extent that this holding is inconsistent with Time Out, that opinion is modified.

"Since this issue is a mixed law-fact question and requires us to apply a legal standard, we will treat it as a question of law and freely review the issue." Permann, 411 N.W.2d at 119. See In re Hendrickson's Health Care Serv., 462 N.W.2d 655, 656 (S.D.1990) (stating that mixed law-fact questions requiring application of a legal standard are reviewed as are questions of law--de novo ) (citing In re Groseth Int'l, 442 N.W.2d 229, 232 (S.D.1989) (Sabers, J., concurring in part and concurring specially in part); South Dakota Stockgrowers Ass'n v. Holloway, 438 N.W.2d 561, 563 (S.D.1989)).

I. DID PHIPPS PROVE A LIKELIHOOD OF CONFUSION TO THE CONSUMER BY THE USE OF THE NAMES COUNTRY CORNER FAMILY RESTAURANT AND NELSON'S KOUNTRY KORNER?

Proof of likelihood of confusion in trademark infringement cases does not require actual confusion; however, a mere possibility is not enough. There must be a "substantial likelihood that the public will be confused." Vitek Sys., Inc. v. Abbott Lab., 675 F.2d 190, 192 (8th Cir.1982) (quoting SquirtCo., 628 F.2d at 1091; Fisher Stoves, Inc. v. All Nighter Stove Works, Inc., 626 F.2d 193, 194 (1st Cir.1980)). The party claiming injury bears the burden of proving infringement. Sun Banks, 651 F.2d at 315; see In re Estate of Armstrong, 400 N.W.2d 267 (S.D.1987); Pearson v. Pearson, 312 N.W.2d 34 (S.D.1981).

The test of whether there is a substantial likelihood of confusion among consumers requires the court to consider numerous factors to determine whether, under all the circumstances, there is a likelihood of confusion. SquirtCo., 628 F.2d at 1090-91 (citing Grotrian v. Steinway & Sons, 523 F.2d 1331 (2nd Cir.1975)). One commentator has noted:

In cases involving a restaurant's name or mark, courts have identified several criteria to be considered in determining whether such a likelihood...