R. J. Reynolds Tobacco Co. v. Allen Bros. Tobacco Co.

• Decision Date: 20 March 1907
• Citation: 151 F. 819
• Parties: R. J. REYNOLDS TOBACCO CO. v. ALLEN BROS. TOBACCO CO.
• Court: U.S. Court of Appeals — Fourth Circuit

151 F. 819

R. J. REYNOLDS TOBACCO CO. v. ALLEN BROS. TOBACCO CO.

United States Circuit Court, W.D. Virginia.

March 20, 1907

PRITCHARD Circuit Judge.

This suit was instituted in March, 1906, and seeks to enjoin the defendant from unfair and fraudulent competition. Both the complainant and defendant are engaged in the business of manufacturing smoking and chewing tobacco, the complainant at Winston-Salem, N.C., and the defendant at Lynchburg, Va Complainant is a corporation created under the laws of New Jersey, and the defendant is a Virginia corporation. The sum or value in controversy exceeds $2,000, exclusive of cost and interest. In 1880 Richard J. Reynolds, then a manufacturer of plug tobacco, originated a formula or recipe, selected the name 'Schnapps' as the trade-mark or trade-name for the product, and placed his article upon the market under that style. R. J. Reynolds was succeeded in business in 1888 by R. J. Reynolds & Co., a copartnership, composed of R. J Reynolds, William N. Reynolds, and Henry Roan. In 1890 the copartnership was converted into the R. J. Reynolds Tobacco Company of North Carolina, and this company, in 1899, sold out to, and was succeeded by, the R. J. Reynolds Tobacco Company of New Jersey, the complainant. The copartnership and corporations in each instance acquired the plant, assets property, good will, trade-names, trade-marks, trade-dress recipes, and trade-rights of the predecessor, announced succession, preserved the Schnapps formula as a trade-secret, and continued the manufacture of the brand at the same place, and in substantially the same way under the general conduct and supervision of the originator of both the business and brand. Prior to 1894, Schnapps had been marketed with the tag in various designs. In that year a new and theretofore unused style of tag was gotten up, and from that date employed for the tag, consisting of a narrow tin rhomboid, exhibiting a dark brown or black background with the word 'Schnapps' imprinted thereon in red back-slanting letters. Two or three such tags, one for each cut, are placed upon each plug, and are the only badges or marks of origin or identification attached to the tobacco and accompanying it, usually seen by the consumer. The plugs with the tags attached are packed in the usual way in boxes or caddies which bear the name and address of the maker, and an enlarged reproduction of the tag upon the sides and ends. In retail stores, where the tobacco is sold to users, the caddies are usually unheaded and placed in show cases or rear shelves where but little of the letter press thereon is visible, but where the general appearance of the tag can be seen; and from such caddies the retailer passes out the plugs or cuts to the buyer. The market for this brand embraces the Southern states. The brand has been, especially since 1894, extensively advertised by signs, hangers, posters, and circulars, which usually have reproduced on an enlarged scale the peculiar identifying tag. About $1,000,000 have been expended in advertising the brand of tobacco called 'Schnapps.' The sales have reached 11,500,000 pounds annually. The consumers are largely colored and white people unable to read. The tag is thoroughly associated with and in the minds of users, and identifies the product of complainant, directly or indirectly, by signifying the thing desired. Beginning in 1902, after defendant's infringement started, indented letters were used for the Schnapps tag, and to some extent advertised as identifying the genuine product. Six years after Schnapps was well established and known, and the peculiar features of the tag associated and identified with, and relied upon as a badge of origin, defendant, a rival plug tobacco manufacturer, with knowledge of the facts relative to Schnapps came upon the market with a new brand styled 'Traveller,' and employed a tag of same dimension, shape, and color, and the word 'Traveller' inscribed thereon in red back-slanting letters. The plugs of tobacco are identical in shape, size, color, and weight with complainant's; have the tag affixed in the same places and numbers, and are packed in boxes and caddies of the same sizes. The shapes, sizes, and colors of plugs, number of cuts, and places of tags, method of packing, and sizes and shapes of boxes, are common to the trade. Traveller tobacco is inferior in quality, is sold to the trade for a less price than the brand of complainant known and designated as 'Schnapps,' and sold to the consumer for the same prices, and is not advertised to any extent. It is exposed for sale and sold in the same way and to the same class of consumers, and in the same markets as Schnapps.

It is insisted by the complainant that the defendants' salesmen are requested to suggest to retail dealers that the 'Traveller' brand can be substituted for 'Schnapps' with greater profit; and this has been done, and is being done. It is also insisted that it is shown by the testimony that the defendants at the suggestion of a customer by the name of Tom Morton, of Tennessee, adopted the size, color of tag, etc., and color of letterpress to enable such substitution and passing off of the Traveller brand of tobacco; that the defendants' salesmen had deliberately and methodically represented to retail dealers that by similarity of the label 'Traveller' brand could be palmed off on buyers as 'Schnapps'; that the imitation is calculated and does deceive buyers; that the defendants have been repeatedly and cautiously warned, but have refused, to desist their conduct; that although the imitation tag has been on the market for four or five years, it is only within the last 18 months that it has been actively urged or pushed and that it was not until after the institution of this suit that the fraudulent inception of Traveller was ascertained by complainant. The injunction sought is to stay the use in the manufacture, packing, and distributing of plug tobacco, containing a tag identical or like that of complainant, or the tag used by defendants of the same style or color, style, color, or arrangement of letterpress, calculated to enable or of enabling the plug tobacco of the defendants to be substituted and passed off, and sold as the plug tobacco of complainant. It is not claimed that the Traveller brand is an infringement of the Schnapps brand as a trade-mark or trade-name. This is a suit to enjoin unfair and fraudulent competition in trade. It is insisted by counsel for defendants that there is a want of title to the Schnapps brand and tag, because of a stipulation in the conveyance from the R. J. Reynolds Tobacco Company of North Carolina to the complainant, the R. J. Reynolds Tobacco Company of New Jersey, upon the ground that the contract in question contains a clause in restraint of interstate commerce or trade, and therefore void.

The amended bill of complaint shows the inception of the business in 1880 by Richard J. Reynolds, its transfer in 1888 to R. J. Reynolds & Co.; the succession in 1890, of the R. J. Reynolds Tobacco Company of North Carolina, and the acquisition of the business by the R. J. Reynolds Tobacco Company of New Jersey in 1899. These averments, which are practically unchallenged by the answer, save that the legality or the validity of the conveyance from the North Carolina Company to the New Jersey Company is denied as violative of the anti-trust act. are amply sustained by the conveyances, of which copies are annexed to the affidavit of Richard J. Reynolds as exhibits 1 to 11, inclusive. Exhibit 1, Copartnership articles, dated January 2, 1888, between Richard J. Reynolds, W. N. Reynolds, and Henry Roan; the former retaining the ownership of all brands. Exhibit 2. Articles of incorporation of R. J. Reynolds Tobacco Company of North Carolina, dated February 11, 1890, showing R. J. Reynolds, W. N. Reynolds, and Henry Roan, taking all the shares of stock. Exhibit 3. Deed from R. J. Reynolds to R. J. Reynolds Tobacco Company of North Carolina, conveying the factory, fixtures, furniture, and brands. Exhibit 5. Articles of incorporation of R. J. Reynolds Tobacco Company of New Jersey dated April 3, 1899. Exhibit 6. Resolution of stockholders of R. J. Reynolds Tobacco Company of North Carolina, authorizing the directors to sell and convey as of March 21, 1899, the good will, business, trade-marks, brands, patents, trade-secrets, processes, formulas, bills and accounts receivable, real estate, factory, plant, machinery, and all assets and property of the North Carolina Company to the R. J. Reynolds Tobacco Company of New Jersey. Exhibit 7. Resolutions of board of directors of North Carolina Company April 10, 1899, authorizing such transfer. Exhibits 8 and 9. Deeds of factory from R. J. Reynolds and North Carolina Company to New Jersey Company, dated January 30, and April 11, 1899. Exhibit 10. General conveyance April 11, 1899, from R. J. Reynolds Tobacco Company of North Carolina and its stockholders, to R. J. Reynolds Tobacco Company of New Jersey, conveying the tobacco manufacturing business of vendor as a going concern with all good will, personal property, chattels, trade-marks, trade-names, brands, labels, copyrights, trade-secrets, etc., and all property effects, assets, and estate of vendor. Among the registered brands scheduled as 'Schnapps.' Exhibit 11. Separate transfer, dated April 11, 1899, of registered trade-marks and brands, enumerating Schnapps as registered April 22, 1884. The defendant seeks to show that the complainant is not the legal owner of the Schnapps tag, and, in support of this contention, it is insisted that the conveyance from the North Carolina Company to the New Jersey Company is violative of the anti-trust act.

In order to sustain the proposition contended for by defendan...