Raxton Corp. v. Anania Associates, Inc., 80-1159

• Decision Date: 11 December 1980
• Docket Number: No. 80-1159,80-1159
• Citation: 635 F.2d 924
• Parties: RAXTON CORPORATION, d/b/a Off the Rax, Plaintiff, Appellee, v. ANANIA ASSOCIATES, INC., d/b/a Off the Rack, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 924

635 F.2d 924

208 U.S.P.Q. 769

RAXTON CORPORATION, d/b/a Off the Rax, Plaintiff, Appellee, v. ANANIA ASSOCIATES, INC., d/b/a Off the Rack, Defendant, Appellant.

No. 80-1159.

United States Court of Appeals, First Circuit.

Argued Sept. 8, 1980.

Decided Dec. 11, 1980.

Steven J. Henry, Boston, Mass., with whom John F. McKenna, and Cesari & McKenna, Boston, Mass., were on brief, for defendant, appellant.

Henry C. Nields, Boston, Mass., with whom David A. Tucker, and Russell & Nields, Boston, Mass., were on brief, for plaintiff, appellee.

Before COFFIN, Chief Judge, CAMPBELL, Circuit Judge, KEETON, District Judge. ^*

COFFIN, Chief Judge.

This appeal concerns the geographic scope of trademark protection accorded to a plaintiff in the absence of state or federal trademark registration. At issue is the vitality and dimension of the doctrine of the "zone of natural business expansion." ¹ That doctrine is said to grant the owner of a trademark the right to obtain legal relief against a geographically distant party that subsequently adopts a confusingly similar mark, so long as the first user can show that the distant location is within its "natural zone of expansion". We reverse the judgment below and hold that this doctrine does not apply when the first user failed to register the mark and the second party, innocent of any knowledge of a first use, adopted a name new to the area.

I.

Plaintiff-appellee ("Rax") sells women's clothing at a discount store called "Off the Rax" in the vicinity of Norwood, Massachusetts. Defendant-appellant ("Rack") sells men's clothing at a discount store called "Off The Rack" in Brockton, Massachusetts. The parties agree that the names are confusingly similar. The district court found that each adopted its name in good faith and without knowledge of the other's usage.

The sequence of events leading from the choice of names to the discovery of the conflict is compressed in time. Rax was organized as a wholly-owned subsidiary of Stop & Shop Companies, Inc. in May 1978. It is a Massachusetts corporation headquartered in Norwood, Massachusetts. It chose its name and leased space for a warehouse and office in Norwood in the summer of 1978, intending first to lease a large enough facility to permit it to open a warehouse store at the same location. This effort, however, was stymied for about a year by the unavailability of an adequate area for store parking. Although it had made private sales to employees from its Norwood warehouse, Rax did not sell to the public or advertise in Massachusetts until it opened a store near its Norwood warehouse in August 1979. Rax opened the first of its stores in New Jersey and Illinois in September 1978. By December 1978 it had opened twelve stores in the Chicago and Philadelphia areas. It succeeded in opening ten more stores in these areas and around Washington, D.C., in 1979. It stated that it planned to open an additional 30 stores in 1980.

Rax made one use of the now-disputed name in Massachusetts before learning of Rack's use of the name there. On August 3, 1978, the following article appeared in the "In Brief" section of the Boston Globe newspaper:

Women's Shops

Avram J. Goldberg, president of the Stop & Shop Companies, Inc., yesterday announced that its new venture of women's specialty shops will be known as Raxton Corp., a wholly-owned subsidiary of The Stop & Shop Companies doing business as "Off the Rax." ²

Rack is also a Massachusetts corporation. Its principals did not incorporate until June 1979, although they did business together prior to this time. They chose the Rack name in December 1978, and advertised it for the first time the following month on a large notice announcing their projected opening at the Brockton site-their lone store. On February 1, 1979, Rack obtained registration of its name as a trademark and a service mark from the Secretary of the Commonwealth of Massachusetts. Rack installed a permanent sign at its Brockton location that same month. On February 27, 1979, a salesman who had had prior dealings with Rax notified Rack of Rax's existence. In March 1979 Rax sent to Rack by certified mail a formal objection to Rack's use of the name. Rack made its first sale on March 15, 1979, and opened to the public on April 2, 1979. It began local radio and newspaper advertising about the same time. In July, Rax filed its complaint, alleging false designation of origin, false description, and false representation in violation of 15 U.S.C. § 1125(a) (The Lanham Act § 43(a)), and also trademark infringement and unfair competition under common law.

Rax has not registered its mark with Massachusetts. Neither party had received federal registration at the time of oral argument, although Rax announced at that time that it had applied for federal registration and was awaiting action by the federal government. ³

The district court began its analysis by noting the principle that priority of use governs the conflicting trademark claims in this suit. It noted that Rax had the first use of the mark in Chicago and in Philadelphia, but it ruled that Rax's Massachusetts activities prior to its August 1979 advertising and store opening were not sufficient to establish its trademark rights there on that basis alone-a finding that Rax does not challenge in this court. However, it held that Massachusetts was "a target area for expansion of (Rax's) stores" by reason of Rax's maintenance of its executive warehouse within the state; its announcements of its name to the newspapers and to its stockholders; its prior sales to its employees; its plan from the beginning of its operations to open a store near its warehouse and to extend the retail chain into Massachusetts within three or four years; its Massachusetts corporate citizenship (as well as that of its parent corporation); and finally, by virtue of the fact that its parent operates numerous other (Stop and Shop) stores within the state. It concluded that Rax, "admittedly the prior user, although in another market, is thus entitled to protection also in Massachusetts, the area of its natural and probable expansion. Hanover Star Milling Company v. Metcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L.Ed. 713 (1916)." The court then granted Rax's prayer for a permanent injunction against Rack's use of the name and denied Rack's prayer. ⁴

II.

We note at the outset that we have both federal question and pendent jurisdiction over the questions presented in this appeal. ⁵ Considering next the propriety of the district court's judgment on the grounds of federal unfair competition law under § 43(a) of the Lanham Act, we observe that our first task must be to determine the proper contours of the "natural expansion doctrine" that it applied. This doctrine appears singularly imprecise. Its origin is most commonly attributed to the Supreme Court decision in Hanover Star Milling Company v. Metcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L.Ed. 713 (1916), the sole authority that the district court cited for its decision. In part of that case the Supreme Court decided the respective trademark rights of two companies that had both adopted in good faith the mark "Tea Rose" for flour. Allen & Wheeler had adopted the name first, but had confined its trade to areas other than the southeastern United States, the area about which rights to the names was disputed. Hanover was the subsequent good faith user, and had established its trade in the southeast.

Because of the distinctness of the market areas, the Court ruled that Allen & Wheeler's prior appropriation was "legally insignificant", since the second adopter had not "selected the mark with some design inimical to the interest of the first user, such as to take the benefit of the reputation of his goods, to forestall the extension of his trade, or the like." 240 U.S. at 415, 36 S.Ct. at 361. The Court stated that the owner of a trademark cannot

"monopolize markets that his trade has never reached .... 'Since it is the trade, and not the mark, that is to be protected, a trade-mark .... of itself, cannot travel to markets where there is no article to wear the badge and no trader to offer the article.' " 240 U.S. at 416, 36 S.Ct. at 361 (quoting from the opinion below).

The only discussion of a "natural expansion doctrine" occurred in a single sentence: "We are not dealing with a case where the junior appropriator of a trade-mark is occupying territory that would probably be reached by the prior user in the natural expansion of his trade, and need pass no judgment upon such a case." Id. at 420, 36 S.Ct. at 363.

Two years later the Court reiterated Hanover's principle that a trademark "right grows out of use, not mere adoption" of the trademark. Id. at 413, 36 S.Ct. at 360. In United Drug Co. v. Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141 (1918), the petitioner first used the trademark "Rex" in connection with medicinal preparations in Massachusetts. About six years later, a druggist in Kentucky began using the same term-without knowledge of the petitioner's prior use-to market a "blood purifier" in Kentucky. Later the Massachusetts user sent "Rex Dyspepsia Tablets" to Kentucky for retail sale. The Court ruled that the subsequent Kentucky user had rights to the Rex name in Kentucky:

"The owner of a trade-mark may not, like the proprietor of a patented invention, make a negative and merely prohibitive use of it as a monopoly .... In truth, a trade-mark confers no monopoly whatever in a proper sense, but is merely a convenient means for facilitating the protection of one's good-will in trade by placing a distinguishing mark or symbol-a commercial signature-upon the merchandise or the package in which it is sold.

It results that the adoption of a trade-mark does not, at least in the absence of some valid legislation enacted for the purpose, project the right of protection in advance of the extension of the trade, or operate as a claim of territorial rights over...