Sands, Taylor & Wood Co. v. Quaker Oats Co.

• Decision Date: 25 November 1992
• Docket Number: No. 91-2876,91-2876
• Citation: 978 F.2d 947
• Parties: , 24 U.S.P.Q.2d 1001 SANDS, TAYLOR & WOOD COMPANY, Plaintiff-Appellee, v. The QUAKER OATS COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 947

978 F.2d 947

61 USLW 2204, 24 U.S.P.Q.2d 1001

SANDS, TAYLOR & WOOD COMPANY, Plaintiff-Appellee, v. The QUAKER OATS COMPANY, Defendant-Appellant.

No. 91-2876.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 11, 1992.

Decided Sept. 2, 1992.

Dissenting Opinion of Judge Fairchild Corrected Sept. 8, 1992.

Order on Denial of Rehearing and

Rehearing En Banc Nov. 25, 1992.

Dean A. Olds (argued), Willian, Brinks, Olds, Hofer, Gilson & Lione, Edward M. Keating, Kinzer, Plyer, Dorn, McEachran & Jambor, Stephen J. Manich, Recktenwald & Van Santen, Susan S. Neal, William, Brinks, Olds, Hofer, Gilson & Lione, Chicago, Ill., for plaintiff-appellee.

Jerrold J. Ganzfried, William E. Wallace, III (argued), Michael L. Roy, John S. Kingdon, Barbara Friedman, Howrey & Simon, Washington, D.C., William T. Cahill, Thomas P. Cimino, Jr., Pope & John, Chicago, Ill., for defendant-appellant.

Before CUDAHY and RIPPLE, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

CUDAHY, Circuit Judge.

Sands, Taylor & Wood Company (STW) brought this action against The Quaker Oats Company (Quaker) for federal trademark infringement and related state-law claims, alleging that Quaker's use of the words "Thirst Aid" in its advertising slogan "Gatorade is Thirst Aid" infringed STW's registered trademark for THIRST-AID. The district court agreed, and entered judgment for STW in the amount of $42,629,399.09, including prejudgment interest and attorney's fees. The court also permanently enjoined Quaker from using the words "Thirst Aid." Not surprisingly, Quaker appeals.

I.

Plaintiff STW is a small, Vermont-based company that for the past 180 years has sold bagged flour at retail under the brand name "King Arthur Flour." In 1973, STW acquired Joseph Middleby, Jr., Inc. (Middleby), a manufacturer of soft drinks, soda fountain syrups and ice cream toppings. STW thereby became the owner of three trademarks registered to Middleby: (1) THIRST-AID "First Aid for Your Thirst," issued October 10, 1950, for use on "nonalcoholic maltless beverages, sold as soft drinks, and syrups therefor"; (2) THIRST-AID, issued August 26, 1952, for use on various ice cream toppings as well as "fruits and sauces used in the making of ice cream"; and (3) THIRST-AID, issued March 24, 1953, for use on "soda fountain syrups used in the preparation of maltless soft drinks."

From 1921 to 1973, Middleby used the THIRST-AID mark on a wide variety of beverage products and syrups that it sold to soda fountains, ice cream parlors and food service outlets. Middleby also supplied its THIRST-AID customers with various items displaying the name THIRST-AID, including streamers, banners, glasses and pitchers, for in-store advertising and promotion. STW continued these activities after it acquired Middleby, which it operated as a wholly-owned subsidiary.

In the late 1970s sales of THIRST-AID soft drinks declined as consumers turned increasingly to bottles and cans rather than soda fountains and ice cream parlors for their soft drinks. In addition, between 1979 and 1983 STW underwent a period of severe economic hardship during which its annual gross revenues dropped from $40 million to approximately $3.1 million. In the spring of 1980, Pet, Inc. (Pet) negotiated with STW a nationwide license to use the name THIRST-AID on a new isotonic beverage ¹ intended to compete with the very popular Gatorade brand isotonic beverage manufactured by Stokely Van Camp Company (Stokely). Pet began test-marketing the product in twenty stores in Columbia, South Carolina in June of 1980. Pet's THIRST-AID was advertised through the same media as Gatorade, and was sold through the same channels of trade (grocery stores) to the same customers. During the five-month period of the test, Pet's THIRST-AID captured approximately 25% of the isotonic beverage market in the test area. Nevertheless, for reasons that are not important here, Pet decided not to enter the market with the new product and in June of 1981 its license to use the name THIRST-AID expired.

In December of 1981, STW sold the assets of Middleby (now renamed Johnson-Middleby) to L. Karp & Sons (Karp), a distributor of bakery products. As part of the sale, STW assigned to Karp all of the registered THIRST-AID trademarks. STW obtained a simultaneous exclusive license back for retail use of the trademark on certain "Products" defined as "jams, jellies, pie fillings" and various other bakery supplies.

In August of 1983, Stokely, the manufacturer of Gatorade, was acquired by Quaker. Shortly thereafter, Quaker solicited proposals for a new advertising campaign intended to educate consumers about Gatorade's ability to quench thirst and replace fluids and minerals lost by the human body through strenuous exercise. One of the candidates was the slogan "Gatorade is Thirst Aid for That Deep Down Body Thirst."

Pursuant to Quaker's regular practice, the proposed "Thirst Aid" campaign was submitted to the legal department for approval in February or March of 1984. Quaker's in-house counsel, Charles Lannin, concluded that the words "Thirst Aid" did not raise any trademark problems because they were used to describe an attribute of the product rather than as a designation of source or affiliation. Lannin therefore did not conduct a trademark search for the term "Thirst Aid" at this time.

Shortly thereafter, an employee of Quaker's research and development division telephoned Lannin and informed him that Pet had previously test-marketed an isotonic beverage called THIRST-AID. Lannin contacted Pet and was told that Pet had discontinued its isotonic beverage a few years before. Some weeks later, another Quaker employee informed Lannin that he thought a "Thirst Aid" beverage was being marketed in Florida. At this point, on May 2, 1984, Lannin obtained a trademark search of the phrase "Thirst Aid." The search revealed the three THIRST-AID registrations by Middleby as well as the sale of the marks to Karp. Lannin directed a trademark paralegal employed by Quaker to contact Karp in order to determine what products it was selling under the THIRST-AID name; the Karp employee to whom the paralegal spoke ² stated that "they [sic] didn't think they marketed anything under that name." Tr. at 942.

On May 12, 1984, the first "Gatorade is Thirst Aid" commercials ran on television. On May 31, 1984, Karp's lawyer, Russell Hattis, called Quaker regarding Quaker's use of "Thirst Aid." Hattis claimed that Quaker was infringing Karp's trademarks, to which Lannin responded that there was no infringement because Quaker was using the words "Thirst Aid" descriptively. In a subsequent meeting between the two, Lannin learned from Hattis that the THIRST-AID mark had not been used on soft drinks or beverages since the Pet test-market. On June 2, Quaker sought an opinion from outside trademark counsel, Robert Newbury, who essentially agreed with Lannin that there was no infringement because Quaker was using the words "Thirst Aid" descriptively rather than as a trademark.

On June 4, Lannin was contacted by Frank Sands, the president of STW, who stated that STW owned the rights to use the THIRST-AID mark at retail under a licenseback agreement with Karp. Sands claimed that Quaker was infringing those rights, although he acknowledged that STW did not sell any THIRST-AID products at that time.

Quaker did not hear from either Karp or STW again until the commencement of this litigation. In the interim, STW entered into a written agreement with Karp under which STW paid Karp $1 for an assignment of Karp's trademark registrations. Sands filed suit one week later, alleging that the slogan "Gatorade is Thirst Aid for That Deep Down Body Thirst" infringed its registrations and constituted unfair competition under the Lanham Act, 15 U.S.C. §§ 1051 et seq., state common law and various state statutes. After granting summary judgment in favor of STW on Quaker's fair use defense, the district court held a bench trial on the remaining issues. On December 18, 1990, the court issued its opinion holding that Quaker had infringed STW's trademark and awarding STW 10% of Quaker's pre-tax profits on Gatorade for the period during which Quaker used "Thirst Aid" in its advertising. Sands, Taylor & Wood v. The Quaker Oats Co., 18 U.S.P.Q.2d 1457, 1990 WL 251914 (N.D.Ill.1990). The court also awarded STW attorney's fees and costs as well as prejudgment interest. Gatorade appeals.

II.

As we have noted, the district court granted summary judgment in favor of STW on Quaker's defense that it had made a "fair use" of the phrase "Thirst Aid." ³ The fair use doctrine is based on the principle that no one should be able to appropriate descriptive language through trademark registration. William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526, 528, 44 S.Ct. 615, 616, 68 L.Ed. 1161 (1924). To prevail on the fair use defense, the defendant must establish that its use of a registered "term or device" is "otherwise than as a trade or service mark," that the term or device is "descriptive of" the defendant's goods or services and that the defendant is using the term or device "fairly and in good faith only to describe to users" those goods and services. 15 U.S.C. § 1115(b)(4). The district court found that the term "Thirst Aid" was not descriptive of Gatorade but rather was "suggestive." The court also found that even if "Thirst Aid" were descriptive, Quaker could not prevail on the fair use defense because it had used the term as a trademark in its ads. Quaker challenges both of these conclusions. ⁴

We review a district court's grant of summary judgment de novo, "viewing the record and all reasonable inferences drawn from it in the light most favorable to the party opposing the motion." Anderson v. Stauffer Chemical Co., 965 F.2d 397, 400 (7th Cir.1992). We will affirm the grant of summary judgment only if we conclude from the pleadings and other materials that were before the district court "that...