Shakey's Inc. v. Covalt, s. 81-3166
| Citation | 218 USPQ 16,704 F.2d 426 |
| Decision Date | 18 April 1983 |
| Docket Number | Nos. 81-3166,81-3185,s. 81-3166 |
| Parties | SHAKEY'S INCORPORATED, Plaintiff-Appellant, v. Isabel COVALT, Covalt Enterprises, Inc., Pi Arn Squared, Inc., d/b/a Suspenders Pizza, Fred Jansen, and Sande Dahl, Defendant-Appellee. SHAKEY'S INCORPORATED, Plaintiff-Appellee, v. Isabel COVALT, Covalt Enterprises, Inc., Pi Arn Squared, Inc., d/b/a Suspenders Pizza, Fred Jansen, and Sande Dahl, Defendants-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Peter R. Taft, Munger, Tolles, Rickershauser, Los Angeles, Cal., for Shakey's Inc.
Garry P. McMurry, Rankin, McMurry, Osburn, Vavrosky & Doherty, Portland, Or., Richard A. Carlson, Drakulich & Carlson, Portland, Or., for Isabel Covalt, et al.
Appeal from the United States District Court for the District of Oregon.
Before CHOY, TANG, and BOOCHEVER, Circuit Judges.
This case involves claims of trademark infringement, unfair competition, and breach of contract. It arose after the defendant pizza parlor operators terminated their affiliation with Shakey's Inc. (Shakey's), a national pizzeria chain. After letting a franchise agreement with Shakey's expire, the defendants continued to operate their pizza parlors under different names ("Izzy's" [3 parlors] and "Suspenders" [1 parlor]. Because of alleged similarities between the former Shakey's operations and new Izzy's operations, Shakey's sued Isabel Covalt and Covalt Enterprises (the Covalt defendants) for unfair competition and two counts of trademark infringement. It sued all defendants for alleged breaches of both the franchise agreement and a parlor remodeling agreement. The trial court directed a verdict for the Covalt defendants on the unfair competition, the slogan/menu name infringement, and the breach of the remodeling agreement claims. It directed a verdict for defendants Dahl and Pi Arn Squared on the breach of contract claims. The jury returned a verdict for the Covalt defendants on the other claims. The court awarded the defendants costs and attorney's fees. Shakey's appeals the directed verdicts and fee awards. The Covalt defendants cross-appeal for costs not allowed.
We affirm in part and reverse in part. The directed verdicts on the trademark infringement and unfair competition claims were appropriate because the evidence was insufficient to show a "likelihood of confusion." We reverse the directed verdicts on the breach of the remodeling agreement claims as to the Covalt defendants and Pi Arn Squared, and affirm as to Dahl. We affirm the attorney's fee and cost awards.
In 1958, Shakey's granted James Covalt franchises for Albany, Salem, and Corvallis, Oregon. In 1970, Mr. Covalt and his wife, Isabel Covalt, created Covalt Enterprises, Inc., to operate their Shakey's outlets. In 1976, the Covalts turned over the management of their North Salem parlor to defendants Arnie Dahl (their nephew) and Pi Arn Squared, Inc. (51% owned by the Covalts, 49% owned by Dahl and his parents). In 1976, Fred Jansen (Isabel Covalt's son) assumed the managerial responsibilities for the Covalts' three parlors in Albany and Corvallis. Upon Mr. Covalt's death in 1978, Isabel Covalt (Covalt) succeeded to all of her husband's interests, rights, and obligations with regard to Shakey's.
Shakey's dealer franchise agreement with Covalt provided that her franchises would expire on June 17, 1979. 1 Prior to that date, negotiations to renew the franchises failed. Upon expiration of the franchise agreement, Isabel Covalt changed the name of her Albany and Corvallis parlors to "Izzy's," a nickname taken from her first name. At the same time, the name of the North Salem parlor was changed to "Suspenders." Covalt also returned all confidential manuals to Shakey's, discontinued use of Shakey's registered trademarks and its spice blends, and removed all Shakey's signs and artwork. In addition, she distributed handouts at the Albany and Corvallis parlors, announcing that "On Sunday, June 17, we're going to get a new name--IZZY's." Izzy's also advertised that "We've changed our name, but not our style." Despite Shakey's demands to do so, Covalt did not remodel her parlors, discontinue use of the color scheme in the restaurants, alter the parlors' offerings (although she changed the menu items' names), or immediately change the parlors' telephone listings. Because of the alleged similarities between the Covalt restaurants and Shakey's outlets, Shakey's charged the defendants with unfair competition and two counts of trademark infringement. 2
Shakey's also charged all defendants with breach of a remodeling agreement. Allegedly, Shakey's had commissioned the creation of a new interior and exterior design for its parlors, called the "Devine Design." In 1977, James Covalt signed a Remodel Agreement, whereby he agreed to remodel his parlors to conform with the Devine Design, to join the Portland Advertising Group (Portland ADI), and to "pay a full share of funds required for [the Portland ADI's] joint advertising plans." Dahl signed a similar agreement, pertaining to the North Salem parlor, which was never executed by Shakey's. Jim Covalt and Shakey's subsequently executed a copy of the same agreement for the North Salem parlor. Covalt ceased making payments to the Portland ADI in December, 1978, and Dahl and Pi Arn Squared ceased in January, 1979.
In the proceedings below, the district court directed a verdict for Covalt and Covalt Enterprises (the Covalt defendants) regarding the slogan/menu name infringement, unfair competition, and breach of the remodeling agreement charges. The court submitted the "Devine Design" trademark infringement claim and the breach of the franchise agreement claim against the Covalt defendants to the jury, which returned a verdict in their favor. Shakey's appeals the three directed verdicts. Regarding Dahl and Pi Arn Squared, the court directed verdicts in their favor on both the breach of the franchise agreement and breach of the remodeling agreement charges. Shakey's appeals only the latter ruling. Other charges against these defendants, including a trademark infringement claim, were disposed of in their favor during the trial and are not challenged in this appeal. 3
Following trial, the court awarded attorney's fees to the Covalt defendants on the breach of the franchise agreement claim and to Dahl and Pi Arn Squared on both the trademark infringement and the breach of the franchise agreement claims. It also initially awarded Covalt all requested costs, an amount it later reduced. Shakey's appeals the attorney's fee awards on the franchise agreement claims, and Covalt appeals the modified cost award.
The standard for reviewing the propriety of a directed verdict is the same on appeal as it is below. California Computer Products v. IBM Corp., 613 F.2d 727, 734 (9th Cir.1979). A directed verdict is proper if the evidence permits only one reasonable conclusion as to the verdict. Fountila v. Carter, 571 F.2d 487, 489-90 (9th Cir.1978). It is improper if there is substantial evidence to support a finding for the non-moving party. California Computer Products, 613 F.2d at 734. In ruling on motions for a directed verdict, we must view the evidence as a whole and draw all possible inferences in favor of the non-moving party. Id. at 735.
Shakey's contends that the Covalt defendants infringed on the unregistered servicemark and trademarks it allegedly has for its slogan and menu names. 5 Specifically, it provides the following comparison of Shakey's and Izzy's slogans and menu names:
Shakey's also charges the Covalt defendants with unfair competition. In this regard, Shakey's complains that the Izzy's parlors copied its menu content, its prices, the ingredients used in the pizzas and sandwiches, and its "style of presentation." It also complains that the Covalt defendants continued to use the Devine Design and that they did not promptly change their telephone number and listing. This alleged "mimicry" purportedly deceived the public, and enabled Izzy's to derive benefit from Shakey's good will. Following Shakey's presentation of its case, the district court directed a verdict in the defendants' favor on the slogan/menu name infringement claims. It did the same on the unfair competition claim after hearing Covalt's evidence. We affirm both rulings.
The gravamen of both an infringement and an unfair competition claim is whether the defendant has created a "likelihood of confusion." See 15 U.S.C. Sec. 1125(a) (1976); Or.Rev.Stat. Sec. 646.608(1)(b) (1981); New West Corp. v. NYM Co., 595 F.2d 1194, 1201 (9th Cir.1979); 88cents Stores, Inc. v. Martinez, 227 Or. 147, 153, 361 P.2d 809, 812 (1961). Likelihood of confusion exists when consumers are likely to assume that a product or service is associated with a source other than its actual source because of similarities between the two sources' marks or marketing techniques. See Alpha Industries, Inc. v. Alpha Steel Tube & Shapes, Inc., 616 F.2d 440, 443 (9th Cir.1980); B.H. Bunn Co. v. AAA Replacement Parts Co., 451 F.2d 1254, 1263 (5th Cir.1971). In determining whether confusion between related goods is likely, the following factors are relevant: similarities between the protected and the allegedly infringing marks, the class of goods in question and the corresponding degree of care likely to be exercised by purchasers in selecting a product, the marketing channels, the intent of the alleged infringer, evidence of actual confusion, 6 and the fame of the prior mark. Alpha Industries, 616 F.2d at 444; Carter-Wallace, Inc. v. Procter & Gamble Co., 434 F.2d 794, 800 (9th Cir.1970). In addition to these factors, in this case we must also take into account the fact that Covalt was not entering a market, but was a former Shakey's franchisee who had chosen to let her affiliation...
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