Taco Cabana Intern., Inc. v. Two Pesos, Inc.

• Citation: 932 F.2d 1113
• Decision Date: 11 June 1991
• Docket Number: No. 89-2203,89-2203
• Parties: TACO CABANA INTERNATIONAL, INC., Plaintiff-Appellee, v. TWO PESOS, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1113

932 F.2d 1113

19 U.S.P.Q.2d 1253

TACO CABANA INTERNATIONAL, INC., Plaintiff-Appellee, v. TWO PESOS, INC., Defendant-Appellant.

No. 89-2203.

United States Court of Appeals Fifth Circuit.

June 11, 1991.

Kimball J. Corson, Janet Napolitano, Lewis & Roca, Phoenix, Ariz., for defendant-appellant.

James B. Gambrell, Marc L. Delflache, Eugene R. Montalvo, Pravel, Gambrell, Hewitt, Kimball & Krieger, Houston, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before REAVLEY, GARWOOD, and BARKSDALE, Circuit Judges.

REAVLEY, Circuit Judge:

Taco Cabana complained of the imitation of the appearance and motif of its Mexican restaurants by Two Pesos. Taco Cabana won a judgment for trade dress infringement under the Lanham Act and misappropriation of trade secrets under Texas law. Two Pesos appeals, claiming that Taco Cabana's trade dress is not protectable because the Mexican motif is not protectable, and that Taco Cabana surrendered any claim it had to Lanham Act protection by cross-licensing with another restaurant and retaining the same trade dress for two different restaurant names. Two Pesos also claims that it obtained the alleged trade secrets--architectural plans and kitchen equipment layout--in a lawful manner and cannot be guilty as a matter of law

for trade secret misappropriation. We affirm.

BACKGROUND

Two brothers, Felix and Mike Stehling, opened the first Taco Cabana restaurant in San Antonio in September 1978, and opened five more restaurants in San Antonio by 1985. Taco Cabana describes its Mexican fast-food trade dress as:

a festive eating atmosphere having interior dining and patio areas decorated with artifacts, bright colors, paintings and murals. The patio includes interior and exterior areas with the interior patio capable of being sealed off from the outside patio by overhead garage doors. The stepped exterior of the building is a festive and vivid color scheme using top border paint and neon stripes. Bright awnings and umbrellas continue the theme.

In December 1985, Marno McDermott and Jim Blacketer opened Two Pesos in Houston. Two Pesos adopted a motif essentially consistent with the above description of Taco Cabana's trade dress, ¹ and expanded rapidly in Houston and other markets in and out of Texas, ² but did not enter San Antonio. In 1987, Taco Cabana sued Two Pesos for trade dress infringement under section 43(a) of the Lanham Act and for theft of trade secrets under Texas common law.

Six days before filing suit against Two Pesos, the Stehling brothers entered into a series of agreements dividing the Taco Cabana restaurants between themselves and going their separate ways. Felix Stehling retained the "Taco Cabana" name, and Michael Stehling adopted the name "TaCasita." The agreements allowed the two groups to use the same trade dress, though one provision required "reasonable efforts to modify their trade dress for their respective future restaurants sufficiently to distinguish the restaurants of each Group from the restaurants of the other Group in the public's mind." The Stehlings have not altered their respective trade dresses. After filing suit, Taco Cabana expanded into several cities, including Houston and Dallas where Two Pesos was already doing business.

The jury found that: (1) Taco Cabana has a trade dress; (2) Taco Cabana's dress, taken as a whole, is non-functional; (3) the dress is inherently distinctive; (4) the dress has not acquired secondary meaning in the Texas market; (5) customers might likely associate or confuse a Taco Cabana restaurant with a Two Pesos restaurant; (6) Taco Cabana exercises adequate supervision and control over TaCasita to ensure that the quality of TaCasita's goods and services are not inferior to Taco Cabana's; and (7) Taco Cabana was damaged by the trade dress infringement. The jury awarded $306,000 for lost profits, $628,300 for lost income, and $0 for loss of good will. The district court doubled the damages for trade dress infringement (bringing the total to $1,868,600), awarded attorneys fees of $937,550, and ordered Two Pesos to make several changes in its restaurant design.

Taco Cabana also claimed misappropriation of the following trade secrets: (1) certain architectural drawings; (2) its kitchen equipment layout and design; and (3) its kitchen and restaurant operating procedures. The jury found that Two Pesos misappropriated the architectural drawings and the kitchen equipment layout and design, but not the operating procedures. The jury awarded $150,000 for the misappropriation. The district court entered judgment on the jury's verdict, and denied Two Pesos' motions for judgment n.o.v. and for a new trial. Two Pesos appeals.

DISCUSSION

I. Trade Dress Infringement

Trade dress infringement is established by showing that: (1) the dress qualifies for protection, which requires considering functionality, distinctiveness, and secondary meaning; and (2) that the dress has been infringed, which requires considering the likelihood of confusion. Sicilia Di R. Biebow & Co. v. Cox, 732 F.2d 417, 425 (5th Cir.1984).

A. The Threshold "Concept" Dispute.

The district court instructed the jury that:

"trade dress" is the total image of the business. Taco Cabana's trade dress may include the shape and general appearance of the exterior of the restaurant, the identifying sign, the interior kitchen floor plan, the decor, the menu, the equipment used to serve food, the servers' uniform and other features reflecting the total image of the restaurant.

See Blue Bell Bio-Medical v. Cin-Bad, Inc., 864 F.2d 1253, 1256 (5th Cir.1989) ("The 'trade dress' of a product is essentially its total image and overall appearance.").

Two Pesos argues that protectable trade dress is much narrower than "total image." The combined effect, Two Pesos argues, of Taco Cabana's consistent reference to "concept" and the district court's "total image" instruction was to mislead the jury into believing that Taco Cabana had a right to preclude competitors from using a Mexican theme for a Mexican restaurant. ³ Taco Cabana cannot preclude Two Pesos or anyone from entering the upscale Mexican fast-food market. But the jury was not misled into protecting such an abstract level of Taco Cabana's trade dress.

A competitor can use elements of Taco Cabana's trade dress, ⁴ but Taco Cabana "can protect a combination of visual elements 'that, taken together, ... may create a distinctive visual impression.' " Fuddruckers, Inc. v. Doc's B.R. Others, Inc., 826 F.2d 837, 842-43 (9th Cir.1987), quoting Falcon Rice Mill v. Community Rice Mill, 725 F.2d 336, 346 (5th Cir.1984). Two Pesos may enter the upscale Mexican fast-food market, but it may not copy Taco Cabana's distinctive combination of layout and design features. ⁵ Two Pesos' imitation reflects not merely components of Taco Cabana's trade dress, but its distinctive integration of components. The instructions properly cautioned the jury not to focus on isolated components in determining the protectability of Taco Cabana's trade dress, but rather to consider the overall combination of elements.

B. The Elements of Protectability.

1. Functionality.

The portions of the trial court's instructions disputed by Two Pesos appear in bold type:

The law allows the copying of functional features in the public interest of enhancing competition....

Even if the trade dress is made up of individual elements, some of which serve a functional purpose, the trade dress may be protectable so long as the combination of these individual elements which define Taco Cabana's trade dress taken is arbitrary. On the other hand, if you find that Taco Cabana's trade dress taken as a whole must be used by others in order to compete in the Mexican fast-food restaurant business, then you should find that Plaintiff's trade dress is functional and not protectable.

[T]he inquiry into whether Taco Cabana's trade dress is functional or non-functional should not be addressed to whether individual elements fall within the definition, but whether the whole collection of elements taken together are functional or non-functional.

Two Pesos' argument reduces to a fallacious syllogism: (1) functional elements do not enjoy protection; (2) Taco Cabana's trade dress includes functional elements; (3) therefore Taco Cabana's trade dress does not enjoy protection. Two Pesos correctly emphasizes that functional features cannot be protected, Sno-Wizard Mfg., Inc. v. Eisemann Products Co., 791 F.2d 423, 425 n. 2 (5th Cir.1986), but a particular arbitrary combination of functional features, the combination of which is not itself functional, properly enjoys protection. See Sicilia, 732 F.2d at 425 (design may be distinctive and identifying even though also related to performing a function); Chemlawn Services Corp. v. GNC Pumps, Inc., 690 F.Supp. 1560, 1571 (S.D.Tex.1988) (exterior configuration of functional parts arbitrarily selected; not necessary to copy configuration of each part to effectuate functions). Taco Cabana does not seek protection for individual elements, but for a particular combination of elements which constitute trade dress as a whole. See Sicilia, 732 F.2d at 429.

With the doctrine of functionality, the law secures for the marketplace a latitude of competitive alternatives. See Freddie Fuddruckers, Inc. v. Ridgeline, Inc., 589 F.Supp. 72, 77 (N.D.Tex.1984) (policy predicate for functionality doctrine is public interest in enhancing competition), aff'd without op., 783 F.2d 1062 (5th Cir.1986); Stormy Clime Ltd. v. ProGroup, Inc., 809 F.2d 971, 977-78 (2d Cir.1987) (functionality test critical to avoid upsetting patent law by indefinitely extending trade dress protection to an aggregation of elements that would otherwise enrich the public domain after expiration of design patent). "The need to avoid monopolization of a design lessens, however, in the area of distinctive trade dress. The wide...