Thrifty Rent-A-Car System, Inc. v. Thrift Cars, Inc., RENT-A-CAR

• Decision Date: 28 October 1987
• Docket Number: RENT-A-CAR,Nos. 86-2077,86-2078,s. 86-2077
• Citation: 4 USPQ2d 1709,831 F.2d 1177
• Parties: THRIFTYSYSTEM, INC., Plaintiff, Appellee, v. THRIFT CARS, INC., Defendant, Appellant. THRIFTYSYSTEM, INC., Plaintiff, Appellant, v. THRIFT CARS, INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 1177

831 F.2d 1177

4 U.S.P.Q.2d 1709

THRIFTY RENT-A-CAR SYSTEM, INC., Plaintiff, Appellee, v. THRIFT CARS, INC., Defendant, Appellant.

THRIFTY RENT-A-CAR SYSTEM, INC., Plaintiff, Appellant, v. THRIFT CARS, INC., Defendant, Appellee.

Nos. 86-2077, 86-2078.

United States Court of Appeals, First Circuit.

Argued June 4, 1987.

Decided Oct. 28, 1987.

William J. Brennan, III with whom Thomas E. Hastings, Smith, Stratton, Wise, Heher & Brennan, Princeton, N.J., Richard F. McCarthy and Willcox, Pirozzolo & McCarthy, Boston, Mass., were on brief, for Thrift Cars, Inc.

Robert W. Sacoff, Washington, D.C., with whom Kathleen S. Taylor, Denver, Colo., and Saidman, Sterne, Kessler & Goldstein, Washington, D.C., were on brief, for Thrifty Rent-A-Car System, Inc.

Before COFFIN, DAVIS ^* and SELYA, Circuit Judges.

DAVIS, Circuit Judge.

In this trademark infringement suit brought by Thrifty Rent-a-Car System, Inc. (Thrifty), that firm and defendant Thrift Cars, Inc. (Thrift Cars) both appeal the decision of the district court for the District of Massachusetts (Young, J.), 639 F.Supp. 750. After a bench trial, the court enjoined Thrift Cars from conducting a car or truck rental or leasing business outside of Taunton, Massachusetts under the "Thrift Cars" name, and limited Thrift Cars' advertising to those media it had used prior to July 26, 1964, the date that Thrifty obtained federal registration of its own mark. Concomitantly, the court prohibited Thrifty from operating any of its business establishments in East Taunton, Massachusetts or from advertising in any media principally intended to target the East Taunton community. We affirm.

I. Background ¹

A. Thrifty Rent-a-Car System, Inc.

Thrifty Rent-a-Car System traces its beginnings to March 3, 1958 when L.C. Crow, an individual, began renting cars in Tulsa, Oklahoma, under the trade name "Thrifty." In 1962, Stemmons, Inc., an Oklahoma corporation, purchased Crow's business and expanded the business to Houston, Texas, renting automobiles to customers under the "Thrifty" trade name. Stemmons subsequently changed its name to The Thrifty Rent-a-Car System, Inc. and expanded the business to Wichita, Kansas, Dallas, Texas and St. Louis, Missouri. On July 30, 1962 Thrifty Rent-a-Car made an application to the United States Patent Office to register the service mark "Thrifty Rent-a-Car System" and was granted that mark in July 1964. Thrifty expanded the business through both franchises and directly-owned rental agencies. In December 1967, a Thrifty Rent-a-Car outlet opened in Massachusetts. By the time of trial, Thrifty had become the fifth largest car rental agency worldwide, and operated car rental outlets in 23 locations in Massachusetts.

B. Thrift Cars, Inc.

Thrift Cars' rental business began in October 1962 and was incorporated in Massachusetts as Thrift Cars, Inc. Thrift Cars' owner and proprietor, Peter A. Conlon, at first began a modest car-rental service out of his home in East Taunton, Massachusetts. The East Taunton business was largely limited to what the car-rental industry considers a "tertiary market," that is, the market that serves individuals needing replacement cars to bridge the short term car rental and the longer term automobile lease. Thrift Cars provided customized service, arranging delivery of the rental car to the customer as well as pick-up at the termination of the rental period. In the years immediately following 1962, Thrift Cars delivered automobiles to Boston's Logan Airport and to various cities on Cape Cod and to Nantucket. Prior to Thrifty's federal registration in July 1964, Thrift Cars advertised in the Taunton area yellow pages telephone directory, in The Taunton Daily Gazette, The Cape Cod Times (a newspaper of general circulation servicing Cape Cod, Martha's Vineyard, and Nantucket) and in The Anchor (the newspaper of the Roman Catholic Diocese of Fall River). In 1963 Thrift Cars also advertised in the The Inquirer and Mirror, a Nantucket newspaper. In 1970, some six years after Thrifty had obtained federal registration of its mark, Thrift Cars received a license to operate a car rental facility at the Nantucket airport, and Conlon, Thrift Cars' Chief Executive Officer, moved the major portion of the business to Nantucket.

The Nantucket facility, unlike the operation at East Taunton, was operated largely as a traditional car rental service, servicing the resort market. Customers came directly to the airport to arrange for rental and pick-up of the automobile. Thrift Cars' post-1970 Nantucket operation thus came into a direct clash with Thrifty, which was also operating a car rental facility directed to the resort market in the Cape Cod area.

C. Litigation below.

Thrifty brought this action against Thrift Cars in federal district court, alleging trademark infringement and false designation of title under the Lanham Act. 15 U.S.C. Sec. 1125(a) and Secs. 1051-1127. The parties stipulated that the Thrift and Thrifty names are confusingly similar--as, of course, they are. The trial court found that Thrift Cars' business activities as of the critical date of July 26, 1964 (the date of Thrifty's registration) did not extend to areas beyond East Taunton, Massachusetts. The district court then enjoined Thrift Cars from using "Thrift" in conducting a car rental business outside of Taunton. The court also enjoined Thrift Cars from advertising in media directed outside of East Taunton, except in publications in which Thrift Cars had advertised prior to July 26, 1964. ²

Conversely, the court enjoined Thrifty from operating any business establishment in East Taunton and prohibited it from advertising in any media principally intended to target the East Taunton area.

Both parties appealed. Thrift Cars claims that the court erred by limiting its car rental activities under the "Thrift" name to Taunton, urging that this court expand its permissible business activities to southeastern Massachusetts, including Nantucket. Thrifty's cross-appeal argues that the district court erred in allowing Thrift Cars to conduct business in any locality under the Thrift Cars name because the business had not been continuous until trial, as required under the Lanham Act. In the alternative, Thrifty urges that the scope of Thrift Cars' business activities should be limited to East Taunton, not Taunton, because the record indicates that Thrift Cars' business had been limited to East Taunton, not to Taunton, prior to Thrifty's 1964 federal registration. Thrifty also says that the district court allowed Thrift Cars too broad an advertising base since it permitted Thrift Cars to advertise in publications directed outside of East Taunton.

II. Discussion

As the district court recognized, disposition of this case revolves around geographical market protection and priority afforded to trademark users ³ under the Lanham Act. Congress passed the Lanham Act in 1946 with the primary purpose of providing some nationwide protection for trademark users. Prior to that time, trademark protection was generally governed by state common law. The normal rule was that the first to appropriate a mark had the exclusive right to use that mark in business. 3 Callman, Unfair Competition and Trademarks Sec. 76.1 (3d ed. 1970). Common law exceptions to the general rule developed as to remote users, but with increased interstate commerce, and the greater mobility of society as a whole, a federal scheme with some consistency was felt to be necessary. H.R.Rep. No. 219, 79th Cong., 1st Sess. 4 (1945); see also Park 'N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 193, 105 S.Ct. 658, 661, 83 L.Ed.2d 582 (1985); Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 425, 36 S.Ct. 357, 365, 60 L.Ed. 713 (1916) (Holmes, J. concurring).

Section 15 of the Lanham Act, 15 U.S.C. Sec. 1065, provides that a party like Thrifty, which has successfully registered and continued using a federal service mark, has an incontestable right to use the mark throughout the United States in connection with the goods or services with which it has been used. See Giant Food, Inc. v. Nation's Foodservice, Inc., 710 F.2d 1565, 1568 (Fed.Cir.1983). ⁴ Lanham Act registration also puts all would-be users of the mark (or a confusingly similar mark) on constructive notice of the mark. 15 U.S.C. Sec. 1072.

A. "Limited area exception".

However, Lanham Act Sec. 33(b), 15 U.S.C. Sec. 1115(b)(5) ⁵ declares a "limited area" exception to that general premise of incontestability, an exception which the district court concluded was applicable in this case. The essence of the exception embodied in Sec. 1115(b)(5) is based on common law trademark protection for remote users established by the Supreme Court in Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L.Ed. 713 (1916), and United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141 (1918). Subsection (5) confers upon a junior user, such as Thrift Cars, the right to continued use of an otherwise infringing mark in a remote geographical area if that use was established prior to the other party's federal registration. The junior user is permitted to maintain a proprietary interest in the mark even though it has no general federal protection through registration. To be able to invoke the Sec. 1115(b)(5) exception, however, the junior user must have used the mark continuously in that location and initially in good faith without notice of an infringing mark. Burger King of Florida, Inc. v. Hoots, 403 F.2d 904, 907 (7th Cir.1968).

To sustain its "limited area" defense of 15 U.S.C. Sec. 1115(b)(5), Thrift Cars was required to demonstrate (1) that it adopted its mark before Thrifty's 1964 registration under the Lanham Act, and without knowledge of Thrifty's prior use; (2) the extent of the trade area in which Thrift Cars used the mark prior to Thrifty's registration; and (3) that Thrift Cars has continuously used the mark in the...