U.S. Golf Ass'n v. St. Andrews Systems, Data-Max, Inc.

• Decision Date: 28 November 1984
• Docket Number: INC,No. 83-5629,DATA-MA,83-5629
• Citation: 749 F.2d 1028
• Parties: UNITED STATES GOLF ASSOCIATION, Appellant, v. ST. ANDREWS SYSTEMS,, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 1028

749 F.2d 1028

224 U.S.P.Q. 646

UNITED STATES GOLF ASSOCIATION, Appellant, v. ST. ANDREWS SYSTEMS, DATA-MAX, INC., Appellee.

No. 83-5629.

United States Court of Appeals,

Third Circuit.

Argued April 10, 1984.

Decided Nov. 28, 1984.

Morrill J. Cole, Cole, Schotz, Bernstein, Meisel & Forman, P.A., Rochelle Park, N.J., Lee N. Abrams (Argued), Mayer, Brown & Platt, Chicago, Ill., Stephen M. Trattner (Argued), Washington, D.C., for appellant.

Byard G. Nilsson, Harold E. Wurst (Argued), Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst, Los Angeles, Cal., John G. Gilfillan, III, Franklyn C. Steinberg, III, Carella, Byrne, Bain & Gilfillan, Newark, N.J., for appellee.

Before ADAMS, BECKER, Circuit Judges and VAN DUSEN, Senior Circuit Judge.

OPINION OF THE COURT

BECKER, Circuit Judge.

This appeal presents two interesting questions in the law of intellectual property. It arises from a lawsuit brought by appellant, the United States Golf Association ("U.S.G.A."), the governing body of amateur golf in the United States. The U.S.G.A. has developed a system for deriving the "handicaps" of amateur golfers, the core of which is a mathematical formula. Appellee Data-Max, Inc., d/b/a St. Andrews Systems, markets small computers that are programmed to calculate a golfer's handicap based on the U.S.G.A. formula. The U.S.G.A. brought this suit to enjoin Data-Max from using its formula as the basis for its computerized handicap system.

The U.S.G.A. bases its claim for an injunction on two theories. The first is that the use of the U.S.G.A. formula by Data-Max amounts to a "false designation of origin," and thus violates both section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a), and the New Jersey common law against unfair competition. The second theory is that the use of the formula is a "misappropriation" under the doctrine of International News Service v. Associated Press, 248 U.S. 215 (1918), as that doctrine has been adopted by New Jersey. The district court granted partial summary judgment to Data-Max, holding that the use of the U.S.G.A. handicap formula by Data-Max did not violate a cognizable interest of the U.S.G.A. and thus could not be enjoined. The court then entered a final judgment on that claim under Fed.R.Civ.P. 54(b).

We conclude that the U.S.G.A. handicap formula is "functional," and thus that the U.S.G.A. cannot enjoin the use of the formula either under section 43(a) of the Lanham Act or under state law on the basis of any association in the public mind between the formula and the U.S.G.A. We also conclude that the U.S.G.A.'s claim does not fall within the "misappropriation" doctrine as it has been adopted by the State of New Jersey, largely because in using the formula Data-Max will not compete directly with the U.S.G.A., and thus will not interfere with the economic incentives of the U.S.G.A. to maintain and update its handicap formula. Accordingly, we affirm the judgment of the district court.

I. FACTS AND PROCEDURAL HISTORY

The U.S.G.A. has been the governing body of amateur golf in the United States since 1894. It seeks to promote the game of golf by numerous means, including the establishment of rules and regulations for play, the promotion of amateur tournaments, and the regulation of its member golf clubs. Among the services that the U.S.G.A. provides to amateur golfers is a "handicap" formula that allows golfers of different skill levels to compete with each other on an equal basis. The U.S.G.A. handicap system takes account of the difficulty of the course on which a round is played and provides "safeguards" against the inflation of handicaps by excluding particularly bad holes and by counting only the best ten of a golfer's last twenty rounds. ¹

The U.S.G.A. has developed the handicap formula over a period of eighty years. The first version of the system was published in 1897. A system based on a golfer's best three scores, first devised in 1904, was adopted by the U.S.G.A. in 1911. In later years, the basic formula was altered by the addition of several features: a "course rating system" and "net score" (score adjusted for course difficulty) method of handicapping; a "current ability" approach, in which only a golfer's most recent scores are counted; a system of "equitable stroke control" which disallows very high scores for individual holes; an upper limit on handicaps; and a "discounting" approach, in which a handicap is calculated based on a percentage, currently 96%, of the differentials between the player's score and the course difficulty. A single, nationwide system was prescribed by the U.S.G.A. in 1958. The most recent change of significance took place on January 1, 1976.

Data-Max was incorporated in 1980 for the purpose of providing golfers, primarily those who do not belong to U.S.G.A.-member clubs, with "instant handicaps." A computer program to calculate a handicap based on the U.S.G.A. formula is central to the products and services that Data-Max offers. Data-Max has sold or leased its computer to U.S.G.A.-member golf clubs, which use the computer in calculating handicaps. ² Data-Max also markets a subscription telephone handicap service, which enables a golfer to call in a new score and immediately receive an updated handicap, and a computer that enables a golfer to directly enter a new score and receive an updated handicap. ³

The U.S.G.A. filed a three count complaint in the United States District Court for the District of New Jersey, seeking relief for service mark infringement under the Lanham Act, 15 U.S.C. Secs. 1051 et seq.; for service mark infringement, unfair competition and misappropriation under the common law of New Jersey; and for unfair competition under Section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a). ⁴ Data-Max responded with a seven-count counterclaim. The two primary counterclaims sought declaratory judgments on the two critical issues in the case: Data-Max's right to use the U.S.G.A. formula in providing handicaps, and its right to advertise that use.

The district court considered these issues on Data-Max's motion for summary judgment on the counterclaims. The district court granted the motion on the first counterclaim mentioned above. The court held that the U.S.G.A. formula was not a "salable product," and thus not subject to "misappropriation" under the doctrine of International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (1918), as adopted by the courts of New Jersey, and that, because the formula was "functional," it was not subject to protection under either federal or state law as a service mark. The court denied the summary judgment motion on the second counterclaim, holding that material issues of fact existed as to the "likelihood of confusion" if Data-Max continued to advertise that its handicaps were calculated by use of the U.S.G.A. formula. Having granted summary judgment on the first counterclaim, the court then entered a final judgment as to that claim under Rule 54(b). The U.S.G.A. appeals from that judgment. ⁵

II. DISCUSSION

A. Contentions of the Parties

The U.S.G.A. advances two distinct legal theories to support its claim to an injunction. The first, which can be broadly characterized as "false designation of origin," is based on a branch of the law of unfair competition closely related to trademark law. The U.S.G.A. asserts that Data-Max, by using the U.S.G.A. formula, is misleading the golfing public into thinking that the U.S.G.A. endorses Data-Max's products and services. The second theory is "misappropriation." The U.S.G.A. argues that it has invested time, effort, and money in the creation of the formula, and therefore is entitled to protection against Data-Max's using the formula as the basis of its own products and services. As we have noted, the district court rejected both of the U.S.G.A.'s theories.

On appeal, the U.S.G.A. argues that the district court erred in both its conclusions. On the first theory, the U.S.G.A. argues that, on summary judgment, the district court was obligated to presume that the public associated the formula with the U.S.G.A., since the evidence would support such a conclusion. In addressing the district court's conclusion that the formula was functional, the U.S.G.A. argues that "even though a product or feature performs a function (i.e., is useful), it can nevertheless acquire secondary meaning," and that other handicap formulas could easily be devised. From these two premises, the U.S.G.A. argues that the "functionality" doctrine was inapplicable. Alternatively, the U.S.G.A. argues that "the functionality doctrine ... covers only matters of physical or visual design." On the misappropriation theory, the U.S.G.A. argues that the district court erred in concluding that the formula was not a "salable product," that it is undisputed that Data-Max used the U.S.G.A.'s formula without alteration, and that the misappropriation doctrine protects the "inventor" of a product or service from competition from a rival who merely takes that product or service and sells it as its own. U.S.G.A. also asserts that the fact that the formula was in the "public domain" is irrelevant to the applicability of the misappropriation doctrine.

In response, Data-Max raises two basic arguments with respect to the false designation of origin question. The first is that the formula can have no secondary meaning because it is neither "an object in commerce" nor an "identification for an object in commerce." Their second point is that the "use of the formula to compute does not exhibit it, and therefore [the formula] could not be a designation of origin," (emphasis in original) and hence could not be a false designation of origin. On the misappropriation question, Data-Max makes three points. First, it argues that any use of the misappropriation doctrine to effect "the monopolization of an arithmetic formula" is preempted by the exclusion of such formulas from the...