American Telephone & Telegraph Co. v. Winback & Conserve Program, Inc.

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit

12-9-1994

AT&T, Co. v. Winback and Conserve Program, Inc.
Precedential or Non-Precedential:

Docket 94-5305

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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_________________

No. 94-5305
_________________

AMERICAN TELEPHONE AND TELEGRAPH COMPANY

v.

WINBACK AND CONSERVE PROGRAM, INC.,
a New Jersey corporation;
ALFONSE G. INGA, an individual

American Telephone and
Telegraph Company ("AT&T"),

Appellant
_________________

On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 93-5456)
_________________

Argued November 1, 1994

BEFORE: GREENBERG and McKEE, Circuit Judges,
and POLLAK, District Judge*

(Filed: December 9, 1994)
_________________

FREDERICK L. WHITMER (argued)
FRANCINE A. FRANKLIN
Pitney, Hardin, Kipp & Szuch
P.O. Box 1945
Morristown, NJ 07962-1945

EDWARD R. BARILLARI
AT&T Corp.
295 N. Maple Ave.
Basking Ridge, NJ

Attorneys for Appellant
*The Honorable Louis H. Pollak, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.

H. CURTIS MEANOR (argued)
LAWRENCE S. COVEN
MARTHA LEWIS MARCUS
Podvey, Sachs, Meanor, Catenacci,
Hildner & Cocoziello, P.C.
The Legal Center
One Riverfront Plaza
Newark, NJ 07102

CHARLES H. HELEIN
Helein & Waysdorf, P.C.
1850 M. Street, N.W.
Suite 550
Washington, DC 20036

Attorneys for Appellees

_____________________________

OPINION OF THE COURT
_____________________________

GREENBERG, Circuit Judge.

In this case, the American Telephone and Telegraph

Company ("AT&T") seeks to hold the defendants-appellees --

Winback and Conserve Program, Inc. ("Winback") and Alphonse G.

Inga -- liable for acts of unfair competition by the defendants'

sales representatives. The district court, in an Opinion and

Order dated May 12, 1994, denied AT&T's application for a

preliminary injunction, finding that Winback and Inga exerted

insufficient control over the sales representatives to justify

the imposition of liability upon Winback and Inga. AT&T v.
Winback & Conserve Program, 851 F. Supp. 617 (D.N.J. 1994)

("Winback"). Because we find that the district court committed

errors of law in denying AT&T's motion for a preliminary
injunction against Winback and Inga, we will vacate the Order of

the district court and we will remand the matter for further

proceedings.

I. Introduction and Factual Background1

AT&T is a long-distance telecommunications carrier

that, as part of its marketing strategy, uses a variety of

service marks and trademarks, including the initials "AT&T" and

the AT&T "globe" symbol. AT&T markets and sells

telecommunications services to customers, and its rates and

practices are governed by tariffs it files with the Federal

Communications Commission. Not only does AT&T provide services

to "end-users" -- customers who purchase service for themselves -

- but, pursuant to a 1976 FCC ruling, AT&T offers long distance

telecommunications services it provides under a tariff for

resale. See In the Matter of Regulatory Policies Concerning

Resale and Shared Use of Common Carrier Services and Facilities,

60 F.C.C.2d 261 (1976); In the Matter of Regulatory Policies

Concerning Resale and Shared Use of Common Carrier Domestic
Public Switched Network Services, 83 F.C.C.2d 167 (1980);

Winback, 851 F. Supp. at 618. The resale market works as

follows: Resellers, or aggregators, subscribe to AT&T programs

which provide large discounts for high volume purchases of AT&T

1
. Unless otherwise noted, the facts set forth in the text are
taken from the district court's Opinion in this case, reported at
851 F. Supp. 617 (D.N.J. 1994).
telecommunications services. The resellers then sell the

services to individual businesses that do not generate sufficient

volume to qualify individually for the high-volume discounts.

Thus, by providing the services to these end-users, resellers

make a profit while end-users receive access to the AT&T network

at a significantly lower cost than if they purchased services

from AT&T directly. Under some programs -- including the one at

issue on this appeal -- AT&T bills the end-users directly and

they make payments directly to AT&T. Also, pursuant to some

resale agreements, the end-users receive the services associated

with access to the AT&T network directly from AT&T.2

Nonetheless, in the resale business, only the reseller is a

customer of AT&T; the end-users are customers of the reseller and

not of AT&T.

Appellee Winback is a reseller of 800 inbound

telecommunications services and appellee Inga is its president.

As a matter of convenience, hereafter we usually will refer to

both simply as Winback. Winback offers end-users access to the

AT&T 800 inbound network at a discount price. As are other

resellers, Winback is both a customer and a competitor of AT&T.

This case really began in April 1992, when AT&T filed a

complaint and application for a temporary restraining order

alleging that one of Inga's other companies, One Stop Financial,

Inc., was infringing on AT&T's trademarks and service marks,

2
. This is accomplished by the reseller's issuance of a letter
of agency. Winback, 851 F. Supp. at 619.
falsely representing that it was affiliated with AT&T and passing

itself off as AT&T.3 The parties resolved the case by entering

into a Consent Final Order and Injunction, filed on May 7, 1992,

which enjoined One Stop and its officers, directors, employees

and agents from engaging in such practices.4 In September 1993,

AT&T filed a motion to hold One Stop in civil contempt of the

Consent Order. One Stop and Inga defended by arguing that their

sales and marketing representatives, over whom One Stop had no

control, were responsible for any infringing acts.5

Consequently, as a result of AT&T's application, on September 27,

1993, the Final Order and Injunction was amended to obligate One

Stop to serve each of its sales agents with a copy of the Order,

and, in turn, to obligate each of the primary agents to serve the

Order upon all subagents they had authorized to market under the

name One Stop Financial, Inc.

Soon after the amended Final Order was filed, AT&T

filed a second application to hold One Stop and Inga in contempt,

this time basing its claim for relief on allegedly infringing
activity on the part of Winback, Inga's other company (and the

corporate defendant in the instant action). Winback, 851 F.

Supp. at 620. The district court informed the parties that the

motion for contempt would not be heard until discovery was

3
. AT&T v. One Stop Fin., Inc., No. 92-1489 (D.N.J.) (NHP). See
AT&T Brief at 3.
4
. See AT&T Complaint ¶48 at app. at 20; Winback Answer ¶48 at
app. 379.
5
. See AT&T Brief at 4.
completed. AT&T responded by filing this action, on December 13,

1993, against Winback and Inga, alleging false designation of

origin, passing off, and unprivileged imitation in violation of

section 43(a) of the Lanham Act, 15 U.S.C. § 1125, as well as

various state common law claims. AT&T sought, among other

relief, temporary restraints, and preliminary and permanent

injunctions. The district court held a hearing on AT&T's

application for a temporary restraining order on December 15,

1993. See Order To Show Cause With Temporary Restraints, app. at

366. On December 17, 1993, the district court issued a temporary

restraining order enjoining and restraining "Defendants, together

with their officers, agents, servants, employees, attorneys and

all persons in active concert or participation with them" from:
(a) employing any oral communication,
advertisement, label, sign, flyer, envelope
or correspondence or any other written
documentation that falsely designates the
origin of Defendants' goods or services as
being those of the American Telephone and
Telegraph Company or of AT&T, or that is
likely to cause confusion as to whether
Defendants' goods or services are sponsored
by, or affiliated with the American Telephone
and Telegraph Company;

(b) engaging, producing, creating,
encouraging, aiding or abetting any oral
communication, advertisement, label, sign,
flyer, envelope, correspondence or any other
oral or written communication which enables
Defendants to pass off their goods or
services as being those of the American
Telephone and Telegraph Company.

Order to Show Cause at 3-4, app. at 367-68. The Order prevented

the defendants and their agents from "introducing into . . .
commerce . . . any document promoting or identifying Winback and

Conserve Program, Inc., which does not conspicuously identify

Winback and Conserve Program, Inc. as a corporation through the

use of the abbreviation, 'Inc.' and which does not identify a

business mailing address." Id. Finally, Winback was ordered to

serve a copy of the Order upon its primary agents (identified in

an Appendix to the Order) who in turn were obligated to serve the

Order on any sub-agents they had employed to do Winback's

marketing. The court in that Order set a return date for a

hearing on AT&T's application for a preliminary injunction.

Winback answered AT&T's complaint on January 18, 1994. After

expedited discovery, full briefing, and the submission of

detailed affidavits, the district court held a hearing on AT&T's

application, between March 1 and March 11, 1994.

At the hearing, much of the testimony described

Winback's method of attracting customers. The evidence

demonstrated that Winback employs no marketing or sales people on

its staff. Rather, it attracts business solely through the use

of sales networks and/or marketing representatives.

Specifically, it uses about 50 different marketing agencies,

which in turn employ or contract with scores more individual

sales representatives. The representatives work out of their own

offices, and receive no supplies, equipment or space from

Winback. Winback compensates these representatives purely on a

commission basis, and the representatives are under no minimum

obligation to Winback. Indeed, many representatives market for

various resellers. This does not mean, however, that there is
little connection between the agents and Winback. The agents are

supplied with forms which AT&T requires to be completed to

transfer customers to Winback's services (the transfer forms).

Until October 13, 1993, these forms contained the initials "AT&T"

and the AT&T globe symbol. On that date, AT&T ordered the

resellers to delete those references. These forms also make

reference to Winback. Moreover, at least one of the

representatives contacts Inga on a regular basis, and Inga

attempts to "polic[e]" the agents to avoid misrepresentations.

Winback, 851 F. Supp. at 619.

Generally, as the evidence before the district court

demonstrated, sales representatives contact end-users and present

them with the Winback plan. The representatives then send

prospective customers various forms, including a facsimile cover

sheet, informational documents, the transfer form, and a Main

Billed Telephone Numbers Location List ("main billed form").

Interested end-users complete the transfer form and the main

billed form and send them back to the representative, who then

forwards them to the primary marketing or sales agency. The

agency, in turn, sends the forms to Winback, which returns them

to AT&T. Each month, AT&T sends Winback a check for the

difference between the discount given Winback by AT&T and the

average discount Winback passes on to the end-user. Winback then

sends commission checks to the various marketing representatives.

At the hearing, AT&T presented evidence that end-user

customers were deceived into believing they were dealing with

AT&T. First, many witnesses testified that they received
telephone solicitations by Winback representatives informing them

that they were affiliated with AT&T. See, e.g., Winback, 851 F.

Supp. at 621 (citing testimony of Arthur Sanchez and Daniel

Flood); certification of Daniel A. Flood at 2, app. 72. Several

witnesses also testified that information contained in various

written materials misled them into believing that Winback was a

division of AT&T.

As an example, one employee of an end-user, Debra

Vogel, a telecommunications employee of The Toro Company,

testified that she was confused by a facsimile transmission

entitled "Winback & Conserve Program for AT&T 800 Customers" that

she received from a Winback representative. Because "Winback &

Conserve Program" was not stated as a separate entity (such as by

including the letters "Inc." after "Program"), Vogel believed

that Winback & Conserve Program was a marketing arm of AT&T and

that the documents she received were official AT&T documents.

Winback, 851 F. Supp. at 620-21; certification, app. at 36-40.

More generally, several other end-user customers testified to

being confused by the following materials they received from

Winback's sales representatives: (1) a facsimile cover sheet not

mentioning Winback but stating that "[w]e are bringing you

together for less with AT&T network services", see Winback, 851
F. Supp. at 621; certification of Arthur W. Sanchez at 4 &

Exhibit A, app. at 58, 61; (2) a facsimile cover sheet entitled

"The New AT&T 800 Winback & Conserve Program" and stating "Please

authorize discount acceptance immediately and fax back to 1-800-

251-5491 for forwarding to the AT&T Input Department", see
Winback, 851 F. Supp. at 621-22 (citing testimony of Ekaterina

Hall, Karen Kelly, Daniel Flood, and Phillip Kenney)6; (3) the

transfer form displaying the AT&T initials and globe symbol in

the corner, id. (citing testimony of Ekaterina Hall, Karen Kelly,

Arthur Sanchez, Daniel Flood, Thomas Malanga, and Phillip

Kenney); (4) a main billed form stating "Winback & Conserve

Program" at the top, id. at 621-23 (citing testimony of Debra

Dahl Vogel, Ekaterina Hall, Karen Kelly, Phillip Kenney, James

Angelici and Kay Mills); (5) an information form detailing the

Winback program and instructing the customer to complete the

accompanying main billed form "provided to us by AT&T", id. at

621 (citing testimony of Arthur Sanchez); (6) a form entitled

"AT&T 800 Readyline Summary of Charges", displaying the AT&T

initials and globe, id. at 621 (citing testimony of Daniel

Flood); and (7) several other documents referencing the "Winback

and Conserve Program". Id. at 621-23. Based on the oral

representations and the written documents, the witnesses

testified that they believed they were dealing with AT&T's

Winback and Conserve Program, rather than with a reseller that
7
was a separate corporation. Id. However, the evidence

indicated that all the allegedly infringing actions were

performed by the sales agencies or the sales representatives,

6
. Apparently, AT&T does not have an input department.
7
. As noted above, AT&T originated the transfer form and the
main billed form, which contain the initials AT&T and the AT&T
globe symbol. On October 13, 1993, AT&T ordered all resellers to
eliminate the AT&T initials and the globe logo from those forms.
without the knowledge, consent, assistance or encouragement of

Winback or Inga. Id. at 623.

Based on this evidence, the district court found that

"[t]here is no question that [AT&T] submitted sufficient proofs

to the Court to establish that consumers have been confused by

certain oral misrepresentations made by and written documents

provided by the Winback sales representatives." Id. at 630. The

court then addressed whether Winback and Inga could be held

responsible for the acts of their sales representatives. The

court looked to the common law of torts "to determine the

boundaries of liability." Id. at 624. It then asked whether,

pursuant to New Jersey law of agency, Winback and/or Inga could

be held vicariously liable for the torts of their sales agents.

Relying primarily on a recent New Jersey Supreme Court case

distinguishing between agents (for whose torts the principal may

be liable) and independent contractors (for whose torts the

principal generally may not be held liable), the court found that

AT&T only had established that the sales representatives were

independent contractors. AT&T, in the court's view, had not met

its burden of proving that Winback and/or Inga exercised

sufficient control over their sales representatives to constitute

an agency relationship. The court primarily relied on the facts

that the representatives are commissioned rather than salaried,

that they work on behalf of a number of companies, and that their

operating expenses and business are purely their own

responsibilities. Thus, the court concluded, "the level of joint

activity between [Winback] and Inga and the sales representatives
is . . . minimal and peripheral to the nuts and bolts of the

business of marketing and promoting." Id. at 626. Furthermore,

the court found that AT&T contributed to the customers'

confusion, that the resale business was inherently confusing as

to the point of origin of the service, and that the public

interest did not weigh in favor of granting an injunction. Thus,

the district court denied AT&T's application for a preliminary

injunction, and vacated the temporary restraints.

AT&T timely filed a notice of appeal from the district

court's order. We have jurisdiction pursuant to 28 U.S.C. §

1292(a)(1). The district court properly exercised jurisdiction

over AT&T's Lanham Act claims pursuant to 28 U.S.C. §§ 1331,

1338, and 1367.

II. Discussion

A. Standard of Review

"[T]he grant of injunctive relief is an extraordinary

remedy . . . which should be granted only in limited

circumstances." Frank's GMC Truck Center, Inc. v. General Motors

Corp., 847 F.2d 100, 102 (3d Cir. 1988) (citing United States v.

City of Philadelphia, 644 F.2d 187, 191 n. 1 (3d Cir. 1980)).

This proposition is particularly apt in motions for preliminary

injunctions, when the motion comes before the facts are developed

to a full extent through the normal course of discovery. In

ruling on a motion for a preliminary injunction, the court must

consider:
 (1) the likelihood that the plaintiff will
prevail on the merits at final hearing; (2)
the extent to which the plaintiff is being
irreparably harmed by the conduct complained
of; (3) the extent to which the defendant
will suffer irreparable harm if the
preliminary injunction is issued; and (4) the
public interest. Opticians Ass'n v.
Independent Opticians, 920 F.2d 187, 191-92
(3d Cir. 1990). The injunction should issue
only if the plaintiff produces evidence
sufficient to convince the district court
that all four factors favor preliminary
relief. Id. at 192.

Merchant & Evans, Inc. v. Roosevelt Bldg. Prods., 963 F.2d 628,
632-33 (3d Cir. 1992).8

Our review of the district court's decision is limited.

We must affirm unless, in denying the motion, "'there has been an

abuse of discretion, an error of law, or a clear mistake in the

consideration of the proof.'" Frank's GMC Truck Center, 847 F.2d

at 101 (quoting Moteles v. University of Pennsylvania, 730 F.2d

913, 918 (3d Cir.), cert. denied, 469 U.S. 855, 105 S.Ct. 179

(1984)). The scope of our review is narrow because "'the grant

or denial of a preliminary injunction is almost always based on
an abbreviated set of facts, requiring a delicate balancing

8
. In earlier cases, we have held that these latter two factors
should be taken into account only when they are relevant.
Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186, 197-98 (3d
Cir. 1990); Morton v. Beyer, 822 F.2d 364, 367 & n.3 (3d Cir.
1987); Oburn v. Shapp, 521 F.2d 142, 147 (3d Cir. 1975). As a
practical matter, if a plaintiff demonstrates both a likelihood
of success on the merits and irreparable injury, it almost always
will be the case that the public interest will favor the
plaintiff. Nonetheless, district courts should award preliminary
injunctive relief only upon weighing all four factors. See
Duraco Prods., Inc. v. Joy Plastic Enter., Ltd., No. 93-3323,
slip op. at 11 (3d Cir. Nov. 15, 1994).
[that] is the responsibility of the district judge.'" Frank's

GMC Truck Center, 847 F.2d at 101-02 (alteration in original)

(quoting United States Steel Corp. v. Fraternal Ass'n of

Steelhaulers, 431 F.2d 1046, 1048 (3d Cir. 1970)).

Despite the narrow scope of review, "any determination

that is a prerequisite to the issuance of an injunction . . . is

reviewed according to the standard applicable to that particular

determination." Merchant & Evans, 963 F.2d at 633 (alteration in

original) (quoting John F. Harkins Co. v. Waldinger Corp., 796

F.2d 657, 658 (3d Cir. 1986), cert. denied, 479 U.S. 1059, 107

S.Ct. 939 (1987)). Therefore, "'[d]espite oft repeated

statements that the issuance of a preliminary injunction rests in

the discretion of the trial judge whose decisions will be

reversed only for "abuse", a court of appeals must reverse if the

district court has proceeded on the basis of an erroneous view of

the applicable law.'" Apple Computer, Inc. v. Franklin Computer

Corp., 714 F.2d 1240, 1242 (3d Cir. 1983) (quoting Donovan v.

Bierwirth, 680 F.2d 263, 269 (2d Cir.), cert. denied, 459 U.S.

1069, 103 S.Ct. 488 (1982)), cert. dismissed, 464 U.S. 1033, 104

S.Ct. 690 (1984). In the final analysis, "[w]e review the

district court's conclusions of law in a plenary fashion, its

findings of fact under a clearly erroneous standard, and its

decision to grant or deny an injunction for abuse of discretion."

Johnson & Johnson-Merck Consumer Pharmaceuticals, Inc. v. Rhone-
Poulenc Rorer Pharmaceuticals, Inc., 19 F.3d 125, 127 (3d Cir.

1994) (citations omitted); see also Duraco Prods., slip op. at
12.
 B. AT&T's section 43(a) claim

1. Generally

The district court focused primarily on whether AT&T

had demonstrated a "likelihood of success on the merits" and held

that AT&T had not met its burden by a preponderance of the

evidence. We, likewise, will focus on the district court's

conclusion that AT&T failed to demonstrate a likelihood of

success on the merits. As a threshold matter, this appeal

requires us to decide a question of statutory construction,

namely, the extent to which federal courts interpreting federal

statutes may import into such statutes common law doctrines of

secondary liability.

Section 43(a) of the Lanham Act, originally enacted in

1946 and amended substantially in 1988, provides in relevant part

that:
[a]ny person who, on or in connection with
any goods or services . . . uses in commerce
any word, term, name, symbol or device . . .
or any false designation of origin, false or
misleading description of fact, or false or
misleading representation of fact which . . .
is likely to deceive as to the affiliation,
connection or association of such person with
another person, or as to origin, sponsorship
or approval of his or her goods, services, or
commercial activities by another person . . .
shall be liable in a civil action by any
person who believes that he or she is or is
likely to be damaged by such act.

15 U.S.C. § 1125(a). By containing such broad language, the Act
"proscribes not only trademark infringement in its narrow sense,

but more generally creates a federal cause of action for unfair

competition." Duraco Prods., Inc., slip op. at 12; American

Greetings Corp. v. Dan-Dee Imports, Inc., 807 F.2d 1136, 1140 (3d

Cir. 1986) (citing Williams v. Curtiss-Wright Corp., 691 F.2d

168, 172 (3d Cir. 1982)); see also 3 J. Thomas McCarthy, McCarthy

on Trademarks and Unfair Competition, §27.02[1] at 27-13

(hereinafter "McCarthy on Trademarks"). In order to succeed on

its claim, AT&T must prove by a preponderance of the evidence

that:

(1) Winback uses a false designation of origin, as

defined in the Act;

(2) That such use of a false designation occurs in

interstate commerce in connection with goods and services;

(3) That such false designation is likely to cause

confusion, mistake or deception as to the origin, sponsorship, or

approval of Winback's goods or services by another person; and

(4) That AT&T has been or is likely to be damaged.

See 3 McCarthy on Trademarks, § 27.03[1][a] at 27-21.9

9
. AT&T's allegations are an amalgam of a classic section 43(a)
claim alleging misuse of a mark, a claim of false advertising
pursuant to 15 U.S.C. § 1125(a)(2), and a claim of passing off.
In the false advertising area, we have held that a plaintiff must
prove by a preponderance of the evidence:

'(1) that the defendant has made false or
misleading statements as to his own product
[or another's]; (2) that there is actual
deception or at least a tendency to deceive a
substantial portion of the intended audience;
(3) that the deception is material in that it
is likely to influence purchasing decisions;
 This appeal focuses on a subset of the first prong of

the test: whether Winback falsely designated the origin of its

services. AT&T does not argue that Winback directly infringed on

its rights. Rather, AT&T bases its claim for relief upon the

actions of Winback's sales representatives. It contends that

under common law theories of agency including the doctrine of

apparent authority, Winback is liable for the infringing actions

of its sales representatives. Winback disclaims any

responsibility for its sales representatives, over whom they

claim to have little control.
(..continued)
(4) that the advertised goods travelled in
interstate commerce; and (5) that there is a
likelihood of injury to the plaintiff in
terms of declining sales, loss of good will,
etc.'

Johnson & Johnson-Merck, 19 F.3d at 129 (quoting U.S. Healthcare,
Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 922-23
(3d Cir. 1990), cert. denied, 498 U.S. 816, 111 S.Ct. 58 (1990)
(quoting Max Daetwyler Corp. v. Input Graphics, Inc., 545 F.
Supp. 165, 171 (E.D. Pa. 1982)). In cases alleging unprivileged
imitation of the plaintiff's marks, a plaintiff must prove "(1)
that the imitated feature is non-functional, (2) that the
imitated feature has acquired a 'secondary meaning,' and (3) that
consumers are likely to confuse the source of plaintiff's product
with that of defendant's product." American Home Prods. Corp. v.
Barr Lab., Inc., 834 F.2d 368, 370 (3d Cir. 1988) (citation
omitted). A claim of passing off generally focuses solely on the
likelihood of the customers' confusion, and involves a comparison
between the two products. The essence of AT&T's claims is not
that the defendants misled customers purely by misuse of the AT&T
initials and the AT&T globe, but that by a series of
misrepresentations -- including oral representations, misleading
use of AT&T's marks, and misleading description of Winback's name
-- the defendants confused end-user customers into believing
Winback was affiliated with AT&T. Thus, none of the tests
outlined in this footnote adequately captures the essence of
AT&T's claims. The test we employ is geared to the factual
situation of this case.
 The statute, by referring to "any person" who infringes

on a plaintiff's rights, is silent as to the existence, or the

scope, of vicarious liability; the statutory language is directed

solely at the infringers themselves. Thus, we are called upon to

examine whether the statute permits us to look beyond its

contours at all. See, e.g., Central Bank of Denver, N.A. v.

First Interstate Bank of Denver, N.A., ____ U.S. ____, ____, 114

S.Ct. 1439, 1446 (1994) ("With respect [to] the scope of conduct

prohibited by [a statute], the text of the statute controls our

decision."); Electronic Lab. Supply Co. v. Cullen, 977 F.2d 798,

806 (3d Cir. 1992) ("'Where a statute specifically limits those

who may be held liable for the conduct described by the statute,

the courts cannot extend liability . . . to those who do not fall

within the categories of potential defendants described by the

statute.'") (quoting In re Equity Corp. of America Sec. Litig.,

416 F. Supp. 161, 181 (C.D. Cal. 1976)). The questions to be

addressed are (1) whether the district court was correct in

importing common law doctrines into section 43(a) of the Lanham

Act and (2) if so, whether the district court properly applied

those doctrines.

2. The effect of Central Bank

Generally, "the applicability of common law doctrines

in litigation under federal statutes depends on whether those

principles advance the goals of the particular federal statute

which plaintiffs allege has been violated." Petro-Tech, Inc. v.

Western Co. of North America, 824 F.2d 1349, 1356 (3d Cir. 1987)
(citing American Soc'y of Mechanical Eng'rs v. Hydrolevel Corp.,

456 U.S. 556, 570, 102 S.Ct. 1935, 1944-45 (1982)); O'Neil v.

Q.L.C.R.I., Inc., 750 F. Supp. 551, 555 (D.R.I. 1990). Of

course, the days of a general federal common law have long since

passed, see Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct.

817, 822 (1938), and courts should be wary about looking outside

of the statute itself to expand the scope of liability, lest they

accurately be accused of legislating from the bench. Cf. Stomper

v. Amalgamated Transit Union, Local 241, 27 F.3d 316, 319 (7th

Cir. 1994) ("Once Congress has legislated, the common-law rules

courts apply to fill interstices fall away."). Thus, when a

statute is self-contained, the scope of our interpretation is

constrained by the statutory language itself. See, e.g., Central

Bank, ____ U.S. at ____, 114 S.Ct. at 1447. Nonetheless, when

the importation of common law doctrines will advance the goals of

the statute, courts may utilize the doctrines, provided the

courts "conform [the] implied remedies to the rules Congress

devised for the remedies it authorized expressly." Stomper, 27

F.3d at 319.

Winback implicitly argues that if we import the

doctrines of agency and apparent authority into the statute, we

would be violating this settled rule of construction and that we

would be legislating in areas where Congress has failed to act.

Therefore, Winback concludes, AT&T's argument more properly is

made to Congress rather than to the courts.10 It relies for this

10
. It does not appear that Winback raised this argument before
the district court. The district court noted that "[Winback] and
proposition on Central Bank, a recent Supreme Court case refusing

to find parties liable for aiding and abetting the violation of a

federal securities statute.

In Central Bank, the Supreme Court considered whether

section 10(b) of the Securities Exchange Act of 1934 (the

"Exchange Act"), which has been held to create a private cause of

action against parties who "commit a manipulative or deceptive

act in connection with the purchase of or sale of securities . .

. extends as well to those who do not engage in the manipulative

or deceptive practice but who aid and abet the violation." Id.

at ____, 114 S.Ct. at 1443. Examining the language of the

statute, as well as the Court's own tendency to construe narrowly

the scope of conduct prohibited by the Exchange Act, the Court

concluded that an action cannot be maintained for aiding and

abetting securities fraud: "[T]he statute prohibits only the

making of a material misstatement (or omission) or the commission

of a manipulative act [and this] proscription does not include

giving aid to a person who commits a manipulative or deceptive

act." Id. , 114 S.Ct. at 1148.
(..continued)
Inga do not dispute the applicability of the common law of
agency." Winback, 851 F. Supp. at 624. On this appeal, however,
Winback states that "[i]t is the position of the defendants that
the Lanham Act permits neither vicarious liability nor aiding and
abetting liability." Appellee's brief at 34. It also writes:
"The statute covers only primary liability. It does not include
vicarious liability, respondeat superior liability or aiding and
abetting liability. The defendants have not been accused
personally of violating the statute and cannot be held liable
under it. This case is as simple as that." Id. at 37. At oral
argument, Winback explicitly made this argument. AT&T does not
contend that Winback waived this argument by failing to raise it
before the district court. Thus, we address it on the merits.
 The language of Central Bank is undeniably broad, and

the dissent warned that other mechanisms of common law secondary

liability -- such as "respondeat superior and other common-law

agency principles" -- may not survive the majority's construction

of Section 10(b) of the Exchange Act. Id. at ____, 114 S.Ct. at

1460 n.12 (Stevens, J. dissenting). Nonetheless, we do not

believe that the Court's restrictive reading of the Exchange Act

impacts on the determination of the scope of liability under the

Lanham Act.

In Central Bank, the Supreme Court primarily was

concerned with broadening the range of unlawful conduct beyond

that specifically proscribed by the Act. As the Court framed the

issue, aiding and abetting constituted a separate cause of

action, and in order to find such liability, the Court would have

to imply a private right of action under the statute beyond that

which already had been implied. See id. at , 114 S.Ct. at

1447 ("statutory text controls the definition of conduct covered

by § 10(b) [and] 'the language of Section 10(b) does not in terms

mention aiding and abetting.'") (quoting Brief for Securities and

Exchange Commission as Amicus Curiae at 8). Thus, the Court saw

the case as involving another in a series of attempts by

plaintiffs and the SEC to broaden the statute to prohibit conduct

simply not covered by the actual statutory language. See, e.g.,

Chiarella v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108,

1118 (1980) ("When an allegation of fraud [under section 10(b)]

is based upon nondisclosure, there can be no fraud absent a duty

to speak"); Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 476, 97
S.Ct. 1292, 1302 (1977) (statute does not prohibit "a breach of

fiduciary duty by majority stockholders, without any deception,

misrepresentation, or nondisclosure" because such an act is not

manipulative or deceptive conduct); Ernst & Ernst v. Hochfelder,

425 U.S. 185, 201, 96 S.Ct. 1375, 1384-85 (1976) (refusing to

expand scope of liability under section 10(b) of Securities

Exchange Act beyond knowing or intentional misconduct). Once

again, the Court simply refused to expand "the scope of conduct

prohibited by the statute." Central Bank, ____ U.S. at ____, 114

S.Ct. at 1453.

The Supreme Court's wariness therefore rested on the

nature of aiding and abetting liability itself. And in fact,

aiding and abetting liability is not a well-settled mechanism for

imposing civil liability. Rather, "[a]iding and abetting

liability traditionally applies to criminal offenses", see

Electronic Lab. Supply Co., 977 F.2d at 805; Petro-Tech, 824 F.2d

at 1356. While it has been borrowed in certain civil contexts,

"[p]recedent, except in the securities area, is largely confined

to isolated acts of adolescents in rural society." Halberstam v.
Welch, 705 F.2d 472, 489 (D.C. Cir. 1983) (also quoted in Central

Bank, ____ U.S. at ____, 114 S.Ct. at 1450). This is because

aiding and abetting liability, with its focus on the defendant's

substantial and knowing assistance to the commission of a tort,

rests by definition upon acts that encourage a tort rather than

acts constituting the tort. See, e.g., Halberstam, 705 F.2d at

481-86 (canvassing aiding and abetting tort cases). By

definition then, the act rendered unlawful under an aiding and
abetting theory is different than the act rendered unlawful by

the underlying tort.

By contrast, courts imposing liability on agency

theories are not expanding the category of affirmative conduct

proscribed by the relevant statute; rather, they are deciding on

whose shoulders to place responsibility for conduct indisputably

proscribed by the relevant statute. The principal is held liable

not because it committed some wrongdoing outside the purview of

the statute which assisted the wrongdoing prohibited by the

statute, but because its status merits responsibility for the

tortious actions of its agent. Cf. Petro-Tech, Inc., 824 F.2d at

1356-58 (discussing aiding and abetting and vicarious liability

separately).11 Indeed, in some instances, liability cannot be

imposed without reference to agency principles -- a corporation

can only act through its agents, and therefore only can be bound

through application of agency principles.
11
. Prosser and Keeton have this to say in a discussion of the
basis for vicarious liability:

Since B himself has been free from all fault,
when he is held liable to C it is in one
sense a form of strict liability. In another
it is not. The foundation of the action is
still negligence, or other fault, on the part
of A; and all that the law has done is to
broaden the liability for that fault by
imposing it upon an additional, albeit
innocent, defendant. It is still an action
for negligence, and the ordinary rules of
negligence liability are still applied to it.
W. Page Keeton, Prosser & Keeton on Torts, § 69 at 499 (5th ed.
1984) (hereinafter Prosser & Keeton on Torts). In the context of
cases like this one, the status of the defendant is of one who
has authorized another to conclude contracts with third parties
and who directly profits from those contracts.
 Moreover, unlike aiding and abetting liability, which

in the federal system largely has been confined to securities

fraud, agency doctrine, including the theory of apparent

authority, has long been a part of the federal system. As long

ago as 1928, the Supreme Court applied as a matter of federal

common law general principles of agency law. In so doing, it

held that "few doctrines of the law are more firmly established

or more in harmony with accepted notions of social policy than

that of the liability of the principal without fault of his own."

Gleason v. Seaboard Air Line Ry. Co., 278 U.S. 349, 356, 49 S.Ct.

161, 162-63 (1929). More recently, in American Soc'y of

Mechanical Eng'rs, Inc. v. Hydrolevel Corp., the Supreme Court

began its analysis of whether apparent authority applies in the

antitrust context with the premise that "[t]he apparent authority

theory has long been the settled rule in the federal system."

Hydrolevel, 456 U.S. at 567, 102 S.Ct. at 1943 (citing Ricketts

v. Pennsylvania R.R. Co., 153 F.2d 757, 759 (2d Cir. 1946)).12

12
. The Court stated:

In a wide variety of areas, the federal
courts . . . have imposed liability upon
principals for the misdeeds of agents acting
with apparent authority. See, e.g., Dark v.
United States, 641 F.2d 805 (9th Cir. 1981)
(federal tax liability); National Acceptance
Co. v. Coal Producers Assn., 604 F.2d 540
(7th Cir. 1979) (common-law fraud); Holloway
v. Howerdd, 536 F.2d 690 (6th Cir. 1976)
(federal securities fraud); United States v.
Sanchez, 521 F.2d 244 (5th Cir. 1975) (bail
bond fraud), cert. denied, 429 U.S. 817, 97
S.Ct. 59 (1976); Kerbs v. Fall River
Industries, Inc., 502 F.2d 731 (10th Cir.
1974) (federal securities fraud); Gilmore v.
In Hydrolevel, the Supreme Court followed the approach of the

Restatement (Second) of Agency, and held that "a principal is

liable for an agent's misrepresentations that cause pecuniary

loss to a third party, when the agent acts within the scope of

his apparent authority." Id. at 566, 102 S.Ct. at 1942 (citing

Restatement (Second) of Agency §§ 249, 262 (1957); Rutherford v.

Rideout Bank, 80 P.2d 978 (Cal. 1938)).

More recently, following earlier precedents, we have

recognized respondeat superior liability under Title VII of the

Civil Rights Act of 1964. Spain v. Gallegos, 26 F.3d 439, 450

(3d Cir. 1994). See also Karibian v. Columbia Univ., 14 F.3d

773, 780 (2d Cir.) ("an employer is liable for the

discriminatorily abusive work environment created by a supervisor

if the supervisor uses his actual or apparent authority to

further the harassment, or if he was otherwise aided in

accomplishing the harassment by the existence of the agency

relationship"), cert. denied, ____ U.S. ____, 114 S.Ct. 2693

(1994). And "[f]ederal courts have routinely applied [respondeat

superior] principles in fair housing cases and held principals

liable for the discriminatory acts of their agents." City of
Chicago v. Matchmaker Real Estate Sales Center, Inc., 982 F.2d

1086, 1096 (7th Cir. 1992), cert. denied, ____ U.S. ____, 113

S.Ct. 2961 (1993); see also Northside Realty Assocs. Inc. v.

(..continued)
Constitution Life Ins. Co., 502 F.2d 1344
(10th Cir. 1974) (common-law fraud).

Hydrolevel, 456 U.S. at 568, 102 S.Ct. at 1943.
United States, 605 F.2d 1348, 1353-54 (5th Cir. 1979). Thus,

Central Bank's discussion of aiding and abetting should not be

transplanted into the more settled realm of agency law.13

But beyond this, it is quite clear under Central Bank's

reasoning, the Supreme Court was concerned with the Exchange Act

itself under which the private right of action already had been

judicially implied. Accordingly, we think that the Court did not

intend to overrule settled constructions of other statutes that

relied on common law doctrines to determine the scope of

liability. See Central Bank, ____ U.S. at ____, 114 S.Ct. at

1444 ("we pa[y] close attention to the statutory text in defining

the scope of conduct prohibited by § 10(b)"). Thus, in contrast

to the Court's restrictive reading of the Exchange Act, the Court

has endorsed and applied a theory of secondary liability for

trademark infringement that comes very close to aiding and

abetting. The Court first enunciated the rule over 70 years ago,

prior to the enactment of the Lanham Act, when the Court was

concerned with constructing and enforcing a common law of unfair

competition. William R. Warner & Co. v. Eli Lilly & Co., 265
13
. Winback also relies on Monell v. Dep't of Social Servs. of
City of New York, 436 U.S. 658, 98 S.Ct. 2018 (1978), which held
that a municipality could not be held liable under 42 U.S.C. §
1983 under a theory of respondeat superior liability. That case
is clearly inapposite. There, the Court relied not just on the
language of the statute, but the scheme of causation that must be
proven in order to hold a party liable. Moreover, the Court
relied heavily on the legislative history and the fact that
"creation of a federal law of respondeat superior would have
raised all the constitutional problems associated with the
obligation to keep the peace, an obligation Congress chose not to
impose because it thought imposition of such an obligation
unconstitutional." Id. at 693, 98 S.Ct. at 2037.
U.S. 526, 44 S.Ct. 615 (1924). In that case, the Court held that

a manufacturer of a pharmaceutical product could in certain

instances be held liable for acts of infringement by distributors

and retailers of the product. Relying on the general proposition

that "[o]ne who induces another to commit a fraud and furnishes

the means of consummating it is equally guilty and liable for the

injury," id. at 530-31, 44 S.Ct. at 617 (citing Hostetter Co. v.

Brueggeman-Reinert Distilling Co., 46 Fed. 188, 189 (C.C.D. Mo.

1891)), the Court reached what it saw as a self-evident

conclusion: an entity is liable for trademark infringement if it

contributes to the infringement. The theory of "contributory

infringement", as it came to be called, survived into the

statutory era. As the Supreme Court explained in a case

involving section 32 of the Lanham Act:
[L]iability for trademark infringement can
extend beyond those who actually mislabel
goods with the mark of another. Even if a
manufacturer does not directly control others
in the chain of distribution, it can be held
responsible for their infringing activities
under certain circumstances. Thus, if a
manufacturer or distributor intentionally
induces another to infringe a trademark, or
if it continues to supply its product to one
whom it knows or has reason to know is
engaging in trademark infringement, the
manufacturer or distributor is contributorily
responsible for any harm done as a result of
the deceit.

Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 854, 102

S.Ct. 2182, 2188 (1982). "The two elements for contributory

infringement are thus summed up as (1) supply of a product, and

(2) knowledge of direct infringement." Fonovisa, Inc. v. Cherry
Auction, Inc., 847 F. Supp. 1492, 1498 (E.D. Cal. 1994). Of

course, there is no reason why the doctrine should be confined in

application to manufacturers, and indeed, other courts have

expanded it beyond that particular origin. See, e.g., Mini Maid

Servs. Co. v. Maid Brigade Sys., Inc., 967 F.2d 1516, 1522 (11th

Cir. 1992) (doctrine could hold franchisor liable for infringing

actions of its franchisee when "franchisor explicitly or

implicitly encouraged the trademark violations"); Hard Rock Cafe

Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1149

(7th Cir. 1992) (landlord of flea market could be liable for its

tenant's sale of an infringing product where the landlord is

found to have been "wilfully blind" to the infringing acts); but

see Fonovisa, 847 F. Supp. at 1498 (refusing to apply doctrine of

contributory infringement "to impose liability on third parties

who have never had a traditional role in enforcing the Lanham

Act").14

3. Is there agency liability under section 43(a)?

The question, then, is whether application of agency

theory, including the doctrine of apparent authority, would

14
. If the doctrine of contributory infringement were the sole
means of imposing liability for indirect conduct, AT&T would be
without a section 43(a) remedy in this case. As the district
court recognized, AT&T is not proceeding under a contributory
infringement theory. Nor does it appear that it could. The
record adequately supports the district court's conclusion that
"in the instances where [AT&T] brought objectionable acts of the
sales representatives to the attention of Inga, Inga took
appropriate steps to reprimand and discipline the sales
representative." Winback, 851 F. Supp. at 631.
further the goals of the statute. See, e.g., Hydrolevel, 456

U.S. at 570, 102 S.Ct. at 1944. In Hydrolevel, the Court,

finding that "under general rules of agency law, principals are

liable when their agents act with apparent authority and commit

torts analogous to the antitrust violation presented by this

case", simply looked at the policy behind the antitrust laws to

determine whether the doctrine should be applied. Id. at 565-66,

570, 102 S.Ct. at 1942, 1944. Because "apparent authority theory

is consistent with the congressional intent to encourage

competition", the Court applied the doctrine. Id.

The contributory infringement cases cited above

demonstrate that in certain instances, secondary, indirect

liability is a legitimate basis for liability under the federal

unfair competition statute. There is a good reason for this:

the Lanham Act is derived generally and purposefully from the

common law tort of unfair competition, and its language parallels

the protections afforded by state common law and statutory torts.

Thus, the conduct prohibited by section 43(a) of the Lanham Act

is even more analogous to common law torts than the antitrust

laws at issue in Hydrolevel. The Act federalizes a common law

tort. In construing the Act, then, courts routinely have

recognized the propriety of examining basic tort liability

concepts to determine the scope of liability. See, e.g.,

Electronic Lab. Supply Co., Inc., 977 F.2d at 806 (section

34(d)(11) of Lanham Act is like a "tort" statute); Hard Rock
Cafe, 955 F.2d at 1148 (trademark infringement is a "species of

tort" and "we . . . have turned to the common law to guide our
inquiry into the appropriate boundaries of liability"); David

Berg and Co. v. Gatto Int'l Trading Co, Inc., 884 F.2d 306, 311

(7th Cir. 1989) ("unfair competition and trademark infringement

are tortious"); 3 McCarthy on Trademarks § 25.03[1] at 25-34

("trademark infringement and unfair competition are torts"). We

previously have held that the "federal law of unfair competition

under § 43(a) is not significantly different from the New Jersey

[common] law of unfair competition" and have applied the

identical test to both claims. American Greetings Corp. v. Dan-

Dee Imports, Inc., 807 F.2d 1136, 1141 (3d Cir. 1986); see also

American Home Prods. Corp. v. Barr Lab., Inc., 656 F. Supp. 1058,

1061 (D.N.J. 1987) (same), aff'd, 834 F.2d 368 (3d Cir. 1987).

Other courts have ruled similarly. See, e.g., Words & Data, Inc.

v. GTE Communications Servs., Inc., 765 F. Supp. 570, 579 (W.D.

Mo. 1991) ("Missouri common law regarding unfair competition is

coextensive with federal law"); Worthington Foods, Inc. v.

Kellogg Co., 732 F. Supp. 1417, 1431 (S.D. Ohio 1990) ("an

analysis appropriate for a determination of liability under

section 43(a) of the Lanham Act is also appropriate for

determining liability under the Ohio Deceptive Trade Practices

Act"). Therefore, because section 43(a) parallels state tort law

and is derived from tort common law, it is self-evident that

application of at least some tort concepts of liability will

"advance the goals of [the Act]." Petro-Tech, Inc., 824 F.2d at
1356.

Applying the analysis to the facts of this case, it is

clear that liability based on agency principles is often
appropriate.15 The Lanham Act has the broad purpose of

"protect[ing] . . . competitors from a wide variety of

misrepresentations of products and service . . . ." 20th Century

Wear, Inc. v. Sanmark-Stardust Inc., 747 F.2d 81, 91 n.13 (2d

Cir. 1984), cert. denied, 470 U.S. 1052, 105 S.Ct. 1755 (1985).

By expressly creating a private right of action against the

infringer, the Act creates a "statutory tort of broad[] scope"

that "provides a private remedy to a commercial plaintiff who

meets the burden of proving that its commercial interests have

been harmed by a competitor's [misrepresentations]". Sandoz

Pharmaceuticals Corp. v. Richardson-Vicks, Inc., 902 F.2d 222,

227, 230 (3d Cir. 1990). Here, the parties recognize that AT&T

has the right to sue the sales representatives under section

43(a). But, as Winback acknowledges, "it would be inconvenient

for AT&T to initiate suit in separate jurisdictions against every

independent contractor which it believes violated its

intellectual property rights." Appellee br. at 13-14. The only

feasible way for AT&T to assert its federal rights would be to

sue the principal, who, if an agency relationship is established,

is able to exercise at least some control over its agents, who

authorized the sales representatives to enter into contracts on

its behalf, and who receives direct financial benefits from those

15
. The one case we have found that addresses this issue held
without analysis (and apparently without dispute) that a
principal could be held liable for the infringing acts of its
agent acting with apparent authority. See Dreamwerks Prod.
Group, Inc. v. Party Masters, Inc., Br. No. 91-22949, 1992 Bankr.
LEXIS 711 at * 47-48 (N.D. Ill. April 23, 1992).
contracts. If the Act prohibited such liability, then infringing

actions would continue undeterred, a company would benefit from

undeterred unlawful acts, and the statute's purpose to prohibit

unfair competition would go unrealized. "'[I]t would be unjust

to permit an employer to gain from the intelligent cooperation of

others without being responsible for the mistakes, the errors of

judgment and the frailties of those working under his direction

and for his benefit.'" Petro-Tech, 824 F.2d at 1358 (quoting

Restatement (Second) of Agency § 219, comment (a) on subsection

(1)).

Thus, we hold that the district court properly held

that agency principles apply to the instant dispute.

Nonetheless, our review of the record compels the conclusion that

the district court erred by failing adequately to consider the

various theories of agency under which Winback could be

responsible for the torts of its representatives. In particular,

the district court should have considered (1) whether Winback is

liable for its representatives' acts, despite the fact that the

representatives are independent contractors and despite the

absence of a master-servant relationship; and (2) whether the

representatives, even if not agents, were acting with the

apparent authority of Winback.

4. Agency law
 We now apply agency law to the facts of this case.16

"An agency relationship is created when one party consents to

have another act on its behalf, with the principal controlling

and directing the acts of the agent." Sears Mortgage Corp. v.

Rose, 634 A.2d 74, 79 (N.J. 1993) (citing Arcell v. Ashland Chem.

Co., 328 A.2d 53, 65 (N.J. Law Div. 1977); 2A C.J.S. Agency § 37

(1972); Restatement (Second) of Agency § 1 (1958)). Depending

upon the right of control capable of being exercised by the

principal over the agent, agents are characterized either as

servants or independent contractors. Servants generally are

16
. This inquiry, though, raises an additional question, of what
law to examine. Courts addressing Section 43(a) of the Lanham
Act have looked both to the common law of the state where the
infringing action took place, and to general principles of
federal common law. See, e.g., Hard Rock Cafe, 955 F.2d at 1148
("we have . . . turned to the common law to guide our inquiry
into the appropriate boundaries of liability"); Getty Petroleum
Corp. v. Island Transp. Corp., 862 F.2d 10, 16 (2d Cir. 1988)
(declining to find right of contribution under the Lanham Act
because "[t]here is no federal common law of contribution"),
cert. denied, 490 U.S. 1006, 109 S.Ct. 1642 (1989).

In W.T. Rogers Co., Inc. v. Keene, 778 F.2d 334 (7th
Cir. 1985), the Court of Appeals for the Seventh Circuit phrased
the problem as follows: If the Lanham Act provides simply "a
federal remedy for unfair competition", the court should apply
the common law of the relevant state. If, however, the Act is
interpreted as creating "a federal substantive law of unfair
competition", then the suit is "to enforce a federal common law
trademark, and the court is not bound to follow the common law of
a particular state." Id. at 338. But in Rogers the court did
not resolve the question. Because of uniformity concerns
implicated by applying different law to identical claims,
depending on the state where the complaint is filed, we are
inclined to favor application of general principles of federal
common law. Nonetheless, we need not decide this issue today,
because in the doctrinal areas relevant to this case, New Jersey
law is in accord with general principles of common law.
employees of the principal, and are subject to physical control

by the principal. As one court has explained the distinction:
'An agent is a person who represents another
in contractual negotiations or transactions
akin thereto. A servant is a person who is
employed to perform personal services for
another in his affairs, and who, in respect
to his physical movements in the performance
of the service, is subject to the other's
control or right of control. Persons who
render service but retain control over the
manner of doing it are not servants.'

Sanders v. Rowan, 484 A.2d 1023, 1028 (Md. Ct. Sp. App. 1984)

(quoting Globe Indem. Co. v. Victill Corp., 119 A.2d 423, 427

(Md. 1956)). Thus, if "'the employer assumes the right to

control the time, manner, and method of executing the work, as

distinguished from the right merely to require certain definite

results in conformity to the contract,'" a master-servant agency

relationship has been created. Stewart v. Midani, 525 F. Supp.

843, 845 (N.D. Ga. 1981) (applying Georgia law) (quoting Blair v.

Smith, 41 S.E.2d 133, 135 (Ga. 1947)). If, however, the agent is

not subject to that degree of physical control, but is only

subject to the general control and direction by the principal,

the agent is termed an independent contractor. Id. at 846; see

also Nazworth v. Swire Florida, Inc., 486 So.2d 637, 638 (Fla.

Dist. Ct. App. 1986) ("'independent contractor' is a term which

is antithetical to the word 'servant', although not to the word

'agent'") (quoting Restatement (Second) Agency section 14(N),

Comment (a)). Thus, all agents who are not servants are

"independent contractors." Moreover, all non-agents who

contract to do work for another are also termed "independent
contractors". For example, a person who contracts to build a

swimming pool for another is the latter's independent contractor.

There are, then, agent-independent contractors and non-agent

independent contractors.

Such distinctions matter because the scope of the

employer's liability for the torts of its representatives depends

almost exclusively on how the relationship is characterized. "If

the principal is the master of an agent who is his servant, the

fault of the agent, if acting within the scope of his employment,

will be imputed to the principal by reason of respondeat

superior." Baldasarre v. Butler, 625 A.2d 458, 464 (N.J. 1993)

(emphasis added) (quoting JMB Enter. v. Atlantic Employers Ins.,

550 A.2d 764, 767 (N.J. Super. Ct. App. Div. 1988)). On the

other hand, "the principal [generally] is not vicariously liable

for the torts of the independent contractor if the principal did

not direct or participate in them." Baldasarre, 625 A.2d at 465

(emphasis added); Sanders, 484 A.2d at 1028-29 ("where the agent

is not a servant, the principal is not liable for the agent's

negligent conduct 'unless the act was done in the manner

authorized or directed by the principal, or the result was one

authorized or intended by the principal.'") (citations omitted);

Nazworth, 486 So.2d at 638 ("The general rule . . . is that an
owner, employer, or contractee will not be held liable for the

torts of an independent contractor or of the latter's employees

committed in the performance of the contracted work.") (citations

omitted). As the New Jersey Supreme Court has explained, the

independent contractor is "'characterized by the attributes of
self-employment and self-determination in the economic and

professional sense'". Baldasarre, 625 A.2d at 465 (quoting Rokos

v. State, Dep't of Treasury, 564 A.2d 1217, 1220 (N.J. Super. Ct.

App. Div. 1989)). Since the employer
'has no right of control over the manner in
which the work is to be done, it is to be
regarded as the contractor's own enterprise,
and he, rather than the employer is the
proper party to be charged with the
responsibility for preventing the risk, and
administering and distributing it.'

Baldasarre, 625 A.2d at 465 (quoting Prosser and Keeton on Torts,
§ 71).

The district court found that the sales representatives

are independent contractors and therefore Winback could not be

liable for their infringing acts. AT&T's arguments against this

finding can be summed up as follows: (1) the district court

erred by failing to categorize the sales representatives as

employees or servants of Winback; (2) the district court failed

to consider whether the representatives were agent independent

contractors or non-agent independent contractors; (3) the

district court failed to consider whether Winback had created an

apparent master-servant relationship such that Winback should be

held liable for the torts of its sales representatives; (4)

Winback should be held liable at any rate. We will address these

arguments in turn.

a. Servants or independent contractors
 In reaching its conclusion that Winback's sales

representatives are independent contractors, the district court

relied almost exclusively on Baldasarre. In that case, the

plaintiff had sought to hold a purchaser of land liable for his

attorney's alleged misrepresentations. In denying relief, the

Supreme Court of New Jersey reasoned:
Attorneys generally are not subject to their
clients' actual control or direction.
Indeed, most clients have an attorney because
they are unfamiliar with the law and want an
attorney to guide them through the
intricacies of that field. As professionals,
attorneys are deemed responsible for their
own acts, and, as in this case, most clients
have legal recourse against the attorney and
his law firm for their actions.

Baldasarre, 625 A.2d at 465. Therefore, the Court concluded that

"[a]n innocent client should not be held vicariously liable for

the wrongful conduct of his or her attorney against the

attorney's other clients if the client does not direct, advise,

consent to or participate in the attorney's improper conduct."

Id. at 465. The district court in this case analogized as

follows:
[T]he level of joint activity between
[Winback] and Inga and the sales
representatives is similarly minimal and
peripheral to the nuts and bolts of the
business of marketing and promoting.
Furthermore, as detailed above, no proof was
submitted to the Court to establish that
[Winback] or Inga advised, consented to or
participated in the alleged
misrepresentations. Accordingly, plaintiff
has failed to establish sufficient proof that
the sales representatives are any more than
independent contractors.
851 F. Supp. at 626.

We hold that the district court correctly concluded

that the sales representatives are independent contractors. The

district court found that Winback employs no marketing employees

on its own, and that the sales representatives "play an integral

role in the success of [Winback], financially and otherwise, in

that all sales are conducted through these agencies and

individuals." 851 F. Supp. at 626. Nonetheless, the district

court correctly recognized that Winback exercises minimal control

over the manner in which the representatives perform their work,

and no control at all even over whether the representatives

choose to market their company. Moreover, the representatives

work for any number of companies at the same time, are paid

purely based on the results they obtain, and operate their own

businesses with their own expenses. The fact that Winback

attempted to police the representatives to prevent

misrepresentations does not change our result. "[A]n employer

does not transform an independent contractor into a servant

merely because he wishes to supervise the project as it

transpires." Brady v. Ralph Parsons Co., 520 A.2d 717, 731 (Md.

1987).

Therefore, the district court properly found that the

sales representatives were independent contractors. However, the

court erred by stopping at that point. The district court failed
to determine whether the sales representatives were agent-

independent contractors or non-agent independent contractors.17

17
. The district court's failure to address this question is
understandable in light of Baldasarre, for the case does not set
forth explicitly the distinctions on which it relies. A close
reading of the case reveals, however, that the Supreme Court of
New Jersey did not intend to eviscerate the distinction between
agent-independent contractors and non-agent independent
contractors. For example, the Court quotes Prosser and Keeton on
Torts for the proposition that an employer who hires an
independent contractor:

'has no right of control over the manner in
which the work is to be done, it is to be
regarded as the contractor's own enterprise,
and he, rather than the employer is the
proper party to be charged with the
responsibility for preventing the risk, and
administering and distributing it.'

Baldasarre, 625 A.2d at 465 (quoting Prosser and Keeton on Torts,
§ 71). But Prosser and Keeton rely in turn on the Second
Restatement of Agency for their liability proposition, and the
authors recognize that there are agent-independent contractors
and non-agent independent contractors:

Since an agent who is not a servant is not
subject to any right of control by his
employer over the details of his physical
conduct, the responsibility ordinarily rests
upon the agent alone, and the principal is
not liable for the torts which he may commit.
There are, however, a number of situations in
which such liability may exist. These
include cases in which a tort may be based
upon the apparent authority of the agent to
act for his principal, or in which a tort
such as deceit occurs in the course of a
consensual transaction between the agent and
the injured person. Thus . . . a seller of
land or goods may, in most states, be subject
to an action of deceit for the fraud of his
agent committed in the course of the sale.

Prosser and Keeton on Torts, § 70 at 508 (citing, among other
authorities, numerous sections of the Restatement (Second) of
 b. Agent-independent contractors?

In this regard, we first must address the scope of the

district court's findings. Although the district court appeared

to conclude that the representatives are non-agent independent

contractors, a close reading of the decision reveals that the

court actually found only that the representatives were non-

servant independent contractors. For one thing, the court

referred to "the distinctions between employees or agents and

non-employees or independent contractors," implying that once a

representative is termed an independent contractor it is by

(..continued)
Agency) (footnotes omitted). Prosser and Keeton again cite the
Restatement (Second) of Agency's proposition that

A principal is subject to liability for loss
caused to another by the other's reliance
upon a tortious representation of a servant
or other agent, if the representation is:

(a) authorized;
(b) apparently authorized; or
(c) within the power of the agent to
make for the principal.

Second Restatement § 257 at 558 (cited in Prosser and Keeton, §
70, n.70).

Moreover, to the extent that Baldasarre can be read to
hold that independent contractors may never bind principals for
their torts, that proposition was eviscerated the very next year
by the same court. In Sears Mortgage Corp., the Supreme Court of
New Jersey held a title insurance company responsible for its
attorney's fraud. The Court directly relied on agency
principles. Sears Mortgage Corp., 634 A.2d at 83-84. Since it
can in no way be argued that the attorney was the title insurer's
servant, the Court implicitly recognized the category of agent-
independent contractors.
definition a non-agent. Winback, 851 F. Supp. at 626. Moreover,

in determining that the representatives were independent

contractors, the court used precisely the factors normally used

to distinguish between servants and independent contractors: the

principal's right of physical control, the place where the

representatives work, the method of payment, the fact that the

representatives had their own business enterprises. See Warren

A. Seavey, Agency, § 84 at 142 (1964) (hereinafter "Seavey")

("the relation of master and servant is indicated by the fact

that the employee is given a salary and is employed for a

considerable period; that he is using an instrumentality of the

principal on his premises; that the work is unskilled, usually

supervised; that the one employed does not have a distinct

business").

The district court's failure to make the additional

finding is crucial, because while generally principals are not

liable for the torts of their independent contractors, the common

law is littered with exceptions:
[T]here is a range of tortious conduct on the
part of an agent that may bind the principal
and subject him to liability even where the
agent is not a servant, where the act was not
done in the manner authorized or directed by
the principal, and where the result was not
authorized or intended by the principal.

Sanders v. Rowan, 484 A.2d at 1029. A principal is not generally

liable for physical torts committed by its independent

contractor-agent, but a principal will be held liable for the

independent contractor-agent's misrepresentations "upon matters
which the principal might reasonably expect would be the subject

of representations, provided the other party has no notice that

the representations are unauthorized." Id. at 1029 (quoting

Restatement (Second) of Agency § 258); see also Nagels v.

Christy, 330 S.W.2d 754, 757 (Mo. 1959) (principal liable for

misrepresentations by independent contractor sales agent) (citing

cases). As one commentator has written:
Where an agent is authorized or apparently
authorized to conduct a transaction, and the
other party is unaware of any limitation upon
the agent's authority, a problem similar to
that of the limits of the scope of employment
by a servant arises. The difficulties are
best seen in the cases of selling agents.
Their principals have been held liable for
the unauthorized and untrue statements as to
the capacity of the machine sold, the age of
a second-hand automobile, the construction
and material used in building a house, the
income from property, the amount of taxes due
upon it, the extent of coverage of insurance,
the intent of the manufacturer not to disturb
a distributorship awarded by it to the
plaintiff.

Seavey, § 92 at 163. Although liability at common law generally

was limited to actions by the purchaser for deceit, we see no

reason why the doctrine should not be transplanted to the area of

unfair competition. The basis for the common law exception is

the injustice in allowing a principal to place agents in the

marketplace, to allow the agents to complete contracts on the

principal's behalf, to profit from the agents'

misrepresentations, and then to disclaim liability for the

agents' actions while benefitting from the fraud. The theory

relies on the distinction between torts of misrepresentation that
benefit the defendant, and torts such as negligently injuring a

passerby while driving a car, from which the defendant does not

profit at all. Moreover, as the New Jersey Supreme Court has

noted, it is appropriate for courts to consider "awareness of the

risk and the element of foreseeability of loss in their

consideration of liability based on agency principles." Sears

Mortgage Corp., 634 A.2d at 83. Correctly characterized, then,

the doctrine simply states a circumstance in which the principal

justly is held responsible for the torts of its independent

contractor-agent.

We hold, then, that when a principal authorizes its

independent contractor agent to conduct and conclude a

transaction with third parties on the principal's own behalf, and

the principal benefits financially from the contracts, the

principal will be liable in an action brought pursuant to section

43(a) of the Lanham Act based on the agents' foreseeable

infringing actions upon which it would be reasonable for the

third party to rely, provided the third party has no notice that

the representations are unauthorized.18

Of course, it would be unfair for a principal to be

liable for all misrepresentations of its agent independent

contractors. Thus, we include the requirements that the

18
. As noted above, the Restatement holds a principal liable for
tortious representations that are authorized or apparently
authorized. See n.17 supra. We believe that this terminology
unnecessarily confuses the issues. Therefore, we employ Seavey's
approach and the approach of the New Jersey Supreme Court in
Sears Mortgage Corp. and use the concept of foreseeability. See
typescript at 43-44 (quoting Seavey).
misrepresentations be foreseeable and that reliance be

reasonable. In considering whether the infringing actions were

foreseeable, the district court should consider all of the

surrounding circumstances. For instance, if the principal went

to great lengths to ensure that the agents knew not to make

certain representations, such representations, if made, may be

found to be unforeseeable. But if, at the same time, the

principal gave the agents carte blanche to hold themselves out as

the principal itself, then such infringing actions may become

foreseeable, notwithstanding the principal's efforts at policing

the agents. The point, of course, is to hold the principal

liable when it is just to do so, but still to encourage the

principal to police the agents enough so as to avoid liability.

This is the type of balancing the district court must undertake

in the first instance.

Professor Seavey's cautionary observations about

reliance are also apt:
It is difficult to suggest a limitation upon
the power of a selling agent to bind the
principal if the statements are relevant to
the transaction which the agent is authorized
to conduct. . . A working rule would be the
limitation of liability to statements
concerning matters as to which the principal
might think the agent, or any agent, might
misrepresent in forwarding their joint
interests. There must be limits. The seller
of a New England farm should not be liable to
a credulous buyer for tort damages if the
agent were to represent that the land to be
sold contained oil or gold.

Seavey, § 92 at 164.
 Because the district court failed to address whether

the representatives were agents or non-agents, and therefore

failed to consider these questions, we must remand the case for

further fact findings and renewed application of the law to the

facts. Upon remand, then, the district court first must

determine whether the sales representatives were agent-

independent contractors or non-agent independent contractors.

The Restatement defines a non-agent independent contractor as

follows:
A person who contracts to accomplish
something for another or to deliver something
to another, but who is not acting as a
fiduciary for the other is a non-agent
contractor. He may be anyone who has made a
contract and who is not an agent. The term
is used colloquially to describe builders and
others who have contracted to accomplish
physical results not under the supervision of
the one who has employed them to produce the
results.

Restatement (Second) Agency § 14N, Comment (b). Thus, the

district court should assess whether the representatives are

analogized better to a firm that contracts to perform a

particular, discrete task, such as to build a swimming pool, or

to a party who is empowered to speak for another and bind the

other in contracts. In making this determination, the facts

analyzed by the district court and adduced at the hearing are

certainly relevant. While the district court should focus on the

level of control exercisable by Winback over the manner in which

the sales representatives market its product, it should not

emphasize physical control (as it properly did in considering
whether the representatives were servants). Inga's testimony

that he attempts to police the representatives is certainly

relevant to this inquiry, particularly if Winback authorizes the

agents to represent themselves as Winback.19 If the district

court finds that the sales representatives are agents, it then

must proceed to determine whether they committed infringing acts

and whether, under the test we detailed above, Winback and Inga

may be held liable. If the district court determines that the

representatives are non-agent independent contractors, it still

must consider whether they were acting with apparent authority to

make the representations.

c. Apparent authority

The district court did not consider whether the sales

agents were acting with apparent authority, or as apparent

servants. The district court discounted AT&T's arguments because

it believed that the doctrine of apparent authority only comes

into play when an actual agency relationship is established.

Winback, 851 F. Supp. at 629. The district court's premise was

incorrect. "Apparent authority arises in those situations where
19
. It could be argued that our decision encourages parties like
Winback to exercise as little control as possible over their
representatives. We see little danger of that, though. For one
thing, we cannot conceive that in a situation where the
representative is empowered to speak as the principal, where the
representative has the power to conduct and conclude
transactions, and where the principal inevitably will exercise
control over how its company is represented to third parties, a
non-agency relationship will be found. Moreover, once an agency
is created, the principal may attempt to avoid liability by
acting in a manner that makes misrepresentations unforeseeable.
the principal causes persons with whom the agent deals to

reasonably believe that the agent has authority" despite the

absence of an actual agency relationship. Barticheck v. Fidelity

Union Bank/First Nat'l State, 680 F. Supp. 144, 148-49 (D.N.J.

1988) (applying New Jersey law). As the Court of Appeals for the

Sixth Circuit has explained:
If the principal is responsible for the third
person believing that the person with whom
she deals is an agent, or if the principal
should realize that his conduct is likely to
induce such belief, then there is an agency
created by apparent authority and the
principal will be held responsible for the
torts of his agent.

Roberts v. Montgomery Ward and Co., Inc., No. 83-1115, 729 F.2d
1462 at *3 (6th Cir. Feb. 24, 1984). In short, apparent

authority may be a way of creating an agency relationship.

Under the doctrine, liability is imposed "not as the result of

the reality of a contractual relationship but rather because of

the actions of a principal or an employer in somehow misleading

the public into believing that the relationship or the authority
exists." Arthur v. St. Peters Hosp., 405 A.2d 443, 446 (N.J.

Super. Ct. Law Div. 1979). Thus, while "[the] doctrine generally

presupposes the existence of a principal-agent relationship . . .

it is not necessary to the application of the doctrine." Shadel

v. Shell Oil Co., 478 A.2d 1262, 1264 (N.J. Super. Ct. Law Div.

1984); see also Sears Mortgage Corp., 634 A.2d at 79 ("[e]ven if

a person is not an 'actual agent,' he or she may be an agent by

virtue of apparent authority based on manifestations of that
authority by the principal.") (citing C.B. Snyder Realty Co. v.

National Newark Banking Co., 101 A.2d 544, 548 (N.J. 1953)).

The fact, then, that Winback's sales representatives

actually may have been non-agent independent contractors does not

dispose of the question. Rather, "[a]ny inter se arrangement

between [Winback and its sales representatives] establishing a

relationship other than that of principal and agent is

unimportant in determining the existence of apparent authority.

The crucial question is what representations were made to the

third party . . . ." Amritt v. Paragon Homes, Inc., 474 F.2d

1251, 1252 (3d Cir. 1973) (applying Virgin Islands law). Thus,

although "when dealing with an independent contractor, no

[master/servant] relationship exists, . . . this relationship is

not necessary to the application of the doctrine." Arthur, 405

A.2d at 446.

Under the doctrine of apparent authority, the district

court should have looked to the principal's actions and the third

parties' reasonable beliefs. AT&T contends that Winback

authorized its sales agents to conduct transactions as though

they were Winback. If this is true, then the district court may

find that Winback held its representatives out to the public as

its servants or as itself, and that the third parties reasonably

relied on that relationship in deciding to enter into contracts,

and, therefore, that the misrepresentations were authorized by

Winback. In other words, Winback may have created an agency

under the theory of apparent authority, and Winback may be liable

for the misrepresentations. Because the district court made no
findings in this regard, we must remand the case for additional

fact-finding.20

d. AT&T's final secondary liability argument

Finally, AT&T appears to argue that Winback should be

liable as a matter of law for the torts of its sales

representatives, regardless of whether they are agents and

regardless of whether they acted with apparent authority. AT&T

continually refers in its brief to the inequities of the district

court's decision. But the law it cites to support this broad

theory of secondary liability exists in copyright cases.21 The

20
. When a plaintiff relies on apparent authority, it also must
establish that the third party relied on the agency relationship
in making its purchasing decision. Sears Mortgage Corp., 634
A.2d at 82. In this regard, Winback argues that the
representatives held themselves out as AT&T and not as Winback.
The district court held that "[t]he proofs before the Court are
extremely unclear as to whether or not the sales representatives
hold themselves out to be [Winback] in making the solicitations
or whether or not [Winback] knowingly permits its name to be used
in the course of solicitations without qualification from the
representatives that they are independent marketing agencies
engaged to sell and promote the Winback program on behalf of
[Winback]." Winback, 851 F. Supp. at 628 n.5. Because these
questions are crucial in this case -- in order to determine not
only reliance, but also the extent to which the principal held
the representatives out to the public as its alter ego -- the
district court may wish to hear additional evidence upon remand.
21
. Along with citing the copyright cases, AT&T points to the
Seventh Circuit Court of Appeals' decision in First Nat'l Bank of
Cicero v. Lewco Sec. Corp., 860 F.2d 1407 (7th Cir. 1988). AT&T
argues in its brief:

"As one Court said,

where the principal cannot embrace a
transaction except through the acts of
an unsupervised agent, the principal
Court of Appeals for the Seventh Circuit has summed up the law in

these cases as follows:
[A] defendant is vicariously liable for
copyright infringement if it has 'the right
and ability to supervise the infringing
activity and also has a direct financial
interest in such activities.' Gershwin
Publishing Corp. v. Columbia Artists
Management, Inc., 443 F.2d 1159, 1162 (2d
Cir. 1971); F.E.L. Publications, Ltd. v.
National Conf. of Catholic Bishops, 466 F.
Supp. 1034, 1040 (N.D. Ill. 1978); see also
Dreamland Ball Room, Inc. v. Shapiro,
Bernstein & Co., 36 F.2d 354, 355 (7th Cir.
1929) (owner of dance hall liable for
copyright violations by band hired to
entertain paying customers); Famous Music
(..continued)
must accept the consequences of the
agent's misconduct because it was the
principal who allowed the agent to
operate without accountability.

Courts have found an agent to be a sole
actor for his principal when 'the whole
procedure . . . was entrusted by [the
principal] to the initiation and
execution of the agent . . .'"

AT&T brief at 30 (quoting Cicero, 860 F.2d at 1417-18). AT&T
continues: "Yet that is exactly what Winback has done here.
Indeed, it is difficult to imagine a situation where a
representative shoulders responsibility more completely for the
promotional marketing of its principal than a Winback
representative, for Winback's agents are entrusted with the
entire marketing responsibility for Winback." AT&T brief at 30.
AT&T fails to mention that the court's holding was predicated on
a finding that the agent was an adverse agent. See Cicero, 860
F.2d at 1417 ("Where an adverse agent is also the sole
representative of the principal in the transaction in question,
the principal may . . . be charged with the agent's knowledge.")
(citing 3 W. Fletcher, Corporations § 827 at 153-62 (1975)). The
court explained that "[t]he adverse agent exception . . . comes
into play where the agent's interests are shown to be adverse to
those of his principal." Id. AT&T does not even attempt to
argue that Winback's representatives were adverse agents;
therefore, AT&T's reliance on Cicero is misplaced.
 Corp. v. Bay State Harness Horse Racing &
Breeding Ass'n, 554 F.2d 1213, 1215 (1st Cir.
1977) (owner of racetrack liable for
copyright violations by company hired to
supply music over public address system).
The purpose of the doctrine is to prevent an
entity that profits from infringement from
hiding behind undercapitalized 'dummy'
operations when the copyright owner
eventually sues. Shapiro, Bernstein, 316
F.2d at 309.

Hard Rock Cafe, 955 F.2d at 1150. AT&T's theory would go well

beyond agency theory, for it would not rely on situations where

the agent is acting on behalf of the principal or as the

principal's alter ego. AT&T's argument -- which attempts to have

secondary liability under the Lanham Act parallel secondary

liability under the copyright laws -- is remarkable in light of

the fact that the Supreme Court has rejected precisely this

argument. The Court explicitly has held that secondary liability

for trademark infringement must be drawn more narrowly than

secondary liability for copyright infringement. Sony Corp. of
America v. Universal City Studios, Inc., 464 U.S. 417, 439 n.19,

104 S.Ct. 774, 787 n.19 (1984). The Court made that statement
while observing the "'fundamental differences between copyright

law and trademark law.'" Id. (internal quotation and citations

omitted). To adopt AT&T's argument would entail ignoring the

Supreme Court's warning, and would require us to base secondary

liability on a theory that goes beyond any common law doctrine of

vicarious liability.22 We decline to do so.

22
. AT&T also argues that Winback should be held liable under
the "joint tortfeasor" test enunciated in Hard Rock Cafe. In
that case, the Court of Appeals for the Seventh Circuit held that
 5. Likelihood of confusion

The district court, in addition to holding that Winback

could not be held liable for the acts of its sales agents, stated

that "[t]he Court need not rest solely on its determination that

the sales representatives are independent contractors in denying

plaintiff's application." Winback, 851 F. Supp. at 630. Rather,

while "plaintiff submitted sufficient proofs to the Court to

establish that consumers have been confused by certain oral

misrepresentations made by and written documents provided by the

Winback sales representatives", nonetheless, "the proofs also

establish that the cause of such confusion is not solely

attributable to the sales representatives." Id. AT&T argues

that the district court ignored unassailable evidence that

customers were likely to be confused by the representations.

Winback, relying on a recent case we decided, contends that the

test is not "likelihood of confusion" but "actual confusion."

(..continued)
a party may be held liable for the tortious acts of another when
"the defendant and the infringer have an apparent or actual
partnership, have authority to bind one another in transactions
with third parties or exercise joint ownership or control over
the infringing product." 955 F.2d at 1150. AT&T's argument is
meritless. The essence of joint tortfeasor liability is fault --
"[j]oint tortfeasors are all persons who act in concert to commit
a tort, pursuant to a common purpose." McCarthy on Trademarks, §
25.03[1] at 25-35. Winback and its representatives did not act
pursuant to a common plan to commit the tortious act, and Winback
did not actively take part in the tort, or induce or encourage
the tort. Id. Moreover, Winback and its representatives clearly:
(1) are not partners, (2) do not have the authority to bind each
other, and (3) do not exercise joint control over Winback's
product.
Since, according to Winback, AT&T submitted insufficient

statistical proofs of actual confusion, Winback contends that the

district court's judgment should be affirmed on this alternative

ground.

While both parties argue about whether the district

court's finding was clearly erroneous, it appears that the

district court actually made no such finding. The court states

in its Opinion:
The Court does not intend to suggest,
however, that either the nature of the
product or the arguably unwise decisions of
the AT&T marketing department would justify
acts of infringement by [Winback] or those
who market the [Winback] product. Indeed,
the Court makes no determination as to the
primary cause of the actual confusion which
was proven to exist. The Court only raises
these issues to support its conclusion that
the issuance of a preliminary injunction in
this matter, which would require a finding of
likelihood of confusion, would be improper
given that certain decisions by the plaintiff
played at lease some substantive role in the
creation of the confusion.

Id. at 631 (emphasis added). Thus, the court actually refrained
from finding for Winback on the likelihood of confusion test

alone. Rather, it simply held that AT&T's contribution to the

confusion supported the already-made decision that it was not

entitled to injunctive relief.23 Since the court did not make

23
. Our reading of the Opinion is further corroborated by the
fact that the court cited no case law in its discussion of
likelihood of confusion and the fact that in another place in the
Opinion, the court held that "[t]here is no question that [AT&T]
submitted sufficient proofs to the Court to establish that
consumers have been confused by certain oral misrepresentations
made by and written documents provided by the Winback sales
any express finding in this regard, we will decline to weigh the

evidence in the first instance. Rather, upon remand, if the

district court reaches this issue, it should make the appropriate

findings.

Still, Winback argues that we should adopt the "actual

confusion" standard we apply in claims of false advertising and

that we should hold as a matter of law that AT&T's evidence does

not satisfy the test. In a claim of trademark infringement under

the Lanham Act, "[p]roof of actual confusion is not necessary;

likelihood of confusion is all that need be shown.'" Fisons

Horticulture, Inc. v. Vigoro Indus., Inc., 30 F.3d 466, 472 (3d

Cir. 1994) (quoting Ford Motor Co. v. Summit Motor Prods., Inc.,

930 F.2d 277, 292 (3d Cir.), cert. denied, ____ U.S. ____, 112

S.Ct. 373 (1991)). In considering whether a plaintiff has

demonstrated likelihood of confusion, district courts generally

are to consider the following factors:

(1) the degree of similarity between the plaintiff's

mark and the alleged infringing mark;

(2) the strength of the plaintiff's mark;

(3) the price of the goods and other factors indicative

of the care and attention expected of customers when making a

purchase;

(4) the length of time the defendant has used the mark

without evidence of actual confusion;

(..continued)
representatives." 851 F. Supp. at 630 (emphasis added). See
typescript at 11.
 (5) the intent of the defendant in adopting the mark;

(6) the evidence of actual confusion;

(7) the extent to which the targets of the parties'

sales efforts are the same.

Resorts Int'l, Inc. v. Greate Bay Hotel and Casino, 830 F. Supp.

826, 835 (D.N.J. 1992); American Home Prods. v. Barr Lab., 656 F.

Supp. at 1068. Of course, when the claim involves allegations

beyond use of a similar mark, the test should be broadened

accordingly. Sun-Fun Prods., Inc. v. Suntan Research and Dev.,

Inc., 656 F.2d 186, 192 (5th Cir. 1981).

We apply a different test for claims of false

advertising pursuant to 15 U.S.C. § 1125(a)(1)(B). A party

seeking relief under this section of the Lanham Act
bears the burden of proving actual deception
by a preponderance of the evidence. . . .
[I]t cannot obtain relief by arguing how
consumers could react; it must show how
consumers actually do react.

Sandoz Pharmaceuticals Corp. v. Richardson-Vicks, Inc., 902 F.2d

222, 228-29 (3d Cir. 1990); see also Johnson & Johnson-Merck v.
Rhone-Poulenc Rorer, 19 F.3d at 130.24 Thus, the plaintiff must

adduce evidence that "the public was actually misled or confused

by it." Fisons Horticulture, Inc., 30 F.3d at 472 n.8 (citing

Johnson & Johnson-Merck, 19 F.3d at 129-30);

Sandoz Pharmaceuticals Corp., 902 F.3d at 228-29. "[T]he success

of the claim usually turns on the persuasiveness of a consumer

24
. If the plaintiff proves that the advertising is literally
false, and not just misleading, then it need not prove actual
deception.
survey." Johnson & Johnson-Merck, 19 F.3d at 129-30 (citation

omitted). In Johnson & Johnson-Merck, we held that a survey

demonstrating that 7.5% of consumers were deceived was

insufficient to satisfy plaintiff's burden that the advertising

"tends to deceive or mislead 'a substantial portion of the

intended audience.'" Id. at 133-34 (quoting U.S. Healthcare,

Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 922 (3d

Cir.), cert. denied, 498 U.S. 816, 111 S.Ct. 58 (1990)). If that

test were applied to this case, unless the district court found

that the defendants' representations were actually false, AT&T

would be unable to meet the standard. Thus, the question is

whether AT&T's claims against Winback and Inga are analogous

enough to a claim of false advertising to warrant the same test.

AT&T's claims against the defendants can be divided

into two categories: (1) Winback's representatives brazenly and

falsely represented Winback to be, or to be a division of, AT&T;

(2) Winback's representatives engaged in misleading

representations, such as designating itself as the Winback and

Conserve Program rather than the Winback and Conserve Program,

Inc., that misled customers into believing that Winback was

affiliated with AT&T. In some sense, AT&T's claims are analogous

to claims of false advertising. See, e.g., 3 McCarthy, §

27.08[1](c) at 27-90 ("A variation on the false advertising prong

of § 43(a) is presented in cases finding a violation in the false

representation that a product is created, designed, or authorized

by plaintiff.") (collecting cases). The similarity stems from
the fact that advertising is a subset of marketing, and AT&T

takes issue with Winback's methods of marketing.

But all claims of unfair competition, including claims

of trademark infringement, are to some degree related to claims

of false advertising. They all involve allegations that the

public was misled into purchasing a particular entity's product.

But a Lanham Act claim of false advertising is different because

in the usual such case, a plaintiff is claiming to be injured

because of false representations by the defendant about the

strength or quality of the defendant's own product. Thus, the

plaintiff essentially is claiming relief based on an indirect

injury. In a false designation of origin claim, however, the

plaintiff claims relief because of false representations made by

the defendant about the plaintiff's product. Thus, we previously

have held that "[l]ikelihood of confusion is . . . the test for

actions brought under section 43(a) of the Lanham Act, 15 U.S.C.

§ 1125(a)(1)(A) for unfair competition to prevent false

representations as to the source or origin of goods or services

by a mark confusingly similar to one already in use." Fisons

Horticulture, Inc., 30 F.3d at 473 (citing Sun-Fun Prods., Inc.

v. Suntan Research & Dev. Inc., 656 F.2d at 192). We now adopt

that test not only for false designation of origin claims that

allege use of a confusingly similar mark, but also more general

false designation of origin claims. See Universal Money Centers,

Inc. v. AT&T, 22 F.3d 1527, 1529-30 (10th Cir. 1994) (test for

false designation of origin claim is likelihood of confusion)

(citing Jordache Enters., Inc. v. Hogg Wyld, Ltd., 828 F.2d 1482,
1484 (10th Cir. 1987)) (petition for cert. filed Sept. 8, 1994);

Smith Fiberglass Prods., Inc. v. Ameron, Inc., 7 F.3d 1327, 1329

(7th Cir. 1993) (test for false designation of origin and palming

off claim is "likelihood of consumers in the relevant market

confusing the infringer's mark with that of the complainant").

Cf. Conopco, Inc. v. May Dep't Stores Co., No. 92-1412, 1994 WL

511280 at *7 (Fed. Cir. Sept. 21, 1994) (noting, in different

context, distinction between false advertising claim and false

designation of origin claim). Therefore, we reject Winback's

argument and decline to affirm the district court's Order on this

alternative ground.

III. CONCLUSION

For all the reasons detailed above, we will vacate the

district court's denial of AT&T's application for a preliminary

injunction and we will remand the matter to the district court

for further proceedings consistent with this Opinion.