IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________
No. 94-30055
_________________________
PEACHES ENTERTAINMENT CORPORATION
Plaintiff/Appellant/Cross-Appellee.
versus
ENTERTAINMENT REPERTOIRE ASSOCIATES, INC.
Defendant/Appellee/Cross-Appellant.
____________________________________________________
Appeal from United States District Court
for the Eastern District of Louisiana
__________________________________________________
August 16, 1995
Before HIGGINBOTHAM, SMITH and STEWART, Circuit Judges.
CARL E. STEWART, Circuit Judge:
Peaches Entertainment Corporation ("PEC"), owner of the
federally registered service mark PEACHES, appeals the district
court's judgment, which held that Entertainment Repertoire
Association, Inc. ("ERA"), retained limited, exclusive rights to
use a similar mark within stores in two parishes in Louisiana and
advertise in five more. ERA appeals the district court's holding
that limited future store expansion to the two parishes where it
had operated stores. For the following reasons, the judgment of
the district court is affirmed in part, modified, and remanded with
directions.
BACKGROUND
Peaches Entertainment Corporation, a retail music and video
chain, operates twenty-one locations in six states. It is the
owner of the federally registered service mark PEACHES for "retail
tape and record services," the mark having been registered by a
corporate predecessor, Lishon's Inc. ("Lishon's"),1 on July 6,
1976. Lishon's began using the mark in commerce in relation to
music stores sometime in 1974.
Likewise, ERA owns a retail music and video store in New
Orleans, Louisiana, which does business under the trade name
PEACHES.2 ERA first began to use the name PEACHES and a related
graphic service mark in August 1975, when it opened stores in both
Orleans and Jefferson Parish.
ERA's PEACHES fame spread beyond the Louisiana area, and
Lishon's learned of ERA's use of the PEACHES name and mark. On
December 2, 1975, Lishon's sent a cease and desist letter to ERA
notifying it of its claim to the PEACHES trademark and demanding
that ERA stop using the trademark PEACHES in connection with its
Louisiana music stores. ERA responded, by letter, that when it
first began to use the trademark PEACHES, it was unaware of
Lishon's prior use of the trademark. Because Lishon's did not
reply to its letter, ERA assumed that it continued to have the
1
Lishon's, which changed its name to Peaches Records and
Tapes, Inc., filed for bankruptcy in 1981. PEC subsequently
acquired many of its assets, including the PEACHES service mark.
2
The parties have stipulated that the owners of ERA were
inspired to use the mark and name PEACHES after listening to a hit
record by the Allman Brothers entitled "Eat a Peach." The album,
which was produced by Capricorn Records, was marketed to record
stores in a peach crate marked with the illustration of a peach.
In July 1975, ERA obtained permission from Capricorn to use PEACHES
as a word mark and Capricorn's illustration as a design mark. ERA
was unaware of PEC's predecessor's use.
2
right to use the PEACHES trademark in Louisiana. Consequently,
ERA's use of the trademark neither ceased nor desisted, and it
continued to expand its operations. By May 1980, ERA operated six
stores in Louisiana, two stores in Jefferson Parish and four stores
in Orleans Parish. In 1981, Lishon's filed for bankruptcy and sold
the PEACHES trademark to PEC.
In 1992, when PEC learned of ERA's use of the mark PEACHES, it
brought an infringement suit in federal court under the Lanham
Trademark Act of 1946, seeking an injunction and damages. See 15
U.S.C. § 1221. At that time, ERA was operating only one store in
Orleans Parish, although the one store was extremely profitable.
ERA defended on the grounds that it was an "intermediate junior
user," entitled to exclusive use of the trademark within the
territory that it had established prior to the federal registration
of the mark. The district court agreed.
The triable issues that remained were limited to determining
the extent of PEC's right to use the PEACHES service mark and ERA's
additional defense of laches. After considering the evidence, the
district court held that ERA's use was protected under two
doctrines. First, ERA was an intermediate junior user and, second,
PEC was estopped by laches from encroaching on ERA's territory on
account of its seventeen-year delay in pursuing its rights.
Moreover, the court stated that it would not hold ERA to a "strict
standard" of proof of its trade territory, because of the delay.
To determine the trade territory, the district court determined
ERA's trade territory based "primarily on the evidence of the
3
geographic extent of ERA's continuous radio advertising and its
reputation." It also relied on ERA's evidence "regarding the
geographic origin of its customers." This evidence came primarily
from Harris and Shirani Rea, who co-owned and operated ERA. The
district court issued a permanent injunction that allowed ERA to
advertise in a seven parish territory,3 but limited future store
expansion to Orleans and Jefferson Parish, the two parishes where
ERA had operated stores.
LAW
In 1946, Congress passed the Lanham Act in order to federalize
the common law protection of trademarks used in interstate
commerce. See Lanham Trademark Act of 1946, c. 540, 60 Stat. 427
(codified as amended at 15 U.S.C. §§ 1051-1127). The Act was
designed to protect both consumers' confidence in the quality and
source of goods and services and protect businesses' goodwill in
their products by creating a federal right of action for trademark
infringement. S. Rep. No. 1333, 79th Cong., 2d Sess. at 1,
reprinted in 1946 U.S. Cong. Serv. 1274, 1274. Owners of a
federally recognized trademark, 11 U.S.C. § 1052, service mark 11
U.S.C. § 1053, or other collective mark, 11 U.S.C. § 1054; see
also, 11 U.S.C. § 1127 (defining types of marks),4 may bring suit
in federal court for damages or injunctive relief against users of
3
These seven parishes are: Orleans, Jefferson, Plaquemines,
St. Bernard, St. Tammany, St. Charles, and St. John the Baptist.
4
Insofar as the applicable law here is concerned, the terms
"service mark" and "trade mark" are synonymous. Cf. Boston
Professional Hockey Ass'n, Inc. v. Dallas Cap & Emblem Mfg., Inc.,
510 F.2d 1004, 1009 (5th Cir.), cert. denied, 423 U.S. 868 (1975).
4
similar marks whose use is "likely to cause confusion, or to cause
mistake, or to deceive." 11 U.S.C. § 1114.
The basic scheme that creates rights under the Lanham Act is
a national registration system. Under the common law, use of a
distinctive mark in commerce only created a right through priority
and market. See United Drug Co. v. Theodore Rectanus Co., 248 U.S.
90, 97 (1918) ("There is no such thing as property in a trade-mark
except as a right appurtenant to an established business or trade
in connection with which the mark is employed."). The Lanham Act,
however, changed the common law rule by allowing a user to acquire
rights in a mark by registration. To complicate this process,
however, Congress also created several defenses to a registered-
user's rights. Significant to this case, junior users, parties who
use a mark subsequent to another's use, may retain rights. If the
use predates the senior user's registration,5 then the Act provides
a defense if the mark "was adopted without knowledge of the
registrant's prior use and has been continuously used by such party
. . . from a date prior to registration of the mark . . ." 11
U.S.C. § 1115(b)(5). The rights of a junior intermediate user,
however, "apply only for the area in which such continuous prior
use is proved." 11 U.S.C. § 1115(b)(5); see generally, 3 J. Thomas
McCarthy, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 26.18[1] (3d ed.
1994) (examining "limited area defense"). The junior user's area
of continuous prior use, which is frozen at the time the senior
5
The 1988 amendments to the Act made certain changes to this
doctrine that are not relevant to the case at hand.
5
user obtains registration, see John R. Thompson v. Holloway, 366
F.2d 108, 116 (5th Cir. 1966); and Dawn Donuts Co. v. Hart's Food
Stores, Inc., 267 F.2d 358, 360 (2d Cir. 1959), becomes the junior
user's trade territory.
The junior user may establish his trade territory by
identifying the "zone of reputation" acquired for his mark. See
William J. Gross, Comment, The Territorial Scope of Trademark
Rights, 44 U. MIAMI L. REV. 1075, 1084-87 (1990); see also, Hanover
Star Milling Co. v. Metcalf, 240 U.S. 403, 415-16 (1916) ("Into
whatever markets the use of a trademark has extended, or its
meaning has become known, there will be the manufacturer or trader
whose trade is pirated by an infringing use be entitled to
protection and redress." [emphasis added]); Thrifty Rent-A-Car
System, Inc. v. Thrift Cars, Inc., 639 F. Supp. 750, 753 (D. Mass.
1986), aff'd., 831 F.2d 1177 (1st Cir. 1987) ("A party who has
established a reputation in an area may acquire exclusive rights to
its mark there, even though the product bearing the mark is
unavailable."); Quill Corp. v. LeBlanc, 654 F. Supp. 380, 385
(D.N.H. 1987) ("At the point in time of registration, the junior
user's current market -- its 'area [of] continuous prior use'
. . . -- is frozen, and . . . the junior user's reputation,
advertising, and sales delimit its frozen area." [citations
omitted]); and 3 McCarthy, supra, § 26.12[1] at 26-41 ("The
territorial scope of a trademark and its goodwill must be defined
in terms of the area from which customers are drawn, the coverage
of advertising media and the nature of goods or services sold.").
6
Provided that the junior user has significant sales in the areas
the mark has gained reputation, these areas comprise the junior
user's trade territory at the time the senior user obtained
registration. See Thrifty Rent-A-Car System, 639 F. Supp. at 753.
Advertising alone cannot establish the junior user's trademark
rights in an area. Id.
STANDARD OF REVIEW
We review the trial court's granting or denial of permanent
injunction for abuse of discretion. See Merrill Lynch v. Stidham,
658 F.2d 1098 (5th Cir. 1981) (holding that the trial court had not
abused its discretion in permanently enjoining the defendants); see
also, Lone Star Steakhouse & Saloon, Inc. v. Alpha of Virginia,
Inc., 43 F.3d 922, 939 (4th Cir. 1995) (noting that abuse of
discretion is the appropriate standard of review for a granting or
denial of permanent injunction). The district court abuses its
discretion if it (1) relies on clearly erroneous factual findings
when deciding to grant or deny the permanent injunction (2) relies
on erroneous conclusions of law when deciding to grant or deny the
permanent injunction, or (3) misapplies the factual or legal
conclusions when fashioning its injunctive relief.
"The standard of review over the district court's grant of a
permanent injunction must, of course, be segmented according to the
component functions performed by the district court." Multnomah
Legal Serv. Workers Union v. Legal Serv. Corp., 936 F.2d 1547, 1552
(9th Cir. 1991). Thus, we will review the district court's
7
findings of fact under the clearly erroneous standard, and the
conclusions of law under the de novo standard.
Historically, finding the territorial scope of trademark
rights has been a question of fact. 3 McCarthy, supra, § 26.12[1]
at 26-41; see also, Federal Glass Co. v. Loshin, 224 F.2d 100, 102
(2d Cir. 1955); cf. American Foods, Inc. v. Golden Flake, Inc.,
312 F.2d 619, 627 (5th Cir. 1963) ("The ancient observation that
each trade-mark case must be decided upon its own facts still
obtains . . . ."). We overturn the district court's factual
findings only if they are clearly erroneous. Chevron Chemical Co.
v. Voluntary Purchasing Groups, Inc., 659 F.2d 695, 703 (5th Cir.
1981). The determination of the proper legal standard for
assessing a junior or senior user's trade territory is a question
of law that we review de novo. See id.
If we find that the district court misapplied its factual
findings and/or legal conclusions when fashioning its permanent
injunction, we must remand the case for modification of the order.
Modifications of an order granting injunctive relief "cannot be
devised from on high. The district court must bear the
responsibility for doing so." See United States v. Lawrence County
School Dist., 799 F.2d 1031, 1047 (5th Cir. 1986); see also, B & A
Pipeline Co. v. Dorney, 904 F.2d 996, 1002 (5th Cir. 1990)
(remanded the case with directions that the court modify its
judgment in order to limit the permanent injunction placed on the
defendant); and Premier Indus. Corp. v. Texas Indus. Fastener Co.,
450 F.2d 444, 448 (5th Cir. 1971) (remanded the case with
8
directions that the district court modify its judgment in order to
extend the time of the injunctive relief).
ANALYSIS
I. SIZE OF TRADE AREA
PEC contends that the district court made several errors in
determining the size of ERA's trade area. Initially, it contends
that the district court erred in not holding PEC to a "strict
proof" of its trade area. Our research has found no jurisprudence
to the effect that ERA should have been held to a "strict proof"
requirement and PEC has virtually conceded this point in its reply
brief.
PEC also contends that the district court relied on
inadmissible hearsay adduced at trial in making its judgment. The
testimony at issue is that of Harris Rea and his wife. They
testified that they drew their customers primarily from within
seven parishes and sometimes beyond. They based their testimony on
their business experiences acquired through the day-to-day
operation of the record store and personal contacts with customers
who sought out their wide inventory mix of rhythm and blues, blues,
jazz, gospel, and rap music. ERA stocked hard-to-find collector's
items and music indigenous to Louisiana such as cajun, zydeco and
dixieland jazz. PEC concedes that it did not object to this
testimony during trial.
In this circuit, "unobjected-to hearsay may be considered by
the trier of fact for such probative value as it may have." Flores
v. Estelle, 513 F.2d 764, 766 (5th Cir.), cert. denied, 423 U.S.
9
989, 96 S.Ct. 401, 46 L.Ed.2d 308 (1975). When a party fails to
object to the admission of evidence, we can review only for plain
error. Permian Petroleum v. Petroleos Mexicanos, 934 F.2d 635, 648
(5th Cir. 1991); Fed. R. Evid. 103(d). Plain error is error which,
when examined in the context of the entire case, is so obvious and
substantial that failure to notice and correct it would affect the
fairness, integrity, or public reputation of judicial proceedings.
Permian Petroleum, 934 F.2d at 648.
At trial, it was established that the retail record business
is a cash-and-carry business. Most customers pay by cash or check,
leaving no written record of their residence. Thus, the testimony
of Harris Rea was probative as to the location of the customer
base. It also gave every indication of being reliable,
particularly in view of the absence of any contrary evidence
presented by PEC. See Flores, 513 F.2d at 766 (holding that
"unobjected-to hearsay may be considered by the trier of fact for
such probative value as it may have"). Moreover, the district
court also heard testimony of ERA's extensive radio advertising and
promotion activity, which the district court relied upon in issuing
the permanent injunction. Consequently, the alleged hearsay
testimony was not the sole basis for the district court judgment.
We find no error in the admission of this testimony that would have
affected the fairness, integrity or public reputation of the
district court proceedings.
10
II. ERA'S TRADE TERRITORY
The trial court identified ERA's trade territory, which was
frozen at the time Lishon obtained registration of the PEACHES
mark, using uncontroverted testimony regarding ERA's reputation,
advertising and sales in the areas in which it concentrated its
advertising. We hold that the zone of reputation -- that is, the
reputation, advertising, and sales proven in a given service area
-- may be used to determine a junior or senior user's trade
territory. Therefore, the trial court did not err in relying on
ERA's zone of reputation to classify ERA's trade territory.
In calculating ERA's trade area, the trial court made the
following factual findings:
On August 1, 1975, Smith and Rea began using the service
mark PEACHES on exterior and interior signs, point-of-
sale displays at its original locations in Gretna and on
Elysian Fields and on bags for purchased merchandise. At
that time it also began distributing flyers using the
PEACHES service mark and word mark in various other forms
of advertising is uncontroverted. In this vein, Rea
testified that in August 1975, ERA began advertising on
numerous radio stations in the metropolitan area of New
Orleans, including WXEL (which is now WLTX-FM), WNNR
(which is now WYAT), WYLD-AM and FM, WBOK, WTIX and WRNO-
FM[.] . . . The coverage areas for the broadcast signals
of the radio stations on which ERA advertised all include
Orleans and Jefferson Parishes and most include all of
the parishes south of New Orleans to the Gulf of Mexico,
all of the parishes on the north shore of Lake
Ponchartrain and across the state line well into
Mississippi on the north and east, past Baton Rouge to
the northwest, and past Lafayette to the west.
The trial court deduced that the market served continuously by
ERA's PEACHES prior to Lishon's registration included the greater
New Orleans area (i.e., Orleans Parish), and its contiguous
11
parishes, Jefferson, Plaquemines, St. Bernard, St. Tammany, St.
Charles and St. John the Baptist.
Our review of the record, and in particular the trial court's
memorandum opinion, demonstrates that the trial court's
determination of ERA's trade territory was based upon cumulative
evidence regarding ERA's reputation. The trial court's
determination was not made on the basis of the radio signals going
out to various far-reaching areas, but rather on recognized sales
coming in from particular localities. A comparison of the radio
signals and the court-recognized trade territory reveals that the
radio signals through which ERA advertised clearly went far beyond
the seven parishes identified as ERA's trade territory. For
example, some of the radio signals stretched to the Gulf of Mexico,
while others penetrated Mississippi. Evidence adduced at trial
magnifies the incongruity between ERA's sales and the radio
signals. Harris Rea testified that ERA's PEACHES store survived
despite the presence of two nearby Sound Warehouse stores because
of ERA's ability to draw from a larger trade area than the PEACHES
stores' immediate neighborhoods. He further testified that
PEACHES' "reputation" and "customer loyalty" regularly drew
customers from the following parishes: Orleans, Jefferson, St.
Tammany, Tangipahoa, St. John the Baptist, St. Charles, St. Bernard
and Plaquemines. The trial court carefully tailored the trade
territory to conform with evidence regarding ERA's sales; it did
not rely solely on ERA's advertising evidence. Because ERA proved
its reputation, advertising and sales in these seven parishes, the
12
trial court delineated these parishes as ERA's trade territory. We
cannot say that the trial court's factual finding of ERA's trade
territory, which was fully supported by testimony and evidence at
trial, was clearly erroneous.
III. EXPANSION LIMITATION
Both parties appeal the restrictions placed on ERA's ability
to expand within the trade area. PEC argues that ERA should be
limited to the one store that is operating now, despite the fact
that its trade area covers seven parishes. We find no support for
this contention in the case law. As an intermediate junior user,
ERA has the right to fully exploit the market potential of its
trade area. Dawn Donuts Co., 267 F.2d at 362. PEC's rights are
not affected by the opening of one store or one hundred stores as
long as ERA does not infringe upon PEC's trademark outside of the
seven parish trade area. We find PEC's argument to be without
merit.
ERA appeals the portion of the district court's judgment that
limits it from opening new stores outside of the Orleans and
Jefferson Parish parts of the trade area. Harris Rea testified
that ERA's specialization in ethnic music and its wide inventory of
Louisiana music had gained it a loyal following. He also testified
that gross revenues for the single store had been growing over the
last few years despite competition from large franchise stores. As
noted above, in 1991, gross revenues were $345,000. In 1992, they
were $455,000. In 1993, they were $650,000. By July 31, 1994,
13
gross revenues exceeded $750,000. He testified that gross revenues
by square footage in 1994 was $417 dollars per square foot, which
is approximately three times the industry average of $165 dollars
per square foot.
Rea testified that in order to increase profitability in the
future, he had planned to expand the size of his store in Orleans
Parish as well as open new stores within the trade area. By
opening new stores, he stated that he would be able to spread
management costs over several stores and generate more sales for
the same advertising dollar. Rea also testified that the new
stores would make ERA eligible for volume discounts from record
manufacturers and distributors.
Based on this uncontroverted evidence at trial, the district
court stated in its memorandum opinion that:
It appears incongruous for a court to limit an
intermediate junior user to a specific retail location or
a set of specific locations within its defined Trade
Territory when the law is precisely to the effect that an
intermediate junior user is entitled to freely use its
mark within the confines of its established trade
territory without interference by the registered owner of
the mark. Accordingly, the Court is of the opinion that
it is inappropriate to interfere with the ERA's use of
its mark within its Trade Territory by delineating
specific locations therein where the intermediate junior
use is permitted [to] utilize its mark. [Footnote
omitted.]
This conclusion comports perfectly with the principle that an
intermediate junior user is entitled to fully exploit its trade
area. See Dawn Donuts, 267 F.2d at 362.
14
In its judgment, however, the district court limited the
opening of new stores to the Orleans and Jefferson Parish,
explaining its reason for the restriction:
The court imposes such restriction for the sole purpose
of avoiding the possibility of a prohibited expansion of
the intermediate junior user's trade territory which
would logically follow the establishment of additional
retail locations approaching the outer boundaries of
ERA's Trade Territory.
This restriction is unsupported by the record or law. There was no
evidence adduced at trial indicating that a restriction on the
physical location of an ERA store was required to prevent the
expansion of ERA's trade area. In fact, the evidence at trial was
that the opening of new stores was planned by ERA as a means of
exploiting the existing trade area. This evidence was not
contested by PEC. Neither the district court nor PEC cites any
case that has allowed this type of restriction on the location of
a store within a trade area, nor has our own research produced any
case law that has imposed this type of restriction.
The district court reached the factual conclusion that ERA's
trade area consisted of seven contiguous parishes in South
Louisiana. This conclusion was fully supported by the evidence and
testimony submitted at trial. Having reached that conclusion, it
was error for the district court to restrict the location of any of
ERA's future stores to Orleans and Jefferson Parish.6
6
We do not address the merits of the laches defense upheld by
the trial court because a discussion of this defense is not
necessary to sustain the judgment.
15
CONCLUSION
For the foregoing reasons, we REMAND the cause to the district
court, and the district court is directed to MODIFY its judgment,
consistent with this opinion, by removing the stricture prohibiting
ERA from opening new stores outside of Orleans and Jefferson
Parish. In all other respects, the judgment of the district court
is AFFIRMED.
Affirmed in part, modified, and remanded with directions.
16