Natl. Assoc. for v. Central AR Area ( 2001 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 00-1964
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National Association for Healthcare *
Communications, Inc., *
*
Plaintiff - Appellant, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Arkansas.
Central Arkansas Area Agency on *
Aging, Inc., et al., *
*
Defendants - Appellees. *
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Submitted: January 10, 2001
Filed: July 11, 2001
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Before LOKEN and BYE, Circuit Judges, and SACHS,* District Judge.
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LOKEN, Circuit Judge.
This is an action under the Lanham Act and state law to determine which party
has the superior right to use the service mark “CareLink” in Arkansas. The National
Association for Healthcare Communications, Inc. (“Healthcom”) was the first to use
the mark nationally. It has a federal service mark registration pending but must rely
*
The HONORABLE HOWARD F. SACHS, United States District Judge for
the Western District of Missouri, sitting by designation.
in this case on its common law trademark rights as enforced under the Lanham Act.
See 15 U.S.C. § 1125(a). The Central Arkansas Area Agency on Aging, Inc. (“CA”)
was the first to use the mark in six counties in central Arkansas and has registered its
mark under the Arkansas trademark statutes. See Ark. Code Ann. Tit. 4, Ch. 71
(Michie Supp. 1999). The district court held that CA as first user prevailed in its six-
county trade area and that CA’s state registration entitled it to statewide relief.
Accordingly, the court enjoined Healthcom from using the CareLink mark anywhere
in Arkansas. National Ass’n for Healthcare Commun., Inc. v. Central Ark. Area
Agency on Aging, Inc.,119 F. Supp.2d 884 (E.D. Ark. 2000). Healthcom appeals.
Agreeing that CA is entitled to injunctive relief, but limited to the six Arkansas
counties where it has used the mark, we remand to the district court with instructions
to modify the injunction.
I.
The Parties’ Use of the CareLink Mark. Healthcom is an Illinois corporation
that provides remote electronic monitoring devices and emergency response services
for at-home clients in twenty-five States, including Arkansas. Healthcom solicits
local hospitals and home health care agencies to become members of Healthcom’s
National Association for Emergency Response, Inc. Each member’s subscribers
(individual clients or patients) are then offered a variety of CareLink at-home
emergency response services. A CareLink program typically consists of monitoring
equipment, usually leased by Healthcom to the member health care provider or
directly to the subscriber, plus a round-the-clock support center operated by
Healthcom, which responds to the subscriber’s emergency calls in a prearranged
fashion and may monitor medical equipment in the subscriber’s home or monitor the
whereabouts of an at-risk subscriber, such as one suffering from Alzheimer’s disease.
Each provider-member markets CareLink programs and equipment to its patients,
bills the patients, and pays Healthcom a monthly fee for each patient using CareLink
services.
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CA is a private, nonprofit Arkansas corporation organized in 1979 to provide
a broad range of support services to elderly and disabled persons in a six-county
region in central Arkansas. CA’s mission is to provide cost-effective, community-
based alternatives to nursing home care. CA has 750 employees and 300 volunteers
who assist some 10,000 elderly persons in the region. CA has never provided
personal emergency response services, but it has occasionally paid for such services
being provided to CA clients. In January 1995, CA adopted the trade name
“CareLink” to use in lieu of its corporate name, which had proved awkward and hard
to remember, and which created the mis-impression that CA is a government agency.
Facts relating to first usage. Healthcom began marketing emergency response
services under the CareLink service mark in 1991 or early 1992. From 1992 to 1995,
Healthcom spent an estimated $50,000 attempting to sell its services in Arkansas.
Despite these efforts, during this period Healthcom made only one $385 sale in
Arkansas, to an end user who stopped using its CareLink service in April 1994.
Healthcom had no Arkansas customers from April 1994 to September 1995, when it
entered into a contract with North Arkansas Regional Medical Center in Harrison.
By July 1999, Healthcom had contracts with seven Arkansas health care providers
and served 350 individual subscribers. Healthcom estimated that its total Arkansas
revenues in 1999 would be just over $82,000. Healthcom has never had a customer
for its CareLink services located within the six-county region served by CA.
Healthcom applied for federal trademark registration on May 4, 1999, and its
application is pending.
CA adopted the CareLink trade name and logo in early 1995 and has
prominently displayed the logo on stationery, business cards, client information
materials, and other publicity materials. CA registered its CareLink mark with the
Arkansas Secretary of State on March 23, 1995, and has used the mark in promoting
all of its services, except hospice care. CA’s annual revenues grew from $5,000,000
to $12,000,000 from early 1995 to mid-1999. Although CA derives most of its
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revenues from government grants, in 1999 it received approximately $138,000 in
private donations and an estimated $250,000 from clients able to pay for its services.
All of CA’s clients reside in its six-county region, but its activities are publicized
beyond central Arkansas through news coverage, telephone listings, advertisements,
and a monthly column in an Arkansas newspaper for the elderly.
The Dispute Unfolds. CA did not know of Healthcom’s prior usage when it
adopted the CareLink name and logo and received a state registration in early 1995.
When CA learned that the North Arkansas Regional Medical Center was using
Healthcom’s CareLink mark for emergency response services in northern Arkansas,
CA sent a cease-and-desist letter to that provider. The parties were unable to resolve
the resulting dispute. Healthcom then commenced this action, alleging common law
trademark infringement and unfair competition in violation of the Lanham Act, 15
U.S.C. § 1125(a), and seeking an injunction barring CA from using the mark and
cancellation of CA’s state registration. CA counterclaimed, alleging unfair
competition under the Lanham Act and trademark infringement under Ark. Code Ann.
§ 4-71-212, and seeking an injunction prohibiting Healthcom from using its CareLink
mark in Arkansas or, alternatively, in CA’s six-county region.
Deciding the case on cross motions for summary judgment, the district court
dismissed Healthcom’s claims because its use of the CareLink mark in Arkansas prior
to CA’s state registration was de minimis. The court granted CA a permanent
injunction prohibiting Healthcom from using the mark anywhere in Arkansas because
CA’s use of the mark has been substantial, because a statewide injunction is
necessary “to prevent confusion among consumers and to prevent Healthcom from
passing off its services as those of [CA],” and because CA’s state registration entitles
it to a statewide injunction. Healthcom appeals, arguing that its common law
trademark is entitled to priority because it first used the mark in Arkansas.
Alternatively, Healthcare argues the district court abused its discretion in granting CA
an overly broad injunction.
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II.
Nearly a century ago, the Supreme Court established what is now called the
Tea Rose/Rectanus doctrine -- the first user of a common law trademark may not oust
a later user’s good faith use of an infringing mark in a market where the first user’s
products or services are not sold. See United Drug Co. v. Theodore Rectanus Co.,
248 U.S. 90, 100-01 (1918); Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 415
(1916). The rationale is a core principle of trademark law: the owner of a mark may
not “monopolize markets that his trade has never reached and where the mark
signifies not his goods but those of another.” Hanover Star Milling, 240 U.S. at 416.
That essential principle applies even when the first user has federally registered its
mark under the Lanham Act, with one important modification: the owner of a
registered mark has the right to expand its use into a new market unless an infringing
user had penetrated that market prior to registration. See Natural Footwear Ltd. v.
Hart, Schaffner & Marx, 760 F.2d 1383, 1395 (3d Cir.), cert. denied, 474 U.S. 920(1985); 15 U.S.C. § 1072.
In this case we must apply the Tea Rose/Rectanus doctrine in resolving two
distinct inquiries. First, we must determine whether Healthcom, as the first user of
a CareLink common law mark elsewhere in the country, is entitled by reason of its
own market penetration to oust CA from any area in Arkansas. Second, to the extent
Healthcom failed to prove first use in Arkansas, we must determine whether CA, as
owner of a state-registered mark used only in six counties, is entitled to statewide
injunctive relief against Healthcom’s present use of its mark.
A.
It is undisputed that, in early 1995, CA adopted the CareLink mark in good
faith, without knowledge of Healthcom’s prior use. To be entitled to injunctive relief
against CA’s subsequent good faith use, Healthcom must prove that its prior use of
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the mark penetrated the geographic market in question. In determining whether
Healthcom achieved the necessary market penetration, we apply the factors identified
in our often-cited Sweetarts cases:
[Healthcom’s] dollar value of sales at the time [CA] entered the market,
number of customers compared to the population of the state, relative
and potential growth of sales, and length of time since significant sales.
Though the market penetration need not be large to entitle [Healthcom]
to protection, it must be significant enough to pose the real likelihood
of confusion among the consumers in that area.
Sweetarts v. Sunline, Inc., 380 F.2d 923, 929 (8th Cir. 1967); Sweetarts v. Sunline,
Inc., 436 F.2d 705, 708 (8th Cir. 1971) (citation omitted). Where the first user’s
activities in a remote area are “so small, sporadic, and inconsequential” that its market
penetration is de minimis, the first user is not entitled to protection against a later
user’s good faith adoption of the mark in that area. Sweetarts, 380 F.2d at 929.
Healthcom argues that it penetrated the Arkansas market through its one sale
to an end user in 1992, its seven provider-member contracts and 350 subscribers since
the fall of 1995, and its continuous advertising and marketing efforts beginning in
1992. Healthcom errs in assuming without proof that the entire State of Arkansas is
a single geographic market for these purposes. CA adopted its CareLink mark for use
in six counties in central Arkansas, not the entire State. Healthcom has never made
a sale in that area, nor has it even attempted to prove that CA’s use of the mark in its
region is causing a likelihood of confusion elsewhere in the State. For this reason
alone, Healthcom has not penetrated CA’s six-county trade area, and the district court
properly denied Healthcom injunctive relief against CA’s use in that area.
This leaves the question whether Healthcom is entitled to injunctive relief as
a prior user with market penetration in any other part of Arkansas. We agree with the
district court that Healthcom’s one $385 sale long before CA’s adoption of its mark
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was de minimis market penetration. That leaves Healthcom’s reliance on later sales
and continuous advertising. CA argues that sales in Arkansas after CA began using
the mark are irrelevant, and that Healthcom’s prior advertising may not be used to
satisfy the Sweetarts market penetration test. Those are strong arguments. The issue
is whether they warrant summary judgment.
Sweetarts expressly recognized that the market penetration issue is focused on
the time when the later user entered the market. However, subsequent sales by the
first user may establish a trend of increased sales justifying a finding of market
penetration. See Natural Footwear, 760 F.2d at 1401. Likewise, while “advertising
alone is not sufficient to satisfy the significant market penetration test of Sweetarts,”
Flavor Corp. of Am. v. Kemin Indus., Inc., 493 F.2d 275, 284 (8th Cir. 1974), we are
not prepared to say as a matter of law that a first user’s highly focused local
advertising, followed by initial sales shortly after a later user enters the market, may
never satisfy the Sweetarts test. Compare Natural Footwear, 760 F.2d at 1402-03;
Nutri/System, Inc. v. Con-Stan Indus., Inc., 809 F.2d 601, 604 (9th Cir. 1987).1
Nevertheless, we need not decide whether CA is entitled to summary judgment on the
market penetration issue statewide because Healthcom presented no evidence that CA
is presently likely to enter areas of Arkansas beyond its six-county region, and no
evidence that any customers or potential customers of Healthcom are actually
confused, or likely to be confused, by CA’s use of its CareLink mark in serving a six-
county region where Healthcom does no business. In these circumstances, the district
court properly dismissed all of Healthcom’s claims for relief. See generally Gaston’s
White River Resort v. Rush, 701 F. Supp. 1431, 1435 (W.D. Ark. 1988).
1
Both the Lanham Act and the Arkansas trademark statute provide that a
service mark is “used” for registration purposes “when it is used or displayed in the
sale or advertising of services and the services are rendered” in commerce or in
Arkansas, respectively. 15 U.S.C. § 1127; Ark. Code Ann. § 4-71-201(11)(B)(ii).
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B.
Having concluded that Healthcom is not entitled to injunctive relief, we turn
to CA’s counterclaim for injunctive relief and the district court’s grant of a statewide
injunction. As we have explained, CA has superior common law rights in its six-
county region, and it is a state-registered user of the CareLink mark. Therefore, under
both the Lanham Act and the Arkansas trademark statute, CA is entitled to an
injunction against an infringing use that is likely to cause confusion as to origin. See
15 U.S.C. § 1125(a)(1)(A); Ark. Code Ann. § 4-71-212(1). In 1997, Healthcom
attempted to sell its CareLink emergency response services to a health care provider
in Little Rock, within CA’s six-county territory. Healthcom concedes that the
CareLink mark is entitled to trademark protection and that this kind of overlapping
use of the parties’ CareLink marks would create a likelihood of confusion among
health care providers and end users. Therefore, the district court did not abuse its
discretion in enjoining Healthcom from using a CareLink mark in CA’s six-county
region. See Home Builders Ass’n of Greater St. Louis v. L & L Exhibition Mgmt.,
Inc., 226 F.3d 944, 950 (8th Cir. 2000) (standard of review).
The question whether CA is entitled to a statewide injunction is far more
difficult. The Arkansas trademark statute “provide[s] a system of state trademark
registration and protection substantially consistent with the federal system of
trademark registration and protection under the [Lanham Act].” Ark. Code Ann. § 4-
71-218(b). State registration confers the statewide right to use a service mark in
connection with the registered services, subject to defenses such as good faith prior
use in a particular local market. Under the Lanham Act:
the nationwide right conferred by registration does not entitle the owner
to injunctive relief unless there is a present likelihood of confusion.
Therefore, to enjoin a geographically remote infringer, the registered
owner must prove that its trademarked products and the infringing
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products are being sold in the same geographic area, or that the owner
has concrete plans to expand into the infringer’s trade area.
Minnesota Pet Breeders, Inc. v. Schell & Kampeter, Inc., 41 F.3d 1242, 1246 (8th Cir.
1994); see Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959).
Here, CA serves only the six-county region and presented no evidence of “concrete
plans” to expand elsewhere in the State. Although both parties alleged there would
be a likelihood of confusion if they used the CareLink mark in the same local area,
neither presented evidence that the entire State is a single market for these kinds of
services, or that health care providers or end users are confused by the use of two
CareLink marks in different parts of the State. In these circumstances, CA did not
establish its right to a statewide remedy under the Pet Breeders standard.
Alternatively, CA argues that it is entitled to a statewide injunction because its
publicity and solicitations reach potential donors outside the six-county region who
are likely to be confused by Healthcom’s use of a similar mark. But CA offered no
evidence of actual or likely confusion among its potential out-state donors. Donor
confusion is most likely to be relevant in trademark disputes between organizations
who compete for the same donors. See Heartsprings, Inc. v. Heartspring, Inc., 143
F.3d 550, 557 n.3 (10th Cir. 1998), cert. denied, 525 U.S. 964 (1998); Birthright v.
Birthright, Inc., 827 F. Supp. 1114, 1135-36 (D.N.J. 1993). Here, Healthcom is a for-
profit service provider that does not solicit donations, and there is no evidence that
Healthcom’s non-competing use either tarnishes or dilutes CA’s use of the mark
anywhere in Arkansas. An injunction to prevent dilution is available only for a
famous mark, and only against a diluting use that began after the mark became
famous. See Ark. Code Ann. § 4-71-213, patterned after the federal anti-dilution
statute, 15 U.S.C. § 1125(c). CA’s evidence that its advertisements occasionally
reach audiences outside of central Arkansas falls far short of proving its CareLink
mark is famous. See Duluth News-Tribune v. Mesabi Publ’g Co., 84 F.3d 1093,
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1099-1100 (8th Cir. 1996). Thus, the unproved possibility of donor confusion does
not justify a statewide injunction.
In summary, the absence of concrete evidence of likelihood of confusion
outside of CA’s six-county region makes it improvident to grant a statewide
injunction on this record. Healthcom is now enjoined from using its CareLink mark
in CA’s trade area. If CA never expands beyond that area, this injunction may be all
the judicial action that is required. If CA does decide to expand, its statewide
registration puts Healthcom at risk of being ousted. But any future prayer by CA for
a broader injunction may raise issues that would be better resolved on a fuller fact
record, such as whether Healthcom was the first user in any local market; whether the
CareLink mark is descriptive and, if so, whether CA’s mark has become incontestable
or has acquired secondary meaning; precisely what services CA claims its registration
covers; and whether there is likelihood of confusion between users of those services
and users of Healthcom’s emergency response services. Compare Wrist-Rocket Mfg.
Co. v. Saunders Archery Co., 578 F.2d 727 (8th Cir. 1978). Additional issues would
be raised if Healthcom’s mark is granted federal registration. See Spartan Food Sys.,
Inc. v. HFS Corp., 813 F.2d 1279, 1284 (4th Cir. 1987); Burger King of Fla., Inc. v.
Hoots, 403 F.2d 904, 906-07 (7th Cir. 1968).
We affirm the dismissal of Healthcom’s claims and the grant of a permanent
injunction barring Healthcom’s use of its CareLink mark in CA’s six-county trade
area. We reverse the grant of a statewide injunction and remand to the district court
for an appropriate modification of its Judgment dated January 31, 2000.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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