HEANEY, Circuit Judge.
Truck Equipment Service Company (TESCO) is a closely held corporation, headquartered in Lincoln, Nebraska, engaged in the business of servicing and manufacturing semi-trailers. It is the original manufacturer of a twin hopper bottomed grain or bulk commodity semi-trailer featuring a twin hopper design and structure that has been sold in interstate commerce since 1968 under the label "Cornhusker 800." Fruehauf Corporation is a leading manufacturer of semi-trailers headquartered in Detroit, Michigan. It used photographs of the TESCO trailer in its sales literature to promote its entry into the hopper grain trailer market and copied the exterior design of the Cornhusker 800 in the manufacture of its own twin hopper bottomed grain semi-trailer. The District Court held, upon the suit brought by TESCO, that these acts of Fruehauf constituted unfair competition under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and awarded out-of-pocket expenses exclusive of attorneys fees, taxable costs, nominal compensatory damages, an accounting of profits and an injunction. The injunction was, however, later amended to permit Fruehauf to manufacture and sell twin hopper bottomed grain semi-trailers with an exterior appearance identical to the Cornhusker 800. Both parties appeal. TESCO argues, in substance, that the relief awarded was inadequate.
The District Court found that the exterior design of the Cornhusker 800 was unique, that portions of the design were nonfunctional, that the unique design had acquired a secondary meaning in the market place, that the actions of Fruehauf tended to cause confusion over the origin of the trailers and that Fruehauf had copied the exterior design of the Cornhusker 800 in order to trade upon the customer acceptance of the TESCO trailer.
(1) The public interest in having competitive sources of identical utilitarian products makes copying privileged, even though the original incorporates nonfunctional features and has acquired a secondary meaning, when the copier clearly labels its product as its own and is not guilty of palming off; and
(2) Even if the use of the photographs of the Cornhusker 800 constituted a false representation, the use was not violative of § 43(a) of the Lanham Act.
Fruehauf's contention that it is privileged to copy the exterior design of the Cornhusker 800 is premised on the companion cases of Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964), and Compco Corp. v. Day-Brite Lighting, 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964). It relies particularly upon the following language from Compco:
Id. at 238, 84 S.Ct. at 782. Neither case is controlling here.
The language relied upon is dictum. The law of trademark and the issues of functionality and secondary meaning were not before the Court. The issue before the Court was whether state law could extend the effective term of patent protection granted by the federal statutes. The focus of the Court was the Supremacy Clause of the Constitution. See Lear v. Adkins, 395 U.S. 653, 668, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969); Boston Pro. Hockey Ass'n v. Dallas Cap & E. Mfg., Inc., 510 F.2d 1004, 1013 (5th Cir.), cert. denied, 423 U.S. 868, 96 S.Ct. 132, 46 L.Ed.2d 98 (1975); Field Enterprises Educational Corp. v. Cove Industries, Inc., 297 F.Supp. 989, 995-996 (E.D.N.Y.1969).
Free competition is served in both cases.
Full and fair competition requires that those who invest time, money and energy into the development of goodwill and a favorable reputation be allowed to reap the advantages of their investment. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 492, 493, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974); 2 Callmann, Unfair Competition, Trademarks and Monopolies § 60.4(b) at 516 (3rd Ed. 1968). As the legislative history of the Lanham Act states:
Senate Report No. 1333, 1946 U.S.Code Cong.Serv., p. 1275.
To protect TESCO against the misappropriation of the exterior design of the Cornhusker 800, portions of which are nonfunctional and which is possessed of a secondary meaning, will be in furtherance of this Congressional purpose.
The contention that the use of photographs of the Cornhusker 800 in Fruehauf's sales literature is not a false representation
Fruehauf argues that its use of photographs of TESCO's product was privileged because its trailer was not inferior in quality to the Cornhusker 800 and because there was no evidence that its trailer was purchased by a consumer under the belief that the trailer was made by TESCO.
Fruehauf's argument is premised upon a restrictive reading of the applicable law. It relies upon, inter alia, Bernard Food Industries, Inc. v. Dietene Company, 415 F.2d 1279 (7th Cir. 1969), cert. denied, 397 U.S. 912, 90 S.Ct. 911, 25 L.Ed.2d 92 (1970), for its proposition but fails to recognize the decision's limitation:
The deception practices by Fruehauf is of the same economic nature as trademark infringement. As stated by the District Court:
The use of another's product, misbranded to appear as that of a competitor, has been repeatedly found to be "a false designation of origin" actionable under § 43(a). The fact that the products are of equal quality is not of dispositional significance. Middletown Manufacturing Co., Inc., v. Super Sagless Corp., 382 F.Supp. 979, 982 (N.D.Miss.1974), aff'd, 515 F.2d 509 (5th Cir. 1975); American Precast Corp. v. Maurice Concrete Prod., Inc., 360 F.Supp. 859, 864 (D.Mass.1973), aff'd, 502 F.2d 1159 (1st Cir. 1973); Ideal Toy Corporation v. Fab-Lu, Ltd., 261 F.Supp. 238, 242 (S.D.N.Y.1966).
Having rejected Fruehauf's broadside legal challenge to the judgment and order of the District Court, we turn now to review the assignments of error that are directed at the facts of the instant cause.
The exterior of the Cornhusker 800 is trapazoidal in appearance. The front and rear panels of the trailer slope from the top of each panel outward to the bottom of each panel. This feature has been described throughout the proceedings as the sloping-end walls of the trailer. The lower rail of the side panels presents to the eye a broken line; it is not parallel with and equidistant from the ground level at all points. Rather, it extends above the rear wheels, parallel with the ground, then slopes down and extends for several feet, in
The District Court held that the copying of the exterior design of the Cornhusker 800 was unfair competition because portions of the design were nonfunctional, the design had acquired a secondary meaning in the market place, and the actions of Fruehauf tended to confuse the public about the origin of the hopper trailer. See Bliss v. Gotham Industries, Inc., 316 F.2d 848, 855 (9th Cir. 1963); Federal-Mogul-Bower Bearing, Inc. v. Azoff, 313 F.2d 405, 409 (6th Cir. 1963). As we said in J. C. Penney Co. v. H. D. Lee Mercantile Co., 120 F.2d 949, 954 (8th Cir. 1941):
Fruehauf contends that each finding of the District Court is clearly erroneous.
1. Functionality Vel Non.
Our review of the District Court's finding of fact relative to the functionality vel non of the sloping-end walls and the drop-center-side walls of the Cornhusker 800 is, of course, guided by the applicable law. It is the rule that:
Bliss v. Gotham Industries, Inc., supra at 855, citing from Pagliero v. Wallace China Co., 198 F.2d 339, 343 (9th Cir. 1952). Accord, J. C. Penney Co. v. H. D. Lee Mercantile Co., supra.
The line between functionality and nonfunctionality is not, however, brightly drawn in every case. Some designs adopted for the purpose of identification are not wholly useless but perform a utilitarian function. Yet:
Application of Deister Concentrator Company, 289 F.2d 496, 506, 48 C.C.P.A. 952 (1961). See also Application of Minnesota Mining and Manufacturing Co., 335 F.2d 836, 840, 51 C.C.P.A. 1546 (1964); Application of Simmons Company, 278 F.2d 517, 519, 47 C.C.P.A. 963 (1960). The question in each case is whether protection against imitation will hinder the competitor in competition. See Application of Hollaender Manufacturing Co., 511 F.2d 1186, 1188 (C.C.P.A.1975); Best Lock Corporation v. Schlage Lock Company, 413 F.2d 1195, 1199, 56 C.C.P.A. 1472 (1969).
The District Court's finding that the sloping-end walls were nonfunctional was based principally upon the report of Fruehauf engineers which evaluated the construction and design of the Cornhusker 800. The report stated:
This clear statement of nonfunctionality was not seriously challenged by Fruehauf at the trial on the issue of liability. See note 9 supra. Indeed, other evidence was largely consistent with the conclusion of the report.
Ernest Churda, the sole stockholder of TESCO and the designer of the Cornhusker 800, testified that the Cornhusker 800 was designed to appear dissimilar from any other hopper bottomed grain trailer on the market. The appearance of the trailer was intended to be its principal selling point. Further, the testimony of Fruehauf's management showed that the decision to manufacture a trailer identical to the Cornhusker 800 was based on sales rather than engineering considerations. Indeed, no effort was made to determine whether the sloping-end walls of the TESCO trailer were functional or nonfunctional before the decision to copy its design was made. In the light of this testimony, we cannot say that the District Court's finding that the sloping-end walls of the Cornhusker 800 are nonfunctional is clearly erroneous. See Application of Hollaender Manufacturing Co., supra at 1188; St. Louis Typographical Union No. 8 v. Herald Company, 402 F.2d 553, 557 (8th Cir. 1968). The evidence is consistent with the conclusion that the sloping-end walls of the Cornhusker 800, arbitrarily designed for the purpose of identification, were no more than merely incidentally functional. The prohibition against the copying of them will not affect Fruehauf's competitive position in the marketplace.
2. Secondary Meaning.
The exterior design of the Cornhusker 800 was found by the District Court to have acquired a secondary meaning because it indicates the origin of the trailer. We have previously stated the necessary elements to establish secondary meaning:
Shoppers Fair of Arkansas, Inc. v. Sanders Co., 328 F.2d 496, 499 (8th Cir. 1964), quoting from Liberty Mutual Ins. Co. v. Liberty Ins. Co. of Texas, 185 F.Supp. 895, 903 (E.D.Ark.1960). See Carter-Wallace, Inc. v. Proctor & Gamble Company, 434 F.2d 794, 802 (9th Cir. 1970).
Fruehauf argues, however, that consumers could not have associated the exterior design of the Cornhusker 800 as the product of TESCO because, after it entered the market, a similar trailer was made that was clearly labeled as the product of Fruehauf. This argument is a reformulation of the proposition that the law of unfair competition protects only against palming off or misrepresentation. The law of unfair competition, however, protects also against misappropriation. See International News Service v. Associated Press, 248 U.S. 215, 242, 39 S.Ct. 68, 63 L.Ed. 211 (1918); note 5 supra. As the Supreme Court has said:
Id. at 239, 39 S.Ct. at 72.
Fruehauf's further argument that secondary meaning could not have attached to the exterior design of the TESCO trailer because the number of trailers sold were relatively few and because advertising was minimal is also unavailing. Clearly, those factors are relevant. Flavor Corporation of America v. Kemin Industries, Inc., 493 F.2d 275, 284 (8th Cir. 1974). But, in the light of the testimony that consumers associated the exterior design of the Cornhusker 800 with TESCO, their importance relates to the extent of the geographical area in which secondary meaning had attached. See infra.
3. Likelihood of Confusion.
The District Court's finding that the Fruehauf imitation of the Cornhusker 800 caused a likelihood of confusion in the marketplace is also not clearly erroneous. See Electronic Com'ns, Inc. v. Electronic Components For Ind. Co., 443 F.2d 487, 491 (8th Cir.), cert. denied, 404 U.S. 833, 92 S.Ct. 80, 30 L.Ed.2d 63 (1971). The testimony below was that consumers were continually asking to determine what, if any, differences distinguished the products of the two companies. Moreover, given the intent of Fruehauf to trade upon the reputation of TESCO, the inference that a likelihood of confusion would arise is inescapable. See Mastercrafts C. & R. Co. v. Vacheron & Const. — LE C. W., 221 F.2d 464, 467 (2nd Cir.), cert. denied, 350 U.S. 832, 76 S.Ct. 67, 100 L.Ed. 743 (1955); note 13 supra.
Fruehauf's reliance upon the fact that its trailer was labeled as its own product and sold through its own channels of distribution
The District Court also held that the use by Fruehauf of photographs of the Cornhusker 800 in its sales literature was unfair competition. Its finding that this constituted a false representation of origin is supported by the record. Similar conduct has been frequently found to be violative of § 43(a) of the Lanham Act.
TESCO was awarded as damages: (1) out-of-pocket expenses exclusive of attorneys fees; (2) taxable costs; (3) nominal compensatory damages resulting from the use by Fruehauf of photographs of the TESCO trailer and the marketing of trailers with the same exterior appearance as the Cornhusker 800; and (4) twenty percent of Fruehauf's profits from sales and trade-ins made in Nebraska, Iowa and Minnesota. Items (1) and (2) are not challenged on appeal. TESCO contends that items (3) and (4) are inadequate. Fruehauf contends that item (4) is excessive.
The award of nominal compensatory damages was one dollar. During the period of infringement, prior to June 14, 1973, TESCO sold all of the trailers it could manufacture. The award is challenged because it fails to compensate for lost post-infringement sales. TESCO contends that but for the infringement, it would have expanded its production facilities during the infringement period and would have been able to sell the additional trailers thus manufactured in the post-infringement period. The District Court found to the contrary. The failure to expand the production facilities was the result of TESCO's decision to expand, instead, its service facilities which were equally as profitable. That finding is not clearly erroneous.
TESCO also challenges the limitations put upon the award of profits. The limitations reflect the District Court's findings that only twenty percent of Fruehauf's profits were attributable to its unlawful use of the distinctive appearance of the Cornhusker 800 and that there was customer identification of the TESCO trailer in only the three states of Nebraska, Iowa and Minnesota. Thus limited, TESCO received $28,370.03. Each limitation is challenged as erroneous. We consider them in reverse order.
The scope of protection accorded TESCO against the acts of Fruehauf is limited to the geographical area of actual product market penetration. As said by this Court in Sweetarts v. Sunline, Inc., 380 F.2d 923, 929 (8th Cir. 1967):
TESCO asserts that it is entitled to protection in a thirteen-state area comprising: Nebraska, South Dakota, North Dakota, Minnesota, Iowa, Illinois, Missouri, Kansas, Oklahoma, Colorado, Wyoming, Texas and Wisconsin.
Prior to the entry of Fruehauf into the market, TESCO had sold seventy-two Cornhusker 800's. Nineteen were sold in
TESCO argues, however, that the importance of the points of purchase is minimized by the fact that the Cornhusker 800 is a mobile product. It is seen and its merits are discussed by owners and operators in whatever state it travels. This word-of-mouth advertising, TESCO contends, operates to expand the area of market penetration.
No doubt this form of advertising was important. It may be the cause, at least in part, for the fact that TESCO's volume of sales increased each year. But trademark rights are not acquired by advertising alone; they are acquired by the use of a mark in connection with the sale of the product. Flavor Corporation of America v. Kemin Industries, Inc., supra at 284. The District Court correctly, on the basis of the applicable law and the record facts, limited the area of market penetration to the three states of Nebraska, Iowa and Minnesota and did not err in denying profits for sales made outside of those states.
The further limitation was imposed to insure that the amount of profits disgorged by Fruehauf was equal to the benefit it received from its unlawful use of the distinctive appearance of the Cornhusker 800. See Mishawaka R. & W. Mfg. Co. v. S. S. Kresge Co., 316 U.S. 203, 206-207, 62 S.Ct. 1022, 86 L.Ed. 1381 (1942). The determination that twenty percent of the profits was attributable to this unlawful use was based upon data derived from a market survey made at the request of Fruehauf. The District Court concluded therefrom that only that percentage of Fruehauf trailers were purchased for reasons related to the appearance of the TESCO trailer or because of customer knowledge of and comparison with the Cornhusker 800. It proceeded upon the theory that TESCO could be awarded relief from the infringement only to the extent that Fruehauf had been unjustly enriched.
It is unnecessary to review the factual support for this further limitation, for in our view, equity requires that Fruehauf relinquish all of its profits from the sales in the three states wherein TESCO has acquired protectable trademark rights. We proceed upon the theory that such relief is necessary as a deterrence to willful infringement.
A distinguished panel of the Second Circuit
Id. at 664.
While we do not read Revlon as authority for the proposition that all of the infringer's profits should be recovered in every
The District Court found that:
This finding is supported by the facts. Fruehauf, without knowledge of or inquiry into the functional and nonfunctional aspects of the exterior design of the Cornhusker 800, copied exactly not only the superior functional qualities of the TESCO trailer but also the exterior physical characteristics by which that good reputation was known to the purchasing public. It not only sought and received the benefits of TESCO's goodwill, but, by coupling the latter's reputation with its own well-known name, set upon a source of conduct which, in practical effect, would destroy the good reputation of TESCO.
Moreover, given the bad faith conduct of Fruehauf and the potentially devastating effect that conduct had on its weaker competitor, TESCO, we are hesitant to limit the award on the basis of the fine-tuned results of a post-infringement market survey. The decision to purchase a product, while usually justified by the objective criteria of performance, is often predetermined by the subjective factor of the product's good reputation previously existent in the marketplace.
Accordingly, the judgment and order of the District Court is affirmed except as to the recovery of profits. As to that, the cause is remanded for entry of judgment in that amount which will award TESCO all of Fruehauf's profits from sales of the trailers copied from the Cornhusker 800 and trade-ins taken as part of the purchase price in the sale of those trailers in Nebraska, Iowa and Minnesota during the period of infringement.
Senate Report No. 1333, 1946 U.S.Code Cong.Serv., p. 1274. See International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (1918); Mastercrafters C. & R. Co. v. Vacheron & Const. — LE C. W., 221 F.2d 464 (2nd Cir.), cert. denied, 350 U.S. 832, 76 S.Ct. 67, 100 L.Ed. 743 (1955).
Id. at 1283.
If this testimony were considered by us on the question of liability, it would show no more than a conflict between the parties on the ability of Fruehauf to manufacture a trailer equivalent in operational efficiency to the Cornhusker 800 with construction methods different from those employed in the manufacture of the TESCO trailer. A conflict, we add, which is mitigated by the failure of Fruehauf witnesses to agree. Specifically, Fruehauf contends that the alternative construction method, a truss-type construction, would add undesirable weight to the trailer making it less salable. Yet, Fruehauf sales personnel testified that the TESCO trailer was too light for its purposes.
This public policy against monopolization is absent when, as here, the design sought to be protected is nonfunctional.