Dawn Donut Co., Inc. v. Hart's Food Stores, Inc.

LUMBARD, J.

The principal question is whether the plaintiff, a wholesale distributor of doughnuts and other baked goods under its federally registered trademarks 'Dawn' and 'Dawn Donut,' is entitled under the provisions of the Lanham Trade-Mark Act to enjoin the defendant from using the mark 'Dawn' in connection with the retail sale of doughnuts and baked goods entirely within a six county area of New York State surrounding the city of Rochester. The primary difficulty arises from the fact that although plaintiff licenses purchasers of its mixes to use its trademarks in connection with the retail sales of food products made from the mixes, it has not licensed or otherwise exploited the mark at the retail level in defendant's market area for some thirty years.

We hold that because no likelihood of public confusion arises from the concurrent use of the mark in connection with retail sales of doughnuts and other baked goods in separate trading areas, and because there is no present likelihood that plaintiff will expand its retail use of the mark into defendant's market area, plaintiff is not now entitled to any relief under the Lanham Act, 15 U.S.C.A. § 1114. Accordingly, we affirm the district court's dismissal of plaintiff's complaint.

Plaintiff, Dawn Donut Co., Inc., of Jackson, Michigan since June 1, 1922 has continuously used the trademark 'Dawn' upon 25 to 100 pound bags of doughnut mix which it sells to bakers in various states, including New York, and since 1935 it has similarly marketed a line of sweet dough mixes for use in the baking of coffee cakes, cinnamon rolls and oven goods in general under that mark. In 1950 cake mixes were added to the company's line of products. Dawn's sales representatives call upon bakers to solicit orders for mixes and the orders obtained are filled by shipment to the purchaser either directly from plaintiff's Jackson, Michigan plant, where the mixes are manufactured, or from a local warehouse within the customer's state. For some years plaintiff maintained a warehouse in Jamestown, New York, from which shipments were made, but sometime prior to the commencement of this suit in 1954 it discontinued this warehouse and has since then shipped its mixes to its New York customers directly from Michigan.

Plaintiff furnishes certain buyers of its mixes, principally those who agree to become exclusive Dawn Donut Shops, with advertising and packaging material bearing the trademark 'Dawn' and permits these bakers to sell goods made from the mixes to the consuming public under that trademark. These display materials are supplied either as a courtesy or at a moderate price apparently to stimulate and promote the sale of plaintiff's mixes.

The district court found that with the exception of one Dawn Donut Shop operated in the city of Rochester, New York during 1926-27, plaintiff's licensing of its mark in connection with the retail sale of doughnuts in the state of New York has been confined to areas not less than 60 miles from defendant's trading area. The court also found that for the past eighteen years plaintiff's present New York state representative has, without interruption, made regular calls upon bakers in the city of Rochester, N.Y., and in neighboring towns and cities, soliciting orders for plaintiff's mixes and that throughout this period orders have been filled and shipments made of plaintiff's mixes from Jackson, Michigan into the city of Rochester. But it does not appear that any of these purchasers of plaintiff's mixes employed the plaintiff's mark in connection with retail sales.

The defendant, Hart Food Stores, Inc., owns and operates a retail grocery chain within the New York counties of Monroe, Wayne, Livingston, Genesee, Ontario and Wyoming. The products of defendant's bakery, Starhart Bakeries, Inc., a New York corporation of which it is the sole stockholder, are distributed through these stores, thus confining the distribution of defendant's product to an area within a 45 mile radius of Rochester. Its advertising of doughnuts and other baked products over television and radio and in newspapers is also limited to this area. Defendant's bakery corporation was formed on April 13, 1951 and first used the imprint 'Dawn' in packaging its products on August 30, 1951. The district court found that the defendant adopted the mark 'Dawn' without any actual knowledge of plaintiff's use or federal registration of the mark, selecting it largely because of a slogan 'Baked at midnight, delivered at Dawn' which was originated by defendant's president and used by defendant in its bakery operations from 1929 to 1935. Defendant's president testified, however, that no investigation was made prior to the adoption of the mark to see if anyone else was employing it. Plaintiff's marks were registered federally in 1927, and their registration was renewed in 1947. Therefore by virtue of the Lanham Act, 15 U.S.C.A. § 1072, the defendant had constructive notice of plaintiff's marks as of July 5, 1947, the effective date of the Act.

Defendant's principal contention is that because plaintiff has failed to exploit the mark 'Dawn' for some thirty years at the retail level in the Rochester trading area, plaintiff should not be accorded the exclusive right to use the mark in this area.

We reject this contention as inconsistent with the scope of protection afforded a federal registrant by the Lanham Act.

Prior to the passage of the Lanham Act courts generally held that the owner of a registered trademark could not sustain an action for infringement against another who, without knowledge of the registration, used the mark in a different trading area from that exploited by the registrant so that public confusion was unlikely. . . . By being the first to adopt a mark in an area without knowledge of its prior registration, a junior user of a mark could gain the right to exploit the mark exclusively in that market.

But the Lanham Act, 15 U.S.C.A. § 1072, provides that registration of a trademark on the principal register is constructive notice of the registrant's claim of ownership. Thus, by eliminating the defense of good faith and lack of knowledge, § 1072 affords nationwide protection to registered marks, regardless of the areas in which the registrant actually uses the mark. . . .

That such is the purpose of Congress is further evidenced by 15 U.S.C.A. § 1115(a) and (b) which make the certificate of registration evidence of the registrant's 'exclusive right to use the . . . mark in commerce.' 'Commerce' is defined in 15 U.S.C.A. 1127 to include all the commerce which may lawfully be regulated by Congress. These two provisions of the Lanham Act make it plain that the fact that the defendant employed the mark 'Dawn,' without actual knowledge of plaintiff's registration, at the retail level in a limited geographical area of New York state before the plaintiff used the mark in that market, does not entitle it either to exclude the plaintiff from using the mark in that area or to use the mark concurrently once the plaintiff licenses the mark or otherwise exploits it in connection with retail sales in the area.

Plaintiff's failure to license its trademarks in defendant's trading area during the thirty odd years that have elapsed since it licensed them to a Rochester baker does not work an abandonment of the rights in that area. We hold that 15 U.S.C.A. § 1127, which provides for abandonment in certain cases of non-use, applies only when the registrant fails to use his mark, within the meaning of § 1127, anywhere in the nation. Since the Lanham Act affords a registrant nationwide protection, a contrary holding would create an insoluble problem of measuring the geographical extent of the abandonment. Even prior to the passage of the Lanham Act, when trademark protection flowed from state law and therefore depended on use within the state, no case, as far as we have been able to ascertain, held that a trademark owner abandoned his rights within only part of a state because of his failure to use the mark in that part of the state. . . .

Accordingly, since plaintiff has used its trademark continuously at the retail level, it has not abandoned its federal registration rights even in defendant's trading area.

[. . .]

[W]e turn to the question of whether on this record plaintiff has made a sufficient showing to warrant the issuance of an injunction against defendant's use of the mark 'Dawn' in a trading area in which the plaintiff has for thirty years failed to employ its registered mark.

The Lanham Act, 15 U.S.C.A. § 1114, sets out the standard for awarding a registrant relief against the unauthorized use of his mark by another. It provides that the registrant may enjoin only that concurrent use which creates a likelihood of public confusion as to the origin of the products in connection with which the marks are used. Therefore if the use of the marks by the registrant and the unauthorized user are confined to two sufficiently distinct and geographically separate markets, with no likelihood that the registrant will expand his use into defendant's market, [Footnote 4] so that no public confusion is possible, then the registrant is not entitled to enjoin the junior user's use of the mark. . . .

==========Footnote 4==========
To sustain a claim for injunctive relief, the plaintiff need not show that the marks are actually being used concurrently in the same trading area. Since the statutory standard for the invocation of injunctive relief is the likelihood of confusion, it is enough that expansion by the registrant into the defendant's market is likely in the normal course of its business. Even prior to the passage of the Lanham Act the courts held that the second user of a mark was not entitled to exclude the registered owner of the mark from using it in a territory which the latter would probably reach in the normal expansion of his business. . . . Certainly, under the Lanham Act, evincing a congressional purpose to afford a registrant nationwide protection, the subsequent user is not entitled to any greater immunity.
==========End Footnote==========

As long as plaintiff and defendant confine their use of the mark 'Dawn' in connection with the retail sale of baked goods to their present separate trading areas it is clear that no public confusion is likely.

The district court took note of what it deemed common knowledge, that 'retail purchasers of baked goods, because of the perishable nature of such goods, usually make such purchases reasonably close to their homes, say within about 25 miles, and retail purchases of such goods beyond that distance are for all practical considerations negligible.' No objection is made to this finding and nothing appears in the record which contradicts it as applied to this case.

Moreover, we note that it took plaintiff three years to learn of defendant's use of the mark and bring this suit, even though the plaintiff was doing some wholesale business in the Rochester area. This is a strong indication that no confusion arose or is likely to arise either from concurrent use of the marks at the retail level in geographically separate trading areas or from its concurrent use at different market levels, viz. retail and wholesale in the same area.

The decisive question then is whether plaintiff's use of the mark 'Dawn' at the retail level is likely to be confined to its current area of use or whether in the normal course of its business, it is likely to expand the retail use of the mark into defendant's trading area. If such expansion were probable, then the concurrent use of the marks would give rise to the conclusion that there was a likelihood of confusion.

The district court found that in view of the plaintiff's inactivity for about thirty years in exploiting its trademarks in defendant's trading area at the retail level either by advertising directed at retail purchasers or by retail sales through authorized licensed users, there was no reasonable expectation that plaintiff would extend its retail operations into defendant's trading area. There is ample evidence in the record to support this conclusion and we cannot say that it is clearly erroneous.

We note not only that plaintiff has failed to license its mark at the retail level in defendant's trading area for a substantial period of time, but also that the trend of plaintiff's business manifests a striking decrease in the number of licensees employing its mark at the retail level in New York state and throughout the country. In the 1922-1930 period plaintiff had 75 to 80 licensees across the country with 11 located in New York. At the time of the trial plaintiff listed only 16 active licensees not one of which was located in New York.

The normal likelihood that plaintiff's wholesale operations in the Rochester area would expand to the retail level is fully rebutted and overcome by the decisive fact that plaintiff has in fact not licensed or otherwise exploited its mark at retail in the area for some thirty years.

Accordingly, because plaintiff and defendant use the mark in connection with retail sales in distinct and separate markets and because there is no present prospect that plaintiff will expand its use of the mark at the retail level into defendant's trading area, we conclude that there is no likelihood of public confusion arising from the concurrent use of the marks and therefore the issuance of an injunction is not warranted. A fortiori plaintiff is not entitled to any accounting or damages. However, because of the effect we have attributed to the constructive notice provision of the Lanham Act, the plaintiff may later, upon a proper showing of an intent to use the mark at the retail level in defendant's market area, be entitled to enjoin defendant's use of the mark.

[. . .]

The district court's denial of an injunction restraining defendant's use of the mark 'Dawn' on baked and fried goods and its dismissal of defendant's counterclaim are affirmed.