From Casetext: Smarter Legal Research

Mastercard Int'l Inc. v. First National Bank of Omaha

United States District Court, S.D. New York
Feb 23, 2004
02 CIV. 3691 (DLC), 03 CIV. 707 (DLC) (S.D.N.Y. Feb. 23, 2004)

Summary

holding that Congress' failure to alter the language regarding section 1125 indicates intent to leave existing law undisturbed

Summary of this case from Johnson Johnson Vision Care v. Ciba Vision Corp.

Opinion

02 CIV. 3691 (DLC), 03 CIV. 707 (DLC)

February 23, 2004

Russell H. Falconer, Paul J. Reilly, Baker Botts LLP, New York, for MasterCard International Inc.

Bartholomew L. McLeay, Suzanne M. Shehan, Brian C. Buescher, Kutak Rock LLP, Omaha, NE, for First National Bank of Omaha

Robert A. Jaffe, Kutak Rock LLP, New York, New York, for First National Bank of Omaha


OPINION AND ORDER


These related actions arise from the claim of First National Bank of Omaha ("FNBO") that its SMART ONE mark is infringed by the ONESMART mark used by MasterCard International Incorporated ("MasterCard") in connection with Mastercard's smart card services. A smart card is typically a plastic card containing a computer chip that enables the holder to purchase goods and services, to access financial or other records, and to perform other operations requiring data stored on the chip.

This Opinion refers to the SMART ONE and ONESMART marks as presented in the parties' original PTO applications. In marketing materials, including those presented in the survey described below, the parties have presented the terms as "smart One" and "OneSmart." On April 29, 2003, FNBO amended its application for registration of the SMART ONE mark to apply for registration of the SMARTONE mark.

On April 10, 2002, FNBO sent a letter demanding that MasterCard cease and desist in its use of the ONESMART mark and abandon its ONESMART trademark applications. On May 15, 2002, MasterCard filed a complaint ("Complaint") seeking a declaratory judgment that its use of ONESMART, ONESMART MASTERCARD, or variants thereof in connection with smart card products does not infringe FNBO's trademark rights in the term SMART ONE pursuant to Section 32(a), 15 U.S.C. § 1114(1), or Section 43(a), 15 U.S.C. § 1125(a), of the Trademark Act of 1946 ("Lanham Act"), 15 U.S.C. § 1051 et seq., or unfairly compete with SMART ONE under state or federal law. On July 30, 2002, FNBO filed an action in the District of Nebraska seeking an injunction and damages on the ground that MasterCard's use of the ONESMART mark infringed on FNBO's SMART ONE mark. On November 13, 2002, the Court denied FNBO's motion to dismiss this declaratory judgment action in favor of the later-filed action by FNBO in the District of Nebraska or, in the alternative, to transfer this action to Nebraska. MasterCard Int'l Inc. v. First Nat'l Bank of Omaha, Inc., No. 02 Civ. 3691 (DLC), 2002 WL 31521091 (S.D.N.Y. Nov. 13, 2002).

FNBO answered the Complaint on November 27, 2002, and filed a counterclaim alleging trademark infringement by MasterCard pursuant to 15 U.S.C. § 1125(a). The counterclaim seeks to enjoin MasterCard from using ONESMART in conjunction with its provision of credit card services and to recover monetary damages resulting from Mastercard's infringement. On April 30, 2003, FNBO filed an amended answer and counterclaim, which included a claim for contributory infringement pursuant to 15 U.S.C. § 1125(a).

On January 29, 2003, the case against MasterCard originally filed by FNBO in the District of Nebraska was transferred to the Southern District of New York. On August 20, 2003, FNBO's motion to return this matter to the District of Nebraska was denied. The transferred action, 03 Civ. 707, is treated as a related case. Discovery has been concluded in both actions.

This Opinion addresses FNBO's motion for partial summary judgment, FNBO's motion in limine to exclude the expert testimony of Dr. John Hauser, Mastercard's motion in limine to exclude the expert survey and testimony of Dr. Alexander Simonson, and Mastercard's motion for summary judgment on FNBO's claims for monetary relief. Three remaining motions filed by FNBO will be resolved by the Court at a later date. Relevant facts, as shown by the parties in connection with their submissions on the motions described above, are summarized as follows.

FNBO has submitted a motion to strike the declaration of Melanie Gluck; a motion in limine and for sanctions precluding MasterCard from offering evidence to refute FNBO's claimed damages; and a motion for leave to substitute exhibits and place documents under seal.

Background

FNBO and SMART ONE

FNBO is a national bank that conducts credit card processing and provides smart cards and smart card services to FNBO customers, customers of FNBO "affiliates," and to "agent banks" in at least seven states. The agent banks distribute to consumers solicitations marketing the smart cards, which use the term SMART ONE and the agent bank's own name. FNBO represents that it entered the smart card market because it was looking for a product with future potential and with the ability to develop a household name.

Affiliates are banks owned by FNBO.

Agent banks are those that allow FNBO to do their card processing.

On November 24, 2000, FNBO applied to the United States Patent and Trademark Office ("PTO") to trademark the mark SMART ONE for banking services, credit card services, and smart card services. On August 14, 2002, the PTO issued a Notice of Publication stating that SMART ONE "appeared entitled to registration," and that the application would be published for opposition. FNBO filed a Statement of Use on April 29, 2003, requesting registration based on FNBO's use of the mark in commerce, and declaring that the mark was first used by FNBO on November 27, 2001.

MasterCard's reply to FNBO's answer and amended counterclaims asserted that FNBO committed fraud on the PTO by failing to disclose the existence of prior third party users of the SMART ONE mark. On September 30, 2003, MasterCard sent a letter of protest to the PTO, requesting that FNBO's SMARTONE application be suspended pending a final judgment in this case. The letter of protest alleges that FNBO's Statement of Use falsely claimed that FNBO was the owner of the SMART ONE trademark, despite knowledge of the mark's prior use by third party Bank of Ann Arbor. MasterCard also alleged that the date of first use claimed by FNBO did not describe bona fide use in the ordinary course of trade, and that FNBO was not using the mark in connection with all of the services claimed in the Statement of Use. FNBO's SMART ONE mark has not been registered with the PTO.

MasterCard and ONESMART

MasterCard oversees a network of member banks that issue bank cards under the MasterCard brand. MasterCard argues that its competitors are Visa, American Express, and other international card networks. MasterCard itself does not issue bank cards.

On June 4, 2001, MasterCard filed an application to register the ONESMART mark for smart cards ("Smart Card Application"), among other uses. On September 5, 2001, the PTO issued an Office Action refusing registration of the Smart Card Application on the ground that the mark was likely to cause confusion with four previously registered marks and two pending applications for the SMART ONE mark, one by FNBO and the other by Capital One Financial Corporation.

On October 3, 2001, Mastercard's in-house trademark counsel, Colm Dobbyn ("Dobbyn"), advised MasterCard management of FNBO's prior application for registration of the SMART ONE mark, Capital One's subsequent application for the same mark, two other applications for the SMART ONE mark in the financial services class, and six applications outside of the financial services class. Dobbyn stated via e-mail:

As a result of the numerous prior filings and uses of "Smart One" and "One Smart" terminology, it is our opinion that it would be difficult to obtain exclusive trademark rights over the term ONE SMART in the United States . . . [W]e would be prepared to argue to the Trademarks Office that ONE SMART is sufficiently different from SMART ONE that the two terms can co — exist. We have already filed applications for both ONE SMART MASTERCARD and ONE SMART alone, with the understanding that it may be necessary to abandon attempts to register ONE SMART itself. We would recommend the term be used as a composite form — ONE SMART MASTERCARD. We cannot rule out the possibility of an opposition proceeding or other legal action being taken by First National Bank of Omaha or by any other third party, however.

(Emphasis supplied.)

MasterCard submitted a Response on March 5, 2002, to the PTO's Office Action refusing registration for the Smart Card Application. In the Response, MasterCard argued against the likelihood of confusion between the ONESMART and SMART ONE marks.

MasterCard represents that the PTO then approved publication of the Smart Card Application for opposition, but the Notice of Publication is not included in MasterCard's submissions.

MasterCard began advertising its smart card services to its member banks in April 2002. The advertising included a website, trade show presentations, advertisements in trade journals, and brochures, which were distributed to some of Mastercard's member banks. MasterCard has provided two brochures that it identifies as ONESMART promotional materials. The brochures use the term "OneSmart Mastercard," as well as the term "OneSmart" followed by nouns such as "card," "choice," and "move." The brochures also depict bank cards that bear the name "OneSmart MasterCard." The materials describe the smart card services MasterCard can provide to banks seeking to offer a smart card to their customers. To date, MasterCard has not used ONESMART in any consumer advertising. On June 7, 2002, Mastercard's Smart Card Application was suspended pending disposition of FNBO's SMART ONE application.

In total, MasterCard filed seven trademark applications utilizing the term ONESMART, including applications for ONESMART alone, for ONESMART MASTERCARD and for "ONESMART CARD. MORE SMART CHOICES." An application for a styled version of the ONESMART mark for use with smart cards, presented as "oneSMART" ("Stylized Application"), was filed with the PTO on April 24, 2002, and was sent to a different examiner than MasterCard's prior Smart Card Application. The Stylized Application was registered on February 18, 2003. FNBO filed a petition to cancel this mark on May 20, 2003. None of the other trademarks submitted to the PTO by MasterCard have been registered.

Discussion FNBO's Motion for Partial Summary Judgment

FNBO has moved for summary judgment on its claim to enjoin MasterCard from using the term ONESMART, alleging that ONESMART infringes FNBO's SMART ONE mark. Specifically, FNBO seeks summary judgment on the following three elements of its claim: first, FNBO's SMART ONE mark is a valid mark entitled to protection; second, there is a likelihood of confusion between ONESMART and SMART ONE; and third, FNBO used the SMART ONE mark before MasterCard used ONESMART.

Summary judgment may not be granted unless the submissions of the parties taken together "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c), Fed.R.Civ.P. The moving party bears the burden of demonstrating the absence of a material factual question, and in making this determination the court must view all facts in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). When the moving party has asserted facts showing that the non-movant's claims cannot be sustained, the opposing party must "set forth specific facts showing that there is a genuine issue for trial," and cannot rest on the "mere allegations or denials" of the movant's pleadings. Rule 56(e), Fed.R.Civ.P.; accord Burt Rigid Box, Inc. v. Travelers Property Cas. Corp., 302 F.3d 83, 91 (2d Cir. 2002).

To prevail on a claim for trademark infringement under Section 1125(a), the moving party must establish, first, that its mark is entitled to protection, and second, that there is a likelihood of consumer confusion as to the origin or sponsorship of the other party's product. Virgin Enterprises Ltd, v. Nawab, 335 F.3d 141, 146 (2d Cir. 2003). FNBO's claim for injunctive relief on the ground that its SMART ONE mark is infringed by MasterCard's ONESMART mark there fore requires that summary judgment be granted in its favor on each of these two elements. As discussed below, summary judgment is inappropriate on any of the grounds listed by FNBO. The request for injunctive relief is therefore denied.

Validity of the SMART ONE mark

In order to be found valid and protectible, "a mark must be capable of distinguishing the products it marks from those of others." Lane Capital Management, Inc. v. Lane Capital Management, Inc., 192 F.3d 337, 344 (2d Cir. 1999). Marks are classified in categories, such as "descriptive" or "suggestive," which determine their eligibility for protection and the degree of protection afforded. Id. A descriptive mark is one that "describes the product's features, qualities or ingredients in ordinary language or describes the use to which the product is put." Id. A descriptive mark is entitled to protection only if a party demonstrates that the mark has acquired distinctiveness by virtue of a secondary meaning that connects the mark to the source of the goods. Id.; see also TCIP Holding Co., Inc. v. Haar Communications, Inc., 244 F.3d 88, 94 (2d Cir. 2001). A suggestive mark "merely suggests the features of the product, requiring the purchaser to use imagination, thought, and perception to reach a conclusion as to the nature of the goods." Lane, 192 F.3d at 344. A suggestive mark is deemed inherently distinctive and is therefore automatically protectible without any showing of secondary meaning. Id.

If the PTO registers a mark without requiring proof of secondary meaning, the registrant is afforded a rebuttable presumption that the mark is more than merely descriptive. PaperCutter, Inc. v. Fay' s Drug Co., Inc., 900 F.2d 558, 563 (2d Cir. 1990). A defendant may petition for cancellation of the plaintiff's registration, however, either through an independent action or a counterclaim in an infringement suit by rebutting the presumption of a plaintiff's right to the exclusive use of a mark, for instance, by showing through a preponderance of the evidence that the mark is descriptive, and not suggestive. Id.

FNBO's SMART ONE mark is not yet registered with the PTO. FNBO has therefore not shown as a matter of law that it is entitled to a rebuttable presumption that the SMART ONE mark is valid and protectible. FNBO argues that Mastercard's attempt to register ONESMART without disclaiming the terms "one" or "smart" permits summary judgment on the validity and protectibility of the SMART ONE mark. It does not.

In its opening brief, FNBO argues that its mark is entitled to protection as a matter of law since it is a registered mark. In FNBO's reply brief, it admits that its mark is not yet registered.

FNBO has offered the opinion of Dr. Mark Aranoff ("Aranoff") to support its claim that SMART ONE is suggestive, rather than descriptive. MasterCard has objected to the linguistic analysis performed by Aranoff on numerous grounds, raising material questions of fact that must be resolved at trial. Determination of whether SMART ONE is a descriptive or suggestive term requires a factual inquiry that precludes summary judgment on this issue.

Likelihood of Confusion

FNBO moves for partial summary judgment that there is a likelihood of confusion between the SMART ONE and ONESMART "programs." To assess the likelihood of confusion between two marks, a court must balance the eight factors set forth in the landmark case of Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492, 495 (2d Cir. 1961). These nonexclusive factors are the strength of the moving party's mark, the similarity between the two marks, the proximity of the products, the likelihood of bridging the gap, actual confusion, the sophistication of consumers, the existence of bad faith on the part of the non-moving party, and the quality of the non-moving party's products. Id.;see also Virgin, 335 F.3d at 146-52. "If a factual inference must be drawn to arrive at a particular finding on a Polaroid factor, and if a reasonable trier of fact could reach a different conclusion, the district court may not properly resolve that issue on summary judgment." Patsy's Brand, Inc. v. I.O.B. Realty, Inc., 317 F.3d 209, 215 (2d Cir. 2003) (citation omitted).

In its reply papers, FNBO modifies its request. It seeks an injunction preventing MasterCard from using ONESMART "standing alone." While MasterCard has sought and obtained a trademark registration for ONESMART alone for use in connection with smart cards, and seeks a declaration in this action that such a mark does not infringe FNBO's mark, FNBO's motion does not seek to attack that registration or an entry of judgment in its favor on Mastercard's request for a declaratory judgment. As for FNBO's belated request for an injunction against Mastercard's use of ONESMART standing alone, in addition to its untimeliness, the motion must be denied given, among other things, the questions of fact that exist as to the extent to which MasterCard uses that mark in conjunction with the MasterCard name and symbols.

The submissions of the parties demonstrate that material questions of fact remain with respect to many of the Polaroid factors, including the strength of the SMART ONE mark, the similarity of the SMART ONE and ONESMART marks, the proximity of the smart card programs offered by FNBO and MasterCard, and the likelihood that MasterCard would bridge a gap should one be found to exist. These questions must be resolved by the finder of fact upon consideration of a fully-developed factual record. Summary judgment is therefore inappropriate on the issue of whether there is a likelihood of confusion between the SMART ONE and ONESMART marks.

Senior Use

When two parties claim the exclusive right to use an unregistered trademark, "priority is determined by the first actual use of the mark in a genuine commercial transaction." Emergency One, Inc. v. American Fire Eagle Engine Co., Inc., 332 F.3d 264, 267 (4th Cir. 2003) (citation omitted) (collecting cases); see also Safeway Stores, Inc. v. Safeway Properties, Inc., 307 F.2d 495, 498 (2d Cir. 1968). The Lanham Act defines "use in commerce" as "the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve the right in a mark. . . ." 15 U.S.C. § 1127. See Allard Enterprises, Inc. v. Advanced Programming Resources, Inc., 146 F.3d 350, 357 (6th Cir. 1998) (noting consistency of the definition of "use in commerce" under the Lanham Act and under the common law). The Lanham Act protects trademark rights only to the extent that they exist "as a right appurtenant to an established business or trade in connection with which the mark is employed." Buti v. Impressa Perosa, S.R.L., 139 F.3d 98, 103 (2d Cir. 1998) (citation omitted). Determination of whether a party's use is sufficient to establish priority requires a case-by-case analysis. La Societe Anonyme des Parfums le Galion v. Jean Patou, Inc., 495 F.2d 1265, 1274 n. 11 (2d Cir. 1974) (citing Chandon Champagne Corp. v. San Marino Wine Corp., 335 F.2d 531, 534-45 (2d Cir. 1964) (Friendly, J.)).

FNBO's reliance on WarnerVision Entertainment Inc. v. Empire of Carolina, Inc., et al., 101 F.3d 259 (2d Cir. 1996), to establish its senior use of the SMART ONE mark is misplaced. WarnerVision held that the grant of a preliminary injunction was inappropriate when it prevented a trademark applicant from engaging in the commercial use necessary to complete the registration process. Id. at 261.WarnerVision acknowledges that priority as of the date a trademark application is filed only accrues once a mark is registered.Id. at 262. FNBO's mark is not a registered mark.

FNBO asserts it first used the SMART ONE mark in connection with checking account services on November 27, 2001. MasterCard has presented evidence that only approximately twenty-five customers opened SMART ONE checking accounts, and the program was cancelled. MasterCard contends that this was token use of the mark unrelated to smart cards and did not constitute bona fide use in the ordinary course of trade. MasterCard argues that it should, in any event, be considered the prior user by virtue of its marketing of the ONESMART smart card program in April 2002. FNBO has submitted little evidence concerning its initial use of the SMART ONE mark, and MasterCard has raised questions of fact regarding the issue of priority. As a result, summary judgment is inappropriate on this issue.

FNBO's Motion in Limine

FNBO has moved for an order in limine precluding the testimony of Dr. John Hauser ("Hauser") at trial on the ground that he destroyed relevant electronic correspondence with MasterCard's counsel and with a litigation consulting firm, as well as draft versions of his expert report, in violation of Rule 26(a)(2)(B), Fed.R.Civ.P. Hauser, Professor of Marketing at the Massachusetts Institute of Technology, was retained as an expert witness by MasterCard and has submitted a declaration critiquing the survey performed by Dr. Alexander Simonson ("Simonson"), an expert witness for FNBO.

Rule 26(a)(2)(B) requires disclosure of "the data and other information considered by the [expert] in forming [the expert's] opinion." Rule 26(a)(2)(B), Fed.R.Civ.P. Courts have held that even privileged material must be produced if it falls within the scope of Rule 26(a)(2)(B). United States Fidelity Guar. Co v. Braspetro Oil Servs. Co., No. 97 Civ. 6124 (THK), 2002 WL 15652, at *6 (S.D.N.Y. Jan. 7, 2002) (collecting cases); B.C.F. Oil Refining, Inc. v. Consolidated Edison Co. of New York, 171 F.R.D. 57, 65-67 (S.D.N.Y. 1997).

First, Mastercard's counsel has stated that they engaged in no email correspondence with Hauser. FNBO has not produced any evidence to the contrary. Second, the parties do not dispute that MasterCard produced copies of all email correspondence between Hauser and the litigation consulting firm he employed, albeit after Hauser's deposition had concluded. FNBO did not move to re-depose Hauser when it received the correspondence and has not shown that the late-produced information was material.

Third, FNBO does not dispute that both Simonson, its own expert witness, and Hauser overwrote changes onto draft copies of their reports, thereby creating an updated version of the report that replaced the existing draft. The Court reaches no conclusion as to the legitimacy of this practice in light of the dictates of Rule 26(a)(2)(B). Since the experts for both parties engaged in overwriting, however, and since neither Simonson nor Hauser's drafts were provided to opposing counsel, the exclusion of Hauser's testimony is not merited in this instance. FNBO's motion in limine to preclude Hauser's testimony is denied.

MasterCard's Motion in Limine

MasterCard has moved pursuant to Rules 402, 403, and 702, Fed.R.Evid., for an order in limine precluding Simonson's trademark survey ("Survey"), report ("Report"), and testimony on the grounds that the Survey is irrelevant, unreliable, and prejudicial. Rule 702 of the Federal Rules of Evidence provides that expert testimony concerning technical or specialized knowledge is admissible to assist the trier of fact if "(1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." Rule 702, Fed.R.Evid. A court has an obligation to act as a gatekeeper to ensure the "reliability and relevancy of expert testimony" presented to a jury. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999); see also Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579, 594-95 (1993) (overarching subject of inquiry under Rule 702 is the scientific validity and thus the evidentiary relevance and reliability of the principles that underlie a proposed submission). Specifically, the court must determine that an expert "employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." Kumho, 526 U.S. at 152.

Survey evidence is generally admissible to establish actual confusion in cases alleging violations of the Lanham Act. Schering Corp. v. Pfizer Inc., 189 F.3d 218, 227-28 (2d Cir. 1999). While errors in survey methodology usually go to weight of the evidence, a survey should be excluded under Rule 403, Fed.R.Evid., when its probative value is substantially outweighed by its prejudicial effect or potential to mislead the jury. Schering, 189 F.3d at 228; see, e.g., Starter Corp. v. Converse, Inc., 170 F.3d 286, 297 (2d Cir. 1999). Because of the danger that expert evidence will mislead the jury, a court weighing admissibility under Rule 403 exercises more control over experts than lay witnesses. Daubert, 509 U.S. at 595 (citation omitted).

Some of the factors courts consider in assessing the reliability of a survey are whether

(1) the "universe" was properly defined, (2) a representative sample of that universe was selected, (3) the questions to be asked of interviewees were framed in a clear, precise and non-leading manner, (4) sound interview procedures were followed by competent interviewers who had no knowledge of the litigation or the purpose for which the survey was conducted, (5) the data gathered was accurately reported, (6) the data was analyzed in accordance with accepted statistical principles and (7) the objectivity of the entire process was ensured.
Schering, 189 F.3d at 225 (citation omitted). The failure to satisfy one of these criteria may result in the exclusion of the survey. See, e.g., Universal City Studios, Inc. v. Nintendo Co., 746 F.2d 112, 118 (2d Cir. 1984).

Simonson, President and founder of the marketing research firm Simonson Associates, Inc., was commissioned by FNBO to conduct a study to determine whether, and to what extent, FNBO's customers would be confused between the SMART ONE and ONESMART marks. The Report defines the relevant universe as "decision makers with respect to card programs at FNBO's actual or potential agent banks." FNBO provided Simonson with a list of 914 of FNBO's "agent banks," including the name of a person who was "involved in the decision-making process of evaluating card programs such as credit, debit or chip cards to be offered to customers."

The study was designed to test "reverse confusion," which occurs when a customer mistakenly believes that the junior user is the source of the senior user's goods. See Patsy's, 317 F.3d at 218 (citingBanff, Ltd. v. Federated Department Stores, Inc., 841 F.2d 486, 490 (2d Cir. 1988)). FNBO has argued that it is the senior user.

The Survey attempted to contact these 914 individuals by telephone and ask them three screening questions: "Do you work for a bank?"; "Are you involved in the decision-making process of evaluating card programs such as credit, debit or chip cards to be offered to your customers?"; and "How long have you been working in this capacity, that is, evaluating card programs to be offered to your customers?" To qualify for the internet survey, individuals were required to respond affirmatively to the first two questions and to have answered that they had been working in that capacity for at least three months. Qualified individuals were advised that they would receive either $25 or $35 in exchange for completing an internet survey within 24 hours. Of the 914 individuals included in the universe of the survey, approximately 510 people refused from the onset to participate, 82 of the phone numbers were disconnected, and 78 individuals did not pass the screening portion of the Survey. That left 192 potential participants.

In total, of the 192 respondents who were directed to a website administered by a polling company, only 52 respondents completed the Survey. The website presented these 52 respondents with three screens related to Mastercard's ONESMART program: a general information page, a description of the smart card program, and a prototype of a "OneSmart MasterCard" banking smart card. The respondents were asked some "distracter" questions designed to eliminate short-term memory effects and were randomly assigned to one of two test groups. The first group was presented with another three screens featuring FNBO SMART ONE materials that are similar in form to those describing ONESMART. The FNBO "smart One" card shown bore a Visa mark and symbol. The second group, which functioned as a control group, was shown materials describing Fleet Bank's "Fusion" smart card, also bearing a Visa symbol.

After viewing the second set of card materials, respondents were asked, "Do you believe the company whose materials we just showed you did or did not obtain approval to use the name of its card program from the company whose materials we first showed you?" They had the option of responding "yes, obtained approval," "no, did not obtain approval," or "no opinion." Respondents who selected "yes" were then asked to write a "detailed explanation" of what caused them to make that statement.

Of the 52 respondents who completed the internet survey, 27 were shown the FNBO materials (the "test cell"), and 25 were shown the Fleet materials (the "control group"). In the test cell, 16 individuals, or 59.3% of respondents, stated that FNBO acquired approval. In the control group, 11 individuals, or 44% of respondents, stated that Fleet obtained approval. This is a difference of five individuals. The Report states that these results reflect a net confusion level of 15.3% between the ONESMART and SMART ONE names.

The written answers supplied by respondents to the Survey's open-ended question, "What caused you to say [yes, obtained approval]?" cite numerous factors other than the name of the card program, including the website layouts and quality of the advertisements. Only one individual in the test cell specifically mentioned the SMART ONE name. One individual in the control group mentioned the ONESMART name. No follow-up interviews were conducted to determine the extent to which factors other than the card names affected the Survey results.

The following were among the explanations provided by individuals in the test cell:

"Page layout appeared similar to mastercard layout. Assumed we saw a logo (but thinking back it might not have been there). Showed picture of card on right side of site."
"I believe that had to get approval because of the MasterCard Logo . . . Copyright laws . . . "

"The use of the mastercard emblem."
"The logo looks legitimate. Classy business like advertisements."
"I would hope a business such as theirs would follow the appropriate rules and regulations."
"I would think it would be general practice to get approval on anything that is coming from another company. Compliance would also play a major role."
"The first set of materials advertised the "Smart Card" by MC, telling us it can be customized for your bank (e.g. card design). The last set of materials was a custom Smart Card program offered by 1st Natl. Bank of Omaha."

The Survey conducted by Simonson is flawed to the point that its probative value is substantially outweighed by the Survey's potential for unfair prejudice and confusion, and the likelihood that it will mislead the jury. FNBO contends that because the Survey is a non-probability census, it is inappropriate to judge the relevance of the Survey by statistical standards appropriate to scientific studies. Independent of such measurements, however, defects in the Survey severely undermine its reliability as a predictor of actual confusion.

Conventionally, standards of statistical significance allow only a 5% probability that the measured effect occurred by chance. See Federal Judicial Center, Reference Manual on Scientific Evidence 244 (2d ed. 2000). It is undisputed that there is at least a 27% probability that, according to standard measures of statistical significance, the Survey's results are attributable solely to chance.

To start with, the number of respondents surveyed is too small to provide meaningful results in this instance. Only 52 respondents completed the Survey, resulting in just 27 individuals reviewing the test cell materials and 25 individuals commenting on the control group materials. The 15.3% level of confusion allegedly measured is a difference of only five individuals' responses to the question of approval posed by the Survey. It is misleading to assert that a figure based on a difference of so few respondents provides an accurate gauge of any confusion on the part of the population making actual decisions among smart card programs offered to financial institutions.

In addition, the problem of the small number of individuals who completed the Survey is compounded by the Report's failure to address the issue of non-response bias, or whether the 52 individuals who chose to complete the Survey were representative of the group of qualified respondents. The Survey includes no data concerning the sophistication of respondents other than their answers to the first three screening questions and does not provide information about individuals' positions within the bank or their actual roles in evaluating card programs to be offered to customers. The fact that respondents were required to take time to complete the internet survey in exchange for a small amount of money, moreover, suggests the possibility that the individuals who volunteered may not have been the professionals who make high-level decisions concerning the banks' adoption of smart card programs. It is unclear whether, and to what extent, the Survey reached the decision-makers whose potential confusion is relevant to this litigation.

In addition, bank employees deciding which smart card programs are appropriate for their institutions will do so with far more information than was provided in the Survey and with far more care than the Survey's respondents. Respondents were told that it would take them approximately ten to fifteen minutes to complete the internet survey. This exercise bears little resemblance to the lengthy and thoughtful decision-making process that occurs in the real world when large financial institutions make determinations about the services they provide to customers. The relevance of the Survey in predicting confusion by participants in this extensive decision-making process has not been established by FNBO.

Many respondents, moreover, appear to have based their answers on factors independent of the ONESMART and SMART ONE card names. Only one individual in the test cell specifically mentioned the SMART ONE name. Even in the control group, a person listed the ONESMART name when describing the reason for his or her response.

FNBO has not cited any case in which a court has relied solely on a survey of this form with a sample size similar to that presented here. The flaws in the Survey diminish its relevance in predicting actual confusion among FNBO customers such that the potential for the Survey's results to prejudice unfairly, to confuse, and to mislead the jury substantially outweighs any limited relevance. The Survey is excluded pursuant to Rules 403 and 702 of the Federal Rules of Evidence.

FNBO cites four inapposite cases in which courts considered surveys with greater indicia of reliability than the Survey conducted by Simonson. Schering, 189 F.3d at 222-23 (five surveys with sample sizes from 74 to 200, all supporting finding of confusion); Goya Foods, Inc. v. Condal Distributors, Inc., 732 F. Supp. 453, 456-57 (S.D.N.Y. 1990) (survey in which 3 of 34 respondents were confused as to origin of product even when correct brand name was on the label, supported by finding in 508-person study); McNeilab, Inc. v. American Home Prods. Corp., 675 F. Supp. 819, 822-824 (S.D.N.Y. 1987) (survey of 149 people, supported by two additional studies finding confusion); Grotrian, Helfferich, Schulz, Th. Steinweg Nachf. v. Steinway Sons, 365 F. Supp. 707, 716 (S.D.N.Y. 1973) (survey consisted of 23 in-depth person interviews, supported by finding in 520-person survey). In Friesland Brands, B.V. v. Vietnam National Milk Co., 221 F. Supp.2d 457 (S.D.N.Y. 2002), the court admitted survey evidence of confusion based on a sample of 188 individuals, of which 24% selected the two products as being made by the same company. Id. at 459.

It is unnecessary to reach any additional flaws in the Survey since those discussed establish that its relevance is outweighed by its prejudicial value.

MasterCard's Motion for Summary Judgment on Monetary Claims

MasterCard has moved for summary judgment dismissing FNBO's claims for monetary relief on the ground that FNBO has failed to establish either actual confusion between ONESMART and SMART ONE, or bad faith on the part of MasterCard in its use of the ONESMART mark. FNBO argues that a 1999 amendment to the Lanham Act ("1999 Amendment") makes it unnecessary for FNBO to prove Mastercard's bad faith, but that in any event, it has done so. The standard governing a motion for summary judgment is described above.

Section 35(a) of the Lanham Act provides:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of the title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. . . .
15 U.S.C. § 1117(a) (emphasis supplied). Prior to 1999, the Lanham Act explicitly provided for monetary recovery only upon the establishment of "a violation" of Section 43(a), 15 U.S.C. § 1125(a). In early 1999, Congress amended Section 35(a) to include "a willful violation" under Section 43(c), 15 U.S.C. § 1125 (c), which provides remedies for the dilution of famous marks. Pub.L. 106-43, 113 Stat. 218 (1999).

Later in 1999, Congress amended Section 35(a) to include violations of Section 43(d), 15 U.S.C. § 1125(d), which addresses cyberpiracy prevention. Pub.L. 106-113, 113 Stat. 1501 (1999). This second amendment in 1999 mistakenly added a reference to Section 43(c) in the first clause of Section 35(a), in addition to the reference to a "willful violation" of Section 43(c) that already appeared in the second clause. Id. This error was corrected by a 2002 amendment to Section 35(a) that removed the reference to Section 43(c) in the first clause. Pub.L. 107-273, 116 Stat. 1906 (2002); see 4McCarthy on Trademarks and Unfair Competition § 24:99, at 24-232-33 (4th ed. 2003).

It is appropriate to assume that Congress is aware of existing law when it passes or amends legislation. Miles v. Apex Marine Corp., et al., 498 U.S. 19, 32 (1990) (citing Cannon v. University of Chicago, 441 U.S. 677, 696-97 (1979)); see also Strom v. Goldman, Sachs Co., 202 F.3d 138, 147 (2d Cir. 1999). When Congress employs terms that have been interpreted by the federal courts, it is presumed to know of the terms' characterization. Director, Office of Workers' Compensation Programs v. Perini N. River Assoc., 459 U.S. 297, 319-20 (1983); Strom, 202 F.3d at 147. It is also a "cardinal principle of statutory construction that a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant."TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (citation omitted).

The law of this Circuit concerning the prerequisites to recovery under Section 35(a) of the Lanham Act for a violation of Section 1125(a), 15 U.S.C. § 1125(a), is well settled. "In order to recover an accounting of an infringer's profits, a plaintiff must prove that the infringer acted in bad faith." Int'l Star Class Yacht Racing Assoc. v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 753 (2d Cir. 1996) (emphasis supplied);George Basch Co., Inc. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir. 1992). A finding of bad faith, or willful deceptiveness, is necessary to warrant an accounting, but may not be sufficient.George Basch, 968 F.2d at 1540. A finder of fact may also consider "(1) the degree of certainty that the defendant benefited [sic] from the unlawful conduct, (2) availability and adequacy of other remedies, (3) the role of a particular defendant in effectuating the infringement, (4) plaintiff's laches; and (5) plaintiff's unclean hands," to determine whether, "on the whole, the equities weigh in favor of an accounting." Id.

"[I]n order for a Lanham Act plaintiff to receive an award ofdamages the plaintiff must prove either actual consumer confusion or deception resulting from the violation, or that the defendant's actions were intentionally deceptive. . . ." Boosey Hawkes Music Publishers, Ltd. v. Walt Disney Co., 145 F.3d 481, 493 (2d Cir. 1998) (emphasis in original) (citation omitted);GTFM, Inc. v. Solid Clothing Inc., 215 F. Supp.2d 273, 305 (S.D.N.Y. 2002) (DLC).

In general, "an infringer who acts in reasonable reliance on the advice of counsel" is not considered to have acted in bad faith. Int'l Star, 80 F.3d at 754 (citation omitted); see also W.W.W. Pharm. Co. v. Gillette Co., 984 F.2d 567, 575 (2d Cir. 1993) (adoption of a mark with knowledge of another's registration may be consistent with good faith). On the other hand, "the failure to follow the advice of counsel given before the infringement must factor into an assessment of the infringer's bad faith." Int'l Star, 80 F.3d at 754 (emphasis in original). A jury may also consider the fact that a party had notice of its potential trademark violation, but chose to continue use of the mark during the course of litigation. Id. In a "reverse confusion" case, which FNBO has alleged, the infringer does not necessarily seek to trade on the goodwill of the prior user. Sterling Drug, Inc. v. Bayer AG, 14 F.3d 733, 740 (2d Cir. 1994); Banff, Ltd. v. Federated Department Stores, Inc., 841 F.2d 486, 490-91 (2d Cir. 1988). Typically, disputed issues of defendants' intent are "best left in the hands of the trier of fact." Catalogue Partnership v. Hill, Holiday, Connors, Cosmopulos , 228 F.3d 56, 68 (2d Cir. 2000) (citation omitted).

When Congress amended Section 35(a) of the Lanham Act in 1999 to include a "willful violation under section 1125(c)," it left unchanged the prior language of the statute providing a remedy upon the establishment of "a violation under section 1125(a)." 15 U.S.C. § 1117(a). It may be presumed that Congress's inclusion, without alteration, of the language concerning Section 1125(a) incorporates the existing judicial interpretation of that language. Since the Second Circuit permits the recovery of damages when a plaintiff is able to prove actual confusion but not intentional deception, moreover, the inclusion of the "willful" modifier before "section 1125(c)" in the 1999 Amendment provides a more stringent standard for recovery than is available for a violation under Section 1125(a), 15 U.S.C. § 1125(a). The language of the 1999 Amendment is not rendered superfluous by the incorporation of the standards in this Circuit governing recovery under Section 35(a) of the Lanham Act.

Only two Circuits have addressed the effect of the 1999 Amendment. In Quick Technologies v. Sage Group PLC, 313 F.3d 338 (5th Cir. 2002), the Fifth Circuit declined to adopt a rule requiring a showing of willfulness for an accounting of profits under Section 35(a) of the Lanham Act. Id. at 349. The court relied in part on the 1999 Amendment, as well as on the Fifth Circuit's precedent establishing a six-factor test according to which courts should analyze a plaintiff's entitlement to an accounting of profits. Id. at 348-50. InGucci America, Inc. v. Daffy's, Inc., 354 F.3d 228 (3d Cir. 2003), the Third Circuit left open the question of whether the 1999 Amendment altered the Third Circuit's existing precedent requiring a plaintiff to demonstrate willful infringement in order to receive an accounting of profits. Id. at 242.

FNBO has not presented any admissible evidence of actual confusion. FNBO has presented evidence, however, upon which a jury could find bad faith or intentional deception on the part of MasterCard. On October 3, 2001, FNBO obtained the opinion of Senior Vice President and Assistant General Counsel Dobbyn concerning the availability of the ONESMART mark. Dobbyn wrote that while "we would be prepared to argue to the Trademarks Office that ONE SMART is sufficiently different from SMART ONE that the two terms can co-exist . . . it may be necessary to abandon attempts to register ONE SMART itself." He stated that "[w]e would recommend the term be used as a composite form — ONE SMART MASTERCARD." Dobbyn further cautioned that "we cannot rule out the possibility of an opposition proceeding or other legal action being taken by First National Bank of Omaha."

This Opinion does not address FNBO's motion in limine and for sanctions based on MasterCard's alleged refusal to produce financial information as ordered by this Court. This discovery issue does not go to MasterCard's state of mind in adopting and using the ONESMART mark.

Dobbyn's opinion of October 3 refers specifically to two trademark applications for the use of SMART ONE in conjunction with smart cards, the first filed by FNBO and the second by Capital One. MasterCard was aware that FNBO would have priority over Capital One as to the SMART ONE mark. MasterCard contacted Capital One because of the possibility that it might object to Mastercard's use of ONESMART, but did not contact FNBO.

After receiving Dobbyn's opinion, MasterCard pursued its ONE SMART application with the PTO. It sought registration not only for ONESMART in conjunction with the name MasterCard, but also as an independent mark standing alone. There is also evidence that MasterCard developed marketing materials featuring the ONESMART mark used independently of the ONESMART MASTERCARD composite phrase. MasterCard launched its ONESMART campaign on April 2, 2002, and received a cease and desist letter from FNBO on April 10. MasterCard filed its application for registration of the stylized ONESMART mark on April 24. MasterCard has not abandoned its use of an independent ONESMART mark. Indeed, in its request for declaratory relief in this action, MasterCard seeks relief for ONESMART by itself. It asks for a declaration "that the use by MasterCard of ONESMART MASTERCARD, ONESMART or colorable variants thereof" do not infringe FNBO's rights in SMART ONE.

There is, therefore, some evidence in the record that may point to MasterCard's bad faith in its registration and its use of the ONESMART mark as a stand alone mark. On a motion for summary judgment, such evidence must be viewed in the light most favorable to the non-moving party. Because there is sufficient dispute over material facts to preclude summary judgment as to whether FNBO is entitled to an accounting of MasterCard's profits or to an award of damages, the issue of monetary relief must be determined by the jury upon a full development of the relevant factual record.

MasterCard's motion papers emphasize its use of ONESMART in conjunction with or in close proximity to the name MasterCard or the MasterCard logo. Its registration of the ONESMART mark by itself, and its request for a declaration that its use of that mark alone does not infringe FNBO's rights, prevent this motion from being analyzed solely in the context of the use of the ONESMART MASTERCARD composite mark.

Conclusion

For the reasons stated above, FNBO's motion for partial summary judgment is denied. FNBO's motion in limine precluding the report and testimony of Dr. John Hauser is denied. MasterCard's motionin limine to preclude the trademark survey, report and testimony of Dr. Alexander Simonson is granted. Mastercard's motion for summary judgment dismissing FNBO's claims for monetary relief is denied.

SO ORDERED.


Summaries of

Mastercard Int'l Inc. v. First National Bank of Omaha

United States District Court, S.D. New York
Feb 23, 2004
02 CIV. 3691 (DLC), 03 CIV. 707 (DLC) (S.D.N.Y. Feb. 23, 2004)

holding that Congress' failure to alter the language regarding section 1125 indicates intent to leave existing law undisturbed

Summary of this case from Johnson Johnson Vision Care v. Ciba Vision Corp.

finding survey of 52 individuals not admissible to show confusion because "the number of respondents surveyed [was] too small to provide meaningful results"

Summary of this case from Saxon Glass Techs., Inc. v. Apple Inc.
Case details for

Mastercard Int'l Inc. v. First National Bank of Omaha

Case Details

Full title:MASTERCARD INTERNATIONAL INCORPORATED, Plaintiff,-v-FIRST NATIONAL BANK OF…

Court:United States District Court, S.D. New York

Date published: Feb 23, 2004

Citations

02 CIV. 3691 (DLC), 03 CIV. 707 (DLC) (S.D.N.Y. Feb. 23, 2004)

Citing Cases

Saxon Glass Techs., Inc. v. Apple Inc.

Insufficient sample size is also a critical consideration in assessing the admissibility of a survey.…

Malletier v. Dooney Bourke, Inc.

Troublé v. Wet Seal, Inc., 179 F. Supp. 2d 291, 307 (S.D.N.Y. 2001) (citing Schering, 189 F.3d at 228).…