Newcomer's Trademark Rights Take Back Seat in Limited Area to Local Prior User

What happens when a large newcomer to a geographic region with a federal registration for its service mark encounters a smaller pre-existing business in that region with prior use of a similar mark for the same services? Enjoinable reverse infringement results, according to the U.S. Court of Appeals for the Third Circuit. Citizens Financial Group, Inc. v. Citizens National Bank of Evans City, Case Nos. 03-2868 and 03-3175 (3d Cir. 2004).

When Citizens Financial Group, Inc. (CFG), a subsidiary holding company of the Royal Bank of Scotland, bought the retail banking operations of Mellon Bank in July 2001, it converted all of the Mellon branches in Pennsylvania to “Citizens Bank” branches. However, a number of those branches were located near (some on the same streets as) branches of Citizens National Bank of Evans City (CNBEC), founded in 1878 and doing business through 16 branches in northwestern Pennsylvania. Federally chartered in 1907, CNBEC has branches in Butler, north Allegheny and Armstrong counties. It refers to itself as “Citizens” in advertising and promotional materials and in customer communications. In addition to the former Mellon branches in Pennsylvania, CFG has hundreds of branches throughout the east coast of the United States. It advertises itself as “one of the largest banks in the world.” It also has a federal registration for the service mark CITIZENS BANK, issued Aug. 28, 2001. CNBEC has not registered the service marks CITIZENS or CITIZENS NATIONAL BANK.

CNBEC promptly sent CFG a cease and desist letter requesting that CFG not use “Citizens” as the name for its western Pennsylvania branches. CFG responded by filing suit for a declaratory judgment that it could not be prevented from using “Citizens.” CNBEC counterclaimed for trademark infringement and unfair competition. The U.S. District Court for the Western District of Pennsylvania denied CNBEC's motion for a preliminary injunction and a jury trial was held. CNBEC claimed that CFG's “Citizens Bank” mark infringed both “Citizens” and “Citizens National Bank” and that CFG committed unfair competition and was unjustly enriched. The evidence included testimony about actual confusion by customers, including mistaken attempts at check cashing, loan payments, money deposits, ATM use and others.

The jury responded to a number of verdict questions, finding that CNBEC proved that it had used “Citizens” standing alone as a trademark; that the mark was suggestive, arbitrary or fanciful; that a likelihood of confusion existed between CFG's marks and CNBEC's “Citizens” mark; that no likelihood of confusion existed between CFG's marks and CNBEC's “Citizens National Bank” mark; and that CNBEC had not proven that it was “injured” as a result of CFG's infringement. The answer that CNBEC was not injured required the jury to find in favor of CFG.

CNBEC then asked the district court for a permanent injunction against CFG, based on the jury's finding of CFG's infringement of the “Citizens” mark. The district court refused to enjoin CFG and instead, without having been asked, enjoined CNBEC, requiring that CNBEC always use the full designation “Citizens National Bank.” The injunction against CNBEC was based on the jury's finding that CNBEC was not “injured” and the district court's determination that an injunction against CFG “would have devastating effects on CFG's business and customers,” not just in CNBEC's market area but throughout Pennsylvania.

On appeal, the Third Circuit reversed the injunction against CNBEC and directed the district court to enter a carefully crafted injunction against CFG, based on reverse confusion. The Appeals Court explained that “[r]everse confusion occurs when a larger, more powerful company [here, CFG] uses the trademark of a smaller, less powerful senior owner [here, CNBEC] and thereby causes likely confusion as to the source of the senior user's goods or services.”

The Third Circuit held that the jury's answer to the question about “injury” to CNBEC had to be “molded” because the district court had told the jury that a finding of likelihood of confusion would entitle CNBEC to prevent CFG from using “Citizens Bank” in those areas where CNBEC had “established a significant market presence.” Therefore, the jury must have meant by no injury that no money damages should be awarded, not that CFG should prevail in the case. It is possible for a junior trademark owner such as CFG to infringe on the rights of a senior owner such as CNBEC, without the senior owner suffering any economic damages. However, the Third Circuit noted, “trademark infringement amounts to irreparable injury as a matter of law,” so the jury's finding of “no injury” must be limited to an economic context.

In reviewing the factors for granting an injunction, the Third Circuit found that federal banking law does not require CNBEC to use the word “National” in every mention of that name, to the exclusion of a diminutive; the public interest in avoiding confusion and CNBEC's interest in maintaining control over its mark favored CNBEC; CFG's actions in deliberately advertising in the marketplace where CNBEC had operated without trademark infringement for more than 100 years favored CNBEC; CNBEC as senior user did not have to take every possible action to avoid confusion; there was no evidentiary support for the district court's finding of devastating consequences to CFG; CNBEC had not delayed in protecting its rights; CNBEC did not have unclean hands; and CNBEC's request for a four-county injunction did not require enforcement in the rest of Pennsylvania or the United States. The Third Circuit emphasized that “[n]o infringer is immune from challenge because of its size” and “[n]either the principles of equity nor the federal Constitution favor the rights of the powerful over the rights of the weak merely because of size.”

In remanding the case, the appeals court determined that the injunction against use of “Citizens Bank” by CFG should cover Butler County, but that the district court should consider the specific contours of CNBEC's market area in determining whether the injunction should cover the other three counties. The court suggested that CFG could do business in CNBEC's market area by adopting another name for the branch banks in that area.

This decision highlights the importance of obtaining a common law report of unregistered users and investigating the extent of such uses when doing trademark clearance searches. Care should also be taken to consider the common law user's “zone of natural expansion,” where possible. A company with nationwide plans for a new product or service is not going to want to adopt a different mark for that product or service in two counties in California and a city in Michigan because of unregistered users with seniority in such places. It is also important to remember that bad faith is not required for a finding of trademark infringement. Although the Third Circuit found that CFG's conduct was not in bad faith, it nevertheless observed that CFG's use of the “Citizens” mark was “deliberately conceived, planned and implemented by a large and aggressive organization.” Any large organization is going to deliberately conceive, plan and implement adoption of a new mark. Moving forward with use of a mark in a geographical area where there is a common law user with priority is therefore risky.

Obtaining a federal registration for the mark will not provide protection against a common law user with priority. Section 15 of the Lanham Act provides an exception to incontestability for owners of “a valid right acquired under the law of any State or Territory by use of a mark or trade name continuing from a date prior to the date of registration under this Act of such registered mark.” See Advance Stores Co. v. Refinishing Specialities Inc., 51 USPQ2d 1785 (6th Cir. 1999).

The Third Circuit also considered an evidentiary issue relating to the conduct of a confusion survey in reverse infringement situations. The Third Circuit upheld the exclusion of the testimony of CNBEC's survey expert on the issue of confusion because he conducted his survey outside of CNBEC's market. The expert was prevented from conducting his survey at the preferred shopping mall in Butler County because the mall refused permission. Rather than finding another venue in Butler County, the expert conducted his survey in two malls closer to Pittsburgh in southern Allegheny County. Because the appropriate universe for a survey in a reverse discrimination case is the senior user's customer base, not the potential customers of both parties, the survey was excluded as “fundamentally flawed.” Therefore, the jury was not permitted to hear and weigh the results, as would have been the case with a survey that was merely technically flawed. Thus, in working with a survey expert in reverse infringement cases, in addition to making sure that the survey questions are properly phrased, one must also make certain that the universe of respondents comes from the senior user's market.

What happens when a large newcomer to a geographic region with a federal registration for its service mark encounters a smaller pre-existing business in that region with prior use of a similar mark for the same services? Enjoinable reverse infringement results, according to the U.S. Court of Appeals for the Third Circuit. Citizens Financial Group, Inc. v. Citizens National Bank of Evans City, Case Nos. 03-2868 and 03-3175 (3d Cir. 2004).

When Citizens Financial Group, Inc. (CFG), a subsidiary holding company of the Royal Bank of Scotland, bought the retail banking operations of Mellon Bank in July 2001, it converted all of the Mellon branches in Pennsylvania to “Citizens Bank” branches. However, a number of those branches were located near (some on the same streets as) branches of Citizens National Bank of Evans City (CNBEC), founded in 1878 and doing business through 16 branches in northwestern Pennsylvania. Federally chartered in 1907, CNBEC has branches in Butler, north Allegheny and Armstrong counties. It refers to itself as “Citizens” in advertising and promotional materials and in customer communications. In addition to the former Mellon branches in Pennsylvania, CFG has hundreds of branches throughout the east coast of the United States. It advertises itself as “one of the largest banks in the world.” It also has a federal registration for the service mark CITIZENS BANK, issued Aug. 28, 2001. CNBEC has not registered the service marks CITIZENS or CITIZENS NATIONAL BANK.

CNBEC promptly sent CFG a cease and desist letter requesting that CFG not use “Citizens” as the name for its western Pennsylvania branches. CFG responded by filing suit for a declaratory judgment that it could not be prevented from using “Citizens.” CNBEC counterclaimed for trademark infringement and unfair competition. The U.S. District Court for the Western District of Pennsylvania denied CNBEC's motion for a preliminary injunction and a jury trial was held. CNBEC claimed that CFG's “Citizens Bank” mark infringed both “Citizens” and “Citizens National Bank” and that CFG committed unfair competition and was unjustly enriched. The evidence included testimony about actual confusion by customers, including mistaken attempts at check cashing, loan payments, money deposits, ATM use and others.

The jury responded to a number of verdict questions, finding that CNBEC proved that it had used “Citizens” standing alone as a trademark; that the mark was suggestive, arbitrary or fanciful; that a likelihood of confusion existed between CFG's marks and CNBEC's “Citizens” mark; that no likelihood of confusion existed between CFG's marks and CNBEC's “Citizens National Bank” mark; and that CNBEC had not proven that it was “injured” as a result of CFG's infringement. The answer that CNBEC was not injured required the jury to find in favor of CFG.

CNBEC then asked the district court for a permanent injunction against CFG, based on the jury's finding of CFG's infringement of the “Citizens” mark. The district court refused to enjoin CFG and instead, without having been asked, enjoined CNBEC, requiring that CNBEC always use the full designation “Citizens National Bank.” The injunction against CNBEC was based on the jury's finding that CNBEC was not “injured” and the district court's determination that an injunction against CFG “would have devastating effects on CFG's business and customers,” not just in CNBEC's market area but throughout Pennsylvania.

On appeal, the Third Circuit reversed the injunction against CNBEC and directed the district court to enter a carefully crafted injunction against CFG, based on reverse confusion. The Appeals Court explained that “[r]everse confusion occurs when a larger, more powerful company [here, CFG] uses the trademark of a smaller, less powerful senior owner [here, CNBEC] and thereby causes likely confusion as to the source of the senior user's goods or services.”

The Third Circuit held that the jury's answer to the question about “injury” to CNBEC had to be “molded” because the district court had told the jury that a finding of likelihood of confusion would entitle CNBEC to prevent CFG from using “Citizens Bank” in those areas where CNBEC had “established a significant market presence.” Therefore, the jury must have meant by no injury that no money damages should be awarded, not that CFG should prevail in the case. It is possible for a junior trademark owner such as CFG to infringe on the rights of a senior owner such as CNBEC, without the senior owner suffering any economic damages. However, the Third Circuit noted, “trademark infringement amounts to irreparable injury as a matter of law,” so the jury's finding of “no injury” must be limited to an economic context.

In reviewing the factors for granting an injunction, the Third Circuit found that federal banking law does not require CNBEC to use the word “National” in every mention of that name, to the exclusion of a diminutive; the public interest in avoiding confusion and CNBEC's interest in maintaining control over its mark favored CNBEC; CFG's actions in deliberately advertising in the marketplace where CNBEC had operated without trademark infringement for more than 100 years favored CNBEC; CNBEC as senior user did not have to take every possible action to avoid confusion; there was no evidentiary support for the district court's finding of devastating consequences to CFG; CNBEC had not delayed in protecting its rights; CNBEC did not have unclean hands; and CNBEC's request for a four-county injunction did not require enforcement in the rest of Pennsylvania or the United States. The Third Circuit emphasized that “[n]o infringer is immune from challenge because of its size” and “[n]either the principles of equity nor the federal Constitution favor the rights of the powerful over the rights of the weak merely because of size.”

In remanding the case, the appeals court determined that the injunction against use of “Citizens Bank” by CFG should cover Butler County, but that the district court should consider the specific contours of CNBEC's market area in determining whether the injunction should cover the other three counties. The court suggested that CFG could do business in CNBEC's market area by adopting another name for the branch banks in that area.

This decision highlights the importance of obtaining a common law report of unregistered users and investigating the extent of such uses when doing trademark clearance searches. Care should also be taken to consider the common law user's “zone of natural expansion,” where possible. A company with nationwide plans for a new product or service is not going to want to adopt a different mark for that product or service in two counties in California and a city in Michigan because of unregistered users with seniority in such places. It is also important to remember that bad faith is not required for a finding of trademark infringement. Although the Third Circuit found that CFG's conduct was not in bad faith, it nevertheless observed that CFG's use of the “Citizens” mark was “deliberately conceived, planned and implemented by a large and aggressive organization.” Any large organization is going to deliberately conceive, plan and implement adoption of a new mark. Moving forward with use of a mark in a geographical area where there is a common law user with priority is therefore risky.

Obtaining a federal registration for the mark will not provide protection against a common law user with priority. Section 15 of the Lanham Act provides an exception to incontestability for owners of “a valid right acquired under the law of any State or Territory by use of a mark or trade name continuing from a date prior to the date of registration under this Act of such registered mark.” See Advance Stores Co. v. Refinishing Specialities Inc., 51 USPQ2d 1785 (6th Cir. 1999).

The Third Circuit also considered an evidentiary issue relating to the conduct of a confusion survey in reverse infringement situations. The Third Circuit upheld the exclusion of the testimony of CNBEC's survey expert on the issue of confusion because he conducted his survey outside of CNBEC's market. The expert was prevented from conducting his survey at the preferred shopping mall in Butler County because the mall refused permission. Rather than finding another venue in Butler County, the expert conducted his survey in two malls closer to Pittsburgh in southern Allegheny County. Because the appropriate universe for a survey in a reverse discrimination case is the senior user's customer base, not the potential customers of both parties, the survey was excluded as “fundamentally flawed.” Therefore, the jury was not permitted to hear and weigh the results, as would have been the case with a survey that was merely technically flawed. Thus, in working with a survey expert in reverse infringement cases, in addition to making sure that the survey questions are properly phrased, one must also make certain that the universe of respondents comes from the senior user's market.