AMERICAN TELEPHONE AND TELEGRAPH COMPANY
v.
WINBACK AND CONSERVE PROGRAM, INC., a New Jersey
corporation; Alfonse G. Inga, an individual,
American Telephone and Telegraph Company ("AT & T"), Appellant.
No. 94-5305.
United States Court of Appeals,
Third Circuit.
Argued Nov. 1, 1994.
Decided Dec. 9, 1994.
Frederick L. Whitmer (argued), Francine A. Franklin, Pitney, Hardin, Kipp & Szuch, Morristown, NJ, and Edward R. Barillari, AT & T Corp., Basking Ridge, NJ, for appellant.
H. Curtis Meanor (argued), Lawrence S. Coven, Martha Lewis Marcus, Podvey, Sachs, Meanor, Catenacci, Hildner & Cocoziello, P.C., Newark, NJ, and Charles H. Helein, Helein & Waysdorf, P.C., Washington, DC, for appellees.
Before: GREENBERG and McKEE, Circuit Judges, and POLLAK, District Judge*.
OPINION OF THE COURT
GREENBERG, Circuit Judge.
In this case, the American Telephone and Telegraph Company ("AT & T") seeks to hold the defendants-appellees--Winback and Conserve Program, Inc. ("Winback") and Alphonse G. Inga--liable for acts of unfair competition by the defendants' sales representatives. The district court, in an Opinion and Order dated May 12, 1994, denied AT & T's application for a preliminary injunction, finding that Winback and Inga exerted insufficient control over the sales representatives to justify the imposition of liability upon Winback and Inga. AT & T v. Winback & Conserve Program,
I. Introduction and Factual Background1
AT & T is a long-distance telecommunications carrier that, as part of its marketing strategy, uses a variety of service marks and trademarks, including the initials "AT & T" and the AT & T "globe" symbol. AT & T markets and sells telecommunications services to customers, and its rates and practices are governed by tariffs it files with the Federal Communications Commission. Not only does AT & T provide services to "end-users"--customers who purchase service for themselves--but, pursuant to a 1976 FCC ruling, AT & T offers long distance telecommunications services it provides under a tariff for resale. See In the Matter of Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities,
Appellee Winback is a reseller of 800 inbound telecommunications services and appellee Inga is its president. As a matter of convenience, hereafter we usually will refer to both simply as Winback. Winback offers end-users access to the AT & T 800 inbound network at a discount price. As are other resellers, Winback is both a customer and a competitor of AT & T.
This case really began in April 1992, when AT & T filed a complaint and application for a temporary restraining order alleging that one of Inga's other companies, One Stop Financial, Inc., was infringing on AT & T's trademarks and service marks, falsely representing that it was affiliated with AT & T and passing itself off as AT & T.3 The parties resolved the case by entering into a Consent Final Order and Injunction, filed on May 7, 1992, which enjoined One Stop and its officers, directors, employees and agents from engaging in such practices.4 In September 1993, AT & T filed a motion to hold One Stop in civil contempt of the Consent Order. One Stop and Inga defended by arguing that their sales and marketing representatives, over whom One Stop had no control, were responsible for any infringing acts.5 Consequently, as a result of AT & T's application, on September 27, 1993, the Final Order and Injunction was amended to obligate One Stop to serve each of its sales agents with a copy of the Order, and, in turn, to obligate each of the primary agents to serve the Order upon all subagents they had authorized to market under the name One Stop Financial, Inc.
Soon after the amended Final Order was filed, AT & T filed a second application to hold One Stop and Inga in contempt, this time basing its claim for relief on allegedly infringing activity on the part of Winback, Inga's other company (and the corporate defendant in the instant action). Winback,
(a) employing any oral communication, advertisement, label, sign, flyer, envelope or correspondence or any other written documentation that falsely designates the origin of Defendants' goods or services as being those of the American Telephone and Telegraph Company or of AT & T, or that is likely to cause confusion as to whether Defendants' goods or services are sponsored by, or affiliated with the American Telephone and Telegraph Company;
(b) engaging, producing, creating, encouraging, aiding or abetting any oral communication, advertisement, label, sign, flyer, envelope, correspondence or any other oral or written communication which enables Defendants to pass off their goods or services as being those of the American Telephone and Telegraph Company.
Order to Show Cause at 3-4, app. at 367-68. The Order prevented the defendants and their agents from "introducing into ... commerce ... any document promoting or identifying Winback and Conserve Program, Inc., which does not conspicuously identify Winback and Conserve Program, Inc. as a corporation through the use of the abbreviation, 'Inc.' and which does not identify a business mailing address." Id. Finally, Winback was ordered to serve a copy of the Order upon its primary agents (identified in an Appendix to the Order) who in turn were obligated to serve the Order on any sub-agents they had employed to do Winback's marketing. The court in that Order set a return date for a hearing on AT & T's application for a preliminary injunction. Winback answered AT & T's complaint on January 18, 1994. After expedited discovery, full briefing, and the submission of detailed affidavits, the district court held a hearing on AT & T's application, between March 1 and March 11, 1994.
At the hearing, much of the testimony described Winback's method of attracting customers. The evidence demonstrated that Winback employs no marketing or sales people on its staff. Rather, it attracts business solely through the use of sales networks and/or marketing representatives. Specifically, it uses about 50 different marketing agencies, which in turn employ or contract with scores more individual sales representatives. The representatives work out of their own offices, and receive no supplies, equipment or space from Winback. Winback compensates these representatives purely on a commission basis, and the representatives are under no minimum obligation to Winback. Indeed, many representatives market for various resellers. This does not mean, however, that there is little connection between the agents and Winback. The agents are supplied with forms which AT & T requires to be completed to transfer customers to Winback's services (the transfer forms). Until October 13, 1993, these forms contained the initials "AT & T" and the AT & T globe symbol. On that date, AT & T ordered the resellers to delete those references. These forms also make reference to Winback. Moreover, at least one of the representatives contacts Inga on a regular basis, and Inga attempts to "polic[e]" the agents to avoid misrepresentations. Winback,
Generally, as the evidence before the district court demonstrated, sales representatives contact end-users and present them with the Winback plan. The representatives then send prospective customers various forms, including a facsimile cover sheet, informational documents, the transfer form, and a Main Billed Telephone Numbers Location List ("main billed form"). Interested end-users complete the transfer form and the main billed form and send them back to the representative, who then forwards them to the primary marketing or sales agency. The agency, in turn, sends the forms to Winback, which returns them to AT & T. Each month, AT & T sends Winback a check for the difference between the discount given Winback by AT & T and the average discount Winback passes on to the end-user. Winback then sends commission checks to the various marketing representatives.
At the hearing, AT & T presented evidence that end-user customers were deceived into believing they were dealing with AT & T. First, many witnesses testified that they received telephone solicitations by Winback representatives informing them that they were affiliated with AT & T. See, e.g., Winback,
As an example, one employee of an end-user, Debra Vogel, a telecommunications employee of The Toro Company, testified that she was confused by a facsimile transmission entitled "Winback & Conserve Program for AT & T 800 Customers" that she received from a Winback representative. Because "Winback & Conserve Program" was not stated as a separate entity (such as by including the letters "Inc." after "Program"), Vogel believed that Winback & Conserve Program was a marketing arm of AT & T and that the documents she received were official AT & T documents. Winback,
Based on this evidence, the district court found that "[t]here is no question that [AT & T] submitted sufficient proofs to the Court to establish that consumers have been confused by certain oral misrepresentations made by and written documents provided by the Winback sales representatives." Id. at 630. The court then addressed whether Winback and Inga could be held responsible for the acts of their sales representatives. The court looked to the common law of torts "to determine the boundaries of liability." Id. at 624. It then asked whether, pursuant to New Jersey law of agency, Winback and/or Inga could be held vicariously liable for the torts of their sales agents. Relying primarily on a recent New Jersey Supreme Court case distinguishing between agents (for whose torts the principal may be liable) and independent contractors (for whose torts the principal generally may not be held liable), the court found that AT & T only had established that the sales representatives were independent contractors. AT & T, in the court's view, had not met its burden of proving that Winback and/or Inga exercised sufficient control over their sales representatives to constitute an agency relationship. The court primarily relied on the facts that the representatives are commissioned rather than salaried, that they work on behalf of a number of companies, and that their operating expenses and business are purely their own responsibilities. Thus, the court concluded, "the level of joint activity between [Winback] and Inga and the sales representatives is ... minimal and peripheral to the nuts and bolts of the business of marketing and promoting." Id. at 626. Furthermore, the court found that AT & T contributed to the customers' confusion, that the resale business was inherently confusing as to the point of origin of the service, and that the public interest did not weigh in favor of granting an injunction. Thus, the district court denied AT & T's application for a preliminary injunction, and vacated the temporary restraints.
AT & T timely filed a notice of appeal from the district court's order. We have jurisdiction pursuant to 28 U.S.C. Sec. 1292(a)(1). The district court properly exercised jurisdiction over AT & T's Lanham Act claims pursuant to 28 U.S.C. Secs. 1331, 1338, and 1367.
II. Discussion
A. Standard of Review
"[T]he grant of injunctive relief is an extraordinary remedy ... which should be granted only in limited circumstances." Frank's GMC Truck Center, Inc. v. General Motors Corp.,
(1) the likelihood that the plaintiff will prevail on the merits at final hearing; (2) the extent to which the plaintiff is being irreparably harmed by the conduct complained of; (3) the extent to which the defendant will suffer irreparable harm if the preliminary injunction is issued; and (4) the public interest. Opticians Ass'n v. Independent Opticians,
Merchant & Evans, Inc. v. Roosevelt Bldg. Prods.,
Our review of the district court's decision is limited. We must affirm unless, in denying the motion, " 'there has been an abuse of discretion, an error of law, or a clear mistake in the consideration of the proof.' " Frank's GMC Truck Center,
Despite the narrow scope of review, "any determination that is a prerequisite to the issuance of an injunction ... is reviewed according to the standard applicable to that particular determination." Merchant & Evans,
B. AT & T's section 43(a) claim
1. Generally
The district court focused primarily on whether AT & T had demonstrated a "likelihood of success on the merits" and held that AT & T had not met its burden by a preponderance of the evidence. We, likewise, will focus on the district court's conclusion that AT & T failed to demonstrate a likelihood of success on the merits. As a threshold matter, this appeal requires us to decide a question of statutory construction, namely, the extent to which federal courts interpreting federal statutes may import into such statutes common law doctrines of secondary liability.
Section 43(a) of the Lanham Act, originally enacted in 1946 and amended substantially in 1988, provides in relevant part that:
[a]ny person who, on or in connection with any goods or services ... uses in commerce any word, term, name, symbol or device ... or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact which ... is likely to deceive as to the affiliation, connection or association of such person with another person, or as to origin, sponsorship or approval of his or her goods, services, or commercial activities by another person ... shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
15 U.S.C. Sec. 1125(a). By containing such broad language, the Act "proscribes not only trademark infringement in its narrow sense, but more generally creates a federal cause of action for unfair competition." Duraco Prods., Inc.,
(1) Winback uses a false designation of origin, as defined in the Act;
(2) That such use of a false designation occurs in interstate commerce in connection with goods and services;
(3) That such false designation is likely to cause confusion, mistake or deception as to the origin, sponsorship, or approval of Winback's goods or services by another person; and
(4) That AT & T has been or is likely to be damaged.
See 3 McCarthy on Trademarks, Sec. 27.03[a] at 27-21.9
This appeal focuses on a subset of the first prong of the test: whether Winback falsely designated the origin of its services. AT & T does not argue that Winback directly infringed on its rights. Rather, AT & T bases its claim for relief upon the actions of Winback's sales representatives. It contends that under common law theories of agency including the doctrine of apparent authority, Winback is liable for the infringing actions of its sales representatives. Winback disclaims any responsibility for its sales representatives, over whom it claims to have little control.
The statute, by referring to "any person" who infringes on a plaintiff's rights, is silent as to the existence, or the scope, of vicarious liability; the statutory language is directed solely at the infringers themselves. Thus, we are called upon to examine whether the statute permits us to look beyond its contours at all. See, e.g., Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., --- U.S. ----, ----,
2. The effect of Central Bank
Generally, "the applicability of common law doctrines in litigation under federal statutes depends on whether those principles advance the goals of the particular federal statute which plaintiffs allege has been violated." Petro-Tech, Inc. v. Western Co. of North America,
Winback implicitly argues that if we import the doctrines of agency and apparent authority into the statute, we would be violating this settled rule of construction and that we would be legislating in areas where Congress has failed to act. Therefore, Winback concludes, AT & T's argument more properly is made to Congress rather than to the courts.10 It relies for this proposition on Central Bank, a recent Supreme Court case refusing to find parties liable for aiding and abetting the violation of a federal securities statute.
In Central Bank, the Supreme Court considered whether section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), which has been held to create a private cause of action against parties who "commit a manipulative or deceptive act in connection with the purchase of or sale of securities ... extends as well to those who do not engage in the manipulative or deceptive practice but who aid and abet the violation." Id. at ----,
The language of Central Bank is undeniably broad, and the dissent warned that other mechanisms of common law secondary liability--such as "respondeat superior and other common-law agency principles"--may not survive the majority's construction of Section 10(b) of the Exchange Act. Id. at ---- n. 12,
In Central Bank, the Supreme Court primarily was concerned with broadening the range of unlawful conduct beyond that specifically proscribed by the Act. As the Court framed the issue, aiding and abetting constituted a separate cause of action, and in order to find such liability, the Court would have to imply a private right of action under the statute beyond that which already had been implied. See id. at ----,
The Supreme Court's wariness therefore rested on the nature of aiding and abetting liability itself. And in fact, aiding and abetting liability is not a well-settled mechanism for imposing civil liability. Rather, "[a]iding and abetting liability traditionally applies to criminal offenses", see Electronic Lab. Supply Co.,
By contrast, courts imposing liability on agency theories are not expanding the category of affirmative conduct proscribed by the relevant statute; rather, they are deciding on whose shoulders to place responsibility for conduct indisputably proscribed by the relevant statute. The principal is held liable not because it committed some wrongdoing outside the purview of the statute which assisted the wrongdoing prohibited by the statute, but because its status merits responsibility for the tortious actions of its agent. Cf. Petro-Tech, Inc.,
Moreover, unlike aiding and abetting liability, which in the federal system largely has been confined to securities fraud, agency doctrine, including the theory of apparent authority, has long been a part of the federal system. As long ago as 1928, the Supreme Court applied as a matter of federal common law general principles of agency law. In so doing, it held that "few doctrines of the law are more firmly established or more in harmony with accepted notions of social policy than that of the liability of the principal without fault of his own." Gleason v. Seaboard Air Line Ry. Co.,
More recently, following earlier precedents, we have recognized respondeat superior liability under Title VII of the Civil Rights Act of 1964. Spain v. Gallegos,
But beyond this, it is quite clear under Central Bank 's reasoning, the Supreme Court was concerned with the Exchange Act itself under which the private right of action already had been judicially implied. Accordingly, we think that the Court did not intend to overrule settled constructions of other statutes that relied on common law doctrines to determine the scope of liability. See Central Bank, --- U.S. at ----,
[L]iability for trademark infringement can extend beyond those who actually mislabel goods with the mark of another. Even if a manufacturer does not directly control others in the chain of distribution, it can be held responsible for their infringing activities under certain circumstances. Thus, if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorily responsible for any harm done as a result of the deceit.
Inwood Labs., Inc. v. Ives Labs., Inc.,
3. Is there agency liability under section 43(a)?
The question, then, is whether application of agency theory, including the doctrine of apparent authority, would further the goals of the statute. See, e.g., Hydrolevel,
The contributory infringement cases cited above demonstrate that in certain instances, secondary, indirect liability is a legitimate basis for liability under the federal unfair competition statute. There is a good reason for this: the Lanham Act is derived generally and purposefully from the common law tort of unfair competition, and its language parallels the protections afforded by state common law and statutory torts. Thus, the conduct prohibited by section 43(a) of the Lanham Act is even more analogous to common law torts than the antitrust laws at issue in Hydrolevel. The Act federalizes a common law tort. In construing the Act, then, courts routinely have recognized the propriety of examining basic tort liability concepts to determine the scope of liability. See, e.g., Electronic Lab. Supply Co., Inc.,
Applying the analysis to the facts of this case, it is clear that liability based on agency principles is often appropriate.15 The Lanham Act has the broad purpose of "protect[ing] ... competitors from a wide variety of misrepresentations of products and service...." 20th Century Wear, Inc. v. Sanmark-Stardust Inc.,
Thus, we hold that the district court properly held that agency principles apply to the instant dispute. Nonetheless, our review of the record compels the conclusion that the district court erred by failing adequately to consider the various theories of agency under which Winback could be responsible for the torts of its representatives. In particular, the district court should have considered (1) whether Winback is liable for its representatives' acts, despite the fact that the representatives are independent contractors and despite the absence of a master-servant relationship; and (2) whether the representatives, even if not agents, were acting with the apparent authority of Winback.
4. Agency law
We now apply agency law to the facts of this case.16 "An agency relationship is created when one party consents to have another act on its behalf, with the principal controlling and directing the acts of the agent." Sears Mortgage Corp. v. Rose,
'An agent is a person who represents another in contractual negotiations or transactions akin thereto. A servant is a person who is employed to perform personal services for another in his affairs, and who, in respect to his physical movements in the performance of the service, is subject to the other's control or right of control. Persons who render service but retain control over the manner of doing it are not servants.'
Sanders v. Rowan,
Such distinctions matter because the scope of the employer's liability for the torts of its representatives depends almost exclusively on how the relationship is characterized. "If the principal is the master of an agent who is his servant, the fault of the agent, if acting within the scope of his employment, will be imputed to the principal by reason of respondeat superior." Baldasarre v. Butler,
'has no right of control over the manner in which the work is to be done, it is to be regarded as the contractor's own enterprise, and he, rather than the employer is the proper party to be charged with the responsibility for preventing the risk, and administering and distributing it.'
Baldasarre,
The district court found that the sales representatives are independent contractors and therefore Winback could not be liable for their infringing acts. AT & T's arguments against this finding can be summed up as follows: (1) the district court erred by failing to categorize the sales representatives as employees or servants of Winback; (2) the district court failed to consider whether the representatives were agent independent contractors or non-agent independent contractors; (3) the district court failed to consider whether Winback had created an apparent master-servant relationship such that Winback should be held liable for the torts of its sales representatives; (4) Winback should be held liable at any rate. We will address these arguments in turn.
a. Servants or independent contractors
In reaching its conclusion that Winback's sales representatives are independent contractors, the district court relied almost exclusively on Baldasarre. In that case, the plaintiff had sought to hold a purchaser of land liable for his attorney's alleged misrepresentations. In denying relief, the Supreme Court of New Jersey reasoned:
Attorneys generally are not subject to their clients' actual control or direction. Indeed, most clients have an attorney because they are unfamiliar with the law and want an attorney to guide them through the intricacies of that field. As professionals, attorneys are deemed responsible for their own acts, and, as in this case, most clients have legal recourse against the attorney and his law firm for their actions.
Baldasarre,
[T]he level of joint activity between [Winback] and Inga and the sales representatives is similarly minimal and peripheral to the nuts and bolts of the business of marketing and promoting. Furthermore, as detailed above, no proof was submitted to the Court to establish that [Winback] or Inga advised, consented to or participated in the alleged misrepresentations. Accordingly, plaintiff has failed to establish sufficient proof that the sales representatives are any more than independent contractors.
We hold that the district court correctly concluded that the sales representatives are independent contractors. The district court found that Winback employs no marketing employees on its own, and that the sales representatives "play an integral role in the success of [Winback], financially and otherwise, in that all sales are conducted through these agencies and individuals."
Therefore, the district court properly found that the sales representatives were independent contractors. However, the court erred by stopping at that point. The district court failed to determine whether the sales representatives were agent independent contractors or non-agent independent contractors.17b. Agent independent contractors?
In this regard, we first must address the scope of the district court's findings. Although the district court appeared to conclude that the representatives are non-agent independent contractors, a close reading of the decision reveals that the court actually found only that the representatives were non-servant independent contractors. For one thing, the court referred to "the distinctions between employees or agents and non-employees or independent contractors," implying that once a representative is termed an independent contractor it is by definition a non-agent. Winback,
The district court's failure to make the additional finding is crucial, because while generally principals are not liable for the torts of their independent contractors, the common law is littered with exceptions:
[T]here is a range of tortious conduct on the part of an agent that may bind the principal and subject him to liability even where the agent is not a servant, where the act was not done in the manner authorized or directed by the principal, and where the result was not authorized or intended by the principal.
Sanders v. Rowan,
Where an agent is authorized or apparently authorized to conduct a transaction, and the other party is unaware of any limitation upon the agent's authority, a problem similar to that of the limits of the scope of employment by a servant arises. The difficulties are best seen in the cases of selling agents. Their principals have been held liable for the unauthorized and untrue statements as to the capacity of the machine sold, the age of a second-hand automobile, the construction and material used in building a house, the income from property, the amount of taxes due upon it, the extent of coverage of insurance, the intent of the manufacturer not to disturb a distributorship awarded by it to the plaintiff.
Seavey, Sec. 92 at 163. Although liability at common law generally was limited to actions by the purchaser for deceit, we see no reason why the doctrine should not be transplanted to the area of unfair competition. The basis for the common law exception is the injustice in allowing a principal to place agents in the marketplace, to allow the agents to complete contracts on the principal's behalf, to profit from the agents' misrepresentations, and then to disclaim liability for the agents' actions while benefitting from the fraud. The theory relies on the distinction between torts of misrepresentation that benefit the defendant, and torts such as negligently injuring a passerby while driving a car, from which the defendant does not profit at all. Moreover, as the New Jersey Supreme Court has noted, it is appropriate for courts to consider "awareness of the risk and the element of foreseeability of loss in their consideration of liability based on agency principles." Sears Mortgage Corp.,
We hold, then, that when a principal authorizes its independent contractor agent to conduct and conclude a transaction with third parties on the principal's own behalf, and the principal benefits financially from the contracts, the principal will be liable in an action brought pursuant to section 43(a) of the Lanham Act based on the agents' foreseeable infringing actions upon which it would be reasonable for the third party to rely, provided the third party has no notice that the representations are unauthorized.18
Of course, it would be unfair for a principal to be liable for all misrepresentations of its agent independent contractors. Thus, we include the requirements that the misrepresentations be foreseeable and that reliance be reasonable. In considering whether the infringing actions were foreseeable, the district court should consider all of the surrounding circumstances. For instance, if the principal went to great lengths to ensure that the agents knew not to make certain representations, such representations, if made, may be found to be unforeseeable. But if, at the same time, the principal gave the agents carte blanche to hold themselves out as the principal itself, then such infringing actions may become foreseeable, notwithstanding the principal's efforts at policing the agents. The point, of course, is to hold the principal liable when it is just to do so, but still to encourage the principal to police the agents enough so as to avoid liability. This is the type of balancing the district court must undertake in the first instance.
Professor Seavey's cautionary observations about reliance are also apt:
It is difficult to suggest a limitation upon the power of a selling agent to bind the principal if the statements are relevant to the transaction which the agent is authorized to conduct ... A working rule would be the limitation of liability to statements concerning matters as to which the principal might think the agent, or any agent, might misrepresent in forwarding their joint interests. There must be limits. The seller of a New England farm should not be liable to a credulous buyer for tort damages if the agent were to represent that the land to be sold contained oil or gold.
Seavey, Sec. 92 at 164.
Because the district court failed to address whether the representatives were agents or non-agents, and therefore failed to consider these questions, we must remand the case for further fact findings and renewed application of the law to the facts. Upon remand, then, the district court first must determine whether the sales representatives were agent independent contractors or non-agent independent contractors. The Restatement defines a non-agent independent contractor as follows:
A person who contracts to accomplish something for another or to deliver something to another, but who is not acting as a fiduciary for the other is a non-agent contractor. He may be anyone who has made a contract and who is not an agent. The term is used colloquially to describe builders and others who have contracted to accomplish physical results not under the supervision of the one who has employed them to produce the results.
Restatement (Second) Agency Sec. 14N, Comment (b). Thus, the district court should assess whether the representatives are analogized better to a firm that contracts to perform a particular, discrete task, such as to build a swimming pool, or to a party who is empowered to speak for another and bind the other in contracts. In making this determination, the facts analyzed by the district court and adduced at the hearing are certainly relevant. While the district court should focus on the level of control exercisable by Winback over the manner in which the sales representatives market its product, it should not emphasize physical control (as it properly did in considering whether the representatives were servants). Inga's testimony that he attempts to police the representatives is certainly relevant to this inquiry, particularly if Winback authorizes the agents to represent themselves as Winback.19 If the district court finds that the sales representatives are agents, it then must proceed to determine whether they committed infringing acts and whether, under the test we detailed above, Winback and Inga may be held liable. If the district court determines that the representatives are non-agent independent contractors, it still must consider whether they were acting with apparent authority to make the representations.
c. Apparent authority
The district court did not consider whether the sales agents were acting with apparent authority, or as apparent servants. The district court discounted AT & T's arguments because it believed that the doctrine of apparent authority only comes into play when an actual agency relationship is established. Winback,
If the principal is responsible for the third person believing that the person with whom she deals is an agent, or if the principal should realize that his conduct is likely to induce such belief, then there is an agency created by apparent authority and the principal will be held responsible for the torts of his agent.
Roberts v. Montgomery Ward and Co., Inc.,
The fact, then, that Winback's sales representatives actually may have been non-agent independent contractors does not dispose of the question. Rather, "[a]ny inter se arrangement between [Winback and its sales representatives] establishing a relationship other than that of principal and agent is unimportant in determining the existence of apparent authority. The crucial question is what representations were made to the third party...." Amritt v. Paragon Homes, Inc.,
Under the doctrine of apparent authority, the district court should have looked to the principal's actions and the third parties' reasonable beliefs. AT & T contends that Winback authorized its sales agents to conduct transactions as though they were Winback. If this is true, then the district court may find that Winback held its representatives out to the public as its servants or as itself, and that the third parties reasonably relied on that relationship in deciding to enter into contracts, and, therefore, that the misrepresentations were authorized by Winback. In other words, Winback may have created an agency under the theory of apparent authority, and Winback may be liable for the misrepresentations. Because the district court made no findings in this regard, we must remand the case for additional fact-finding.20
d. AT & T's final secondary liability argument
Finally, AT & T appears to argue that Winback should be liable as a matter of law for the torts of its sales representatives, regardless of whether they are agents and regardless of whether they acted with apparent authority. AT & T continually refers in its brief to the inequities of the district court's decision. But the law it cites to support this broad theory of secondary liability exists in copyright cases.21 The Court of Appeals for the Seventh Circuit has summed up the law in these cases as follows:
[A] defendant is vicariously liable for copyright infringement if it has 'the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.' Gershwin Publishing Corp. v. Columbia Artists Management, Inc.,
Hard Rock Cafe,
5. Likelihood of confusion
The district court, in addition to holding that Winback could not be held liable for the acts of its sales agents, stated that "[t]he Court need not rest solely on its determination that the sales representatives are independent contractors in denying plaintiff's application." Winback,
While both parties argue about whether the district court's finding was clearly erroneous, it appears that the district court actually made no such finding. The court states in its Opinion:
The Court does not intend to suggest, however, that either the nature of the product or the arguably unwise decisions of the AT & T marketing department would justify acts of infringement by [Winback] or those who market the [Winback] product. Indeed, the Court makes no determination as to the primary cause of the actual confusion which was proven to exist. The Court only raises these issues to support its conclusion that the issuance of a preliminary injunction in this matter, which would require a finding of likelihood of confusion, would be improper given that certain decisions by the plaintiff played at least some substantive role in the creation of the confusion.
Id. at 631 (emphasis added). Thus, the court actually refrained from finding for Winback on the likelihood of confusion test alone. Rather, it simply held that AT & T's contribution to the confusion supported the already-made decision that it was not entitled to injunctive relief.23 Since the court did not make any express finding in this regard, we will decline to weigh the evidence in the first instance. Rather, upon remand, if the district court reaches this issue, it should make the appropriate findings.
Still, Winback argues that we should adopt the "actual confusion" standard we apply in claims of false advertising and that we should hold as a matter of law that AT & T's evidence does not satisfy the test. In a claim of trademark infringement under the Lanham Act, " '[p]roof of actual confusion is not necessary; likelihood of confusion is all that need be shown.' " Fisons Horticulture, Inc. v. Vigoro Indus., Inc.,
(1) the degree of similarity between the plaintiff's mark and the alleged infringing mark;
(2) the strength of the plaintiff's mark;
(3) the price of the goods and other factors indicative of the care and attention expected of customers when making a purchase;
(4) the length of time the defendant has used the mark without evidence of actual confusion;
(5) the intent of the defendant in adopting the mark;
(6) the evidence of actual confusion;(7) the extent to which the targets of the parties' sales efforts are the same.
Resorts Int'l, Inc. v. Greate Bay Hotel and Casino,
We apply a different test for claims of false advertising pursuant to 15 U.S.C. Sec. 1125(a)(1)(B). A party seeking relief under this section of the Lanham Act
bears the burden of proving actual deception by a preponderance of the evidence.... [I]t cannot obtain relief by arguing how consumers could react; it must show how consumers actually do react.
Sandoz Pharmaceuticals Corp. v. Richardson-Vicks, Inc.,
AT & T's claims against the defendants can be divided into two categories: (1) Winback's representatives brazenly and falsely represented Winback to be, or to be a division of, AT & T; (2) Winback's representatives engaged in misleading representations, such as designating itself as the Winback and Conserve Program rather than the Winback and Conserve Program, Inc., that misled customers into believing that Winback was affiliated with AT & T. In some sense, AT & T's claims are analogous to claims of false advertising. See, e.g., 3 McCarthy on Trademarks Sec. 27.08(c) at 27-90 ("A variation on the false advertising prong of Sec. 43(a) is presented in cases finding a violation in the false representation that a product is created, designed, or authorized by plaintiff.") (collecting cases). The similarity stems from the fact that advertising is a subset of marketing, and AT & T takes issue with Winback's methods of marketing.
But all claims of unfair competition, including claims of trademark infringement, are to some degree related to claims of false advertising. They all involve allegations that the public was misled into purchasing a particular entity's product. But a Lanham Act claim of false advertising is different because in the usual such case, a plaintiff is claiming to be injured because of false representations by the defendant about the strength or quality of the defendant's own product. Thus, the plaintiff essentially is claiming relief based on an indirect injury. In a false designation of origin claim, however, the plaintiff claims relief because of false representations made by the defendant about the plaintiff's product. Thus, we previously have held that "[l]ikelihood of confusion is ... the test for actions brought under section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a)(1)(A) for unfair competition to prevent false representations as to the source or origin of goods or services by a mark confusingly similar to one already in use." Fisons Horticulture, Inc.,
III. CONCLUSION
For all the reasons detailed above, we will vacate the district court's denial of AT & T's application for a preliminary injunction and we will remand the matter to the district court for further proceedings consistent with this Opinion.
Notes
The Honorable Louis H. Pollak, United States District Judge for the Eastern District of Pennsylvania, sitting by designation
Unless otherwise noted, the facts set forth in the text are taken from the district court's Opinion in this case, reported at
This is accomplished by the reseller's issuance of a letter of agency. Winback,
AT & T v. One Stop Fin., Inc., No. 92-1489 (D.N.J.) (NHP). See AT & T Brief at 3
See AT & T Complaint p 48 at app. at 20; Winback Answer p 48 at app. 379
See AT & T Brief at 4
Apparently, AT & T does not have an input department
As noted above, AT & T originated the transfer form and the main billed form, which contain the initials AT & T and the AT & T globe symbol. On October 13, 1993, AT & T ordered all resellers to eliminate the AT & T initials and the globe logo from those forms
In earlier cases, we have held that these latter two factors should be taken into account only when they are relevant. Hoxworth v. Blinder, Robinson & Co.,
AT & T's allegations are an amalgam of a classic section 43(a) claim alleging misuse of a mark, a claim of false advertising pursuant to 15 U.S.C. Sec. 1125(a)(2), and a claim of passing off. In the false advertising area, we have held that a plaintiff must prove by a preponderance of the evidence:
'(1) that the defendant has made false or misleading statements as to his own product [or another's]; (2) that there is actual deception or at least a tendency to deceive a substantial portion of the intended audience; (3) that the deception is material in that it is likely to influence purchasing decisions; (4) that the advertised goods travelled in interstate commerce; and (5) that there is a likelihood of injury to the plaintiff in terms of declining sales, loss of good will, etc.'
Johnson & Johnson-Merck,
It does not appear that Winback raised this argument before the district court. The district court noted that "[Winback] and Inga do not dispute the applicability of the common law of agency." Winback,
Prosser and Keeton have this to say in a discussion of the basis for vicarious liability:
Since B himself has been free from all fault, when he is held liable to C it is in one sense a form of strict liability. In another it is not. The foundation of the action is still negligence, or other fault, on the part of A; and all that the law has done is to broaden the liability for that fault by imposing it upon an additional, albeit innocent, defendant. It is still an action for negligence, and the ordinary rules of negligence liability are still applied to it.
W. Page Keeton, Prosser & Keeton on Torts, Sec. 69 at 499 (5th ed. 1984) (hereinafter Prosser & Keeton on Torts). In the context of cases like this one, the status of the defendant is of one who has authorized another to conclude contracts with third parties and who directly profits from those contracts.
The Court stated:
In a wide variety of areas, the federal courts ... have imposed liability upon principals for the misdeeds of agents acting with apparent authority. See, e.g., Dark v. United States,
Hydrolevel,
Winback also relies on Monell v. Dep't of Social Servs. of City of New York,
If the doctrine of contributory infringement were the sole means of imposing liability for indirect conduct, AT & T would be without a section 43(a) remedy in this case. As the district court recognized, AT & T is not proceeding under a contributory infringement theory. Nor does it appear that it could. The record adequately supports the district court's conclusion that "in the instances where [AT & T] brought objectionable acts of the sales representatives to the attention of Inga, Inga took appropriate steps to reprimand and discipline the sales representative." Winback,
The one case we have found that addresses this issue held without analysis (and apparently without dispute) that a principal could be held liable for the infringing acts of its agent acting with apparent authority. See Dreamwerks Prod. Group, Inc. v. Party Masters, Inc., Br. No. 91-22949,
This inquiry, though, raises an additional question of what law to examine. Courts addressing Section 43(a) of the Lanham Act have looked both to the common law of the state where the infringing action took place, and to general principles of federal common law. See, e.g., Hard Rock Cafe,
In W.T. Rogers Co., Inc. v. Keene,
The district court's failure to address this question is understandable in light of Baldasarre, for the case does not set forth explicitly the distinctions on which it relies. A close reading of the case reveals, however, that the Supreme Court of New Jersey did not intend to eviscerate the distinction between agent independent contractors and non-agent independent contractors. For example, the Court quotes Prosser and Keeton on Torts for the proposition that an employer who hires an independent contractor:
'has no right of control over the manner in which the work is to be done, it is to be regarded as the contractor's own enterprise, and he, rather than the employer is the proper party to be charged with the responsibility for preventing the risk, and administering and distributing it.'
Baldasarre,
Since an agent who is not a servant is not subject to any right of control by his employer over the details of his physical conduct, the responsibility ordinarily rests upon the agent alone, and the principal is not liable for the torts which he may commit. There are, however, a number of situations in which such liability may exist. These include cases in which a tort may be based upon the apparent authority of the agent to act for his principal, or in which a tort such as deceit occurs in the course of a consensual transaction between the agent and the injured person. Thus ... a seller of land or goods may, in most states, be subject to an action of deceit for the fraud of his agent committed in the course of the sale.
Prosser and Keeton on Torts, Sec. 70 at 508 (citing, among other authorities, numerous sections of the Restatement (Second) of Agency) (footnotes omitted). Prosser and Keeton again cite the Restatement (Second) of Agency's proposition that
A principal is subject to liability for loss caused to another by the other's reliance upon a tortious representation of a servant or other agent, if the representation is:
(a) authorized;
(b) apparently authorized; or
(c) within the power of the agent to make for the principal.
Second Restatement Sec. 257 at 558 (cited in Prosser and Keeton, Sec. 70, n. 70).
Moreover, to the extent that Baldasarre can be read to hold that independent contractors may never bind principals for their torts, that proposition was eviscerated the very next year by the same court. In Sears Mortgage Corp., the Supreme Court of New Jersey held a title insurance company responsible for its attorney's fraud. The Court directly relied on agency principles. Sears Mortgage Corp.,
As noted above, the Restatement holds a principal liable for tortious representations that are authorized or apparently authorized. See n. 17 supra. We believe that this terminology unnecessarily confuses the issues. Therefore, we employ Seavey's approach and the approach of the New Jersey Supreme Court in Sears Mortgage Corp. and use the concept of foreseeability. See typescript at 31-34 (quoting Seavey)
It could be argued that our decision encourages parties like Winback to exercise as little control as possible over their representatives. We see little danger of that, though. For one thing, we cannot conceive that in a situation where the representative is empowered to speak as the principal, where the representative has the power to conduct and conclude transactions, and where the principal inevitably will exercise control over how its company is represented to third parties, a non-agency relationship will be found. Moreover, once an agency is created, the principal may attempt to avoid liability by acting in a manner that makes misrepresentations unforeseeable
When a plaintiff relies on apparent authority, it also must establish that the third party relied on the agency relationship in making its purchasing decision. Sears Mortgage Corp.,
Along with citing the copyright cases, AT & T points to the Seventh Circuit Court of Appeals' decision in First Nat'l Bank of Cicero v. Lewco Sec. Corp.,
"As one Court said,
where the principal cannot embrace a transaction except through the acts of an unsupervised agent, the principal must accept the consequences of the agent's misconduct because it was the principal who allowed the agent to operate without accountability.
Courts have found an agent to be a sole actor for his principal when 'the whole procedure ... was entrusted by [the principal] to the initiation and execution of the agent ...' "
AT & T brief at 30 (quoting Cicero,
AT & T also argues that Winback should be held liable under the "joint tortfeasor" test enunciated in Hard Rock Cafe. In that case, the Court of Appeals for the Seventh Circuit held that a party may be held liable for the tortious acts of another when "the defendant and the infringer have an apparent or actual partnership, have authority to bind one another in transactions with third parties or exercise joint ownership or control over the infringing product."
Our reading of the Opinion is further corroborated by the fact that the court cited no case law in its discussion of likelihood of confusion and the fact that in another place in the Opinion, the court held that "[t]here is no question that [AT & T] submitted sufficient proofs to the Court to establish that consumers have been confused by certain oral misrepresentations made by and written documents provided by the Winback sales representatives."
If the plaintiff proves that the advertising is literally false, and not just misleading, then it need not prove actual deception