CHURCH OF SCIENTOLOGY INTERNATIONAL, a corporation; Religious Technology
Center, a corporation; and Scientology Missions International, a corporation,
Plaintiffs-Appellants,
v.
The ELMIRA MISSION OF THE CHURCH OF SCIENTOLOGY, a corporation, a/k/a Church of
Scientology, Mission of Elmira, a/k/a Dianetics Center, a/k/a Scientology
Elmira, a/k/a Center for Creative Learning; Harry Palmer, an individual; and
Avra Honey-Smith, an individual, Defendants-Appellees.
No. 537, Docket 85-7693.
United States Court of Appeals,
Second Circuit.
Argued Dec. 6, 1985.
Decided June 23, 1986.
International religious organization which brought trademark infringement suit
against local religious organization moved for preliminary injunction to
restrain local organization from further infringement during pendency of suit.
The United States District Court for the Western District of New York, 614
F.Supp. 500, Michael A. Telesca, J., denied motion, and international
organization appealed. The Court of Appeals, Cardamone, Circuit Judge, held
that: (1) even if local organization, a licensee, had not in fact reduced
reputation associated with marks of international organization, mere
possibility that local organization could during interval prior to trial depart
from teachings of international organization was irreparable harm sufficient to
support issuance of the injunction, and (2) international organization
established probability of success on merits entitling it to preliminary
injunction, by making unrebutted case that it owned trademarks and presenting
evidence establishing customer confusion.
Reversed and remanded with direction.
[1] FEDERAL COURTS
Appellate court may reverse ruling on preliminary injunction only when district
court has abused its discretion by misinterpreting law, by committing a clear
error of fact, or by erroneously fashioning substance or form of injunction.
[2] TRADE REGULATION
Establishing high possibility of consumer confusion as to sponsorship almost
inevitably establishes irreparable harm as an element necessary for trademark
holder to be entitled to injunction; proof of such confusion also serves as
additional evidence with respect to separate finding that must be made of
holder's likelihood of success on merits.
[3] TRADE REGULATION
In licensor/licensee case, reasons for issuing preliminary injunction for
trademark infringement are more compelling than in ordinary case; when in
licensing context unlawful use and consumer confusion have been demonstrated,
finding of irreparable harm is automatic.
[4] TRADE REGULATION
Licensor, as holder of numerously federally registered trademarks and service
marks, was entitled to strong presumption of marks' validity and of ownership,
and, upon licensee's obtaining license to use marks, licensees acknowledged
marks' validity and licensor's superior rights to them.
[4] TRADE REGULATION
Licensor, as holder of numerously federally registered trademarks and service
marks, was entitled to strong presumption of marks' validity and of ownership,
and, upon licensee's obtaining license to use marks, licensees acknowledged
marks' validity and licensor's superior rights to them.
[4] TRADE REGULATION
Licensor, as holder of numerously federally registered trademarks and service
marks, was entitled to strong presumption of marks' validity and of ownership,
and, upon licensee's obtaining license to use marks, licensees acknowledged
marks' validity and licensor's superior rights to them.
[5] TRADE REGULATION
In order for preliminary injunction to issue restraining trademark
infringement, there must first be established an infringing use and a
probability of confusion as to ownership or sponsorship of product.
[6] TRADE REGULATION
Unauthorized use of mark by former licensee invariably threatens injury to
economic value of goodwill and reputation associated with licensor's mark, and,
as a consequence, licensor who establishes likelihood of confusion as to
product sources in trademark infringement suit simultaneously demonstrates
requisite irreparable harm essential to obtaining preliminary injunction.
[7] TRADE REGULATION
International religious organization was not required to prove that local
religious organization, a terminated licensee, had departed from tenets of
religion in order to be entitled to preliminary injunction; rather, loss of
control resulting from local organization's continued use of trade and service
marks constituted irreparable harm in licensing context, because ability at any
time to ensure compliance with agreement and to control local organization's
activities was integral part of contract.
[8] TRADE REGULATION
Even if local religious organization, a licensee, had not in fact reduced
reputation associated with marks of international religious organization, mere
possibility that local organization could during interval prior to trial depart
from teachings of international organization was irreparable harm
sufficient to support issuance of the injunction.
[9] TRADE REGULATION
Licensor that establishes infringing use and consumer confusion in trademark
suit brought against former licensee has proved irreparable harm as matter of
law, for purpose of determining whether licensor is entitled to preliminary
injunction.
[10] TRADE REGULATION
International religious organization established probability of success on
merits entitling it to preliminary injunction restraining use of trade and
service marks by local religious organization, a terminated licensee, by making
unrebutted case that it owned trademarks and presenting evidence establishing
customer confusion.
[11] TRADE REGULATION
Once licensor authorizes licensee to use trademark in particular area, licensor
has demonstrated desire to expand into that area, and, when licensee loses
authorization, licensor should not have to prove its intention to reerect a new
presence in area in order to be entitled to preliminary injunction restraining
trademark infringement in such area.
*40 Michael C. Elmer, Washington, D.C. (Finnegan, Henderson, Farabow,
Garrett & Dunner, Washington, D.C., Paul J. Yesawich, III, Kevin J. Arquit,
Harris, Beach, Wilcox, Rubin and Levey, Rochester, N.Y., Thomas M. Small,
Fulwider, Patton, Rieber, Lee & Utecht, Los Angeles, Cal., of counsel), for
plaintiffs-appellants.
Mark S. Nunn, Rochester, N.Y. (Weidman & Jordan, Rochester, N.Y., of counsel),
for defendants-appellees.
Before LUMBARD, CARDAMONE and WINTER, Circuit Judges.
CARDAMONE, Circuit Judge:
This appeal is from a denial of a preliminary injunction. 614 F.Supp.
500. Appellants, who had licensed appellees to use their registered
trademarks, later terminated the appellees' authority. When the former
licensees continued their now unauthorized use, appellants brought a Lanham Act
suit and sought a preliminary injunction. The issue in this case is whether in
the licensor/licensee context irreparable harm automatically flows from a
finding of unlawful use and consumer confusion. Common sense plainly suggests
that when a terminated franchisee's continued use of its former franchisor's
trademarks results in demonstrated consumer confusion, the franchisor has been
irreparably harmed. Hence, we reverse the order denying a preliminary
injunction and direct its issuance.
I
The facts are largely undisputed. Plaintiffs-appellants are three California
corporations: Church of Scientology International (CSI) is the "Mother Church"
for its 33 churches and 80 Missions in the United States; Scientology Missions
International (SMI) is the head of the Missions; and Religious Technology
Center (RTC) is the owner and protector of the trademarks and service marks of
the religion of Scientology. Defendants-appellees are Harry Palmer and Avra
Honey-Smith, residents of Elmira, New York, and the Elmira Mission of the
Church of Scientology, a New York corporation. L. Ron Hubbard was the founder
of and--until his recent death on January 24, 1986--reputedly controlled the
Church of Scientology. Defendant Harry Palmer has since 1972 operated an
authorized Scientology Mission in Elmira. In 1975 the Elmira Mission
incorporated under the name "the Elmira Mission of the Church of Scientology"
and the following year it was granted a license to use all Scientology
trademarks and service marks held and controlled by Mr. Hubbard. In exchange
for that right, defendants were to pay ten percent of its income as a tithe to
the Mission Office. Six years later Mr. Hubbard allegedly assigned his rights
in all Scientology trademarks to RTC, which had been organized especially to
own and protect all Scientology trademarks.
*41 RTC immediately increased the licensing fee. On September 9, 1982
defendants signed a new License Agreement requiring them to pay 15 percent of
their income as well as additional fees to RTC in order to continue using the
Scientology trademarks. The following day defendants renounced the agreement,
but continued to use the marks and to pay the former ten percent tithe. When
in November 1984 defendants ceased making any payments to the Mission Office,
appellants promptly moved for arbitration provided for under the agreement.
Upon defendants' refusal to appear or participate, a default judgment was
rendered by the arbitrator against them on November 14, 1984. As further
efforts to resolve the dispute were unsuccessful, appellants on March 25, 1985
filed a complaint in the United States District Court for the Western District
of New York (Telesca, J.) and sought a preliminary injunction. Plaintiffs'
complaint broadly alleges claims for relief under the Trademark Act of 1946
(the Lanham Act), 15 U.S.C. ss 1051-1127 (1982), specifically ss 1114(1)
and 1125(a), and pendent actions under New York laws relating to trade and
service marks, trade names, dilution, unfair practices and breach of contract.
The application for a preliminary injunction, limited to the Lanham Act claims,
seeks to enjoin defendants from continuing to use appellants' marks pending the
trial of the action.
The district court denied the motion on August 1, 1985. The court noted that
a preliminary injunction may be granted only if the plaintiff makes a showing
of irreparable harm. It concluded that the presumption of irreparable harm
which arises from a demonstration by a trademark plaintiff of a likelihood of
confusion is rebuttable. The district judge then found plaintiffs had not
sufficiently shown that defendants' use of the trademarks would in any way
damage the business or reputation of the Church of Scientology. The district
court further found inconsistencies in our traditional rule that a trademark
plaintiff almost inevitably satisfies the required irreparable harm prong upon
showing that the use of his mark or name by someone else in connection with the
sale or offer of goods and/or services nearly identical to those of the
trademark-owner is likely to cause consumer confusion. The district court
denied the preliminary injunction having found irreparable harm absent. It did
not therefore reach or consider the likelihood of success prong. This
expedited appeal followed.
II
A. Irreparable Harm
1. Traditional Rules
[1] An appellate court may reverse the grant or denial of a preliminary
injunction only when the district court has abused its discretion, by
misinterpreting the law, by committing a clear error of fact, or by erroneously
fashioning the substance or form of the injunction. Coca-Cola v. Tropicana
Products, Inc., 690 F.2d 312, 315-16 (2d Cir.1982). A preliminary injunction
should be granted where the moving party demonstrates (1) irreparable harm and
(2) either (a) a probability of success on the merits or (b) sufficiently
serious questions going to the merits to make them fair grounds for litigation
and a balance of hardships tipping decidedly in the moving party's favor.
Id. at 314-15; Power Test Petroleum Distributors v. Calcu Gas, 754 F.2d
91, 95 (2d Cir.1985).
[2][3] For many years we have consistently held that a preliminary
injunction should usually issue when the use of a mark creates a likelihood of
confusion in the consumers' minds as to the ownership or sponsorship of a
product. Our cases clearly say that establishing a high probability of
confusion as to sponsorship almost inevitably establishes irreparable harm.
Proof of such confusion also serves as additional evidence with respect to the
separate finding that must be made of plaintiff's likelihood of success on the
merits. Standard & Poor's Corp. Inc. v. Commodity Exchange Inc., 683 F.2d
704, 708 (2d Cir. 1982); see, e.g., Matter of Vuitton et Fils *42 S.A.,
606 F.2d 1, 4 (2d Cir.1979) (per curiam); Omega Importing Corp. v. Petri-
Kine Camera Company, 451 F.2d 1190, 1195 (2d Cir.1971). These rules govern in
the ordinary case. The implication of the phrase that irreparable harm "almost
inevitably" follows from likelihood of confusion leaves the door slightly ajar
perhaps for those few cases in other trademark contexts where irreparable harm
does not follow. The district court may have thought that this was one of
those rare cases. But in a licensor/licensee case the reasons for issuing a
preliminary injunction for trademark infringement are more compelling than in
the ordinary case. When in the licensing context unlawful use and consumer
confusion have been demonstrated, a finding of irreparable harm is automatic.
[4] Appellants licensed their marks to defendants and then, according to the
undisputed facts in the record, terminated defendants' authority to use them
under the terms of a written contract between the parties. As holders of
numerous federally registered trademarks and service marks, appellants are
entitled to a strong presumption of their marks' validity and of ownership.
See American Home Products v. Johnson Chemical Co., 589 F.2d 103, 107 (2d
Cir.1978). Moreover, when defendants obtained a license to use the marks--
first in the mid-1970s from L. Ron Hubbard and later in 1982 from RTC--they
acknowledged the marks' validity and appellants' superior rights to them.
Such acknowledgment strongly reinforces appellants' claim that infringement
would be caused if defendants, as former licensees, continued their use of the
marks after their authorization to do so had been terminated. Burger King
Corp. v. Mason, 710 F.2d 1480, 1492-93 (11th Cir.1983), cert. denied, 465
U.S. 1102, 104 S.Ct. 1599, 80 L.Ed.2d 130 (1984). The record reveals that
defendants continue their unlawful use of the identical marks registered to
appellants. Appellants clearly were and continue to be interested in the use
of their marks in Elmira, since it was the Scientology Church itself which
first licensed defendants as an authorized Scientology Mission, thereby
evincing an interest in the Elmira market. In light of these undisputed facts,
the district court found that consumer confusion would be caused by defendants'
use of appellants' marks. Although the district court implied that appellants
would probably succeed on the merits, it made no explicit finding on this
point.
2. Rule Applied By The District Court
In finding that no irreparable harm would be caused to appellants if the
injunction were denied, the district court read our cases as creating an
inconsistent pattern. This conclusion was bottomed on its interpretation of
two recent decisions, Citibank, N.A. v. Citytrust, 756 F.2d 273 (2d
Cir.1985), and Bell & Howell: Mamiya Co. v. Masel Supply Co., 719 F.2d 42
(2d Cir.1983). From its reading of those cases, the district court held that a
finding of irreparable harm no longer automatically follows from a finding that
the defendant is using plaintiffs' marks and that consumers are likely to be
confused by that use. Rather, it believed a court must focus on the type of
consumer confusion likely to be caused to determine whether the irreparable
harm prong has been satisfied before a preliminary injunction may issue. It
held that the confusion caused by the fact that consumers were led to believe
they were dealing with an authorized or licensed distributor would not be
enough to find irreparable injury, unless specific economic or reputational
injury could be demonstrated.
[5] These two cases did not create an exception to our traditional rule that
a finding of irreparable harm follows from a trademark plaintiff's showing of
infringing use and likelihood of confusion. Citibank essentially stands for
the proposition that absent a likelihood of confusion between two banks
operating for years in the same market with the similar names of "Citytrust"
and "Citicorp", and because of plaintiff's substantial delay in seeking an
injunction, irreparable harm did not follow. Id. at 277. Again, in
Bell & Howell, we noted that: "On the basis of the present record,
irreparable injury may well not be present *43 herein since there would
appear to be little confusion, if any, as to the origin of the goods...."
719 F.2d at 46. These cases acknowledge the cornerstone of the rule
governing issuance of a preliminary injunction, that is to say, there must
first be established an infringing use and a probability of confusion as to the
ownership or sponsorship of a product.
In a recent case discussing the standards for granting preliminary injunctive
relief, we reiterated the traditional rule that irreparable injury may be found
where " 'there is any likelihood that an appreciable number of ordinarily
prudent purchasers are likely to be misled, or indeed simply confused, as to
the source of the goods in question.' " Joseph Scott Co. v. Scott Swimming
Pools, Inc., 764 F.2d 62, 66 (2d Cir.1985) (quoting McGregor-Doniger, Inc.
v. Drizzle Inc., 599 F.2d 1126, 1130 (2d Cir.1979)). The district court's
misperception of our holdings caused it also to ignore the fact that a
licensor's plea for injunctive relief is stronger than the ordinary trademark
plaintiff's and--because of the necessity of licensor control--irreparable harm
always flows from unlawful use and confusion. Since Palmer continues to teach
by the tenets of the Scientology religion, as he had while an authorized
licensee, the trial court found that defendants would not damage the economic
value of the goodwill and reputation associated with appellants' mark, and that
the courses and services offered by the Elmira Mission would be in no way
inferior to, or even different from, those being provided by authorized
missions and churches.
3. Rule in Trademark Infringement Suits
[6] The unauthorized use of a mark by a former licensee invariably threatens
injury to the economic value of the goodwill and reputation associated with a
licensor's mark. As a consequence, a licensor who establishes a likelihood of
confusion as to product source in a trademark infringement suit simultaneously
demonstrates the requisite irreparable harm essential to obtaining a
preliminary injunction.
In Power Test Petroleum Distributors v. Calcu Gas, 754 F.2d at 95, we said
that irreparable harm exists in a trademark case when the party seeking the
preliminary injunction "shows that it will lose control over the reputation of
its trademark pending trial." (Citing 2 McCarthy, Trademarks and Unfair
Competition s 30.15 (2d ed. 1984)). Control of the trademark is crucial in the
licensing context because a licensor who fails to monitor its mark risks a
later determination that it has been abandoned. Id. at 97. " 'If a
trademark owner allows licensees to depart from its quality [or other]
standards, the public will be misled, and the trademark will cease to have
utility as an informational device.' " Id. (quoting Kentucky Fried
Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 380 (5th
Cir.1977)).
A trademark licensor has a particular interest in controlling the use of its
mark by its licensees in order to preserve the mark's quality and its continued
vitality. The Scientology Church, for example, has always believed it critical
to monitor the services provided by Palmer as a means of protecting its marks,
and to dictate the standards by which Palmer preaches the Scientology faith.
The 1982 license agreement gave RTC the right continuously to monitor and
control Scientology's marks. Defendants themselves acknowledged the existence
of licensor control in the September 9, 1982 agreement they entered into with
appellants. That agreement explicitly provided:
(d) [appellants] shall have the right to monitor all operations of MISSION
with respect to the Marks, inspect all books, records and facilities pertaining
to use of the Marks and receive sample specimens and summaries of literature,
publications and product, using the Marks in reasonable numbers and with
reasonable frequency to insure compliance with all standards, specifications
and guidelines.
[7] Thus, plaintiffs did not need to prove that defendants had departed from
the tenets of the religion to monitor their activities. The ability at any
time to insure *44 compliance with the agreement and to control defendants'
activities was an integral part of the contract. Denying a preliminary
injunction in this case--where the district court found a likelihood of
confusion--puts the Church's reputation beyond its own control. And, it is
that loss of control which is the very thing that constitutes irreparable harm
in the licensing context.
[8] To support its denial of injunctive relief, the district court stated
that appellants had not established that defendants had in fact reduced the
reputation associated with the marks. On the contrary, without a preliminary
injunction, appellants will be unable to control the use of their mark by
unauthorized licensees; the mere possibility that defendants could during the
interval until trial depart from the teachings of the Church is sufficient to
warrant the issuance of a preliminary injunction. See Grand Lodge, Etc. v.
Eureka Lodge No. 5, Etc., 114 F.2d 46, 48 (2d Cir.), cert. denied, 311 U.S.
709, 61 S.Ct. 319, 85 L.Ed. 461 (1940) (to allow a former "Elk" Lodge that had
seceded from the general organization to continue using the name would "subject
plaintiff in the public mind to responsibility for the action of a group over
which it has no further control."). In the eyes of the Scientology Church,
Palmer and the Elmira Mission he operates have seceded from the "Mother"
Church. As such, they can no longer be relied upon to be true to its
teachings, nor are they subject to its control.
In National Bd. of Y.M.C.A. v. Flint Y.M.C.A., 764 F.2d 199, 201 (6th
Cir.1985), it was precisely because the National YMCA organization had
acquiesced in the use of its marks by unaffiliated or suspended local YMCA
organizations that the court refused to issue a preliminary injunction. The
initial showing of acquiescence in the use of the mark by former affiliates and
lack of competition in products or services precluded a finding of confusion or
the concomitant likelihood of success on the merits. Id. at 201. Hence,
once a trademark owner loses control of its mark by failing zealously to watch
over its use by others--or by not objecting to its unauthorized use--the
reputation associated with the mark is reduced. Here, there is no evidence
that appellants as licensors acquiesced in defendants' unauthorized use. The
evidence is the opposite. Thus, allowing defendants the opportunity to reduce
the marks' reputational value and goodwill by its continued unauthorized use
constitutes the irreparable harm that is requisite to the issuance of the
preliminary injunction.
Finally, the public interest is especially served by issuing a preliminary
injunction against a former licensee as the licensee's status increases the
probability of consumer confusion. A licensee or franchisee who once possessed
authorization to use the trademarks of its licensor or franchisor becomes
associated in the public's mind with the trademark holder. When such party, as
defendants here, loses its authorization yet continues to use the mark, the
potential for consumer confusion is greater than in the case of a random
infringer. Consumers have already associated some significant source
identification with the licensor. In this way the use of a mark by a former
licensee confuses and defrauds the public. Burger King Corp. v. Mason, 710
F.2d at 1493; United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134
(3d Cir.1981); Professional Golfers Ass'n v. Bankers Life & Casualty Co.,
514 F.2d 665 (5th Cir.1975); McCarthy, Trademarks and Unfair Competition s
257 (2d ed. 1984).
[9] For these reasons, a licensor that establishes infringing use and
consumer confusion in a trademark suit brought against its former licensee has
proved irreparable harm as a matter of law.
B. Probability of Success
[10] Having found irreparable harm, a court must make a separate and
distinct finding that plaintiff has established a probability of success on the
merits. Although the district court made no explicit finding that appellants
were likely to prevail on the merits, it did find and the record revealed that
defendants continue to use *45 the identical registered trademarks that they
had previously licensed. Defendants raise the defense that the signed transfer
of rights by L. Ron Hubbard to RTC was forged and thus invalid. This assertion
is unsupported by any credible evidence. Because the Church has made an
unrebutted case that it owns the Scientology trademarks, plaintiffs are likely
to prevail on their claim for trademark infringement. Moreover, the district
court's finding of confusion in this case is additional evidence that strongly
supports our determination that plaintiffs have established a probability of
success on the merits. See Standard & Poor's Corp., 683 F.2d at 708. Since
both irreparable harm and likelihood of success have been satisfied, the
injunction should issue.
III Findings of Fact
If defendants' use of the Scientology Trademarks posed a risk of diverting
business from appellants by misleading the consumer, the district court said it
would find irreparable harm in the economic injury this diversion would cause.
But, the court believed the risk of lost business was not present because the
parties are not in direct economic competition with one another; no other
Scientology Mission had been established within 150 miles of Elmira. Because
irreparable harm was established as a matter of law without examining whether
defendants are in direct economic competition with plaintiffs, we need not
decide this issue. Nevertheless, the district court's factual findings are
highly questionable.
Although recognizing that an injunction should issue if there is any
probability that a trademark holder desires to expand into the area where
defendant operates, see Foxtrap, Inc. v. Foxtrap, Inc., 671 F.2d 636, 640
(D.C.Cir.1982); Dawn Donuts Co. v. Hart's Food Stores, Inc., 267 F.2d 358,
362 (2d Cir.1959), the district court found no evidence of appellants' planned
expansion into Elmira to compete with defendants. "All of the evidence
presented to this Court indicates that the impact of the Elmira Mission's
activities is entirely confined to an area where the plaintiffs have had no
competing business interests at all." Such finding is certainly suspect.
[11] This proposition may be valid where the trademark owner has no prior
entry--and thus has done nothing to create a reputation--in the relevant
market. But here the district court ignored the fact that the Scientology
Church, as licensor to the Elmira Mission, has demonstrated a strong interest
in maintaining its presence in the Elmira area. Evidence of this fact is the
license it granted to defendants since 1972 to be its authorized licensee in
that area. Until defendants renounced their agreement with appellants, they
acted as the Scientology Church's presence in Elmira. Appellants appear to
desire to be present in the Elmira area where there is a demonstrated interest
in their teachings. Now that Palmer has breached his agreement and moved
outside the Church, this area falls within appellants' area of natural
expansion. National Lampoon, Inc. v. American Broadcasting Cos., Inc., 376
F.Supp. 733, 747 (S.D.N.Y.), aff'd, 497 F.2d 1343 (2d Cir.1974). Once a
licensor authorizes a licensee to use the mark in a particular area, he has
demonstrated his desire to expand into that area, and when his licensee loses
that authorization, he should not have to prove its intention to re-erect a new
presence in the area. Thus, defendants present a risk of diverting business
from appellants by misleading consumers into thinking the Elmira mission is
authorized by the Scientology Church. Foxtrap, Inc., 671 F.2d at 640
("Under the Lanham Act, a federal registrant is entitled to enjoin a remote
junior user of the mark if there is a likelihood of the registrant's entry into
the disputed area.").
IV
Accordingly, we reverse the order denying a preliminary injunction and remand
the matter to the district court with a direction to it to issue the
preliminary injunction pending trial.