A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc.

Page 197

166 F.3d 197

49 U.S.P.Q.2d 1481

A & H SPORTSWEAR INC.; Mainstream Swimsuits, Inc. v. VICTORIA'S SECRET STORES, INC.; Victoria's Secret Catalogue, Inc., Appellants.

Nos. 97-1541.

United States Court of Appeals Third Circuit.

Argued May 19, 1998.

Submitted en banc Dec. 14, 1998.

Decided Jan. 21, 1999.

H. Robert Fiebach, Cozen & O'Connor, Philadelphia, PA, Frank J. Colucci (Argued), Richard P. Jacobson, Colucci & Umans, New York, N.Y., for Victoria's Secret Stores, Inc.

and Victoria's Secret Catalogue, Inc., Appellants in No. 97-1541.

Michael F. Snyder, Arthur H. Seidel, Stephen J. Meyers (Argued), Seidel, Gonda, Lavorgna & Monaco, Philadelphia, PA, Norman Seidel Laub, Seidel, Cohen & Hof Easton, PA, for A & H Sportswear Inc. and Mainstream Swimsuits, Inc., Appellees in No. 97-1541.

Argued May 19, 1998.

Before: SLOVITER, GREENBERG and GIBSON, ^* Circuit Judges.

Submitted en banc Dec. 14, 1998.

Before: BECKER, Chief Judge, SLOVITER, STAPLETON, MANSMANN, GREENBERG, SCIRICA, NYGAARD, ALITO, ROTH, LEWIS, McKEE, and RENDELL Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

Presently pending before the en banc court in this trademark infringement action is the appeal (No. 97-1541) of Victoria's Secret Stores, Inc. ("VS Stores") and Victoria's Secret Catalogue, Inc. ("VS Catalogue") (together "VS"), a well-known manufacturer of lingerie and now swimwear, from the order of the District Court that found VS had violated the Lanham Act. This trademark infringement action had been filed by appellee A & H Sportswear ("A & H") and its affiliate, Mainstream Swimsuit, Inc., (together "A & H") challenging VS's use of the trademark THE MIRACLE BRA on lingerie and swimwear. The District Court found that VS did not infringe A & H's trademark by its use of THE MIRACLE BRA on lingerie. However, the District Court did find infringement by VS on the ground that its use of THE MIRACLE BRA on swimwear created a "possibility of confusion" with A & H's MIRACLESUIT swimsuit. It thus ordered VS to publish a disclaimer when marketing THE MIRACLE BRA swimwear and to pay past and future royalty fees to A & H.

VS contends in No. 97-1541 that the District Court's use of a "possibility of confusion" standard rather than the prevalent "likelihood of confusion" standard was error and that the royalty award was an abuse of discretion. For its part, A & H contends that because the District Court found a possibility of confusion between the MIRACLE BRA swimwear and the MIRACLESUIT, it was entitled to an accounting of the profits VS made. A & H filed a cross-appeal (No. 97-1570) in which it contends that the District Court clearly erred in failing to find a likelihood of confusion between THE MIRACLE BRA mark as applied to lingerie and A & H's prior MIRACLESUIT mark.

A panel of this court heard argument on the appeal and cross-appeal on May 19, 1998. Thereafter, the panel recommended a court originated rehearing en banc, see Third Circuit Internal Operating Procedure 9.4, so that the en banc court could decide whether to approve the possibility of confusion standard for trademark infringement applied by the District Court.

After the court solicited the views of counsel for the parties regarding en banc consideration, the court voted to take this case en banc, and the Chief Judge so ordered on August 26, 1998. The parties were given the opportunity to file supplementary briefs. Based on the court's review of the original and supplementary briefs, the court en banc voted to consider VS's appeal (No. 97-1541) on the basis of the briefs submitted by the parties, which forcefully and comprehensively set forth their positions and the relevant law.

The court further determined that the cross-appeal (No. 97-1570) does not present any issue that requires en banc consideration, and resubmitted that appeal to the original panel. We recognize that this treatment will entail some duplication between the panel and en banc opinions.

I. FACTS AND PROCEDURAL HISTORY

The underlying facts are set forth in the District Court's two lengthy published opinions A & H Sportswear Co. v. Victoria's Secret Stores, Inc., 926 F.Supp. 1233 (E.D.Pa.1996) (addressing liability), and A & H Sportswear Co. v. Victoria's Secret Stores, Inc., 967 F.Supp. 1457 (E.D.Pa.1997) (as amended) (addressing remedies). The District Court's Findings of Fact from the opinion on liability are designated hereafter as FF.

A & H, a closely held Pennsylvania corporation and maker of 10% of the nation's swimsuits, was issued a trademark for its MIRACLESUIT on October 27, 1992; its affiliate, Mainstream Swimsuits, Inc., a Pennsylvania corporation, served as the exclusive distributor of the MIRACLESUIT through its SWIM SHAPER division. Both corporations are controlled by members of the Waldman family. FF 1-2.

The MIRACLESUIT was developed and subsequently marketed as a "control" suit whose patented fabric and design afford the wearer greater "hold-in" control of the hips and waist, making the wearer appear slimmer without the use of girdle-like undergarments. Most MIRACLESUITs contain underwire bras, are of a one-piece design, and retail for $54 to over $100. FF 14. The first interstate use of the mark MIRACLESUIT and the first interstate sale of a MIRACLESUIT occurred in November 1991. FF 21. The name MIRACLESUIT was chosen because it was "unique, dynamic, exciting and memorable." FF 22. In 1992, the MIRACLESUIT was widely advertised, shown, and discussed in trade shows, magazines and the electronic media. FF 27. The MIRACLESUIT was also sold for a brief time in the VS catalogue (1,700 suits were purchased by VS in 1992 and 1993), but the arrangement was discontinued because VS failed to identify the MIRACLESUIT by its trademark in several instances. FF 29, 30.

VS Stores is the nation's top retailer of lingerie. It is a Delaware corporation headquartered in Columbus, Ohio, and operates over 650 stores throughout the country which focus on intimate apparel, with bra sales the leading product. FF 5. VS Catalogue, a Delaware corporation headquartered in New York City, is a mail order business selling a much wider array of merchandise (including swimwear) through over 300 million catalogues it circulates each year. FF 6. VS Stores and VS Catalogue are independent subsidiaries of Intimate Brands, Inc., owned by The Limited, Inc., based primarily in London. FF 7.

In 1992, VS Stores began developing a cleavage-enhancing bra, which was introduced (then unnamed) in each store in August 1993 and first appeared in the VS catalogue in February 1994. FF 12, 17, 19. The bra uses removable pads, lace, straps, and underwire to accentuate the wearer's bust. FF 15. VS Stores sought a name for its new push-up bra that had a "fresh, flirtatious fun attitude" and chose THE MIRACLE BRA name in December 1992, allegedly after a model, who tried the new bra, exclaimed "Wow, this is a miracle!" FF 23.

The name THE MIRACLE BRA was first used in VS stores in November 1993. FF 19. VS Stores was issued a registration for its trademark THE MIRACLE BRA on August 9, 1994. FF 25. Since its first brisk sales, THE MIRACLE BRA, which retails for under $20, has been heavily marketed and has generated over $132 million in sales. FF 69. A & H did not initially object to VS's trademark use of THE MIRACLE BRA on lingerie.

The following year, VS began to extend THE MIRACLE BRA into swimwear with its introduction of THE MIRACLE BRA bikini in the November 1994 VS catalogue and in ten VS stores as a test market. Sales expanded to 160 stores in the Spring of 1995, and, at that time, THE MIRACLE BRA design and trademark was incorporated into a one-piece swimsuit, using the push-up features of THE MIRACLE BRA. VS retailed the swimsuit for approximately $69, about the same price as many MIRACLESUITs. FF 31-34, 15, 8, 44. Previously, VS Stores had offered swimsuits only three or four times over eight years, but VS Catalogue had begun to build its swimsuit business by launching a swimwear specialty catalogue in March 1994, which contained swimsuits of other manufacturers. FF 5, 32.

In August 1994, even before its first sale of THE MIRACLE BRA swimsuit, VS Stores applied for a registration of THE MIRACLE BRA trademark for swimwear. FF 34. Apparently because it had been using THE MIRACLE BRA name in lingerie, neither VS Stores nor VS Catalogue conducted a separate trademark search of THE MIRACLE BRA trademark as it applied to swimwear. FF 35. In February 1995, the Patent and Trademark Office (PTO) refused the registration on the basis of A & H's prior registration of the MIRACLESUIT. FF 31.

In December 1994, just a month after the introduction of THE MIRACLE BRA swimwear collection, A & H filed this suit alleging, inter alia, infringement of its trademark MIRACLESUIT, and seeking a preliminary injunction and damages. The District Court consolidated the injunction hearing with a bench trial on the merits. Following a two-week bench trial, the District Court found no likelihood of confusion between THE MIRACLE BRA mark as applied to lingerie and the MIRACLESUIT mark. That judgment is the subject of A & H's cross-appeal, addressed in the opinion of the panel referred to above.

With respect to the marks as applied to swimwear, the District Court's opinion on liability has no explicit finding that there was no likelihood of confusion between THE MIRACLE BRA and the MIRACLESUIT marks. There are statements in the subsequent opinion on damages which could suggest such a finding, but that opinion contains no explicit analysis of the likelihood of confusion between the two trademarks as applied to swimwear.

The District Court did find, in its opinion on liability, that there was a possibility of confusion between the two marks as applied to swimwear. The District Court believed that under the applicable law "where a party moved into the territory of an established concern, the likelihood of confusion standard' should...