Monday, February 11, 2008

Tenth Circuit affirms district court decision favoring 1-800-SKI-VAIL against Vail Ski Resort Owner

On February 7, 2008, a divided three judge panel of the Tenth Circuit Court of Appeals upheld a district court’s decision in favor of Vend-Tel-Co, Ltd. and Eric A. Hansen (together, “VTC”), the owner of the vanity phone number "1-800-SKI-VAIL," in a service mark infringement lawsuit brought by Vail Associates, Inc., owner of the Vail Ski Resort, and Vail Trademarks, Inc. (together, “VA”),. See Vail Associates, Inc. et al. v. Vend-Tel-Co., Ltd. et al., No. 05-1058 (10th Cir. February 7, 2008). A news article on the lower court’s 2005 decision can be found here.

VA holds a service mark registration for the mark VAIL (for recreational services, namely downhill skiing facilities, ice skating facilities, cross-country ski trails and expeditions, hiking and back-packing trails, and horseback riding and educational services, namely skiing classes and for resort hotel and restaurant services, and retail store services in the field of recreational equipment) registered January 17, 1989. VTC holds a service mark registration for the vanity telephone number 1-800-SKI-VAIL (for marketing services related to the ski industry, namely providing an automated phone switching system to offer services available in or near Vail, Colorado and nearby resort locations) registered June 12, 2001 .

VA claimed that VTC's use of the term SKI and VAIL in its vanity telephone number infringed its registered VAIL service mark in violation of 15 U.S.C. §1114(1)(a) as likely to cause consumers to believe that VA and its Vail Ski Resort was the source of or affiliated with VTC’s phone service. VA also alleged false designation of origin under 15 U.S.C. §1125(a) and sought to cancel VTC’s registered mark under 15 U.S.C. §1064 for alleged fraud in the prosecution.

After a bench trial, the district court concluded VA failed to meet its burden of proof regarding likelihood of confusion between the two marks and that VA failed to establish by clear and convincing evidence that two alleged misstatements of fact were material to the PTO's issuance of the registration.

The majority of the three judge panel of the court of appeals, noting that it does not set aside a district court’s factual findings unless clearly erroneous (Fed. R. Civ. P. 52(a)) (i.e., only if the reviewing court is left with the definite and firm conviction that a mistake has been committed), decided that a review of the trial record, in the light most favorable to the district court’s ultimate findings, showed ample support for the court's judgment.

After a detailed review of the witnesses and testimony set forth by the parties at the district court level, the court stated:

Taken in a light most favorable to the district court's ruling, the only thing the preceding recitation of the evidence confirms is the district court's finding of no likelihood of confusion was not clearly erroneous. Based on our review of the trial record, we are satisfied the district court did not clearly err in finding that VA failed to prove the ordinary consumer, looking for winter recreation in and around the Town of Vail, Colorado, associates the word "Vail" exclusively, if at all, with VA or its ski resort. Rather, the ordinary consumer sees Vail as a place to ski, i.e., as a ski destination, without associating it with any particular entity or service provider. Simply put, the district court took a permissible view of the evidence to hold VA failed to prove a likelihood of confusion between 1-800-SKI-VAIL and VA's ski resort.

Slip op. at 15-16 (emphasis in original).

The court proceeds to discuss the evidence of record as applied to each of the six factors used in the Tenth Circuit to determine a likelihood of confusion (the Sally Beauty factors): (1) evidence of actual confusion between the marks, (2) the strength of the contesting mark, (3) the intent of the alleged infringer in adopting the contested mark, (4) the degree of similarity between the marks, (5) the similarity of the parties' services and manner in which they market them, and (6) the degree of care consumers are likely to exercise in purchasing those services. See Team Tires Plus, Ltd. v. Tires Plus, Inc., 394 F.3d 831, 833 (10th Cir. 2005); Sally Beauty Co. v. Beautyco, Inc., 304 F.3d 964, 972 (10th Cir. 2002).

The dissent, in concluding that the district court’s decision was clearly erroneous, undertakes its own analysis of the six factors, which results in some back and forth arguments (and footnotes) with the majority.

Actual Confusion
The court found that VA offered little evidence of actual confusion, initial interest confusion or otherwise, on the part of consumers phoning 1-800-SKI-VAIL. One piece of evidence relied upon by VA was the testimony and affidavit of a travel agent (Joyce Newton, owner of Vacation Coordination) who at one time served callers of the 1-800-SKI-VAIL number. The court recounted events surrounding the procurement of Newton’s affidavit by VA – she marked up an initial version of the affidavit in a way that worked against VA’s argument of actual confusion by callers of 1-800-SKI-VAIL. Newton signed a modified version of VA's original affidavit and agreed to testify on behalf of VA only after VA cut off her travel agency's ability to book reservations with VA, which, in turn, deprived her travel agency of the ability to earn commissions. Newton later testified that she felt coerced into signing the modified affidavit. Under such circumstances, the court found that the district court understandably discounted such evidence of actual confusion, and that the district court’s action in discounting such evidence was not clearly erroneous. The court also noted that the district court did not abuse its discretion in excluding VA’s survey evidence after concluding in a Daubert hearing that VA’s survey evidence contained methodology flaws and thus was unreliable.

One point of contention between the majority and the dissent is the extent to which source confusion existed despite consumers calling 1-800-SKI-VAIL not having knowledge of the particular company behind skiing in Vail because most people calling the phone line think of Vail as a place to ski, and not as a specific company offering ski services. While the majority recognized that consumers need not have knowledge of the particular company behind a service source before confusion may occur, the court stated that consumers nonetheless must associate the company's mark with its services. The court found nothing in Newton’s testimony suggesting that consumers phoning 1-800-SKI-VAIL thought they were calling the service provider behind the VAIL registered mark.

While some consumers calling 1-800-SKI-VAIL asked about ski passes, directions to Vail, weather, grooming, and ski rental, the court states that VA did not offer any evidence suggesting that consumers are more likely to call the VAIL ski resort than the chamber of commerce, a travel agency, or some other information source to inquire about such matters. In addition, other callers asked about things not related to a ski resort, which allowed the district court to conclude that callers recognized they were calling a general information number rather than the resort itself. Such consumer inquiries show that consumers knew they could ski in Vail; it does not say anything about whether those consumers identified the name VAIL with the ski resort or rather with Vail as a geographic designation.

The court also disregarded Newton’s testimony about redirecting calls from 1-800-SKI-VAIL to VA since such testimony did not offer any evidence into the subjective belief or knowledge of consumers calling the number.

The dissent, however, saw the evidence as showing that of the 10-20 calls per week that Newton received, most of the calls asked questions directed to VA's ski resort (i.e., directed to the one place in Vail to ski). Consumers contacting VTC about lodging were not necessarily directed to VA's accomodations, which puts VTC at competition with VA in this respect. By ignoring evidence that consumers calling 1-800-SKI-VAIL attempting to contact VA's ski resort who were then direct to competiting hotel accomodations, the dissent maintains that the district court committed clear error.

Strength of the Mark
The court also found that the district court did not clearly err in finding the VAIL mark to be weak. While recognizing that VAIL has acquired a secondary meaning with respect to VA’s ski services, the “presence of secondary meaning, however, does not provide the mark holder with an exclusive right to use the mark in its original descriptive sense. Secondary meaning provides the mark holder ‘an exclusive right not in the original, descriptive sense, but only in the secondary one associated with the mark holder's goods.’ KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111, 122, 125 S. Ct. 542, 160 L. Ed. 2d 440 (2004).” Slip op. at 21 (emphasis in original).

In response to VA and the dissent, both of whom argue that VAIL is a strong mark that has acquired secondary meaning associated with “world-class ski resort services,” the majoritymaintains that the very fact that VA does not have evidence of confusion suggests that the VAIL mark does not have a strong secondary meaning.

Furthermore, VA did not set forth any evidence that consumers actually confuse 1-800-SKI-VAIL with VA and its ski resort facilities. VA relied primarily on the registration and incontestability of the VAIL mark as evidence of secondary meaning, which the court, citing McCarthy, supra § 11:82, at 11-166, notes does not dictate the conclusion that a mark is strong with no further analysis.

VA also did not address how much it spent marketing the word VAIL apart from its stylized logo nor did VA provide any evidence that consumers associated the mark VAIL with VA’s ski resort services.

The court also noted that the geographically descriptive nature of the mark coupled with its extensive use by third parties substantially undermines the strength of the mark:

We find little in the record to support the view that consumers routinely associate the word "Vail" with VA's ski resort services. More importantly, we find no support in the record for the conclusion that the district court's contrary finding was clearly erroneous. The lack of actual confusion evidence, the geographically descriptive nature of the word Vail, and its documented use among numerous businesses in the Vail area, all support the district court's finding that the Vail mark is not particularly strong.

Slip op. at 24-25.

The dissent, however, found the district court's conclusion that VA's mark was weak clearly erroneous. The dissent argued that VA had established secondary meaning for its mark with respect to ski services and that VTC's own use of the term "ski" in conjunction with the word "Vail" proved such strength.

While the majority notes that the dissent relies on VA’s testimony that Ski Magazine ranked Vail as the #1 ski resort for many years, the majority notes that “VA presented no evidence as to the circulation of Ski Magazine, the regard in which likely consumers of VA's services hold the magazine, or the percentage of those consumers that read the magazine.” Slip op. at 22, n.12. In short, the court found that “the district court as the trier of fact properly found the Vail mark was not particularly strong because VA's evidence of secondary meaning was not particularly strong.” Slip op. at 22-23.

VTC’s Intent in Adopting Mark
The court found that the evidence amply supported the district court’s finding that there was nothing in the record to suggest VTC intended to trade on VA's service mark or deceive the public into believing that the operator of the Vail ski facilities provided VTC's marketing service.

Eric Hanson, a former shareholder and president of VTC who obtained the rights to the 1-800-SKI-VAIL mark during the pendency of the lawsuit, testified that neither he nor VTC intended to derive any benefit from VA's reputation or goodwill and VTC’s expert testified that he found no evidence that VTC intended to utilize VA's reputation in employing the 1-800-SKI-VAIL mark – noting that none of VTC's advertising materials, printed or electronic, referred to VA or its ski resort. The same expert also noted that the 1-800-SKI-VAIL mark was part of a portfolio of 1-800 ski numbers containing the word “ski” and a geographical designation (e.g., 1-800-SKI-ASPEN, 1-800-SKI-STEAMBOAT, 1-800-SKI-SUMMIT, 1-800-SKI-ASPEN, and 1-800-SKI-TAHOE).

The dissent notes that VTC admitted that it intended to procure 1-800 numbers with the names of major ski resorts -- and by incorporating the name of VA's ski resort, VTC hoped to capitalize on VA's reputation and goodwill. From the dissent's perspective, VTC stepped over the line of using "Vail" as a geographic descriptor when it added the word "ski" to its vanity phone number because by adding such word, VTC was informing consumers (consumers that are likely knowledgable about skiing in Vail) that its services were not just about the geograophic area of Vail, but rather skiing in Vail, which could only have intended to evoke the image of VA's ski resort. By ignoring the evidence of VTC capitalizing on VA's reputation, the dissent argues that the district court commiteed error.

In response to the dissent’s argument that VTC’s expert opinion ignores the fact that when one skis in Vail, it will be a VA’s resort, the majority noted that such point should have been addressed on cross-examination or during closing arguments – not at the appellate stage.

In response to the dissent’s argument that the district court clearly erred in refusing to infer a wrongful intent, the court notes that intent is a question of fact which lies within the purview of the fact finder:

And the district court, taking a permissible view of the evidence, found VTC, by incorporating the name Vail into a toll-free telephone number, hoped to capitalize, not on Vail Resort's reputation, but rather on Vail, Colorado's reputation as an attractive ski destination. See Baum v. Great Western Cities, Inc., 703 F.2d 1197, 1210-11 (10th Cir. 1977) ("Questions of intent which involve intangible factors, including witness credibility, are matters for consideration of [the] fact finder after a full trial."). In fact, the record reveals VA offered little direct evidence of VTC's wrongful intent. As the foregoing recitation of the evidence well illustrates, the record clearly supports the district court's view that 1-800-SKI-VAIL trades on Vail as a geographic ski destination, rather than on Vail as a mark identifying VA and/or
its ski resort.

Slip op. at 27-28.

Degree of Similarity Between the Marks
VA argued (and the dissent agrees) that VTC’s 1-800-SKI-VAIL is similar to VA’s VAIL mark because it merely adds the generic 1-800 prefix and the generic word SKI brings to mind VA’s skiing facilities. However, as the court notes, VA’s argument presupposes that (1) consumers calling 1-800-SKI-VAIL know that only one ski resort exists in Vail, and (2) those same consumers know the word Vail means that ski resort – neither fact of which VA established with any evidence:

A consumer unaware of those particular facts would not likely be confused when phoning 1-800-SKI-VAIL because that consumer could not be confused about facts of which he or she is unaware. In other words, consumers cannot dial an alphanumeric phone number believing it to be associated with VA and/or its ski resort facilities if they have no knowledge of VA's mark in any particularized sense.

Slip op. at 29. The majority criticizes the dissent for effectively relieving VA of its burden of proof by assuming that consumers possess such knowledge about VA’s ski facilities.

The dissent argues that in the specific market context at issue (skiing), the hypothetical consumers are sufficiently interested in skiing to be even considering a ski vacation. Thus, this type of typical consumer calling 1-800-SKI-VAIL would be calling the number becasue they are interested in skiing at VA's ski resort.

The majority also notes that VA and the dissent rely upon the word “ski” to support the argument that the marks are similar. The court reiterates that VA’s service mark is only for the word VAIL, and not “Ski Vail,” and notes that VA fails to cite any authority for truncating 1-800-SKI-VAIL to simply VAIL and then comparing the two marks. The court also found the marks to be visually dissimilar – VAIL is a single word whereas 1-800-Ski-Vail is four components, with the word “Vail” being only one component.

In total, the court found that the evidence did not establish that the marks were similar in sound, sight, or meaning.

The dissent argues that similarity between two marks is judged by the total impression created by the mark. While 1-800-SKI-VAIL may have dissimilar individual features, the total effect of the mark is an association with skiing in Vail, which can only be an association with VA's ski resort. VTC's use of the marks "ski" and "Vail" bring to mind an association between VTC's services and VA's ski resort -- the alphanumeric number indiates a means of contacting the only company in Vail that offers ski services.

Similarity of Products and Manner of Marketing
The court agreed that the nature of the parties' services and the manner in which they market them did not support the position that they compete with one another. The district court found that 1-800-SKI-VAIL serves as a conduit, much like a travel agency, to bring consumers wanting to visit Vail and the surrounding area together with service providers in the region. VTC does not offer ski resort services – and the services it does provide are at least one step removed from the services VA provide (and even benefit VA’s resort by helping bring consumers to the Vail area and directing them to VA’s resort).

In addition, the court agreed that the manner in which the parties market their services is not particularly similar – VTC never sought to pass off its services as the same type of high end ski services offered by VA, but rather promoted itself as a place to call for general travel information about Vail. “VTC's marketing of 1-800-SKI-VAIL portrayed the number as precisely what it was: an easy-to-use number that connected callers to a variety of services.” Slip op. at 32-33. VA, on the other hand, marketed its resort services world-wide in a sophisticated manner with a multi-million dollar marketing budget.

The court found that the district court was entitled to find the aforementioned differences outweighed the similarities in judging the similarity of the parties' services and the manner in which they market them in finding a likelihood of confusion.

The dissent maintains that the district court ignored evidence of the overlapping (and somewhat competitve) nature of their business and the similarity of consumers -- specficially, evidence of callers being diverted to competing hotels providing similar hotel accomodations as VA -- an area in which VTC's own expert acknoweldged VTC competes with VA:

Because VTC markets an overlapping product to the same pol of consumers as Vail Asccoiates, VTC's use of a mark virtually identical to Vail Associates' can only suggest to the typical consumer that 1-800-SKI-VAIL is affiliated with Vail Associates' ski resort business.

Slip op. at 55 (Tymkovich, J. dissenting).

Degree of Consumer Care
With respect to the degree of care the consuming public uses in selecting the various services at issue, the court noted that VA provides first class ski resort accommodations at first class prices. Because ski vacations to VA’s ski resort are not cheap, consumers will exercise a degree of care at the time of purchase.

The dissent focuses on initial interest confusion – “Initial interest confusion is a 'bait and switch' tactic that permits a competitor to lure consumers away from a service provider by passing off services as those of the provider, notwithstanding that the confusion is dispelled by the time of sale. See Syndicate Sales, Inc. v. Hampshire Paper Corp., 192 F.3d 633, 638 (7th Cir. 1999).” Slip op at 34.

However, the majority notes that such initial interest confusion cannot be assumed, and must be still proven – and that VA simply failed to prove any initial interest confusion.

The court adds that while consumers exploring ski vacation options by dialing a toll-free number are not likely to exercise extraordinary care, those same consumers are unlikely to associate the word VAIL with VA's ski resort services, thus negating the possibility of any confusion. As for more sophisticated consumers, they are more likely to contact VA directly and would not likely phone 1-800-SKI-VAIL. And even if they were to phone 1-800-SKI-VAIL, any initial confusion is unlikely to result in sophisticated consumers booking services elsewhere.

In conclusion, the court found that the record showed a) little credible evidence of actual consumer confusion between the number 1-800-SKI-VAIL and the mark VAIL; b) that the evidence has not shown that VA’s VAIL mark is strong; c) that VTC did not intent to trade on VA's reputation; d) that the sight, sound, and meaning of the two marks are not irrefutably similar; e) that VA's and VTC's respective services and the manner in which they market them differ in important respects; and f) that consumers exercise a high degree of care when planning ski vacations, mitigating confusion that might initially exist between the marks.

The court found none of the six likelihood of confusion factors to favor VA to any significant degree, and thus, the district court's finding that VA failed to prove likelihood of confusion in this case was not clearly erroneous.

The court added that it was not willing to deprive VTC of the use of the descriptive word “Vail”:

We decline to extend unwarranted service mark protection to VA on what the record tells us is first and foremost a geographical term describing a ski destination in the Colorado Rockies. Such extension would imperil the countless number of retailers, merchants, and innkeepers in and around Vail who use the town's name to promote their wares and services.

Slip op. at 36. The court added that any minor confusion was a risk that VA accepted when it decided to identify its services with a single word that is primarily descriptive of a geographic location: “The law's tolerance of a certain degree of confusion on the part of consumers flows from ‘the undesirability of allowing anyone to obtain a complete monopoly on use of a descriptive term simply by grabbing it first.’” KP Permanent Make-Up, 543 U.S. at 122.

However, the court’s true feelings about the case are revealed in the majority opinion’s final paragraph:

In the end, VA's lack of evidence suggesting a likelihood of confusion could lead one to suspect VA's concern is really about "disconnecting" an alphanumeric phone line which provides easy access to VA's actual service competitors. The record evidence simply belies any notion that VA's Lanham Act claim is about the likelihood of confusion. Rather VA's claim appears more about limiting access to its competition by squelching a conduit which provides easy, free, and readily available access to that competition through use of a vanity or alphanumeric phone number. Because the factual record, viewed in a light most favorable to the district court's judgment, supports the court's finding that VA failed to prove a likelihood of confusion, the district court's judgment is AFFIRMED.

Slip op. at 36-37.

And to the extent that the court’s opinion of VA’s evidence was not clear, the court added one last snipe at VA’s evidentiary record when it states in a footnote that VA’s counsel at oral argument “no more wanted to talk about the record evidence than a hog wants to talk about bacon. . . .” Slip op at 36, n.14.

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