Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-01271/USCOURTS-ca10-88-01271-0/pdf.json

Parties Involved:
Takecare Corporation
Appellee
Takecare of Oklahoma, Inc.
Appellant

Document Text:

PUBLISH 

FILEDr..1,n1cc·u Stare$ Co~1rt of Appeals •renth Circu.it 

NOV 171989 

ROBERT L. HOEC!(ER 

Clerk 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

TAKECARE CORPORATION, 

Plaintiff-Appellee, 

v. 

TAKECARE OF OKLAHOMA, INC., 

Defendant-Appellant. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

No. 88-1271 

Appeal from the United States District Court 

For the Northern District of Oklahoma 

D.C. No. 84-C-763-E 

Harris Zimmerman (Michael J. Cronen, Oakland, California, and N. 

Kay Bridger-Riley of Zarbano, Bridger-Riley, P.C., Tulsa, Oklahoma,with 

him on the briefs), Oakland, California, for Plaintiff-Appellee. 

Donald M. Bingham of Chapel, Wilkinson, Riggs & Abney, Tulsa, 

Oklahoma, for Defendant-Appellant. 

Before HOLLOWAY, Chief Judge, and MOORE and TACHA, Circuit Judges. 

MOORE, Circuit Judge. 

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 1 
The Lanham Act permits a prevailing party to recover attorney 

fees "in exceptional cases." 15 u.s.c. § 1117(a). In this 

appeal, we are asked to decide whether defendant's reliance on the 

advice of counsel removes his otherwise wilful conduct from 

§ 1117(a) sanction. Under the circumstances of this case, we hold 

it does not because of the absence of any evidence establishing 

reasonable reliance. We therefore affirm the district court. 

I. 

The issue before us arises from an action for infringement of 

a federally registered trademark. In 1983, plaintiff TakeCare 

Corporation (TakeCare), a health maintenance organization (HMO) 

incorporated in California and offering·its services in northern 

California, registered its service mark ''TakeCare" in the United 

States Office of Patent and Trademark. 1 TakeCare is an affiliate 

of Blue Cross of California, which is an affiliate of the national 

Blue Cross and Blue Shield Association. TakeCare offers prepaid 

group medical services to employees of both California-based and 

national businesses. In early 1983, representatives of TakeCare 

attended a Blue Cross/Blue Shield National ADS Conference along 

with representatives of an Oklahoma HMO, Total Care. In October 

1983, representatives of Total Care visited TakeCare's California 

offices for instruction and assistance in setting up their 

Oklahoma HMO. In the course of this visit, these Oklahoma 

representatives exchanged their business cards which bore the 

1TakeCare had used the mark since 1978. 

-2-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 2 
mark, TAKECARE. 2 TakeCare's initial protest was followed by a 

written demand to defendant TAKECARE tq cease and desist using the 

same service mark. Despite a later meeting to negotiate this 

disagreement, defendant continued to represent itself as TAKECARE 

to local and national businesses whose employees reside in its 

Tulsa, Oklahoma, service area. In 1984, TakeCare filed suit for 

false designation of origin, false description, and infringement 

of federal and common law trademark rights. 3 

After a three-day trial to the court, supplemented by posttrial briefs and proposed findings of fact and conclusions of law 

submitted by TakeCare and defendant, the district court found that 

as members of the national Blue Cross/HMO network, both TakeCare 

and defendant often solicited and negotiated contracts with some 

of the same national businesses. Although their immediate 

services were confined to distinct geographical areas, the court 

found that because each HMO permitted subscribers to receive 

emergency medical or other care outside of the service area there 

was an additional likelihood of confusion about the reimbursement 

source of the services. Consequently, the court held a likelihood 

of confusion existed between the TakeCare mark and defendant's 

TAKECARE mark. Having used and registered its service mark prior 

2rn 1983, officers of Total Care incorporated the organization 

under the name TAKECARE OF OKLAHOMA, INC. In 1984, the name was 

changed to TAKECARE PREPAID HEALTH SERVICE OF OKLAHOMA, INC. 

TAKECARE, as it was generally called, was licensed through the 

national Blue Cross and Blue Shield Association. 

3oefendant counterclaimed to invalidate the trademark on the 

ground of fraudulent procurement. The district court's denial of 

that claim is not at issue in this appeal. 

-3-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 3 
to defendant's adoption of a similar mark and having informed 

defendant of this use along with a demand for defendant to cease 

using the mark, TakeCare, the court concluded, was entitled to a 

permanent injunction to protect its exclusive use from defendant's 

infringement. In addition, the court held that defendant's 

continued use of the mark without explanation after notice from 

TakeCare amounted to a wilful and deliberate infringement, 

sufficient to characterize the case as exceptional, meriting an 

award of attorney fees. 

Defendant moved to amend the findings of fact and for a new 

trial and to amend the judgment to permit documentary evidence to 

be introduced to sh·ow its good faith reliance on the advice of 

counsel in order to strike the award of attorney fees. The 

district court rejected defendant's arguments, in particular, its 

offer to produce a ten-page letter written by counsel on which, 

defendant asserted, it had relied in good faith. The court 

eschewed the offer, noting that a key issue at trial, why the 

defendant continued to develop and market its HMO after notice of 

the infringement, ought to have triggered defendant's production 

of this explanation then. Thus, to reopen the case after final 

judgment to present this expanded theory would be improper under 

Fed. R. Ci v. P. 5 9 (a) • 

II. 

Defendant, taking issue with no other factual findings or 

conclusions of law, now urges the district court erred in 

exercising its equitable power to award attorney fees upon 

-4-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 4 
concluding this was the type of "exceptional case" contemplated by 

15 u.s.c. § 1117(a). 4 Instead, defendant urges we insert a "but 

for"· condition to evaluate its otherwise wilful conduct. Indeed, 

at oral argument, appellate counsel for defendant conceded, 

although the case wis exceptional, defendant's conduct was based 

on the opinion he received from his attorney, blunting the 

apparent wilfulness which the court had found and shielding him 

from attorney fees. Hence, because counsel purportedly advised 

that the disparity in geographic areas eliminated a trademark 

problem, defendant's continued use of the same service mark after 

notice of infringement cannot be judged malicious, fraudulent, 

deliberate, or wilful. Defendant cites VIP Foods, Inc. v. Vulcan 

Pet, Inc., 675 F.2d 1106 (10th Cir. 1982), in which this circuit 

embraced the definition found in the legislative history of 15 

u.s.c. § 1117(a). See H.R. Rep. No. 93-524, 93~ Cong., 1st Sess. 

2 (1973); S. Rep. No. 93-1400, 93d Cong., 2d Sess. 4, reprinted in 

1974 U.S. Code Cong. & Admin. News 7132, 7133. 

TakeCare _responds that defendant does not challenge those 

findings which formed the basis for the court's award of attorney 

fees: (1) that defendant was aware of plaintiff's mark and chose 

to copy it; (2) that defendant could have discontinued its 

infringing use without hardship after the October 1983 

notification but continued to develop and market its service; and 

(3) that defendant offered no explanation for this conduct. 

4rn part, 15 u.s.c. § 1117(a) states: "When a violation of any 

right of the registrant of a mark registered in the Patent and 

Trademark Office shall have been established in any civil action 

arising under this chapter, ••• [t]he court in exceptional cases 

may award reasonable attorney fees to the prevailing party." 

-5-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 5 
TakeCare asserts defendant's mere statements about reliance, 

without any support in the record, are insufficient to upset the 

district court's exercise of discretion. 

A. 

A trademark identifies a source, a particular good or service 

which the consumer has found to be satisfactory. See 1 

J. McCarthy, Trademarks and Unfair Competition § 2:1 (1984). 

Thus, what is infringed is not the mark itself but "the right of 

the public to be free of confusion and the synonymous right of a 

trademark owner to control his product's reputation." General 

Elec. Co. v. Speicher, 877 F.2d 531, 535 (7th Cir. 1980) (quoting 

James Burrough Ltd. v. Sign of Beefeater; Inc., 540 F.2d 266, 274 

(7th Cir. 1976)). The district court's finding the public was, in 

fact, confused predicated its aligning all the underlying factual 

findings to decide, "subject to the principles of equity,'' the 

case was exceptional under 15 u.s.c. § 1117(a). 

Running through the case law, which has developed around a 

§ 1117(a) award of attorney fees, is the implicit recognition that 

some degree of bad faith fuels the infringement at issue. See, 

~, Gorenstein Enter., Inc. v. Quality Care-USA, Inc., 874 F.2d 

431 (7th Cir. 1989); Spring Mills, Inc. v. Ultracashmere House, 

Ltd., 724 F.2d 352 (2d Cir. 1983). In Gorenstein, 874 F.2d at 

435, for example, defendant continued to use plaintiff's trademark 

after its franchise was terminated, claiming the right to 

continue using the mark while rescission was sought even though 

defendant had previously argued abandonment and acquiescence. 

-6-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 6 
That type of persistent misuse, the Seventh Circuit found, could 

only be. characterized as deliberate, wilful, malicious and 

fraudulent. Thus, the presence of bad faith endows defendant's 

conduct with not only the knowledge that the act is wrongful but 

also the commitment to proceed anyway. See also Sealy, Inc. v. 

Easy Living, Inc., 743 F.2d 1373 (9th Cir. 1984). 

Nevertheless, we agree that, under certain circumstances, a 

party's reasonable reliance on the advice of counsel may defuse 

otherwise wilful conduct. In Cuisinarts, Inc. v. Robot-Coupe 

Int'l Corp., 580 F. Supp. 634, 638 (S.D.N.Y. 1984), the district 

court held "if a client seeks counsel's advice in a timely manner, 

makes adequate disclosure to counsel, receives counsel's opinion 

and then acts upon it, surely the Chancellor must pause before 

branding the client as a wilful, deliberate, fraudulent commercial 

thief •• II Absent this showing, counsel's advice alone will 

not "shield the actor from the consequences of his act." Id. 5 

Missing from our case, however, is any showing of what 

counsel advised defendant and, thus, defendant's failure to prove 

reasonable reliance. During trial, defendant corporation's 

C.E.O., Mr. Ralphs. Rhoades, explained how he had spontaneously 

and innocently arrived at the name TAKECARE after his 

dissatisfaction with the name Total Care. He testified that he 

disliked the name Total Care not only because he thought it was 

5we note parenthetically that the advice. of counsel is a 

protection against the tort of the wrongful initiation of civil 

proceedings even if the advice "consists merely of an opinion that 

the facts so known or believed afford a chance ••• that the 

claim asserted in the civil proceedings may be upheld." 

Restatement (Second) of Torts§ 675, comment g, (1976). 

-7-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 7 
misleading, the benefit plan offered had limitations, but also 

because a Missouri HMO used a similar name. Mr. Rhoades 

testified, "My concern was A: That was their trademark and we 

couldn't use it, in my judgment, without having some permission 

from them to use it. " ( R • III, 353). When asked why the 

TAKECARE mark did not cause the same concerns, Mr. Rhoades 

responded, "No, I did not [have the same concerns] because our 

attorneys had told us it was all right for us to use Takecare 

[sic] of Oklahoma. I was operating under advice of counsel. We 

had already obtained our incorporation. We were proceeding with 

our providers, we were proceeding with our licensure in Oklahoma 

and our attorneys advised us that we could proceed." (R. III, 

355-56). In subsequent testimony, Mr. Rhoades stated that he did 

not know the extent of his attorney's search but was assured 

"there was no problem federally as far as they knew, I think to 

the extent of their investigation. . . . II (R. III, 363). Mr. 

Rhoades could not recall what searches, in fact, were done; when 

he was first aware of TakeCare's protest; and what transpired 

during the Las Vegas meeting with TakeCare. Given Mr. Rhoades' 

apparent sophistication in business matters and his concern with 

possible problems from the Missouri HMO, the record remains silent 

on the key explanation defendant now proffers to answer the 

question why defendant proceeded to develop its HMO after notice 

of trademark infringement. Nowhere during trial or in its posttrial brief does defendant specify, in more than conclusory terms, 

what counsel's advice was to clarify how assurance that the 

-8-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 8 
TAKECARE name was available in Oklahoma would satisfy TakeCare's 

demand to cease and desist using the name nationally. 

In Cuisinarts, Inc., 580 F. Supp. 634, the court rejected an 

award of attorney fees on the ground defendant relied on counsel's 

advice in fashioning ads which its general and trademark counsel 

believed were not misleading. In so concluding, the court 

referenced the ample discovery made available including the 

deposition of counsel. In Universal City Studios, Inc. v. 

Nintendo Co., 797 F.2d 70 (2d Cir. 1986), the court rejected 

Universal's argument that it relied on the opinion of outside 

counsel in bringing an action for trademark infringement, not 9nly 

because it failed to call outside counsel to testify, but also 

because outside counsel had already given testimony in a related 

case which was contrary to Universal's position. In each case, 

the distriqt court had some means of establishing what the advice 

was or purported to be. See also Thomas Nelson, Inc. v. Cherish 

Books Ltd., 595 F. Supp. 989 (S.D.N.Y. 1984) (plaintiff 

demonstrated it was acting on advice of counsel in instituting 

trademark infringement action when it had not the slightest hint 

of defendant's use prior to plaintiff's adoption of. a similar 

mark). 

B. 

While we do not suggest any particular means of establishing 

good faith reliance on counsel is preferable, we do require some 

showing other than that offered in post-trial and appellate briefs 

in order to permit the district court to exercise its discretion 

properly in awarding attorney fees. On the record before us, 

-9-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 9 
defendant, having raised interstate trademark concerns previously, 

I 

appeared to have relied solely on its counsel's opinion that its 

trademark was valid in Oklahoma. Under these circumstances, proof 

of reliance was insufficient. To otherwise now permit defendant 

to shim up its trial showing and conclude the district court 

abused its discretion is not warranted. 

AFFIRMED. 

-10-

Appellate Case: 88-1271 Document: 010110135858 Date Filed: 11/17/1989 Page: 10