1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

12-9-1994

AT&T, Co. v. Winback and Conserve Program, Inc.

Precedential or Non-Precedential:

Docket 94-5305

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Recommended Citation

"AT&T, Co. v. Winback and Conserve Program, Inc." (1994). 1994 Decisions. Paper 213.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/213
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 _________________ 

 No. 94-5305 

 _________________ 

 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

 _________________ 

 On Appeal from the United States District Court 

 for the District of New Jersey 

 (D.C. Civ. No. 93-5456) 

 _________________ 

 Argued November 1, 1994 

 BEFORE: GREENBERG and McKEE, Circuit Judges, 

 and POLLAK, District Judge* 

 (Filed: December 9, 1994) 

 _________________ 

 FREDERICK L. WHITMER (argued) 

 FRANCINE A. FRANKLIN 

 Pitney, Hardin, Kipp & Szuch 

 P.O. Box 1945 

 Morristown, NJ 07962-1945 

 EDWARD R. BARILLARI 

 AT&T Corp. 

 295 N. Maple Ave. 

 Basking Ridge, NJ 

 Attorneys for Appellant

 
*The Honorable Louis H. Pollak, United States District Judge for 

the Eastern District of Pennsylvania, sitting by designation. 

 H. CURTIS MEANOR (argued) 

 LAWRENCE S. COVEN 

 MARTHA LEWIS MARCUS 

 Podvey, Sachs, Meanor, Catenacci, 

 Hildner & Cocoziello, P.C. 

 The Legal Center 

 One Riverfront Plaza 

 Newark, NJ 07102 

 CHARLES H. HELEIN 

 Helein & Waysdorf, P.C. 

 1850 M. Street, N.W. 

 Suite 550 

 Washington, DC 20036 

 Attorneys for Appellees

 _____________________________ 

 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, 851 F. Supp. 617 (D.N.J. 1994) 

("Winback"). Because we find that the district court committed 

errors of law in denying AT&T's motion for a preliminary 
injunction against Winback and Inga, we will vacate the Order of 

the district court and we will remand the matter for further 

proceedings. 

 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, 

60 F.C.C.2d 261 (1976); In the Matter of Regulatory Policies 

Concerning Resale and Shared Use of Common Carrier Domestic 

Public Switched Network Services, 83 F.C.C.2d 167 (1980); 

Winback, 851 F. Supp. at 618. The resale market works as 

follows: Resellers, or aggregators, subscribe to AT&T programs 

which provide large discounts for high volume purchases of AT&T 

 

1. Unless otherwise noted, the facts set forth in the text are 

taken from the district court's Opinion in this case, reported at 

851 F. Supp. 617 (D.N.J. 1994). 
telecommunications services. The resellers then sell the 

services to individual businesses that do not generate sufficient 

volume to qualify individually for the high-volume discounts. 

Thus, by providing the services to these end-users, resellers 

make a profit while end-users receive access to the AT&T network 

at a significantly lower cost than if they purchased services 

from AT&T directly. Under some programs -- including the one at 

issue on this appeal -- AT&T bills the end-users directly and 

they make payments directly to AT&T. Also, pursuant to some 

resale agreements, the end-users receive the services associated 

with access to the AT&T network directly from AT&T.2 

Nonetheless, in the resale business, only the reseller is a 

customer of AT&T; the end-users are customers of the reseller and 

not of AT&T. 

 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, 

 

2. This is accomplished by the reseller's issuance of a letter 

of agency. Winback, 851 F. Supp. at 619. 
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, 851 F. 

Supp. at 620. The district court informed the parties that the 

motion for contempt would not be heard until discovery was 

 

3. AT&T v. One Stop Fin., Inc., No. 92-1489 (D.N.J.) (NHP). See

AT&T Brief at 3. 

4. See AT&T Complaint ¶48 at app. at 20; Winback Answer ¶48 at 

app. 379. 

5. See AT&T Brief at 4. 
completed. AT&T responded by filing this action, on December 13, 

1993, against Winback and Inga, alleging false designation of 

origin, passing off, and unprivileged imitation in violation of 

section 43(a) of the Lanham Act, 15 U.S.C. § 1125, as well as 

various state common law claims. AT&T sought, among other 

relief, temporary restraints, and preliminary and permanent 

injunctions. The district court held a hearing on AT&T's 

application for a temporary restraining order on December 15, 

1993. See Order To Show Cause With Temporary Restraints, app. at 

366. On December 17, 1993, the district court issued a temporary 

restraining order enjoining and restraining "Defendants, together 

with their officers, agents, servants, employees, attorneys and 

all persons in active concert or participation with them" from: 

 (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, 851 F. Supp. at 619. 

 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, 851 F. 

Supp. at 621 (citing testimony of Arthur Sanchez and Daniel 

Flood); certification of Daniel A. Flood at 2, app. 72. Several 

witnesses also testified that information contained in various 

written materials misled them into believing that Winback was a 

division of AT&T. 

 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, 851 F. Supp. at 620-21; certification, app. at 36-40. 

More generally, several other end-user customers testified to 

being confused by the following materials they received from 

Winback's sales representatives: (1) a facsimile cover sheet not 

mentioning Winback but stating that "[w]e are bringing you 

together for less with AT&T network services", see Winback, 851 

F. Supp. at 621; certification of Arthur W. Sanchez at 4 & 

Exhibit A, app. at 58, 61; (2) a facsimile cover sheet entitled 

"The New AT&T 800 Winback & Conserve Program" and stating "Please 

authorize discount acceptance immediately and fax back to 1-800-

251-5491 for forwarding to the AT&T Input Department", see
Winback, 851 F. Supp. at 621-22 (citing testimony of Ekaterina 

Hall, Karen Kelly, Daniel Flood, and Phillip Kenney)6; (3) the 

transfer form displaying the AT&T initials and globe symbol in 

the corner, id. (citing testimony of Ekaterina Hall, Karen Kelly, 

Arthur Sanchez, Daniel Flood, Thomas Malanga, and Phillip 

Kenney); (4) a main billed form stating "Winback & Conserve 

Program" at the top, id. at 621-23 (citing testimony of Debra 

Dahl Vogel, Ekaterina Hall, Karen Kelly, Phillip Kenney, James 

Angelici and Kay Mills); (5) an information form detailing the 

Winback program and instructing the customer to complete the 

accompanying main billed form "provided to us by AT&T", id. at 

621 (citing testimony of Arthur Sanchez); (6) a form entitled 

"AT&T 800 Readyline Summary of Charges", displaying the AT&T 

initials and globe, id. at 621 (citing testimony of Daniel 

Flood); and (7) several other documents referencing the "Winback 

and Conserve Program". Id. at 621-23. Based on the oral 

representations and the written documents, the witnesses 

testified that they believed they were dealing with AT&T's 

Winback and Conserve Program, rather than with a reseller that 

was a separate corporation. Id. 7 However, the evidence 

indicated that all the allegedly infringing actions were 

performed by the sales agencies or the sales representatives, 

 

6. Apparently, AT&T does not have an input department. 

7. 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. 
without the knowledge, consent, assistance or encouragement of 

Winback or Inga. Id. at 623. 

 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. § 

1292(a)(1). The district court properly exercised jurisdiction 

over AT&T's Lanham Act claims pursuant to 28 U.S.C. §§ 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., 847 F.2d 100, 102 (3d Cir. 1988) (citing United States v. 

City of Philadelphia, 644 F.2d 187, 191 n. 1 (3d Cir. 1980)). 

This proposition is particularly apt in motions for preliminary

injunctions, when the motion comes before the facts are developed 

to a full extent through the normal course of discovery. In 

ruling on a motion for a preliminary injunction, the court must 

consider: 
 (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, 920 F.2d 187, 191-92 

(3d Cir. 1990). The injunction should issue 

only if the plaintiff produces evidence 

sufficient to convince the district court 

that all four factors favor preliminary 

relief. Id. at 192. 

Merchant & Evans, Inc. v. Roosevelt Bldg. Prods., 963 F.2d 628, 

632-33 (3d Cir. 1992).8

 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, 847 F.2d 

at 101 (quoting Moteles v. University of Pennsylvania, 730 F.2d 

913, 918 (3d Cir.), cert. denied, 469 U.S. 855, 105 S.Ct. 179 

(1984)). The scope of our review is narrow because "'the grant 

or denial of a preliminary injunction is almost always based on 

an abbreviated set of facts, requiring a delicate balancing 

 

8. 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., 903 F.2d 186, 197-98 (3d 

Cir. 1990); Morton v. Beyer, 822 F.2d 364, 367 & n.3 (3d Cir. 

1987); Oburn v. Shapp, 521 F.2d 142, 147 (3d Cir. 1975). As a 

practical matter, if a plaintiff demonstrates both a likelihood 

of success on the merits and irreparable injury, it almost always 

will be the case that the public interest will favor the 

plaintiff. Nonetheless, district courts should award preliminary 

injunctive relief only upon weighing all four factors. See

Duraco Prods., Inc. v. Joy Plastic Enter., Ltd., No. 93-3323, 

slip op. at 11 (3d Cir. Nov. 15, 1994). 
[that] is the responsibility of the district judge.'" Frank's 

GMC Truck Center, 847 F.2d at 101-02 (alteration in original) 

(quoting United States Steel Corp. v. Fraternal Ass'n of 

Steelhaulers, 431 F.2d 1046, 1048 (3d Cir. 1970)). 

 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, 963 F.2d at 633 (alteration in 

original) (quoting John F. Harkins Co. v. Waldinger Corp., 796 

F.2d 657, 658 (3d Cir. 1986), cert. denied, 479 U.S. 1059, 107 

S.Ct. 939 (1987)). Therefore, "'[d]espite oft repeated 

statements that the issuance of a preliminary injunction rests in 

the discretion of the trial judge whose decisions will be 

reversed only for "abuse", a court of appeals must reverse if the 

district court has proceeded on the basis of an erroneous view of 

the applicable law.'" Apple Computer, Inc. v. Franklin Computer 

Corp., 714 F.2d 1240, 1242 (3d Cir. 1983) (quoting Donovan v. 

Bierwirth, 680 F.2d 263, 269 (2d Cir.), cert. denied, 459 U.S. 

1069, 103 S.Ct. 488 (1982)), cert. dismissed, 464 U.S. 1033, 104 

S.Ct. 690 (1984). In the final analysis, "[w]e review the 

district court's conclusions of law in a plenary fashion, its 

findings of fact under a clearly erroneous standard, and its 

decision to grant or deny an injunction for abuse of discretion." 

Johnson & Johnson-Merck Consumer Pharmaceuticals, Inc. v. RhonePoulenc Rorer Pharmaceuticals, Inc., 19 F.3d 125, 127 (3d Cir. 

1994) (citations omitted); see also Duraco Prods., slip op. at 

12. 
 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. § 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., slip op. at 12; American 

Greetings Corp. v. Dan-Dee Imports, Inc., 807 F.2d 1136, 1140 (3d 

Cir. 1986) (citing Williams v. Curtiss-Wright Corp., 691 F.2d 

168, 172 (3d Cir. 1982)); see also 3 J. Thomas McCarthy, McCarthy 

on Trademarks and Unfair Competition, §27.02[1] at 27-13 

(hereinafter "McCarthy on Trademarks"). In order to succeed on 

its claim, AT&T must prove by a preponderance of the evidence 

that: 

 (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, § 27.03[1][a] at 27-21.9

 

9. 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. § 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; 
 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 they 

claim to have little control. 

(..continued) 

(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, 19 F.3d at 129 (quoting U.S. Healthcare, 

Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 922-23 

(3d Cir. 1990), cert. denied, 498 U.S. 816, 111 S.Ct. 58 (1990) 

(quoting Max Daetwyler Corp. v. Input Graphics, Inc., 545 F. 

Supp. 165, 171 (E.D. Pa. 1982)). In cases alleging unprivileged 

imitation of the plaintiff's marks, a plaintiff must prove "(1) 

that the imitated feature is non-functional, (2) that the 

imitated feature has acquired a 'secondary meaning,' and (3) that 

consumers are likely to confuse the source of plaintiff's product 

with that of defendant's product." American Home Prods. Corp. v. 

Barr Lab., Inc., 834 F.2d 368, 370 (3d Cir. 1988) (citation 

omitted). A claim of passing off generally focuses solely on the 

likelihood of the customers' confusion, and involves a comparison 

between the two products. The essence of AT&T's claims is not 

that the defendants misled customers purely by misuse of the AT&T 

initials and the AT&T globe, but that by a series of 

misrepresentations -- including oral representations, misleading 

use of AT&T's marks, and misleading description of Winback's name 

-- the defendants confused end-user customers into believing 

Winback was affiliated with AT&T. Thus, none of the tests 

outlined in this footnote adequately captures the essence of 

AT&T's claims. The test we employ is geared to the factual 

situation of this case. 
 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. ____, ____, 114 

S.Ct. 1439, 1446 (1994) ("With respect [to] the scope of conduct 

prohibited by [a statute], the text of the statute controls our 

decision."); Electronic Lab. Supply Co. v. Cullen, 977 F.2d 798, 

806 (3d Cir. 1992) ("'Where a statute specifically limits those 

who may be held liable for the conduct described by the statute, 

the courts cannot extend liability . . . to those who do not fall 

within the categories of potential defendants described by the 

statute.'") (quoting In re Equity Corp. of America Sec. Litig., 

416 F. Supp. 161, 181 (C.D. Cal. 1976)). The questions to be 

addressed are (1) whether the district court was correct in 

importing common law doctrines into section 43(a) of the Lanham 

Act and (2) if so, whether the district court properly applied 

those doctrines. 

 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, 824 F.2d 1349, 1356 (3d Cir. 1987) 
(citing American Soc'y of Mechanical Eng'rs v. Hydrolevel Corp., 

456 U.S. 556, 570, 102 S.Ct. 1935, 1944-45 (1982)); O'Neil v. 

Q.L.C.R.I., Inc., 750 F. Supp. 551, 555 (D.R.I. 1990). Of 

course, the days of a general federal common law have long since 

passed, see Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 

817, 822 (1938), and courts should be wary about looking outside 

of the statute itself to expand the scope of liability, lest they 

accurately be accused of legislating from the bench. Cf. Stomper 

v. Amalgamated Transit Union, Local 241, 27 F.3d 316, 319 (7th 

Cir. 1994) ("Once Congress has legislated, the common-law rules 

courts apply to fill interstices fall away."). Thus, when a 

statute is self-contained, the scope of our interpretation is 

constrained by the statutory language itself. See, e.g., Central 

Bank, ____ U.S. at ____, 114 S.Ct. at 1447. Nonetheless, when 

the importation of common law doctrines will advance the goals of 

the statute, courts may utilize the doctrines, provided the 

courts "conform [the] implied remedies to the rules Congress 

devised for the remedies it authorized expressly." Stomper, 27 

F.3d at 319. 

 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 

 

10. It does not appear that Winback raised this argument before 

the district court. The district court noted that "[Winback] and 
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 ____, 114 S.Ct. at 1443. Examining the language of the 

statute, as well as the Court's own tendency to construe narrowly 

the scope of conduct prohibited by the Exchange Act, the Court 

concluded that an action cannot be maintained for aiding and 

abetting securities fraud: "[T]he statute prohibits only the 

making of a material misstatement (or omission) or the commission 

of a manipulative act [and this] proscription does not include 

giving aid to a person who commits a manipulative or deceptive 

act." Id. , 114 S.Ct. at 1148. 

(..continued) 

Inga do not dispute the applicability of the common law of 

agency." Winback, 851 F. Supp. at 624. On this appeal, however, 

Winback states that "[i]t is the position of the defendants that 

the Lanham Act permits neither vicarious liability nor aiding and 

abetting liability." Appellee's brief at 34. It also writes: 

"The statute covers only primary liability. It does not include 

vicarious liability, respondeat superior liability or aiding and 

abetting liability. The defendants have not been accused 

personally of violating the statute and cannot be held liable 

under it. This case is as simple as that." Id. at 37. At oral 

argument, Winback explicitly made this argument. AT&T does not 

contend that Winback waived this argument by failing to raise it 

before the district court. Thus, we address it on the merits. 
 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 ____, 114 S.Ct. at 

1460 n.12 (Stevens, J. dissenting). Nonetheless, we do not 

believe that the Court's restrictive reading of the Exchange Act 

impacts on the determination of the scope of liability under the 

Lanham Act. 

 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 , 114 S.Ct. at 

1447 ("statutory text controls the definition of conduct covered 

by § 10(b) [and] 'the language of Section 10(b) does not in terms 

mention aiding and abetting.'") (quoting Brief for Securities and 

Exchange Commission as Amicus Curiae at 8). Thus, the Court saw 

the case as involving another in a series of attempts by 

plaintiffs and the SEC to broaden the statute to prohibit conduct 

simply not covered by the actual statutory language. See, e.g.,

Chiarella v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108, 

1118 (1980) ("When an allegation of fraud [under section 10(b)] 

is based upon nondisclosure, there can be no fraud absent a duty 

to speak"); Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 476, 97 
S.Ct. 1292, 1302 (1977) (statute does not prohibit "a breach of 

fiduciary duty by majority stockholders, without any deception, 

misrepresentation, or nondisclosure" because such an act is not 

manipulative or deceptive conduct); Ernst & Ernst v. Hochfelder, 

425 U.S. 185, 201, 96 S.Ct. 1375, 1384-85 (1976) (refusing to 

expand scope of liability under section 10(b) of Securities 

Exchange Act beyond knowing or intentional misconduct). Once 

again, the Court simply refused to expand "the scope of conduct 

prohibited by the statute." Central Bank, ____ U.S. at ____, 114 

S.Ct. at 1453. 

 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., 977 F.2d at 805; Petro-Tech, 824 F.2d 

at 1356. While it has been borrowed in certain civil contexts, 

"[p]recedent, except in the securities area, is largely confined 

to isolated acts of adolescents in rural society." Halberstam v. 

Welch, 705 F.2d 472, 489 (D.C. Cir. 1983) (also quoted in Central 

Bank, ____ U.S. at ____, 114 S.Ct. at 1450). This is because 

aiding and abetting liability, with its focus on the defendant's 

substantial and knowing assistance to the commission of a tort, 

rests by definition upon acts that encourage a tort rather than 

acts constituting the tort. See, e.g., Halberstam, 705 F.2d at 

481-86 (canvassing aiding and abetting tort cases). By 

definition then, the act rendered unlawful under an aiding and 
abetting theory is different than the act rendered unlawful by 

the underlying tort. 

 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., 824 F.2d at 

1356-58 (discussing aiding and abetting and vicarious liability 

separately).11 Indeed, in some instances, liability cannot be 

imposed without reference to agency principles -- a corporation 

can only act through its agents, and therefore only can be bound 

through application of agency principles. 

 

11. 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, § 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. 
 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., 278 U.S. 349, 356, 49 S.Ct. 

161, 162-63 (1929). More recently, in American Soc'y of 

Mechanical Eng'rs, Inc. v. Hydrolevel Corp., the Supreme Court 

began its analysis of whether apparent authority applies in the 

antitrust context with the premise that "[t]he apparent authority 

theory has long been the settled rule in the federal system." 

Hydrolevel, 456 U.S. at 567, 102 S.Ct. at 1943 (citing Ricketts 

v. Pennsylvania R.R. Co., 153 F.2d 757, 759 (2d Cir. 1946)).12 

 

12. 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, 641 F.2d 805 (9th Cir. 1981) 

(federal tax liability); National Acceptance 

Co. v. Coal Producers Assn., 604 F.2d 540 

(7th Cir. 1979) (common-law fraud); Holloway 

v. Howerdd, 536 F.2d 690 (6th Cir. 1976) 

(federal securities fraud); United States v. 

Sanchez, 521 F.2d 244 (5th Cir. 1975) (bail 

bond fraud), cert. denied, 429 U.S. 817, 97 

S.Ct. 59 (1976); Kerbs v. Fall River 

Industries, Inc., 502 F.2d 731 (10th Cir. 

1974) (federal securities fraud); Gilmore v. 
In Hydrolevel, the Supreme Court followed the approach of the 

Restatement (Second) of Agency, and held that "a principal is 

liable for an agent's misrepresentations that cause pecuniary 

loss to a third party, when the agent acts within the scope of 

his apparent authority." Id. at 566, 102 S.Ct. at 1942 (citing 

Restatement (Second) of Agency §§ 249, 262 (1957); Rutherford v. 

Rideout Bank, 80 P.2d 978 (Cal. 1938)). 

 More recently, following earlier precedents, we have 

recognized respondeat superior liability under Title VII of the 

Civil Rights Act of 1964. Spain v. Gallegos, 26 F.3d 439, 450 

(3d Cir. 1994). See also Karibian v. Columbia Univ., 14 F.3d 

773, 780 (2d Cir.) ("an employer is liable for the 

discriminatorily abusive work environment created by a supervisor 

if the supervisor uses his actual or apparent authority to 

further the harassment, or if he was otherwise aided in 

accomplishing the harassment by the existence of the agency 

relationship"), cert. denied, ____ U.S. ____, 114 S.Ct. 2693 

(1994). And "[f]ederal courts have routinely applied [respondeat 

superior] principles in fair housing cases and held principals 

liable for the discriminatory acts of their agents." City of 

Chicago v. Matchmaker Real Estate Sales Center, Inc., 982 F.2d 

1086, 1096 (7th Cir. 1992), cert. denied, ____ U.S. ____, 113 

S.Ct. 2961 (1993); see also Northside Realty Assocs. Inc. v. 

(..continued) 

Constitution Life Ins. Co., 502 F.2d 1344 

(10th Cir. 1974) (common-law fraud). 

Hydrolevel, 456 U.S. at 568, 102 S.Ct. at 1943. 
United States, 605 F.2d 1348, 1353-54 (5th Cir. 1979). Thus, 

Central Bank's discussion of aiding and abetting should not be 

transplanted into the more settled realm of agency law.13

 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 ____, 114 S.Ct. at 

1444 ("we pa[y] close attention to the statutory text in defining 

the scope of conduct prohibited by § 10(b)"). Thus, in contrast 

to the Court's restrictive reading of the Exchange Act, the Court 

has endorsed and applied a theory of secondary liability for 

trademark infringement that comes very close to aiding and 

abetting. The Court first enunciated the rule over 70 years ago, 

prior to the enactment of the Lanham Act, when the Court was 

concerned with constructing and enforcing a common law of unfair 

competition. William R. Warner & Co. v. Eli Lilly & Co., 265 

 

13. Winback also relies on Monell v. Dep't of Social Servs. of 

City of New York, 436 U.S. 658, 98 S.Ct. 2018 (1978), which held 

that a municipality could not be held liable under 42 U.S.C. § 

1983 under a theory of respondeat superior liability. That case 

is clearly inapposite. There, the Court relied not just on the 

language of the statute, but the scheme of causation that must be 

proven in order to hold a party liable. Moreover, the Court 

relied heavily on the legislative history and the fact that 

"creation of a federal law of respondeat superior would have 

raised all the constitutional problems associated with the 

obligation to keep the peace, an obligation Congress chose not to 

impose because it thought imposition of such an obligation 

unconstitutional." Id. at 693, 98 S.Ct. at 2037. 
U.S. 526, 44 S.Ct. 615 (1924). In that case, the Court held that 

a manufacturer of a pharmaceutical product could in certain 

instances be held liable for acts of infringement by distributors 

and retailers of the product. Relying on the general proposition 

that "[o]ne who induces another to commit a fraud and furnishes 

the means of consummating it is equally guilty and liable for the 

injury," id. at 530-31, 44 S.Ct. at 617 (citing Hostetter Co. v. 

Brueggeman-Reinert Distilling Co., 46 Fed. 188, 189 (C.C.D. Mo. 

1891)), the Court reached what it saw as a self-evident 

conclusion: an entity is liable for trademark infringement if it 

contributes to the infringement. The theory of "contributory 

infringement", as it came to be called, survived into the 

statutory era. As the Supreme Court explained in a case 

involving section 32 of the Lanham Act: 

 [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., 456 U.S. 844, 854, 102 

S.Ct. 2182, 2188 (1982). "The two elements for contributory 

infringement are thus summed up as (1) supply of a product, and 

(2) knowledge of direct infringement." Fonovisa, Inc. v. Cherry 
Auction, Inc., 847 F. Supp. 1492, 1498 (E.D. Cal. 1994). Of 

course, there is no reason why the doctrine should be confined in 

application to manufacturers, and indeed, other courts have 

expanded it beyond that particular origin. See, e.g., Mini Maid 

Servs. Co. v. Maid Brigade Sys., Inc., 967 F.2d 1516, 1522 (11th 

Cir. 1992) (doctrine could hold franchisor liable for infringing 

actions of its franchisee when "franchisor explicitly or 

implicitly encouraged the trademark violations"); Hard Rock Cafe 

Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1149 

(7th Cir. 1992) (landlord of flea market could be liable for its 

tenant's sale of an infringing product where the landlord is 

found to have been "wilfully blind" to the infringing acts); but 

see Fonovisa, 847 F. Supp. at 1498 (refusing to apply doctrine of 

contributory infringement "to impose liability on third parties 

who have never had a traditional role in enforcing the Lanham 

Act").14

 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 

 

14. 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, 851 F. Supp. at 631. 
further the goals of the statute. See, e.g., Hydrolevel, 456 

U.S. at 570, 102 S.Ct. at 1944. In Hydrolevel, the Court, 

finding that "under general rules of agency law, principals are 

liable when their agents act with apparent authority and commit 

torts analogous to the antitrust violation presented by this 

case", simply looked at the policy behind the antitrust laws to 

determine whether the doctrine should be applied. Id. at 565-66, 

570, 102 S.Ct. at 1942, 1944. Because "apparent authority theory 

is consistent with the congressional intent to encourage 

competition", the Court applied the doctrine. Id.

 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., 977 F.2d at 806 (section 

34(d)(11) of Lanham Act is like a "tort" statute); Hard Rock 

Cafe, 955 F.2d at 1148 (trademark infringement is a "species of 

tort" and "we . . . have turned to the common law to guide our 
inquiry into the appropriate boundaries of liability"); David 

Berg and Co. v. Gatto Int'l Trading Co, Inc., 884 F.2d 306, 311 

(7th Cir. 1989) ("unfair competition and trademark infringement 

are tortious"); 3 McCarthy on Trademarks § 25.03[1] at 25-34 

("trademark infringement and unfair competition are torts"). We 

previously have held that the "federal law of unfair competition 

under § 43(a) is not significantly different from the New Jersey 

[common] law of unfair competition" and have applied the 

identical test to both claims. American Greetings Corp. v. DanDee Imports, Inc., 807 F.2d 1136, 1141 (3d Cir. 1986); see also

American Home Prods. Corp. v. Barr Lab., Inc., 656 F. Supp. 1058, 

1061 (D.N.J. 1987) (same), aff'd, 834 F.2d 368 (3d Cir. 1987). 

Other courts have ruled similarly. See, e.g., Words & Data, Inc. 

v. GTE Communications Servs., Inc., 765 F. Supp. 570, 579 (W.D. 

Mo. 1991) ("Missouri common law regarding unfair competition is 

coextensive with federal law"); Worthington Foods, Inc. v. 

Kellogg Co., 732 F. Supp. 1417, 1431 (S.D. Ohio 1990) ("an 

analysis appropriate for a determination of liability under 

section 43(a) of the Lanham Act is also appropriate for 

determining liability under the Ohio Deceptive Trade Practices 

Act"). Therefore, because section 43(a) parallels state tort law 

and is derived from tort common law, it is self-evident that 

application of at least some tort concepts of liability will 

"advance the goals of [the Act]." Petro-Tech, Inc., 824 F.2d at 

1356. 

 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., 747 F.2d 81, 91 n.13 (2d 

Cir. 1984), cert. denied, 470 U.S. 1052, 105 S.Ct. 1755 (1985). 

By expressly creating a private right of action against the 

infringer, the Act creates a "statutory tort of broad[] scope" 

that "provides a private remedy to a commercial plaintiff who 

meets the burden of proving that its commercial interests have 

been harmed by a competitor's [misrepresentations]". Sandoz 

Pharmaceuticals Corp. v. Richardson-Vicks, Inc., 902 F.2d 222, 

227, 230 (3d Cir. 1990). Here, the parties recognize that AT&T 

has the right to sue the sales representatives under section 

43(a). But, as Winback acknowledges, "it would be inconvenient 

for AT&T to initiate suit in separate jurisdictions against every 

independent contractor which it believes violated its 

intellectual property rights." Appellee br. at 13-14. The only 

feasible way for AT&T to assert its federal rights would be to 

sue the principal, who, if an agency relationship is established, 

is able to exercise at least some control over its agents, who 

authorized the sales representatives to enter into contracts on 

its behalf, and who receives direct financial benefits from those 

 

15. 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, 1992 Bankr. 

LEXIS 711 at * 47-48 (N.D. Ill. April 23, 1992). 
contracts. If the Act prohibited such liability, then infringing 

actions would continue undeterred, a company would benefit from 

undeterred unlawful acts, and the statute's purpose to prohibit 

unfair competition would go unrealized. "'[I]t would be unjust 

to permit an employer to gain from the intelligent cooperation of 

others without being responsible for the mistakes, the errors of 

judgment and the frailties of those working under his direction 

and for his benefit.'" Petro-Tech, 824 F.2d at 1358 (quoting 

Restatement (Second) of Agency § 219, comment (a) on subsection 

(1)). 

 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, 634 A.2d 74, 79 (N.J. 1993) (citing Arcell v. Ashland Chem. 

Co., 328 A.2d 53, 65 (N.J. Law Div. 1977); 2A C.J.S. Agency § 37 

(1972); Restatement (Second) of Agency § 1 (1958)). Depending 

upon the right of control capable of being exercised by the 

principal over the agent, agents are characterized either as 

servants or independent contractors. Servants generally are 

 

16. 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, 955 F.2d at 1148 

("we have . . . turned to the common law to guide our inquiry 

into the appropriate boundaries of liability"); Getty Petroleum 

Corp. v. Island Transp. Corp., 862 F.2d 10, 16 (2d Cir. 1988) 

(declining to find right of contribution under the Lanham Act 

because "[t]here is no federal common law of contribution"), 

cert. denied, 490 U.S. 1006, 109 S.Ct. 1642 (1989). 

 In W.T. Rogers Co., Inc. v. Keene, 778 F.2d 334 (7th 

Cir. 1985), the Court of Appeals for the Seventh Circuit phrased 

the problem as follows: If the Lanham Act provides simply "a 

federal remedy for unfair competition", the court should apply 

the common law of the relevant state. If, however, the Act is 

interpreted as creating "a federal substantive law of unfair 

competition", then the suit is "to enforce a federal common law 

trademark, and the court is not bound to follow the common law of 

a particular state." Id. at 338. But in Rogers the court did 

not resolve the question. Because of uniformity concerns 

implicated by applying different law to identical claims, 

depending on the state where the complaint is filed, we are 

inclined to favor application of general principles of federal 

common law. Nonetheless, we need not decide this issue today, 

because in the doctrinal areas relevant to this case, New Jersey 

law is in accord with general principles of common law. 
employees of the principal, and are subject to physical control 

by the principal. As one court has explained the distinction: 

 '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, 484 A.2d 1023, 1028 (Md. Ct. Sp. App. 1984) 

(quoting Globe Indem. Co. v. Victill Corp., 119 A.2d 423, 427 

(Md. 1956)). Thus, if "'the employer assumes the right to 

control the time, manner, and method of executing the work, as 

distinguished from the right merely to require certain definite 

results in conformity to the contract,'" a master-servant agency 

relationship has been created. Stewart v. Midani, 525 F. Supp. 

843, 845 (N.D. Ga. 1981) (applying Georgia law) (quoting Blair v. 

Smith, 41 S.E.2d 133, 135 (Ga. 1947)). If, however, the agent is 

not subject to that degree of physical control, but is only 

subject to the general control and direction by the principal, 

the agent is termed an independent contractor. Id. at 846; see 

also Nazworth v. Swire Florida, Inc., 486 So.2d 637, 638 (Fla. 

Dist. Ct. App. 1986) ("'independent contractor' is a term which 

is antithetical to the word 'servant', although not to the word 

'agent'") (quoting Restatement (Second) Agency section 14(N), 

Comment (a)). Thus, all agents who are not servants are 

"independent contractors." Moreover, all non-agents who 

contract to do work for another are also termed "independent 
contractors". For example, a person who contracts to build a 

swimming pool for another is the latter's independent contractor. 

There are, then, agent-independent contractors and non-agent 

independent contractors. 

 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, 625 A.2d 458, 464 (N.J. 1993) 

(emphasis added) (quoting JMB Enter. v. Atlantic Employers Ins., 

550 A.2d 764, 767 (N.J. Super. Ct. App. Div. 1988)). On the 

other hand, "the principal [generally] is not vicariously liable 

for the torts of the independent contractor if the principal did 

not direct or participate in them." Baldasarre, 625 A.2d at 465 

(emphasis added); Sanders, 484 A.2d at 1028-29 ("where the agent 

is not a servant, the principal is not liable for the agent's 

negligent conduct 'unless the act was done in the manner 

authorized or directed by the principal, or the result was one 

authorized or intended by the principal.'") (citations omitted); 

Nazworth, 486 So.2d at 638 ("The general rule . . . is that an 

owner, employer, or contractee will not be held liable for the 

torts of an independent contractor or of the latter's employees 

committed in the performance of the contracted work.") (citations 

omitted). As the New Jersey Supreme Court has explained, the 

independent contractor is "'characterized by the attributes of 
self-employment and self-determination in the economic and 

professional sense'". Baldasarre, 625 A.2d at 465 (quoting Rokos 

v. State, Dep't of Treasury, 564 A.2d 1217, 1220 (N.J. Super. Ct. 

App. Div. 1989)). Since the employer 

 '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, 625 A.2d at 465 (quoting Prosser and Keeton on Torts, 

§ 71). 

 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, 625 A.2d at 465. Therefore, the Court concluded that 

"[a]n innocent client should not be held vicariously liable for 

the wrongful conduct of his or her attorney against the 

attorney's other clients if the client does not direct, advise, 

consent to or participate in the attorney's improper conduct." 

Id. at 465. The district court in this case analogized as 

follows: 

 [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. 
851 F. Supp. at 626. 

 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." 851 F. Supp. at 626. Nonetheless, the district 

court correctly recognized that Winback exercises minimal control 

over the manner in which the representatives perform their work, 

and no control at all even over whether the representatives 

choose to market their company. Moreover, the representatives 

work for any number of companies at the same time, are paid 

purely based on the results they obtain, and operate their own 

businesses with their own expenses. The fact that Winback 

attempted to police the representatives to prevent 

misrepresentations does not change our result. "[A]n employer 

does not transform an independent contractor into a servant 

merely because he wishes to supervise the project as it 

transpires." Brady v. Ralph Parsons Co., 520 A.2d 717, 731 (Md. 

1987). 

 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 agentindependent contractors or non-agent independent contractors.17

 

17. 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, 625 A.2d at 465 (quoting Prosser and Keeton on Torts, 

§ 71). But Prosser and Keeton rely in turn on the Second 

Restatement of Agency for their liability proposition, and the 

authors recognize that there are agent-independent contractors 

and non-agent independent contractors: 

 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, § 70 at 508 (citing, among other 

authorities, numerous sections of the Restatement (Second) of 
 b. 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 nonservant 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 

(..continued) 

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 § 257 at 558 (cited in Prosser and Keeton, § 

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., 634 A.2d at 83-84. Since it 

can in no way be argued that the attorney was the title insurer's 

servant, the Court implicitly recognized the category of agentindependent contractors. 
definition a non-agent. Winback, 851 F. Supp. at 626. Moreover, 

in determining that the representatives were independent 

contractors, the court used precisely the factors normally used 

to distinguish between servants and independent contractors: the 

principal's right of physical control, the place where the 

representatives work, the method of payment, the fact that the 

representatives had their own business enterprises. See Warren 

A. Seavey, Agency, § 84 at 142 (1964) (hereinafter "Seavey") 

("the relation of master and servant is indicated by the fact 

that the employee is given a salary and is employed for a 

considerable period; that he is using an instrumentality of the 

principal on his premises; that the work is unskilled, usually 

supervised; that the one employed does not have a distinct 

business"). 

 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, 484 A.2d at 1029. A principal is not generally 

liable for physical torts committed by its independent 

contractor-agent, but a principal will be held liable for the 

independent contractor-agent's misrepresentations "upon matters 
which the principal might reasonably expect would be the subject 

of representations, provided the other party has no notice that 

the representations are unauthorized." Id. at 1029 (quoting 

Restatement (Second) of Agency § 258); see also Nagels v. 

Christy, 330 S.W.2d 754, 757 (Mo. 1959) (principal liable for 

misrepresentations by independent contractor sales agent) (citing 

cases). As one commentator has written: 

 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, § 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., 634 A.2d at 83. Correctly characterized, then, 

the doctrine simply states a circumstance in which the principal 

justly is held responsible for the torts of its independent 

contractor-agent. 

 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 

 

18. 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 43-44 (quoting Seavey). 
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, § 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 agentindependent 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 § 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, 851 F. Supp. at 629. The district court's premise was 

incorrect. "Apparent authority arises in those situations where 

 

19. 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. 
the principal causes persons with whom the agent deals to 

reasonably believe that the agent has authority" despite the 

absence of an actual agency relationship. Barticheck v. Fidelity 

Union Bank/First Nat'l State, 680 F. Supp. 144, 148-49 (D.N.J. 

1988) (applying New Jersey law). As the Court of Appeals for the 

Sixth Circuit has explained: 

 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., No. 83-1115, 729 F.2d 

1462 at *3 (6th Cir. Feb. 24, 1984). In short, apparent 

authority may be a way of creating an agency relationship. 

Under the doctrine, liability is imposed "not as the result of 

the reality of a contractual relationship but rather because of 

the actions of a principal or an employer in somehow misleading 

the public into believing that the relationship or the authority 

exists." Arthur v. St. Peters Hosp., 405 A.2d 443, 446 (N.J. 

Super. Ct. Law Div. 1979). Thus, while "[the] doctrine generally 

presupposes the existence of a principal-agent relationship . . . 

it is not necessary to the application of the doctrine." Shadel 

v. Shell Oil Co., 478 A.2d 1262, 1264 (N.J. Super. Ct. Law Div. 

1984); see also Sears Mortgage Corp., 634 A.2d at 79 ("[e]ven if 

a person is not an 'actual agent,' he or she may be an agent by 

virtue of apparent authority based on manifestations of that 
authority by the principal.") (citing C.B. Snyder Realty Co. v. 

National Newark Banking Co., 101 A.2d 544, 548 (N.J. 1953)). 

 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., 474 F.2d 

1251, 1252 (3d Cir. 1973) (applying Virgin Islands law). Thus, 

although "when dealing with an independent contractor, no 

[master/servant] relationship exists, . . . this relationship is 

not necessary to the application of the doctrine." Arthur, 405 

A.2d at 446. 

 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 

 

20. 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., 634 

A.2d at 82. In this regard, Winback argues that the 

representatives held themselves out as AT&T and not as Winback. 

The district court held that "[t]he proofs before the Court are 

extremely unclear as to whether or not the sales representatives 

hold themselves out to be [Winback] in making the solicitations 

or whether or not [Winback] knowingly permits its name to be used 

in the course of solicitations without qualification from the 

representatives that they are independent marketing agencies 

engaged to sell and promote the Winback program on behalf of 

[Winback]." Winback, 851 F. Supp. at 628 n.5. Because these 

questions are crucial in this case -- in order to determine not 

only reliance, but also the extent to which the principal held 

the representatives out to the public as its alter ego -- the 

district court may wish to hear additional evidence upon remand. 

21. 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., 860 F.2d 1407 (7th Cir. 1988). AT&T 

argues in its brief: 

 "As one Court said, 

 where the principal cannot embrace a 

transaction except through the acts of 

an unsupervised agent, the principal 
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., 443 F.2d 1159, 1162 (2d 

Cir. 1971); F.E.L. Publications, Ltd. v. 

National Conf. of Catholic Bishops, 466 F. 

Supp. 1034, 1040 (N.D. Ill. 1978); see also

Dreamland Ball Room, Inc. v. Shapiro, 

Bernstein & Co., 36 F.2d 354, 355 (7th Cir. 

1929) (owner of dance hall liable for 

copyright violations by band hired to 

entertain paying customers); Famous Music 

(..continued) 

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, 860 F.2d at 1417-18). AT&T 

continues: "Yet that is exactly what Winback has done here. 

Indeed, it is difficult to imagine a situation where a 

representative shoulders responsibility more completely for the 

promotional marketing of its principal than a Winback 

representative, for Winback's agents are entrusted with the 

entire marketing responsibility for Winback." AT&T brief at 30. 

AT&T fails to mention that the court's holding was predicated on 

a finding that the agent was an adverse agent. See Cicero, 860 

F.2d at 1417 ("Where an adverse agent is also the sole 

representative of the principal in the transaction in question, 

the principal may . . . be charged with the agent's knowledge.") 

(citing 3 W. Fletcher, Corporations § 827 at 153-62 (1975)). The 

court explained that "[t]he adverse agent exception . . . comes 

into play where the agent's interests are shown to be adverse to 

those of his principal." Id. AT&T does not even attempt to 

argue that Winback's representatives were adverse agents; 

therefore, AT&T's reliance on Cicero is misplaced. 
Corp. v. Bay State Harness Horse Racing & 

Breeding Ass'n, 554 F.2d 1213, 1215 (1st Cir. 

1977) (owner of racetrack liable for 

copyright violations by company hired to 

supply music over public address system). 

The purpose of the doctrine is to prevent an 

entity that profits from infringement from 

hiding behind undercapitalized 'dummy' 

operations when the copyright owner 

eventually sues. Shapiro, Bernstein, 316 

F.2d at 309. 

Hard Rock Cafe, 955 F.2d at 1150. AT&T's theory would go well 

beyond agency theory, for it would not rely on situations where 

the agent is acting on behalf of the principal or as the 

principal's alter ego. AT&T's argument -- which attempts to have 

secondary liability under the Lanham Act parallel secondary 

liability under the copyright laws -- is remarkable in light of 

the fact that the Supreme Court has rejected precisely this 

argument. The Court explicitly has held that secondary liability 

for trademark infringement must be drawn more narrowly than 

secondary liability for copyright infringement. Sony Corp. of 

America v. Universal City Studios, Inc., 464 U.S. 417, 439 n.19, 

104 S.Ct. 774, 787 n.19 (1984). The Court made that statement 

while observing the "'fundamental differences between copyright 

law and trademark law.'" Id. (internal quotation and citations 

omitted). To adopt AT&T's argument would entail ignoring the 

Supreme Court's warning, and would require us to base secondary 

liability on a theory that goes beyond any common law doctrine of 

vicarious liability.22 We decline to do so. 

 

22. 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 
 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, 851 F. Supp. at 630. Rather, 

while "plaintiff 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", nonetheless, "the proofs also 

establish that the cause of such confusion is not solely 

attributable to the sales representatives." Id. AT&T argues 

that the district court ignored unassailable evidence that 

customers were likely to be confused by the representations. 

Winback, relying on a recent case we decided, contends that the 

test is not "likelihood of confusion" but "actual confusion." 

(..continued) 

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." 955 F.2d at 1150. AT&T's argument is 

meritless. The essence of joint tortfeasor liability is fault -- 

"[j]oint tortfeasors are all persons who act in concert to commit 

a tort, pursuant to a common purpose." McCarthy on Trademarks, § 

25.03[1] at 25-35. Winback and its representatives did not act 

pursuant to a common plan to commit the tortious act, and Winback 

did not actively take part in the tort, or induce or encourage 

the tort. Id. Moreover, Winback and its representatives clearly: 

(1) are not partners, (2) do not have the authority to bind each 

other, and (3) do not exercise joint control over Winback's 

product. 
Since, according to Winback, AT&T submitted insufficient 

statistical proofs of actual confusion, Winback contends that the 

district court's judgment should be affirmed on this alternative 

ground. 

 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 lease 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 

 

23. 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
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., 30 F.3d 466, 472 (3d 

Cir. 1994) (quoting Ford Motor Co. v. Summit Motor Prods., Inc., 

930 F.2d 277, 292 (3d Cir.), cert. denied, ____ U.S. ____, 112 

S.Ct. 373 (1991)). In considering whether a plaintiff has 

demonstrated likelihood of confusion, district courts generally 

are to consider the following factors: 

 (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; 

(..continued) 

representatives." 851 F. Supp. at 630 (emphasis added). See

typescript at 11. 
 (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, 830 F. Supp. 

826, 835 (D.N.J. 1992); American Home Prods. v. Barr Lab., 656 F. 

Supp. at 1068. Of course, when the claim involves allegations 

beyond use of a similar mark, the test should be broadened 

accordingly. Sun-Fun Prods., Inc. v. Suntan Research and Dev., 

Inc., 656 F.2d 186, 192 (5th Cir. 1981). 

 We apply a different test for claims of false 

advertising pursuant to 15 U.S.C. § 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., 902 F.2d 

222, 228-29 (3d Cir. 1990); see also Johnson & Johnson-Merck v. 

Rhone-Poulenc Rorer, 19 F.3d at 130.24 Thus, the plaintiff must 

adduce evidence that "the public was actually misled or confused 

by it." Fisons Horticulture, Inc., 30 F.3d at 472 n.8 (citing 

Johnson & Johnson-Merck, 19 F.3d at 129-30); 

Sandoz Pharmaceuticals Corp., 902 F.3d at 228-29. "[T]he success 

of the claim usually turns on the persuasiveness of a consumer 

 

24. If the plaintiff proves that the advertising is literally 

false, and not just misleading, then it need not prove actual 

deception. 
survey." Johnson & Johnson-Merck, 19 F.3d at 129-30 (citation 

omitted). In Johnson & Johnson-Merck, we held that a survey 

demonstrating that 7.5% of consumers were deceived was 

insufficient to satisfy plaintiff's burden that the advertising 

"tends to deceive or mislead 'a substantial portion of the 

intended audience.'" Id. at 133-34 (quoting U.S. Healthcare, 

Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 922 (3d 

Cir.), cert. denied, 498 U.S. 816, 111 S.Ct. 58 (1990)). If that 

test were applied to this case, unless the district court found 

that the defendants' representations were actually false, AT&T 

would be unable to meet the standard. Thus, the question is 

whether AT&T's claims against Winback and Inga are analogous 

enough to a claim of false advertising to warrant the same test. 

 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, § 

27.08[1](c) at 27-90 ("A variation on the false advertising prong 

of § 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. 

§ 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., 30 F.3d at 473 (citing Sun-Fun Prods., Inc. 

v. Suntan Research & Dev. Inc., 656 F.2d at 192). We now adopt 

that test not only for false designation of origin claims that 

allege use of a confusingly similar mark, but also more general 

false designation of origin claims. See Universal Money Centers, 

Inc. v. AT&T, 22 F.3d 1527, 1529-30 (10th Cir. 1994) (test for 

false designation of origin claim is likelihood of confusion) 

(citing Jordache Enters., Inc. v. Hogg Wyld, Ltd., 828 F.2d 1482, 
1484 (10th Cir. 1987)) (petition for cert. filed Sept. 8, 1994); 

Smith Fiberglass Prods., Inc. v. Ameron, Inc., 7 F.3d 1327, 1329 

(7th Cir. 1993) (test for false designation of origin and palming 

off claim is "likelihood of consumers in the relevant market 

confusing the infringer's mark with that of the complainant"). 

Cf. Conopco, Inc. v. May Dep't Stores Co., No. 92-1412, 1994 WL 

511280 at *7 (Fed. Cir. Sept. 21, 1994) (noting, in different 

context, distinction between false advertising claim and false 

designation of origin claim). Therefore, we reject Winback's 

argument and decline to affirm the district court's Order on this 

alternative ground. 

 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.