Opinion ID: 3009507
Heading Depth: 1
Heading Rank: 1

Heading: Introduction and Factual Background1

Text: 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 1-800251-5491 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 7 was a separate corporation. Id. 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.