Court Opinion

ID: 8938843
Source: CourtListenerOpinion
Date Created: 2022-11-27 07:45:41.222567+00
Date Added: 2024-06-11T17:09:41.494630
License: Public Domain

REINHARDT, Circuit Judge,
dissenting in part:
The majority holds that VISA must be allowed discovery concerning the likelihood of public confusion because this factual inquiry is “a predicate to virtually every form of relief sought by VISA.” Majority Opinion at 1474. The question is not, however, whether VISA needs to make a showing of public confusion to obtain the relief it requests, but whether the district judge could properly rule against VISA on its claims without a factual inquiry into confusion. Because I believe the district judge could so rule, I dissent in part. I concur only in part III of the opinion and in the majority’s holding that VISA is entitled to clarification of the agreement, although not on the ground upon which the majority relies.
VISA’S first request is for rescission or modification of the contract it made with BCH. As the majority recognizes, VISA cannot assert as grounds for such relief injury to its own business, but must instead show injury to the public. Once this showing is made, the court is to balance the public harm against competing interests in contract enforcement in deciding whether to modify or rescind the agreement. The majority characterizes this determination *1477as “essentially a factual inquiry into the degree or extent of public confusion.” Majority Opinion at 1474. This description, however, oversimplifies a more complex process.
The traditional public interest rationale for protecting trademarks is that they assure the buyer that all products bearing a given trademark are produced by the same, albeit possibly anonymous, manufacturer. See generally 1 J. Gilson, Trademark Protection and Practice § 1.03[1] (1985); 1 J. Thomas McCarthy, Trademarks and Unfair Competition § 3:3 (2nd ed. 1984). If identification of source were the public’s only interest in trademark protection, the majority would be correct that evaluating the public interest involves no more than measuring the extent of public confusion. The more modern view of the public interest, however, emphasizes the role of trademarks in ensuring product quality rather than the identification of a particular producer. As this court has stated:
The historical conception of a trade-mark as a strict emblem of source of the product to which it attaches has largely been abandoned. The burgeoning business of franchising has made trade-mark licensing a widespread commercial practice and has resulted in the development of a new rationale for trade-marks as representations of product quality.
Siegel v. Chicken Delight, Inc., 448 F.2d 43, 48 (9th Cir.1971) (footnote omitted), cert. denied, 405 U.S. 955, 92 S.Ct. 1173, 31 L.Ed.2d 232 (1972); see also McCarthy, supra, at § 3:4. Moreover, as a purely commonsense matter, the identity of the producer is likely to be significant to the consumer mostly insofar as it ensures a given level of quality.
A finding of confusion, therefore, is only the beginning of the analysis. If there is no showing that the public is receiving lesser quality goods than it expects, then the harm to the public may be insignificant. See T & T Manufacturing Co. v. A.T. Cross Co., 449 F.Supp. 813, 827 (D.R.I.), aff'd, 587 F.2d 533 (1st Cir.1978), cert. denied sub nom. A.T. Cross Co. v. Quill Co., 441 U.S. 908, 99 S.Ct. 2000, 60 L.Ed.2d 377 (1979). Furthermore, even if public harm is shown, it should, as the majority recognizes, be weighed against competing interests in order to determine whether the contract is against public policy. See, e.g., Beer Nuts, Inc. v. King Nut Co., 477 F.2d 326, 328 (6th Cir.) (“weigh the public benefit in considering trademark principles in connection with the policy of upholding the law of contracts”), cert. denied, 414 U.S. 858, 94 S.Ct. 66, 38 L.Ed.2d 108 (1973). A court must consider the interest in enforcing contracts upon which parties rely, as well as the significant related interest in encouraging extra-judicial settlement of trademark disputes. See, e.g., Wells Cargo, Inc. v. Wells Cargo, Inc., 606 F.2d 961, 965 (C.C.P.A.1979) (citing policy favoring settlement of trademark actions); T & T Manufacturing, 587 F.2d at 539 (same); see also United States v. Mclnnes, 556 F.2d 436, 441 (9th Cir.1977) (noting the “overriding public interest in settling and quieting litigation” (citation omitted)). If every settlement agreement is always open to attack on the ground that it allows confusion, parties will understandably be reluctant to enter into such contracts in the first place. See T & T Manufacturing, supra, 449 F.Supp. at 827. Given these significant interests in contract enforcement, a showing of public confusion should not in and of itself result in invalidation of the contract.1
*1478This approach was taken in the leading case of T& T Manufacturing Co. v. A.T. Cross Co., 449 F.Supp. 813 (D.R.I.), aff'd, 587 F.2d 533 (1st Cir.1978), cert. denied sub nom. A.T. Cross Co. v. Quill Co., 441 U.S. 908 99 S.Ct. 2000, 60 L.Ed.2d 377 (1979), explicitly relied upon by the district court and cited with apparent approval by the majority. T & T Manufacturing involved, inter alia, the argument that a settlement agreement to which Cross was a party was void as against public policy because it allowed the sale of pens that infringed Cross’s trademark. The district court found there was in fact a likelihood of confusion between Cross pens and the infringing Quill pens. 449 F.Supp. at 818-23. But the court cited the countervailing interests in contract enforcement and noted that in general the “balance strongly favors enforcement of the contract.” Id. at 827. In light of its finding of a likelihood of confusion, however, the court squarely addressed the question the majority fails to answer: “whether [a likelihood of confusion] necessarily makes the contract against public policy.” Id. The T & T Manufacturing court’s answer was “no” for two reasons. First, the agreement at issue was not formed with an intent to deceive the public. Second, the court found “important the absence of an allegation that Quill pens are inferior to Cross pens.” Id. Because there was no such showing, the harm to the public was “not significant, ... even though a consumer might claim harm because he sought the prestige of Cross but got Quill instead.” Id.
Likewise, in the present case the agreement was not entered into with an intent to mislead the public. Furthermore, VISA has not alleged that BCH’s insurance policies are of a lesser quality than those a consumer would expect from VISA itself.2 Consequently, the district court properly concluded that even if VISA could show public confusion, the harm to the public would not outweigh competing interests. And because VISA could therefore not prevail regardless of the evidence it uncovered regarding confusion, the district court properly denied VISA’S discovery request.
The majority also states that discovery regarding confusion is necessary in order to evaluate VISA’S request for enforcement and clarification because “the Stipulated Judgment used the test of public confusion to circumscribe BCH’s use of the VISA marks.” Majority Opinion at 1474. Were it true that the agreement is drawn in terms of confusion, a conclusion the majority does not explain or support, I would agree that VISA must be allowed the discovery it requests.
The Stipulated Judgment, however, uses the term “confusion” only once, in a section of the agreement that is not involved in this dispute.3 The rest of the agreement specifies certain permitted uses of the VISA marks and makes no mention of confusion. The magistrate found BCH’s uses of the VISA marks to be within the terms of the agreement, and VISA does not contest this finding. No doubt VISA believed the specified uses would not lead to confusion. But that does not mean that if VISA turns out to be wrong it may ask a court to effectively change the agreement by “enforcing” or “clarifying” it in accordance with VISA’S original intention to prevent *1479confusion. See, e.g., United States v. Armour & Co., 402 U.S. 673, 682, 91 S.Ct. 1752, 1757, 29 L.Ed.2d 256 (1971) (“the scope of a consent decree must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it”); Vertex Distributing, Inc. v. Falcon Foam Plastics, Inc., 689 F.2d 885, 893 (9th Cir.1982) (refusing to “rewrite the parties’ ‘contract’ by holding, in light of the purpose of only one of the parties to the consent judgment, that language which does not explicitly prohibit the use of [a word] does in fact do so”).
Moreover, the majority’s interpretation makes the agreement meaningless. A settlement does not indicate that the party filing suit prevailed. See, e.g., Armour & Co., supra, 402 U.S. at 681, 91 S.Ct. at 1757 (settlements generally involve compromise); Patterson v. Stovall, 528 F.2d 108, 114 (7th Cir.1976) (purpose of a settlement is to avoid resolution of merits); Dilley v. Alexander, 440 F.Supp. 375, 379 (D.D.C.1977) (settlement not an admission as to merits), rev’d on other grounds 603 F.2d 914 (D.C.Cir.1979), opinion clarified 627 F.2d 407 (D.C.Cir.1980). VISA had the right before the parties executed the agreement to claim BCH’s use of the marks created confusion — that is the essence of an allegation of trademark infringement. The point of the agreement was that VISA waived its right to contest certain specified uses. If the agreement is instead read to permit only those uses which are both specifically enumerated and do not cause confusion, then BCH gained nothing by executing the agreement, and VISA gave up nothing. The agreement is meaningless under this interpretation because the parties are in exactly the same positions now that they were in before the agreement.
Nevertheless, VISA is entitled to clarification on a different ground. In the contempt hearing, the magistrate found that the Stipulated Judgment was ambiguous. Given this ambiguity and the provision in the agreement providing for judicial construction, the district court should have granted VISA’S request for clarification of the Stipulated Judgment.
In short, the majority relies for its holding on two wholly conclusory statements, one of which is incorrect as a matter of law and one as a matter of fact. First, the majority assumes without analysis that BGH cannot rely on the express provisions of the Stipulated Judgment unless they serve to preclude public confusion, and second it states erroneously that the agreement as a whole is in fact cast in terms of precluding confusion. In my view, a more precise review of these issues leads to the conclusion that the district judge acted properly in denying VISA’S Rule 56(f) discovery request. Accordingly, I respectfully dissent.

. It is important to remember that, to prevail, VISA must show injury to the public, not merely injury to its own business, because it waived its right to assert its own interests by agreeing to the Stipulated Judgment. Majority Opinion at 1474. To establish injury to one’s own business by virtue of trademark infringement, a party must demonstrate a likelihood of confusion. See 15 U.S.C. § 1114(1) (1982). If a mere showing of confusion is also sufficient to invalidate a settlement contract on public policy grounds, then the distinction between public and private injury vanishes. Every such contract that turns out to cause private injury will be void as against public policy because by definition it creates a likelihood of confusion. If a party is not to be given more protection for its business interests than it bargained for, this result is untenable. See T & T Manufacturing, supra, 449 F.Supp. at 827.

. The majority recognizes that VISA offers insurance which is identical to that offered by BCH, but concludes that, because the relative financial strength of VISA and BCH would be a material factor in the consumer’s decision, this issue requires further factual inquiry. Majority Opinion at 1473, 1474, nn. 1-2. But VISA has not alleged that BCH offers inferior insurance. Furthermore, the district judge did not prevent VISA from gathering or presenting evidence of inferiority. Thus, I cannot see how VISA’S failure to avail itself of the opportunity to show the inferiority of BCH's insurance provides any grounds for refusing to enforce the agreement.

. Paragraph 2(c) of the agreement provides in part that ”[t]he VISA marks shall not be used in an overly repetitious manner, even for proper purposes, so as to create confusion as to sponsorship.” VISA had alleged in general terms below that BCH violated the agreement, but at the contempt hearing before the magistrate VISA did not argue that BCH violated paragraph 2(c). VISA also does not contend on appeal that BCH violated paragraph 2(c).