Court Opinion

ID: 196570
Source: CourtListenerOpinion
Date Created: 2011-02-07 03:09:08+00
Date Added: 2024-06-11T12:38:00.108966
License: Public Domain

UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 95-1525

                          PHC, INC.,

                    Plaintiff, Appellant,

                              v.

              PIONEER HEALTHCARE, INC., ET AL.,

                    Defendants, Appellees.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF MASSACHUSETTS

          [Hon. Nancy Gertner, U.S. District Judge]
                                                              

                                         

                            Before

                    Boudin, Circuit Judge,
                                                     

                Bownes, Senior Circuit Judge,
                                                        

                  and Stahl, Circuit Judge.
                                                      

                                         

Michael Arthur Walsh with whom Lisa  A. Richards and Choate,  Hall
                                                                              
& Stewart were on brief for appellant.
                 
Esther J.  Horwich with  whom Steven  J. Brooks  was on brief  for
                                                           
appellees.

                                         

                      February 12, 1996
                                         

     BOUDIN,  Circuit  Judge.   This  case  presents familiar
                                        

problems  of federal jurisdiction,  civil procedure,  and the

relationship between court and agency; but the problems arise

in an unusual context:  that of the unique and  complex legal

regime that governs trademarks and unfair competition.  Since

the appeal is from an order granting  a motion to dismiss, we

draw our facts from the pleadings.

                              I.

     Plaintiff-appellant,  PHC,  Inc.,  is   a  Massachusetts

corporation based in  Peabody, Massachusetts, which  operates

alcohol and  substance  abuse  centers  across  the  country.

Defendant-appellees  are Pioneer  Health Care,  Inc.  and its

management   affiliate   Pioneer  Management   Systems,  Inc.

(collectively,  "the Pioneer  companies"); the  former offers

medical  care services  in  and near  the  Pioneer Valley  in

western   Massachusetts.      The   Pioneer   companies   are

Massachusetts  corporations  based  in  West  Springfield and

their   names  are  recorded  with  the  Massachusetts  state

secretary under Mass. Gen. L. ch. 156B,   11.

     At  some point it came  to the attention  of the Pioneer

companies that PHC was using the name "Pioneer Healthcare" or

"Pioneer  Health Care"  in its literature.   On  December 13,

1993,  the  Pioneer companies  sent  a  letter to  PHC  which

asserted  that  this  use  violated  Massachusetts  law   and

demanded that it  stop.   The letter also  demanded that  PHC

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cancel its earlier registration (as of  February 16, 1993) of

the  mark  PIONEER  HEALTHCARE   with  the  U.S.  Patent  and

Trademark  Office.    A   second  letter  to  PHC  threatened

litigation.    

     PHC responded in a March  17, 1993, letter, declining to

comply with any  of the  demands.  The  letter asserted  that

geographic and  product differences  meant that there  was no

confusion  between  the  parties'  respective   uses  of  the

disputed  terms.    It  asserted equitable  defenses  to  any

infringement claim.  And it said that the registration of the

Pioneer  companies' names with  the Massachusetts authorities

was irrelevant.  

     The Pioneer companies in turn filed a petition with  the

U.S. Patent  and Trademark Office  on May 25,  1994, claiming

longstanding use of the marks PIONEER HEALTH CARE and PIONEER

HEALTH and asking  the office to cancel PHC's registration on

grounds  of  confusion.   15 U.S.C.      1052(d), 1064.   The

Pioneer companies' marks  were not federally  registered, but

confusion   between  a   registered  mark   and   an  earlier

unregistered "mark or trade name," id.   1052(d), may lead to
                                                  

the cancellation of the registered mark.  Blanchard Importing
                                                                         

&  Distributing Co. v. Societe E. Blanchard et Fils, 402 F.2d
                                                               

797 (C.C.P.A.  1968).   An  administrative  proceeding  began

before the Trademark Trial and Appeal Board ("the  Board"), a

component of the Patent and Trademark Office.

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     On December 9, 1994, PHC responded by filing the present

declaratory  judgment action in  the district court.   In its

first count, PHC sought a declaration that its own use of the

mark it had  registered--PIONEER HEALTHCARE--did not  violate

any rights  of the Pioneer  companies under section  43(a) of

the Lanham Act, 15 U.S.C.   1125(a).  The second count sought

a preemptive  declaratory judgment  that PHC was  entitled to

maintain its  registration  of the  mark  at the  Patent  and

Trademark Office.  

     After filing  its district  court action, PHC  asked the

Trademark Trial and Appeal  Board to suspend its cancellation

proceeding  pending the  outcome of  the court  action.   The

Board has a rule contemplating such suspensions where a court

action may  moot the matter before  the agency.  37  C.F.R.  

2.117.   The  Board  complied  with PHC's  request,  and  the

administrative proceeding is now in abeyance.

     Thereafter, the Pioneer companies moved in the  district

court for  dismissal  of  the  declaratory  judgment  action,

urging  inter alia  that  the district  court lacked  subject
                              

matter  jurisdiction  and  that  the action  itself  was  "an

improper attempt  to circumvent the  administrative process."

In a  detailed opinion  dated  April 12,  1995, the  district

court granted  the motion, relying  upon both of  the grounds

urged and  its own discretion not to "take this case from the

. . . administrative scheme designed to hear it."

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                             II.

     The  district court's first  ground for dismissing PHC's

complaint was jurisdictional and bore  directly on count I of

the complaint.  The district court construed the letters from

the  Pioneer companies  to PHC  as threatening  a suit  under

Massachusetts state law to protect their corporate names; the

court said that these letters "cannot be construed as federal

charges  of  infringement.   Pioneer [the  Pioneer companies]

does not own a  federally registered mark which would  enable

them to bring a federal infringement action."

     Taking  this view of the matter, the district court then

invoked  the  settled rule  that  where  a plaintiff  asks  a

federal court  for a declaration that  it is not  liable on a
                                                            

state  claim,   there  is  ordinarily  no   federal  question

jurisdiction.  Public Serv. Comm'n of Utah v. Wycoff Co., 344
                                                                    

U.S.  237, 248 (1952).  This is  generally true even if it is

assumed  that a federal  defense might  have been  offered to

defeat the  state claim.   Id.; see  also Skelly  Oil Co.  v.
                                                                     

Phillips Petroleum Co., 339 U.S. 667, 672 (1950).
                                  

     On appeal,  PHC  responds that  what  it sought  in  the

district court was a declaration that it was not liable on an

anticipated  federal  claim against  it, namely,  a potential
                                

claim by  the Pioneer  companies that PHC's  conduct violated

section  43(a)  of the  Lanham  Act,  a provision  explicitly

referenced  in count  I of  PHC's complaint.    Section 43(a)

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creates a federal civil  cause of action for any  one damaged

inter alia by another's use in commerce of any word, term, or
                      

name that

     is likely to cause  confusion, or to cause mistake,
     or to deceive as to the affiliation, connection, or
     association of  such person with another person, or
     as to  the origin, sponsorship, or  approval of his
     or her goods, services, or commercial activities by
     another person.

     This "false designation  of origin" claim  under section

43(a) is  a close  cousin to  a claim  for infringement  of a

federally  registered mark  authorized by  section 32  of the

Lanham  Act, 15 U.S.C.    1114.  An  infringement claim under

section  32 requires that the  mark be a federally registered

trademark.  Id.    But  a  section  43(a)  claim,  which  PHC
                           

purported to  anticipate, does not  require that the  mark or

name be  federally registered, Quabaug Rubber  Co. v. Fabiano
                                                                         

Shoe  Co., 567 F.2d 154, 160 (1st Cir. 1977), and is commonly
                     

used to  prevent infringement of unregistered  trademarks.  3

J.  Thomas  McCarthy,  McCarthy   on  Trademarks  and  Unfair
                                                                         

Competition   27.03  (3d ed.  1992).  A  claim under  section
                       

43(a) is  a federal  cause of action,  automatically invoking

federal question jurisdiction.   28 U.S.C.   1331.   See also
                                                                         

15 U.S.C.   1121(a).     The   more  difficult   question  is

whether PHC could reasonably have anticipated a claim against

it  under  section  43(a) of  the  Lanham  Act and  therefore

brought a declaratory  judgment to forestall it.   Whether or

not  conceived  of  as  "jurisdictional,"  such    reasonable

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anticipation   is   a  settled   requirement  in   a  federal

declaratory  judgment  action  of  this  character.     E.g.,
                                                                        

Sweetheart Plastics,  Inc. v. Illinois Tool  Works, Inc., 439
                                                                    

F.2d  871, 873  (1st Cir. 1971).   A  federal court  will not

start up the  machinery of adjudication to  repel an entirely

speculative threat.  

     If  one looked solely at the letters sent by the Pioneer

companies,  one  might  be  genuinely puzzled  whether  those

letters threatened  only a  suit under Massachusetts  law for

the misuse of  a corporate  name or whether  they implied  as

well an intent to resort to the Lanham Act.  The only statute

mentioned in the letters was "Massachusetts General Laws" and

the mention was in the context of referring to PHC's use of a

corporate "name."   The  letters did request  cancellation of

PHC's federal trademark, but  they made no specific reference

to a suit for infringement or under section 43(a).

     On the other hand,  the conduct of PHC, as  described by

the  Pioneer companies'  letters,  could easily  amount to  a

violation of  section 43(a);  the second letter  alleged that

PHC's alleged use was "misleading, confusing, and will result

in  irreparable  harm"--language  typical of  a  claim  under

section 43(a).  The first letter threatened to seek  recovery

of damages, as well as an injunction.  Damages are a standard

remedy   under  section   43(a),  15   U.S.C.      1117;  the

Massachusetts  statute  protecting  corporate names  provides

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only for administrative and injunctive relief.  Mass. Gen. L.

ch. 156B,   11.

     In  all  events, the  question  under  the case  law  on

declaratory  judgments is  not whether the  Pioneer companies

made a specific threat to bring a section 43(a) claim or even

had such a claim  in mind.  The federal  declaratory judgment

statute   aims   at  resolving   potential   disputes,  often

commercial in character, that can  reasonably be feared by  a

potential  target  in  light  of the  other  side's  conduct.

Cardinal  Chem. Co. v. Morton  Int'l, Inc., 113  S. Ct. 1967,
                                                      

1974-75  (1993).  No competent lawyer advising PHC could fail

to tell it  that, based  on the threatening  letters and  the

surrounding circumstances, a section  43(a) suit was a likely

outcome.  

     Quite  likely PHC  had  tactical advantages  in mind  in

bringing  the declaratory  judgment  action.   But, absent  a

showing of bad faith so substantial as to foreclose equitable

relief, its subjective aims  do not matter.  The  question is

whether the  Pioneer companies' letters made  a section 43(a)

claim  against  PHC  a  reasonable prospect.    Although  the

district court did not pass explicitly upon this question, an

affirmative answer is so clear to  us that there is no reason

to  remand on  this  issue.   Thus,  the district  court  had

federal subject-matter jurisdiction as to count I.

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     Federal  subject  matter jurisdiction  over count  II is

equally plain.  In count  II, PHC asked the court  to declare

that  its federally  registered  mark was  valid;  this is  a

matter governed  entirely by  federal law and  plainly within

the  federal  question  jurisdiction  of  a  district  court.

Additionally, section 37 of the Lanham Act, 15 U.S.C.   1119,

cited in count  II, empowers the federal courts to "determine

the  right to  registration [and]  order the  cancellation of

registrations" in civil cases  in which a registered mark  is

at issue, and provides that such determinations shall control

the Patent and Trademark Office.

                             III.

     Although federal subject  matter jurisdiction is  secure

as to  both count I and  count II, a judge  might well wonder

whether  it  ought  to  be  exercised  in  the  teeth  of  an

administrative  proceeding pending before  the Board.   PHC's

claim under count II sought a declaration  that PHC's federal

mark was valid; that was the very subject of the cancellation

proceeding.  As for  count I, issues of confusion,  likely to

be  addressed in the Board proceeding, might easily have been

pertinent, perhaps even controlling.

     Problems of coordination and priority  between court and

agency  are usually  discussed  under the  rubric of  primary

jurisdiction.  E.g., Massachusetts v. Blackstone Valley Elec.
                                                                         

Co., 67  F.3d 981, 992 (1st  Cir. 1995).  The  district court
               

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did not use this phrase, but it did rely upon  two cases from

the  Seventh Circuit that  dismissed as premature declaratory

judgment suits brought solely to affirm federal  registration

of trademarks;  in each  case proceedings were  still pending

before the Board.1   The  district court also  noted that  it

saw no  reason "to take  this case"  from "an  administrative

scheme designed to hear it."

     The  primary  jurisdiction rubric  is less  an organized

doctrine  than  a  set of  precedents  that  guide  courts in

deciding  when  an  issue should  be  resolved  in the  first

instance  by an agency that has special competence to address

it.  United States v. Western Pacific R.R. Co.,  352 U.S. 59,
                                                          

64  (1956).    The  expertise  of  the  agency,  avoidance of

conflict,  indications  of  legislative  intent,   and  other

factors may permit, sometimes even require, such deference by

court to  agency.  Pierce, Shapiro  & Verkuil, Administrative
                                                                         

Law and Process    5.8 (2d ed. 1992).  Although  the agency's
                           

own decision may be  subject to judicial review, such  review

is customarily of a limited kind.

     Two  factors  weigh  heavily against  deference  to  the

administrative proceeding here.   First, the Board  is not an

ordinary  administrative agency whose findings control unless

                    
                                

     1Homemakers, Inc.  v. Chicago  Home for the  Friendless,
                                                                        
313 F. Supp. 1087 (N.D. Ill. 1970), aff'd,  169 U.S. P.Q. 262
                                                     
(7th  Cir., cert.  denied,  404 U.S.  831 (1971);  Merrick v.
                                                                      
Sharpe & Dohme, 185  F.2d 713 (7th Cir. 1950),  cert. denied,
                                                                        
340 U.S. 954 (1951).

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set  aside  after court  review  under  a highly  deferential

standard.   Under  the Lanham  Act,  where a  contested Board

proceeding has  already addressed  the validity of  the mark,

the Board's findings can  be challenged in a civil  action in

district court through new evidence, and, at least to a large

extent,  the issues  can be  litigated afresh.   15  U.S.C.  

1071(b).2  And  Congress permits an initial proceeding in the

district court  to challenge  or affirm a  federal registered

mark in civil suits  in which a federally registered  mark is

in issue,  even without any  prior resort to  the Board.   15

U.S.C.   1119.  

     Second,  at  least  where   an  infringement  claim   is

involved--whether   directly  asserted   by  an   "owner"  or

challenged  in  a  declaratory action--there  is  often  some

urgency.   Ongoing business conduct is  likely to be involved

and harm,  possibly irreparable,  may be accruing.   Further,

the  Board  cannot give  relief  for  an infringement  claim,

either  injunctive  or  by  way  of  damages.    Under  these

circumstances,   awaiting  the   Board's   action   is   less

attractive;  and this is doubly so because (as already noted)

                    
                                

     2The  law  in  this  area is  complicated,  and  perhaps
confused; no  simple generalization does  it justice.   See 3
                                                                       
Mccarthy, supra,   21.05.  For present purposes, it is enough
                           
that  something  close  to  de  novo  proceedings  are  often
                                                
possible.  See Goya Foods, Inc. v. Tropicana Prod., Inc., 846
                                                                    
F.2d 848, 853 (2d Cir. 1988). 

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its administrative  findings can so easily  be relitigated in

court.

     Such reasons persuaded the Second Circuit in Goya Foods,
                                                                         

Inc. v. Tropicana Prod.,  Inc., 846 F.2d 848 (2d  Cir. 1988).
                                          

There, a  district court  had dismissed a  declaratory action

brought to  declare the plaintiff  not liable for  a possible

trademark claim; the  district court had  relied on the  fact

that  a  proceeding  to  oppose the  declaratory  plaintiff's

trademark application was pending before the Board in denying

the  plaintiff leave  to  proceed in  court.   Distinguishing

ordinary primary jurisdiction cases, the Second Circuit ruled

that  the declaratory  judgment  on  the  infringement  claim

should proceed and should not await the Board's action.

     We  take the  same view  and conclude  that the  section

43(a)  claim in the present case should not be deferred based

on primary jurisdiction concerns.  The Second Circuit did not

decide whether, given that the  infringement claim was to  be

heard by  the district court at once, a companion declaratory

claim  addressed to  the validity  of a  federally registered

mark should also be  heard despite the pendency of  the Board
                            

proceeding.  Our case does present that wrinkle, but we think

that the answer is  clear at least in principle:  both claims

should be heard if this  course is more efficient; otherwise,

not.

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     If no infringement claim were made in the district court

but only a claim that  a federal registration was or  was not

valid, a good argument might exist (absent unusual facts) for

awaiting the  completion  of  any  pending  Board  proceeding

addressed to the mark's validity.  See Goya, 846 F.2d at 853.
                                                       

But  where an infringement claim is also present and is going

to be  considered promptly  by the  court, it normally  makes

sense  for the court to resolve a companion validity claim at

the  same  time,  if the  issues  underlying  the  two claims
                                

overlap to an extent that makes this course sensible.

     It is hard  to say in the abstract that  such an overlap

will  always exist,  but  our own  case  is probably  a  good

illustration.   Seemingly, the  section 43(a) claim  may turn

largely on whether there  is confusion between the registered

PHC  mark  and  the   unregistered  marks  that  the  Pioneer

companies  use to  describe  their services;  and it  appears

likely  that this is also  a central issue,  perhaps the only

issue,   in  determining   the  validity  of   PHC's  federal

registration.  Put differently,  if deciding count I requires

the district court to resolve much or all of the substance of

count  II, it would waste  everyone's time not  to settle the

registration issue now.

          We are not in  a position to make a  final judgment

whether in this  case count  II should be  litigated at  this

time,  stayed, or  dismissed.   Neither the  parties  nor the

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district  court   has  sought   to  analyze  in   detail  the

relationship between the issues  underlying the two counts in

the factual  context of  this case; our  conjecture, pointing

toward immediate consideration of  count II, is plausible but

it may or may not  be warranted here.  The district  court is

free to make its own initial judgment.

                          CONCLUSION

     We conclude that the  district court erred in dismissing

the complaint.  There  is nothing in the record  or arguments

before us that makes it appropriate for the district court to

dismiss or defer  consideration of count I.  As  to count II,

the district  court does  have authority  to decide  count II

and, in our  view, that  would be the  appropriate course  if

deciding count I effectively entailed deciding many or all of

the issues underlying count II.    

     The  judgment  of  dismissal  is vacated  and  the  case
                                                         

remanded for proceedings consistent with this opinion.
                    

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