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MEMBERS FIRST FED. CREDIT v. 1ST FED.

April 23, 1999

MEMBERS FIRST FEDERAL CREDIT UNION, PLAINTIFF,
v.
MEMBERS 1ST FEDERAL CREDIT UNION, DEFENDANT.



The opinion of the court was delivered by: Rambo, Chief Judge.

    MEMORANDUM

Before the court are the following motions: (1) Plaintiff's motion for partial summary judgment and a permanent injunction; (2) Defendant's motion for summary judgment; and (3) Plaintiff's supplemental motion for partial summary judgment. The parties have briefed the issues, and the motions are ripe for disposition.

I. Background

The captioned case is an action for service mark infringement and unfair competition under the Lanham Act, 15 U.S.C. § 1114-1150; 54 Pa. Cons. Stat.Ann. § 1124; and the common law. Plaintiff Members First Federal Credit Union ("Members First") instituted the action on December 23, 1996. Named as Defendant in the action is Members 1st Federal Credit Union ("Members 1st"). The following facts are undisputed, except where noted:

Members First is a federal credit union that operates under the trade name and service mark "Members First" and/or "Members First Federal Credit Union." Its main office and headquarters are located in Louisville, Kentucky, with branch offices in Belle, West Virginia and Towanda, Pennsylvania. It has members in at least eighteen states in the United States, as well as in foreign countries overseas. Members First has approximately 900 members in Pennsylvania.

Chartered as a credit union in 1966, Members First was originally known as "LWE Federal Credit Union." It opened its Belle, West Virginia office in 1982 and its Towanda, Pennsylvania office in 1983. In January 1985, the National Credit Union Administration ("NCUA") approved Members First's adoption and use of the name "Members First Federal Credit Union." Members First has used in interstate commerce, and operated in Pennsylvania under, the same name continuously since January 28, 1985.

Members First uses the following service mark: two interlocking ovals, one solid and one lined, with the words "Members First" printed on the solid oval and the words "Federal Credit Union" printed below the interlocking ovals. On August 17, 1994, Members First filed an application with the United States Patent and Trademark Office to register its service mark for use in connection with financial services and related services that may be offered by federally-chartered credit unions to serve the financial needs of the membership, including, but not limited to: loans (consumer, commercial, and real estate); savings accounts; demand accounts; certificates of deposit; insurance; and other support services and products. The United States Patent and Trademark Office granted the application on February 27, 1996, giving Members First U.S. Registration No. 1, 958, 454. The registration disclaimed the words "Federal Credit Union" apart from the mark as shown. Members First uses its service mark on all forms of instruments, papers, writings, legal documents, blanks, forms, and other business and financial documents. It also uses the mark on its automated teller machine ("ATM") cards, credit cards, and ATM's, which are open to use by customers of other financial institutions in the ATM system.

Members First presently has approximately twelve select employee groups ("SEG") within its field of membership.*fn1 It has no SEG's affiliated with, or located near, its Belle, West Virginia office, four SEG's affiliated with its Towanda, Pennsylvania office,*fn2 and the remainder affiliated with and located near its Louisville, Kentucky office. The four SEG's affiliated with its Towanda office are located in, or within twenty-five miles of, Towanda, Pennsylvania. Members First has not added any SEG's to its field of membership in the Towanda, Pennsylvania area, and thus, in Pennsylvania, since 1986 or 1987.*fn3

Defendant Members 1st is a federal credit union that operates under the trade name and service mark "Members 1st" and/or "Members 1st Federal Credit Union." Its main office and headquarters are located in Mechanicsburg, Pennsylvania. Members 1st obtained its charter in 1950 and was known as NSD Mechanicsburg Federal Credit Union. In 1972, it changed its name from NSD Mechanicsburg Federal Credit Union to Defense Activities Federal Credit Union ("DAFCU"). In 1994, prior to the filing of Members First's service mark registration application, DAFCU changed its name to Members 1st Federal Credit Union.

Prior to the second name change, Robert Gentry, Vice President of Marketing at DAFCU, proposed the name change to DAFCU's Board of Directors who approved the change.*fn4 Gentry then proposed the name change to the NCUA, the federal agency that regulates credit unions. According to Gentry, the NCUA informed him that there were "other credit unions using that name in the country and we could not approve the name as such for you." In January or February 1994, Gentry learned that a credit union in Pennsylvania was operating under the name "Members First." At the same time, he was also aware that a federal credit union was using the name "Members First Federal Credit Union."*fn5 On April 11, 1994, DAFCU changed its name to Members 1st Federal Credit Union. Members 1st utilizes a service mark that consists of the word "Members," followed by a numeral 1 and the superscripted letters "st." The words "Federal Credit Union" appear below the word "Members."*fn6

In addition to its main office in Mechanicsburg, Pennsylvania, Members 1st has nine branch offices in Pennsylvania: two in Carlisle; two in Camp Hill; two in Harrisburg; and three in Mechanicsburg. It has 210 SEG's, all of whom are located in central Pennsylvania. Members 1st does, however, have individual members who reside outside the central Pennsylvania region. Its members may be employed by a subsidiary of an SEG which is located in a state other than Pennsylvania. The employees of a subsidiary of an SEG are also eligible for membership in Members 1st.*fn7

In addition to their memberships in the National Association of Federal Credit Unions, both Members First and Members 1st offer mortgages, personal property loans, VISA credit cards, ATM cards, and insurance policies. In addition, Members 1st offers telephone banking, and Members First allegedly intends to offer the same in the near future. (Members 1st's Counterstmt. of Undisp.Mat. Facts ("Members 1st's Counterstmt.") ¶ 45.)*fn8 Both parties also use the radio and newspaper media to advertise their services. Towanda, where Members First's sole Pennsylvania branch office is located, is approximately 151 from Mechanicsburg, 173 miles from Camp Hill, 143 miles from Harrisburg, and 160 miles from Carlisle, Pennsylvania, the sites of Members 1st's branch offices. According Members 1st, it has a five-year strategic plan which includes the addition of four or five branch offices in Cumberland County, Pennsylvania and/or the counties contiguous thereto.*fn9

On December 23, 1996, Members First filed a complaint for equitable and monetary relief. It then filed an amended complaint on January 21, 1997. By order dated March 30, 1998, the court placed the matter on its February 1999 trial list. On September 29, 1998, Members 1st filed a motion for leave to amend its answer to the amended complaint. Prior to the completion of briefing of the motion, the parties filed the instant cross-motions for summary judgment on October 15, 1998, in accordance with the deadlines set forth in the court's March 30, 1998 order.*fn10 On December 31, 1998, the court granted Members 1st leave to amend its answer to assert an additional defense. By the same order, the court: (1) permitted the parties to reopen discovery with respect to only those issues raised by Members 1st's new defense; (2) granted them leave to supplement their motions for summary judgment; and (3) continued the trial until May 1999. On February 25, 1999, Members First filed the supplemental motion for partial summary judgment also currently before the court.

II. Summary Judgment Standard

Federal Rule of Civil Procedure 56 provides that summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." A factual dispute is "material" if it might affect the outcome of the suit under the applicable law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is "genuine" only if there is a sufficient evidentiary basis which would allow a reasonable fact-finder to return a verdict for the non-moving party. See id. at 249, 106 S.Ct. 2505. The court must resolve all doubts as to the existence of a genuine issue of material fact in favor of the non-moving party. See White v. Westinghouse Elec. Co., 862 F.2d 56, 59 (3d Cir. 1988).

Once the moving party has shown that there is an absence of evidence to support the claims of the non-moving party, the non-moving party may not simply sit back and rest on the allegations in its complaint; instead, it must "go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotations omitted). Summary judgment should be granted where a party fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of persuasion at trial. See id.

III. Discussion

As previously discussed, supra Part I, this case presents claims for service mark infringement under the Lanham Act, 15 U.S.C. § 1114-1150. In its motion for summary judgment, Members 1st argues that it is entitled to summary judgment on all claims because Members First has not shown a likelihood of entry into the market area currently occupied by Members 1st. Members First, in its own motion for partial summary judgment, argues that the record demonstrates a likelihood of confusion of the parties' marks and thus, the court should permanently enjoin Members 1st's use of its allegedly infringing mark. In its supplemental motion for partial summary judgment, it further argues that Members 1st is not entitled to assert the "limited area" defense. The court will first address Members 1st's motion for summary judgment; then, it will turn to Members First's motion for partial summary judgment and permanent injunctive relief; finally, the court will resolve Members First's supplemental motion for partial summary judgment.

A. Members 1st's Motion for Summary Judgment

Simply put, "[t]he law of trademark protects trademark owners in the exclusive use of their marks when use by another would be likely to cause confusion." Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 462 (3d Cir. 1983). "To prove trademark infringement, a plaintiff must show that: (1) the mark is valid and legally protectable; (2) the mark is owned by the plaintiff; and (3) the defendant's use of the mark to identify goods or services is likely to create confusion concerning the origin of the goods or services." Fisons Horticulture, Inc. v. Vigoro Indus., Inc., 30 F.3d 466, 472 (3d Cir. 1994). With the passage of the Lanham Act in 1946, Congress federalized the common law protection given to trademarks and service marks used in interstate and foreign commerce.*fn11 Pursuant to the Lanham Act, federal registration of a mark constitutes prima facie evidence of the mark's validity, the registrant's ownership of the mark, and the registrant's exclusive right to use the mark in commerce, subject to any common law or equitable defenses which would be otherwise assertible if the mark was unregistered. See 15 U.S.C. § 1115(a). Upon showing a likelihood of confusion of the two marks, the plaintiff-registrant may obtain monetary and injunctive relief against the user of the infringing mark. See 15 U.S.C. § 1116.

In the instant case, the parties do not dispute that Members First's use of its mark predates Members 1st's use of its own mark, nor do they dispute that Members First's mark is federally registered. In its motion for summary judgment, however, Members 1st asserts that its use of its mark cannot be enjoined at this time. Members 1st maintains that although the Lanham Act provides Members First with nationwide rights, an injunctive remedy is available only upon a showing of likelihood of entry into Members 1st's trade territory. It argues that Members First has adduced no evidence to make such a showing.

In advancing this argument, Members 1st places primary reliance on the decision in Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959). Dawn Donut was a trademark infringement action by the federal registrant of the trademark "Dawn," used upon large bags of doughnut mix which it sold to bakers in various states, including New York. Id. at 361. The defendant operated a retail grocery chain in various counties in New York, within a forty-five mile radius of Rochester, New York, where it also used the mark "Dawn" to sell doughnuts and other baked goods. Id. Although the plaintiff conducted wholesale business in Rochester, the trial court found that the plaintiff's retail sale of doughnuts in New York had been confined to areas not less than sixty miles from the Rochester area. Id.

One of the issues presented to the appellate court was whether the plaintiff had made "a sufficient showing to warrant the issuance of an injunction against the defendant's use of the mark `Dawn' in a trading area in which the plaintiff has for thirty years failed to employ its registered mark." Id. at 364. The court began its analysis by noting that the Lanham Act provides that a registrant "may enjoin only that concurrent use which creates a likelihood of public confusion as to the origin of the products in connection with which the marks are used." Id. Absent a likelihood of confusion, therefore, no cause exists to enjoin the non-registrant's use of the mark. See id. Applying these principles to the "Dawn" mark, the court found that as long as the parties continued to use the marks in their "separate trading areas," no public confusion was likely. Id. at 364-65. The court further found that there was "no present prospect that [the] plaintiff will expand its use of the mark at the retail level into [the] defendant's trading area." Id. at 365. Accordingly, the court determined injunctive relief to be unwarranted. Id.

In reliance on Dawn Donut and its progeny,*fn12 Members 1st argues that the court need not reach the likelihood of confusion issue at all because Members First cannot show an imminent likelihood of entry into Members 1st's trade territory. The court, however, questions the applicability to the instant case of the "Dawn Donut Rule" that no likelihood of confusion can exist and thus no injunction may issue so long as the parties continue to operate in distinct geographical markets and the registrant has no imminent plans to expand into the non-registrant's trade territory. First, the distinctness of the markets in the instant case is a fiercely contested factual issue.*fn13 Furthermore, the Dawn Donut court emphasized the geographic remoteness of the parties' trading areas, noting the district court's finding that retail purchasers usually purchase baked goods reasonably close to their homes due to the perishable nature of the goods. 267 F.2d at 364. The products at issue in this case are not goods but rather, banking and financial services. Although, as credit unions, the parties are limited in whom they may solicit or to whom they may provide services, the undisputed facts indicate that the membership of each is not confined to any particular geographical region.*fn14 Indeed, as Members First points out, both parties market their services through the Internet, a medium in which geography is largely irrelevant. (Members First's Opp.Br. to Mot. for Summ.J. at 16; Exs. A, B.) Thus, while the distance between the parties' branch offices may be a consideration in determining whether a likelihood of ...


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