Sands, Taylor & Wood Company v. The Quaker Oats Company

Sands, Taylor & Wood Company (STW) brought this action against The Quaker Oats Company (Quaker) for federal trademark infringement and related state-law claims, alleging that Quaker's use of the words "Thirst Aid" in its advertising slogan "Gatorade is Thirst Aid" infringed STW's registered trademark for THIRST-AID. The district court agreed, and entered judgment for STW in the amount of $42,629,399.09, including prejudgment interest and attorney's fees. The court also permanently enjoined Quaker from using the words "Thirst Aid." Not surprisingly, Quaker appeals.

Plaintiff STW is a small, Vermont-based company that for the past 180 years has sold bagged flour at retail under the brand name "King Arthur Flour." In 1973, STW acquired Joseph Middleby, Jr., Inc. (Middleby), a manufacturer of soft drinks, soda fountain syrups and ice cream toppings. STW thereby became the owner of three trademarks registered to Middleby: (1) THIRST-AID "First Aid for Your Thirst," issued October 10, 1950, for use on "nonalcoholic maltless beverages, sold as soft drinks, and syrups therefor"; (2) THIRST-AID, issued August 26, 1952, for use on various ice cream toppings as well as "fruits and sauces used in the making of ice cream"; and (3) THIRST-AID, issued March 24, 1953, for use on "soda fountain syrups used in the preparation of maltless soft drinks."

From 1921 to 1973, Middleby used the THIRST-AID mark on a wide variety of beverage products and syrups that it sold to soda fountains, ice cream parlors and food service outlets. Middleby also supplied its THIRST-AID customers with various items displaying the name THIRST-AID, including streamers, banners, glasses and pitchers, for in-store advertising and promotion. STW continued these activities after it acquired Middleby, which it operated as a wholly-owned subsidiary.

In the late 1970s sales of THIRST-AID soft drinks declined as consumers turned increasingly to bottles and cans rather than soda fountains and ice cream parlors for their soft drinks. In addition, between 1979 and 1983 STW underwent a period of severe economic hardship during which its annual gross revenues dropped from $40 million to approximately $3.1 million. In the spring of 1980, Pet, Inc. (Pet) negotiated with STW a nationwide license to use the name THIRST-AID on a new isotonic beverage1 intended to compete with the very popular Gatorade brand isotonic beverage manufactured by Stokely Van Camp Company (Stokely). Pet began test-marketing the product in twenty stores in Columbia, South Carolina in June of 1980. Pet's THIRST-AID was advertised through the same media as Gatorade, and was sold through the same channels of trade (grocery stores) to the same customers. During the five-month period of the test, Pet's THIRST-AID captured approximately 25% of the isotonic beverage market in the test area. Nevertheless, for reasons that are not important here, Pet decided not to enter the market with the new product and in June of 1981 its license to use the name THIRST-AID expired.

In December of 1981, STW sold the assets of Middleby (now renamed Johnson-Middleby) to L. Karp & Sons (Karp), a distributor of bakery products. As part of the sale, STW assigned to Karp all of the registered THIRST-AID trademarks. STW obtained a simultaneous exclusive license back for retail use of the trademark on certain "Products" defined as "jams, jellies, pie fillings" and various other bakery supplies.

In August of 1983, Stokely, the manufacturer of Gatorade, was acquired by Quaker. Shortly thereafter, Quaker solicited proposals for a new advertising campaign intended to educate consumers about Gatorade's ability to quench thirst and replace fluids and minerals lost by the human body through strenuous exercise. One of the candidates was the slogan "Gatorade is Thirst Aid for That Deep Down Body Thirst."

Pursuant to Quaker's regular practice, the proposed "Thirst Aid" campaign was submitted to the legal department for approval in February or March of 1984. Quaker's in-house counsel, Charles Lannin, concluded that the words "Thirst Aid" did not raise any trademark problems because they were used to describe an attribute of the product rather than as a designation of source or affiliation. Lannin therefore did not conduct a trademark search for the term "Thirst Aid" at this time.

Shortly thereafter, an employee of Quaker's research and development division telephoned Lannin and informed him that Pet had previously test-marketed an isotonic beverage called THIRST-AID. Lannin contacted Pet and was told that Pet had discontinued its isotonic beverage a few years before. Some weeks later, another Quaker employee informed Lannin that he thought a "Thirst Aid" beverage was being marketed in Florida. At this point, on May 2, 1984, Lannin obtained a trademark search of the phrase "Thirst Aid." The search revealed the three THIRST-AID registrations by Middleby as well as the sale of the marks to Karp. Lannin directed a trademark paralegal employed by Quaker to contact Karp in order to determine what products it was selling under the THIRST-AID name; the Karp employee to whom the paralegal spoke2 stated that "they [sic] didn't think they marketed anything under that name." Tr. at 942.

On May 12, 1984, the first "Gatorade is Thirst Aid" commercials ran on television. On May 31, 1984, Karp's lawyer, Russell Hattis, called Quaker regarding Quaker's use of "Thirst Aid." Hattis claimed that Quaker was infringing Karp's trademarks, to which Lannin responded that there was no infringement because Quaker was using the words "Thirst Aid" descriptively. In a subsequent meeting between the two, Lannin learned from Hattis that the THIRST-AID mark had not been used on soft drinks or beverages since the Pet test-market. On June 2, Quaker sought an opinion from outside trademark counsel, Robert Newbury, who essentially agreed with Lannin that there was no infringement because Quaker was using the words "Thirst Aid" descriptively rather than as a trademark.

On June 4, Lannin was contacted by Frank Sands, the president of STW, who stated that STW owned the rights to use the THIRST-AID mark at retail under a licenseback agreement with Karp. Sands claimed that Quaker was infringing those rights, although he acknowledged that STW did not sell any THIRST-AID products at that time.

Quaker did not hear from either Karp or STW again until the commencement of this litigation. In the interim, STW entered into a written agreement with Karp under which STW paid Karp $1 for an assignment of Karp's trademark registrations. Sands filed suit one week later, alleging that the slogan "Gatorade is Thirst Aid for That Deep Down Body Thirst" infringed its registrations and constituted unfair competition under the Lanham Act, 15 U.S.C. §§ 1051 et seq., state common law and various state statutes. After granting summary judgment in favor of STW on Quaker's fair use defense, the district court held a bench trial on the remaining issues. On December 18, 1990, the court issued its opinion holding that Quaker had infringed STW's trademark and awarding STW 10% of Quaker's pre-tax profits on Gatorade for the period during which Quaker used "Thirst Aid" in its advertising. Sands, Taylor & Wood v. The Quaker Oats Co., 18 U.S.P.Q.2d 1457, 1990 WL 251914 (N.D.Ill.1990). The court also awarded STW attorney's fees and costs as well as prejudgment interest. Gatorade appeals.

As we have noted, the district court granted summary judgment in favor of STW on Quaker's defense that it had made a "fair use" of the phrase "Thirst Aid."3 The fair use doctrine is based on the principle that no one should be able to appropriate descriptive language through trademark registration. William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526, 528, 44 S.Ct. 615, 616, 68 L.Ed. 1161 (1924). To prevail on the fair use defense, the defendant must establish that its use of a registered "term or device" is "otherwise than as a trade or service mark," that the term or device is "descriptive of" the defendant's goods or services and that the defendant is using the term or device "fairly and in good faith only to describe to users" those goods and services. 15 U.S.C. § 1115(b)(4). The district court found that the term "Thirst Aid" was not descriptive of Gatorade but rather was "suggestive." The court also found that even if "Thirst Aid" were descriptive, Quaker could not prevail on the fair use defense because it had used the term as a trademark in its ads. Quaker challenges both of these conclusions.4

We review a district court's grant of summary judgment de novo, "viewing the record and all reasonable inferences drawn from it in the light most favorable to the party opposing the motion." Anderson v. Stauffer Chemical Co., 965 F.2d 397, 400 (7th Cir.1992). We will affirm the grant of summary judgment only if we conclude from the pleadings and other materials that were before the district court "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

A. Descriptiveness of "Thirst Aid"

The district court's classification of a term as "descriptive" or "suggestive" is a factual determination subject to review for clear error. Forum Corp. v. Forum, Ltd., 903 F.2d 434, 438 (7th Cir.1990); G. Heileman Brewing Co. v. Anheuser-Busch, Inc., 873 F.2d 985, 992 (7th Cir.1989); see also 1 J. Thomas McCarthy, Trademarks and Unfair Competition § 11:1, at 94 (1991 Supp.) (citing cases). In this case, however, the district court's determination that "Thirst Aid" is suggestive rather than descriptive was made in the context of a summary judgment motion. Courts are not empowered to make factual findings on motions for summary judgment. The district court's grant of summary judgment on this issue therefore amounts to a finding that, even resolving all factual disputes in favor of Quaker, the term "Thirst Aid" is not descriptive of Gatorade as a matter of law. We review this legal conclusion de novo.5

The district court described the difference between a suggestive mark and a descriptive one as follows: " '[I]f the mark imparts information directly it is descriptive. If it stands for an idea which requires some operation of the imagination to connect it with the goods, it is suggestive.' " Mem. Op. at 5, 1985 WL 1567 (May 29, 1985) (quoting Union Carbide Corp. v. Ever-Ready Inc., 531 F.2d 366, 379 (7th Cir.1976)). Purporting to apply this test, the district court found that "Thirst Aid" was suggestive rather than descriptive because it "requires imagination to create the impression of an isotonic beverage." Id. at 9. Quaker argues that the district court erred in reaching this conclusion because it misapplied the relevant legal standard.

We agree. The district court thought that in order to be descriptive the term "Thirst Aid" had to bring to mind the product in question--"create the impression of an isotonic beverage." Our cases, however, hold that "it is not necessary that a descriptive term depict the [product] itself, but only that the term refer to a characteristic of the [product]." Forum Corp., 903 F.2d at 444 (emphasis in original); see also Heileman, 873 F.2d at 992 (" 'A merely descriptive term specifically describes a characteristic or ingredient of the goods.' ") (emphasis added) (quoting Miller Brewing Co. v. G. Heileman Brewing Co., 561 F.2d 75, 79 (7th Cir.1977)). Under that test, the district court's conclusion that "Thirst Aid" is not, as a matter of law, descriptive of Gatorade cannot stand. In support of its opposition to STW's motion for summary judgment, Quaker presented evidence that consumers understand the words "Thirst Aid" to convey the message that Gatorade helps quench thirst--that is, that "Thirst Aid" describes a characteristic of Gatorade.6 See Defendant's Motion for Summary Judgment on Fair Use, Ex. D, E & H, Aff. of Mark Shapiro and Excerpts from Dep. of Frank E. Sands. In Heileman, we observed that "the true test [of descriptiveness] is one of consumer perception--how is [the term] perceived by the average prospective consumer?" 873 F.2d at 994 (emphasis added). Quaker's evidence certainly created a material issue of fact as to whether the average consumer perceives "Thirst Aid" as describing a characteristic of Gatorade--its ability to quench thirst.

The fact that "Thirst Aid" is not a common phrase does not preclude a finding that it is descriptive rather than suggestive. That a term is an "unfamiliar" one which "requires a hearer to think about its meaning does not show that it is suggestive." Forum Corp., 903 F.2d at 443. Nor does the fact that "Thirst Aid" is a play on words which makes one think of "first aid" as well as "thirst quenching" render it suggestive as a matter of law. See, e.g., 20th Century Wear, Inc. v. Sanmark-Stardust, Inc., 747 F.2d 81 (2d Cir.1984) (trademark "Cozy Warm--Energy Savers" for women's pajamas found to be descriptive despite reference to energy crisis); Pizzazz Pizza & Restaurant v. Taco Bell Corp., 642 F.Supp. 88 (N.D.Ohio 1986) (word "pizzazz" to describe pizza found to be descriptive); Pullan v. Fulbright, 287 Ark. 21, 695 S.W.2d 830 (1985) (phrase "shear pleasure" as name for hair salon found to be descriptive). We have stated that "the imagination required to link a suggestive term with the corresponding product 'refers to the mental process required to connect a name that is incongruous or figurative with the product (e.g., "Roach Motel" with an insect trap or "TIDE" with soap)....' " Heileman Brewing, 873 F.2d at 997 (quoting district court opinion, 676 F.Supp. 1436, 1491 n. 46 (E.D.Wis.1987)). The linkage of "thirst" and "aid" to form a play on both "first aid" and "lemonade" does not make the phrase "incongruous" or "figurative" in its method of description. "[N]o flight of imagination or keen logical insight is required," id. at 993, to make the connection between "Thirst Aid" and a product that quenches thirst. This fact distinguishes "Thirst Aid" from other plays on words that courts have found to be suggestive rather than descriptive. For example, in Blisscraft of Hollywood v. United Plastics Co., 294 F.2d 694 (2d Cir.1961), the court found that the term "Poly Pitcher" was not descriptive of polyethylene pitchers because to the average consumer the word "poly" did not connote a product made of polyethylene. Thus, the only association evoked by the term "Poly Pitcher" was with the historical figure of Molly Pitcher, making the term an "incongruous expression" with "the characteristics of a coined or fanciful mark." 294 F.2d at 700. We conclude that the district court erred in finding "Thirst Aid" suggestive as a matter of law.

The district court also found that, even if "Thirst Aid" were descriptive, Quaker could not prevail on its fair use defense because it used the term as a trademark. A word or phrase functions as a trademark when it is "used by a source of [a product] to identify itself to the public as the source of its [product] and to create in the public consciousness an awareness of the uniqueness of the source and of its [products]." M.B.H. Enterprises, Inc. v. WOKY, Inc., 633 F.2d 50, 54 (7th Cir.1980). The court observed that " 'Gatorade' clearly identifies the product as being from a particular source." Mem. Op. at 9. The court concluded, however, that "[w]hen defendant uses 'Thirst Aid,' ... it too identifies the product as being from a particular source." Id. at 9-10. The court noted that "Thirst Aid" is "the most prominent feature of some of defendant's advertising. Each of the ads includes the statement 'Gatorade is THIRST AID.' " Id. at 10. The court therefore found that "[t]he way in which the defendant uses the words Thirst Aid creates an impression that the slogan is uniquely associated with Gatorade." Id.

Quaker argues that its use of a descriptive mark in conjunction with its own clearly established trademark, "Gatorade," could not be a trademark use. In support of this argument, Quaker relies in part on this court's observation that descriptive terms are "unlikely" to function as trademarks. M.B.H. Enterprises, 633 F.2d at 54. We have never said, however, that a descriptive term can never function as a trademark. Such a rule would not only conflate two of the three elements of fair use, it would also be contrary to the well-established doctrine that a descriptive term is protectable as a trademark to the extent it has developed secondary meaning. Heileman, 873 F.2d at 998; International Kennel Club, Inc. v. Mighty Star, Inc., 846 F.2d 1079, 1085 (7th Cir.1988); Miller Brewing Co. v. G. Heileman Brewing Co., 561 F.2d 75, 79 (7th Cir.1977); see also Venetianaire Corp. v. A & P Import Co., 429 F.2d 1079 (2d Cir.1970) (defendant's use of word "Hygienic" on mattresses infringed plaintiff's rights in its mark "Hygient").

Nor is a defendant's use of a term in conjunction with its own trademark per se a use "other than as a trademark." See, e.g., Lindy Pen Co. v. Bic Pen Corp., 725 F.2d 1240, 1248 (9th Cir.1984) (defendant's use of descriptive word "Auditors" on its pen was a trademark use even though the word appeared in conjunction with defendant's brand name on pens, packaging and promotional materials); Beer Nuts, Inc. v. Clover Club Foods Co., 711 F.2d 934, 938 (10th Cir.1983) (no fair use where defendant used "Brew Nuts" as a "secondary trademark" along with its own brand name on packaging). Indeed, in the related context of determining likelihood of confusion,7 some courts have observed that the conjunction of defendant's trademark and the allegedly infringed term "may actually increase the misappropriation by linking defendant's name to plaintiff's goodwill." Banff, Ltd. v. Federated Department Stores, Inc., 841 F.2d 486, 492 (2d Cir.1988); see also Americana Trading Inc. v. Russ Berrie & Co., 966 F.2d 1284, 23 U.S.P.Q.2d 1031 (9th Cir.1992); cf. International Kennel Club, 846 F.2d at 1088 (argument that defendant's use of its house mark in conjunction with plaintiff's mark decreases likelihood of confusion is a "smokescreen and a poor excuse for the defendants' blatant misappropriation of the plaintiff's name"). Clearly, then, the fact that the Gatorade trademark always appears in Quaker's "Thirst Aid" advertisements does not preclude a finding that those advertisements also use "Thirst Aid" as a trademark.

The evidence of Quaker's advertisements supports the district court's conclusion that Quaker used "Thirst Aid" as a trademark. Quaker's ads do not simply use the words "Thirst Aid" in a sentence describing Gatorade, but as an "attention-getting symbol." 1 McCarthy, supra § 11:17, at 476. In many of the ads, the words "Thirst Aid" appear more prominently and in larger type than does the word "Gatorade." Id. at 476 n. 7 (collecting cases). Further, given the rhyming quality of "Gatorade" and "Thirst Aid," the association between the two terms created by Quaker's ads is likely to be very strong, so that "Thirst Aid" appears as part of a memorable slogan that is uniquely associated with Quaker's product. See Louis Rich, Inc. v. Horace W. Longacre, Inc., 423 F.Supp. 1327 (E.D.Pa.1976) (use meant to foster identification with defendant and its product is not a fair use). Quaker presented no evidence that its "Thirst Aid" ads do not have this effect on consumers. "[T]he plain language of Rule 56(c) mandates the entry of summary judgment ... against a party who 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 proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The district court did not err in concluding that Quaker used "Thirst Aid" as a trademark.

Because trademark rights derive from the use of a mark in commerce and not from mere registration of the mark, the owner of a mark will lose his exclusive rights if he fails actually to use it. 15 U.S.C. § 1127. A mark is deemed to be thus "abandoned" when "its use has been discontinued with intent not to resume such use." Id. Two years of nonuse create a prima facie case of abandonment, which may be rebutted by "evidence explaining the nonuse or demonstrating the lack of an intent not to resume use." Roulo v. Russ Berrie & Co., 886 F.2d 931, 938 (7th Cir.1989). Quaker argues that the district court erred in finding that STW or its predecessors had not abandoned through nonuse the THIRST-AID mark for a beverage sold at retail. Alternatively, Quaker contends that Karp abandoned the THIRST-AID marks through its 1984 assignment of those marks to STW.

Quaker contends that STW has no registration rights covering the use of THIRST-AID on a beverage because the trademark THIRST-AID "First Aid for Your Thirst," the only mark registered for use on "beverages" as opposed to "beverage syrups," has not been used since 1949. We reject this argument for two reasons. First, the fact that STW and its predecessors have not used the entire slogan THIRST-AID "First Aid for Your Thirst" since 1949 does not necessarily mean that the registration has been abandoned. "[M]inor changes in a mark which do not change the basic, overall commercial impression created on buyers will not constitute any abandonment." 1 McCarthy, supra § 17:10, at 787. So long as the owner continues use of the "key element" of the registered mark, courts generally will not find abandonment. Id. Further, "the dropping of a non-essential word from a mark" has been held not to constitute abandonment. Id.; see, e.g., Puritan Sportswear Corp. v. Shure, 307 F.Supp. 377 (W.D.Pa.1969) (change from PURITAN SPORTSWEAR, THE CHOICE OF ALL AMERICANS to PURITAN not abandonment). Certainly, the key element of what Quaker calls the "beverage slogan registration" is the term THIRST-AID. In fact, the trademark registration for the slogan explicitly states that no claim of ownership is made as to the words "First Aid for Your Thirst" apart from the mark as it appears in the registration. If this registration were the only one for THIRST-AID that STW owned, we would not consider the decision to drop the modifying phrase "First Aid for Your Thirst" to constitute abandonment of the mark. Cf. Forum Corp., 903 F.2d at 441 (senior user's shortening of trademark from Forum Corporation of America to Forum Corp. did not relieve junior user of Forum Ltd. from its responsibility to avoid confusion "since the salient and memorable feature of [the senior user's] mark is 'Forum' ").

Second, even if we were to find that Middleby had abandoned the mark THIRST-AID "First Aid for Your Thirst," we would not conclude that STW therefore had no registration rights covering the use of THIRST-AID on beverages. We do not see the wide gulf between a trademark for beverage syrups and a trademark for beverages, on which Quaker relies. Further, Quaker's contention that STW has failed to use THIRST-AID on beverages sold "at retail" flies in the face of the district court's findings. The district court did find that "neither plaintiff, nor any predecessor of plaintiff has ever used THIRST-AID in connection with a packaged soft drink or beverage sold in a store at retail." Sands, Taylor & Wood, 18 U.S.P.Q.2d at 1461 (emphasis added). The court also found, however, that Middleby and STW had sold "a wide line of beverage products and syrups ... at retail to ice cream soda fountain shops." Id. at 1459 (emphasis added). Further, the beverages made from these syrups were advertised by the soda fountains to the ultimate consumer as THIRST-AID through the use of various types of in-store retail advertising including streamers to be put on windows as well as glasses, pitchers and dispensing barrels embossed with the mark THIRST-AID. Therefore, we conclude that Middleby's failure to use the mark THIRST-AID "First Aid for Your Thirst" after 1949 did not constitute abandonment of the mark THIRST-AID for use on beverages.

Alternatively, Quaker argues that even if Middleby had not abandoned the "beverage slogan registration," any right to use the THIRST-AID marks for a beverage was abandoned by Karp, which acquired the marks in December 1981.8 Quaker relies on the testimony of Karp's vice president and chief financial officer that Karp did not intend to use THIRST-AID for a beverage when it acquired the marks. This argument misses the point. While it is true that Karp did not use THIRST-AID for a beverage, it is also the case that, approximately 1 1/2 years after acquiring the marks, Karp hired a consultant for the specific purpose of attempting to license THIRST-AID for use on a beverage. "[T]he owner of the trademark need only produce evidence to rebut the presumption [of abandonment] while the ultimate burden of persuasion rests on the defendant." Roulo, 886 F.2d at 938. The district court found that STW's efforts to license THIRST-AID for use on a soft drink during this period were sufficient evidence of intent to resume use to rebut a prima facie case of abandonment. Although the district court erred in focusing on the intent of STW rather than of Karp during the three years that Karp owned the marks,9 the court at least implicitly found that Karp's efforts to license THIRST-AID to Shasta and Tropicana were sufficient to establish Karp's intent to resume use.10 Karp did not abandon the right to use THIRST-AID for a beverage.

As the district court noted, "[t]he transfer of a trademark apart from the good will of the business which it represents is an invalid 'naked' or 'in gross' assignment," which passes no rights to the assignee. Sands, Taylor & Wood, 18 U.S.P.Q.2d at 1464. Quaker contends that the court erred in concluding that the September 1984 assignment of the THIRST-AID trademarks from Karp to STW was not an invalid assignment in gross. Quaker recognizes that transfer of a mark need not be accompanied by the transfer of any physical or tangible assets in order to be valid. "All that is necessary is the transfer of the goodwill to which the mark pertains." Visa, U.S.A., Inc. v. Birmingham Trust Nat'l Bank, 696 F.2d 1371, 1377 (Fed.Cir.1982); see also Money Store v. Harriscorp Finance, Inc., 689 F.2d 666, 676 (7th Cir.1982) ("[I]t is not necessary to the continuing validity of the mark that tangible assets of the assignor pass to the assignee."). According to Quaker, however, any good will associated with the THIRST-AID mark existed only in the institutional market, and therefore could not support the transfer of the right to use THIRST-AID on a beverage at retail. We disagree with both Quaker's characterization of the facts and its conclusion.

Quaker's argument that any good will associated with THIRST-AID could exist only in the institutional market simply ignores STW's evidence, accepted by the district court, that from 1921 until at least 1976 the THIRST-AID mark was used in retail, in-store advertising and promotional materials provided to soda fountains that sold beverages made from THIRST-AID syrups. As the district court found, this use of the mark, as well as its use on the Pet product, created good will associated with THIRST-AID at the retail level. This good will, built up over more than fifty years, could not dissipate during the three and one-half years between the Pet test-market and the assignment of the marks from Karp to STW. Defiance Button Machine Co. v. C & C Metal Prods. Corp., 759 F.2d 1053, 1061 (2d Cir.1985).

The 1981 agreement between STW and Karp, the validity of which Quaker does not challenge, assigned to Karp "all of [STW's] right, title, ownership and interest in and to the Trademarks and all goodwill appurtenant thereto." (Emphasis added.) The agreement then licensed back to STW "the exclusive right and license" to use the marks in connection with certain defined "Products" in the retail trade only. None of the defined products were beverages or beverage-related. Thus, as the district court correctly found, the 1981 agreement conferred on Karp "extremely broad rights of ownership," Sands, Taylor & Wood, 18 U.S.P.Q.2d at 1467-68, including the exclusive right to use THIRST-AID on beverages and the good will associated with that use. Id. at 1466.

Under the 1984 agreement between STW and Karp, Karp assigned to STW "all right, title and interest in and to the trademark and the said registrations including the continued exclusive right to use the trademark THIRST-AID in the retail trade field only, together with any goodwill of the business symbolized by the trademark...." Karp retained the "exclusive right and license in perpetuity to use the trademark THIRST-AID in connection with the manufacture, marketing, sale and other commercialization of the Products in institutional trade only and not in retail trade." Thus, the 1984 agreement transferred back to STW the exclusive right to use THIRST-AID on a beverage, together with the good will associated with that use.11 As we have already noted, that good will existed at the retail as well as at the institutional level, and it was not dissipated during the three and one-half years between the Pet test-market and the 1984 assignment. The district court did not err in finding that the assignment from Karp to STW was valid.

The "keystone" of trademark infringement is "likelihood of confusion" as to source, affiliation, connection or sponsorship of goods or services among the relevant class of customers and potential customers. 2 McCarthy, supra § 23:1, at 42-43, 46-47. Usually, the confusion alleged is "forward confusion," which occurs "when customers mistakenly think that the junior user's goods or services are from the same source as or are connected with the senior user's goods or services." Id. at 48. In such a case, the junior user attempts to capitalize on the senior user's good will and established reputation by suggesting that his product comes from the same source as does the senior user's product. Big O Tire Dealers v. Goodyear Tire & Rubber Co., 561 F.2d 1365 (10th Cir.1977); 2 McCarthy, supra § 23:1, at 48.

In this case, however, STW relies not on classic forward confusion but on the doctrine of "reverse confusion." Reverse confusion occurs when a large junior user saturates the market with a trademark similar or identical to that of a smaller, senior user. In such a case, the junior user does not seek to profit from the good will associated with the senior user's mark. Nonetheless, the senior user is injured because

[t]he public comes to assume that the senior user's products are really the junior user's or that the former has become somehow connected to the latter. The result is that the senior user loses the value of the trademark--its product identity, corporate identity, control over its goodwill and reputation, and ability to move into new markets.

Ameritech, Inc. v. American Information Technologies Corp., 811 F.2d 960, 964 (6th Cir.1987); see also Banff, Ltd., 841 F.2d at 490-91; Big O Tire Dealers, 561 F.2d at 1372. Although this court has not previously recognized reverse confusion as the basis for a claim under the Lanham Act, several other circuits have endorsed the concept.12 We agree with those courts that "the objectives of the Lanham Act--to protect an owner's interest in its trademark by keeping the public free from confusion as to the source of goods and ensuring fair competition--are as important in a case of reverse confusion as in typical trademark infringement." Banff, Ltd., 841 F.2d at 490. We therefore hold that reverse confusion is a redressable injury under the Lanham Act.

Quaker does not really dispute the validity of the reverse confusion theory. Rather, Quaker argues that there is no likelihood of confusion of any sort here because STW has no "product in commerce" about which customers could be confused. We now turn to that issue.

Modern trademark law prohibits use of a senior user's mark not only on products that are in direct competition with those of the senior user but also on products that are considered to be "closely related" to the senior user's. International Kennel Club, 846 F.2d at 1089. A "closely related" product is one "which would reasonably be thought by the buying public to come from the same source, or thought to be affiliated with, connected with, or sponsored by, the trademark owner." 2 McCarthy, supra § 24:3, at 166; see also International Kennel Club, 846 F.2d at 1089. Thus, the use of the mark VERA on cosmetics and perfume has been found to infringe the mark VERA on designer apparel and household linens. Scarves by Vera, Inc. v. Todo Imports, Ltd.,