Freedom Card, Inc. Urban Television Network, Inc. v. Jpmorgan Chase & Co. Chase Manhattan Bank Usa, N.A. (Dist. Of De No. 03-Cv-00432) Chase Manhattan Bank Usa, N.A. v. Urban Television Network, Inc. Freedom Card, Inc. v. Jpmorgan Chase Bank Jpmorgan Chase & Co., Third Party (Dist. Of De No. 03-Cv-00217). (Amended Per Clerk's Order Dated 12/2/04)

Urban Television Network, Inc ("UTN")1 appeals from the district court's grant of summary judgment on the "reverse confusion" trademark infringement and unfair competition claims UTN brought against Chase.2 UTN asserted those claims in counterclaims it filed in response to Chase's declaratory judgment action. Chase filed that action to obtain a judicial declaration that its CHASE FREEDOM credit card did not violate any rights UTN had in its FREEDOM CARD trademark.3 The district court ruled that Chase had not violated UTN's trademark, and this appeal followed. For the reasons that follow, we will affirm.4

In December 2000, UTN began offering its FREEDOM CARD in conjunction with CompuCredit Corporation. The FREEDOM CARD was offered to extend credit and financial services to the "sub-prime" credit market that is disproportionately comprised of African-American consumers. UTN focused its promotional efforts on "people who [had] bad credit or [had] filed bankruptcy recently and [were] looking to start all over." Chase Manhattan Bank, USA v. Freedom Card, Inc. 333 F.Supp.2d 239, 242 (D.Del.2004). UTN entered into a contract with Queen Latifah, a prominent African American entertainer, as part of its efforts to promote the FREEDOM CARD. The majority of FREEDOM CARD customers had credit lines of $300. On average, they were charged annual fees and interest amounting to 140% over and above their principal balance. Id.5 CompuCredit stopped marketing and issuing new accounts for the FREEDOM CARD card after December 2001. Id. at 242 n. 4. The district court found, FREEDOM CARD peaked at 28,193 accounts.

For a number of years, Chase and Shell Oil Company had issued a co-branded credit card called "CHASE Shell MasterCard." The card offered cash rewards on purchases of Shell gasoline. In March 2002, Shell notified Chase that it was terminating their relationship. Chase owned the Shell accounts and in order to retain those accounts it began developing a new credit card product that would serve existing accounts as well as generate new ones.

Chase's research eventually lead to a rewards program that allowed Chase's customers to use its card at any gasoline company's filling station and receive rebates on gasoline as well as other purchases. Chase claims that it named the card "CHASE FREEDOM card," because of the freedom it afforded cardholders to purchase gasoline wherever the cardholder chose. On January 11, 2003, Chase sent a letter to its Shell account holders notifying them that their Shell cards would be automatically converted to CHASE FREEDOM cards.

The CHASE FREEDOM card was officially announced in a January 27, 2003, advertisement in the Wall Street Journal, more than a year after the FREEDOM CARD card stopped being issued. "The CHASE FREEDOM card [was] a reissue of the CHASE Shell MasterCard." Chase, 333 F.Supp.2d at 242. The CHASE FREEDOM portfolio consisted of approximately 1.5 million converted Shell accounts and fewer than 10,000 accounts acquired after the January 27, 2003 launch.

Chase maintains that the converted account holders were generally between the ages of 46 and 55, had a FICO6 score of 800 or higher, owned their own homes, and were married with average annual incomes between $40,000 and $50,000. Of the acquired account holders, 80% owned their own home and 60% had a FICO score of 780 or higher. Chase claims that the majority of CHASE FREEDOM cardholders had credit lines of $5,000 — $10,000, with no annual fee and an annual percentage rate of between 12.4% and 14.4%. Id.

The Wall Street Journal advertisement for CHASE FREEDOM card was the only advertisement that ever appeared. Upon seeing the Wall Street Journal advertisement the day it first appeared, Wesley Buford, UTN's Chief Executive Officer, contacted Chase and complained that Chase was infringing UTN's FREEDOM CARD mark. See n. 1, supra.7 After Buford objected, Chase immediately halted its advertising and marketing efforts for "CHASE FREEDOM," and refrained from acquiring any new customers.8

Thereafter, representatives of Chase and UTN met to discuss the problem. Chase claims that discussions broke down after UTN threatened to "have people protesting around [Chase's] branches" and to have demonstrations calling attention to "the evils of Chase and this Freedom Mastercard [sic]" and thereby "cause [Chase] a great deal of harm." Appellees' Br. at 6. UTN claims that these meetings were "positive and friendly" rather than confrontational and, based upon prior positive communication between the parties and Chase's prompt cessation of CHASE FREEDOM card, Buford still believed that the matter could be resolved amicably. Appellants' Br. at 12. As a consequence of that belief, UTN claims that it maintained its relationship with Queen Latifah and even executed another commercial production agreement with her on February 19, 2003.

On February 4, 2003, Chase filed the instant action in district court seeking a declaration that its use of the CHASE FREEDOM mark did not infringe any of UTN's rights in the FREEDOM CARD mark. UTN counterclaimed asserting third-party claims for trademark infringement in violation of 15 U.S.C. § 1114,9 and unfair competition in violation of 15 U.S.C. § 1125(a)(1)(A).10 UTN also sought a determination that Chase was in violation of a 1999 Mutual Confidentiality Agreement between Chase and UTN.11

At the close of discovery, Chase filed several motions including a motion for summary judgment on UTN's trademark infringement and unfair competition claims. The district court granted Chase's motion for summary judgment upon determining that there was no likelihood of confusion between "CHASE FREEDOM" and FREEDOM CARD. See Chase Manhattan Bank, supra. Thereafter, the district court issued another order clarifying that the prior order had disposed of all claims and that the judgment against UTN was therefore final. This appeal followed.12

III. HISTORICAL CONTEXT.

As noted above, see n.1, supra, UTN relies upon two registrations of its FREEDOM CARD mark — Nos. 2,398,191 and 2,398,192. The United States Patent and Trademark Office ("USPTO") initially rejected UTN's applications for those marks because it was concerned about the likelihood of confusion with a prior registration of Parker Oil Company for the mark "Fuel Freedom Card." Parker also used that mark on a credit card. In order to overcome those concerns, UTN entered into a Consent Agreement with Parker Oil, and submitted that agreement to the USPTO. In the Agreement, UTN admitted there was no likelihood of confusion between "FREEDOM CARD" and "Fuel Freedom Card" because the marks "are dissimilar in appearance . . . dissimilar in sound . . . dissimilar in connotation . . . dissimilar in commercial impression" and "when considered in their entireties are not likely to be confused" with one another. The USPTO accepted the Consent Agreement and granted the registrations to UTN. Chase, 333 F.Supp.2d at 246.

UTN also submitted a one-inch thick exhibit of numerous other "freedom" marks in response to concerns the USPTO had with additional "freedom mark" registrations that UTN applied for. UTN argued that these marks, together with third-party marks cited by the USPTO, were "all existing together in the marketplace" and UTN therefore argued that "no one has the exclusive right to use the word `FREEDOM' alone." Id. at 246, n. 15. In response to concerns that UTN's FREEDOM CARD would be confused with Parkers "Fuel Freedom Card," UTN also represented to the USPTO that, because of such frequent third-party use, the addition of the descriptive term "fuel" "when used in conjunction with the FREEDOM CARD mark, eliminated concern that the marks FREEDOM CARD and FUEL FREEDOM CARD would be confusingly similar." Id. at 246.

Chase also provided the district court with substantial direct evidence of widespread, third-party use of the term "freedom." According to this undisputed evidence, there are approximately 20 MasterCard and VISA "freedom" credit cards and roughly 50 MasterCard and VISA "freedom" debit and ATM cards. There are also about 25 banks using "freedom" as part of their name or in connection with a banking product, as well as about 200 other financial companies that use "freedom" as part of their name.

UTN claims that CompuCredit approached it in October 2002, with an offer for the rights to the FREEDOM CARD name, and that CompuCredit's offer was then valued at $15 million. UTN maintains that the parties were close to resolving a few remaining issues and expected to execute the agreements at the end of January 2003. However, according to UTN, the negotiations between it and CompuCredit were interrupted by the introduction of the CHASE FREEDOM card on January 27, 2003. UTN contends that after the introduction of the CHASE FREEDOM card, CompuCredit believed that consumer confusion would depress the value of the FREEDOM CARD mark. Therefore, CompuCredit allegedly refused to proceed with UTN because it did not have the resources to compete with Chase. Thus, in UTN's view, given the strength of the "CHASE" mark, and Chase's resources, the introduction of the CHASE FREEDOM card effectively stifled any effort to close the transaction with CompuCredit or to market UTN's product with any other institution that had expressed interest.13

According to UTN, Chase converted 1,506,070 Shell accounts to their new CHASE FREEDOM card. In addition, UTN claims that, although Chase launched a new CHASE PERFECTCARD in May 2003, purportedly to replace the Freedom card, Chase did not remove existing CHASE FREEDOM cards from the market.

IV. GENERAL PRINCIPLES.

"The Lanham Act defines trademark infringement as use of a mark so similar to that of a prior user as to be `likely to cause confusion, or to cause mistake, or to deceive.'" Kos Pharmaceuticals, Inc., v. Andrx Corp., 369 F.3d 700, 711 (3d Cir., 2004) (quoting 15 U.S.C. § 1114(1)). Thus, "[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." Fisons Horticulture, Inc. v. Vigoro Industries, Inc., 30 F.3d 466, 472 (3d Cir.1994) (citations omitted). Although Fisons Horticulture involved trademarks, not . . . unfair competition, [as UTN alleges as part of its counterclaim here,] the analysis is the same. See A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 166 F.3d 197, 202 (3d Cir.1999) ("A & H III"). "To prove either form of Lanham Act violation, 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 is likely to create confusion concerning the origin of the goods or services."14 Id. Because it is undisputed that UTN owns FREEDOM CARD, a valid and legally protectable mark, "the questions in this case involve the delineation and application of standards for the evaluation of likelihood of confusion." A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 237 F.3d 198, 211 (3d Cir.2000) ("A & H V").

"A likelihood of confusion exists when consumers viewing the mark would probably assume that the product or service it represents is associated with the source of a different product or service identified by a similar mark." Id. (citation and internal quotations omitted). The relevant inquiry is not whether consumer confusion is a possibility, but whether confusion is likely. A & H V, 237 F.3d at 198. Once a trademark owner demonstrates likelihood of confusion, it is entitled to injunctive relief. Interpace Corp. v. Lapp, Inc. 721 F.2d 460, 462 (3d Cir.1983) (citing 15 U.S.C. § 1114(1)).

There are two types of "likelihood of confusion" claims — "direct confusion" claims and "reverse confusion" claims. As we noted at the outset, we are primarily concerned with a claim of reverse confusion because that is how UTN argues this appeal. Although direct confusion and reverse confusion have developed as two separate doctrines, they are not as analytically distinct as may, at first blush, appear. "Isolated instances of direct confusion may occur in a reverse confusion case, and vice-versa." Checkpoint Systems, Inc., v. Check Point Software, 269 F.3d 270, 305 (3d Cir.2001) (citation omitted). Accordingly, although we are resolving UTN's claim of reverse confusion, we can not ignore the doctrine of direct confusion.

The essence of a direct confusion claim is that a junior user of a mark attempts to free-ride on the reputation and goodwill of the senior user by adopting a similar or identical mark. A & H V, 237 F.3d at 228; see also Fisons Horticulture, 30 F.3d at 474 (In a direct confusion claim, "the new or junior user of the mark will use to its advantage the reputation and goodwill of the senior user by adopting a similar or identical mark."); Checkpoint Systems, 269 F.3d at 301. Thus, "the consuming public may assume that the established, senior user is the source of the junior user's goods." Id.

In deciding whether similar marks create a likelihood of confusion, we have adopted a non-exhaustive test using 10 factors that have come to be known as the "Lapp factors,"15 for determining the likelihood of confusion between two marks where direct confusion is alleged. Pursuant to that analysis, we examine: (1) the degree of similarity between the owner's mark and the alleged infringing mark;

(2) the strength of the owner's mark;

(3) the price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase;

(4) the length of time the defendant has used the mark without evidence of actual confusion arising;

(5) the intent of the defendant in adopting the mark;

(6) the evidence of actual confusion;

(7) whether the goods, though not competing, are marketed through the same channels of trade and advertised through the same media;

(8) the extent to which the targets of the parties' sales efforts are the same;

(9) the relationship of the goods in the minds of consumers because of the similarity of function;

(10) other factors suggesting that the consuming public might expect the prior owner to manufacture a product in the defendant's market, or that he is likely to expand into that market.

Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 463 (3d Cir.1983) (citation omitted). The Lapp factors were originally used to determine likelihood of confusion for non-competing goods. Id. at 462. Where goods that were the subject of a trademark infringement action directly competed with each other, we originally held that a "court need rarely look beyond the mark itself" to determine likelihood of confusion. Id. However, we have since held that the Lapp factors should be used for both competing and non-competing goods. A & H V, 237 F.3d at 213. In either event, "the Lapp test is a qualitative inquiry. Not all factors will be relevant in all cases; further, the different factors may properly be accorded different weights depending on the particular factual setting. A district court should utilize the factors that seem appropriate to a given situation." Id. at 215.16

We first recognized Lanhan Act Section 43(a) reverse confusion claims in Fisons Horticulture. "Reverse confusion occurs when a larger, more powerful company uses the trademark of a smaller, less powerful senior owner and thereby causes likely confusion as to the source of the senior user's goods or services." Fisons Horticulture, 30 F.3d at 474. Thus, the "junior" user is junior in time but senior in market dominance or size.

In reverse confusion, the junior user saturates the market with a similar trademark and overwhelms the senior user. The public comes to assume 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.

Without the recognition of reverse confusion, smaller senior users would have little protection against larger, more powerful companies who want to use identical or confusingly similar trademarks. The logical consequence of failing to recognize reverse confusion would be the immunization from unfair competition liability of a company with a well established trade name and with the economic power to advertise extensively for a product name taken from a competitor. If the law is to limit recovery to passing off, anyone with adequate size and resources can adopt any trademark and develop a new meaning for the trademark as identification of the second user's products.

Fisons Horticulture, at 474-75 (citations and internal brackets omitted).17

Thus, "the doctrine of reverse confusion is designed to prevent. . . a larger, more powerful company usurping the business identity of a smaller senior user." Commerce National Ins., v. Commerce Insurance Agency, Inc., 214 F.3d 432, 445 (3d Cir.2000).

As noted above, UTN presents its Lanham Act Section 43(a) unfair competition claim as a reverse confusion claim. In A & H V, we held that in a typical case alleging reverse confusion, as in a case of direct confusion, a court should apply the Lapp factors in assessing likelihood of confusion. 237 F.3d at 208. However, economic reality and common sense require that some of the Lapp factors be analyzed differently when reverse discrimination is at issue. Id. at 236. Thus, the strength of the parties' marks (Lapp factor (2)), the intent in adopting the marks (factor (5)), and the evidence of actual confusion (factor (6)), are analyzed differently from the method employed in a typical direct confusion case.18 id. at 236. With these parameters in mind, we turn to the instant dispute.

(I). Strength of the mark.

In evaluating the strength of the mark under Lapp, we examine: (1) the mark's distinctiveness or conceptual strength (the inherent features of the mark) and (2) its commercial strength (factual evidence of marketplace recognition). A & H V, 237 F.3d at 221. The inquiry into distinctiveness or conceptual strength is the same whether plaintiff is alleging direct or reverse confusion. Id. at 231-32 ("When it comes to conceptual strength . . . we believe that, just as in direct confusion cases, a strong mark should weigh in favor of a senior user."). The conceptual strength of a mark is measured by classifying the mark in one of four categories ranging from the strongest to the weakest: "(1) arbitrary or fanciful (such as "KODAK"); (2) suggestive (such as "COPPERTONE"); (3) descriptive (such as "SECURITY CENTER"); and (4) generic (such as "DIET CHOCOLATE FUDGE SODA")." Id. at 221. Stronger marks receive greater protection. Id. at 222.

In examining a mark's commercial strength, we examine marketplace recognition. Id. at 221. "[I]n a reverse confusion claim, a court should analyze the `commercial strength' factor in terms of (1) the commercial strength of the junior user as compared to the senior user; and (2) any advertising or marketing campaign by the junior user that has resulted in a saturation in the public awareness of the junior user's mark." Id. at 231. Our focus in resolving reverse confusion should be the commercial impact of the stronger junior user's mark on the weaker mark of the senior but less dominant user.

(ii). Intent in Adopting the Mark.

In a direct confusion case, the defendant's intent to confuse or deceive consumers can be very probative of the likelihood of confusion. Id. at 232. Nevertheless, a defendant's intent to confuse in a reverse confusion case can also be relevant to the likelihood of confusion. Id. However, the tenor of the evidence of intent will differ. In a true case of direct confusion, there is an intent to palm-off or ride on the goodwill of the senior user's mark. Id. at 225-26. The offender in a reverse confusion case will typically exploit confusion to push the senior user out of the market. Id. at 232.

(iii). Evidence of Actual Confusion.

"[O]ne might assume evidence that the public thought that the senior user was the origin of the junior user's products would support a direct confusion claim while evidence that the public thought that the junior user was the source of the senior user's product would support a reverse confusion claim." Checkpoint Systems, 269 F.3d at 305 n. 34 (citing A & H V, 237 F.3d at 233). However, as noted earlier, because the "manifestation of consumer confusion as `direct' or `reverse' may merely be a function of the context in which the consumer first encountered the mark . . . [i]solated instances of `direct' confusion may occur in a reverse confusion case, and vice-versa." A & H V, 237 F.3d at 233. Therefore, there is no strict prohibition against using "direct" confusion evidence in a "reverse" confusion case, or vice-versa. Id.

(iv). Summary of test for reverse confusion.

In A & H V, we summarized the test for reverse confusion as follows:

[I]n the typical case in which there is a claim of reverse confusion, a court should examine the following factors [in determining] whether or not there is a likelihood of confusion:

(1) the degree of similarity between the owner's mark and the alleged infringing mark;

(2) the strength of the two marks, weighing both a commercially strong junior user's mark and a conceptually strong senior user's mark in the senior user's favor;

(3) the price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase;

(4) the length of time the defendant has used the mark without evidence of actual confusion arising;

(5) the intent of the defendant in adopting the mark;

(6) the evidence of actual confusion;

(7) whether the goods, competing or not competing, are marketed through the same channels of trade and advertised through the same media;

(8) the extent to which the targets of the parties' sales efforts are the same;

(9) the relationship of the goods in the minds of consumers, whether because of the near-identity of the products, the similarity of function, or other factors;

(10) other facts suggesting that the consuming public might expect the larger, more powerful company to manufacture both products, or expect the larger company to manufacture a product in the plaintiff's market, or expect that the larger company is likely to expand into the plaintiff's market.

237 F.3d at 234.

Here again, "no one factor is dispositive." The weight given each factor can vary with the circumstances of a particular case. Id. (citation and internal quotations omitted).

UTN's underlying contention before us is that the district court did not properly apply the Lapp factors in the context of its reverse confusion claim. It is true that the district court's opinion does not contain the phase "reverse confusion," and the district court only cites the Lapp factors as they are applied to direct confusion claims. 333 F.Supp.2d at 245. In UTN's view, this means that we must reverse and remand for a correct analysis of the Lapp factors to UTN's claim.

At first blush, there is some support for UTN's position. In A & H V, we said:

Because the District Court failed to undertake the Lapp analysis with respect to A & H Sportswear's reverse confusion claim, we must vacate the judgment and remand to the District Court for a redetermination of those factors that receive different treatment under direct and reverse confusion theories, and for a reweighing of all of the factors once those redeterminations have been made.

237 F.3d at 236. However, a closer reading of A & H V establishes that we did not create a bright-line rule requiring reversal and remand whenever a district court fails to properly apply the Lapp factors. Rather, we there explained:

The District Court interpreted our precedents to require a two-step inquiry, engaging in the Lapp factors only after an initial assessment that the disparity in commercial strength reached a high threshold. Because the degree of commercial disparity that the court believed was required was not met, the court did not even examine whether there existed a likelihood of confusion.

Id. at 208. Indeed, we noted in A & H V that if the record supported a finding that the plaintiff could not succeed on a reverse confusion claim as a matter of law, we would "be bound to explicate our reasoning and affirm the judgment of the district court." Id. at 236. Moreover, it is a long-established principle of appellate review, that "we may affirm a correct decision of the district court on grounds other than those relied upon by the district court." Central Pennsylvania Teamsters Pension Fund v. McCormick Dray Line, Inc., 85 F.3d 1098, 1107 (3d Cir.1996). Thus, the district court's purported failure to apply the Lapp factors does not necessarily mandate reversal and remand.

Moreover, we have serious doubts that UTN's claim is really a claim of reverse confusion to begin with. The essence of reverse confusion is that the more powerful junior user saturates the market with a similar trademark and overwhelms the smaller senior user. Fisons, 30 F.3d at 474. The "relatively large advertising and promotion of the junior user . . . is the hallmark of a reverse confusion case." A & H V, 237 F.3d at 231 (quoting 3 J. Thomas McCarthy, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 23-10, at 23-37). "The question . . . is whether consumers doing business with the senior user might mistakenly believe that they are dealing with the junior user." Checkpoint Systems, 269 F.3d, at 303 (internal quotation marks omitted).

Here, Chase did not overwhelm UTN's FREEDOM CARD at all. It is undisputed that CompuCredit FREEDOM CARD was not promoted or marketed after December 2001. Thus, FREEDOM CARD was out of the market for more than a year before Chase launched the CHASE FREEDOM card on January 27, 2003. We are therefore hard-pressed to understand how CHASE FREEDOM card could have overwhelmed UTN's FREEDOM CARD when FREEDOM CARD was not even participating in the market when CHASE FREEDOM was launched. Moreover, any claim that Chase heavily promoted and advertised CHASE FREEDOM card and thereby overwhelmed UTN's FREEDOM CARD via marketing and promotion would be fanciful at best. On the contrary, Chase published a single advertisement for CHASE FREEDOM in a single publication on a single day. Chase thereafter stopped its marketing and advertising efforts once it was contacted by Buford of UTN. UTN attempts to extend Chase's marketing efforts by pointing to the aforementioned news article in Newsweek magazine that reported about the CHASE FREEDOM card. However, even if Chase is somehow d