Appendix — Lakeland Grocery Corp. v. Food Fair Stores, Inc.

Soren, Circuit Judges _

OG Food Fair Stores, Inc, the plaintiff, below, appeals

from an arder of the District Court diymissing its com-

. . . * . ‘ * . ’

+ plaint for injunctive relief and for an acchunting Of profits. —

and permanently enjoining it, upon the counterclaim of

. “Lakelatd Grocery Corporation. defendant below, from

using the\rade name FOOD FAIR, in the operation of its

/ retail grocéyy business in the Norfolk-Portsmouth area of,

* Virginia. The sole question presented is which of the two

parties is entitled to the exchisive use of the trade name

< FOOD FAIR in the area. The District Court concluded,

notwithdtasidint the earlier use. of the name FOOD FAIR

* by the plaintiff as the designation for its chain of retail

grocery stores in various,areas of the United States, that

the defendant, Lakeland; by reason of its use-of the name -

for its retail outlet in the Norfolk-Portsmouth area prior

to any competitive activity there hy Food Fair Stores, was

_ entitled to the exclusive use of thé trade name in that area.

The correctriess of this conclusion depends upor the ap-

“plicable principles of the Virginia comnion law of unfair

competition. * | ;

.

At the time of the trial below, September 1959, Lake-

land operated two supermarkets in the Norfolk-Portsmouth

area undér the naine FOOD FAIR. One was opened in

May 1953, the’ other in July 1959. Food Fair Stores’ FOOD

FAIR supermarkets in the area pumbered three. The first

2 * Jurisdiction below wis based on divorsity of citizenship. In addition, the

»® complaint origitially asserted. violations of the Lanham Trademark Act, 5,

USC. gs 1051-1121, and of the Virginia statute relating to trade marks, but

these contentions were abandoned during the course of the trial. The question

of damages, demanded, by the counterclaim of Lakeland, was notfinally

decided by the District Court. The chim for compensatory ‘damages was

_teserved for lurther consideration. but the claim for punitive damages was

“denied.-

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2.

, Sees, ae OE

was opened in January 1958, and the others in 1958 and

1959 respectively. Lakeland is a Virginia Corporation,

incorporated in May 1953, whose activities are limited to

the Norfolk-Portsmouth area. Food. Fair Stores, on’ the

_other hand, at, the time of trial was the sixth largest chain

food store organization in the country, -with 399 retail

stores in 9 eastern states distributed as follows: Connecti-

cut 8; Delaware 8; Florida 120; Georgia 3: Maryland 41; .

New Jersey 79; New York “40; Pennsylvania 94; Virginia

6. Its retail sales in stores bearing the FOOD FAIR name:

for.53 weeks ending May 2, 1959, totaled $589.892,682; .

_and the amount spent on advertising from 19335 when the

FOOD FALR name was ‘first used by it, aggregated $30.-

234,148, of which $2,458,004 was expended in the tased

eight months of 1. Ga.

. The origins of this vast corporate bissiness go bail to

a veodevtans which was formed in the 1920's. by the mer-

ger of several small groups of grocery and meat stores oper- -

ating in and around Harrisburg, Pa. In the early 1930's.

its officers evolved or adopted. the concept of the self-serv-

‘ice supermarket—a store with convenient parking and ac-

cessibility to arterial highways, wherein 1 full range of —

food products are available to customers at- moderate

prices resulting from large sales and rapid inventory turn-

over—and in 1933 it openéd its first supermarket in Harris-

burg urider the name “Giant-Quality Price Cutters, Inc.”

T he success of the operation was such that by the end of

1935 it had opened eight supermarkets in Pennsylvania

and southern New Jersey, and by the end of. 1937, at which

time 22 of its supermarkets -were in operation, it had

moved its home office to Philadelphia and had closed. all

of its small stores. ; ae, :

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The name FOOD FAIR was first used hy the prede-

_cessor in August 1933 when it incorpor: led a subsidiary

corporation known as Food Fair Stores, Inc. under the laws

of Maryland. On October 31, 1935 the subsidiary opened

_a supermarket in Baltimore, Mary land, and one day later

an additional supermarket in New Jersey, ‘under the FOOD

FAIR name. By 1938 all of the supe markets of the prede-

cessor’ or its’ subsidiary were operated under the name

FOOD MAIR: in 1939 the name FOOD FAIR was reg- |

istered in the U.S. Patent Office as a trademark for butter

and eggs, and: in 1942 the predecessor changed its corpo-

rate name to Food Fair Stores, Ine. At the same time. the

listing of its stock, Which had been traded through the

New York) Stock Exchange ‘since’ 1937, was. similarly.

changed. to FOOD FAIR, From these beginnings Food

Fair Stores | coiitiiued -its’ expansion until by: April 1953 it

- operated 162 supermarkets in six states of which 156 oper-

ated under the name FOOD FAIR. As of that time there

-were 17 stores in New ‘ork, 45 in New Jersey, 52 in Penn-,

sylvania, 4 in‘Delaware, 19 in Maryland, and 25 in Florida.

During the year ending April 1953 Food. Fair Stores had.

retail sales totaling ‘$265,787,306. In the vear 1952 $1.540,-

583 was expended in advertising and the total advertising-

expenditures from -1935- amounted to. $9.918,269. Food .

Fair Stores was then the eighth largest chain of food stores

in the United States, aind the value of its_good will

measured by the market value of its stock in excess of its |

book value was $33,000,000. '

At that time no, Foop FAIR Store was being oper:

ated by it in’ V ingi The closest store to. Norfolk,

Virginia, ~vas in Y Baltimore, Mary land. Two. stores were

“being operated in the’ metropolitan area of Washington,

“D.C. under the name Food Lane to avoid confusion. since

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the name FOOD FAIR had beeti-earlier appropriated in

the-area by-another operator.. The ‘veason for the step is

made. plain’ by the decision in Food Fair Stores v. Square

Deal Market Co., C.A.D.C., 206 F.2d 482, where it was

shown that approximately 18 weeks after the adoption of

the name FOOD FAIR-by the plaintiff, a store in Wash-

ington, D.C. was opened by Square Deal Market ‘Co., Ine.

under ‘the same name without knowledge of the earlier.

adoption of the name by the plairitiff’s predecessor. The -

court held that under the circumstances it- was entitled

to continue: the use of the name and Food Fair Stores

~ was enjoined from using it in that area.

On May 14, 1953, the defendant, Lakeland G Bocery

Corporation, opened its first supermarket inthe Norfolk-

Portsmouth area, using the name FOOD FAIR. Harold

Eisenberg, the president’ of Lakeland, ‘testified that prior

to 1953 he knew that Food Fair Stores was an organization

of chain stores on the East Coast that “had a lot of stores’,

and that he was also aware that there were many inde-

pendently owned stores operating under the name FOOD

FAIR, as, in Washingtoti, D.C., Richmond, and western

Virginia’, and that Food Fair Stores had no supermarkets

under the ame FOOD FAIR in Virginia. He.stated that

the name FOOD FAIR was selected for Lakeland’s store

since an establishment about a mile down the highway on

which, the store was located used the name “Furniture

Fair” and it-was thought.that the highway would “betome

piste ’ made up of establishments that had a. .-carnival- like or

e

*The District Court found that prior t% Lakeland’s use of .the name

FOOD FAIR, stores not owned by Food Fair Stores in Pulaski, Tazewell,

Martinsville, and Richmond, Virginia, had used the name, the last from 1937

to 1957, and that otfer stores totaling 16 were being or had been operated

independently ‘under the name FOOD FAIR ‘in North Carolina, Georgia

Alabama and Fennessee. s :

5 -2 : : . ais

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food fair operation’ “and that the FOOD F MIR design: tion

would” ‘tie-in = with such a scheme.

— Shortly atter the opening of the Lakeland stiper-.

market, Food Fair Stores was advised of the fact, and on

June 1, 1953 wrote Lakeland asserting its right to the ex-_

clusive use of the term FOOD FAIR as a trade namie, and

protesting: Lakeland’s use -of the name: Theteafter. no -

further action was taken until 1956 when Foad Fair Stores

unsuccessfully tried to negotiate a purchase of the Lake-

land store. In-1956 Food Fair Stores purchased a site out-

side of Norfolk on which it construeted a supermarket

which was opened under the name FOOD FAIR on

January 15, 1958, two days after the institution of this

action. In June 1957 letters were exchanged in which Lake-

land protested the prospective opening df this store and

Food Fair Stores reasserted its priof right to use the name.

In October 1957 ‘a store was opened in Portsmouth using .

the name FOOD FAIR under license from Lakeland, and

in July 1959 Lakeland opened another supermarket

Portsmouth under the FOOD FAIR: name. Food Fair.

Stores in turn opened two additional stores in the area it)

1958 and 1959 respectively, using the FOOD FAIR desig-

-nation. Additional negotiations between the parties com-.

-mencing in 1958 came to nought in 1959,-and the trial of

this case follow ed in September 1959.

At the trial it was stipulated that th style and size of

the lettering of the signs_on the stores was essentially sim-

ilar so as to cause the average person Viewing the ‘signs

_ to conclude that the stores were operated by the same or-

ganization, and the. plaintiff sought to establish the right

to exclusive use of the designation FOOD FAIR, founded

on its prior adoption and long employment of the. term as.

the-trade name of its expanding chain store organization.

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To show that the’ name FOOD FAIR was. well and

favorably known in the area and had attained a secondary

meaning prior to the opening of its FOOD FAIR store by

Lakeland, the plaintiff relied on its activities over a long

period of years and the advertisement of its name, as above

_ described. It showed also that stores in the Norfolk area.

- had been selling- produce to Food Fair’Stores for years

long prior to 1953 and that its.trucks prominently display-

ing the, FOOD FAIR name made frequent trips there to

pick up merchandise. And it pointec’ out. that the région

was a cosmopolitan area. attracting people from all ports

of the east coast who were familiar with the FOOD FAIR

name and identified it with the plaintiff.

W ith respect to the reasonable probability of expan-

sion of the: Food Fair chain into the Norfolk-Portsmouth

area in 1953 it was shown that the business continued’ to

expand along the eastern seaboard until in September 1959

there were 399 stores located in the region extending from

Connecticut to Florida, including six in operation in Vir-

ginia, with additional stores and @ supply warehouse there

- then under construction. Pursuant to the plan to extend the

business a stére was openéd in Alexandria, Virgs ia, in

1946 but was unable to use the name FOOD FAIR be-

cause of the\prior use of that name in the W cdithegon area

.as above described, but thereafter the right to use the name

was acquired by agreement in October 1960. The evidence

showed that the program comprised the acquisition of ex-

isting stores in a given area until a sufficient. number.

usually fifteen; had been obtained whereupon a warehouse

was built to supply them. Such a warehouse was completed

‘ in Baltimore in 1949 whereby the operation of stores’ iri

Norfolk became economically feasible. Efforts were. made

-in 1955 to purchase a chain of stores in the neighborhood

7 a ries Sag Oe

of Newport News and Hampton but these were unsuccess-

ful, and itr 1956 an unsuccessful effort was made. to acquire

the Lakeland store in Norfolk, failing which a site for a

Food Fair Store ‘in the Norfolk area was acquired by the

plaintiff. -

U pon this state of ‘facts the District Judge held that

the words #OOD FAIR constitute a trade name-susce epti-

ble of appropriation and entitled to the protection of the

courts, and that the president of Lakeland Grocery Corpo-

ration, the defendant, was well aware of the use of the

name by the plaintiff to designate its far fhung chain -of

supermarkets when the defendant, on May 14, 1953, open-

ed its store in Norfolk under the same_name. The Judge _

also noted that: the defendant adopted for its store ‘adver-

tising signs substantially identical in style and size of let-

tering as used by the plaintiff on its stores; and that the

defendant Gontinued ‘to operate its store under the plain-

ae am

tiffs name notwithstading the fact that after it opened its _

store it receivecka letier. from the plaintiff notifying it that

since 1935 the plaintiff had operated a chain of super-

markets under the name and had widely advertised ‘it- so

that it had: become identified in the mind of the public

’ with the plaintiffs business. in the eastern and sale rh

areas of the United States. ‘a

. Nevertheless, the judge dismissed the plaintiff's suit

and granted the counterclaim of the defendant for an in-

junction against the plaintiff. He held that since the defen-_

dant was the first to use the name in the Norfolk-Ports-

inouth area it-was entitled to ‘its exclusive use therein, and

‘that thie ‘subsequent entry of the plaintiff was an attempt .

on its part to capitalize on the advertising and good will

which the defendant had brought about in the interval.

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The- Judge dismissed the plaintiffs suit because he

concluded that the plaintitt had wot established either#rat- ~~

its name-had acquired a Secondary. meaning in the area

indicating the business operated by the plaintiff or thatcat

the time that the defendant opened its store the area Was

within the region into which the trade of. the ‘plaintitl

“might reasonably be expected to extend in the natural es-

"pansion of its business. With respect to the first’ proposi--

tion the court relied upon the decisions of the Supreme

Court of Virginia which are binding upon us since the case —

involves the common law rule of unfair competition. and

our jurisdiction is based on diversity of citizenship.

Pecheur Co. v. National Candy Co., 315 U.S. 666. The

Supreme Court of Virginia applied the usual rule in Bosse

& Mastracco v. Giant Food Shopping Center, 200 Va. 159,

104 S.E.2d 776, holding that in determining the existence

of unfair Competition in the use ‘of siniilar trade names by’

competitors in the same area the test is whether the resem-

htance is so close that it is likely to confuse a prospective

customer.With regard to secondary meaning the court

stated, page 780:

TE e “+

“The definition ae elements a ~eondars meaning

_ may be briefly stated as follows: oa

‘Words and symbols ‘used in. connection with

_one’s goods, services, or: business, of physical

attributes of goods, not capable of being appro-

priated as a technical trade mark, are deemed to

have acquired a secondary meaning when thes

have become associated in the minds of. pur-

chasers or customers with the source or origin of

goods or.services rather than with the goods or

services themselves. Annotation, 150 A.L.R. at

. page 1079,”

In reliance upon the Rosso case. the District “fudge

aorta getovenanenante spoitted-out. that aiile: thes re Wats abundant i vidence that

ihe pkaimtitl was well kncwn as S FOOD A Heietie: Teh

to.persons in the grocery trade, and to’ investors on the

stock market, and to certain persons such as wholesalers

who had special connections with the plaintilt S activities.

there was-a lack of eivdence that the name identified the

plaintiff to members-otf the general public who purchased

" groceries, meats, etc. He. therefore, held that the plaintiff

had not established a secondary ne aning for its mame in

the area. SAR: ieee

We are.in accord with this finding insofar as it sets ont

the testiniony in the case but we do not agree with Uke ulti-

mate conchision that the plaintitf had failed to establish

the existence of a secondary meaning of its name in the

competitive area. Fhe rule, not departed from in the Bosse

case, is that such a secondary meaning exis® if in tact a

substantial. number of present. or prospective customers,

understand the designation when used in connec fon Ww ith

_a business to refer to a particular person or business enter-

_prise. See Restatement, of Torts, Section 716, Comment b.

Nims: Unfair Conipetition and Trade- marks ith cL),

Section 38), pages 160, 161.

‘Bearing this-rule in mind, we are of the opinion that

the plaintiffs name had actualiy acquired a secondary

" meaning in the Norfolk-Portsmouth area. It is true that the

plaintiff had no retail store and hence no retail-customers

in the area; but this-is not to say that. it had no prospective

customers, or-was not known to the purchasing public. The

buisiness’ was well known to a substantial number of per-

sons int active business in divers fields in the locality, any-

one of whom was a potential customer.of the plaintiff who

‘might well be deceived by the name and style of the de-

10

~_fendant’s enterprise into believing that it was the business

of the plaintiff. The absence of any witness testifying that

he had actually been deceived as a consumer dées not re-

- fute the deceptive character of the plaintiff's business. Ou

the contrary, the openmg of the defendant's store under a

much advertised name would doubtléss stimulate interest

_ and inquiry and-widen the plaintiff's reputation: in the -

_ metropolitan area, in view of the easy means of commuini-

cation and transportation available in the area and the

movement Of, travelers from outside territory where plain-

tiff's business was in actual operation. Considerations of

this kind doubtless led | thetlefendant to atop the plain-

tiff's name. | as"

We think also that the court was wrong in concluding

. from the evidence that. the Norfolk-Portsinouth ,area was

bevond the reach of the probable expansion of the plain-

tiffs business. It has been generally recognized since the

decisions of the Supreme Court in Hanover Milling Co. v.

Metcalf, 240 U.S. 403, and United Drug Co. v. Theodore

Rectanus Co., 245.U.S. 90, that ati established trade name

is entitled to protection not only in the area in-which it als

ready renders service or, sells goods but also in areas to

which its trade may re -asonably he expected to.expand. In

the cited cases the issues were confined to the priority of

use of a trademark in a given area and the question of ex-

pansion did not arise; but the court was careful to reserve |

it, saying in the Hanover case, 240 U.S. at 420:

“We are not dealing with a. case where the junior -

appropriator of a trade mark is occupying territory

that would-probably be reached by the prior. user in

the natural expansion of his 9 a we need pass

. no > feiigment upon such a case | aN

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Moreover, the court noted at page 415:

. But where two parties independently are em-—

ploying the same mark upon goods of thé same class.

but in-separate markets wholly remote the one from

the other, the quéstion of prior appropriation is legally

7 insignificant,, unless at least it appear that ‘the second

adopter has selected the mark with sopte design, inimi-

cal to the interests of the first user, sG¢h as’ to take the

benefit of the reputation of his goods, to forestall the

extension of his trade, or the like.”

It is, therefore, itecessary to determine whether at the

time the defendant opened its store in Norfolk there was

a reasonable prospect of the expansion of the plaintiff's

business into that area. The Judge said that on May 14,

1953 the plaintiff had a mere “hope of expansion’ * * and

that plaintiff's possibility of expansion into the Norfolk

area as of that date is too remote to sustain plaintiff's bur-

den of establishing by substantial evidence that the name

FOOD. FAIR had then acquired a secondary meaning, in

this leeality.” This conclusion appears to us to be errone-

ous. The size and rate of expansion of the plaintiff's busi-

ness at the time, the proximity and location of its existing

stores including the Alexandria store operated under an-

other name, the negotiation for a chain of stores in New-

port News in 1955, the effort to buy out the defendant in

1956, and the actual opening of the plaintiff's store in 195

give strong support to the testimony of the plaintiff that as

early as 1949 when the Baltimore warehouse was: opened

surveys ofthe area were made and expansion of the busi-

ness into the area was not merely possible but probable.

_ ‘The Virginia decisions are not at-variance with these

conclusions. In Rosso and Mastracco y. Giant Food Shop-

12

ping Center, supra, the court was called upon to decide

' whether the use of somewhat similar trade names by two

competitors in the same line of business-in the same ‘area

was likely to confuse possible customers. The court had no

occasion to decide to what extent a trade name owner is

entitled to’protection in territory in which the owner does

no business tinder the name but may reasonably expect to

‘cupy in the future. That question, however, has* been

extensively litigated ‘in subsequent cases in various juris-

dictions and to decisions in this line we look for guidanée.

Folléwing the intimation in the ‘opinion of _ the

Supreme Court in the Hanover case quoted above that a

competitor may not deliberately appropriate the trademark

of another with a design to forestall the expansion of the

latter's\ trade, it has been generally held that the owner of

a trade namie-may enjoin infringement i» territory to which

his busitiess has not yet extended. In the great majority of

these cases it was shown that the name had become known

- in greater or less degree as that of the owner to a substan-

tial number of persons in the area through various forms °

of advertisement or information obtained’ by visits to -

" regions in which the. business was being carried on. Ob-

viously, the extent to which a trade name becomes known,

to the public in the present day has been greatly increased

by the development of modern sales methods and modern

advertisement and by the increase of travel throughout the.

country. In any event, protection of a trade name may be ~

given if persons residing in the area with knowledge of

the trade name are likely to be confused by an infringe-

ment. See White Tower System v. White Castle System, 6 ~

Cir., 90 F.2d 67; Stork Restaurant, Inc. v. Sahati, 9 Cir..

166 F.2d 348;"Lincoln Restaurant Corp. v. Wolfies Restau-

rant, Inc. 2 Cir, 291 F.2d 302; Hanson v. v, Tvtengie Publica-

Tee

- is entitled to extri

: aie :

tions, § Cir., ag Fr. 2d 74: Western Oil Refining Co.

Jones, 6 Cir,, 27.F.2d 205; Sweet Sixtéen Co. v. Sweet “16”

Shop, & Cir. 15 F.2d 920: Buc kspan v. Hudson's Bay Co.,

® Cir., 22 F.2d 721; Terminal Barber Shops v, Zoberg,

* 2 Cir., 28 F.2d SOT; Nims, Unfair C ompetition and Tradl, -

marks, (4th Ed.), Section 21Sb. .

The existence or non- existence a oer faith on the

part of thie second user of the trade name is a powerful fac-

tor in determining whether the name’ is entitled to pro~

tectioy.in an area to which the buisiness it ide ntifies has not

actually extended. Indeed, it is pointed out in Nims on-Un-

fair Competition and Tradeé-marks, Section 21$b, page 649,

that to some extent the emphasis of the inquiry. has been

shifted in deterniining whether a trademask or trade name ,

me oot" protection, so that. in some

cases much nye stress i$ placed upon the question of

good faith and nruch less on the extent to which the waine

is known in a given area. See Pike v. Ruby Voo's Dei,

CADC., 232 F.2d 683; Lincoln Restaurant Cor. v..

Wolfies Restaurant, Ine., supra; Sefeway Stores, Inc. &.

Sklar, E.D.Pa. 75 F.Supp. 98; Adam Hat Stores -v.

Scherper, E.D.Wis., 45 F.Supp. 804; Ainmion & Person vy:

Naragansett Dairy Co., | Cir., 262 Fed. 880; Maison

Prunier v. Prunier’ rs Restaurant and C afe, ane. 225 NYS.

- 529. ao

In the instant case we'do not have tu pass on the rele-

vant weight of the testimony as to the clements which

enter into the problem. The existence of all of the neces-

sary elements at the time of the infringement were proved

by substantial evidence. It was shown that the plaintiff's

business and trade name were known to a substantial

number of persons in the Norfolk-Portsmouth area and

_ that the probability of an expansion of the plaintiff's busi-

ness ita the area existed and that the defendant deliber-

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‘ made known to, t

14 ‘ -@ ,

ately and knowingly appropriated the plaintiff's name for.

its own business and actually imitated the character and

stvle of the gee which the plaintiff's business wa’

public.’ Under this combinatidh of

circumstances we reach the conclusion that the plaintiff's

name was entitled to: protection and that the defendant

should be enjoined from the use of it-in the future: We

‘ do not think, however, that the. plaintiff is entitled to an

accounting for profits during the period prior to the insti-

- tution of suit in which the. defendant carried omits busi-

ness. undér the name in the area. The defendant was -,

notified in advance of the. plaintiff's claim to the exclusive

use of thé name and thereafter madé use of it at its own

risk. But on the other hand the plaintiff ou its part made

no attempt to enjoin “the use of its name prior tothe insti-

tution of the present suit and thereby Gisentitled itself to

an accounting for profits.

Reversed and Remanded.