Peaches Entertainment Corp. v. Entertainment Repertoire Associates, Inc.
1995 WL 490583, 62 F.3d 690 (1995)
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Rule of Law:
Under the Lanham Act's 'limited area defense,' an intermediate junior user of a trademark has the right to exclusively use the mark within its established trade territory, which is defined by its 'zone of reputation' (proven by sales, advertising, and reputation) at the time of the senior user's federal registration, and may fully exploit this territory.
Facts:
- In 1974, Lishon's Inc., predecessor to Peaches Entertainment Corporation (PEC), began using the service mark 'PEACHES' for its retail music stores.
- In August 1975, Entertainment Repertoire Association (ERA), unaware of Lishon's prior use, began operating music stores in Orleans and Jefferson Parish, Louisiana, under the trade name 'PEACHES'.
- In December 1975, Lishon's sent a cease and desist letter to ERA regarding the use of the 'PEACHES' mark.
- ERA responded to Lishon's letter but received no further communication, leading ERA to assume it could continue using the mark; it subsequently expanded to six stores across two parishes by 1980.
- On July 6, 1976, Lishon’s obtained a federal registration for the 'PEACHES' service mark.
- Over the years, ERA cultivated a strong reputation and loyal customer base, supported by extensive radio advertising that reached a multi-parish area around New Orleans.
- In 1981, Lishon's filed for bankruptcy, and its assets, including the 'PEACHES' trademark, were acquired by PEC.
Procedural Posture:
- Peaches Entertainment Corporation (PEC) filed an infringement suit against Entertainment Repertoire Association, Inc. (ERA) in federal district court.
- ERA asserted the 'intermediate junior user' defense under 15 U.S.C. § 1115(b)(5).
- The district court found that ERA was a protected intermediate junior user.
- Following a trial to determine the scope of ERA's rights, the district court issued a permanent injunction allowing ERA to use the mark in a seven-parish trade area but restricting its ability to open new stores to only Orleans and Jefferson Parish.
- PEC appealed to the U.S. Court of Appeals for the Fifth Circuit, challenging the size of the seven-parish territory.
- ERA filed a cross-appeal, challenging the district court's limitation on its future store expansion within the established trade territory.
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Issue:
Under the Lanham Act's 'limited area defense,' is a junior user's protected trade territory limited to the parishes where it has physical stores, or does it extend to the broader 'zone of reputation' established through advertising and sales, thereby allowing the junior user to open new stores anywhere within that broader territory?
Opinions:
Majority - Stewart, Circuit Judge
No. A junior user's protected trade territory is not limited to its physical locations but extends to its entire 'zone of reputation,' and the junior user has the right to fully exploit this entire territory. The Lanham Act provides a defense for junior users who adopt a mark without knowledge and use it continuously in a specific area prior to the senior user's federal registration. The court holds that this protected 'area' is determined by the junior user's 'zone of reputation,' which is established through evidence of sales, advertising coverage, and customer goodwill at the time of the senior user's registration. The district court correctly identified ERA's seven-parish trade territory based on uncontroverted testimony about its customer base and advertising reach. However, the district court erred by restricting ERA's future store expansion to only two of those seven parishes, as this improperly interferes with an intermediate junior user's right to fully exploit the market potential of its established trade territory.
Analysis:
This decision clarifies the geographic scope of the 'limited area defense' for junior trademark users under the Lanham Act. It establishes that a user's rights are not narrowly confined to its physical locations but are defined by the more commercially realistic 'zone of reputation' test, which includes market penetration through advertising and customer goodwill. The ruling strengthens the position of good-faith junior users by affirming their right to not only maintain their market presence but also to naturally expand within that pre-existing territory. This precedent limits the ability of senior, registered users to geographically constrict the operations of junior users who have already established a market.
