Sands, Taylor & Wood Company v. The Quaker Oats Company
978 F.2d 947 (1992)
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Rule of Law:
A large junior user's prominent use of a senior user's mark in an advertising slogan can constitute trademark infringement under the doctrine of reverse confusion, even if the junior user argues the term is descriptive, if the use serves as an attention-getting symbol uniquely associated with the junior user's product.
Facts:
- In 1973, Sands, Taylor & Wood Company (STW) acquired a company that owned registered trademarks for THIRST-AID, which had been used on soft drinks and syrups since the 1950s.
- In 1980, STW licensed the THIRST-AID mark to Pet, Inc. for an isotonic beverage designed to compete with Gatorade. Pet test-marketed the product but ultimately did not proceed, and the license expired in 1981.
- In December 1981, STW sold the THIRST-AID trademarks to L. Karp & Sons (Karp), but licensed back the exclusive right to use the mark on non-beverage retail products.
- In 1983, The Quaker Oats Company (Quaker) acquired Gatorade and subsequently developed an advertising campaign with the slogan 'Gatorade is Thirst Aid for That Deep Down Body Thirst.'
- In early 1984, Quaker's in-house counsel approved the slogan without a trademark search, believing the use of 'Thirst Aid' was descriptive and did not raise trademark issues.
- After being alerted to a prior use, Quaker's counsel conducted a trademark search on May 2, 1984, which revealed the THIRST-AID registrations owned by Karp. Quaker's investigation indicated Karp was not using the mark.
- On May 12, 1984, Quaker launched its 'Gatorade is Thirst Aid' television commercials. Shortly thereafter, both Karp and STW contacted Quaker claiming trademark infringement.
- Just before commencing litigation, STW reacquired the THIRST-AID trademark registrations from Karp for $1.
Procedural Posture:
- Sands, Taylor & Wood Company sued The Quaker Oats Company in the U.S. District Court for the Northern District of Illinois for trademark infringement under the Lanham Act and state law.
- The district court granted summary judgment in favor of STW on Quaker's fair use defense.
- After a bench trial on the remaining issues, the district court found that Quaker had infringed STW's trademark.
- The district court awarded STW damages of $24,730,000 (10% of Quaker's pre-tax profits on Gatorade), plus prejudgment interest and attorney's fees, for a total judgment of over $42 million.
- The district court also permanently enjoined Quaker from using the words 'Thirst Aid'.
- Quaker, as appellant, appealed the judgment to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does The Quaker Oats Company's use of 'Thirst Aid' in its 'Gatorade is Thirst Aid' advertising slogan infringe on Sands, Taylor & Wood Company's registered trademark for THIRST-AID under a theory of reverse confusion?
Opinions:
Majority - Cudahy, J.
Yes, Quaker's use of 'Thirst Aid' infringes STW's trademark under the doctrine of reverse confusion. This court adopts reverse confusion as a redressable injury under the Lanham Act, which occurs when a larger junior user saturates the market with a mark, overwhelming the senior user's brand identity. Although Quaker argued for a 'fair use' defense, that defense fails; even if the term 'Thirst Aid' were descriptive, Quaker used it as an 'attention-getting symbol' and a slogan, which constitutes use 'as a trademark,' not merely descriptive use. The court also rejected Quaker's abandonment defense, finding that STW and its predecessors had shown intent to resume use. A likelihood of confusion was established because Quaker's massive ad campaign created a strong public association between 'Thirst Aid' and Gatorade, injuring STW's ability to use its own mark. However, the district court's award of 10% of Quaker's profits is reversed as inequitable and a 'windfall' given the marginal evidence of bad faith, and the case is remanded for a redetermination of damages, likely based on a reasonable royalty.
Concurring - Ripple, J.
I join the judgment but write separately to express my view that Quaker's corporate conduct deserves a 'somewhat less charitable appraisal' than the majority gives it. While I agree that the percentage-of-profits damage award is difficult to sustain, I believe the district court on remand should place substantial emphasis on deterrence in its damages calculation. Therefore, a 'reasonable royalty' might not suffice to properly address Quaker's conduct in this case.
Dissenting - Fairchild, J.
I respectfully dissent from the decision to reverse the damages award. The district court found that Quaker acted in bad faith, and the key question is one of causation—what portion of Quaker's profit resulted from its infringing use. I cannot say that the district court's estimate that 10% of Quaker's profit was attributable to the use of 'THIRST AID' was unreasonable or clearly erroneous. Quaker retains 90% of its profits, which is a substantial reward for its own contributions, and the $24 million award for unjust enrichment should stand.
Analysis:
This decision formally established the doctrine of reverse confusion in the Seventh Circuit, providing a crucial cause of action for smaller, senior trademark holders against larger, junior users who overwhelm their brand identity. The case clarifies the limits of the fair use defense, demonstrating that using a descriptive term as a prominent, attention-grabbing slogan constitutes trademark use, thereby defeating the defense. Furthermore, the court's reversal of the large profit-based award signals a preference for damages based on a reasonable royalty in cases of marginal bad faith, shaping remedial expectations in future infringement litigation.
