The opinion of the court was delivered by: WALKER
Plaintiff McDonald's Corporation ("McDonald's") brings this action to enjoin the Defendants McBagel's, Inc. ("McBagel's") and its sole shareholder Ken McShea ("McShea") from using the name "McBAGEL'S" in connection with a bagel bakery and restaurant located in Fishkill, New York. McDonald's claims that defendants are violating both statutory and common law, and asserts causes of action for trademark infringement under 15 U.S.C. § 1114(1)(a); unfair competition under 15 U.S.C. § 1125(a); common law unfair competition; and dilution under New York General Business Law § 368-d (McKinney 1984).
The Court reaches these findings of fact and conclusions of law following a careful review of the testimony offered by both sides at a bench trial, as well as a word-by-word reading of the trial transcript, the Court's trial notes, the depositions and exhibits received in evidence, and the extensive pre-trial and post-trial submissions of the parties.
McDonald's and Its Business
McDonald's, a Delaware Corporation with its principal place of business in Oak Brook, Illinois, is perhaps the largest fast food chain in the United States. Since its founding in the mid-1950's, McDonald's has grown steadily.
In 1955, Ray A. Kroc opened a single restaurant in Des Plaines, Illinois, a suburb of Chicago. Kroc originally licensed the right to use the name and mark "McDONALD'S" from Richard and Maurice McDonald, who had operated a restaurant under that name in San Bernadino, California. A few years later, Kroc paid the McDonald brothers several million dollars, purchasing rights to use the name "McDONALD'S" throughout the United States. During the past 30 years, McDonald's has expanded to include more than 9,000 restaurants throughout the world, 6,800 of which are located in the United States. In 1984, the company's revenues exceeded $2.5 billion.
McDonald's opened its first New York State restaurant in 1958, and since that time has established several hundred restaurants in New York. One of these is located in Fishkill, about one mile from the McBagel's bagel bakery and restaurant. The Fishkill McDonald's, like about 75 percent of McDonald's restaurants, is operated as an independent franchise and staffed by local residents.
In 1955, McDonald's original menu consisted of hamburgers, french fries, and milkshakes. Subsequently, McDonald's has experimented with, tested, and sold a wide variety of products in various stores throughout its system. For instance, in 1968, after market testing in California, McDonald's introduced a breakfast sandwich called the "EGG McMUFFIN" in restaurants across the United States. In 1979, McDonald's first experimented with a chicken dish called "CHICKEN McNUGGETS." These "McNuggets" are now served at most McDonald's restaurants.
Today, McDonald's restaurants offer a substantially uniform menu, including hamburgers, cheeseburgers, special sandwiches, french fried potatoes, chicken nuggets, fried fish sandwiches, shakes, hot pies, sundaes, cookies, soft drinks, and other beverages. Most McDonald's restaurants operating in the United States and Canada are also open during breakfast hours with a breakfast menu that includes the "EGG McMUFFIN" and "McMUFFIN" sandwiches, pancakes, and other breakfast fare. Still interested in expanding the range of food items available in McDonald's stores, the company frequently test markets new items and licensees often participate in or initiate such testing.
McDonald's has made a point of identifying each new product or service with the "Mc" or "Mac" prefix. Although McDonald's holds no trade or service mark registration for the "Mc" prefix standing alone, it has registered some thirty-four marks which contain "Mc" or "Mac". These registered marks represent a variety of food items and services.
McDonald's Advertising Efforts
McDonald's originally advertised only its name "McDONALD'S" and its well-known "ARCHES" trademark. In recent years, however, it has expanded this advertising to include other distinctive marks, which are derived from "McDONALD'S" and begin with "Mc" or use "Mac", such as "EGG McMUFFIN", "SAUSAGE McMUFFIN", "McD.L.T.", "BIG MAC", "RONALD McDONALD", and CHICKEN McNUGGETS". Today, all advertisements contain the mark "McDONALD'S" and the "ARCHES", and most include at least one of these specific products designated by the "Mc" or "Mac" formative.
McDonald's makes substantial investments in advertising and marketing the products designated by its trademarks and service marks. In fiscal year 1984, McDonald's and its licensees spent over $300 million in national and local television, radio, newspaper, magazine, billboard, and other advertising. In 1985, the McDonald's system increased its advertising expenditures to $350 million. In that year, in addition to its general advertising expenses, McDonald's spent $125 million on in-store promotions.
About ninety percent of this large annual advertising budget is used solely for television commercials. The Court received in evidence numerous storyboards proposed for McDonald's local and national television commercials, which usually run for from four to six weeks. As of the trial of this action, McDonald's was the nation's largest advertiser of any single good, service, or establishment, and the nation's fifth largest advertiser overall.
McBagel's, Its Business and Advertising
McBagel's, owned by defendant and sole shareholder Ken McShea, was incorporated in the State of New York in August of 1984. After completing construction in December 1984, McBagel's opened its bagel bakery and restaurant in a Fishkill, New York shopping center under the name "McBAGEL'S".
Since its opening, McBagel's primarily has sold a variety of bagels baked each day on the premises. McBagel's menu includes bagels, salads, sandwich fillers such as egg salad, tuna fish, chicken salad, shrimp salad, as well as a wide variety of hot and cold sandwich meats. The restaurant also serves soft drinks, soup and breakfast items, such as eggs, buttered bagels, egg & ham on a bagel, and traditional breakfast beverages. The name "McBAGEL'S" appears on a neon sign reading "McBagel's Bagel Bakery & Restaurant", which defendants have placed above the entrance to the store, and on cardboard signs serving as menus, which are located inside the restaurant. McBagel's has an advertising budget of between $10,000 and $15,000 a year, and has used "McBAGEL's" in flyers and coupons, weekly newspaper advertising, telephone directory ads and regularly-broadcast radio commercials. In the year prior to trial, McBagel's also received some free advertising from the coverage by various local newspapers, WCBS-TV in New York and INN News, of the instant dispute between McDonald's and McBagel's.
Plaintiff McDonald's objects to the defendants use of the "Mc" prefix in conjunction with a generic food item, the bagel, to denote McBagel's services as a bagel bakery and restaurant. McDonald's first voiced it opposition to the restaurant's name in December 1984, and subsequently filed this action in October 1985. The essence of plaintiff's claim is that defendants' use of the phrase "McBAGEL'S" creates confusion among customers as to whether McDonald's somehow sponsors or is otherwise associated with McBagel's.
McDonald's, however, has limited the scope of the trademark protection it requests in this action. McDonald's expressly stated at trial that it had no complaint with defendants' use of the "Mc" prefix in conjunction with a word unrelated to food products. Thus plaintiff would not have objected had defendants called the bakery and restaurant "McSheagels," the name selected by the public, but never adopted by defendants, in a name contest run by defendants after they first learned of McDonald's opposition to their use of the name McBagel's.
McBagel's, on the other hand, broadly asserts that McDonald's extensive advertising program actually eliminates any possibility of confusion with McBagel's, since the McDonald's marks and every aspect of its distinctive business, including McDonald's unique restaurants and their golden arches, are so well known.
The Mark Which McDonald's Seeks To Protect
The mark for which McDonald's claims protection is the prefix or formative "Mc " when used with a generic food item, as in the numerous marks already registered by plaintiff. See Note 2 supra. While it does not hold a registered mark in "Mc", plaintiff may claim protection for this prefix as a common component of a "family of marks." 3A R. Callman, The Law of Unfair Competition Trademarks and Monopolies § 20.24 (4th ed. 1986) [hereinafter cited as Callman]. In other words, if McDonald's can demonstrate that it has established a "family of marks", the corporation. may obtain trademark protection against one whose mark is thought to emanate from the same source as the plaintiff's family.
The existence vel non of a family of marks is a question of fact based on the distinctiveness of the common formative component and other factors, including the extent of the family's use, advertising, promotion, and its inclusion in a number of registered and unregistered marks owned by a single party. In this case, the Court has no hesitation in finding that McDonald's owns a "family of marks", both registered and unregistered, whose common characteristic is the use of "Mc" or "Mac" as a formative. The existence of this family is evidenced by the mark registrations noted above, as well as by credible testimony as to the massive advertising expenditures devoted by McDonald's to create recognition for marks beginning with "Mc" or using "Mac". Such marks include "MAYOR McCHEESE" "EGG McMUFFIN", "McCHICKEN", "McHAPPY DAY", "MINI MAC", "CHICKEN McNUGGETS", "McSNACK", "McMUFFIN" and "McD.L.T." The Court received in evidence more than one hundred McDonald's storyboards of television commercials, run nationally and locally between 1975 and 1986, a majority of which promoted one or more members of the "Mc" family of marks. In 1976, television commercials were aired that created an entire "Mc" language, using words such as "McFriendliest", "McGreatest", "McCleanest", "McClown", "McFavorite", in a campaign promoting the clown Ronald McDonald as McDonald's symbol. The Court also received evidence of extensive print advertising in national magazines, such as Time, Newsweek, and Sports Illustrated: billboard advertising, and promotional materials used in MacDonald's 6,800 United States outlets, all of which promoted the "Mc" formative.
In addition, the Court finds that there is substantial news media use of the "Mc" language in independently created McDonald's. For example, a 1982 news article in Chicago describing a wedding held at a McDonald's restaurant is entitled: "Here Comes McBride." A nationally-syndicated political cartoon depicted President Reagan in front of a "McRonald's" sign on plaintiff's golden arches, posting the number 10 next to the words "million unemployed." Indeed, a news article about this very case was entitled "McDonald's McMakes Trouble for McBagels."
Finally, there is substantial evidence, credited by this Court, that McDonald's has actively policed its rights in the "Mc" formative prior to defendant's use of the mark "McBagel's." Many agreements between McDonald's and other prospective "Mc" users, as well as a number of court or administrative orders, have resulted in prohibitions against the use of "Mc" formative marks, the assignment of marks using this formative to McDonald's, and other limitations on outside use of this formative.
Upon the totality of the record, it is clear that the "Mc" formative has been extensively used, promoted widely at great expense, made the subject of numerous federal registrations, and actively policed. McDonald's is thus able to use the family of marks denoted by the "Mc" formative as a basis for its trademark enforcement action in this case. See AMF, Inc. v. American Leisure Products, Inc., 474 F.2d 1403 (CCPA 1973) (finding a family of marks based on the formative "FISH" for names of boats as in "SAIL FISH" and "SUNFISH"); Dictaphone Corp. v. Dictamatic Corp., 199 U.S.P.Q. 437 (D. Or. 1978) (upholding a family prefixed by the phrase "Dicta").
I. TRADEMARK INFRINGEMENT
Under the Lanham Act, Section 32(a), 15 U.S.C. § 1114(a); as well as Section 43(a), 15 U.S.C. § 1125(a), defendants are liable for infringement if their use of the name McBagel's is likely "to cause confusion, or to cause mistake or to deceive" typical consumers into believing some sponsorship, association, affiliation, connection or endorsement exists between McDonald's and defendants.
There is no precise formula for identifying the circumstances under which a trademark owner may enjoin a defendant's use of a similar mark on different products. The interests, however, which justify trademark protection in situations where plaintiff and defendant advertise non-identical products under similar names provide the framework for analyzing these problems. The three interests which justify this trademark protection are:
[F]irst, the senior user's interest in being able to enter a related field at some future time; second, his interest in protecting the good reputation associated with his mark from the possibility of being tarnished by inferior' merchandise of the junior user; and third, the public s interest in not being misled by confusingly similar marks. . . .
Scarves by Vera, Inc. v. Todo Imports, Ltd., 544 F.2d 1167, 1172 (2d Cir. 1976).
In protecting these interests the consideration which the courts have repeatedly emphasized is "whether there is any likelihood that an appreciable number of ordinarily prudent purchasers are likely to be misled, or indeed simply confused, as to the source of the goods in question." McGregor-Doniger, Inc. 599 F.2d 1126 (2d Cir. 1979) Mushroom Makers, Inc. v. R.G. Barry Corp., 580 F.2d 44, 47 (2d Cir. 1978). McDonald's need prove by only a preponderance of the evidence that a likelihood of confusion exists. J.T. McCarthy, Trademarks and Unfair Competition, § 23:20, at 105 (2d ed. 1985) [hereinafter cited as McCarthy].
Moreover, it is clearly established in the Second Circuit that likelihood of confusion refers to confusion of any type, Syntex Laboratories, Inc. v. Norwich Pharmacal Co., 437 F.2d 566 (2d Cir. 1971), including confusion of source, sponsorship, affiliation, connection, or identification. King Research, Inc. v. Shulton, Inc., 324 F. Supp. 631 (S.D.N.Y. 1971), aff'd, 454 F.2d 66 (2d Cir. 1972); McCarthy, supra, § 24:3(b) at 166. As the Court of Appeals stated in Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 204 (2d Cir. 1979):
In order to be confused a consumer need not believe that the owner of the mark actually produced the item and placed it on the market. The public's belief that the mark's owner sponsored or otherwise approved the use ...