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FRANKLIN RESOURCES v. FRANKLIN CREDIT MGMT. CORP.

December 16, 1997

FRANKLIN RESOURCES, INC., Plaintiff, against FRANKLIN CREDIT MANAGEMENT CORPORATION, FRANKLIN CREDIT RECOVERY FUND, L.P. I through XXIII, and THOMAS J. AXON, Defendants.

CHARLES S. HAIGHT, JR., UNITED STATES SENIOR DISTRICT JUDGE.


The opinion of the court was delivered by: HAIGHT

HAIGHT, Senior District Judge :

 This is an action for trademark infringement brought pursuant to the Lanham Act, 15 U.S.C. §§ 1051 et. seq., to which plaintiff appends state and common law claims of dilution, infringement, and unfair competition. Following a bench trial, the Court enters the following Opinion which will constitute its findings of fact and conclusions of law pursuant to Rule 52(a), Fed.R.Civ.P.

 FACTUAL BACKGROUND

 The Parties

 Plaintiff Franklin Resources, Inc. ("Franklin Resources") is a Delaware corporation with its principal place of business in San Mateo, California.

 Franklin Resources was founded in 1947 as a mutual fund company. It has grown substantially since then, and at present has approximately $ 215 billion under management. For the most part, Franklin Resources manages these funds through the vehicles of mutual funds known collectively as the Franklin Group of Funds. The Franklin Group rivals in size such other leading groups of mutual funds as Fidelity, Dreyfus and Vanguard. Franklin Funds run the gamut of investment possibilities: there are equity funds, bond funds, money market funds, gold funds, government securities funds, tax-exempt funds, and the like. The Franklin Funds attract many small investors because most of them require an initial investment of only $ 100. At present, about 5.27 million different shareholder accounts exist for the various Franklin Resources products. Franklin Resources itself is a publicly owned company traded on the New York Stock Exchange.

 Franklin Resources presently has about 6,000 employees. Franklin employees act as investment advisors to the several Franklin Funds; work in a distribution company responsible for distributing the funds to the investing public through intermediaries; and work in a service company that attends to purchases and sales made in the funds and other administrative services.

 In addition to the Franklin Funds, Franklin Resources offers other forms of financial services. Franklin Resources offers individual investors management of interests in real estate investment trusts such as the Franklin Real Estate Securities Trust.

 Franklin Resources' wholly owned subsidiary, Franklin Properties, Inc. establishes real estate investment trusts and performs real estate management. Another wholly owned subsidiary, Property Resources, Inc., has organized and acted as general partner to a number of real estate investment limited partnerships.

 Franklin Resources is the holding company for Franklin Bank, an FDIC insured California state chartered banking corporation, engaged in administering of deposit accounts and consumer loan financing. Franklin Bank's consumer loan portfolio includes secured and unsecured direct closed end consumer loans, credit card loans, auto loans and home equity secured revolving lines of credit.

 At present, Franklin Bank has over 115,000 active customers for the various financial services it offers. Franklin Bank services its VISA and MASTERCARD credit cards. Franklin Bank solicits credit card accounts from Franklin Fund shareholders, and also markets its credit cards on college campuses, through on-campus agents and an Internet website. Franklin Bank currently owns or manages over $ 79 million in credit card receivables and services the accounts of over 90,000 credit card holders resident in all 50 states. About 40.6% of these credit card holders are Franklin Fund shareholders; 35.5% are college students; and 23.8% are other members of the general public.

 Franklin Resources' wholly owned subsidiary, Franklin Capital Corporation ("FCC"), is a consumer finance company chartered and headquartered in Utah. FCC is involved in the financing and servicing of auto loan receivables generated through auto dealerships. FCC currently owns or manages over $ 224 million in automobile purchase financing contracts.

 Since 1990, the Franklin Bank and FCC have generated in excess of $ 672 million in consumer loan assets.

 Turning to the defendants, Franklin Credit Management Corporation ("Franklin Credit") is a Delaware corporation, maintaining an office at 6 Harrison Street, New York, New York.

 Defendants Franklin Credit Recovery Fund, L.P. I-XXIII, were limited partnerships organized under the law of Virginia, with a place of business at 6 Harrison Street, New York, New York.

 Defendant Thomas Axon is a resident of Brooklyn, New York and the president of Franklin Credit.

 Franklin Credit is a finance company that deals principally with troubled loans. Franklin Credit purchases at a discount and services near-performing, under-performing and non-performing loans, the vast majority of which are secured by the borrower's principal residence. Franklin Credit purchases most of these loans from the Federal Deposit Insurance Corporation ("FDIC"), the Resolution Trust Corporation ("RTC"), or privately-owned banks and finance companies.

 In the past, Franklin Credit raised funds to pursue this business through the use of "Limited Partnerships" whose names included the words "Franklin Credit Recovery Fund." Franklin Credit created 23 such Limited Partnerships, each partnership being the owner of a loan portfolio serviced by Franklin Credit. Franklin Credit was the general partner in the Limited Partnerships. However, Franklin Credit has discontinued the use of Limited Partnerships as a vehicle for raising capital. Each of the limited partnerships was dissolved prior to December 31, 1995.

 The Parties' Trademarks

 Franklin Resources placed into evidence four federal trademark registrations which it owns. PX 130, 192, 200, 215. Reg. No. 1,607,629 registers the word "Franklin" for "investment management services, and mutual funds advisory, distribution, and administration services," first used in commerce in 1937. PX 192.

 Reg. No. 1,648,317 registers the name "Franklin Group of Funds" for the same services, and was first used in commerce in June 1973. PX 200.

 Reg. No. 1,545,628 registers the name "Franklin Partners Funds" for "mutual fund investment management services," with a first use in commerce on May 4, 1987. PX 130.

 Reg. No. 1,752,851 registers the name "Franklin California 250 Growth Index," and refers to services and activities not pertinent to this case. PX 215.

 DISCUSSION

 I. The Lanham Act Claim

 The Validity of Franklin Resources' Marks

 Typically, a Lanham Act plaintiff must demonstrate "that it has a valid mark entitled to protection and that defendant's use of it is likely to cause confusion." Gruner Jahr USA Publishing, v. Meredith Corp., 991 F.2d 1072, 1075 (2d Cir. 1993). In the case at bar, the registration of Franklin Resources' trademarks establishes their validity and protectability. Franklin Credit does not contend otherwise. Accordingly the analysis turns to the likelihood of confusion. See The Sports Authority, Inc. v. Prime Hospitality Corp., 89 F.3d 955, 960 (2d Cir. 1996) ("TSA has valid registrations for all of its marks, so the issue for determination is whether TSA has demonstrated a likelihood of confusion, and we are guided in this inquiry by the Polaroid balancing test.)."

 Likelihood of Confusion

 As noted, for a time Franklin Credit raised funds by means of a number of limited partnerships whose names included the words "Franklin Credit Recovery Fund." However, with the dissolution of each limited partnership prior to December 31, 1995, Franklin Credit has not used since that time, and is not using now, any trademark including the word "Fund." In these circumstances, the inquiry into the likelihood of confusion turns solely upon the parties' use of the name "Franklin."

 It is common ground that, with respect to the use of "Franklin" in a trademark, Franklin Resources is the senior user and Franklin Credit is the junior user. The decisive question is "whether the junior user's use of the name gives rise to the likelihood of confusion among consumers of the junior user's goods or services." Hutchinson v. Essence Communications, Inc., 769 F. Supp. 541, 545 (S.D.N.Y. 1991). A likelihood of confusion for Lanham Act purposes exists, the Second Circuit has said recently, when

 
numerous ordinary prudent purchasers are likely to be misled or confused as to the source of the product in question because of the entrance in the marketplace of defendant's mark. For a finding of infringement a probability of confusion, not a mere possibility, must be found to exist.
 
Gruner Jahr, 991 F.2d at 1077 (citations omitted).

 See also C.L.A.S.S. Promotions, Inc. v. D.S. Magazines, Inc., 753 F.2d 14, 17 (2d Cir. 1985) (likelihood of confusion exists where "there is any likelihood that an appreciable number of reasonable consumers would be misled or simply confused as to the source of the goods in question.").

 In evaluating the likelihood of confusion, courts in this circuit apply the balancing test articulated in Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492, 495 (2d Cir.), cert. denied, 368 U.S. 820, 7 L. Ed. 2d 25, 82 S. Ct. 36 (1961). That test requires consideration of eight non-exclusive factors in deciding whether a likelihood of confusion exists: (1) the strength of the plaintiff's mark, (2) the degree of similarity between the plaintiff's and the defendant's marks, (3) the proximity of the products, (4) the likelihood that the plaintiff will "bridge the gap" between the two products, (5) actual confusion between the two marks, (6) the defendant's good faith in adopting its mark, (7) the quality of the defendant's product(s), and (8) the sophistication of buyers or users of the plaintiff's and defendant's goods or services. Polaroid, 287 F.2d at 495; see Sports Authority, 89 F.3d at 960; Gruner Jahr, 991 F.2d at 1077.

 As Judge Friendly, the author of the Polaroid decision, noted, "even this extensive catalog does not exhaust the possibilities -- the Court may have to take still other variables into account." 287 F.2d at 495. "Other variables" identified in subsequent cases reflect the fact that the district court, in granting or withholding a preliminary or permanent injunction in trademark infringement cases, acts as a court of equity. Thus district courts engage in a more general balancing of "the conflict interests of the parties involved," McGregor Doniger, Inc. v. Drizzle, Inc., 599 F.2d 1126, 1140 (2d Cir. 1979), and such equitable factors as "the nature of the senior user's priority, the senior user's delay in asserting its claim, and the harm to the junior user as compared to the benefit of the senior user that would result from the requested injunction." Thompson Medical Co., Inc. v. Pfizer, Inc., 753 F.2d 208, 214 (2d Cir. 1985). Thus it follows that "no single Polaroid factor is preeminent, nor can the presence or absence of one without analysis of the others, determine the outcome of an infringement suit. Thompson Medical Co., Inc., 753 F.2d at 214.

 I will now consider each of the Polaroid factors in the light of the trial evidence.

 Strength of Franklin Resources' Mark

 "The term 'strength' refers to a mark's tendency to identify the goods sold under the mark as emanating from a particular, although possibly anonymous source." Arrow Fastener Co., Inc. v. Stanley Works, 59 F.3d 384, 391 (2d Cir. 1995) (citation and internal quotation marks omitted). The Second Circuit has "set forth four categories to gauge the extent to which a mark indicates a source of goods or services: (1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary or fanciful." Sports Authority, 89 F.3d at 961. These categories are enumerated in the increasing order of strength.

 Plaintiff at bar contends that its use of the name "Franklin" is arbitrary. That characterization confers the highest degree of strength. "Fanciful or arbitrary marks are eligible for protection without proof of secondary meaning and with ease of establishing infringement." W.W.W. Pharmaceutical Co., Inc. v. Gillette Co., 984 F.2d 567, 572 (2d Cir. 1993) (citations and internal quotation marks omitted).

 Defendant contends that plaintiff's use of the name "Franklin" is descriptive only, the weakest form of mark after generic marks (which cannot be registered at all). "A descriptive mark describes a product's features, qualities or ingredients in ordinary language, and may be protected only if secondary meaning is established." W.W.W. W. pharmaceutical Co., 984 F.2d at 572.

 While pigeonholing in this field of law can never be precise, I think that plaintiff's use of "Franklin" is suggestive. "A suggestive mark employs terms which do not describe but merely suggest the features of the product, requiring the purchaser to use imagination, thought and perception to reach a conclusion as to the nature of goods." W.W.W. Pharmaceutical Co., 984 F.2d at 572 (citations and internal quotation marks omitted).

 The evidence shows that Franklin Resources uses the name "Franklin" to evoke a memory and example of Benjamin Franklin, the founding father and tireless advocate of thrift and sound financial planning. Indeed, its print advertising, which Franklin Resources began during the 1980's and upon which it now spends about $ 20 million each year, invariably juxtaposes the name "Franklin" with Benjamin Franklin's image, closely resembling the image that appears on the $ 100 bill.

 Franklin Resources has used the name since 1947. At present over 5 million investment accounts have been established in one or another of the Franklin funds.

 Defendant argues that plaintiff has offered no evidence of secondary meaning; but if, as I conclude, plaintiff's use of the name Franklin is suggestive, secondary meaning is not necessary to make a mark protectable. "Suggestive, arbitrary or fanciful marks may be protected without a showing of secondary meaning." Arrow Fastener Co., 59 F.3d at 391. Moreover, once a trademark that is only descriptive has become an incontestable registered trademark (as plaintiff's mark has done), the secondary meaning is established as a matter of law, at least in the context of protectability. See Gruner Jahr, 991 F.2d at 1077 (noting approvingly that "the district court found that the mark PARENTS was strong since it was an incontestable registered trademark, having necessarily acquired secondary meaning. Thus, [plaintiff's] descriptive registered trademark was correctly found to be strong for purposes of protectability."). Of course, one must draw a distinction between the protectability of a suggestive mark and the mark's strength in the related but discrete context of an action for infringement. "But a finding of suggestiveness does not guarantee a determination that the mark is a strong one. Although a suggestive mark is entitled to registration without evidence of secondary meaning, suggestiveness is not necessarily dispositive of the issue of the strength of the mark." W.W.W. Pharmaceutical Co., 984 F.2d at 572 (citation and internal quotation marks omitted). In that case, the district court found that plaintiff's "sportstick" for lip balm, while incontestable, was "only moderately strong, deserving of trademark protection, but not entitled to the fullest protection available under the law." Id. at 573. Factors militating against strength were modest sales during the pertinent years, indicating "a low national recognition of [plaintiff's] product," and "extensive third-party use of the words sport and stick," which "weighs against a finding that [plaintiff's] trade name is strong." Id.

 In the case at bar, the duration and volume of the business that Franklin Resources has done under the name "Franklin" militate in favor of the strength of its mark. *fn1"

 On the other hand, Franklin Credit has shown extensive use of the name "Franklin" by third parties engaged in one aspect or another of the financial service industry. Defendant produced a chart listing 65 such companies culled from the Yellow Pages of telephone directories. Plaintiff says that this list of names proves very little as to what these third parties do or with whom they do it, but the list of names is probative of seemingly widespread usage of the name "Franklin" in connection with such activities or services, prompted, one may reasonably infer, by an esteem third parties share with the plaintiff for Benjamin Franklin. It is well settled that third-party registration and use dilutes the strength of a trademark. Hutchinson, 769 F. Supp. At 548 (citing cases). That dissolution is significant in the case at bar.

 I conclude, with respect to this Polaroid factor, that Franklin Resources' mark is moderately strong -- no ...


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