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FIRST NATIONAL BANK OF OMAHA v. MASTERCARD INT'L INC.

July 15, 2004.

FIRST NATIONAL BANK OF OMAHA, INC., Plaintiff,
v.
MASTERCARD INTERNATIONAL INCORPORATED, Defendant. MASTERCARD INTERNATIONAL INCORPORATED, Plaintiff, v. FIRST NATIONAL BANK OF OMAHA, INC., Defendant.



The opinion of the court was delivered by: DENISE COTE, District Judge

OPINION AND ORDER

On May 12, 2004, a jury unanimously found that plaintiff First National Bank of Omaha ("FNBO") failed to prove its claim that its SMARTONE trademark is infringed by the use of the ONESMART trademark by MasterCard International Incorporated ("MasterCard") in connection with smart card services. Typically, a smart card is a plastic card that contains a computer chip enabling the card's holder to purchase goods and services, to access financial or other records, and to perform various operations requiring data stored on the chip. The trial was limited to the question of whether MasterCard caused reverse confusion among the actual or potential FNBO agent banks to whom MasterCard's ONESMART program of smart card services was marketed.

  FNBO now moves pursuant to Rule 65(d), Fed.R. Civ. P., to enjoin MasterCard permanently from using the terms ONESMART, ONESMART MASTERCARD, or any variant thereof (excluding the MasterCard logo) on any chip card, debit card, credit card, or advertising prototype that is used or proposed to be used by or with consumers in the banking, credit card or smart card service industries. FNBO does not specify whether it seeks to prevail on a claim of forward or reverse confusion. To date, MasterCard has not used the ONESMART mark or variants in connection with smart card services offered or advertised to consumers.

  The early procedural history of this action is set forth in detail in this Court's February 23, 2004 Opinion ("February Opinion") denying the parties' motions for summary judgment, familiarity with which is presumed. MasterCard Int'l Inc. v. First Nat'l Bank of Omaha, No. 02 Civ. 3691 (DLC), 2004 WL 326708 (S.D.N.Y. Feb. 23, 2004). In brief, FNBO sent a letter on April 10, 2002, demanding that MasterCard cease and desist in its use of the ONESMART mark and abandon its ONESMART trademark applications. On May 15, MasterCard filed a complaint for a declaratory judgment (the "MasterCard Action") that its use of ONESMART, ONESMART MASTERCARD, or variants thereof did not infringe FNBO's trademark rights in the term SMARTONE. On July 30, FNBO filed a complaint in the District of Nebraska seeking an injunction and damages against MasterCard on grounds of infringement, and subsequently moved to dismiss or to transfer the MasterCard Action to Nebraska. FNBO's motion to dismiss or transfer was denied on November 13, 2002, MasterCard Int'l Inc. v. First Nat'l Bank of Omaha, No. 02 Civ. 3691 (DLC), 2002 WL 31521091 (S.D.N.Y. Nov. 13, 2002). The action filed by FNBO was assigned to this Court on January 29, 2003.

  After discovery had concluded in these actions, both FNBO and MasterCard moved for partial summary judgment. On September 19, 2003, FNBO sought summary judgment on its claim to enjoin MasterCard from using the ONESMART mark, and, specifically, on the following three elements of its claim: first, that FNBO's SMARTONE mark is a valid mark entitled to protection; second, that there is a likelihood of confusion between ONESMART and SMARTONE; and third, that FNBO used the SMARTONE mark prior to MasterCard's use of ONESMART. On October 17, MasterCard moved for summary judgment dismissing FNBO's claims for monetary relief. Both the FNBO and MasterCard motions for summary judgment were denied in the February Opinion.*fn1 MasterCard, 2004 WL 326708 at *12. The February Opinion also granted a motion in limine brought by MasterCard to exclude under Rules 403 and 702, Fed.R. Evid., survey evidence prepared by an FNBO expert that was intended to measure actual reverse confusion among actual or potential FNBO agent banks.

  A jury trial in the FNBO Action began on May 3, 2004. The issue at trial was whether FNBO was entitled to money damages as a result of MasterCard's creation of a likelihood of reverse confusion between the SMARTONE and ONESMART marks among actual or potential FNBO agent banks.*fn2 These banks are the only prospective purchasers of FNBO's smart card services to whom MasterCard's ONESMART program has been presented and therefore the only market relevant to a claim for damages.

  The following witnesses testified at trial in this order: George Schmezel, Director of Marketing for FNBO; Steven Schulz, Vice President of FNBO's consumer bank; Denise Mazour, an attorney specializing in trademark and copyright law who handled FNBO's SMARTONE application; Christopher Rieck, Vice President for Product Services at MasterCard; Saima Rahmanzai, a senior auditor at FNBO; Elias Eliopoulous, President of FNBO's consumer bank; Jonathan Knowles, an expert witness on brand strategy for FNBO; Cate Elsten, an expert witness on damages for FNBO; Arthur Kranzley, Chief E-business Officer and Executive Vice President of MasterCard; Scott Phillips, an expert witness on damages for MasterCard; Colm Dobbyn, Senior Vice President and Assistant General Counsel for MasterCard; and Robyn Hohns, a consultant who worked at a MasterCard facility. In addition, video footage of the deposition testimony of Christina Costa, who handled MasterCard's promotion of the ONESMART program, was played for the jury, as was footage of the testimony of the following individuals concerning third party use of the term "smart one": Peter Schork, Vice President of the Bank of Ann Arbor; Radu Achiriloaie, Vice President of Oblio Telecom, Inc.; and Badar Khan, Senior Vice President of Marketing for SmartEnergy, Inc.

  The evidentiary portion of the trial concluded on May 10, and on May 12, a unanimous jury found that FNBO failed to prove its claim. The factual record upon which this motion for a permanent injunction is based was closed at the conclusion of trial on May 12. Both parties declined the opportunity to supplement the record. FNBO's motion for a permanent injunction was submitted on May 28, in accordance with the schedule set forth in a May 12 Order. For the following reasons, FNBO's motion for a permanent injunction is denied. Findings of Fact

  FNBO and SMARTONE

  FNBO is a national bank that offers credit card services and processing to its own customers, to those of its affiliates, and to agent banks in at least seven states.*fn3 FNBO's processing services are used principally by mid-sized banks. FNBO entered the smart card market on the belief there was significant potential for future growth in the industry and adopted the SMARTONE name because it felt the term would appeal to consumers across FNBO's agent bank network. FNBO submitted an application to the United States Patent and Trademark Office ("PTO") on November 24, 2000 for federal registration of the SMART ONE trademark in connection with banking services, credit card services, and smart card services.*fn4

  FNBO has featured the SMARTONE card on its website and sent out two waves of direct mail solicitations to a specially selected set of its customers: 400,000 mailings in September 2002, and 700,000 mailings in March 2003. The mailings targeted customers FNBO believed would be particularly receptive to a smart card product. The mailings generated a better response rate than is typical in direct mail campaigns and resulted in the issuance of approximately 9,000 FNBO SMARTONE cards as of the Summer of 2003.*fn5 These smart cards include the bank's name and symbol (an encircled "1") in the upper left corner, a holographic chip accompanied by the word smart along the left side of the card, the term "smartOne" in distinctive font in the center of the card, and the VISA name (in larger font than either the bank or "smartOne" name) displayed across the striped blue and gold VISA symbol in the lower right corner of the card. FNBO has done no additional consumer advertising.

  In addition to consumer marketing, FNBO has spoken to two of its agent banks about issuing smart cards bearing the SMARTONE mark. FNBO has sent solicitations to the customers of one of these banks, Hibernia, on its behalf. The card advertised features the Hibernia name in the upper left corner, as well as the holographic chip and SMARTONE and VISA marks as described above. FNBO's name is not included on the front of the Hibernia smart card, and FNBO does not intend to include its name on any SMARTONE cards issued by its other agent banks. FNBO testified that it intended for these SMARTONE cards to be understood by consumers as an offering of the issuing agent bank.

  To date, FNBO has spent approximately six million dollars on the development and marketing of its chip card program. FNBO decided to halt its smart card program roughly one year ago as a result of business considerations as well as uncertainty related to the outcome of this lawsuit. FNBO received a federal registration for the term SMARTONE in connection with banking services, credit card services, and smart card services on December 23, 2003.*fn6

  MasterCard and ONESMART

  MasterCard is a global payment systems company whose members include the financial institutions that issue MasterCard cards to consumers. MasterCard competes with other international card networks such as Visa and American Express. MasterCard itself is not a bank and does not issue bank cards.

  MasterCard filed two applications to register the ONESMART trademark on June 4, 2001 — the first for use in the field of financial services, including credit and other payment card services, and the second for use in connection with computer hardware. MasterCard uses the term ONESMART in conjunction with the ONESMART MASTERCARD program of services and support, including system design and hardware selection, provided to member banks who choose to offer smart cards to their customers. The ONESMART MasterCard program is directed primarily at the network's largest member banks, such as Citibank and Capital One, who have the resources to invest in developing a smart card offering for consumers. MasterCard's advertising campaign, which began in April 2002, included a website, trade show presentation, advertisements in banking industry trade journals, and informational brochures distributed to some of MasterCard's member banks. MasterCard concluded its advertising in 2002.

  These materials use the term ONESMART MASTERCARD and the slogan ONESMART CARD. MORE SMART CHOICES, as well as the term ONESMART followed by nouns such as "card," "choice," and "move." Although the term ONESMART does not always directly precede MASTERCARD, it is clear that the ONESMART MASTERCARD program is being advertised. The brochures also display prototype smart cards on which "YourBank" is written on the upper right corner over a stylized "OneSMART" logo in smaller font. The MasterCard name and symbol of overlapping circles appear prominently in the lower right corner. A holographic chip similar to that on the SMARTONE card is located on the left side of the card. Only a few banks have expressed interest in putting the ONESMART name on a smart card, and none have done so to date.*fn7 MasterCard has not presented the ONESMART MASTERCARD program to consumers or advertised it in the consumer market. In addition to the two applications to register ONESMART filed in June 2001, MasterCard filed applications to register ONESMART MASTERCARD for financial services and computer hardware on October 11, 2001. On February 6, 2002, it applied for the trademark ONE SMART CARD. MORE SMART CHOICES in the financial services industry. On February 24, MasterCard applied to register a stylized version of the ONESMART mark (the "Stylized Application"), displayed as "OneSMART," for use in connection with financial services. The Stylized Application, which was sent to a different trademark examiner than the previous ONESMART applications, was registered on February 18, 2003. The other MasterCard applications have been approved for publication by the PTO, but none has been registered.

  MasterCard's trademark applications were handled by Assistant General Counsel and Senior Vice President Colm Dobbyn, who testified at trial. Prior to seeking registration of the term ONESMART, Dobbyn conducted a full trademark search in May 2001, uncovering a pending application for the mark ONE SMART LOAN.COM, later abandoned, as well as numerous applications for the SMART ONE trademark. Within the class of financial services, the search described an application for the mark SMARTONE RATE, to be used in connection with the provision of electric power, as well as FNBO's SMARTONE application for use connection with credit and smart card services and a similar, but later-filed application by Capital One for the same mark. Outside of the financial services class, the trademark search revealed six applications for the SMART ONE mark.

  On October 3, 2001, Dobbyn provided the following e-mail opinion ("October 3 Opinion") concerning MasterCard's ONESMART trademark application:
[W]e are aware of a prior trademark filing for SMART ONE by First National bank of Omaha . . . First National Bank of Omaha has priority over Capital One and should be able to prevent Capital One from registering the same mark (our interest is in the term ONE SMART, which is arguably distinguishable from SMART ONE.) . . .
[T]he filings [by] Capital One and First National of Omaha are not the only references that are of potential interest to the adoption of ONE SMART by MasterCard; the terms "smart" and "one" are common components of numerous trademark filings by various parties. . . .
As a result of the numerous prior filings and uses of the "Smart One" and "One Smart" terminology, it is our opinion that it would be difficult for MasterCard to obtain exclusive trademark rights over the term ONE SMART in the United States. Nevertheless, we believe that it may be possible to obtain certain limited rights over the composite mark ONE SMART MASTERCARD, given our broad existing rights in the MASTERCARD mark.
[H]owever, we would be prepared to argue to the Trademarks Office that ONE SMART is sufficiently different from SMART ONE that the two terms can co-exist. We have already filed applications for both ONE SMART MASTERCARD and ONE SMART alone, with the understanding that it may be necessary to abandon attempts to register ONE SMART itself. We would recommend the term be used as a composite form — ONE SMART MASTERCARD. We cannot rule out the possibility of an opposition proceeding or other legal action being taken by First National Bank of Omaha or by any other third party, however.
(Emphasis supplied.) Dobbyn's opinion is consistent ...

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