Reservoir, Inc. v. Truesdell (1 F. Supp. 3d 598, 2014)

OPINION

NANCY F. ATLAS, District Judge.

The Court held a bench trial in this trademark infringement case on February 4, 2014. Plaintiffs Mohammad Ayman Jar-rah (“Jarrah”), an individual, and Reservoir, Inc. (“Reservoir”), a Texas corporation (collectively, “Plaintiffs”) have sued Defendants Justin Z. Truesdell (“Trues-dell”), Rainbow Cattle Company, Inc. (“Rainbow Cattle”), Rebels Honky Tonk LLC, and 26710 North 145 Limited Partnership (collectively, “Defendants”). Having considered the testimony of numerous witnesses, all other evidence in the trial record, and the applicable legal authorities, the Court makes the following findings of fact and conclusions of law. In summary, the Court holds that Defendants infringed and, to some extent, diluted Plaintiffs’ trademarks, but did not infringe Plaintiffs’ trade dress. The Court holds that Defendants are not entitled to benefit from any equitable defenses to infringement. The Court orders cancellation of Defendants’ trademarks in issue, denies an injunction and grants Plaintiffs limited damages. The Court concludes this is not an exceptional case and denies Plaintiffs’ request for an award of attorneys’ fees.

I. FINDINGS OF FACT

At the trial, the Court heard testimony from five witnesses: Defendant Truesdell; Plaintiff Jarrah; Gary Holman (“Holman”); Kim Stovall (“Stovall”); and Joe Applewhite (“Applewhite”). The Court credits some but not all of these witnesses’ testimony.

Both Truesdell and Jarrah are veterans of the restaurant, nightclub, and bar business. Truesdell has worked in the hospitality industry for over twenty-three years, and has owned or managed various bars, restaurants, and nightclubs in Houston, Austin, and, from time-to-time, elsewhere. Jarrah has worked in the bar business for approximately fifteen years.

In mid-2009, Plaintiffs opened a club named “Rebels Honky Tonk” on Washington Avenue in Houston, Texas (“Rebels Houston”). Plaintiffs used, in connection with the club, the service mark REBELS HONKY TONK (the “Rebels Word Mark”) in which they have senior rights, as explained hereafter. Jarrah leased the space for Rebels Houston in February 2009. To create and operate Rebels Houston, Jarrah enlisted the help of others, including Truesdell, Applewhite, and Dustin Jones (“Jones”). At Jarrah’s invitation, Truesdell began to work on Rebels Houston in Summer 2009. The witnesses disagree about how the parties met, but it is clear that Jarrah and Truesdell worked together (with the assistance of Apple-white and Jones) between June and August 2009. Jarrah invested approximately $400,000. Truesdell contributed no funds but was actively involved in development of the country western-theme for the bar and its name. During that period, a designer identified by Truesdell was hired to create a logo for Rebels Houston. The logo consisted of a cowboy hat with a star, placed on top of a pair of longhorns and a pillow-shaped sign carrying the words “Rebels Honky Tonk” (the “Rebels Composite Mark,” and together with the “Rebels Word Mark,” the “Rebels Marks” or “Marks”).

During construction, Truesdell arranged for Holman, an artist, to paint the Rebels Composite Mark on the top of the facade of the Rebels Houston building. Holman also painted an enormous mural on an interior wall behind the serving bar; the mural depicted numerous iconic Hollywood and western historical figures leaning on a bar (e.g., Willie Nelson, Marilyn Monroe, and John Wayne).

In August 2009, the relationship between Jarrah and Truesdell disintegrated. Truesdell sought a written partnership agreement. Jarrah declined the terms Truesdell requested, and Truesdell ceased working on the Rebels Houston project. Truesdell and Jarrah never signed any written agreement. Indeed, they had no employment, operating, or partnership contract. On the other hand, Jarrah, Ap-plewhite, and Jones did execute a “Management/Operating Agreement” pursuant to which Applewhite and Jones agreed to manage Rebels Houston in exchange for 17% of the bar’s net revenues.

When the parties parted ways, Truesdell did not request permission from Jarrah to use the Rebels Marks for his own club or for any other purpose. Truesdell, in anger or a fit of pique at the time of the break up, may have threatened Jarrah that he would use the “Rebels Honky Tonk” name in Austin, but Jarrah did not affirmatively give Truesdell permission to use any of the Rebels Marks.

In November 2009, Truesdell opened a “Rebels Honky Tonk” bar in Austin, Texas (“Rebels Austin”). Truesdell hired Holman to paint the Rebels Composite Mark on the facade of Rebels Austin. On a wall of the outside patio of Rebels Austin, Holman painted a very large mural that closely resembled the mural he had painted inside Rebels Houston.

Rebels Austin was not affiliated with Rebels Houston or authorized by Plaintiffs. At the time he opened Rebels Austin, Truesdell knew Jarrah was operating Rebels Houston under the public name “Rebels Honky Tonk” and using the same logo as Rebels Austin.

At some point, Jarrah learned that a Rebels Honky Tonk had opened in Austin. It is unclear when he obtained this knowledge but it appears to have been in or about early 2010, well before Jarrah received a request from Truesdell in February 2012 to stop using the Rebels Marks.

In or about March 2012, Defendants opened a second club named “Rebels Honky Tonk” in Oak Ridge, Texas, a town in the Houston suburbs near The Woodlands, Texas (“Rebels Woodlands”). Defendants hoped to and did lure patrons from Rebels Houston by enabling them to avoid traveling to downtown Houston. Defendants used the Rebels Marks for Rebels Woodlands. Rebels Woodlands operated for approximately ten months, from March to December, 2012. Rebels Woodlands was advertised on the same Houston-area radio station as Rebels Houston. Jarrah learned about Rebels Woodlands from these radio advertisements at or about the time that Rebels Woodlands opened. Plaintiffs had no financial or corporate affiliation with Rebels Woodlands.

Meanwhile, in June 2010, Truesdell filed an application with the United States Patent and Trade Office (“USPTO”) to register the Rebels Marks. Despite knowledge that Rebels Houston had been in operation using the Rebels Marks since August 2009, Truesdell, through his attorney who actually filed and signed the application, stated misleadingly in his USPTO application that the “first use” of the Rebels Marks was “as least as early as 3/11/2010.” Truesdell, through his counsel, also falsely declared that “to the best of his/her knowledge and belief no other person, firm, corporation, or association has the right to use the mark in commerce.” The USPTO granted registration of the Rebels Marks on April 5, 2011.

In February 2012, Jarrah learned that Truesdell had registered the Rebels Marks with the USPTO in his name when Trues-dell and Rainbow Cattle (to whom the Rebels Marks were licensed) sent a cease- and-desist letter requesting that Plaintiffs stop using the Rebels Marks. Jarrah filed this ease in Texas state court in August 2012, to enforce his common law trademark rights in the Rebels Marks. The case thereafter was removed to this Court.

II. CONCLUSIONS OF LAW

A. Partnership Between Jarrah and Truesdell

The Texas Revised Partnership Act (“TRPA”) “provides that an association to carry on a business for profit as owners creates a partnership.” Ingram v. Deere, 288 S.W.3d 886, 895 (Tex.2009) (citing Tex.Rev.Civ. Stat. art. 6132b-2.02(a) (expired January 1, 2010)). Under the TRPA, five factors indicate a partnership: “(1) receipt or right to receive a share of profits of the business; (2) expression of an intent to be partners in the business; (3) participation or right to participate in control of the business; (4) sharing or agreeing to share: (A) losses of the business; or (B) liability for claims by third parties against the business; and (5) contributing or agreeing to contribute money or property to the business.” Id. (citing Tex.Rev.Civ. Stat. art. 6132b-2.03(a) (expired January 1, 2010)). A partnership can be created without each factor being met. Id. at 896. Texas courts must apply a “totality-of-the-cireumstances” test in applying these factors. Id. The party asserting existence of a partnership under the TRPA has the burden to prove creation of that partnership. See Hoss v. Alardin, 338 S.W.3d 635, 640-41 (Tex.App.-Dallas 2001, no pet.).

Truesdell has failed to prove that he entered into a partnership with Jarrah or Reservoir, let alone a partnership permitting him to use the Rebels Marks without Plaintiffs’ permission. While Truesdell wanted, and arguably may have offered, to enter into a partnership with Jarrah, Jar-rah did not agree to the terms Truesdell demanded. Furthermore, Truesdell offered no evidence addressing the other TRPA factors. Truesdell admitted he did not contribute any funds or property to the Rebels Houston enterprise and did not agree to share losses. No partnership was created between any of Plaintiffs and any of Defendants.

B. Trademark Infringement 1. Infringement

The Lanham Act creates liability for “[a]ny person who ... uses in commerce any word, term, name, symbol, or device ... which is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person ...” 15 U.S.C. § 1125(a)(1)(A). A party alleging trademark infringement must show: (1) ownership in a legally protectable mark, and (2) a likelihood of confusion in the minds of potential customers caused by the infringer’s use of the mark. See Bd. of Supervisors for La. State Univ. Agric. and Mech. Coll. v. Smack Apparel Co., 550 F.3d 465, 474 (5th Cir.2008). Ownership of a mark is established by use in the market, not by registration. See Smack Apparel, 550 F.3d at 475; Union Nat’l Bank of Tex., Laredo v. Union Nat’l Bank of Tex., Austin, 909 F.2d 839, 842 (5th Cir.1990). Thus, the “senior user” who first uses the mark in the marketplace “is entitled to enjoin other ‘junior’ users from using the mark, or one that is deceptively similar to it.” Union Nat’l Bank, 909 F.2d at 842-43.

The Court has previously held that Defendants infringed Plaintiffs’ mark. See Memorandum and Order, dated April 30, 2013, 2013 WL 1828838 [Doc. # 22], at 10-12. The evidence at trial reinforces that conclusion. Plaintiffs are the senior users of the Rebels Marks, having first used them in connection with Rebels Houston in August 2009. Defendants do not contest this fact; the evidence is clear that Truesdell did not begin using the Rebels Marks until, at earliest, November 2009, when he opened Rebels Austin. Thus, Plaintiffs have established ownership in the Rebels Marks.

The Court concludes that Defendants’ use of the Rebels Marks caused consumer confusion arising from Rebels Austin (to a limited extent) and Rebels Woodlands (to a great extent). In determining whether a defendant’s use of a mark is likely to cause confusion, the Fifth Circuit considers eight factors: “(1) strength of the plaintiffs mark; (2) similarity of design between the marks; (3) similarity of the products; (4) identity of retail outlets and purchasers; (5) similarity of advertising media used; (6) the defendant’s intent; (7) actual confusion; and (8) degree of care exercised by potential purchasers.” Am. Rice, Inc. v. Producers Rice Mill, Inc., 518 F.3d 321, 329 (5th Cir.2008). No factor is dispositive, and “a finding of likelihood of confusion need not be supported even by a majority of the ... factors.” Id. (citing Conan Props., Inc. v. Conans Pizza, Inc., 752 F.2d 145, 150 (5th Cir.1985)).

In the case at bar, Defendants used the Rebels Marks on the exact same product, a country western-theme club in Texas, as Plaintiffs. Given the use of the same mark in the same manner, a “presumption of confusion exists.” See Choice Hotels Int’l, Inc. v. Patel, 940 F.Supp.2d 532, 540 (S.D.Tex.2013) (Costa, J.) (citing Paulsson Geophysical Servs. v. Sigmar, 529 F.3d 303, 310-11 (5th Cir.2008), and TGI Friday’s Inc. v. Great Nw. Rests., Inc., 652 F.Supp.2d 763, 767 (N.D.Tex. 2009)). Even without this presumption, however, an analysis of the “likelihood of confusion” factors, as detailed in American Rice, leads the Court to the same conclusion.

Plaintiffs’ Marks are strong. “Marks may be classified as generic, descriptive, suggestive, or arbitrary and fanciful.” Falcon Rice Mill, Inc. v. Community Rice Mill, Inc., 725 F.2d 336, 346 (5th Cir.1984). These categories are “commonly viewed as central tones in a spectrum.” Id. While “Honky Tonk” is a generic term that generally describes country western-theme bars, “Rebels” is arbitrary and fanciful, at least in connection with “honky tonks.” Similarly, the Rebels Composite Mark — a combination of the Rebels Word Mark and an arbitrary logo design — is clearly fanciful.

Plaintiffs and Defendants used the Rebels Marks on the same product: country western-theme clubs in Houston, a Houston suburb (Oak Ridge/The Woodlands), and Austin. Indeed, Defendants opened their second club, Rebels Woodlands, reasonably near Plaintiffs’ club, Rebels Houston. There also is evidence that many college — age and young adult Houstonians, the market for Rebels Houston, spend leisure time in Austin. Defendants thus used Plaintiffs’ exact mark on the same product in roughly the same geographic area. Accordingly, the second, third, and fourth factors, respectively (the similarity of design of the marks, the similarity of the products, and the identity of retailers and purchasers) all favor a finding of a likelihood of confusion.

The fifth factor, similarity of advertising media used, also supports a finding of likelihood of confusion. Jarrah testified that he spent approximately $120,000 on radio advertising for Rebels Houston during a three-month period and that Rebels Woodlands advertised on the same radio station in the same Houston radio media market. Defendants have not rebutted Plaintiffs’ evidence in any way. The similarity in advertising likely confused Houston area consumers as to the ownership or sponsorship of Rebels Houston and Rebels Woodlands.

The Court turns to the last three factors regarding proof of customer confusion. Defendants used the mark under a claim of right, and thus did not intend to infringe on Jarrah’s rights in the Rebels Marks. This factor tips in Defendants’ favor. Plaintiffs present no probative evidence of actual confusion in the mind of any customer at Defendants’ establishments, Rebels Austin and Rebels Woodlands, regarding ownership or sponsorship of those clubs or their connection to Plaintiffs’ Rebels Houston, and thus this factor tips in Defendants’ favor. Finally, Plaintiffs have offered no proof of the “degree of care” exercised by customers of any Rebels location, making this factor neutral.

Ultimately, evaluation of all eight factors regarding confusion persuades the Court that Plaintiffs have met their burden to establish a likelihood of confusion stemming from Defendants’ use of the Rebels Marks at Rebels Woodlands and, to a lesser degree, Rebels Austin. Accordingly, Defendants’ use of the Rebels Marks at both Rebels Woodlands and Rebels Austin infringed Plaintiffs’ trademark rights.

2. Affirmative Defenses

Defendants assert the two equitable defenses of waiver and estoppel against Plaintiffs’ claim of infringement. See Amended Answer [Doc. # 12] (“Answer”), ¶ 27. Reviewing Defendants’ submissions, it is unclear whether Defendants have intended to assert these common law equitable defenses or, in the alternative, assert the Lanham Act defense of “acquiescence” (also referred to as “estoppel by acquiescence”). Moreover, “[i]t is unclear whether the Fifth Circuit recognizes a separate defense of waiver or estoppel in the trademark context.” RE/MAX Int’l, Inc. v. Trendsetter Realty, LLC, 655 F.Supp.2d 679, 711 n. 12 (S.D.Tex.2009) (Rosenthal, J.). Even if waiver or estop-pel is a valid defense to trademark infringement, Defendants have failed to meet their burden to establish any of these defenses. The Court addresses each affirmative defense in turn.

a. Waiver