Vertex Distributing, Inc. v. Falcon Foam Plastics, Inc., Falcon Manufacturing of California, Inc., James Allen, and Michael Allen

Citations: 689 F.2d 885; 217 U.S.P.Q. (BNA) 763; 1982 U.S. App. LEXIS 24991Docket: 81-5652

Court: Court of Appeals for the Ninth Circuit; October 7, 1982; Federal Appellate Court

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Vertex Distributing, Inc. (Vertex) appealed the denial of its applications for civil contempt against Falcon Foam Plastics, Inc., Falcon Manufacturing of California, Inc., and individuals James and Michael Allen for allegedly violating a 1978 consent judgment regarding trademark use. Vertex owns the trademark "Falcon-Foam" and had previously secured a judgment that prohibited the defendants from using similar terms for commercial purposes but allowed limited use of "Falcon Foam Plastics, Inc." for legal reasons only, provided it included a falcon image in promotional materials.

Vertex claimed the defendants violated the consent judgment by using the term "Falcon" prominently in small advertisements without the required falcon image. In response, the defendants produced evidence of compliance, showing a redesigned logo featuring the falcon and asserting that the omission in small ads was due to practical constraints. 

The district court found that Vertex did not meet the burden of proof required to demonstrate violations by "clear and convincing evidence" and denied Vertex's contempt applications. The Ninth Circuit affirmed the district court’s decision, concluding there was no abuse of discretion in its interpretation of the consent judgment or in denying the applications for contempt. The appeal raised the question of whether the district court failed to recognize violations based on the use of the name "Falcon."

The district court faced multiple inquiries regarding potential contempt against defendants for their use of the name "Falcon" in advertising, particularly concerning the absence of a bird image in their Yellow Pages listings and failing to prevent directory listings under "Falcon Foam Plastics, Inc." The court also examined whether it erred by not permitting further discovery and in interpreting the consent judgment that allowed the use of "Falcon" as a trade name.

In assessing whether the defendants violated the consent judgment, the court noted that civil contempt must be proved by clear and convincing evidence, which is a higher standard than the preponderance of the evidence typically used in civil cases. The judgment's language must be clear; vague terms cannot be enforced, as established by precedent. If defendants act based on a reasonable interpretation of the order, they should not be held in contempt.

The court reviewed the decision to decline contempt under the abuse of discretion standard. It clarified that its focus was not on trademark infringement but on whether the district court abused its discretion regarding the consent judgment. The original consent judgment prohibited the use of "FALCON-FOAM" or similar terms but allowed the use of "Falcon" in a trade name, provided it included an image of a falcon perched on the "F."

Vertex contends that the phrase in paragraph 4(b) allowing defendants to use a trade name with "FALCON" implies that "Falcon" should be accompanied by additional terms, asserting that the defendants' interpretation permits the standalone use of "Falcon," which could lead to contempt. This disagreement led to a semantic debate regarding the definitions of "includes" and "incorporating," yielding inconclusive results. Vertex failed to provide clear and convincing evidence that the defendants’ interpretation was unreasonable, which was insufficient grounds for a contempt ruling by the district court.

Vertex further argues that paragraph 4(b) should not undermine the general prohibition in paragraph 3, which aims to protect the "Falcon-Foam" trademark from consumer confusion. Vertex believes that any advertisement using "Falcon" violates the Final Judgment, thus necessitating a reading of paragraph 4(b) that disallows the standalone use of "Falcon." However, since paragraph 4(b) explicitly serves as an exception to the general prohibition, the district court correctly concluded that Vertex did not meet its burden of proof regarding a violation of the consent judgment, and therefore did not abuse its discretion in refusing to hold defendants in contempt for using "Falcon" alone.

Additionally, Vertex argued that the defendants should be held in contempt for failing to include an image of a falcon in smaller advertisements, as required by the consent judgment. The defendants countered that the judgment necessitated the inclusion of a falcon "wherever possible and practical," and demonstrated compliance by showing the use of falcon images in larger advertisements and other materials. The district court sided with the defendants, determining that the "wherever possible and practical" clause created ambiguity and that the defendants' interpretation was reasonable, which did not constitute an abuse of discretion.

The district court did not abuse its discretion in refusing to hold the defendants in contempt for allowing telephone directory listings under the name "Falcon Foam Plastics, Inc.," as this was prohibited by the original consent judgment, which allowed use of the name solely for legal reasons. Vertex argued for contempt based on the defendants' failure to prevent these listings, citing that good faith or inadvertent violations can still lead to civil contempt. However, the court found that the defendants had made reasonable efforts to comply with the consent judgment, demonstrating substantial compliance—a valid defense against contempt charges. Vertex presented evidence of only one violation, which the defendants addressed prior to Vertex's contempt application. 

Furthermore, the court's requirement for defendants to change future advertisements did not imply a finding of contempt, as the judgment contained ambiguous language regarding compliance, unlike the clear prohibitions in referenced case law. The court clarified this ambiguity, allowing future advertising adjustments without establishing a violation. Lastly, the district court's refusal to allow Vertex further discovery was appropriate, as it determined that the defendants were not in contempt, negating the need for additional discovery related to damages.

The district court clarified its interpretation of a consent judgment concerning the use of the trade name "Falcon" by the defendants. Vertex appealed this interpretation, arguing that the defendants should only use "Falcon" as part of a longer trade name. The court noted that consent decrees are to be construed like contracts, meaning the interpretation is a legal matter subject to de novo review. The Supreme Court guidelines emphasize that consent decrees result from negotiations and reflect a compromise, so their scope must be determined strictly from the text rather than the parties' subjective purposes.

The court expressed skepticism towards Vertex's argument that the consent judgment aimed solely to protect it from trade infringement, acknowledging that the defendants likely intended to allow the use of "Falcon" as a standalone name. The language of the judgment did not explicitly limit the defendants to using "Falcon" alongside additional words. If Vertex wanted such a restriction, it should have negotiated for it. The court also recognized that the district judge, who oversaw the litigation, had a unique understanding of the consent decree's intent and therefore warranted deference. Ultimately, the court affirmed the district judge's interpretation of the consent judgment.