Blockbuster Videos, Inc. v. City of Tempe

141 F.3d 1295, 1998 WL 172777

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 15, 1998
• Docket: No. 97-15535
• Status: Published

Opinions

Opinion by Judge THOMPSON; Partial Concurrence and Partial Dissent by Judge BROWNING.

DAVID R. THOMPSON, Circuit Judge:

We consider a question of first impression: whether section 1121(b) of the Lanham Act, 15 U.S.C. § 1121(b) (1994), preempts a municipality’s zoning authority to regulate signs for aesthetic purposes when those signs display registered service marks. We hold that a municipality may not enforce zoning regulations if those regulations require the alteration of a registered mark.

Blockbuster Videos, Inc. (“Blockbuster”) and Video Update, Inc. applied to the City of Tempe for sign permits for storefront signs which would incorporate their registered service marks. Because the proposed signs violated Tempe’s zoning ordinances, Tempe denied the applications. The district court granted a preliminary injunction, ordering Tempe to allow both stores to display then-registered marks. Tempe appeals. We have jurisdiction under 28 U.S.C. § 1292(a)(1), and we affirm in part and reverse in part.

FACTS

Blockbuster and Video Update are national retail chains, which rent and sell videos and other related entertainment. Both have registered service marks. Video Update’s registered service mark consists of the words ‘Video Update” in stylized red¹ lettering which is wider at the bottom and narrower at the top. Blockbuster has two registered service marks. One is a tom ticket with a blue background and yellow lettering. The other is a blue awning with the words “Blockbuster Video” in yellow block letters.

In 1996, Video Update and Blockbuster leased space in two separate shopping centers in Tempe, Arizona. In Tempe, all exterior signs in a shopping center must conform to the center’s sign package, which specifies such things as the color, size and location of signs. The owner of a shopping center creates the sign package, subject to review and approval by the Tempe Design Review Board (the “Board”). Individual tenants may apply to the Board for variances from the sign package.

The sign package for the shopping center in which Video Update had leased space required white letters on a turquoise background. Video Update applied to use red letters on two storefront signs. The Board allowed red letters on the sign facing the street but required white letters for the sign inside the shopping center.

The sign package for the shopping center in which Blockbuster had leased space required blue, red or yellow letters. Blockbuster applied to use its torn ticket logo service mark on the exterior signs and to construct its blue awning service mark. The Board approved the torn ticket signs, but did not approve installation of the awning. In place of the awning, the Board approved a sign with blue letters.

After Blockbuster and Video Update each unsuccessfully appealed the Board’s decision to the Tempe City Council, they each sued the City of Tempe. The district court consolidated the two cases and granted a preliminary injunction, requiring Tempe to allow Blockbuster and Video Update to display their registered service marks as they had requested. This appeal followed.

DISCUSSION

This appeal is from the district court’s order granting a preliminary injunction. The record, however, is fully developed, the plaintiff requests both preliminary and permanent relief, and the district court’s decision rests primarily on an interpretation of law. In these circumstances, we may decide the merits of the entire case, Beño v. Shalala, 30 F.3d 1057, 1063 (9th Cir.1994) (citing Sierra Club v. Marsh, 816 F.2d 1376, 1382 (9th Cir.1987)), and we do so.

A. Section 1121(b) of the Lanham Act

Tempe contends that 15 U.S.C. § 1121(b) does not preclude a municipality from enforcing a zoning ordinance, which specifies the color, size and general architectural features of storefront signs, even if the signs incorporate a registered service mark. This is an issue of first impression in this circuit.

As in all questions of statutory interpretation, we begin with the language of the statute itself and “the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.” Park ‘N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 194, 105 S.Ct. 658, 661, 83 L.Ed.2d 582 (1985). Section 1121(b) of the Lanham Act reads as follows:

No state or other jurisdiction of the United States or any political subdivision or any agency thereof may require alteration of a registered mark, or require that additional trademarks, service marks, trade names, or corporate names that may be associated with or incorporated into the registered mark be displayed in the mark in a manner differing from the display of such additional trademarks, service marks, trade names or corporate names contemplated by the registered mark as exhibited in the certificate of registration issued by the United States Patent and Trademark Office.

15 U.S.C. § 1121(b) (1994).

The part of section 1121(b) relevant to our inquiry is the first clause, which states: “No state ... or any political subdivision or agency thereof may require alteration of a registered mark____” To alter means “to cause to become different in some particular eharaeteristic (as measure, dimension ... ) without changing into something else; to change or modify.” Webster’s Third New International Dictionary 63 (1986).

The color red is a characteristic of Video Update’s mark. By requiring Video Update to change the red color of the lettering on one of its signs to white letters on a turquoise background, Tempe required Video Update to “alter” its service mark. This alteration violates section 1121(b) of the Lanham Act.

Section 1121(b), however, does not require municipalities to allow businesses to display their registered marks. A municipality retains the power to prohibit the use of a registered mark altogether. This is so because section 1121(b) speaks only to the alteration of a mark. Thus, Tempe could prevent Blockbuster from installing its awning service mark on the outside of the building it leased in the shopping center.

Tempe contends that in the exercise of its police power to ensure compliance with aesthetic zoning, it should be able to require the alteration of registered marks. Because requiring all signs in a given shopping center to have, for example, white letters on a tur-. quoise background would give a uniform, aesthetically pleasing look to the shopping center, Tempe contends section 1121(b) should not prevent it from promulgating zoning regulations to achieve this aesthetic goal, even if its regulations alter a mark.

Although this argument has some appeal, we must reject it. The language of section 1121(b) is clear. “No state ... or any political subdivision or agency thereof may require alteration of a registered mark----” 15 U.S.C. § 1121(b).

When the words of a statute are clear, our inquiry is at an end. Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 1149-50, 117 L.Ed.2d 391 (1992); United States v. Morales, 108 F.3d 1031, 1036 (9th Cir.1997). Thus, we need not look to the legislative history on which Tempe relies.

Nevertheless, if we were to look at the legislative history of section 1121(b), we would conclude the legislative history is not “demonstrably at odds with the intent of the drafters.” United States v. Bon Pair Enters., 489 U.S. 235, 242, 109 S.Ct. 1026, 1030-31, 103 L.Ed.2d 290 (1989). One of the purposes of the Lanham Act is “to protect registered marks ... from interference by State, or territorial legislation____” 15 U.S.C. § 1127 (1994). Congress’s intent in enacting section 1121(b) conforms to that purpose in that the section was enacted to stop states from interfering with franchisors’ trademarks. H.R. Rep No. 97-778, at 1 (1982), U.S. Code Cong. & Admin. News at 2621.

The protagonist in the story of the enactment of section 1121(b) is Century 21, a national franchisor of real estate brokerage firms. Century 21 had a registered service mark which consisted of Century 21’s logo, covering 80% of the mark, and the name of the local franchisee, covering the remaining 20% of the mark. To protect the public from being misled about the nature of the franchisor-franchisee relationship, the Nevada Real Estate Advisory Commission issued a regulation which required any Century 21 franchisee’s name to be as large as the Century 21 logo. Century 21 Beal Estate Corp. v. Nevada Beal Estate Advisory Comm’n, 448 F.Supp. 1237, 1239 (D.Nev.1978), affd, 440 U.S. 941, 99 S.Ct. 1415, 59 L.Ed.2d 630 (1979). Century 21 objected to the regulation and filed suit in the Nevada District Court, claiming Nevada’s regulation violated Century 21’s service mark rights under the Lanham Act. The district court ruled in favor of the Nevada Commission and held that the regulation did not violate the Lanham Act. Id. at 1241.

After the Century 21 decision, other states adopted rules requiring different percentages of a mark to be devoted to the franchisee’s name. H.R. Rep No. 97-778, at 1. In response, a district court in New York held that such regulation “inhibited nationwide advertising campaigns, increased costs, and made the franchisor-franchisee relationship less appealing.” Payless Shoesource, Inc. v. Town of Penfield, New York, 934 F.Supp. 540, 543 (W.D.N.Y.1996). Against this backdrop, Congress enacted section 1121(b).

The second clause of section 1121(b) directly responds to the Century 21 problem. This clause prohibits any state from requiring the owner of a registered mark to display additional trademarks in the registered mark “in a manner differing from the display of such additional trademarks ... contemplated by the registered mark.”

Section 1121(b), however, also has a first clause. The first clause, which prohibits altering a mark, was not necessary to address the Century 21 problem because that problem was addressed by the second clause. It seems apparent, therefore, that Congress added the first clause to cover situations in which a state, local political subdivision, or agency might require other types of changes in a registered mark, changes such as those we see here.

Tempe is correct in noting that Congress attempted to limit the extent to which section 1121(b) impinges upon a state’s zoning power. Congress limited section 1121(b) to prohibiting any alteration of the mark itself. H.R.Rep. No. 97-778, at 2. Thus, a state, political subdivision or agency remains free to regulate where and whether signs may be placed and how large they may be.² See Lanham Trademark Act Amendment: Hearings on HR. 515J¡. before the Subcomm. on Courts, Civil Liberties, and the Admin, of Justice of the House Comm, on the Judiciary, 97th Cong. 5 (1982) (hereinafter Hearings) (statement of Gerald J. Mossinghoff, Commissioner of Patents and Trademarks). In this way, the Committee on the Judiciary believed that section 1121(b) did not restrict zoning laws. H.R.Rep. No. 97-778, at 2.

However, when Congress wants to make its intentions clear, it does so in the language of the statute. For example, Congress amended the Copyright Act to insure that the Act would not affect states’ zoning powers.³ 17 U.S.C. § 301(b)(4) (1994). Had Congress intended similarly to exempt states’ zoning powers in 15 U.S.C. § 1121(b), it would have written the same kind of specific exception into that section. It did not.

In support of its zoning exception argument, Tempe relies on a discussion which took place during the hearings conducted by the House Subcommittee reviewing section 1121(b). Hearings, supra, at 10-11. Mr. Frank, a congressman from Massachusetts, expressed concern that this statute not “override otherwise uniform aesthetic or historic zoning.” Id. at 10. In discussing his concern that historic places, such as Colonial Williamsburg, Virginia, be allowed to regulate the appearance of signs, Mr. Frank asked whether section 1121(b) would prohibit regulations that might specify the color and type of lettering on a sign. Id. at 11. He then answered his own question by stating that such regulations might simply prevent a business from displaying its trademark on the outside of the building: “They could say, ‘real estate’ outside; inside the protected registered trademark would be allowed.” Id. These statements indicate an acknowledgment that zoning regulations may prohibit the display of trademarks on storefront signs, without violating section 1121(b). They do not suggest zoning regulations may require the alteration of á mark.

Moreover, it is unlikely that Congress intended the broad zoning exception Tempe seeks. Such an exception would defeat the purpose of the Lanham Act: to protect the goodwill created by using a uniform mark and to protect the ability of consumers to distinguish among competing producers. Park ‘N Fly, Inc., 469 U.S. at 198, 105 S.Ct. at 663-64 (citing S.Rep. No. 79-1333, at 3, 5 (1946)).

A trademark is a symbol, which carries customer recognition and goodwill:

The protection of trade-marks is the law’s recognition of the psychological function of symbols. If it is true that we live by symbols, it is no less true that we purchase goods by them____ The owner of a mark exploits this human propensity by making every effort to impregnate the atmosphere of the market with the drawing power of a congenial symbol. Whatever the means employed, the aim is the same—to convey through the mark, in the minds of potential customers, the desirability of the commodity upon which it appears. Once this is attained, the trademark owner has something of value.

Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 205, 62 S.Ct. 1022, 1024, 86 L.Ed. 1381 (1942).

In order for a trademark to be a symbol that customers will recognize, it must have a uniform appearance, not only in design, but also in color. The Supreme Court has recognized that color is so important to customer recognition that, in some instances, the color itself can be registered as a trademark because customers identify a particular brand by its color. Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 162-64, 115 S.Ct. 1300, 1303, 131 L.Ed.2d. 248 (1995). For example, customers recognize a particular brand of insulation by its pink color. In re Owens-Coming Fiberglas Corp., 774 F.2d 1116, 1127 (Fed.Cir.1985).

If Video Update and Blockbuster are required to change their service marks to a turquoise and white sign in one shopping center and a pink and white sign in another, then there would be no uniform mark for customers to identify. Further, customers who were to see a store with a pink and white sign instead of the nationally recognized blue and yellow Blockbuster service mark might think that the store was not a real Blockbuster store. Therefore, allowing a municipality to regulate storefront signs in the way Tempe seeks to regulate the appellees’ signs in this case would allow the municipality to require a change in the appellees’ registered service marks. This would conflict with the plain language of 15 U.S.C. § 1121(b) and the purpose of the Lanham Act.

We hold that a zoning ordinance may not require a change in a registered mark. A zoning ordinance may, however, preclude the display of a mark, as Tempe did when it precluded Blockbuster from constructing its awning on the exterior of its leased building in the shopping center. Precluding display of a mark for zoning purposes is permissible; requiring alteration of a mark is not.

B. Attorney Fees

Blockbuster and Video Update request attorney fees on appeal under both the Lanham Act and Arizona law. Under the Lanham Act, a court may award attorney fees in exceptional cases. 15 U.S.C. § 1117(a). ‘While the term ‘exceptional’ is not defined in the statute, generally a trademark case is exceptional for the purposes of attorneys’ fees when the infringement is malicious, fraudulent, deliberate or willful.” Intel Corp. v. Terabyte Int'l Inc., 6 F.3d 614, 621 (9th Cir.1993) (citations omitted). Infringement is not willful if the defendant “might have reasonably thought that its proposed usage was not barred by the statute.” International Olympic Comm. v. San Francisco Arts & Athletics, 781 F.2d 733, 738-39 (9th Cir.1986), amended by 789 F.2d 1319 (9th Cir.1986), affd sub nom San Francisco Arts & Athletics v. Inter-National Olympic Comm., 483 U.S. 522, 107 S.Ct. 2971, 97 L.Ed.2d 427 (1987).

While this case is not one of infringement, the same principle applies. Tempe could have reasonably thought that its zoning ordinances did not violate section 1121(b), especially because this is a question of first impression. We decline to award attorney fees under the Lanham Act.

For the same reason, we decline to award attorney fees under Arizona statutes § 12-341.01(C)⁴ and § 12-349(A),⁵ which allow attorney fees when a party has brought a claim which constitutes harassment, is groundless and is not made in good faith.

CONCLUSION

We conclude that the plain meaning of 15 U.S.C. § 1121(b) (1994) prohibits a municipality from enforcing a zoning ordinance which requires the alteration of a registered mark. A municipality may, however, prohibit the display of a registered mark. We affirm the district court’s order insofar as it enjoins the City of Tempe from requiring Video Update to alter its service mark by changing the color of the mark’s red lettering. We reverse the district court’s order insofar as it enjoins Tempe from precluding Blockbuster from erecting its awning service mark. We decline to grant attorney fees for this appeal. We remand to the district court for entry of a final judgment consistent with this opinion.

Each party shall bear its own costs for this appeal.

AFFIRMED in part, REVERSED in part, and REMANDED.

1 . When this action commenced. Video Update’s service mark did not specify a color. However, Video Update had applied to the United States Patent and Trademark Office to amend its registration to include the color red. That amendment has been approved. We base our decision on the fact that Video Update’s registered mark now consists of red lettering.

2 . The dissent contends that we adopt "an extreme interpretation of the Lanham Act that will give trademark holders the absolute right to display their marks, free of regulation, no matter how garish and inappropriate they may be... Dissent at pages 3466-67. This simply is not so. First of all, our interpretation is not "extreme.” It is what the plain language of the statute says. Second, a City retains great leeway in requiring conformity with its aesthetic zoning controls. It can deny any display of the mark. It can require that the mark be reduced in size, and it can dictate where the mark may be placed. What it cannot do, however, is require alteration of the mark itself.

3 . Section 301(b) states: "Nothing in this title annuls or limits any rights or remedies under the common law or statutes of any State with respect to—(4) State and local landmarks, historic preservation, zoning...." 17 U.S.C. § 301(b).

4 . A.R.S.§ 12-341.01(C) provides:

Reasonable attorney’s fees shall be awarded by the court in any contested action upon clear and convincing evidence that the claim or defense constitutes harassment, is groundless and not made in good faith.

5 . A.R.S. § 12-349 provides:

A. [T]he court shall assess reasonable attorney’s fees ... if the attorney or party does any of the following:

1. Brings or defends a claim without substantial justification.

2. Brings or defends a claim solely or primarily for delay or harassment....

F. In this section, "without substantial justification” means that the claim or defense constitutes harassment, is groundless and is not made in good faith.