Community State Bank, National Association Vs. Community State Bank ( 2008 )

IN THE SUPREME COURT OF IOWA
No. 07–1258
Filed December 12, 2008
COMMUNITY STATE BANK,
NATIONAL ASSOCIATION,
Appellee,
vs.
COMMUNITY STATE BANK,
Appellant,
and
IOWA SUPERINTENDENT OF BANKING,
Intervenor.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Polk County, Scott D.
Rosenberg, Judge.
Plaintiff bank challenges court of appeals decision overturning
district court’s finding that it had a common law trademark and order
enjoining defendant bank from using that mark. DECISION OF COURT
OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.
Phil Watson of Phil Watson, P.C., Des Moines, and James L. Sayre
of James L. Sayre, P.C., Clive, for appellant.
Edward J. Sease, Jeffrey D. Harty, and Christine Lebron-Dykeman
of McKee, Voorhees & Sease, P.L.C., Des Moines, for appellee.
2
Shauna Russell Shields, Assistant Attorney General, for intervenor.
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STREIT, Justice.
Two different banks in Des Moines claim the name “Community
State Bank.” Community State Bank, National Association (CSB) began
using the name “Community State Bank” in Polk County in 1993 and in
Des Moines proper in 1997. Community State Bank, Indianola (Csb
Indianola) began using the name “Community State Bank” in Lucas and
Warren counties in 1993 and in Des Moines in 2005. CSB filed a
petition asking the district court to issue a declaratory judgment against
Csb Indianola for common law trademark infringement and an injunction
preventing Csb Indianola from using the name “Community State Bank.”
The Iowa Superintendent of Banking intervened, arguing that Iowa Code
section 524.310(1) (2004) prohibits a national bank from using the word
“state” in its name. Both CSB and Csb Indianola filed for summary
judgment, and the district court determined Iowa Code section
524.310(1) only applies to legally-chartered names, not trademark
names. At trial, the district court found Csb Indianola infringed CSB’s
valid common law trademark and issued an injunction. The court of
appeals reversed. Because we determine “Community State Bank” has
acquired secondary meaning, CSB has a protectable trademark in the
name “Community State Bank” and Csb Indianola infringed that mark.
We vacate the decision of the court of appeals and affirm the judgment of
the district court.
I. Background Facts.
CSB began business in 1902 as the Bank of Ankeny. In 1933, it
reincorporated as Ankeny State Bank. In May 1993, it merged with
Altoona State Bank and changed its name to “Community State Bank,”
maintaining facilities in Ankeny and Altoona, both in Polk County. In
July 1996, it purchased East Des Moines National Bank, which had
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three locations in Des Moines and one in Pleasant Hill. In May 1997,
CSB merged all of its locations and changed the name of the banks to
“Community State Bank.” On April 1, 2003, CSB converted from a state-
chartered bank to a nationally-chartered bank, Community State Bank,
National Association.
A few days after CSB converted to a national charter, the Iowa
Superintendent of Banking sent a letter to CSB’s president demanding
that CSB remove the word “state” from its name because it was no longer
a state bank, and using the word “state” is a deceptive practice. CSB
refused to change its name saying that it was no longer a state-chartered
bank, and therefore not subject to Iowa banking regulations. Rather
than challenging CSB, the Iowa Division of Banking sponsored legislation
prohibiting the word “state” in a national bank’s legally-chartered name.
This amendment to Iowa Code section 524.310(1) became effective in
2004. Iowa Code § 524.310(1).
CSB continued to use the name “Community State Bank” and the
“CSB” logo at all of its branches. As of March 2005, when CSB brought
this claim, it had nine locations in Polk County: Altoona, Ankeny (3),
Des Moines (3), Johnston, and Pleasant Hill. Later it established a
location in Waukee in Dallas County.
Csb Indianola came into existence in March 1993, when it
acquired a small bank in Lucas County and moved its charter to
Indianola in Warren County. In doing so, it changed its name to
“Community State Bank.” At this time, the main office was located in
Indianola, with a small branch in Lucas. In 1999, Csb Indianola opened
a new bank on Army Post Road in south Des Moines under the name
“Fort Des Moines Community Bank.” Csb Indianola opened an
additional branch in Indianola in 2000 and another branch in 2003 in
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Norwalk, also in Warren County. In late 2004, all five locations merged
into a single entity named “Community State Bank.” In January 2005,
the Fort Des Moines Community Bank was renamed “Community State
Bank, Fort Des Moines Branch,” as it is located on a historic site
requiring the use of the name “Fort Des Moines.”
CSB is substantially larger than Csb Indianola. As of mid-2006,
CSB had approximately $406 million in deposits, compared to Csb
Indianola’s $80 million. CSB advertised extensively in Polk County,
spending more than a quarter million dollars each year from 2004 to
2006 and more than two million dollars since 1993 advertising in local
newspapers, on the radio and television, and through direct mailings,
billboards, flyers, and brochures. The majority of the advertising
contained the CSB logo, “CSB” written in lowercase script with
“community state bank” and “redefining simple” written in the same font
below. Csb Indianola, on the other hand, spent far less on advertising
and concentrated its advertising efforts in Warren County with minimal
coverage in abutting Polk County.
After Csb Indianola’s Fort Des Moines branch changed its name to
“Community State Bank,” there were instances where customers were
confused about the two banks, including misdirected night deposits,
customers attempting to cash checks at the wrong banks, receipt of
correspondence at one bank intended for the other bank, and mailing
deposits to CSB when intended for Csb Indianola. Further, several
customers telephoned Csb Indianola’s Fort Des Moines branch thinking
they were calling CSB.
In March 2005, two months after Csb Indianola’s Fort Des Moines
branch changed its name to “Community State Bank,” CSB filed a
petition asking the court to issue a declaratory judgment against Csb
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Indianola for common law trademark infringement and unfair
competition. CSB also asked for a temporary or permanent injunction
preventing Csb Indianola from using the name “Community State Bank.”
In September 2005, the district court issued a temporary injunction
enjoining Csb Indianola from using the name “Community State Bank”
and the monogram of “CSB” at its Fort Des Moines location. Both parties
filed motions for summary judgment, and the Iowa Superintendent of
Banking filed a motion to intervene, which was granted.
In its ruling on the summary judgment motions, the district court
determined Iowa Code section 524.310(1), which prohibits the use of the
word “state” in a national bank’s legally-chartered name, does not
prohibit CSB from using the word “state” in its trademark name. At trial,
the court found CSB had a protectable trademark in the name
“Community State Bank,” since the name had acquired secondary
meaning, and Csb Indianola infringed that mark. The court ordered Csb
Indianola be permanently enjoined from using the name “Community
State Bank” in Polk County.
Csb Indianola appealed, and the court of appeals reversed, finding
CSB failed to prove its trademark was inherently distinctive. It also
determined Iowa Code section 524.310(1) was prospective in operation,
and thus did not prohibit CSB from using the word “state” in its name.
Further, the court of appeals raised the doctrine of unclean hands sua
sponte but failed to invoke it without CSB having an opportunity to
refute its application.
II. Scope of Review.
Our standard of review in equity cases, including trademark
infringement actions, is de novo. Iowa R. App. P. 4. We give weight to
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the factual findings of the trial court, although we are not bound by
them. Iowa R. App. P. 14(f)(7).
III. Merits.
Trademarks are words, names, or symbols used to identify a
person’s goods or services and distinguish them from those of another.
Commercial Sav. Bank v. Hawkeye Fed. Sav. Bank, 592 N.W.2d 321, 326
(Iowa 1999); see also 15 U.S.C. § 1127 (2008). A trademark is a common
law property right, and protection from infringement does not require
registration of the mark. Commercial Sav., 592 N.W.2d at 327. As we
have explained,
Trademark infringement is considered a form of unfair
competition because the similarity in marks could lead a
prospective buyer [or customer] to believe that the
defendant’s goods [or services] are those of the plaintiff.
Thus, potential customers may be attracted to the reputation
and name built up by the first user. The danger is not that
the sophisticated buyer will actually purchase from the
defendant/second user believing that he has purchased from
the plaintiff/first user, but rather that the purchaser will be
misled into an initial interest in defendant based on a
mistaken belief as to a potential interrelationship between
the two businesses.
Id. (citations omitted).
In order to succeed on a common law trademark infringement
claim and obtain injunctive relief, the plaintiff must prove (1) it has a
valid trademark, and (2) infringement by the defendant. Id. at 326. In
order to demonstrate the existence of a valid trademark, “the plaintiff
must prove that there has been use of a name or designation that is
sufficiently distinctive such that customers (i.e. customers and potential
customers) identify the mark with the goods or services provided by the
[plaintiff].” Id. at 327.
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A. Secondary meaning. The key issue in this case is whether the
name “Community State Bank” is “sufficiently distinctive of [CSB’s] goods
or services such that it deserves protection against use or infringement
by [Csb Indianola].” Id. In determining whether a name is sufficiently
distinctive, courts classify the alleged trademark into one of four
categories: (1) generic, (2) descriptive, (3) suggestive, or (4) arbitrary or
fanciful. Id. Generic designations are words that are of a general type of
goods or services and are not entitled to protection under trademark law.
Restatement (Third) of Unfair Competition § 15 cmt. a (1995).
Descriptive designations are “merely descriptive of the nature, qualities,
or other characteristics of the goods, services, or business with which it
is used.” Id. § 14. Suggestive designations are “words that are merely
suggestive of the nature or characteristics of the product or business.”
Id. § 13 cmt. c. Fanciful terms have no meaning other than identifying
the word or symbol, and arbitrary terms are existing words whose
meaning has no apparent connection to the particular service or good
they represent. Id. Both suggestive designations and arbitrary or
fanciful designations are inherently distinctive and protectable without
any additional proof of distinctiveness. Id.
Descriptive designations are not inherently distinctive and can only
be protected under trademark law if the term has acquired secondary
meaning. Id. § 13 cmt. e; see also Commercial Sav., 592 N.W.2d at 328.
Secondary meaning attaches to a descriptive designation when the term
has become “uniquely associated” with the product or service, in that,
“as a result of its use, prospective purchasers have come to perceive it as
a designation that identifies [the specific] goods, services, [or] business[].”
Restatement § 13(b) cmt. e. In order to establish secondary meaning, the
plaintiff must demonstrate the public understands its name to represent
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its goods or services. Commercial Sav., 592 N.W.2d at 328. A plaintiff
can establish secondary meaning with direct or circumstantial evidence,
such as consumer testimony and surveys, proof of actual consumer
confusion, exclusivity of use, advertising and promotional efforts, and
market share. Id. at 329; see also Restatement § 13 cmt. e.
In this case, it is undisputed that the name “Community State
Bank” is descriptive. The parties are disputing whether the name
“Community State Bank” has acquired secondary meaning. Upon our de
novo review, we agree with the district court’s finding that “Community
State Bank” had acquired secondary meaning.
First, CSB has used the mark “Community State Bank”
continuously for twelve years. We disagree with the court of appeals’
determination that twelve years of continuous use was not sufficient in
the banking trade.1 There is no length-of-use threshold that must be
met in order to demonstrate secondary meaning. However, the Lanham
Act provides that the trademark commissioner may accept five years of
continuous use as prima facie evidence of secondary meaning. 15 U.S.C.
§ 1052(f) (2008). Although federal trademark law is not controlling in
this case, we, as well as other courts, have looked to the Lanham Act for
assistance in common law trademark cases. See Commercial Sav., 592
N.W.2d at 329; DaimlerChrysler AG v. Bloom, 315 F.3d 932, 936 n.3 (8th
Cir. 2003). Although the five-year presumption in the Lanham Act does
1The court of appeals relied on other cases discussing secondary meaning in the
banking industry as a yardstick to measure whether CSB had used its mark long
enough to acquire secondary meaning. In Commercial Savings, the bank had used its
name in eight counties for seventy-four years. Commercial Sav., 592 N.W.2d at 329. In
First Federal Savings & Loan Ass’n of Council Bluffs v. First Federal Savings & Loan of
Lincoln, 929 F.2d 382, 384 (8th Cir. 1991), exclusive use for thirty-five years was
sufficient to establish secondary meaning.
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not, in itself, establish that “Community State Bank” has acquired
secondary meaning, it is a factor weighing in favor of secondary meaning.
In addition to length of continuous use, CSB provided direct
evidence, in the form of consumer surveys, indicating “Community State
Bank” had acquired secondary meaning. CSB’s expert created a “Teflon
Survey” to determine whether a representative sample of banking
customers in Polk County considered “Community State Bank” a brand
indicating source or a type.2 The results of the survey indicate over 90%
of respondents labeled “Community State Bank” as a brand, not a type,
which suggests the name “Community State Bank” had acquired
secondary meaning in Polk County. While the court of appeals
discounted the credibility of the survey, we find it helpful in our
determination and supportive of the conclusion that CSB was a
recognized brand.
CSB was also involved in the community and advertised
extensively in Polk County. CSB spent over a quarter of a million dollars
on advertising each year from 2004 to 2006, and over two million dollars
total since 1993. CSB has advertised its services under the name
“Community State Bank” and the “CSB” logo through newspaper, radio,
television, magazines, direct mail, billboards, yellow page ads, on the side
of delivery vans, and yard signs for construction projects. Additionally,
2The “Teflon Survey” is often used in trademark cases to establish secondary
meaning where the disputed mark is comprised of common descriptive terms. See E.T.
Browne Drug Co. v. Cococare Prods., 538 F.3d 185, 195 (3d Cir. 2008). In a “Teflon
Survey,” participants are given an explanation of the difference between generic terms
and brand names. Id. Then the survey runs the participant through a series of terms
(such as “pop” and “Coke”) asking whether they are types or brands. Id. Once the
participant grasps the distinction between the two, the survey asks the participant to
categorize several terms, including the one at issue. Id. The survey in our case asked
390 participants to indicate whether the following are brands or types: automobile,
Nike, laundry detergent, life insurance, Community State Bank, Hy-Vee, medical clinic,
and Budweiser.
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CSB supports local organizations and causes in the Des Moines
community. In comparison, Csb Indianola focused its advertising efforts
in Warren and Lucas counties.
Further, CSB has consistently controlled more of the market in
Polk County than Csb Indianola. As of mid-2006, CSB had
approximately $406 million in deposits, compared to Csb Indianola’s $80
million. In June 2006, the market share in Polk County was 4.6% for
CSB and 0.22% for Csb Indianola.
As CSB used its mark “Community State Bank” continuously and
exclusively for twelve years, spent significant amounts on advertising,
and had a substantially larger percentage of the market share in Polk
County, together with the results of the “Teflon survey” indicating 90% of
respondents identified “Community State Bank” as a brand, we
determine CSB acquired secondary meaning. Therefore, CSB had a valid
common law trademark in the name “Community State Bank.”
It does not matter that Csb Indianola used the name “Community
State Bank” first.3 A senior user is only protected in the market where
he has established use of his trademark. Sweetarts v. Sunline, Inc., 380
F.2d 923, 928 (8th Cir. 1967). In the two months between when Csb
Indianola started using the name “Community State Bank” and when
CSB began using the name, Csb Indianola had not established a valid
common law trademark in the name “Community State Bank” at all, let
alone in Polk County. As establishing common law trademark rights in
descriptive names takes time (since the mark has to acquire secondary
meaning), Csb Indianola cannot claim trademark rights in the name
3Csb Indianola began using the name “Community State Bank” in March 1993
in Lucas and Warren counties. CSB began using the name “Community State Bank” in
May 1993 in Ankeny and Altoona, both in Polk County.
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“Community State Bank” in Polk County when CSB first began using the
mark. Commercial Sav., 592 N.W.2d at 327.
B. Infringement. Now that we have determined CSB has a valid
common law trademark in the name “Community State Bank,” we must
decide whether Csb Indianola has infringed that mark. If so, CSB is
entitled to injunctive relief. Id. at 326. A trademark has been infringed
when the defendant’s use of a similar designation will cause a likelihood
of confusion among customers. Id. at 330; see also Restatement § 20.
Demonstrating actual or potential economic injury is not necessary to
find infringement. Sweetarts, 380 F.2d at 927. The plaintiff need only
show a likelihood of confusion. Id. In determining whether there is a
likelihood of confusion between the two marks, we consider
(1) the strength of the trademark;
(2) similarity between the trademark and the defendant’s
mark;
(3) competitive proximity of the products on which the
respective marks are placed;
(4) intent of the alleged infringer to pass off its goods as
those of the trademark holder;
(5) incidents of actual confusion; and
(6) degree of care likely to be exercised by potential
customers of the trademark holder.
Restatement § 20. “ ‘[T]he relative weight of the factors depends on the
facts of the individual case,’ . . . and no single one is dispositive.”
Commercial Sav., 592 N.W.2d at 330 (quoting First Nat’l Bank, Sioux Falls
v. First Nat’l Bank, S.D., 153 F.3d 885, 888 (8th Cir. 1998)).
When analyzing the Restatement factors, all but one weighs in
favor of CSB. As to the strength of the mark, “Community State Bank” is
sufficiently distinctive and has acquired secondary meaning. CSB and
Csb Indianola’s marks are identical, “Community State Bank.” Both
banks provide similar products and services. Csb Indianola’s Fort Des
Moines Branch on Army Post Road is approximately two miles from
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CSB’s branch located on Southeast 14th Street in Des Moines. Because
the two banks are located in close proximity and have the same name,
there were several incidents of actual confusion after Csb Indianola
renamed its Fort Des Moines branch “Community State Bank.” Csb
Indianola received one or two calls a day from confused customers.
Further, customers sought to deposit and withdraw funds from the
wrong bank, and correspondence was sent to the wrong bank, including
title companies sending abstracts to the wrong bank. Lastly, although
banking customers ordinarily exercise a great deal of care when it comes
to banking, given the banks’ virtually identical names and their close
proximity, even a prudent customer would be confused.
However, Csb Indianola did not intend to pass off its business and
services as those of CSB. Csb Indianola’s decision to change the name of
the Fort Des Moines branch to “Community State Bank” was not in bad
faith. Rather, it was simply an attempt to unify the name of all of Csb
Indianola’s branches. As five out of six of the Restatement factors
demonstrate Csb Indianola’s use of “Community State Bank” will cause a
likelihood of confusion among customers in Polk County, we find that
Csb Indianola has infringed CSB’s common law trademark.
C. Injunctive relief. Csb Indianola argues CSB was not entitled
to injunctive relief because CSB did not prove financial harm. In order to
be granted a permanent injunction, CSB must demonstrate “(1) an
invasion or threatened invasion of a right; (2) that substantial injury or
damages will result unless the request for an injunction is granted; and
(3) that there is no adequate legal remedy available.” Sear v. Clayton
County Zoning Bd. of Adjustment, 590 N.W.2d 512, 515 (Iowa 1999). As
we have determined that Csb Indianola infringed CSB’s common law
trademark, the first requirement has been met. The second requirement
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has also been met by demonstrating infringement, “[s]ince a trademark
represents intangible assets such as reputation and goodwill, [and] a
showing of irreparable injury can be satisfied if it appears that [the
plaintiff] can demonstrate a likelihood of consumer confusion.” Gen.
Mills, Inc. v. Kellogg Co., 824 F.2d 622, 625 (8th Cir. 1987).
Demonstrating actual financial harm in trademark cases is not required,
as injuries arising from trademark infringement are presumed to be
irreparable. See Calvin Klein Cosmetics Corp. v. Lenox Labs., Inc., 815
F.2d 500, 505 (8th Cir. 1987). Lastly, injunctive relief is the legal remedy
commonly sought by plaintiffs once they have succeeded on a common
law infringement claim. See Commercial Sav., 592 N.W.2d at 326; First
Bank v. First Bank Sys., Inc., 84 F.3d 1040, 1044 (8th Cir. 1996). We
agree with the district court that Csb Indianola should be permanently
enjoined from using the name “Community State Bank” in Polk County.
D. Iowa Code section 524.310(1) and deceptive practices. The
Iowa Superintendent of Banking, the intervenor, contended at the trial
court level that Iowa Code section 524.310(1) prohibits CSB from using
the word “state” in its name. Although CSB’s legally-chartered name
includes the word “state,” the district court, in granting CSB’s motion for
summary judgment, determined Iowa Code section 524.310(1) does not
apply to CSB’s trademark name, “Community State Bank.” We agree.
Amended in 2004, the relevant portion of the statute reads, “[a] national
bank . . . shall not use the word ‘state’ in its legally-chartered name.”
Iowa Code § 524.310(1). The plain language of the statute indicates it
applies to legally-chartered names. Legally-chartered names are different
from trademark names. See Am. Auto. Ass’n v. AAA Ins. Agency, Inc.,
618 F. Supp. 787, 797 (W.D. Tex. 1985) (stating “acceptance or approval
of a name by a state agency is no defense to an action for infringement or
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unfair competition”). Thus the statute does not prevent CSB from using
“state” in its trademark name, “Community State Bank.”
The district court declined to rule on whether the statute prohibits
a bank from using the word “state” in its legally-chartered name, as
opposed to a trade name. As the district court pointed out, “the issue of
whether or not [CSB] can use ‘state’ in its legally chartered name is a
separate issue . . . and not presently before this Court.” (Emphasis
added.) We agree that this case concerns CSB’s trademark name
“Community State Bank,” and not its nationally-chartered name,
“Community State Bank, National Association.” CSB commenced this
suit to protect its trademark, “Community State Bank,” and that
trademark claim has been the focus of this litigation. In their petition,
pleadings, and appellate briefs, Csb Indianola and the Iowa
Superintendent of Banking used the word “name” and did not
distinguish between trademark names and legally-chartered names. In
this process, they neither argued nor articulated why section 524.310(1)
should apply to trade names or why CSB’s legally-chartered name has
any bearing on its trademark name.
The district court acknowledged in its ruling on the motion for
summary judgment that the parties disputed whether using the word
“state” was misleading and deceptive. However, at trial, the court did not
make any ruling in this regard. Since the district court did not rule on
the issue of deceptive practices and none of the parties made an effort to
secure a ruling on the issue,4 the matter has not been preserved for us
4In their original petitions and appellate briefs, neither Csb Indianola nor the
Iowa Superintendent of Banking argued that CSB’s trademark should not be entitled to
protection because it is misleading. Under the doctrine of unclean hands, misleading
trademarks will not be protected. Iowa Health Sys. v. Trinity Health Corp., 177 F. Supp.
2d 897, 925 (N.D. Iowa 2001). Although the doctrine of unclean hands may be raised
sua sponte, based on the failure to develop this issue in the record, we decline to rule
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on appeal. See Teamsters Local Union No. 421 v. City of Dubuque, 706
N.W.2d 709, 713 (Iowa 2005) (“[E]rror is not preserved for appeal on an
issue submitted but not decided by the district court when the party
seeking the appeal failed to file a posttrial motion asking the district
court to rule on the issue.”). Thus we will not rule on the issue of
whether CSB’s use of the word “state” in its name is a deceptive practice.
IV. Conclusion.
CSB has a protectable common law trademark in the name
“Community State Bank” because the mark had acquired secondary
meaning. Further, Csb Indianola infringed that mark, as evidenced by
actual incidents of confusion. Therefore, we vacate the decision of the
court of appeals and affirm the judgment of the district court.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT AFFIRMED.
on it. See Sisson v. Janssen, 244 Iowa 123, 56 N.W.2d 30 (1952) (stating that the court
may invoke doctrine of unclean hands even though neither party pleads it).