Quality International v. McDonald’s, a lesson in trademark infringement

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Years ago, I was walking the halls of an advertising agency client and came across an art director playing with a logo for a client’s soon to be newest brand, MCSLEEP INN.

Curious, I asked what the brand was all about, and was told that this was going to be a new lodging product, at the lower cost end of the scale. It was being modeled on McDonald’s attributes of thrift and consistency. “Oh”, was all I said. And I went to see the agency’s president.

Predicting there would be a trademark infringement lawsuit brought by McDonald’s against Quality International, I strongly urged the agency, if it was going to proceed with this advertising campaign, to get an indemnification agreement from its client. I figured that it was going to get wrapped up in this lawsuit, and in fact it did, but only as a key witness. What I suggested was unusual because indemnification in the ad industry very often runs from the agency to the client. The indemnification agreement was important evidence in the trial, but I did my job in protecting my client.

As an old mentor of mine would have said, Quality International took the bull by the horns when it sued McDonald’s for a declaratory judgment that MCSLEEP did not infringe McDonald’s very strong family of trademarks. It lost.

I used Jane Ginsburg’s third edition of Trademark and Unfair Competition Law for several years to teach this course at the Maryland law school; Quality International v. McDonald’s was the first case in the book and was intended to serve as a student’s broad introduction to trademark law. The case had all the bells and whistles. Subsequent editions removed the case, I am up to the seventh edition, but it is still included and studied in another law school text called Integrated Intellectual Property.

The issue presented in this case was straightforward. Was McDonald’s family of marks, each formulated by adding the MC prefix to a generic word, infringed by the intention to adopt MCSLEEP? The answer was yes, and the best part of the trial came when Steve Sachs, McDonald’s attorney and former Maryland Attorney General, was questioning Quality’s president. “I suppose you expect the chamber maid to put a french fry on each pillow at turn down?” he queried to the delight of spectators.

The decision by Judge Niemeyer, then the district court, is an excellent and expansive review of the legal principles involved in a trademark infringement case. First, federal registration of a mark creates a presumption of both validity and ownership. Validity means the mark is distinctive and protectable, although in some instances that presumption can be rebutted. Marks are also protected without federal registration.

Trademark law gives the mark’s owner the right to prevent what is called a ‘’junior user” from adopting a mark that will or is likely to cause confusion or deceive an appreciable number of consumers into believing there is some affiliation between the two parties or that there is confusion as to source of the goods.

In addition to ownership and validity, the senior user must establish that the use of the mark by the junior user is likely to cause confusion, usually confusion as to the source of the goods. The keyword in the statute is ‘’likelihood.” Actual confusion is not necessary. Judge Niemeyer understood that consumer confusion, even when the parties are not head-to-head competitors, can cause damage to the reputation and goodwill of the senior user. Congress also recognized this years later with the Trademark Modernization Act by enacting a law that creates a presumption of irreparable harm when a likelihood of confusion is established.

Likelihood of confusion is always established by applying a series of factors to the existing circumstances. Every federal circuit has adopted some form of these non-exclusive factors and lawyers clearing marks for clients also use these factors.

There are eight, sometimes nine, factors applied in this circuit, but the first three factors are the most important.

Strength of the mark is critical. Very strong marks are likely to be infringed; very weak marks, that is marks that are virtually unknown to consumers, will generally not be infringed because if a mark is unknown, it can’t be confused with another mark. Strength is measured as conceptual, that is, is the mark distinctive enough to serve as an exclusive source of goods, and commercial. Commercial strength measures the marks awareness with consumers through volume of sales, duration of use, advertising budgets, and the like.

Actual confusion is important because while the statutory test is “likelihood” of confusion, establishing actual confusion through anecdotal or survey evidence would go beyond the requisite likelihood. The court will give this evidence the weight it deserves.

Although intention to infringe is not an element, intention can make a plaintiff’s case. In McDonald’s, the defendant had a clear vision of aligning its product with McDonald’s in the minds of consumers. There are circuits that will find a likelihood of confusion if they conclude that a junior user adopted its mark in bad faith to ride another’s coattails because bad faith serves to establish an intent to deliberately induce confusion.

There are other factors, including similarity of the marks in appearance, sound, commercial impression and connotation. Most lawyers clearing marks for clients struggle over this factor because it is very subjective. For a court, it is a question of fact, as are the other factors. Similarity of the goods is important, although in McDonald’s, the court found that McDonald’s being in the food business might also expand into lodging. This is called bridging the gap.

Are the products sold or advertised to the same consumers? Is one sold to commercial buyers and the other sold to household users? Are they sold to wholesalers and retailers?

The degree of consumer care in selecting goods is also important. Little time might be spent selecting a $10 bottle of wine, but considerable time would be spent researching and selecting a $5,000 aftermarket sports car exhaust system for the mechanical baby in the garage. The less time spent, the more likely there could be confusion.

Every factor should be considered; some might not be applicable. In the end, a person considering whether there will be a likelihood of confusion should focus on the commercial impression made on likely consumers of the two marks, with the marks separated from each other for this purpose.

In McDonald’s, it was not surprising that the judge found that McDonald’s’ MC prefix was a mighty fortress in the minds of consumers. Whether or not a person ever ate at McDonald’s, most have been exposed often and over a long period of time to the brand. There were a few brands as strong. The judge gave Quality International a break, finding that its president believed, although wrongly, that because the company’s goods were disparate, he could use the McDonald’s mark. McDonald’s sought its legal fees under the statute, but the court found the case was not “exceptional.” But that’s a story for another time.

Jim Astrachan is a counsel to Corey Tepe LLC and has taught intellectual property law in the two Maryland law schools since 1999.