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Dashmash Transportation, Inc. v. Torgro Transportation, Inc.

A-2807-01T2 (N.J. Super. App. Div. 2003) (Unpublished)

NON-COMPETITION; TRADEMARKS—Where enforcement of a company’s trademark rights would effectively serve to bar unfair competition by a former employee, it is not necessary to enforce a contractual non-competition agreement whose purpose is subsumed by the trademark protection.

A company purchased a taxi business operating predominately within a particular community and its surrounding area. The agreement also conveyed the right to use the “Yellow Cab” service mark in that area. The way that the taxi business was run was that the owner of the business entered into various contracts with independent drivers who would pay a fee for the use of the “Yellow Cab” name and for the use of a shared telephone dispatch system. The buyer incorporated and registered various names that included “Yellow Cab,” but not “Yellow Cab” itself. One driver operated a taxi for about one year under that arrangement and then went into business himself. At one time he held seven licenses but eventually his business dwindled down to operating one vehicle. At the time he worked for the first company, he signed a contract between his taxi company and the “Yellow Cab” company, allowing his company to use the Yellow Cab name and the telephone dispatch system of the larger company. The agreement could be terminated at any time and it provided that, after termination, he could not engage in a competing business for two years in three particular counties. It also provided that the “[v]ehicle color must be changed (at the expense of the taxicab owner) and trade name lettering must be removed immediately upon termination of this contract.” Before entered into the contract, the single car taxi driver operated yellow cars and had a version of “Yellow Cab” on its door. After the contract was terminated, he went out and registered the service mark “Yellow Cab” with the State of New Jersey and registered the name “Yellow Cab Company” in three counties. When applying for state registration of the trademark “Yellow Cab,” the single car taxi company owner “represented under oath that he owned the service mark to be registered and that no one else had a right to use it,” At that time, he was aware that the original Yellow Cab company had been operating in the area for some fifty years. He proceeded to advertise the “Yellow Cab” name. This caused confusion in the public’s mind as well as with telephone directory services. The company that had bought the general right to use “Yellow Cab” in the area then sued the single car taxi company, asserting that it, and not its former taxi driver, was entitled to use the service mark “Yellow Cab Company” and had been afforded rights to do so under the Federal Trademark Act of 1946 (the Lanham Act). It also sought to enforce the restrictive covenant.

The Court analyzed whether “Yellow Cab” was descriptive or generic. “[T]he test of whether a mark is descriptive rather than generic is generally satisfied if a term signifies a product that emanates from a single source, i.e., a brand name, but is not satisfied if the product that emanates from a single source is not only a product brand but is also a product’s genus.” Under that rule, the Court found that the term “Yellow Cab” was not generic “because it primarily signifie[d] the producer, not the service.” Granting protection to “Yellow Cab” would not result “in granting [its user] a monopoly due to an absence of any other way to describe the service.” Further, the term “Yellow Cab” does not describe a functional or distinctive characteristic of the product itself. Just because the trademark was found to be descriptive did not end the inquiry. “Protection is only afforded if there is a showing that the descriptive mark has acquired a secondary meaning. ... Secondary meaning is shown when the primary significance of the term in the minds of the consuming public is not the product but the producer.” It doesn’t matter if the producer or source of the services is unknown or anonymous. “To show secondary meaning, a party must show that the descriptive mark is recognized by the public as denoting a single seller or source.” Here, the company who had originally bought the right to the name “Yellow Cab” had shown that the name had been used at least since 1952 and had shown that it had advertised in the yellow pages and in the local newspaper every year. Further, the lower court had noted that it could “almost take judicial notice of Yellow Cab Company because it was the only cab company” in the community since the trial judge’s childhood. Further, there was evidence that other companies attempting to use the name “Yellow Cab” in the area were prevented from doing so by legal action. Although the lower court had focused on the use of “Yellow Cab” in areas outside the geographic area in question and had found “that the service mark was too widely used to afford protection” for the company that had bought the trademark in the first place, the Appellate Division thought otherwise. It held that it is only necessary to “establish secondary meaning [] in [the] geographic area in which [the owner] uses and seeks protection of its mark.” Under the proofs provided, it was clear to the Court that the consuming public within the major municipality of the taxi cab company’s service area “identified the name ‘Yellow Cab’ with its source, rather than with taxi cab service in general.” Consequently, the Court was willing to extend protection of the service mark “Yellow Cab Company” in that municipality’s geographic area.

With that as background, the Court would not enforce the contractual restrictive covenant because the Court felt that the protection sought by the original company was not “the elimination of competition but instead a change in vehicular color,” and the removal of the service mark from other taxi cabs. As a result, the Court concluded “that the non-compete clause [was] subsumed by the protection afforded [the original taxi company] under the Lanham Act and that the original taxi company was not entitled to additional protection “beyond its service mark and the color of its vehicles” in the municipality in question.

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