
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 95-1525                                      PHC, INC.,                                Plaintiff, Appellant,                                          v.                          PIONEER HEALTHCARE, INC., ET AL.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                      [Hon. Nancy Gertner, U.S. District Judge]                                           ___________________                                 ____________________                                        Before                                Boudin, Circuit Judge,                                        _____________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Michael Arthur Walsh with whom Lisa  A. Richards and Choate,  Hall            ____________________           _________________     _____________        & Stewart were on brief for appellant.        _________            Esther J.  Horwich with  whom Steven  J. Brooks  was on brief  for            __________________            _________________        appellees.                                 ____________________                                  February 12, 1996                                 ____________________                 BOUDIN,  Circuit  Judge.   This  case  presents familiar                          ______________            problems  of federal jurisdiction,  civil procedure,  and the            relationship between court and agency; but the problems arise            in an unusual context:  that of the unique and  complex legal            regime that governs trademarks and unfair competition.  Since            the appeal is from an order granting  a motion to dismiss, we            draw our facts from the pleadings.                                          I.                 Plaintiff-appellant,  PHC,  Inc.,  is   a  Massachusetts            corporation based in  Peabody, Massachusetts, which  operates            alcohol and  substance  abuse  centers  across  the  country.            Defendant-appellees  are Pioneer  Health Care,  Inc.  and its            management   affiliate   Pioneer  Management   Systems,  Inc.            (collectively,  "the Pioneer  companies"); the  former offers            medical  care services  in  and near  the  Pioneer Valley  in            western   Massachusetts.      The   Pioneer   companies   are            Massachusetts  corporations  based  in  West  Springfield and            their   names  are  recorded  with  the  Massachusetts  state            secretary under Mass. Gen. L. ch. 156B,   11.                 At  some point it came  to the attention  of the Pioneer            companies that PHC was using the name "Pioneer Healthcare" or            "Pioneer  Health Care"  in its literature.   On  December 13,            1993,  the  Pioneer companies  sent  a  letter to  PHC  which            asserted  that  this  use  violated  Massachusetts  law   and            demanded that it  stop.   The letter also  demanded that  PHC                                         -2-                                         -2-            cancel its earlier registration (as of  February 16, 1993) of            the  mark  PIONEER  HEALTHCARE   with  the  U.S.  Patent  and            Trademark  Office.    A   second  letter  to  PHC  threatened            litigation.                     PHC responded in a March  17, 1993, letter, declining to            comply with any  of the  demands.  The  letter asserted  that            geographic and  product differences  meant that there  was no            confusion  between  the  parties'  respective   uses  of  the            disputed  terms.    It  asserted equitable  defenses  to  any            infringement claim.  And it said that the registration of the            Pioneer  companies' names with  the Massachusetts authorities            was irrelevant.                   The Pioneer companies in turn filed a petition with  the            U.S. Patent  and Trademark Office  on May 25,  1994, claiming            longstanding use of the marks PIONEER HEALTH CARE and PIONEER            HEALTH and asking  the office to cancel PHC's registration on            grounds  of  confusion.   15 U.S.C.      1052(d), 1064.   The            Pioneer companies' marks  were not federally  registered, but            confusion   between  a   registered  mark   and   an  earlier            unregistered "mark or trade name," id.   1052(d), may lead to                                               ___            the cancellation of the registered mark.  Blanchard Importing                                                      ___________________            &  Distributing Co. v. Societe E. Blanchard et Fils, 402 F.2d            ___________________    ____________________________            797 (C.C.P.A.  1968).   An  administrative  proceeding  began            before the Trademark Trial and Appeal Board ("the  Board"), a            component of the Patent and Trademark Office.                                         -3-                                         -3-                 On December 9, 1994, PHC responded by filing the present            declaratory  judgment action in  the district court.   In its            first count, PHC sought a declaration that its own use of the            mark it had  registered--PIONEER HEALTHCARE--did not  violate            any rights  of the Pioneer  companies under section  43(a) of            the Lanham Act, 15 U.S.C.   1125(a).  The second count sought            a preemptive  declaratory judgment  that PHC was  entitled to            maintain its  registration  of the  mark  at the  Patent  and            Trademark Office.                   After filing  its district  court action, PHC  asked the            Trademark Trial and Appeal  Board to suspend its cancellation            proceeding  pending the  outcome of  the court  action.   The            Board has a rule contemplating such suspensions where a court            action may  moot the matter before  the agency.  37  C.F.R.              2.117.   The  Board  complied  with PHC's  request,  and  the            administrative proceeding is now in abeyance.                 Thereafter, the Pioneer companies moved in the  district            court for  dismissal  of  the  declaratory  judgment  action,            urging  inter alia  that  the district  court lacked  subject                    __________            matter  jurisdiction  and  that  the action  itself  was  "an            improper attempt  to circumvent the  administrative process."            In a  detailed opinion  dated  April 12,  1995, the  district            court granted  the motion, relying  upon both of  the grounds            urged and  its own discretion not to "take this case from the            . . . administrative scheme designed to hear it."                                         -4-                                         -4-                                         II.                 The  district court's first  ground for dismissing PHC's            complaint was jurisdictional and bore  directly on count I of            the complaint.  The district court construed the letters from            the  Pioneer companies  to PHC  as threatening  a suit  under            Massachusetts state law to protect their corporate names; the            court said that these letters "cannot be construed as federal            charges  of  infringement.   Pioneer [the  Pioneer companies]            does not own a  federally registered mark which would  enable            them to bring a federal infringement action."                 Taking  this view of the matter, the district court then            invoked  the  settled rule  that  where  a plaintiff  asks  a            federal court  for a declaration that  it is not  liable on a                                                         ___            state  claim,   there  is  ordinarily  no   federal  question            jurisdiction.  Public Serv. Comm'n of Utah v. Wycoff Co., 344                           ___________________________    __________            U.S.  237, 248 (1952).  This is  generally true even if it is            assumed  that a federal  defense might  have been  offered to            defeat the  state claim.   Id.; see  also Skelly  Oil Co.  v.                                       ___  _________ _______________            Phillips Petroleum Co., 339 U.S. 667, 672 (1950).            ______________________                 On appeal,  PHC  responds that  what  it sought  in  the            district court was a declaration that it was not liable on an            anticipated  federal  claim against  it, namely,  a potential                         _______            claim by  the Pioneer  companies that PHC's  conduct violated            section  43(a)  of the  Lanham  Act,  a provision  explicitly            referenced  in count  I of  PHC's complaint.    Section 43(a)                                         -5-                                         -5-            creates a federal civil  cause of action for any  one damaged            inter alia by another's use in commerce of any word, term, or            __________            name that                 is likely to cause  confusion, or to cause mistake,                 or to deceive as to the affiliation, connection, or                 association of  such person with another person, or                 as to  the origin, sponsorship, or  approval of his                 or her goods, services, or commercial activities by                 another person.                 This "false designation  of origin" claim  under section            43(a) is  a close  cousin to  a claim  for infringement  of a            federally  registered mark  authorized by  section 32  of the            Lanham  Act, 15 U.S.C.    1114.  An  infringement claim under            section  32 requires that the  mark be a federally registered            trademark.  Id.    But  a  section  43(a)  claim,  which  PHC                        ___            purported to  anticipate, does not  require that the  mark or            name be  federally registered, Quabaug Rubber  Co. v. Fabiano                                           ___________________    _______            Shoe  Co., 567 F.2d 154, 160 (1st Cir. 1977), and is commonly            _________            used to  prevent infringement of unregistered  trademarks.  3            J.  Thomas  McCarthy,  McCarthy   on  Trademarks  and  Unfair                                   ______________________________________            Competition   27.03  (3d ed.  1992).  A  claim under  section            ___________            43(a) is  a federal  cause of action,  automatically invoking            federal question jurisdiction.   28 U.S.C.   1331.   See also                                                                 ________            15 U.S.C.   1121(a).     The   more  difficult   question  is            whether PHC could reasonably have anticipated a claim against            it  under  section  43(a) of  the  Lanham  Act and  therefore            brought a declaratory  judgment to forestall it.   Whether or            not  conceived  of  as  "jurisdictional,"  such    reasonable                                         -6-                                         -6-            anticipation   is   a  settled   requirement  in   a  federal            declaratory  judgment  action  of  this  character.     E.g.,                                                                    ____            Sweetheart Plastics,  Inc. v. Illinois Tool  Works, Inc., 439            __________________________    __________________________            F.2d  871, 873  (1st Cir. 1971).   A  federal court  will not            start up the  machinery of adjudication to  repel an entirely            speculative threat.                   If  one looked solely at the letters sent by the Pioneer            companies,  one  might  be  genuinely puzzled  whether  those            letters threatened  only a  suit under Massachusetts  law for            the misuse of  a corporate  name or whether  they implied  as            well an intent to resort to the Lanham Act.  The only statute            mentioned in the letters was "Massachusetts General Laws" and            the mention was in the context of referring to PHC's use of a            corporate "name."   The  letters did request  cancellation of            PHC's federal trademark, but  they made no specific reference            to a suit for infringement or under section 43(a).                 On the other hand,  the conduct of PHC, as  described by            the  Pioneer companies'  letters,  could easily  amount to  a            violation of  section 43(a);  the second letter  alleged that            PHC's alleged use was "misleading, confusing, and will result            in  irreparable  harm"--language  typical of  a  claim  under            section 43(a).  The first letter threatened to seek  recovery            of damages, as well as an injunction.  Damages are a standard            remedy   under  section   43(a),  15   U.S.C.      1117;  the            Massachusetts  statute  protecting  corporate names  provides                                         -7-                                         -7-            only for administrative and injunctive relief.  Mass. Gen. L.            ch. 156B,   11.                 In  all  events, the  question  under  the case  law  on            declaratory  judgments is  not whether the  Pioneer companies            made a specific threat to bring a section 43(a) claim or even            had such a claim  in mind.  The federal  declaratory judgment            statute   aims   at  resolving   potential   disputes,  often            commercial in character, that can  reasonably be feared by  a            potential  target  in  light  of the  other  side's  conduct.            Cardinal  Chem. Co. v. Morton  Int'l, Inc., 113  S. Ct. 1967,            ___________________    ___________________            1974-75  (1993).  No competent lawyer advising PHC could fail            to tell it  that, based  on the threatening  letters and  the            surrounding circumstances, a section  43(a) suit was a likely            outcome.                   Quite  likely PHC  had  tactical advantages  in mind  in            bringing  the declaratory  judgment  action.   But, absent  a            showing of bad faith so substantial as to foreclose equitable            relief, its subjective aims  do not matter.  The  question is            whether the  Pioneer companies' letters made  a section 43(a)            claim  against  PHC  a  reasonable prospect.    Although  the            district court did not pass explicitly upon this question, an            affirmative answer is so clear to  us that there is no reason            to  remand on  this  issue.   Thus,  the district  court  had            federal subject-matter jurisdiction as to count I.                                         -8-                                         -8-                 Federal  subject  matter jurisdiction  over count  II is            equally plain.  In count  II, PHC asked the court  to declare            that  its federally  registered  mark was  valid;  this is  a            matter governed  entirely by  federal law and  plainly within            the  federal  question  jurisdiction  of  a  district  court.            Additionally, section 37 of the Lanham Act, 15 U.S.C.   1119,            cited in count  II, empowers the federal courts to "determine            the  right to  registration [and]  order the  cancellation of            registrations" in civil cases  in which a registered mark  is            at issue, and provides that such determinations shall control            the Patent and Trademark Office.                                         III.                 Although federal subject  matter jurisdiction is  secure            as to  both count I and  count II, a judge  might well wonder            whether  it  ought  to  be  exercised  in  the  teeth  of  an            administrative  proceeding pending before  the Board.   PHC's            claim under count II sought a declaration  that PHC's federal            mark was valid; that was the very subject of the cancellation            proceeding.  As for  count I, issues of confusion,  likely to            be  addressed in the Board proceeding, might easily have been            pertinent, perhaps even controlling.                 Problems of coordination and priority  between court and            agency  are usually  discussed  under the  rubric of  primary            jurisdiction.  E.g., Massachusetts v. Blackstone Valley Elec.                           ____  _____________    _______________________            Co., 67  F.3d 981, 992 (1st  Cir. 1995).  The  district court            ___                                         -9-                                         -9-            did not use this phrase, but it did rely upon  two cases from            the  Seventh Circuit that  dismissed as premature declaratory            judgment suits brought solely to affirm federal  registration            of trademarks;  in each  case proceedings were  still pending            before the Board.1   The  district court also  noted that  it            saw no  reason "to take  this case"  from "an  administrative            scheme designed to hear it."                 The  primary  jurisdiction rubric  is less  an organized            doctrine  than  a  set of  precedents  that  guide  courts in            deciding  when  an  issue should  be  resolved  in the  first            instance  by an agency that has special competence to address            it.  United States v. Western Pacific R.R. Co.,  352 U.S. 59,                 _____________    ________________________            64  (1956).    The  expertise  of  the  agency,  avoidance of            conflict,  indications  of  legislative  intent,   and  other            factors may permit, sometimes even require, such deference by            court to  agency.  Pierce, Shapiro  & Verkuil, Administrative                                                           ______________            Law and Process    5.8 (2d ed. 1992).  Although  the agency's            _______________            own decision may be  subject to judicial review, such  review            is customarily of a limited kind.                 Two  factors  weigh  heavily against  deference  to  the            administrative proceeding here.   First, the Board  is not an            ordinary  administrative agency whose findings control unless                                            ____________________                 1Homemakers, Inc.  v. Chicago  Home for the  Friendless,                  ________________     _________________________________            313 F. Supp. 1087 (N.D. Ill. 1970), aff'd,  169 U.S. P.Q. 262                                                _____            (7th  Cir., cert.  denied,  404 U.S.  831 (1971);  Merrick v.                        _____________                          _______            Sharpe & Dohme, 185  F.2d 713 (7th Cir. 1950),  cert. denied,            ______________                                  ____________            340 U.S. 954 (1951).                                         -10-                                         -10-            set  aside  after court  review  under  a highly  deferential            standard.   Under  the Lanham  Act,  where a  contested Board            proceeding has  already addressed  the validity of  the mark,            the Board's findings can  be challenged in a civil  action in            district court through new evidence, and, at least to a large            extent,  the issues  can be  litigated afresh.   15  U.S.C.              1071(b).2  And  Congress permits an initial proceeding in the            district court  to challenge  or affirm a  federal registered            mark in civil suits  in which a federally registered  mark is            in issue,  even without any  prior resort to  the Board.   15            U.S.C.   1119.                   Second,  at  least  where   an  infringement  claim   is            involved--whether   directly  asserted   by  an   "owner"  or            challenged  in  a  declaratory action--there  is  often  some            urgency.   Ongoing business conduct is  likely to be involved            and harm,  possibly irreparable,  may be accruing.   Further,            the  Board  cannot give  relief  for  an infringement  claim,            either  injunctive  or  by  way  of  damages.    Under  these            circumstances,   awaiting  the   Board's   action   is   less            attractive;  and this is doubly so because (as already noted)                                            ____________________                 2The  law  in  this  area is  complicated,  and  perhaps            confused; no  simple generalization does  it justice.   See 3                                                                    ___            Mccarthy, supra,   21.05.  For present purposes, it is enough                      _____            that  something  close  to  de  novo  proceedings  are  often                                        __  ____            possible.  See Goya Foods, Inc. v. Tropicana Prod., Inc., 846                       ___ ________________    _____________________            F.2d 848, 853 (2d Cir. 1988).                                          -11-                                         -11-            its administrative  findings can so easily  be relitigated in            court.                 Such reasons persuaded the Second Circuit in Goya Foods,                                                              ___________            Inc. v. Tropicana Prod.,  Inc., 846 F.2d 848 (2d  Cir. 1988).            ____    ______________________            There, a  district court  had dismissed a  declaratory action            brought to  declare the plaintiff  not liable for  a possible            trademark claim; the  district court had  relied on the  fact            that  a  proceeding  to  oppose the  declaratory  plaintiff's            trademark application was pending before the Board in denying            the  plaintiff leave  to  proceed in  court.   Distinguishing            ordinary primary jurisdiction cases, the Second Circuit ruled            that  the declaratory  judgment  on  the  infringement  claim            should proceed and should not await the Board's action.                 We  take the  same view  and conclude  that the  section            43(a)  claim in the present case should not be deferred based            on primary jurisdiction concerns.  The Second Circuit did not            decide whether, given that the  infringement claim was to  be            heard by  the district court at once, a companion declaratory            claim  addressed to  the validity  of a  federally registered            mark should also be  heard despite the pendency of  the Board                        ____            proceeding.  Our case does present that wrinkle, but we think            that the answer is  clear at least in principle:  both claims            should be heard if this  course is more efficient; otherwise,            not.                                         -12-                                         -12-                 If no infringement claim were made in the district court            but only a claim that  a federal registration was or  was not            valid, a good argument might exist (absent unusual facts) for            awaiting the  completion  of  any  pending  Board  proceeding            addressed to the mark's validity.  See Goya, 846 F.2d at 853.                                               ________            But  where an infringement claim is also present and is going            to be  considered promptly  by the  court, it normally  makes            sense  for the court to resolve a companion validity claim at            the  same  time,  if the  issues  underlying  the  two claims                              __            overlap to an extent that makes this course sensible.                 It is hard  to say in the abstract that  such an overlap            will  always exist,  but  our own  case  is probably  a  good            illustration.   Seemingly, the  section 43(a) claim  may turn            largely on whether there  is confusion between the registered            PHC  mark  and  the   unregistered  marks  that  the  Pioneer            companies  use to  describe  their services;  and it  appears            likely  that this is also  a central issue,  perhaps the only            issue,   in  determining   the  validity  of   PHC's  federal            registration.  Put differently,  if deciding count I requires            the district court to resolve much or all of the substance of            count  II, it would waste  everyone's time not  to settle the            registration issue now.                      We are not in  a position to make a  final judgment            whether in this  case count  II should be  litigated at  this            time,  stayed, or  dismissed.   Neither the  parties  nor the                                         -13-                                         -13-            district  court   has  sought   to  analyze  in   detail  the            relationship between the issues  underlying the two counts in            the factual  context of  this case; our  conjecture, pointing            toward immediate consideration of  count II, is plausible but            it may or may not  be warranted here.  The district  court is            free to make its own initial judgment.                                      CONCLUSION                 We conclude that the  district court erred in dismissing            the complaint.  There  is nothing in the record  or arguments            before us that makes it appropriate for the district court to            dismiss or defer  consideration of count I.  As  to count II,            the district  court does  have authority  to decide  count II            and, in our  view, that  would be the  appropriate course  if            deciding count I effectively entailed deciding many or all of            the issues underlying count II.                     The  judgment  of  dismissal  is vacated  and  the  case                                                  _______            remanded for proceedings consistent with this opinion.            ________                                         -14-                                         -14-
