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CIT GROUP v. CITICORP

September 25, 1998

THE CIT GROUP, INC., a Delaware corporation, Plaintiff,
v.
CITICORP, a Delaware corporation, Defendant.



The opinion of the court was delivered by: DEBEVOISE

OPINION

 Debevoise, Senior District Judge

 Plaintiff, The CIT Group, Inc., a Delaware corporation, ("CIT Group") instituted this trademark infringement action against defendant, Citicorp, also a Delaware corporation, ("Citicorp"). On April 6, 1998 Citicorp and Travelers Group, Inc. ("Travelers") announced plans to merge, disclosing that the merged entity proposed to carry on the combined business of these two financial giants under the name CITIGROUP. CIT Group's complaint alleges that this use of the name would constitute a violation of its statutory and common law trademark rights, would dilute its trademark rights and would constitute unfair competition.

 CIT Group sought injunctive relief. The parties pursued an accelerated discovery schedule, and an evidentiary hearing was conducted on August 25-28, 1998. By agreement of the parties the trial of the action on the merits was advanced and consolidated with the application for a preliminary injunction. Fed.R.Civ.P. 65(a)(2).

 I. The Businesses of the Parties

 Citicorp is a holding company which engages in a wide range of financial services businesses through many subsidiary operating corporations. The most prominent of these subsidiaries is Citibank. Citibank began business in 1812 when it was chartered in New York as City Bank of New York. Through the years it changed its name from time to time: National City Bank of New York, First National City Bank of New York, and then First National City Bank. In the 1960's it started using the name "Citibank" and registered it as a trademark.

 The mark "CITI" was widely used and advertised. It became a prefix for many names of enterprises in the Citicorp empire, e.g., CITICARD, THE CITI NEVER SLEEPS, CITIGOLD, CITIPAY. Through Citibank and its other subsidiaries Citicorp engages in the full range of banking and financial services - lending, accepting deposits, issuing certificates of deposit, transferring money, engaging in retirement planning, performing corporate trust activities, providing investment advice and services, issuing letters of credit, serving as a fiduciary and providing a multitude of other financial services.

 Citicorp's operations are worldwide. For example, it conducts branch banking in 100 countries. More than half the households in the United States have a business relationship with Citibank and 25 million households have Citibank credit cards. It is estimated that the entity resulting from the proposed merger of Citicorp and Travelers will have managed assets of $ 700 billion and net revenue of $ 50 billion.

 In 1908 CIT Group commenced operations in St. Louis, Missouri, under the name Commercial Investment Trust. It engaged in various forms of commercial lending and grew and expanded throughout the United States.

 Originally CIT Group engaged in accounts receivable financing and factoring. In 1916 it became the first financer of automobiles in the United States. At one time it was the largest such financer in this country.

 In the 1920's the company expanded into most of its present businesses in the field of asset based financing. It was one of the first companies to enter the home equity market. For a period it became a bank holding company, engaging in a wide variety of banking, insurance and manufacturing activities until it was acquired in 1980 by RCA Corporation and in 1984 by Manufacturers Hanover Corporation, which took over a number of the company's operations.

 Manufacturers Hanover divested itself of the financial services aspect of the operation, but imposed a restriction which prevented the company from reentering the home equity business until late 1992.

 Presently CIT Group is a subsidiary of a huge Tokyo bank - The Dai-Ichi Kangyo Bank, Ltd., which holds 95% of the voting shares and 76% of the total capital stock of CIT Group. Since November 1997 CIT Group has been a public company with 13,000 shareholders. In 1997 its managed assets were $ 22.3 billion and its net income was $ 2.1 billion.

 In many areas CIT Group and Citicorp do not compete, as Citicorp provides many financial services which CIT Group cannot or has not elected to provide. For the purposes of this case, however, the areas in which the two entities provide similar or related services must be examined in some detail as a prelude to addressing the ultimate issue of likelihood of confusion.

 CIT Group's services are denominated Commercial Services and Consumer Services, the former constituting 70% of its business and the latter 30%. Commercial Services has units engaging in (i) Equipment Financing and Leasing, (ii) Factoring, (iii) Commercial Finance and (iv) Venture Capital. Consumer Services has units engaging in (i) Home Equity Lending and (ii) Sales Financing. Details concerning these units are set forth in Plaintiff's Exhibit 66, attached hereto as Appendix A.

 A. Equipment Financing and Leasing: The CIT Group serves a wide variety of industries and markets, including the construction industry, commercial aircraft, transportation, materials handling and data processing. It offers direct loans and leases to enable customers to acquire equipment. It provides floor planning for dealers. It finances manufacturers, dealers, distributors and end users, operating in the low level market ($ 250,000 or less), the middle market ($ 250,000 to $ 5,000,000) and the large ticket market ($ 5,000,000 and more).

 Fifty percent of the new business of this unit comes from existing customers. To pursue new business it engages in direct communication with potential customers; it advertises in Forbes, The Wall Street Journal, newspapers and industry magazines; its representatives attend conventions and trade shows; it engages in telemarketing and direct mail. All this is done under its name The CIT Group; there is frequent use of its logo in print material.

 CIT Group Capital Finance, Inc.'s Aerospace Group seeks opportunities to finance aircraft worldwide. It may acquire equity in aircraft and lease, or it may lend. To secure this business CIT Group meets directly with airlines and manufacturers and it receives proposals from intermediaries. It makes its approaches through telephone calls, advertising and attendance at trade shows. The advertisements appear in trade publications such as Airline Business, Air Transport World and Air Finance Journal. It is a member of the International Society of Transport Aircraft Trading. CIT Group's aircraft transactions range from $ 10 million to $ 300 million in size.

 The second component of CIT Group Capital Finance is financing freight cars, locomotives and other railroad equipment. This is accomplished through operating leases, tax leases and secured loans for railroad equipment. Transactions range from $ 5 million to $ 50 million in size. The customers include all railroads in the United States, Canada and Mexico. At the present time there are only six Class One railroads in the United States and two in Canada.

 Business is obtained through direct calls on railroads, shippers and manufacturers of rail cars and locomotives. Calls are made on intermediaries who are likely to refer potential customers. CIT Group places advertisements in trade journals such as Progressive Railroading and Railway Age; representatives attend industry conferences; direct mailings are sent out.

 CIT Group estimates that there are 600 potential customers for its Capital Finance financial services. It presently deals with 75 of them, leaving a potential market of 85% of the total. Railroads are structured by commodity, and therefore there may be as many as 45 persons within each Class One railroad with whom a person seeking business would have to deal when seeking business.

 The third component of CIT Group Capital Finance is financing intermodal equipment. This service is marketed in a manner similar to the marketing of rail financing services.

 A number of Citicorp units engage in equipment financing and leasing. Its Global Aviation Group provides a wide range of services to the aviation industry; it holds an equity position in aircraft leases and engages in some debt transactions. Presently the aircraft portfolio of one Citicorp subsidiary consists of 35 commercial aircraft having a book value of $ 340 million. Its current strategy is to sell aircraft subject to leases and to concentrate on advisory services to airlines. It communicates with airline customers directly and monitors delivery schedules of commercial aircraft manufacturers. With this information it prepares "pitch books" to provide prospective customers.

 Both CIT Group and Citicorp units are members of the International Society of Transport Aircraft Trading. Although at this time CIT Group buys and holds aircraft and Global Aviation Group is primarily a seller of aircraft and a provider of services, the two entities compete for deals in the marketplace.

 Citicorp units engage heavily in asset based lending, serving most of the industries which CIT Group serves - aviation, apparel manufacturers and retailers, home furnishing, textiles, consumer electronics, machine tools and many others. Citicorp concentrates on larger loans, typically $ 75 million or more, and larger borrowers. Ninety percent of its asset based loans are for $ 75 million or more.

 Potential borrowers are identified in three ways. The first is through internal referrals. Citicorp has an entity known as the Global Relationship Bank ("GRB"). GRB seeks to provide the widest range of advisory and financial services to major corporations. It has 1500 customers in this category with which it maintains a continuing, direct institutional relationship. To each of these customers there is assigned a Relationship Manager ("RM") whose responsibility it is to suggest means of meeting the customer's financial needs. Thus if a customer in the machine tool industry requires equipment financing, the RM will refer it to the Citicorp unit providing such financing.

 The second way in which Citicorp obtains equipment financing customers is through referrals from intermediaries such as investment bankers, accountants or lawyers. The third way in which Citicorp obtains such customers is through solicitations in telephone calls, personal meetings and presentation of proposals.

 There is direct competition between CIT Group and Citicorp units in the field of equipment financing in the mid-range of loans. Both are members of the Equipment Leasing Association of America. Its directory lists as members CIT Group Equipment Leasing Association, Citicorp Leasing, Inc., and Citicorp Global.

 Citicorp Capital Industries Financing finances rail cars, ships and other large items of equipment. CitiRail is a part of this unit. All of the units are a part of Citicorp Global Equipment Finance, which has $ 5 billion in outstanding financing and leasing assets and engages in $ 3 billion of transactions each year. Of Global Equipment Finance's customers 95% are GRB customers and were referred through RMs.

 The primary financing of Citicorp Capital Industries Finance is for rail cars and ships. The rail business is derived from two sources: (i) referrals from GRB and (ii) responding to requests for proposals. The objective is to find clients who have both equipment and financing needs and to fill that need, as distinguished from buying the equipment and then finding a lessee. When a lease terminates efforts are made to extend the lease to the current lessee and, failing that, to sell or place it with another current customer or with a non-customer. Personal relationships are important in deriving business, whether it consists of the 90% referred by GRB or whether it is non-GRB business.

 CIT Group competes with Citicorp's CitiRail in all areas of activity and has purchased transactions from CitiRail. Both are active in the American Association of Railroads and other trade associations. Both are listed in the Railroad Financial Deskbook. Citicorp is seeking to expand its intermodal financing and is entering into competition with CIT Group in this field.

 B. Factoring: CIT Group is the largest of 14 lenders providing factoring services. Its customers are in the apparel, textile, furniture, housewares and other consumer businesses. It receives its customers through direct communication, intermediaries and referrals. It holds $ 2.3 billion of factoring assets.

 Citicorp withdrew from factoring activities, has not reentered the field and has no present intention of doing so.

 C. Commercial Finance: CIT Group's Business Credit division provides senior working capital and term loans to facilitate debt restructuring, debtor in possession financing and growth capital. Loans are on a senior secured basis. Targeted are middle market companies in retail, manufacturing, electronics/technology, chemicals, or other industry in which hard assets are available for security. Loans range from $ 10 million to $ 300 million.

 These financial services are marketed by calling on intermediaries (financial advisors, investment bankers, venture capital firms) and by calling on prospect companies directly. When making these calls the initial communications may be with lower level, non-financial employees.

 This unit of CIT Group advertises in trade journals and regional publications. It places tombstone advertisements listing CIT Group Business Credit as the lead lender. Membership is maintained in the Commercial Finance Association and Turnaround Management Association.

 Citicorp competes with CIT Group only to a limited extent in this field. Both a Citicorp unit and CIT Group are members of the Commercial Finance Association.

 D. Venture Capital: CIT Group Equity Investments is the private equity arm of CIT Group. It received $ 100 million from the parent corporation to invest in growth and expansion financings and $ 50 million for investment in partnership interests in buy out and venture capital funds. CIT Group Venture Capital, a subsidiary of Equity Investments, operates as a Small Business Investment Company ("SBIC").

 The combined portfolio contains 35 transactions, aggregating $ 80 million. Transactions range from $ 5 to $ 60 million. Group Equity and Venture Capital participate in auctions and approach business owners and intermediaries in their search for business opportunities. They advertise in business trade journals, issue press releases, place tombstone advertisements and attend trade shows.

 Citicorp Venture Capital Limited is a subsidiary of Citicorp. It is licensed as an SBIC. It does not provide money to rapidly growing companies in their formative years; rather it is a leveraged buy out group.

 Venture Capital engages in relatively few transactions. Great research is required before entering into them. It has closed a total of 130 transactions - 25 in the last year. Outlays for each range from $ 4 to $ 50 million. It has a total of $ 2.6 billion managed assets.

 Venture Capital advertises in The Wall Street Journal and Barron's. It receives presentations from investment banks; it targets its own prospects; and some prospects approach Venture Capital directly.

 CIT Group's and Citicorp's venture capital units compete with each other and on occasion have participated in the same transaction. Both advertise in The Wall Street Journal and belong to the same trade association. Travelers' subsidiary Salomon Smith Barney also competes with CIT Group in the venture capital area.

 E. Home Equity Lending: Through offices located throughout the United States CIT Group extends first and second mortgages. These include home equity mortgages and, to a lesser extent, purchase money mortgages. It holds $ 2.6 billion of such assets. CIT Group deals directly with borrowers; it receives referrals from mortgage brokers and mortgage bankers; and it purchases portfolios.

 CIT Group seeks to reach customers directly through print ads in newspapers, radio and TV announcements, telemarketing and direct mailings. It obtains lists from vendors who are requested to provide names of persons meeting specified qualifications. CIT Group employees make telephone calls.

 CIT Group accepts borrowers who have an A credit rating, i.e., less than a prime A rating. Potential customers are asked to respond through an 800 number to begin the loan process. If the caller wishes to proceed he/she is put in touch with a "mortgage professional".

 CIT Group establishes booths at conventions of the brokerage community. The booths are identified by a banner reading "CIT Consumer Finance". The marketing budget in 1998 is $ 1.2 million, most of which is directed to the brokerage community.

 CIT Group's home equity loan portfolio of $ 2.6 billion is derived 65% from retail mortgage brokers, 25% through the purchase of portfolios and 10% from direct consumer solicitations.

 Both Travelers and Citicorp engage heavily in home equity mortgage lending. Citicorp seeks A and A credit consumers in all age groups. It identifies a large percentage of its prospects through its own extensive customer base. It also purchases lists to reach non-customers.

 Customers are reached through bank statement inserts and branch bank promotions. A wider group is approached through direct mail, radio and television, newspaper advertising and telemarketing. Community groups refer members to Citicorp banking offices. Presently Citicorp does not use brokers in marketing home equity loans and does not acquire third party portfolios.

 CIT Group competes with Travelers and Citibank branches in the field of home equity and purchase money mortgages. There are a number of mortgage lender trade associations, and CIT Group and operating companies of Citicorp and Travelers are members of many of them.

 F. Sales Financing: This unit of CIT Group employs 600 persons and holds $ 4.3 billion of assets. It finances recreational vehicles, manufactured housing and recreational boats. Typically an individual consumer will go to a dealer to make a purchase. In 50% of the cases the consumer will apply for financing. The dealer will ask the customer to complete an application, which the dealer will forward to CIT Group for approval.

 In addition to financing individual purchases, CIT Group finances dealer inventory through floor planning, sending money to the manufacturer which then ships the product to the dealer. CIT Group also purchases portfolios and services portfolios for third parties, such as Chase Manhattan. At the present time CIT Group is starting to engage in auto financing.

 To publicize its financing CIT Group provides dealers with banners to hang in their showrooms. One blue, horizontal banner for use in a recreational boat dealer's premises reads: "Go to Sea with CIT". To secure dealer patronage and reach individual purchasers CIT Group representatives attend boat shows and maintain booths. They distribute CIT Group handouts and call on dealers. CIT Group witnesses reported a negative attitude among dealers concerning Citicorp, arising from Citicorp's recourse policy in the past. They were fearful about any identification with Citicorp.

 Citicorp Acceptance once financed recreational vehicles and recreational boats. Citicorp no longer engages in such financing and is presently liquidating its portfolio.

 Citicorp's Automotive Finance Group finances light duty trucks, serving dealers through floor plan financing and end users. At present Automotive Finance provides floor plan financing to 25 dealerships in the New York City metropolitan area and to two in Connecticut. It engages in retail financing with dealerships in New York, Connecticut, New Jersey and Florida, with plans to extend its services to Maryland, Massachusetts, Illinois, California and Virginia.

 The only retail automobile financing in which Citicorp engages arises when a customer enters a branch bank and receives a loan application and when Citicorp purchases retail installment contracts from dealers. Citicorp does not market or advertise direct retail auto financing. It solicits dealers by telephone, visits to the dealership or by direct mailing.

 II. The Trademarks

 A. The CIT Group: CIT Group owns the following incontestable registrations for THE CIT GROUP and CIT covering a variety of financial services. The typography of the marks as registered is contained in Appendix B. Name Reg. No./ Date Goods/Services THE CIT GROUP Financial Services, Namely Equipment 1,448,848 Financing, Factoring, Business Credit, Sales 7/21/87 Financing, and Capital Financing THE CIT GROUP Financial Services, Namely Equipment 1,452,503 and design Financing, Factoring, Business Credit, Sales 8/11/87 Financing, and Capital Financing CIT in stylized Financial Services-Namely, the making of 734,707 type loans and the extension of installment credit 7/17/62 to manufacturers, dealers, and others and their purchasers, either unsecured or secured by conditional sales contracts, chattel mortgages and similar lien documents and assignments thereof CIT Business and Consumer Financing and 1,000,360 Industrial Financing Services 12/24/74 Citation System Financial Data Processing Services 1,113,307 in stylized 2/13/79 type

 By reason of the filing and acceptance of affidavits under sections 8 and 15 of the Trademark law, these registrations have become incontestable and afford a conclusive presumption that plaintiff's mark is not descriptive. Park ' N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 196, 83 L. Ed. 2d 582, 105 S. Ct. 658 (1985).

 In 1986 C.I.T. Financial proposed to change its name to The CIT Group. The name suggested what in fact the company was - a group of companies and organizations providing a broad range of financial services.

 During the last ten years CIT Group has spent more than $ 50 million in advertising under the new name. During the twelve months preceding August 1998 it spent between $ 6.5 and $ 7 million in advertising. Advertisements are placed in national publications such as The Wall Street Journal, Forbes Magazine and Business Week. In addition, operating units of CIT Group advertise in 50 or more trade journals. Besides print advertising, CIT Group sponsors such television programs as PBS's The News Hour with Jim Lehrer. It advertises on radio and television. By virtue of advertising and expanding business activities THE CIT GROUP name is known and respected in the various financial services activities in which it engages.

 B. Citicorp: Citicorp owns the following registrations of the CITI mark, most of which are incontestable. (The typography of the marks as they appear in the registrations is block letters, e.g., CITI, CITIBANK, THE CITI NEVER SLEEPS). Reg. No. Mark Services Date 982,066 CITICORP Numerous financial related services 4/9/74 1,181,467 CITI Financial services 12/8/81 691,815 CITIBANK Banking Services 1/19/60 1,284,589 CITIBANKING Banking services 7/3/84 1,024,861 CITICARD Banking services-namely, check 11/11/75 cashing services 1,104,470 THE CITI NEVER SLEEPS Financial services, namely 10/17/78 electronic banking services 2,076,187 CITISELECT Mutual fund and investment 7/1/97 management services 1,824,600 CITIGOLD Banking services, investment 3/1/94 consultation and asset management 1,998,336 CITITRADE Electronic securities trading for 9/3/96 others 1,880,875 CITIPHONE BANKING Financial services; namely, 2/28/95 providing banking services by telephone 2,002,794 CITIYIELD PLUS Financial services, namely cash and 9/24/96 investment management services. 1,880,874 CITICASH MANAGER Banking services provided by 2/28/95 electronic means 1,882,737 CITINETTING Financial services in connection 3/7/95 with the consolidation and manipulation of foreign exchange information provided by electronic means; computer software used for the initiation and retrieval of foreign exchange information; 1,370,620 CITI TREASURY MANAGER Banking services 11/12/85 1,708,618 CITIACCESS Banking services, fiduciary 8/18/92 representative services 1,951,364 CITIPAY Electronic funds transfer services, 1/23/96 namely automatic debiting of checking accounts to pay credit card bills

 As noted above Citicorp's predecessor in 1812 used "City" in the original name- City Bank of New York. During the next 150 years the various name changes always included the name "City", the last being First National City Bank. In 1960 the bank started using the name "Citibank" and thereafter used the prefix "CITI" in connection with many of its products.

 Enormous sum have been expended world wide in advertising Citibank and the various Citibank and Citicorp products. Citicorp spent an estimated $ 1 billion $ 500 million for advertising in 1997. Approximately 60 to 70 percent of that sum is directed to the United States market. As a result of the advertising and the enormous scope of Citicorp's financial services activities the "CITI" name is world famous. Citicorp's advertising personnel estimate that 90% of the people in the United States would recognize the "CITI" mark. It is this prefix which is dominant when used with another name or term and which identifies the source of the service or product.

 C. Citigroup : In the spring of 1998 Citicorp's chairman and chief executive officer John S. Reed and his counterpart at Travelers, Sanford I. Weill, agreed upon a merger of the banking and insurance giants. The merger would create the world's largest financial services company. It was to be a merger of equals. Citicorp's and Travelers' stockholders would share ownership of the new company; the chairmen were to serve as co-chairmen, ...


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