Ambient Heating & Cooling, LLC, a Delaware Limited Liability Company, Petitioner,
v.
Ernest D. Shepherd, Jr., and individual, and Christopher Ferguson, and individual both d/b/a/ Ambient Respondents.
Draft
Report: October 21, 2016
Date
Submitted: July 11, 2016
MASTER'S REPORT
Kim E.
Ayvazian Master in Chancery
In
February 2007, a Delaware limited liability company was
formed and began to provide heating, ventilation, and air
conditioning services in Kent and New Castle Counties. In
January 2013, a partnership was established to provide
heating, ventilation, and air conditioning services in New
Castle County. The two businesses have similar names and
similar marks and provide services to residential customers.
In April 2013, the managing member of the limited liability
company contacted one of the partners and asked him to
consider changing the name of his business. The partner
refused. The limited liability company now has petitioned
this Court, seeking to enjoin the partnership from continuing
to operate and advertise its heating and cooling business in
Delaware under the name "Ambient." For the reasons
that follow, I recommend that the Court grant injunctive
relief in this case.
Factual
Background
In
2006, after many years of working in the heating,
ventilation, and air conditioning ("HVAC")
industry, Scott Lang and Sean Wilson decided to start their
own business providing HVAC services.[1] They wanted a name for their
business which started with the letter "A" and,
after reviewing advertisements in the phone book and customer
lists at HVAC supply houses, they settled on the name
"Ambient Heating and Cooling."[2] On February 6,
2007, Petitioner Ambient Heating &
Cooling,
LLC ("Ambient LLC") was formed and has been in
business ever since.[3]Ambient LLC grew through word of mouth and
state-wide advertisements in the phone book.[4] However, the
recession of 2008-2009 took its toll on the business and
Ambient LLC ceased placing ads in the phone
book.[5] In early 2011, Wilson left the company to
find other employment, and Lang slowly built up the company
again on his own.[6] By 2012, business had sufficiently
rebounded that Ambient LLC was able to hire an employee to
help Lang with installations and service calls.[7]
Ambient
LLC is based in Dover, Delaware and provides HVAC services
mostly to residential customers and a few light commercial
customers in Kent and New Castle Counties.[8] Ambient LLC's
mark is displayed on the company's white truck and black
sweatshirts.[9] The mark depicts a cloud partially shaped
like a human face which is blowing steam out of its mouth. A
yellow sun with extended rays appears to be rising up behind
the cloud. The word "Ambient" is prominently
displayed over this image and the words "heating &
cooling" are arrayed in smaller letters under the cloud.
The company's invoices and yard signs display the words
"Ambient Heating & Cooling LLC" and the
company's telephone numbers.[10]
Respondents
Ernest Shepherd and Christopher Ferguson have worked in the
HVAC industry since the late 1990s.[11] For the past eight years,
Shepherd has been employed by a company that manages
commercial high-rise facilities and construction,
[12]
but in 2012 he and Ferguson decided to start their own HVAC
business as partners.[13] They also thought the letter
"A" was a good letter to use and chose
"Ambient" for their business name. According to
Shepherd, "ambient" is a term frequently used in
the HVAC industry.[14] In early December 2012, Shepherd went to
the New Castle County Prothonotary's Office and
registered "Ambient" as the trade name of their
business, [15] using the address of Shepherd's home
in Hockessin - 3701 Oak Ridge Road - as Ambient's
address.[16]
The two
partners are responsible for different tasks. Ferguson goes
out on installation and service calls during the day, and
Shepherd does estimates and some service calls in the
evening.[17] Ferguson's wife answers the
telephone for Ambient and schedules the customers'
appointments.[18] Shepherd's wife designed the mark
that is displayed on Ambient's white truck, yard signs,
invoices, proposals, advertising, and blue
shirts.[19] Ambient's mark prominently features
the word "AMBIENT" without the letter
"I."[20] In the letter's place is an image of
a large thermometer with lines and red mercury extending
above and below the other letters. Below "AMBIENT"
are the words "heating" and "cooling" in
smaller letters, with "heating" to the left and
"cooling" to the right of the thermometer's
bulb.[21]
In
early 2013, Lang learned through a mutual acquaintance that
another business called Ambient was located in the Hockessin
area, but did nothing about it.[22]In the spring of 2013,
however, Lang became concerned after speaking with his
daughter who had seen Ambient's truck in Newark and
mistaken it for her father's truck, and with another
acquaintance who had told Lang that Ambient was doing
business up north.[23] Lang did some research and found a
Facebook advertisement listing the business as "Ambient
Heating and Cooling."[24] He called the telephone number
listed on the website and Ferguson's wife answered the
telephone saying: "Ambient Heating and Cooling."
Lang identified himself and his business, and asked to speak
with the owner. When Shepherd returned his call, Lang asked
him to consider changing his business's name, but
Shepherd refused.[25] At trial, Shepherd testified that he
already had put too much time and money into the business to
consider changing its name.[26] After this conversation,
Shepherd attempted to register the name "Ambient"
with the United States Trademark and Patent Office
("USTPO"), but his application was denied.
According to Shepherd's testimony, it was denied because
"ambient" is a generic word.[27]
In
2013, Lang received a voicemail from a woman looking for
"Ernie Shepherd" with "Ambient Heating and
Cooling" to replace her water heater.[28] In June 2013,
Ambient LLC received a notice of a code violation from the
City of New Castle for working at a residence without a
current business license.[29] Lang checked his records and
discovered that Ambient LLC had not done any work at the
address listed in the citation.[30] What had occurred was
that Shepherd and Ferguson helped a friend finish an
installation job at his home in New Castle and, in exchange,
they had put their yard sign advertising Ambient in their
friend's front yard.[31] In March 2014, Lang noticed that
Angie's List contained a profile for "Ambient
Heating & Cooling" with the address of 3701 Oak
Ridge Road in Wilmington, Delaware.[32] In May 2014, Ambient LLC
received an invoice from Pierce-Phelps, Inc., an HVAC supply
house, for parts that Lang had not ordered.[33] The invoice
had been signed by Ferguson.[34]Another invoice from
Pierce-Phelps, dated May 2015, listed items that Lang had
asked his assistant to pick up, but the invoice was billed to
Ambient with the notation "attention Chris
Ferguson."[35] Around this time, Lang received a phone
call from Kurt Vanscoy asking to speak with Ferguson about
doing more work for Vanscoy.[36]In October 2015, Ambient LLC
was contacted by Lou Mazzio who was looking for Ambient to do
some work at his house in Wilmington.[37] As a
subcontractor, Ambient LLC did some work at the Gaskell
residence where Mr. Gaskell mentioned that Ambient LLC
previously had worked for his parents.[38] Mrs. Gaskell
then asked Lang why he had never shown up to give her a price
for a job. Confused by his response, Mrs. Gaskell asked
whether he worked out of Hockessin and Lang replied that he
was out of Dover.[39] Glenn Fedele called Ambient LLC looking
for Shepherd with "Ambient Heating and
Cooling."[40] Similarly, Lang knew an acquaintance who
had tried to contact Lang through Ambient's Facebook
page.[41]
Each
time Lang answered a call from someone looking for Ambient,
it took time away from Ambient LLC.[42] In addition, Lang decided
not to pay for advertising during 2013-2016 because he did
not want to spend money advertising his own company only to
provide a benefit to Ambient instead. During the past three
years, the growth of Ambient LLC has depended on displaying
the company's name and mark on yard signs, shirts, and
its truck, in addition to word-of-mouth communications.
In
contrast, Shepherd and Ferguson have continued to advertise
their business on the radio, in print, and on the web, and
have seen their business grow at a rate of 30 percent per
year since 2013.[43] On two occasions, Mrs. Ferguson received
phone calls from a customer trying to reach Lang at Ambient
LLC.[44] Mrs. Ferguson no longer answers the
telephone with the words "Ambient Heating and
Cooling;" instead, she now says
"Ambient."[45] Ambient's business is currently
advertised on Angie's List and Facebook under the name
"Ambient HVAC, " but the words "heating"
and "cooling" are still displayed on Ambient's
trucks, invoices, yard signs, and the shirts worn by its
partners and employees.[46]
Procedural
Background On April 30, 2014, a petition for injunction was
filed by Ambient LLC.[47]Respondents Shepherd and Ferguson
filed their answer and counterclaim on June 4,
2014.[48] The following day, Petitioner filed its
response to Respondents' counterclaim.[49] On June 19,
2014, Respondents filed an amended answer and
counterclaim.[50] On April 17, 2015, Petitioner filed an
amended petition for injunction, which was followed on May 7,
2015, by the filing of Respondents' answer to the amended
petition and counterclaim.[51] As a result of considerable
discovery efforts, the parties were able to stipulate to
numerous facts.[52] A one-day trial was held on March 23,
2016, [53] and was followed by the submission of
the parties' post-trial closing arguments/briefs.
Issues
Petitioner
contends that common law trademark and the Delaware Deceptive
Trade Practices Act ("the Act") should prevent
Respondents from continuing to trade using the name Ambient.
Under the common law, a trademark acquires specific
significance through prior exclusive use in the same market
or from having acquired a secondary meaning and, thereafter,
is entitled to protection from use by others. Under the Act,
a person engages in a deceptive trade practice if he engages
in acts that cause a "likelihood of confusion, "
inter alia, as to the source of services. In this
case, Petitioner has been providing heating and air
conditioning services to its customers in Kent and Sussex
Counties since 2007 under the trade name or mark
"Ambient Heating and Cooling." Petitioner argues
that in 2013, Respondents also began to use the words
"Ambient, " "Heating, " and
"Cooling" in their mark, as evidenced by the joint
trial exhibits. Since 2013, the parties have been providing
the same services primarily in the same jurisdiction, i.e.,
in New Castle County, although the parties also perform some
work in Kent County, and to a lesser extent, Sussex County.
There have been at least a half dozen instances when
customers, suppliers, and even a municipal government have
been confused by the presence of two HVAC businesses both
bearing the name Ambient operating in Delaware.
Respondents
contend that Petitioner has not shown that it is entitled to
the exclusive use of the word "Ambient" in its
trade name. They argue that the words "heating, "
"cooling, " and "HVAC" are generic terms
identifying the basic services both parties are providing,
and that the word "ambient" itself is used often in
the HVAC business and refers to the "surrounding
air." As a result, Respondents argue that this Court
should find the word "Ambient" is generic and
cannot be trademarked. At most, since the word
"ambient" is not as commonly used as the words
"heating" and "cooling, " it may be
regarded as descriptive. If so, then Petitioner's claim
must fail because it has not argued that the word
"ambient" has become so invested with secondary
meaning in Delaware as to become known as referring only to
Petitioner. Respondents further argue that: (1) the use of
the word "Ambient" predates Petitioner's use
because another HVAC company with the same name has been
operating in Delaware since before 2007; (2) Petitioner has
done no advertising since 2010 to associate the word
"ambient" with Petitioner in the public's mind;
and (3) Petitioner has presented no market evidence that
would support a finding of secondary meaning.
Petitioner
responds that the word "ambient" is not descriptive
because it does not describe the actual types of services
that are being offered, i.e., the installation and repair of
heating, ventilation, and air conditioning equipment.
Instead, it suggests that the services being offered will
help customers to control their surroundings. As a suggestive
trade name, the word "ambient" is entitled to
protection under the common law. Even if it were only a
descriptive trade name, Petitioner contends that
"ambient" has acquired sufficient secondary meaning
to preclude Respondents from usurping it. Small businesses
cannot afford to procure a professional market survey to
prove secondary meaning, and there is no case law in Delaware
requiring such proof. Instead, there must be evidence of the
likelihood that the business names will be confused, and
Petitioner contends that it has amply demonstrated the
confusion already experienced by consumers, suppliers, and
also at least one governmental agency.
Analysis
The Act
provides, under 6 Del. C. § 2632(a)(2), that
"[a] person engages in a deceptive trade practice when,
in the course of a business … that person …
causes likelihood of confusion or of misunderstanding as to
the source, sponsorship, approval, or certification of goods
or services[.]" In this case, the likelihood of
confusion is alleged to have arisen because of the similarity
in names and marks of Ambient LLC and Ambient. Akin to common
law claims of trademark infringement and unfair competition,
[54]
a successful claimant under the Act may be entitled to
additional remedies than would otherwise be available under
the common law.[55] To determine whether a trade name or
mark creates a likelihood of confusion, the Court must
consider: (1) the degree of similarity between the marks; (2)
the similarity of products for which the name is used; (3)
the area and manner of concurrent use; (4) the degree of care
likely to be exercised by consumers; (5) the strength of the
petitioner's mark; (6) whether there has been actual
confusion; and (7) the intent of the alleged infringer to
palm off his products as those of another.[56]
A.
Similarity of the Marks
Both
marks start with the word "Ambient" and both also
contain the words "heating" and
"cooling." The marks would be identical except that
Ambient LLC's mark includes an image of a cloud while
Ambient's mark replaces the letter "I" with an
image of a thermometer. Despite this substitution, the
average consumer would read this mark as "Ambient."
B.
Similarity of the Products
Both
businesses engage in the same trade, i.e., the installation,
maintenance, and repair of heating, ventilation, and air
conditioning systems. Ambient LLC provides approximately 85
percent of its services to residential customers and 15
percent to light commercial customers like liquor stores.
There was no statistical evidence presented regarding the
types of customers served by Ambient, but the customers
mentioned during the trial were all residential.
C. Area
and Manner of Concurrent Uses
Ambient
LLC does considerable work in New Castle County, some work in
Kent County, and a small amount of work in Sussex County.
Ambient performs the vast majority of its work in New Castle
County, with little or no work in the lower two counties.
Occasionally, Ambient performs work in other states such as
Pennsylvania.
D.
Degree of Care Likely to be Exercised by Consumers
There
was no evidence presented on this issue, but to the extent
that installation of a new heating or air conditioning system
can be expensive, one assumes that most consumers would
exercise some degree of care when selecting an HVAC business
to do the work.
E.
Strength of the Mark
A
business's trade name or mark is entitled to protection
against imitation or wrongful use where it has priority of
use in the marketplace and has achieved community acceptance
to the extent that prospective customers view the trade name
or mark as identifying the goods or services produced or
performed by a particular person.[57] In this case, it is
undisputed that Ambient LLC's mark has priority of use in
New Castle and Kent Counties.[58] From February 2007 until
January 2013, Ambient LLC was the only HVAC enterprise with
the trade name and mark containing the words "ambient,
" "heating, " and "cooling" which
was operating in New Castle and Kent Counties. During this
time, it was advertising its name by various means and
expanding its customer base. Ambient nevertheless contends
that the name failed to gain secondary meaning because it is
merely descriptive, and names that are generic or descriptive
of different products are not worthy of protection.
Whether
a trade name and mark is strong and, therefore, worthy of
protection, depends upon the category in which it falls: (1)
generic; (2) descriptive; (3) suggestive; and (4) arbitrary
or fanciful.[59] The words "heating" and
"cooling" appear to fall within the descriptive
category because they convey an immediate idea of the types
of service offered by Ambient LLC. However, when used as an
adjective, the word "ambient" means
"surrounding on all sides, " "encompassing,
" or "enveloping."[60] The addition of the word
"ambient" distinguishes Petitioner's trade name
and elevates it to the suggestive category because it
requires some "imagination, thought, or perception"
on the part of a customer to determine that the company is
offering more than just an air conditioner or heater, for
example, but is also providing entire systems for controlling
the warmth and coolth of the customer's physical
environment.[61] It is, therefore, a strong mark. F.
Actual Confusion
There
was evidence of actual confusion by several customers or
prospective customers of both businesses. A supplier and the
City of New Castle also confused the names of the businesses
on one or two occasions, raising the specter of damage to
Ambient LLC's credit, reputation, and ability to provide
services.[62] Evidence of actual confusion is
probative of the likelihood of confusion.[63] Even though
recently Ambient has limited its use of the name
"Ambient Heating and Cooling, " it continues to use
"Ambient" in conjunction with the words
"heating" and "cooling" or
"HVAC" on its trucks, clothing, yard signs,
advertisements, and paperwork. Therefore, I do not consider
there has been any ...