source: Caselaw Access Project

author: LAFFITTE, District Judge.

license: Public Domain

text:
    CROWNAIR SYSTEMS, INC., Original Plaintiff, Dorado Wings, Inc., George R. McCanless, Walter P. Strycker, and Kenneth N. Pontikes, Rule 19 Plaintiffs, v. Henry WOLF and Pannell Kerr Forster, Defendants. Nicholas APOSTOL, Defendant, Counter-claimant and Third Party Plaintiff, v. George R. McCANLESS, Walter P. Strycker, and Kenneth N. Pontikes, Third Party Defendants.
    Civ. No. 82-2638 HL.
    United States District Court, D. Puerto Rico.
    Dec. 11, 1984.

      Salvador Antonetti, Fiddler, González & Rodriguez, San Juan, P.R., Norman L. Faber, Hall, Dickler, Lawler, Kent & Howley, New York City, for Crownair Systems, Inc.
    Francisco Fernandez Carbia, Dubon, Dubon & Vazquez, San Juan, P.R., for Pannell Kerr Forster.
    Victor M. Pons, Jr., Sweeting, Pons, Gonzalez & Cestero, Cancio, Nadal & Rivera, San Juan, P.R., for Henry Wolf.
    Richard A. Lee, Arturo Diaz, San Juan, P.R., for Nicholas Apóstol.
   OPINION AND ORDER

LAFFITTE, District Judge.

Defendants Henry Wolf (“Wolf”) and Nicholas Apóstol (“Apóstol”) have moved to dismiss the complaint for lack of subject matter jurisdiction on the ground that, as a matter of law, the complaint fails to state a claim for relief under the Securities Act of 1933 (“the 1933 Act”) and the Securities Exchange Act of 1934 (“the 1934 Act”). Defendant Pannel Kerr Forster (“PFK”) has cross-moved to dismiss the complaint on the same grounds.

Defendants claim that under the so-called “sale of business doctrine”, the sale of 100% of the stock of a corporation pursuant to the acquisition of the business by a purchaser does not involve the sale or purchase of a “security” as defined in the Federal Securities Laws. This issue apparently has not been decided by any of the courts in this Circuit, and thus is a matter of first impression.

FACTS

In or around January, 1981 Wolf, who owned all of the capital stock of Dorado Wings, Inc. (“Dorado Wings”), a Puerto Rico corporation which operated a commercial airline based in Dorado, Puerto Rico, began to solicit, principally through Apóstol, interest in the sale of Wolfs stock in Dorado Wings. George McCanless (“McCanless”), a resident of New Jersey, decided to take an option to acquire Wolfs stock. Rather than acquiring such stock directly, however, McCanless incorporated plaintiff Crownair System, Inc. (“Crownair”) as a Puerto Rico corporation in order to acquire the option to purchase Wolfs stock and paid Wolf an option price of $50,000. Subsequently, Walter Strycker (“Strycker”), a resident of California and Kenneth Pontikes (“Pontikes”), a resident of Illinois, joined McCanless in the venture, and each acquired one third of the stock of Crownair. On May 28,' 1981, the option was exercised and Crownair purchased all of the stock of Dorado Wings from Wolf for a purchase price of $2,193,038. Financing for the purchase was obtained by McCanless, Strycker and Pontikes, who delivered their unconditional personal guarantees to the Continental Illinois National Bank & Trust Company as financing lender.

In its complaint, Crownair has alleged that numerous material misrepresentations and omissions were made by Wolf, Apóstol and PFK in connection with the sale of stock of Dorado Wings to Crownair. Crownair asserts that these misrepresentations and omissions constituted violations of the anti-fraud provisions of Sections 12(2) and 17 of the 1933 Act, 15 U.S.C. Sections 771, 77q, and Section 10(b) of the 1934 Act, 15 U.S.C. Section 78j, and Rule 10b-5 of the Securities Exchange Commission, 17 C.F.R. Section 240.10b-5, as well as the laws of Puerto Rico concerning fraud, negligence and breach of contract.

The claimed purpose for the acquisition of the stock of Dorado Wings by McCanless, Strycker and Pontikes through Crownair was to make a public offering of Crownair’s stock by registration and sale under the 1933 Act. Upon acquisition, it was contemplated that Dorado Wings would be merged into Crownair, with Crownair as the surviving corporation. Such an “upstream merger” allegedly would have had beneficial tax implications which would serve to increase after tax earnings and, accordingly, render the stock attractive to the public. Plaintiff claims that based upon the representations made by Wolf, Apóstol and PFK, it was understood that Dorado Wings was operating profitably at the time of the acquisition of Wolfs stock, and that a public offering could be undertaken within approximately one year thereafter based upon a continued showing of profitability. However, plaintiff claims that when Dorado Wings’ true financial condition was discovered, including alleged losses of approximately 1.8 million dollars for the fiscal year ended July 31, 1981, as opposed to a projected profit of $500,000, the merger of Dorado Wings into Crownair and the contemplated public offering of the stock of Crownair became impossible. The action was instituted in October of 1982.

At no time has McCanless, Strycker or Pontikes been an operating officer of Dora-do Wings, and none of them has been involved in its day to day business or management. None of them is employed by or has an employment agreement with either Dorado Wings or Crownair, and none receive any wages from either company. Although they are all members of the board of directors of Crownair, neither one of them alone can control the operations or affairs of Crownair or its wholly owned subsidiary Dorado Wings.

I. THE SALE OF BUSINESS DOCTRINE

The sale of business doctrine first emerged in Chandler v. Kew, [1979 Transfer Binder] Fed.Sec.L.Rep. (CCH) paragraph 96,965 (D.Colo.1975), aff’d., 691 F.2d 443 (10th Cir.1977), where the plaintiff purchaser brought claims under the 1933 Act and the 1934 Act in an action seeking recovery of a $2,500 down payment on the purchase of an incorporated liquor store owned by the defendants. The Tenth Circuit, in affirming the dismissal of the complaint, held that there was no sale of securities because the economic reality of the transaction was that plaintiff was buying a liquor store and the shares of stock were merely passed incidentally as an indicia of ownership of the tangible goods sold to the plaintiff.

Subsequently, the Seventh Circuit in Frederiksen v. Poloway, 637 F.2d 1147 (7th Cir.1981), cert. denied, 451 U.S. 1017, 101 S.Ct. 3006, 69 L.Ed.2d 389 (1981), more fully articulated the doctrine. The sale of business doctrine holds that notwithstanding the fact that corporate stock is sold, the “economic realities” of the transaction must be analyzed in order to determine if a “security” is involved, and if the transfer of a controlling block of stock of a corporation is merely incident to the sale of an ongoing business to a purchaser who will manage or direct the management of that business, the transaction does not constitute the sale of a security within the meaning of the 1933 and 1934 Acts. The basic rationale underlying the doctrine is the assertion that the Acts were intended to protect “investors”, not “entrepreneurs.” Frederiksen v. Poloway, supra, at 1150.

The Circuits have split on whether to accept or reject the doctrine, with the Seventh, Ninth, Tenth, and Eleventh Circuits accepting the doctrine and the Second, Third, Fourth, Fifth, and Eighth Circuits rejecting it. Fundamentally, there are two different analytical approaches. Those Circuits rejecting the doctrine focus on the nature of the instrument transferred in the subject transaction, while those embracing it focus on the substance of the “economic reality” of the transaction as the test for determining the applicability of the Securities Laws.

Upon a considered review of the leading decisions on the issue and the statutory language, legislative history, Supreme Court precedent, and applicable policy considerations, this Court declines to adopt the sale of business doctrine.

II. LEGISLATIVE HISTORY AND INTERPRETATION BY THE SUPREME COURT.

The cases which have accepted the sale of business doctrine have relied principally upon the introductory language in the definitions of a security in the 1933 and 1934 Acts — “[w]hen ... the context otherwise requires ... ” — and upon the Supreme Court decisions in Marine Bank v. Weaver, 455 U.S. 551,102 S.Ct. 1220, 71 L.Ed.2d 409 (1982); United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975) and SEC v. W.J. Howey, 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1944), as requiring an analysis of the “economic realities” of a transaction involving the sale of corporate stock.

A. Statutory Language

Section 2(1) of the Securities Act of 1933, 15 U.S.C. § 77b(l), provides that the term “security”

means any note, stock, treasury stock, bond, debenture ... investment, contract ... or, in general, any interest or instrument commonly known as “security” ...

The legislative history of the 1933 Act demonstrates that Congress created a definition of a security “in sufficiently broad and general terms so as to include within that definition the many types of instruments that in our commercial world fall within the ordinary concept of a security.” H.R.Rep. No. 85, 73d Cong., 1st Sess. 11 (1933). In spite of this, Congress expressly chose to make certain provisions of the Acts inapplicable to certain securities. Section 3 of the 1933 Act defines as “exempted securities” a number of important types of securities such as short term notes [see, 15 U.S.C. § 77c(a)(3)], and empowers the Securities and Exchange Commission to grant additional exemptions. The definition of a “security” contained in Section 3 of the 1934 Act, 15 U.S.C. § 78c(a)(10), is substantially identical to that contained in the 1933 Act. The 1934 Act also authorizes the SEC to grant, either conditionally or unconditionally, additional exemptions for classes of securities. 15 U.S.C. § 78c(a)(12).

Nowhere in the exemption provisions of either the 1933 or the 1934 Act is there an exemption for the sale of all or a controlling block of corporate stock. Yet, Congress clearly had little trouble expressly exempting a particular class of instruments from some or all of the Acts’ provisions when it so intended. Thus Congress took care to exempt certain commercial paper from the class of “note” covered by the registration provisions of the 1933 Act and the antifraud provisions of the 1934 Act. While it might be argued that purchasers of large blocks of stock (which often occur in face to face transactions) are more knowledgeable than the average investor and, therefore, in less need of protection, the same argument would apply to the commercial paper which Congress explicitly chose to exempt. The absence of a specific exemption for the sale of a controlling block of stock is, accordingly, strong evidence that Congress did not contemplate an exception for these securities transactions from the protections of the Acts. As cogently stated in Daily v. Morgan, 701 F.2d at 502:

“If Congress had wanted to exempt the privately negotiated sale of a controlling interest of stock in a small business from this antifraud provision it could have done so. In this case, the transaction is no doubt exempt, from the registration requirements of ’33 Act, since it would qualify as a private offering under Section 4(2) of the ’33 Act, 15 U.S.C. Section 77d(2). Nor would the transaction fall under the prohibition against stock manipulation found in Section 9 of the Exchange Act, 15 U.S.C. Section 78i, which applies only to securities exchange. Congress should and did exempt small, private sales of stock from many of the requirements of the securities laws, but chose to apply the Section 10(b) antifraud provision to all stock.”

Congress also gave the SEC the responsibility for identifying certain securities for exemption, and empowered the SEC to attach conditions to such exemptions to protect the investing public, indicating the Congressional belief that the SEC has the expertise and practical experience to prudently select securities for exemption and attach any necessary protective conditions. Nevertheless the SEC has never exempted the purchase or sale of a given amount of corporate stock from the definition of a security.

B. Supreme Court Precedent

In SEC v. W.J. Howey Co., supra, the Supreme Court held that the sale and leaseback of small citrus plots, when coupled with a service contract permitting the original owner to grow and sell the crop, paying a share of the profits to the purchaser-lessor, was an “investment contract” to which the Acts were applicable. The Court established a three part test for establishing the existence of an investment contract, which has come to be known as the “Howey test” or the “economic realities test”:

“an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, ...” 328 U.S. at 298-99, 66 S.Ct. at 1103.

There is nothing in HOWEY which suggests that Congress intended the use of more general terms, such as “investment contract”, to encompass the enumerated specific definitions of a security set forth in the 1933 and 1934 Acts, such as “stock” or “note”, which were well defined by state law. Howey concluded only that unusual investment arrangements or schemes that did not fall within the specific definitions of a “security” would still be within the Acts’ terms if they met the standards of an “investment contract.”

The Supreme Court was presented with an issue at the opposite end of the spectrum from Howey in United Housing Foundation, Inc. v. Forman, supra. There, the issue was whether the sale of instruments labelled “stock”, representing ownership interests in a cooperative apartment, were securities to which the securities laws were applicable. Although the shares were denominated “stock” they had none of the usual attributes associated with stock, such as the right to receive dividends, voting rights, negotiability or ability to appreciate in value. The District Court in Forman had granted defendant’s motion to dismiss the complaint on the ground that the shares of co-op stock were not securities and the Court of Appeals for the Second Circuit had reversed on two alternative grounds. It first held that since the shares were denominated “stock” the literal application of the definitional section required that they be considered securities within the Acts. Alternatively, the Second Circuit concluded that the transaction was an investment contract within the meaning of the Acts and as defined by Howey, since there was expectation of profits from several sources.

The Supreme Court’s analysis in For-man was a two-step process in which it first considered whether the co-op shares were “stock” and looked to the characteristics usually associated with such instruments to make its determination. It was only after it had determined that the shares of co-op stock had none of the traditional characteristics of “stock” that it did apply the Howey test to determine if the scheme was an “investment contract.” Although in its analysis of the term “stock” the Court noted that “form should be disregarded for substance and the emphasis should be on economic reality” it explicitly cautioned that:

“[W]e do not suggest that the name is wholly irrelevant to the decision whether it is a security. There may be occasions when the use of a traditional name such as “stocks” or “bonds” will lead a purchaser justifiably to assume that the federal securities laws apply. This would clearly be the case when the underlying transaction embodies some of the significant characteristics typically associated with the named instrument.” 421 U.S. at 850-851, 95 S.Ct. at 2059-2060. (Emphasis added.)

The Forman court thus only applied the economic reality test to ascertain whether an instrument labelled “stock” was in fact a stock interest as that term has historically been understood. The “economic realities” of the transaction were to be examined only if the instrument in question had none of the significant characteristics typically associated with stock. Since the co-op shares in issue in Forman had none of the characteristics that would fall within the ordinary concept of a stock, i.e., the right to receive dividends contingent upon the apportionment of profits, transferability, voting rights and ability to appreciate in value, the Court held that they were not “stock” for the purposes of the Acts. It was only in analyzing the Second Circuit’s alternative holding, i.e., that the co-op shares were an investment contract within the securities laws, that the Supreme Court applied the HOWEY test. In assessing the “economic reality” of a stock transaction, the label attached to the instrument is scrutinized by first looking to the underlying attributes of the instruments. If the transaction or instruments do not meet the common definitions of a “security”, then the HOWEY test is utilized to evaluate whether the transactions or instruments are investment contracts.

More recently, the Supreme Court in Marine Bank v. Weaver, supra, considered whether or not a certificate of deposit from a federally regulated bank was a security for the purposes of the anti-fraud provisions of the Acts. The Court of Appeals for the Third Circuit had concluded that the certificate of deposit was the functional equivalent of the withdrawable capital shares of a savings and loan association held to be securities in Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967). The Supreme Court, in reversing, held that Tcherepnin was not controlling in that there the purchasers received dividends based upon the association’s profits and also received voting rights. Thus, the withdrawable capital shares in Tcherepnin were much more like ordinary shares of stock and the ordinary concept of a security than a certificate of deposit. Significantly, although the Marine Bank court looked at the economic realities of the transaction as in Forman, its first step was again to analyze whether or not the certificate of deposit had any of the traditional attributes of a security. 455 U.S. at 557, 102 S.Ct. at 1224. It was only after determining that the certificates did not have such characteristics that the Court then went on to analyze whether or not the separate business agreement constituted an investment contract under the HOWEY test. The two step analysis in Marine Bank thus paralleled the two step analysis employed in Forman.

As the Second Circuit in Golden v. Garafalo, supra, reasoned, “[i]f ‘economic reality’ is the universal jurisdictional test under the Acts”, then the Court would be forced to ignore a major portion of the discussion in Forman as pointless. 678 F.2d at 1144. The Second Circuit’s adoption of this two step method of analysis is consistent with Forman and Marine Bank. In determining whether the Acts apply to the instruments in question, the District Court is first called upon to determine if they have the ordinarily accepted attributes of stock. Only if the instrument does not have the characteristics ordinarily associated with stock is it necessary to apply the “economic realities” test set forth in HOWEY. See, e.g., Vorrius v. Harvey, 570 F.Supp. 537 (S.D.N.Y.1983) (loan participation agreement not a security under “economic reality” test).

III. POLICY CONSIDERATIONS

An analysis of the sale of business doctrine reveals numerous policy considerations regarding the protection afforded securities under the 1933 and 1934 Acts, which also militate against acceptance of the doctrine.

A. Uncertainty of Application.

The application of the sale of business doctrine is entirely dependent on a determination of corporate control, since a purchaser of a control share of a corporation cannot be found to derive profits “from the efforts of others.” Of course, corporate control may be exercised with less than 100% ownership of the stock of a company, and the doctrine must logically be applied to all purchases and sales of a controlling stock interest. Sutter v. Groen, supra, note 2 at 203. This makes it necessary, however, to examine in every securities transaction the niceties of corporate control. Although alliances among minority shareholders may give one faction control, or family members may own sufficient stock to constitute a controlling faction, the principles for the attribution of stock ownership in such circumstances are uncertain. Apart from the peculiarity of making the determination of a security revolve around these factors, they raise the possible necessity of evidentiary hearings in each case simply to determine whether an instrument is a security.

The tendency to disregard this uncertainty of application by the courts which have accepted the sale of business doctrine, see, Sutter v. Groen, supra, note 2 at 202, is troubling. For it must be remembered that rules affecting securities impact not only upon the courts, but also upon members of the public who must structure their affairs accordingly. For example, attorneys would need to be retained to opine whether the purchase of a large block of stock is the acquisition of a security or not. Uncertainty will also be created over whether registrations are necessary. When buyer and seller are unable to readily predict whether their instruments are “securities” at all, that uncertainty has real economic costs. It raises the costs of the transactions, inhibits the flow of capital, engenders litigation and as a result benefits neither the parties nor the courts.

The uncertainty of the application of the sale of business doctrine also necessarily affects the transaction costs associated with certain instruments. The protection afforded certain instruments covered by the Acts, enhances their marketability by reducing the transaction costs associated with such instruments, i.e., buyers may rely on the accuracy of representations without the need for expensive investigation into information which is in the control of the seller and without demanding a premium price to reflect the risk of fraudulent representation.

“One of Congress’ purposes in singling out the named instruments in the Act was to facilitate such transactions without the ensuing delays, duplication of effort, and expenses associated with the ‘caveat-stockholder’ era of deregulation. See H.R.Rep. No. 1383, 73d Cong., 2d Sess., 4-5 (1934). Denial of the Acts’ protection in these circumstances would undermine this Congressional policy.” Ruefenacht v. O’Halloran, supra, note 3 at 333.
“Of course the buyer may hire accountants and attorneys to scrutinize the seller’s business; however, it is more efficient for the seller to warrant the accuracy of representations made than for the buyer to expend substantial amounts of time and money unearthing facts already known to the seller. This efficiency is one of the purposes of the Acts and promotes the marketability of securities
and free flow of capital.” Ruefenacht v. O’Halloran, supra, note 3 at 333, n. 32.

B. Expectations of the Parties and Reliance.

By choosing to deal in stock in structuring a particular transaction the parties have a justifiable expectation that the Acts will apply and rely on that expectation for the concomitant reduction of transaction costs. Such reliance is reasonable when the stock purchased has the traditional attributes commonly associated with stock ownership:

“There may be occasions when the use of a traditional name such as “stocks” or “bonds” will lead a purchaser justifiably to assume that the federal securities laws apply. This would clearly be the case when the underlying transaction embodies some of the significant characteristics typically associated with the named instrument.” United Housing Foundation, Inc. v. Forman, supra, 421 U.S. at 850-851, 95 S.Ct. at 2059-2060.

The stock of Dorado Wings unquestionably had all of the characteristics traditionally associated with stock. Additionally, plaintiff’s expectation that the Dorado Wings shares were securities to which the Acts were applicable is demonstrated by the plan to merge Dorado Wings and Crownair ultimately to make a public offering by registering the stock under the 1933 Act.

C. Difficulty of Application and Anomalous Results.

The focus of the sale of business doctrine on distinguishing between commercial and investment motives and the ability of the purchaser to control post acquisition operations, has rendered the determination of whether a particular instrument is a security entirely arbitrary and has produced anomalous results. Thus, whereas the sale of all of a corporation’s stock to a single buyer by several sellers, each of whom did not formerly exercise control, is a securities transaction as to the sellers but not as to the buyer. Similarly, the sale of stock to two purchasers, one buying a controlling share and one buying a minority share, would constitute a sale of securities to the purchasing minority shareholder but not as to the purchasing controlling shareholder. The application of the doctrine can also result in the very same instruments being considered securities for one transaction but not for another. A series of stock sales, each insufficient to transfer control from a single seller to a single buyer would appear to constitute the sale of securities, although the final stock sale resulting in the transfer of control to the purchaser would not. This very same transaction accomplished by means of a single purchaser rather than a series of step transactions, would not, however, constitute the sale of securities under the doctrine.

The distinctions required by the sale of business doctrine which produce these anomalous results are artificial. To say that shares of stock are not securities for purposes of the 1933 and 1934 Acts because the purchaser acquired a controlling interest is illogical and often unfair when the very same shares of stock purchased by another in the very same transaction are treated as securities for the purposes of the Acts. To tell a defrauded purchaser that he has no federal remedy since he bought 51% of the stock of a company, while leaving a remedy for the purchaser who bought 49% of the stock in the same transaction, has no basis in policy, theory and practice. The possibility of fraud is not dependent upon whether the purchaser acquires 49% or 51% of a business. Nor is the purchaser’s ability to discover fraud uniformly greater when a controlling interest is acquired. In fact, “control” is largely irrelevant to the risk of and capacity to discover fraud.

“The Seventh Circuit has recently held that, under the doctrine, when a purchaser acquires more than 50% of a business, his purpose in purchasing the stock will be presumed to have been entrepreneurship rather than investment, and he will not be covered by the securities laws unless the presumption can be overcome by a showing that the main purpose was investment. Sutter v. Groen, 687 F.2d 197, 203 (7th Cir.1982). A rule that tells a defrauded purchaser that he has no federal remedy since he bought 51% of the stock in a business, while leaving a remedy for his partner who bought 49% of the stock, seems no less arbitrary than the alternative rule.” Daily v. Morgan, 701 F.2d at 503.

The terms chosen by Congress to define a security, such as “stock”, “bond”, or “note”, were terms with well known meanings under state law. These meanings did not change with who owned the instrument at any particular moment. The chameleon-like quality of stock under the sale of business doctrine is entirely inconsistent with the history and purpose of the Acts.

D. Need for Protection.

A principal argument made by supporters of the sale of business doctrine is that the legislative intent behind the 1933 and 1934 Acts was to protect “investors”, not “entrepreneurs.” E.g., Sutter v. Groen, supra, note 2 at 201. Yet, it would be a mistake to conclude that Congress had only a single purpose in enacting either the 1933 or 1934 Act. Congress obviously acted with a number of rationales in mind, among them, to facilitate commerce in certain named instruments, to reduce transaction costs, and to enhance the free flow of capital. Thus, while the one intent may have been to protect investors in the public exchange markets, the protection afforded by the Acts’ antifraud provisions is not so limited.

Additionally, the distinction between an “investor” and an “entrepreneur” is ambiguous at best. Some investors choose to enhance the return on their investment by participating in the management of a business. Yet this does not make them entrepreneurs.

“Who is to say that plaintiffs did not hope at some future date to resell the shares and realize an appreciation in their value, like investors in “growth” stocks which pay little or no dividends... In truth, purchasers of a business rightly regard themselves as investors as well as managers. Transfers of corporate control frequently are motivated by hope for capital gains resulting from improved management, and it is altogether artificial to classify such transactions as exclusively commercial.” Golden v. Garafalo, supra, note 3 at 1146.

While the Seventh Circuit, in the course of refining the sale of business doctrine has acknowledged that purchasers may be both investors and entrepreneurs, the assumption is that the investment motive must be the purchaser’s main purpose, Sutter v. Groen, supra, note 2 at 203, thus requiring inquiries into the subtleties of intent as well as the extent of corporate control. Again, the determination that a purchaser’s main purpose is investment is essentially an arbitrary one.

A related argument is that the purchaser of a majority of the stock of a company does not need the protection of the Acts because he has sufficient bargaining power to obtain disclosure and the opportunity to inspect the business. While it may be true that such a purchaser may thus be able to demand and obtain the same material information which is otherwise obtained through the affirmative financial reporting requirements of the 1933 Act, there is still the need for protection against securities fraud. In neither circumstance will the financial information provided by a seller necessarily protect the purchaser from deliberate falsification. In fact, in most cases, it is the undisclosed liabilities of the corporation which prompt the suit. Unlike a purchaser of the assets of a business, in acquiring 100% of the stock of a corporation the purchaser acquires both the disclosed and undisclosed liabilities of the corporation. The purchaser must necessarily rely almost entirely on the seller’s complete disclosure of the corporate liabilities. Thus, despite the entrepreneurial purchaser’s ability to demand material information, it is apparent that he is as vulnerable to the seller’s deliberate falsification of corporate liabilities and in need of protection of the Acts as is the so-called investment purchaser. See, e.g., Exchange Nat. Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1137 (2d Cir.1976).

One commentator has argued that the acquisition of management control is a critical factor in making an investment decision which is vulnerable to information failure and thus requires Federal Securities Law protection. It is argued that the decision to purchase corporate stock is based upon an assessment of investment risk, which assessment is significantly affected by available information on the extent to which corporation control can be meaningfully utilized to maximize return on the investment. For example, the purchaser must be able to determine whether he will be able to utilize that control to change the risk/return characteristics of the business, such as in hiring and firing, changing lines of business, financing, or revamping products and plants. The seller is the source of the information needed to determine the extent to which such control is meaningful and often there are no alternative sources of information. The prospective purchaser is, thus placed in a vulnerable position. Because of the disparity of access to material information affecting the value of the stock, reasonable reliance must be placed on the seller to disclose that information.

“Where such circumstances exist, the transaction embodies all the essential attributes of an investment, notwithstanding the purchaser’s ownership and managerial control after the transaction. The economic reality of the transaction is determined by the evaluation of the investment risk existing prior to, and simultaneous with, the point at which the investment decision is made, and not by analysis of whether future profits will accrue from the managerial control of the purchaser. If the purchaser’s stock valuation calculus, taking future managerial control into account, is hampered because the evaluation is based upon information supplied by the seller or publicly available to any investor but without the advantage of equal access to all material information, the transaction is indistinguishable from any purchase of stock protected by the antifraud provisions of the securities laws. Therefore, as a matter of sound policy and common sense, those protections should be available, and it is reasonable for purchasers in those circumstances to expect such protections.” Rapp, supra, note 19 at 621 (emphasis in original) (footnote omitted).

In terms of economic reality, the future right of a prospective purchaser to exercise control over a business is entirely meaningless if the economic conditions of the enterprise have been misrepresented by the seller prior to the transaction. This point is well illustrated by Coffin v. Polishing Machines, Inc., supra, note 3. There, although subsequent to the sale the purchaser held veto power as a 50% stockholder and managerial power as executive vice president, those rights were meaningless because the corporation was actually insolvent and there was a pre-existing scheme to convert the corporate assets. The purchaser’s ability to participate in the future management of the business was totally insignificant once its insolvency was discovered. Coffin v. Polishing Machines, Inc., supra, note 3 at 1203-04.

The argument that the stock purchaser is adequately protected because of the existence of a remedy under Commonwealth law for fraud simply begs the question. State law remedies for fraud are concurrent with remedies under the Acts, and the fact that one is protected by state law does not preclude a federal statutory remedy. Congress did not limit the protection of federal law only to instances where there was no state remedy. In view of the Supreme Court’s frequent emphasis on the remedial nature of the Acts, the availability of state law remedies is irrelevant to the need for and the availability of a remedy under the Acts.

Because the Court bases its holding on the rejection of the sale of business doctrine, it needs not reach plaintiff’s alternative argument that even under the sale of business doctrine there was a sale of securities under the facts of this case, in view of the allegations that the three shareholders — McCanless, Strycker, and Pontikes— each with a 33Va% interest, do not individually possess control of the corporation.

In sum, the Court finds that the statutory language, the legislative history, Supreme Court precedent, and policy considerations compel the acceptance of jurisdiction in this action. The sale of the stock of Dorado Wings was a sale of securities for which the Acts provide protection. Accordingly, defendants’ motions to dismiss the complaint are denied.

Finally, recognizing that this order is interlocutory in nature, and would not otherwise be appealed, and being of the opinion that this order involves a controlling question of law as to which there is a substantial ground for a difference of opinion, and believing that an immediate appeal from this order may materially advance the ultimate termination of this litigation, this Court shall certify this order for appeal to the First Circuit Court of Appeals pursuant to 28 U.S.C. § 1292(b).

IT IS SO ORDERED.

      . See Rodríguez Cádiz v. Mercado Jiménez, 579 F.Supp. 1176 (D.P.R.1983, where this Court discusses the "HOWEY test” in another context.

      . McCanless, Strycker and Pontikes were joined as involuntary parties plaintiff under FRCP Rule 19 by an ex parte order of this Court on March 23, 1983.

      . Landreth Timber Co. v. Landreth, 731 F.2d 1348 (9th Cir.1984), cert. granted, — U.S. —, 105 S.Ct. 427, 83 L.Ed.2d 354; Christy v. Cambron, 710 F.2d 669 (10th Cir.1983); Kaye v. Pawnee Construction Co., 680 F.2d 1360 (11th Cir.1982); King v. Winkler, 673 F.2d 342 (11th Cir.1982); Sutter v. Groen, 687 F.2d 197 (7th Cir.1982); McGrath v. Zenith Radio, Inc., 651 F.2d 458 (7th Cir.1981), cert. denied, 454 U.S. 835, 102 S.Ct. 136, 70 L.Ed.2d 114 (1981); Fredericksen v. Poloway, supra; Chandler v. Kew, Inc., 691 F.2d 443 (10th Cir.1977).

      . Ruefenacht v. O’Halloran, 737 F.2d 320 (3rd Cir.1984); cert. granted sub nom Gould v. Ruefenacht, - U.S. -, 105 S.Ct. 428, 83 L.Ed.2d 355; Daily v. Morgan, 701 F.2d 496 (5th Cir.1983); Seagrave Corp. v. Vista Resources, Inc., 696 F.2d 227 (2d Cir.1982), cert. granted, - U.S.-, 104 S.Ct. 2341, 80 L.Ed.2d 815 (1984), cert. dismissed, -U.S. -, 105 S.Ct. 23, 82 L.Ed.2d 919 (1984); Golden v. Garafalo, 678 F.2d 1139 (2d Cir.1982); Cole v. P.P.G. Industries, Inc., 680 F.2d 549 (8th Cir.1982); Coffin v. Polishing Machines, Inc., 596 F.2d 1202 (4th Cir.1979), cert. denied, 444 U.S. 868, 100 S.Ct. 142, 62 L.Ed.2d 92 (1979).

      . 15 U.S.C. § 77c(b). The policy reason underlying the exemption of short term notes was to free prime quality commercial paper sold to knowledgeable investors from the Act’s registration requirements. Significantly, however, this "commercial paper" exception was not included in the antifraud provisions of the 1933 Act. See, 15 U.S.C. § 77q(c). The Commission’s exemption power was circumscribed by the prohibition on exemptions for issues larger than $100,-000 (now $5,000,000).

      . The Supreme Court has held that the two definitions are essentially the same. Marine Bank v. Weaver, supra, 455 U.S. at 555 n. 3, 102 S.Ct. at 1223 n. 3. For example, short term notes that would be exempt from the registration provisions of the 1933 Act are generally exempted from the antifraud provisions of the 1934 Act.

      . 421 U.S. at 848, 95 S.Ct. at 2058.

      . The definition of a "security” in the 1934 Act includes the term "certificate of deposit, for a security." However, this term does not refer to the bank certificates of deposits such as were purchased in Marine Bank." Instead, that term refers to instruments issued by protective committees in the course of corporate reorganizations. 455 U.S. at 557, n. 5, 102 S.Ct. at 1224 n. 5.

      . "Congress intended the securities laws to cover those instruments ordinarily and commonly considered to be securities in the commercial world...” Marine Bank v. Weaver, supra, at 559, 102 S.Ct. at 1225.

      . Such attributes include acceptance of the instrument as stock for purposes of local corporation and commercial law and for purposes of local, state and federal tax law; entitlement of its holders to dividends and realization of appreciation in value; and alienability by way of transfer to others or by pledge as collateral. Seagrave Corp. v. Vista Resources, Inc., 696 F.2d at 229.

      . Although such risks may be reduced by the employment of professionals to thoroughly investigate the details of the seller's business, such investigation is costly, inefficient and time consuming, raising transaction costs and inhibiting the flow of capital. Additionally, even such extensive investigation will not protect a purchaser from deliberate fraud.

      . See paragraph 3.02 of the Stock Purchase Agreement relating to the capitalization of Dora-do Wings.

      . McGrath v. Zenith Radio Corp., supra, note 2 at 467-68 n. 5.

      . See, Oakhill Cemetery of Hammond, Inc. v. Tri-State Bank, 513 F.Supp. 885, 890 (N.D.Ill.1981).

      . For example, while many securities are exempt from the filing requirements of the 1933 Act, they are not exempted from the antifraud provisions of the 1933 Act or the disclosure requirements of the 1934 Act. See e.g., Section 10(b) of the 1934 Act, 15 U.S.C. Section 78j.

      . Rapp, Federal Securities Laws Should Protect Some Purchasers of All or Substantially All of a Corporation’s Stock, 32 Case Western L.Rev. 595, 619-21 (1982).

      . See, Herman & MacLean v. Huddleston, 459 U.S. 375, 103 S.Ct. 683, 689-690, 74 L.Ed.2d 548 (1983) (availability of express remedy under Section 11 of 1933 Act does not preclude action under Section 10(b) of 1934 Act); Tcherepnin v. Knight, supra, 389 U.S. at 336, 88 S.Ct. at 553.

      . We have found no precedent applying the doctrine to more than two purchasers who have not been previously associated. See, Seldin, When Stock Is Not a Security: The "Sale of Business" Doctrine Under the Federal Securities Laws, 37 Bus.Law 637, 662 (1982).

      . See, Notes, Repudiating the Sale-of-Business Doctrine, 83 Columbia Law Rev. 1718; Contra, Thompson, The Shrinking Definition of a Security: Why Purchasing of a Company’s Stock is not a Federal Security Transaction.

      . See pages 1480-81, supra, of this Order, discussing the divergence of opinion among the courts. The Supreme Court has granted certiorari on conflicting decisions by the Courts of Appeals for the Ninth and Third Circuits, accepting and rejecting the sale of business doctrine respectively. — U.S. —, 105 S.Ct. 428, 83 L.Ed.2d 355.


author: DOUMAR, District Judge.

text:
    SELCHOW & RIGHTER COMPANY and Horn Abbot Limited, Plaintiffs, v. DECIPHER, INC., Defendant.
    Civ. A. No. 84-505-N.
    United States District Court, E.D. Virginia, Norfolk Division.
    Dec. 12, 1984.

      Walter D. Ames, Watson, Cole, Grindle & Watson, F.M. DeRosa, B.X. DeRosa, Washington, D.C., D.N. Huff, Edward H. Starr, Jr., Richmond, Va., for plaintiffs.
    G. Hamilton Loeb, James Kevin Wholey, Patrick W. Shea, Paul, Hastings, Janofsky & Walker, Washington, D.C., Vann H. Lefcoe, Livesay & Lefcoe, Portsmouth, Va., for defendant.
   OPINION AND ORDER

DOUMAR, District Judge.

Success breeds imitation. The unprecedented success of the trivia board game TRIVIAL PURSUIT has brought a rash of trivia products to the marketplace. The Court is called upon to determine how close a manufacturer of trivia cards, designed primarily to be played with the TRIVIAL PURSUIT game, can imitate the trade dress of both the TRIVIAL PURSUIT card and the packaging of the TRIVIAL PURSUIT replacement card sets without violating the prohibition against unfair competition. The plaintiffs, Selchow & Righter Co. and Horn Abbot Limited, are, respectively: the exclusive United States licensee of TRIVIAL PURSUIT brand games and, the owner of intellectual property rights in TRIVIAL PURSUIT brand games, including the trademark TRIVIAL PURSUIT. Plaintiffs, relying upon the Trademark Act of 1946 (Lanham Act), 15 U.S.C. §§ 1051-1127, brought suit against the defendant, Decipher, Inc., alleging trademark infringement and unfair competition. Plaintiffs claim that the defendant has violated § 32 of the Lanham Act, 15 U.S.C. § 1114(1); and § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Decipher, Inc. (a Virginia corporation) produces and markets FORTE Trivia Cards, a card set designed primarily for use with the TRIVIAL PURSUIT game. The jurisdiction of the Court over the defendant and the subject matter is not contested.

Plaintiffs initially moved for a preliminary injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure. The parties appeared before the Court on October 18, 1984. Rather than ruling upon the motion for a preliminary injunction, the Court, with the parties’ consent, expedited the date of the trial. Furthermore, the Court, with the agreement of counsel, ordered that the issues of liability and damages be bifurcated, such that the issue of liability be tried to the Court and the issue of damages be tried, if necessary, to a jury. A three-day bench trial commenced on November 19, 1984 and the Court, for the reasons stated below, has decided to grant plaintiffs’ request for a permanent injunction.

The game TRIVIAL PURSUIT was designed by Canadians Chris Haney and Scott Abbot of Horn Abbot Ltd. (a Canadian corporation). Plaintiff Horn Abbot Ltd. has obtained a registered trademark for TRIVIAL PURSUIT and Design (U.S.Reg. No. 1,236,504 issued May 3, 1983), a patent upon the game board design (U.S. Patent No. 270,741 dated September 27, 1983) and a copyright upon the game board (Copyright Reg. No. VA 95-532 dated November 10, 1981). Horn Abbot Ltd. and Selchow & Righter Co. (Selchow) entered into a license agreement by which Selchow has the exclusive right to manufacture and sell TRIVIAL PURSUIT games in the United States. Plaintiff Selchow is a New York corporation engaged in the manufacture and sale of board games. Also among its products are the SCRABBLE brand crossword games and the PARCHEESI board game.

The game TRIVIAL PURSUIT involves the answering of trivia questions. The game is played by rolling a die and maneuvering tokens around a multi-colored game board. Players are required to answer trivia questions from cards in one of six different categories according to the color of the space on which their token lands. The colors denoting the question categories are, in the order of their appearance on the question and answer cards — blue, pink, yellow, brown, green and orange. The winner of the game is the first person who successfully answers questions from all six categories after landing on certain designated spaces.

TRIVIAL PURSUIT brand games were first sold in the United States during November, 1982 in the form of the TRIVIAL PURSUIT Master Game-Genus Edition. The Genus Edition contains a game board, question and answer cards contained in boxes, rules of play, colored player tokens and colored scoring wedges, and a die. In the Genus Edition, the colors and their coded question categories are: blue — geography; pink — entertainment; yellow — history; brown — art and literature; green— science and nature; and orange — sports and leisure. The Genus Edition is marketed in a royal blue colored box. This royal blue color is also used as the dominant color of the game board and the card boxes, as well as the question and answer cards.

The Genus Edition has achieved unprecedented commercial success in the United States. It may very well have touched off a new interest in trivia. After frequent play of the Master Game, questions will inevitably be repeated. Therefore, there is a substantial demand for replacement cards containing new questions that can be used with the Master Game. To address this demand, Selchow manufactures and sells subsidiary card sets to use with the Master Game. Thus, TRIVIAL PURSUIT — Silver Screen Edition became available to the general public during the second quarter of 1983, followed by TRIVIAL PURSUIT-All-Star Sports Edition in the fourth quarter of 1983 and TRIVIAL PURSUIT — Baby Boomer Edition during the beginning of the second quarter of 1984. Selchow also has plans for additional subsidiary card sets.

The subsidiary card sets retain the same trade dress as the Genus Edition. As the Genus Edition, each TRIVIAL PURSUIT subsidiary card set contains one primary color on the outside box, the inside boxes holding the cards and the cards themselves. The primary color of the Silver Screen Edition is silver, the All-Star Sports Edition is green and the Baby Boomer Edition is maroon. Each subsidiary question and answer card retains the original design of the Genus Edition’s card including the order of the colors denoting the question categories. Thus, blue is first, followed by pink, yellow, brown, green and orange. On the Silver Screen Edition, the coded categories are blue — settings; pink — titles; yellow— off screen; brown — on screen; green — production; and orange — portrayals. In the All-Star Sports Edition, the coded categories are blue — nicknames; pink — football; yellow — catch all; brown — basketball; green — baseball; and orange — numbers. In the Baby Boomer Edition, the coded categories are blue — television; pink— stage and screen; yellow — nightly news; brown — publishing; green — lives and times; and orange — r.p.m. As the Genus Edition, the subsidiary card sets are enjoying unprecedented success in the marketplace.

Defendant Decipher, Inc. (Decipher) is a Virginia corporation formed in September, 1982 that manufactures and sells games. Defendant’s initial product was DECIPHER THE $100,000 PUZZLE, a jigsaw puzzle that, when assembled, reveals a series of numbers that constitute a multiple substitution cipher. Decipher’s Chief Executive Officer and primary shareholder, Warren L. Holland, Jr., created and designed FORTE Trivia Cards-Volume One. In his attempt to participate in the market for replacement cards, Mr. Holland designed a card set remarkably similar in appearance to that of TRIVIAL PURSUIT. Mr. Holland believed that the TRIVIAL PURSUIT subsidiary card sets were deficient because, unlike the Genus Edition, each replacement set deals only with a particular field: i.e., Silver Screen — movies; All-Star Sports — sports; Baby Boomer— questions that relate to those born after World War II. Furthermore, all TRIVIAL PURSUIT question and answer cards do not identify the category applicable to the particular color of the color code on the card itself. Therefore, a player must constantly look to a conversion sheet to determine which particular category a color of the color code represents. Decipher set out to produce a replacement card set with a greater variety of categories than that of the TRIVIAL PURSUIT subsidiary card sets. Furthermore, this card set would contain the categories represented by each color of the code on the question and answer card.

Mr. Holland first thought of creating a replacement card set during March of 1984, consulted a manufacturer in April and was able to produce a prototype design of the outside box, the cards and the inside boxes that would hold the cards by May, 1984. Both the prototype and the actual product FORTE Trivial Cards bear an uncanny resemblance to the TRIVIAL PURSUIT subsidiary card sets. Emblazed on the top of FORTE’s outside box in prominent letters is the phrase “Real Questions For Your Trivial Pursuit™ Game.” Each of the four side flaps of the outside box contains the phrase “6,000 Real Questions for your Trivial Pursuit™ Game”. The design of both the packaging and the question cards are virtually identical to the TRIVIAL PURSUIT subsidiary sets. Even the order of the color code on the FORTE Trivia Cards mimic TRIVIAL PURSUIT’S question and answer cards so that blue is first followed by pink, yellow, brown, green and orange. The categories of FORTE Trivia Cards — Volume One are, respectively: Soaps, Cartoons, Space, Pairs, Ads and Fair Play. FORTE made its debut at the May 1984 Stationary Show in New York City. FORTE Trivia Cards were first available in the stores in September. Decipher has plans for additional volumes of FORTE Trivia Cards.

Alleging that the similarity of the trade dress of FORTE with that of TRIVIAL PURSUIT is likely to cause confusion in the marketplace, the plaintiff asks for relief in the form of an injunction as well as damages and an accounting of defendant’s profits derived from its unfair trade practices. The Court is empowered to grant injunctive relief for violations of the Lanham Act pursuant to 15 U.S.C. § 1116. Profits of the defendant, treble damages incurred by the plaintiffs as well as attorney fees may be awarded pursuant to 15 U.S.C. § 1117. The equitable remedy of an injunction cannot be issued without a showing that the remedy at law, money damages, is inadequate. Generally, money damages are inadequate where a defendant has been found to be committing acts which constitute unfair competition. Indeed, an injunction is the preferred remedy to insure that future violations will not occur while damages may also be granted to compensate for past injuries. See 2 J. McCarthy, Trademarks and Unfair Competition § 30:2 (1973). Thus, the Court is empowered with broad authority to provide an effective remedy for unfair competition violations. See William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526, 581, 44 S.Ct. 615, 617, 68 L.Ed. 1161 (1924).

Reduced to its essentials, the plaintiffs claim that the defendant has violated the prohibition against unfair competition by marketing FORTE in such a manner that its cards and packaging mimic the trade dress of TRIVIAL PURSUIT in violation of 15 U.S.C. § 1125(a). Furthermore, defendant’s use of plaintiffs’ trademark TRIVIAL PURSUIT thirteen (13) times on the FORTE box especially the phrase “Real Questions For Your Trivial Pursuit ™ Game” on the top of the box and “6,000 Real Questions for your Trivial Pursuit ™ Game” on the four sides of the box, amounts to trademark infringement in violation of 15 U.S.C. § 1114(1). The plaintiffs do not, in any way, challenge the defendant’s right to sell a card set that can be used with the TRIVIAL PURSUIT game; they merely challenge the manner with which the defendant designed and marketed its FORTE product. Trademark infringement focuses only upon the defendant’s use of plaintiffs’ trademark, and is a form of unfair competition. On the other hand, unfair competition resulting from the defendant’s copying of plaintiffs’ trade dress must be determined by considering the total image of the defendant’s product, including the use by defendant of plaintiffs’ trademark. Because the 15 U.S.C. § 1114(1) trademark infringement claim is subsumed within the 15 U.S.C. § 1125(a) unfair competition claim the Court will focus its analysis upon the § 1125(a) unfair competition claim.

The Lanham Act was designed, in part, to curb deceptive and misleading uses of trademarks and to provide protection against unfair competition. 15 U.S.C. § 1127. The statute was designed to protect not only business but also the general public from the use of false trade descriptions. See AMP Inc. v. Foy, 540 F.2d 1181, 1184-85 (4th Cir.1976). Section 1125(a) prohibits a competitor from deceiving buyers into believing that its product is that of another. See 2 J. McCarthy, supra, § 27:7. This is sometimes referred to as “palming off.”

Pursuant to § 1125(a), a trademark and trade dress are protectable if they are inherently distinctive or have acquired a secondary meaning to the general buying public. See CBS, Inc. v. Logical Games, 719 F.2d 1237, 1238-39 (4th Cir.1983); Ideal Toy Corp. v. Plawner Toy Mfg. Corp., 685 F.2d 78, 80-81 (3d Cir.1982). Furthermore, the plaintiffs must demonstrate that the similarity of FORTE’s trade dress with that of TRIVIAL PURSUIT'S is likely to cause the general buying public confusion as to the origin of the FORTE product. That is, the buying public is likely to believe that FORTE Trivia Cards emanate from the makers of TRIVIAL PURSUIT. AMP Inc. v. Foy, 540 F.2d 1181, 1184 (4th Cir.1976); Perfect Fit Industries, Inc. v. Acme Quilting Co., 618 F.2d 950, 953 (2d Cir.1980), cert. denied, 459 U.S. 832, 103 S.Ct. 73, 74 L.Ed.2d 71 (1982). FORTE is, however, permitted to use aspects of TRIVIAL PURSUIT’S trade dress and trademark if that use primarily describes aspects of the FORTE product. See 15 U.S.C. § 1115(b)(4) and Mattel, Inc. v. Azrak-Hamway Int’l. Inc., 724 F.2d 357, 361 (2d Cir.1983) (trademark); 1 McCarthy, supra, §§ 7:26, 7:28, 8:6 (trade dress). This is referred to as a functional use. Thus it must be demonstrated that FORTE’s use of TRIVIAL PURSUIT’S trade dress and trademark does not primarily serve a functional purpose. The Court will now endeavor to analyze each element.

Generally, trademarks are employed as a device to identify the origin of one’s goods. Merely because one has a trademark does not, in and of itself, give the trademark owner an absolute monopoly on its usage. The law will protect only those trademarks that have attained secondary meaning. Secondary meaning is said to have attached when the public associates the trademark and trade dress with a particular source. See 1 J. McCarthy, supra, § 15 (1973). It is not necessary for the public to be aware of the name of the source from which a product emanates. “It is sufficient that the public is aware that the product comes from a single, though anonymous, source.” Union Carbide Corp. v. Ever-Ready Inc., 531 F.2d 366, 380 (7th Cir.), cert. denied, 429 U.S. 830, 97 S.Ct. 91, 50 L.Ed.2d 94 (1976). Secondary meaning may be established by demonstrating the unprecedented sales and promotion a product has achieved. Communications Satellite Corp. v. Comcet, Inc., 429 F.2d 1245, 1248 (4th Cir.), cert. denied, 400 U.S. 942, 91 S.Ct. 240, 27 L.Ed.2d 245 (1970).

Applying these factors to the instant case, it would appear that TRIVIAL PURSUIT has attained secondary meaning. TRIVIAL PURSUIT brand games have achieved unprecedented success in the marketplace. Richard P. Selchow, President of Selchow, testified that 1,000,000 units of TRIVIAL PURSUIT were sold during 1983, its first year on the market. Most of these sales were of the Genus Edition. During the first nine months of 1984 approximately 13,000,000 units have been sold. Estimates for the entire year project sales of 20,000,000 units and revenues approximating $400,000,000. These sales are divided approximately one-third to the Genus Edition and two-thirds to the subsidiary card sets, namely Silver Screen, All-Star Sports and Baby Boomer.

Selchow has spent only $1,400,000 advertising TRIVIAL PURSUIT products. This amount is small in relation to the magnitude of sales. In fact, because of the extreme popularity of TRIVIAL PURSUIT, Selchow has not generally found it necessary to place ads. Indeed, a major advertising campaign that has appeared in many of the most widely circulated magazines in the United States, is an advertisement called the TRIVIAL PURSUIT Survivial Kit. This advertisement is, in effect, an apology for the shortage of TRIVIAL PURSUIT-brand games and contains on separate pages, copies of both sides of six TRIVIAL PURSUIT question cards. There have been numerous newspaper and magazine articles written about TRIVIAL PURSUIT-brand games. Mr. Selchow testified that, currently, Selchow can sell as many TRIVIAL PURSUIT-brand games as it can produce. The TRIVIAL PURSUIT phenomenon spans the entire United States. There even appears to be TRIVIAL PURSUIT tournaments.

The Court therefore concludes that the trade dress of the TRIVIAL PURSUIT question cards and the box wrap of the Genus Edition as well as the box wrap of the subsidiary card sets, namely, Silver Screen, All-Star Sports and Baby Boomer, have acquired secondary meaning. Indeed, the defendant has not seriously contested the question of secondary meaning and inasmuch as conceded this point during argument. By virtue of the TRIVIAL PURSUIT phenomenon, the Court is of the opinion that TRIVIAL PURSUIT is a strong trademark and a famous name and, as such, entitled to broad protection because “counterfeits more successfully prey on strong marks than on weak” ones. Communications Satellite Corp. v. Comcet, Inc., 429 F.2d 1245, 1248-49 (4th Cir.), cert. denied, 400 U.S. 942, 91 S.Ct. 240, 27 L.Ed.2d 245 (1970). The Court will now consider the issue of the likelihood of confusion between TRIVIAL PURSUIT and FORTE.

The key issue in this case is whether it is likely that the public will be confused so as to believe that FORTE Trivia Cards emanate from the makers of TRIVIAL PURSUIT. Although mere possibility of confusion is not sufficient, a showing of actual confusion is not required; only a likelihood of confusion need be shown. AMP Inc. v. Foy, 540 F.2d 1181, 1186 (4th Cir.1976). In the instant case, evidence of the likelihood of confusion is found from four independent sources: (1) the Court’s own viewing of the products; (2) the defendant’s intent to confuse the public; (3) a department store display investigation; and (4) a statistical survey.

The Court may rely upon its own inspection of the products in determining whether there exists a likelihood of confusion. Caron Corp. v. V. Vivaudou, Inc., 4 F.2d 995 (2d Cir.1925) (L. Hand, J.) (“In all such cases we commonly use our own eyes, and must project in imagination any possible confusions to which a ... buyer might be subject.” Id. at 997). The Court’s own viewing of the two competing products inextricably leads to the conclusion that there is a substantial likelihood of confusion.

To determine whether there is a likelihood of confusion, the Court must consider the total image of defendant’s product, package and advertising and compare this with plaintiffs’. Ye Olde Tavern Cheese Prod. Inc. v. Planters Peanuts, 261 F.Supp. 200, 207 (N.D.Ill.1966), aff'd, 394 F.2d 833 (7th Cir.1967). The outside box of the TRIVIAL PURSUIT subsidiary card sets is a rectangle form measuring approximately 7.5 inches in length, 6.5 inches in width and 2.75 inches in depth. Each TRIVIAL PURSUIT subsidiary card set has a primary color: Silver Screen — silver; All-Star Sports — green; and Baby Boomer —maroon. This primary color dominates the top and four sides of the outside box so that Silver Screen’s outside box is silver with lettering in pink and black; All-Star Sports’ outside box is green with yellow lettering; and Baby Boomer’s outside box is maroon with white lettering. The bottom of the outside box of the TRIVIAL PURSUIT subsidiary card sets is white with black lettering. The outside box is wrapped in a transparent shrink wrap. Each subsidiary card set contains an elliptical label gummed on the shrink wrap in the upper right corner of the top of the outside box.

Upon opening the outside box of the subsidiary card sets, the first item a consumer will encounter is a manila colored sheet with black lettering explaining the categories and providing notes on playing with the subsidiary sets. The sheet is 7 inches long and 6.5 inches wide.

The next item one sees is two inner boxes. Each inner box each contains 500 question and answer cards. Each card contains 6 questions and answers. The inner box is a rectangular form measuring approximately 6.25 inches in length, 2.625 inches in width and 3.625 inches in depth. The inner boxes maintain the color scheme of the outside box. Thus, Silver Screen is silver with pink lettering, All-Star Sports is green with yellow lettering, and Baby Boomer is maroon with white lettering. The top of the inner box does not contain any words so that only the primary color appears. The side panels contain the primary color and the TRIVIAL PURSUIT logo in the same colors as the outside box. The end panels are also in the primary color and contain the name of the edition in lettering consistent with the outside box. The bottom of the inside box is white. The inner box is designed so that the top of the box can be inverted and placed on the bottom inner white box. The resulting affect is that, during play, the cards are held in a box with the color scheme and logo viewable to the players. The two inner boxes are packaged in the outside box so that the white bottoms of the inner boxes are touching one another and the TRIVIAL PURSUIT logo of the side panels face the outside of the larger outside box.

As previously stated, each inner box contains 500 question and answer cards so that there are 1,000 cards in each subsidiary card set. There are 6,000 questions in total as there are 6 questions per card. The question and answer card measures 3.5 inches in length and 2.375 inches in width. On the question side of the card there is a vertical column of six ellipses each containing a color in the recited order: that is, blue, followed by pink, yellow, brown, green and orange. Following each colored ellipse is an individual question. The questions are in black letters with a white background. The border of the question portion of the card is in the primary color with an inside line of the same color as the lettering of the boxes. The answer side of the card also contains a vertical column of six ellipses each containing a color in the recited order. Following each colored ellipse is the answer to the question contained on the other side of the card. The left one-third of the answer side of the card contains a rectangle in the primary color with the name of the edition in the letter color. The answer side also contains a border in the primary color with a line in the color of the lettering. The design of the cards and the two inside boxes is the same as that of the Master Game — Genus Edition. The primary color of the Genus Edition is royal blue with lettering in orange. Although the shape of the outside box of the Genus Edition is larger because of its contents, the design is similar to the subsidiary card sets. Thus, the TRIVIAL PURSUIT design was established by the Genus Edition and followed by each TRIVIAL PURSUIT subsidiary card set.

The packaging and the product FORTE Trivia Cards mimic that of the TRIVIAL PURSUIT subsidiary card sets. The TRIVIAL PURSUIT subsidiary card sets, namely Silver Screen, All-Star Sports and Baby Boomer, are alike except for colors as Silver Screen is silver, All-Star Sports is green, and Baby Boomer is maroon. FORTE Trivia cards are black in the same places where the Silver Screen is silver, where the All-Star Sports is green and where the Baby Boomer is maroon. The FORTE Trivia Cards are packaged in a rectangular outside box identical in size to the outside box of the TRIVIAL PURSUIT subsidiary card sets. Thus, FORTE’s outside box measures approximately 7.5 inches in length, 6.5 inches in width and 2.75 inches in depth. The primary color of the outside box is black with small white dots. The color black was also the primary color of defendant’s other product: DECIPHER THE $100,000 PUZZLE. The lettering on the outside box is primarily in white and red. Appearing in red on the top of the box are the words FORTE and Volume One. The remaining words are printed in white. On the top of the box, in large letters, appears the phrase “Real Questions For Your Trivial Pursuit Game.” On each of the four black side flaps appears, in large white letters, the phrase “6,000 Real Questions for your Trivial Pursuit Game.” In addition, each side flap contains a disclaimer in tiny small white print to the effect that FORTE is not produced by the makers of TRIVIAL PURSUIT. The term TRIVIAL PURSUIT is used thirteen (13) times on the colored portion of FORTE’s outside box. The TRIVIAL PURSUIT subsidiary card sets only mention the term TRIVIAL PURSUIT eight (8) times on or above its colored portion of its outside box. The term TRIVIAL PURSUIT appears five (5) more times on the colored portion of FORTE'S box than on TRIVIAL PURSUIT’S. As the TRIVIAL PURSUIT subsidiary boxes, the bottom of FORTE’s outside box is white with black letters. The bottom of FORTE’s outside box manages to use the name TRIVIAL PURSUIT an additional three times. FORTE’s outside box is wrapped in a transparent shrink wrap. Finally, not surprisingly, gummed on the shrink wrap in the upper right corner of the top of the box is an elliptical label.

Upon opening FORTE’s outside box the first item a consumer will see is a sheet of paper folded in half so that it measures 7 inches long and 6.5 inches wide. The sheet is manila colored with black lettering. The FORTE sheet is similar to the TRIVIAL PURSUIT sheet in dimension and color.

The next item one sees is two inner boxes. As TRIVIAL PURSUIT, each of the two boxes contains 500 question and answer cards. As TRIVIAL PURSUIT, each inner box is a rectangular form measuring approximately 6.25 inches in length and 2.625 inches in width and 3.625 inches in depth. The inner boxes retain the same color scheme as the outside of the FORTE box just as the TRIVIAL PURSUIT retains its color. Thus the FORTE inner box is black with white and red lettering. As the TRIVIAL PURSUIT design, the top of the FORTE inside box contains no lettering and the side panels contain the FORTE logo. One end panel contains the FORTE logo and the phrase “Real Questions for your Trivial Pursuit Game.” As TRIVIAL PURSUIT, the top of the inner box can be inverted and placed outside the inner bottom box which also happens to be white. Furthermore, as TRIVIAL PURSUIT, the two inside boxes are packaged in the outside box so that the white bottoms of the inside boxes are touching one another and the FORTE logo on the side panels face the outside of the larger outside box.

Each FORTE inner box contains, as do TRIVIAL PURSUIT’S, 500 question and answer cards. There are 1,000 cards in total containing 6,000 questions. This amount also happens to be the same as TRIVIAL PURSUIT. The dimensions of the FORTE question and answer card is the same as the TRIVIAL PURSUIT question and answer card. Thus, the card measures 3.5 inches in length and 2.375 inches in width. The question side of the FORTE card also has a vertical column of six colors and retains the same order as TRIVIAL PURSUIT, so that blue is followed by pink, yellow, brown, green and orange. Instead of TRIVIAL PURSUIT’S oval shape, the coded colors appear in a rectangle with rounded edges. The questions appear in black letters with a white background. The edges of the question side of FORTE’s card follows TRIVIAL PURSUIT’S border design so that there is a black border with a red line. The answer side of the FORTE card retains the TRIVIAL PURSUIT design so that the left one-third of the card contains a black rectangle containing the words FORTE Trivia Cards in red and white letters. The answer card also contains a vertical column of six rectangles with rounded edges containing the colors in the recited order. Following each colored rectangle is the answer corresponding to the question listed on the other side of the card. The background of the answer card is white and the lettering is in black. The answer card also retains the TRIVIAL PURSUIT border design so that the edges are black with a red line.

The Court finds that the FORTE product is identical to the TRIVIAL PURSUIT subsidiary card sets in design and physical characteristics. FORTE’s copying of TRIVIAL PURSUIT extends not only to the design and physical characteristics of the cards themselves but also to the design and physical characteristics of the packaging including the outside and inner boxes. FORTE even went so far as to parrot TRIVIAL PURSUIT’S positioning of the inner boxes within the outside box. The Court finds that the defendant, except for getting new questions, changing the predominant color and using the term TRIVIAL PURSUIT more frequently, copied the TRIVIAL PURSUIT subsidiary card set product. The Court, therefore, based upon its own inspection, must, and does, reach the inescapable conclusion that the public is likely to be confused by the overwhelming similarities between FORTE’s product and TRIVIAL PURSUIT’S.

A defendant’s intent to deceive buyers is a factor to be considered in determining whether there is a likelihood of confusion. John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 977 (11th Cir. 1983); Exxon Corp. v. Texas Motor Exchange, Inc., 628 F.2d 500, 506 (5th Cir.1980). In this jurisdiction, intent to deceive buyers by exploiting the goodwill of another’s registered trademark creates a presumption of a likelihood to confuse. AMP Inc. v. Fog, 540 F.2d 1181, 1186 (4th Cir.1976). See J. McCarthy, supra, §§ 8:5, 23:30, 23:31. In addition, a junior producer is under an obligation to take affirmative steps to avoid a mistaken impression regarding the origins of the new product. National Football League v. Governor of Delaware, 435 F.Supp. 1372, 1380 (D.Del. 1977) . Applying the facts to the above principles, the Court finds that the defendant intended to deceive buyers as to the origin of its FORTE product. Defendant’s intent to deceive the buying public is, therefore, not only a factor leading to a finding of likelihood of confusion but also serves to establish a presumption of the likelihood of confusion, one which the defendant was unable to overcome.

The testimony of defendant’s executives developed at trial revealed that the defendant desired to produce a product that could be uniformly displayed with other replacement card sets. Not surprisingly, at the time of FORTE’s conception and through its initial production, the only replacement card sets on the market were TRIVIAL PURSUIT’S. Thus, Silver Screen, All-Star Sports and Baby Boomer were the only such products available at the time the defendant came up with its product. The defendant, therefore, undertook to duplicate the shape and size of the TRIVIAL PURSUIT subsidiary card sets. This objective dictated the size and shape of not only the outside box but also the inner boxes and the FORTE cards themselves. Thus, to copy TRIVIAL PURSUIT’S product, each of the two inner boxes had to contain, as TRIVIAL PURSUIT, 500 question and answer cards and the inner boxes had to be packaged lying on its side panel, identical to TRIVIAL PURSUIT. FORTE contained 6,000 questions on the 1,000 cards just as each of TRIVIAL PURSUIT’S subsidiary card sets, namely, Silver Screen, All-Star Sports and Baby Boomer.

An inspection of a prototype FORTE trivia card reveals that the card originally contained the same shaped color coded ellipse as the TRIVIAL PURSUIT card. The prototype, however, did not contain a black colored border. When advised by its counsel to change the shape of the color code, the defendant also added the black colored border with a red line. The new border design appeared on both the question and answer sides of the card. This new border design parroted TRIVIAL PURSUIT’S card design.

The prototype of FORTE’s outside box did not contain an ellipse on the upper right corner of its shrink wrap. After meetings between defendant, defendant’s counsel and plaintiffs’ counsel, however, the defendant decided to include on its box words to the effect that FORTE Trivia Cards may be used for independent play. Mr. Holland, defendant’s chief officer, testified that having had already produced the box, he was unable to plaee the words directly on the box. Curiously enough, this information appeared on an ellipse shaped label affixed to the shrink wrap on the upper right corner of the FORTE box. TRIVIAL PURSUIT’S subsidiary card sets had at that time and still has a similar shaped ellipse placed in the exact same place. The defendant would have the Court believe that this occurred purely by chance. Mr. Holland testified that Decipher’s manufacturer informed him that the shape of the label, an ellipse, was standard and the only one available. Mr. Holland, stated that he did not care where on the box the sticker was placed and that the independent manufacturer made this decision. In fact, the officers of Decipher would have the Court believe that many of its design decisions were made by its manufacturer. The Court rejects this testimony and finds exactly to the contrary. The defendant consciously and willfully copied the plaintiffs’ product and it was in no way accidental nor in any way a result of someone else’s happenstance. Evidence developed at trial to the effect that Mr. Holland was very concerned as to how the FORTE product would appear to consumers. Indeed, as creator, designer and producer of FORTE, this was one of his primary responsibilities. The outside boxes went through numerous revisions under Mr. Holland’s direction. The court reaches the inescapable conclusion that, the elliptical shape of the sticker and its placement on the upper right corner of the outside box occurred not by accident but was designed by the defendant to make its FORTE product look even more like a TRIVIAL PURSUIT product.

Furthermore, emblazed upon the top of defendant’s outside box in large white print is the phrase “Real Questions For Your Trivial Pursuit Game.” Each side flap of the outside box contains, in prominent print, the similar phrase “6,000 Real Questions for your Trivial Pursuit Game.” Defendant FORTE’s inside box also contains the phrase “Real Questions for your Trivial Pursuit Game.” The author of these phrases, Mr. Holland, testified that these phrases are designed to convey to the public that the questions are genuine trivia questions. Apparently, Mr. Holland is of the opinion that there are many trivia products on the market that merely seek to cash in on the trivia craze but which do not contain actual trivia questions. Thus, an example of such a question on a ripoff card may, according to Mr. Holland, be “What is a dried grape called?” This, according to Mr. Holland, is not real trivia. The Court acknowledges that the word “real” is defined as genuine and that the word real, as used in the phrase modifies the word “questions”. However, the officers of Decipher testified that, at the time of FORTE’s production, they were unaware of any replacement card sets on the market except that of TRIVIAL PURSUIT. Thus, there was no need for defendant to distinguish its FORTE product from nonexistent products. Although a competitor may use the trademark of another to describe aspects of its own goods, see infra, the Court finds that the defendant sought to accomplish much more. The Court finds that the constant usage of the words “real”, “Trivial Pursuit” and “6,000” (the same amount of questions contained in the TRIVIAL PURSUIT subsidiary card sets) in prominent print throughout the outside box was intended to suggest that FORTE cards are a genuine TRIVIAL PURSUIT product. The Court, based upon the facts developed, finds that the defendant intended to create confusion as to its product’s origin.

Additional evidence that the public is likely to be confused as to the origin of FORTE trivia cards is department store display investigation. A private investigator, randomly selected stores that sold both TRIVIAL PURSUIT-brand games and card sets, and FORTE trivia card sets. The investigator found and visited ten stores that marketed both plaintiffs’ and defendant’s products in the Washington, Baltimore and New York City areas. The investigator took photographs of the displays of trivia games in the stores. In many of the displays the FORTE card sets and the TRIVIAL PURSUIT card sets were side-by-side. Pictures of displays in the local Hampton Roads area submitted by the defendant do not suggest otherwise. Thus, the defendant’s goal to create a product that could be displayed with TRIVIAL PURSUIT products has apparently been accomplished. Upon entering the store the investigator asked a salesperson whether the store carried any trivia cards made by the people who make the TRIVIAL PURSUIT game. The salesperson directed the investigator to the proper department. The investigator proceeded to the trivia display which contained both the FORTE card sets and TRIVIAL PURSUIT card sets. The investigator picked up a FORTE card set and asked a salesperson “Are these made by the people who make TRIVIAL PURSUIT?” Approximately seven out of the ten sales clerks answered in the affirmative. The investigation is certainly not a scientific survey but, nevertheless, it seems to indicate that both the plaintiffs’ and defendant’s products are displayed together, just as the defendant had desired. The investigation also indicates that many sales persons, if asked whether FORTE cards were made by the makers of TRIVIAL PURSUIT, would probably tend to respond affirmatively. Apparently many sales persons in answering affirmatively, relied upon the phrase “Real Questions For Your TRIVIAL PURSUIT Game” printed on the top of the FORTE box. The Court, therefore, places some reliance and weight upon this investigation for its finding of likelihood of confusion.

Lastly, the Court finds evidence of likelihood of confusion in a statistical survey presented by the plaintiffs. The survey was conducted by a survey expert who has worked in the area of market research for the past thirty years. The survey consisted of two research studies. One hundred persons were interviewed in each study. The participants were evenly divided between males and females and five age groups. An interest in trivia games was established prior to any respondent’s participation in the survey. The interviews were conducted in suburban shopping malls located within a fifty-mile radius of New York City. The first study, a package study, respondents were shown a FORTE trivia card package. Respondents were asked to look at the package as they would if they were thinking of buying such a product. The respondents were then asked a series of questions regarding who they thought made the trivia cards in the package they had just seen. The results of the package study indicated that 28 percent of the persons interviewed identified the FORTE trivia card package as a product of the company that made the TRIVIAL PURSUIT game. The second study was a display study in which respondents were shown a display of TRIVIAL PURSUIT products with the FORTE trivia card set. After viewing the display, 45 percent of the respondents identified FORTE as a product of TRIVIAL PURSUIT. The expert’s conclusion was that the results indicate that sizeable proportions of consumers identify FORTE trivia cards as made by the makers of the TRIVIAL PURSUIT game.

The defendant attacked the plaintiffs’ survey on numerous grounds. Defendant’s expert testified that the sample size was too small, the respondents were not properly selected, the suburban New York City area was geographically narrow and, therefore, not representative of the entire nation. Defendant’s expert also stated that the survey was flawed because it failed to accurately recreate the purchasing environment, and failed to validate the results by telephoning a random sample of the respondents. Lastly, defendant’s expert stated that the questions were leading, and therefore, biased.

Although the Court, as plaintiff’s expert admitted, would have preferred to have these tests conducted in additional locations in the country, the Court does not believe this shortcoming is fatal. The same conclusion is reached with regard to the number of participants. The plaintiffs’ expert testified that time factors limited his ability to conduct more extensive testing. The Court is of the opinion that although the New York City suburban area would not be representative of the nation in many surveys, the area is projectable in a survey of trivia card products. The Court is satisfied that under the circumstances, the survey simulated the marketplace to the extent that was practicable. The fact that the results were not validated by telephone calls does not severely disturb the Court. The Court does find that certain questions contained in the survey were leading and, therefore, somewhat biased. It must be recognized that no survey is perfect. The expert conducting the survey attended each and every interview through the use of a two-way mirror. The Court was impressed by plaintiffs’ expert’s knowledge and candor displayed upon the witness stand. The Court is of the opinion that the flaws exposed by the defendant should be taken into consideration in determining the weight that the Court attributes to the survey. Standard Oil Co. v. Standard Oil Co., 252 F.2d 65, 75 (10th Cir.1958). Surveys, where the results were far more inconclusive than plaintiffs’ survey, have been relied upon as strong evidence of likelihood of confusion. See Grotrian, Helfferich, Schulz Th. Steinweg Nachf v. Steinway & Sons, 365 F.Supp. 707, 716 (S.D.N. Y.1973), aff'd, 523 F.2d 1331 (2d Cir.1975) (only 8.5% confused considered strong evidence of likelihood of confusion). Furthermore, the defendant had an equal opportunity to conduct its own survey but chose not to. The Court, therefore, diminishes the weight it affords to the survey but still relies upon it as evidence of the likelihood of confusion between the two products.

The Court, therefore, concludes that, based upon a statistical survey, a department store display investigation, its own inspection of both products and the finding that the defendant intended to confuse the public as to its product’s origin, there is a likelihood that the public is confused as to the origin of the FORTE product.

Having concluded that there exists a likelihood of confusion between TRIVIAL PURSUIT and FORTE, the Court must consider whether the extensive similarities of FORTE with TRIVIAL PURSUIT, including FORTE’s use of TRIVIAL PURSUIT’S trademark serves a permissible functional purpose. A purpose is functional if it is essential to the use or purpose of the product or if it affects the cost or quality of the product. Ideal Toy Corp. v. Plawner Toy Mfg. Corp., 685 F.2d 78, 81 (3d Cir.1982). Generally, a competitor may not use another’s registered trademark to sell its product without permission. A competitor can, however, use another’s registered trademark to describe aspects of its own goods. 15 U.S.C. § 1115(b)(4). Defendant Decipher, thus, has a legal right, under the Lanham Act, to use the TRIVIAL PURSUIT trademark to describe aspects of its FORTE products so long as it does not attempt to deceive consumers as to the origin of FORTE. Mattel, Inc. v. Azrak-Hamway Int’l. Inc., 724 F.2d 357, 361 (2d Cir.1983).

It is, therefore, clear that FORTE may, on its package, state that it can be used for play with TRIVIAL PURSUIT. The Court, however, is of the opinion that the phrase “Real Questions For Your TRIVIAL PURSUIT Game” in large prominent letters on the top of outside box and the phrase “6,000 Real Questions for your TRIVIAL PURSUIT Game” in prominent letters on all four side panels of the outside box goes further than describing a use of the FORTE product. Unlike Mattel, 724 F.2d at 361, where the questionable language was located on the package in a place and manner that only a close reader would notice, the questionable language on the FORTE package is prominently displayed. The Court is concerned that use of the word “real” may enforce any indecision on the part of a prospective purchaser as to the authenticity of the games as originating with the makers of the TRIVIAL PURSUIT-brand games. The Court finds that the defendant’s use of plaintiffs’ trademark oversteps permissible bounds. Rather than describing an aspect of its own product, FORTE’s use of the TRIVIAL PURSUIT trademark, in large print in numerous locations on its box, serves to sell its product. Although imitation is a “sign” of success one cannot adopt another’s “sign” to be successful. FORTE’s success in the marketplace, as evidenced by sales of over 100,000 units for which Decipher earned $7.50 gross profit per unit, in such a short time with advertising which, at the time of sales was “de minimus” (if not nonexistent), may very well be attributed to FORTE’s use of the TRIVIAL PURSUIT trademark. The Court, therefore, finds that defendant’s use of the TRIVIAL PURSUIT trademark does not constitute a fair use but rather is likely to lead to confusion and mislead the public to the erroneous belief that defendant’s card sets are manufactured, authorized or sponsored by the makers of TRIVIAL PURSUIT and thus violates 15 U.S.C. §§ 1114(1) and 1125(a).

The Court also finds that defendant’s adoption of the design, size and trade dress of plaintiffs’ card set package and question and answer cards constitute a taking of nonfunctional features that are neither essential to the use or purpose of the cards nor affect the cost or quality of defendant’s product. The Court finds that the only functional feature of the question and answer card is that it must have a color code containing the colors blue, pink, yellow, brown, green and orange. The Court further finds that no functional purpose is served by copying TRIVIAL PURSUIT’S order of the colors’ appearance. Taking non-functional features that serve no purpose other than to identify the source of plaintiffs’ game constitutes trade dress infringement and unfair competition under 15 U.S.C. § 1125(a). See Inwood Laboratories v. Ives Laboratories, 456 U.S. 844, 850-51, 102 S.Ct. 2182, 2186, 72 L.Ed.2d 606 (1982); Ideal Toy Corp. v. Plawner Toy Mfg. Corp., 685 F.2d 78, 81 (3d Cir.1982).

The defendant lastly argues that the term TRIVIAL PURSUIT is recognized by the public as a generic term, descriptive of trivia games in general rather than as a designation of origin. The terms generic and trademark are mutually exclusive. Trademarks function to identify and distinguish the goods of one seller from those of all others. On the other hand, a generic term tells the buyer what the product is, not where it came from. 1 J. McCarthy, supra, § 12:1. Generic names are in the public domain and may be used by anyone. Singer Mfg. Co. v. June Mfg. Co., 163 U.S. 169, 203, 16 S.Ct. 1002, 1015, 41 L.Ed. 118 (1896). Examples of terms that have been found to be generic include: aspirin — Bayer Co. v. United Drug Co., 272 F. 505 (S.D.N.Y.1921); cellophane—DuPont Cellophane Co. v. Waxed Products Co., 85 F.2d 75 (2d Cir.1936); dry ice—Dryice Corp. v. Louisiana Dry Ice Corp., 54 F.2d 882 (5th Cir.1932); and light beer— Miller Brewing Co. v. Heileman Brewing Co., 561 F.2d 75 (7th Cir.1977), cert. denied, 434 U.S. 1025, 98 S.Ct. 751, 54 L.Ed.2d 772 (1978). The defendant failed to perform any statistical surveys concerning the possibility that the term TRIVIAL PURSUIT has become generic. The only evidence of genericism offered by the defendant was its expert, who testified that, based on his marketing background, there was a significant likelihood that the term TRIVIAL PURSUIT has become or is becoming generic. The Court declines to find that the term TRIVIAL PURSUIT has attained generic status solely upon one expert’s untested opinion. Furthermore, the Court notes the plethora of trivia games on the market that refer neither to TRIVIAL PURSUIT nor to TRIVIAL PURSUIT products. Based upon the evidence before it, the Court finds that the term TRIVIAL PURSUIT has not been accepted into our lexicon, at this time, as the generic terms referred to above. Accordingly, the Court rules that TRIVIAL PURSUIT has not become a generic term at this time.

To recap, the Court finds that the term TRIVIAL PURSUIT, in addition to the trade dress of the TRIVIAL PURSUIT question and answer cards, the box wrap and packaging of the Genus Edition as well as the box wrap, trade dress and packaging of the TRIVIAL PURSUIT subsidiary card sets have acquired secondary meaning. Based upon the Court’s inspection of the products, its finding that the defendant intended to confuse the public as to its product’s origin, a department store display investigation and a statistical survey, the Court finds that there is a likelihood that the public will be confused as to the origin of the FORTE product.

The Court finds further that the defendant’s constant use of plaintiff’s trademark does not serve a permissible functional purpose but serves to sell its product by causing the public to believe that FORTE is a TRIVIAL PURSUIT product. In this regard, the Court finds that the defendant deliberately set out to use the TRIVIAL PURSUIT trademark not for the purpose of explaining a use of its product but in order to sell its product by trading on the plaintiff’s strong trademark. The Court reaches the same conclusion with regard to the defendant’s adoption of the plaintiff’s trade dress. The Court, based on the evidence before it, finds that TRIVIAL PURSUIT has not become a generic term. In conclusion, the Court finds that the defendant in designing its product intended to trade off of the plaintiffs’ trademark and to confuse the public.

The Court, therefore, finds the defendant in violation of both 15 U.S.C. §§ 1114(1) and 1125(a). Accordingly, the defendant is enjoined from marketing its FORTE trivia product in its present form. Pursuant to this injunction, the defendant is ORDERED to remove from public sale all FORTE Trivia Cards by December 31, 1984. The defendant shall report to the Court, within fourteen (14) days of the date of this order, the course of action it has undertaken to bring about the removal of FORTE Trivia Cards from public sellers and distributors, at which time the Court may enlarge the time for defendant to comply with this injunction.

IT IS SO ORDERED.

      . The proposed categories of Volume Two are: Whodunit?, Headline News, Western, Rock-n-Roll, Fairy Tales & Mother Goose and Fairplay, Volume Three will contain Celebrated Siblings, Broadway, War & Peace, The White House, Super Heroes & Arch-Villains and Fairplay. The suggested categories of Volume Four are: Words, Hollywood, Games, Radio Theater, Wisdom of the Ages and Fairplay.

      . 15 U.S.C. § 1125(a) provides:
      Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce, and any person who shall with knowledge of the falsity of such designation of origin or description or representation cause or procure the same to be transported or used in commerce or deliver the same to any carrier to be transported or used, shall be liable to a civil action by any person doing business in the locality falsely indicated as that of origin or in the region in which said locality is situated, or by any person who believes that he is or is likely to be damaged by the use of any such false description or representation.

      . 15 U.S.C. § 1114(1) provides:
      Any person who shall, without the consent of the registrant — (a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause confusion, or to cause mistake, or to deceive; ... shall be liable in a civil action by the registrant for the remedies hereinafter provided____

      . There is no essential difference between trademark infringement and what is loosely called unfair competition. Unfair competition is the genus of which trademark infringement is one of the species; ____ All trademark cases are cases of unfair competition and involve the same legal wrong.
      S.Rep. No. 1333, 79th Cong.2d Sess., 1946 U.S. Code Cong. & Ad.News 1275. quoted in 1 J.McCarthy, Trademarks and Unfair Competition § 2.2 (1973). See Inwood Laboratories v. Ives Laboratories, 456 U.S. 844, 858, 102 S.Ct. 2182, 2190, 72 L.Ed.2d 606 (1982). Professional Golfers Ass’n v. Bankers Life & Casualty Co., 514 F.2d 665, 671 (5th Cir.1975); Habitat Design Holdings, Ltd. v. Habitat, Inc., 436 F.Supp. 327, 334 (S.D.N.Y.1977), aff'd, 573 F.2d 1290 (2d Cir.1978).

      . The term "box” is defined as a rectangle receptacle often with a lid or cover. Webster's Third New International Dictionary 263 (1981). A box, therefore, need not be completely enclosed. The term "outside box” as used in this opinion is actually the combination of two boxes: a fancy colored box which fits on a plain white inner box. Thus, the fancy colored box serves as a cover.

      . Each inner box is actually comprised of two boxes: a fancy colored box which rests on a plain white inner box. The inner box is similar in design to the outside box. See supra note 5.

      . In a prototype of FORTE’s next volume — Volume Two — the red color was changed to yellow.