WASHINGTON — Can a restaurant be sued for millions of dollars in damages because its style and ambience appear to have been copied from a competitor?
Can the makers of products as diverse as soda pop, pricey perfume or gold watches win damages from the makers of low-priced "store brands" because their products look much the same, even though no customer is truly confused by the similarity?
The Supreme Court will seek to answer those questions in a case that pits two companies who describe themselves as "competing chains of upscale fast-food Mexican restaurants selling alcoholic beverages."
New York attorney Arthur M. Handler, a specialist in trademark law, said the case of Two Pesos vs. Taco Cabana, 91-971, could be a landmark case.
The ruling could affect whether companies with brand-name products can take legal action against imitators who offer consumers a similar product for a lower price.
BACKGROUND: In 1978, Taco Cabana opened its first restaurant in San Antonio. It created "a festive eating atmosphere having interior dining and patio areas decorated with artifacts, bright colors, paintings and murals."
Though customers picked up food at a counter, the surrounding tables "had a sit-down, upscale quality," said Richard Cevera, the company president. "It had a unique look and style."
In 1985, the owners of Two Pesos opened a series of restaurants in the Houston area and copied the style of the San Antonio chain. Of course, customers in Houston were not likely to be confused or deceived, since most had never seen a Taco Cabana.
From there, Two Pesos expanded rapidly in Texas and Arizona. "They achieved a dominance in the market by taking advantage of our style and ambience," said Jim Eliasberg, general counsel for Taco Cabana.
More recently, Taco Cabana has expanded too and opened restaurants in Baldwin Park and San Diego. But its owners decided to sue their competitor for what they saw as a blatant theft of their concept.
A federal court jury concluded that Taco Cabana had developed an "inherently distinctive" style and it awarded the restaurant $1.86 million in damages. A U.S. appeals court in Houston upheld the verdict, while conceding that Taco Cabana did not have such a distinctive style that customers would be confused.
But if customers are not confused, the lower federal courts are. Some have said such a damage suit cannot succeed unless the complaining company proves not only that its products have a distinctive look, but also that buyers are deceived by a similar looking competitor. Others, such as the Texas-based appeals court, said damages can be awarded simply based on the copying of an "inherently distinctive" style.
The Supreme Court will hear arguments today, with a decision due by late June.
The case of the two Mexican restaurants involves what lawyers call the "trade dress" of a product. This refers to its appearance or packaging.
A second federal law, the Lanham Act, allows damage suits for "false designations" or "false descriptions" of products.
ISSUES: Attorneys for Two Pesos said a ruling in favor of their competitor could put numerous companies at risk of lawsuits.
"Concept copying is lawful," said Phoenix attorney Kimball J. Corson, representing Two Pesos. If the adoption of a "generic, descriptive Mexican decor" is the basis for a damage suit, other restaurants and businesses will find themselves vulnerable to similar claims, he said.
Handler, who represents the "store brand" products, agrees.
"If a manufacturer can obtain a monopoly control just because its soap has a wavy line or a particular shape to its bottle, you are inhibiting competition and hurting the consumer," he said.
But the U.S. Trademark Assn., which represents 2,400 owners of trademarks, sides with Taco Cabana.
"If you create a special style or look, then someone else should not be able to ride that success," said Robin Rolfe, executive director of the trademark association. "We think that it is unfair competition and it violates the law."