L’Oreal wanted to introduce a “hair cosmetic” product that gave hair a blue, green, or other vivid-color tint. L’Oreal wanted to market the product under the name “Zazu” and began to investigate the availability of this trademark. L’Oreal found out that the mark was in use by a clothing manufacturer and a hair salon, Zazu Hair Design (ZHD). L’Oreal contacted both companies to inquire about their intended use of the mark. L’Oreal paid $125,000 to the clothing manufacturer, which was producing clothing with the mark, for the right to use the mark for its hair cosmetic. However, when L’Oreal asked ZHD if it were producing products with the mark, ZHD informed L’Oreal that it had not yet produced products but was “working on it.”
Satisfied that the ZHD state trade name did not prevent its use of the mark, L’Oreal applied for federal registration of the Zazu mark on June 12, 1986, and began advertising and shipping large quantities of product in August 1986. However, in the meantime, ZHD began to develop a line of hair care products under the Zazu name in 1985. During November 1985 and February 1986, ZHD sold two bottles of its new formula to friends and one carton of bottles to another hair salon. These sales were informal, and the product was sold in plain bottles with a ZHD business card taped to the product. ZHD was confident of its line’s success and placed a large manufacturing order in late 1985. Additionally, ZHD began selling small quantities of hand-filled and -labeled bottles of the products from its salon in September 1986. ZHD sued to enjoin L’Oreal from using the trademark Zazu and for damages. What result?