Taco Cabana - Two Pesos, Inc. Vs. Taco Cabana, Inc., 505 U.S. 763 (1992)

Two Pesos, Inc. Vs. Taco Cabana, Inc., 505 U.S. 763 (1992)

Two Pesos opened its first restaurant in 1985. By 1987 it had established a chain of restaurants with locations in Austin, Houston, Dallas, Fort Worth and El Paso. As Taco Cabana expanded into those cities it became clear that the Two Pesos chain had not only saturated these markets with several locations, but had also established itself as the first Tex-Mex Patio Cafe restaurant in those markets. Two Pesos restaurants were alleged by Taco Cabana to have copied the "look and feel" of their restaurants. Primarily citing that Two Pesos copied the 24-hour patio cafe concept and had architecturally similar buildings and features such as overhead doors to open the secondary dining room to the patio dining area, double drive thru windows, open kitchens, similar menu boards, brightly colored canopies and murals, similar floor plans and brightly colored buildings (Taco Cabana's Pink vs. Two Peso's Turquoise).

In 1987 Taco Cabana sued Two Pesos for infringement of trade dress under the Lanham Act and for theft of trade secrets under Texas Common Law in the United States District Court for the Southern District of Texas. The trial court held that Two Pesos had intentionally and deliberately infringed Taco Cabana's trade dress. Damages awarded to Taco Cabana were approximately $2 million and U.S. District Judge John V. Singleton ordered Two Pesos to "change the appearance of its existing Texas restaurants and the design of all future units to avoid confusion with Taco Cabana outlets" and that Two Pesos must post in all existing units a sign stating the outcome of the trial. The "white sign with 1-inch black letters must read: "Notice: Taco Cabana originated a restaurant concept which Two Pesos was found to have unfairly copied. A court order requires us to display this sign to inform our customers of this fact to eliminate the likelihood of confusion between our restaurant and those of Taco Cabana."

Two Pesos appealed, but the ruling was upheld by the Appellate Court. Two Pesos continued its appeals to higher courts until it reached the US Supreme Court in 1992.

The Supreme Court unanimously upheld the two lower court rulings and decided in favor of Taco Cabana. Two Pesos, Inc. v. Taco Cabana, Inc. is a landmark case that is often cited in trade dress litigation.