Sticky Situation? Circumstantial Evidence Can Support Intent to Confuse in Trade Dress Claims

The US Court of Appeals for the 11th Circuit reversed a district court’s grant of summary judgment for the defendant on trade dress infringement and trade dress dilution claims, finding that evidence relating to the likelihood of confusion was not viewed in the light most favorable to the plaintiff. However, the Court affirmed the grant of summary judgment for the defendant on the plaintiff’s false advertising claims because the allegedly deceptive advertising was not material to consumer purchasing decisions. J-B Weld Co., LLC v. Gorilla Glue Co., Case No. 18-14975 (11th Cir. Oct. 20, 2020) (Tjoflat, J.) (Carnes, J., concurring).

J-B Weld and Gorilla Glue are competitors specializing in heavy-duty adhesive products. Gorilla Glue introduced an adhesive under the brand name GorillaWeld that mimicked the packaging of a J-B Weld product. Gorilla Glue advertised GorillaWeld as a steel bond epoxy based on the strength of the bond and its similarity to an epoxy-group polymer, even though the product was not a chemical epoxy and did not contain any steel. J-B Weld sued, alleging trade dress infringement based on the Lanham Act and Georgia law, trade dress dilution based on Georgia law, and false advertising under the Lanham Act. The district court granted Gorilla Glue summary judgment on all claims, finding no trade dress infringement or dilution based on insufficient evidence of likelihood of confusion, and no false advertising because the evidence did not demonstrate that Gorilla Glue’s steel bond epoxy claim was material to consumer purchasing decisions. J-B Weld appealed, arguing that the district court did not properly view the evidence in the light most favorable to J-B Weld.

The 11th Circuit reversed on the trade dress infringement and dilution claims and affirmed on the false advertising claim. On the trade dress infringement claims, the 11th Circuit found that the district court did not view the evidence in the light most favorable to J-B Weld in analyzing the likelihood of confusion between the respective trade dress of J-B Weld and GorillaWeld, as required in the context of summary judgment. The 11th Circuit found that the district court did not properly credit evidence relevant to the similarity of the designs, Gorilla Glue’s intent and instances of actual confusion. For example, despite multiple similarities between the J-B Weld and GorillaWeld packages (including a V-shape tube arrangement and the use, emphasis and location of certain text), the district court found that the presence of the Gorilla Glue logo, brand name and color scheme negated a finding of similarity. The 11th Circuit deemed this finding error in the context of summary judgment. The Court also determined that communications from Gorilla Glue’s packaging design team that repeatedly referenced J-B Weld’s packaging and expressed a desire to use similar elements (including a communication in which a Gorilla Glue employee referred to the GorillaWeld design as a “knock off”) were improperly ascribed to innocuous motives based on self-serving testimony from a Gorilla Glue employee. As the Court explained, summary judgment required drawing all inferences in the light most favorable to J-B Weld. Similarly, the Court noted instances where inferences from evidence relating to actual confusion were drawn in favor of Gorilla Glue while other reasonable inferences and circumstantial evidence in J-B Weld’s favor were overlooked.

The 11th Circuit also noted that the district court did not consider four of the seven factors relevant to the likelihood of confusion analysis, including the strength of the J-B Weld mark, similarities of the products themselves, their retail outlets and purchasers, and common advertising media. Although this omission was not reversible error, the Court found that in combination with impermissible fact-finding on the other factors, it was indicative of insufficient evaluation of likelihood of confusion. The Court accordingly reversed the district court’s summary judgment grant of no trade dress infringement and remanded those claims for trial.

The 11th Circuit also reversed the grant of summary judgment to Gorilla Glue on J-B Weld’s trade dress dilution claim under Georgia law. Georgia law requires that the trade dress be similar and requires a likelihood of dilution of the distinctive quality of the mark. Unlike trade dress infringement, it does not require proof of likelihood of confusion. Because the district court remarked on the indistinguishability of the standards of trade dress infringement and trade dress dilution, and the 11th Circuit was unable to discern whether the district court—erroneously—required proof of likelihood of confusion, the 11 Circuit remanded for re-evaluation of the claim.

The 11th Circuit affirmed the grant of summary judgment to Gorilla Glue on the claim that it falsely advertised GorillaWeld as a steel bond epoxy. The Court agreed with the district court that J-B Weld had not shown that the inclusion of steel bond epoxy on GorillaWeld’s packaging was material to consumer purchasing decisions, as required by the Lanham Act and Georgia law. Because even demonstrably false statements cannot sustain a false advertising claim if they are irrelevant to consumer purchasing decisions, the 11th Circuit found the district court’s grant of summary judgment proper.

In a concurring opinion, Judge Carnes wrote separately to emphasize the distinction in the trade dress context between copying to compete and copying to confuse. Intentional copying, without more, does not permit an inference of copying with intent to confuse. But intent to confuse may be inferred from evidence of intent to copy if other facts permit. On the facts J-B Weld presented, Judge Carnes agreed that a jury could reasonably infer that Gorilla Glue intended to copy J-B Weld’s trade dress to confuse consumers about GorillaWeld’s origins and to benefit from J-B Weld’s goodwill, and agreed that the district court erred by failing to consider that evidence in the light most favorable to J-B Weld.

Practice Note: A trade dress infringement claim requires that a competitor’s use of a similar trade dress is likely to cause consumer confusion as to the origin of the product. Likelihood of confusion can be established by intentional copying with the intent to confuse. A party seeking to protect its trade dress rights should try to make a showing of not just intentional copying, but intentional copying with the intent to confuse consumers about a product’s origins. Because direct evidence is often unavailable, circumstantial evidence can play a vital role in meeting this burden of proof.



Too Good to Be True? Federal Circuit Demands Evidence of Reliance on Favorable Ruling, Stipulation

The US Court of Appeals for the Federal Circuit held that notwithstanding a stipulation on claim construction, a party may still induce infringement absent proof that it actually relied on the stipulation, and that mere inaction, absent an affirmative act to encourage infringement, cannot be the basis for a claim of inducement. The Federal Circuit also affirmed the district court’s reduction of the jury’s damages award to $0 despite a finding of direct infringement because the plaintiff failed to prove damages. TecSec, Inc. v. Adobe Inc., Case Nos. 19-2192, -2258 (Fed. Cir. Oct. 23, 2020) (Taranto, J.).

TecSec owns several patents on systems and methods for multi-level security for network-distributed files. TecSec sued Adobe (among other defendants) in this now-10-year-old-case, which the Federal Circuit has considered several times. As relevant here, the district court entered a claim construction in 2011 that led to a stipulation of non-infringement, and the Federal Circuit reversed that claim construction in 2013. On remand, the district court barred TecSec from introducing evidence of inducement in the 2011–2013 period on the grounds that it was reasonable for Adobe to have relied on the district court’s ruling and the stipulation. On the new claim construction, Adobe stipulated to one act of direct infringement. Adobe also moved for summary judgment of patent ineligibility, which the district court denied, stating that its rationale supported judgment for TecSec that the patents claimed eligible subject matter. At trial, the jury found that the claims were valid and that Adobe directly infringed but did not induce infringement. The jury awarded TecSec $1.75 million in damages. On Adobe’s post-trial motion, the district court reduced the damages award to $0 because TecSec had not proved inducement and had proved no damages associated with the single act of direct infringement. Both parties appealed.

Inducement

The Federal Circuit reversed the district court’s decision on Adobe’s motion in limine barring inducement evidence for the 2011–2013 period. The district court’s primary rationale for granting the motion had been the reasonableness of Adobe’s reliance on the claim construction order and stipulation of non-infringement. However, the Federal Circuit reasoned that the intent prong of inducement is a subjective inquiry, and that inducement could still be found upon a showing that Adobe subjectively believed that the claim construction order was wrong and would subsequently be reversed.

Jury Instructions

The Federal Circuit next addressed two challenges by TecSec to jury instructions. The first instruction was predicated on three facts: (i) that Adobe had admitted that a certain sequence of steps constituted direct infringement, (ii) that Adobe had performed the steps on at least one occasion, and (iii) that “the parties agree that the one time for which Adobe had admitted infringement . . . occurred before TecSec filed its lawsuit.” The Court found that this instruction was factually accurate and therefore not erroneous. The second instruction explained that inducement required “an affirmative act to encourage infringement,” and that “[e]vidence of mere inaction, or a failure to stop or prevent infringement, does not constitute infringement.” Again, the Court found the instruction to be accurate and therefore not erroneous.

Damages

TecSec argued on appeal that § 284 requires an award of damages upon a finding of infringement. The Federal Circuit disagreed, explaining that a plaintiff’s failure to prove damages arising from the infringement could lead to a $0 damages award. Because the jury had not found inducement, and because TecSec had not proved any damages relating to the sole proven act of direct infringement, the Court affirmed the $0 damages award for direct infringement.

Eligibility

Adobe had characterized the alleged abstract idea underpinning the claims as “managing access to objects using multiple levels of encryption.” The Federal Circuit found that this characterization was too general and divorced from the claim language, which further required an “object-oriented key manager” and specified uses of a “label.” In any event, relying on both the claim language and the specification, the Court held that “the claims are directed to improving a basic function of a computer data-distribution network, namely, network security.” The Court also found that the claims recited a particular solution to realize the improvement. In its Alice Step 2 analysis, the Court again chastised Adobe for failing to consider all of the claimed elements, and in particular the combination of those elements. The Federal Circuit thus affirmed the district court’s ruling on eligibility.

Practice Note: After all the sound and fury, whether TecSec can realize any damages award from its 10-year litigation campaign seems likely to turn on whether Adobe actually relied on a favorable claim-construction ruling and subsequent stipulation of non-infringement.



No Stay, But Please Fix

The US Court of Appeals for the Federal Circuit denied a motion to stay issuance of a mandate while a petition for certiorari regarding patentability under § 101 was pending before the Supreme Court of the United States, finding no irreparable harm if it did not do so. American Axle & Manufacturing, Inc. v. Neapco Holdings LLC, Case No. 18-1763 D.I. 139 (Fed. Cir. Oct. 23, 2020) (Dyk, J.) (Moore, J., concurring). In her concurrence, Judge Moore encouraged the Supreme Court to grant certiorari in order to clarify the scope of § 101.

This decision was the fourth opinion issued by the Federal Circuit in this case. In the Court’s first opinion, a divided panel affirmed that method claims for a mechanical invention were invalid under 35 USC § 101. American Axle & Manufacturing I. The patent owner, American Axle, filed a petition for rehearing and a petition for rehearing en banc. American Axle & Manufacturing II. Several amicus briefs were filed, including one by former Federal Circuit Chief Judge Paul R. Michel. In view of these petitions and amicus briefs, the original panel modified and re-issued its opinion to affirm that certain claims were invalid and to reverse its holding that one claim was invalid. Subsequently, the full Federal Circuit denied the petition for a rehearing en banc, polling 6–6 and demonstrating the Court’s division on the application and scope of § 101.

American Axle filed a petition for certiorari at the Supreme Court and sought a stay from the Federal Circuit of the issuance of the mandate. The Federal Circuit denied a stay, citing Rule 41 of the Federal Rules of Appellate Procedure, which “provides that a motion for stay of the mandate ‘must show that the petition would present a substantial question and that there is good cause for a stay.’” Fed. R. App. P. 41(d)(1). The Court explained that a three-prong test determines whether a stay in a patent case is appropriate under this rule. The applicant must show (1) a reasonable probability that four justices will grant certiorari, (2) a fair prospect that the Supreme Court will reverse judgment, and (3) a likelihood that irreparable harm will result if the stay is denied.

Relying exclusively on irreparable harm, the Federal Circuit denied a stay. With respect to the invalid patent claims, the Court explained that a stay was not warranted because no further action was required by the district court. The Court dismissed American Axle’s argument that it would have to recall its mandate if reversed by the Supreme Court, explaining that this occurrence is common for every case that is reversed. With respect to the valid patent claim, the Court explained that the burden of litigation and litigation expenses is insufficient to show irreparable harm. Thus, the Court dismissed American Axle’s motion to stay the mandate.

Judge Moore filed a concurring opinion asking the Supreme Court to grant certiorari. Moore explained that the Supreme Court often grants cases where there is a circuit split, and here the situation “is worse than a circuit split—it is a court bitterly divided.” She elaborated that the Federal Circuit is “at a loss how to uniformly apply § 101,” and that all 12 judges of the Federal Circuit have previously urged the Supreme Court to grant certiorari to clarify § 101.

Practice Note: Even if the Supreme Court does not grant certiorari in this case, litigants likely will cite Judge Moore’s concurrence when seeking Supreme Court review of a § 101 opinion.



First-to-File Rule Must Be Followed Unless Compelling Circumstances Justify Exception

Vacating and remanding a district court’s decision not to transfer a case, the US Court of Appeals for the Federal Circuit granted a petition for a writ of mandamus because the district court did not consider whether the first-to-file rule favored keeping the case in the second-filed court. In re: Nitro, Case No. 20-142 (Fed. Cir. Oct. 28, 2020) (Reyna, J.).

In 2018, Cameron International filed a suit against Nitro in the Southern District of Texas alleging that Nitro’s fracturing-fluid delivery systems infringed three of Cameron’s patents. In February 2020, Cameron filed a second suit against Nitro in the Western District of Texas, alleging that the same accused products infringed two of Cameron’s other related patents. Relying on the first-to-file rule, which generally dictates that the court in which an action is first filed is the appropriate court to determine whether subsequently filed cases involving substantially similar issues should proceed, Nitro moved the Western District of Texas to decline jurisdiction or transfer the action to the Southern District of Texas.

The district court rejected the application of the first-to-file rule, but not because the two cases lacked substantial overlap. Instead, the district court relied on US Court of Appeals for the Fifth Circuit precedent stating that even where there is such overlap, the court still must determine whether there are “sufficiently ‘compelling circumstances’ to avoid the rule’s application.” The district court determined that it was appropriate to use a balance of the traditional transfer factors to make that determination, concluding that when a balance of transfer factors “does not weigh in favor of transfer[,] . . . compelling circumstances exist in order to avoid application of the first-to-file rule.” Applying this standard, the district court denied Nitro’s motion. The district court found that although two of the factors (relative ease of access to sources of proof, and local interest in having localized interests decided at home) favored transfer, the administrative difficulties flowing from court congestion, co-pending suits against another defendant involving the same patents, and the district court’s ability to more quickly schedule a trial weighed against transfer. Nitro filed for mandamus.

Proceeding from the district court’s premise that transfer pursuant to the first-to-file rule would be proper absent the existence of compelling circumstances, and that a balance of the transfer factors can support such an exception, the Federal Circuit explained that consideration of Nitro’s petition turned on the correctness of the district court’s application of those factors. The Court explained that the district court had it backwards by concluding that the first-to-file rule is only applicable when the balance of factors favors the first-filed court. Instead, the proper inquiry is that unless the balance of transfer factors favors keeping the case in the second-filed court, there are no compelling circumstances to keep the case in the second-filed court.

The Federal Circuit found that the district court did not resolve the critical issue of whether a balance of the factors favored the second-filed court. The Federal Circuit explained that although the district court found that two factors (the sources of proof and local interest factors) favored transfer and that most factors (including the witness-related factors) were neutral, the district court nevertheless concluded that two factors (the court congestion and practical problems factors) favored retaining the case. Importantly, the district court did so without indicating that court congestion and practical problems were important enough to warrant keeping the case in the Western District of Texas. The Federal Circuit also found that the district court erred in its reasoning regarding court congestion because it did not focus on whether there was an appreciable difference between the two forums. The Federal Circuit further found that the district court erred in its analysis of judicial economy by replacing the importance of the first-to-file rule with its own views on the importance of speed of resolution. Accordingly, the Federal Circuit granted Nitro’s petition, vacating the district court’s order and instructing the district court to conduct further proceedings consistent with the Federal Circuit’s opinion.



Trademark Cancellation Is Appropriate Sanction for Misconduct

In upholding a grocery store chain’s standing to petition for cancellation of a US trademark registration, the US Court of Appeals for the Federal Circuit affirmed the Trademark Trial and Appeal Board’s (TTAB’s) express authority to impose cancellation of a trademark by default judgment as a sanction in a TTAB proceeding. Corcamore, LLC v. SFM, LLC, Case No. 19-1526 (Fed. Cir. Oct. 27, 2020) (Reyna, J.).

SFM owns US federal trademark registrations for the mark SPROUTS for use in connection with its retail grocery store services. SFM filed a petition to cancel Corcamore’s US trademark registration for the mark SPROUT for use in connection with vending machine services, alleging a likelihood of consumer confusion with SFM’s prior trademark rights. The TTAB denied Corcamore’s motion to dismiss the cancellation petition for lack of standing. Relying on Empresa Cubana del Tabaco v. General Cigar Co., the TTAB confirmed SFM’s standing based on its “real interest” in the cancellation petition and a “reasonable belief of damage” caused by the continued registration of Corcamore’s SPROUT trademark.

Following the TTAB’s denial of its motion to dismiss, Corcamore undertook a series willful, bad-faith procedural maneuvers that resulted in two separate sanctions. When Corcamore’s further procedural misconduct violated both sanctions orders, the TTAB entered default judgment cancelling Corcamore’s SPROUT trademark registration. Corcamore appealed.

On appeal, Corcamore alleged that the TTAB (1) erred in applying Empresa Cubana rather than the Supreme Court of the United States’ Lexmark v. Static Control framework in affirming SFM’s standing, and (2) abused its discretion in granting default judgment as a sanction. On the issue of standing, the Federal Circuit rejected the TTAB’s “unduly narrow” conclusion that the Supreme Court’s Lexmark framework was inapplicable, since Lexmark related to a claim of false advertising under § 1125(a) of the Lanham Act, while Empresa Cubana addressed the right to bring a cancellation proceeding under § 1064. The Federal Circuit concluded that Lexmark applied to § 1064 and § 1125(a) because both are statutory causes of action. Nevertheless, the Court found no meaningful substantive difference between the analytical frameworks for standing expressed in Lexmark and Empresa Cubana, and found that the Lexmark “zone-of-interests” proximate cause analysis and the “real interest” and “reasonable belief of damage” requirements under Empresa Cubana similarly provided a right to bring a cause of action. As such, the Court ultimately agreed with the TTAB’s conclusion that SFM’s pleaded allegations of a likelihood of consumer confusion based on a similarity of the parties’ SPROUTS and SPROUT trademarks, and their respective goods and services, were sufficient to demonstrate a reasonable belief of damage under Empresa Cubana and thus supported the right to challenge Corcamore’s registered trademark via cancellation.

With regard to the TTAB’s grant of default judgment, Corcamore did not challenge the TTAB’s express authority to grant default judgment as a sanction under 37 CFR § 2.120(h) and Fed. R. Civ. P. 37(b)(2). Instead, Corcamore argued that the TTAB had no factual or legal basis to enter default judgment in the first place. The Federal Circuit squarely rejected this argument, finding no abuse of discretion in the TTAB’s entry of default judgment as a sanction in response to Corcamore’s discovery misconduct, its failure to appear in a TTAB conference and its failure to timely serve discovery responses.

The Federal Circuit therefore affirmed the TTAB’s conclusion that SFM met the statutory requirements for standing to challenge Corcamore’s registered US trademark, and held that the TTAB did not abuse its discretion in imposing sanctions via a default judgment and cancellation of the SPROUT trademark registration.



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