Tuesday, July 31, 2007

Tartmaster, tortmaster

Magic Kitchen LLC v. Good Things International Ltd., --- Cal.Rptr.3d ----, 2007 WL 2171375 (Cal.App. 2 Dist.)

Plaintiff makes a kitchen device, the Tartmaster. From the mid-1980s until 1993, one defendant Pampered Chef bought Tartmasters in 3- and 4-inch sizes from plaintiff, which it sold at “The Pampered Chef Tartmasters.” Plaintiff never required Pampered Chef to use plaintiff’s name on the Tartmaster. Pampered Chef also bought cookbooks from plaintiff; the cookbooks described recipes that could be made with the Tartmaster, and the back cover showed “3 easy steps” for using the Tartmaster: “fill,” “cut ‘n seal,” and “cook.” Around 1993, defendants learned that plaintiff’s patent had expired, and they began producing and selling copies of the device, which they called the Cut-N-Seal. The Cut-N-Seal was the same basic design, but used a different material and a different spring. It was also marked “Cut-N-Seal” and “The Pampered Chef.” Plaintiff knew this no later than mid-1993, but only sued in 2003, alleging trade dress infringement, unfair competition, and false advertising.

Between 1993 and 2003, Pampered Chef invested in the Cut-N-Seal by traveling to Asia (where it was produced), promoting it, and developing recipes for it. In the late 1990s, Pampered Chef switched to selling only a 3½-inch version. When it was introduced, both the product and its instructions were marked “patent pending,” but Pampered Chef never filed a patent application, and it removed the term from the product in 2002, and from the instructions in 2002 or 2003. It also put a sticker stating (ungrammatically) “No patent pending are issued for this product” on earlier versions that remained in stock.

The basic claim was that the Cut-N-Seal infringed the Tartmaster trade dress. The unfair competition and false advertising allegations were also based on claims that defendants transacted business in California without obtaining a certificate of qualification from the Secretary of State and falsely marked the 3 1/2 -inch Cut-N-Seal as “patent pending.”

Unsurprisingly, defendants’ laches defense was successful. The trial court granted a directed verdict on laches after a full jury trial, and also ruled in favor of defendants on other grounds. The court of appeals noted a dispute over whether the Lanham Act has a statute of limitations or whether laches is the only timeliness defense. Some federal cases borrow statutes of limitations from analogous state law claims, but other cases disagree. But, given that the court agreed that laches barred this suit, it did not take a side.

Laches has three elements: (1) delay (2) that was not reasonable or excusable and (3) that resulted in prejudice to the opposing party. If a Lanham Act claim is filed within the analogous state limitations period, there is a strong presumption that laches is inapplicable, whereas if it’s filed outside that period, there is a presumption of laches. Here, the parties disagreed over the analogous period – plaintiffs wanted the four-year limit for unfair practices under section 17200 of the Business & Professions Code, but defendants argued for the three-year limit for fraud and mistake. (I’m with plaintiffs, since the former is the more specific provision.) But it doesn’t matter, not when the plaintiffs delayed ten years.

Plaintiffs argued that they should nonetheless be entitled to damages sustained during the relevant limitations period. But for laches purposes, a continuing tort is considered a single act, not a series of separate acts – even for purposes of prospective injunctive relief. They then argued that the 3½-inch Cut-N-Seal, introduced in April 2000, justified their suit. But the allegedly infringing conduct began with the 3- and 4-inch versions; size does not, here, matter.

Plaintiffs had no good explanation for their delay, arguing only that Pampered Chef knew of plaintiffs’ objection in 1993 and that the parties were litigating other matters. Defendants adequately showed prejudice through their investment in producing millions of Cut-N-Seals and advertising the product.

Finally, plaintiffs argued that defendants’ unclean hands disqualified them from benefiting from laches, based on defendants’ (1) intentional copying of the Tartmaster design, (2) false marking of “patent pending,” and (3) omission of plaintiffs’ prior use of the phrase “cut ‘n seal” from defendants’ trademark application.

The court allowed that unclean hands can bar a laches defense in Lanham Act cases. But the relevant precedent comes from cases involving willful or deliberate infringement, not merely intentional copying. There was no evidence here that defendants knew plaintiffs owned a valid trade dress. The “patent pending” misrepresentation was irrelevant to the trade dress issue, and thus couldn’t support an unclean hands finding. The court didn’t specifically address “cut ‘n seal,” but found that defendants’ hands had not been dirtied in acquiring the rights they were asserting.

The court additionally affirmed the trial court’s rejection of the other state-law claims. California law provides that a foreign corporation may not transact interstate business without a certificate of qualification from the Secretary of State, but defines transacting interstate business to exclude sales through independent contractors or merely soliciting orders that require acceptance outside the state. That’s all Pampered Chef did. Moreover, under Prop. 64, plaintiffs apparently lack standing to raise this claim, since the failure to have a certificate of qualification doesn’t seem to have injured them.

The false patent marking issue was somewhat more serious. But plaintiffs still weren’t entitled to relief. First, their state-law false advertising claim was equitable and didn’t allow damages, and they weren’t entitled to restitution by disgorgement of profits because there was no evidence that plaintiffs had given any money to defendants. Nor was an injunction proper, since the unlawful conduct was unlikely to occur. The court also repeated the standing objection – though here there is an argument to be made (whether or not plaintiffs actually made it) that false patent markings harm competitors, because consumers may think that there are no competitors, or that competitors are infringers, as a result.

The court of appeals also affirmed the denial of defendants’ motion for attorneys’ fees. The Lanham Act standard for fee awards requires an exceptional case. In federal cases, the FRCP require explicit findings for an order denying (or awarding) attorneys’ fees, but that is federal procedure and not applicable in state court. Even if the court of appeals were to find that the case at bar was exceptional and plaintiffs’ claims groundless and unreasonable, the trial court would not have abused its discretion, because the Lanham Act says fees “may” be awarded in exceptional cases. (Didn’t quite get the reasoning here – even discretionary decisions can occasionally be abuse of discretion, no?)

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