Monday, March 10, 2014

Deference to the PTO's acceptance of a specimen and tacking

Reynolds Consumer Products, Inc. v. Handi-Foil Corp., 2014 WL 794277, No. 13-cv-214 (E.D. Va. Feb. 27, 2014)

Reynolds sued Handi-Foil, its competitor in the market for aluminum foil, for trade dress infringement and false advertising.  Here, the court rejects Handi-Foil’s counterclaims seeking cancellation of Reynolds’ registrations for abandonment and for declaratory judgment of noninfringement. 

Reynolds owns two registrations for Reynolds Wrap packaging, filed in 1977 and amended in 1997.  Reynolds’ 1997 specimen showed a package that was majority metallic blue, with the far right end pink, separated by a series of sharp diagonal silver lines.  “Reynolds Wrap” is written on the blue area in bold silvery-white font and the square footage of the roll is in bold blue font on the pink area.

When Reynolds filed to renew both registrations in 2007, its specimen again differed.  It still had the blue, silver, and pink color-pattern and similar writing/font, but used a series of curved silver lines to separate the blue and pink areas. The PTO accepted the specimen and renewed the registrations.

In 2008, Reynolds changed the box again, altering the proportions of the blue and pink areas as well as the proportions of the writing in each area, and added the text “Trusted Since 1947” underneath the logo on the blue side of the box.

Here's the Handi-Foil package:
When it entered the retail aluminum roll foil market, Handi-Foil representatives pitched Handi-Foil’s product as new and comparable to Reynolds Wrap, leading to Reynolds’ false advertising claim.

Abandonment: abandonment requires a use to be discontinued with no intent to resume such use.  The Reynolds Wrap box currently in use was concededly non-identical to the registered marks.  Reynolds argued that its changes were minor, and invoked tacking as a defense to the counterclaim.  Tacking requires a court to ask whether the marks in use are the legal equivalent of the earlier marks.  This is a more stringent standard than confusing similarity: it requires “the same, continuing commercial impression” and tacking is to be allowed “only in rare instances.”  However, courts are divided over whether tacking is a question of fact (9th Cir., W.D. Va.) or of law (Fed. Cir., 6th Cir.).  Given the Fourth Circuit’s previous reliance on Federal Circuit tacking precedent, the court here decided that tacking is a question of law, though this creates a “puzzling” disconnect with infringement (a question of fact).  Given that Reynolds admitted that the marks in use were different from the registered mark (a key element of an abandonment claim), and that tacking was Reynolds’ defense to the cancellation counterclaim, the court found that the burden of showing tacking rested with Reynolds.  The proper comparators were the current Reynolds box and the 2007 specimen accepted by the PTO.

Reynolds met its burden of showing that the current box created the same, continuing commercial impression as the 2007 specimen. “If Reynolds’ current box and the 2007 specimen cannot be said to create a continuing commercial impression … the Court cannot imagine any two non-identical marks that would.”  Why is the 2007 box the right comparator?  Because the PTO “analyzed Reynolds’ renewal application in light of the 2007 specimen,” so the court didn’t need to resolve the question of deference owed to the PTO.  Hunh?  The registered mark doesn’t look exactly like the 2007 specimen; starting the analysis from 2007 allows the PTO to determine the tacking issue until 2007, which is pretty much precisely the question before the court, so I would think the question of deference would need to be resolved.  Anyway, a reasonable juror couldn’t find the 2007 and 2008 marks failed to produce a continuing commercial impression, entitling Reynolds to summary judgment of non-abandonment.

Also, though side by side comparison was enough here, evidence of consumer impression and the markholder’s intent in modifying the designs also supported Reynolds.  A study commissioned by Reynolds found that “the vast majority of target buyers fail to recognize that Reynolds packaging has been modified.” The study was also evidence of Reynolds’ intention to not abandon its marks.

The court turned to Reynolds’ false advertising claim. Handi-Foil argued that its sales reps’ solicitations to retail stores weren’t “advertising or promotion.”  Using the standard test, the question was whether the statements were disseminated sufficiently to the relevant purchasing public.  Reading the facts most favorably to Reynolds, Handi-Foil contacted over a quarter of the relevant market, which created a genuine issue of material fact on advertising.

Handi-Foil also challenged falsity.  But questions of materiality and falsity are typically questions of fact. Plus, the court didn’t agree that professional retail buyers would find information about foil strength immaterial.  For purposes of denying summary judgment, “Handi-Foil’s clear focus on strength equivalency in its concerted sales pitches itself creates a genuine issue of fact as to whether strength equivalency was material.”  And the tests in the record created a genuine issue of material fact as to whether Handi-Foil was as strong as Reynolds Wrap.

Finally, Handi-Foil moved to strike Reynolds’ jury demand, which could happen only if the relief sought was entirely equitable. Reynolds asked for “damages to compensate it for lost sales and diminished goodwill in an amount to be proven at trial.” Handi-Foil argued that Reynolds’ damages expert spoke exclusively of unjust enrichment when deposed, thus only equitable remedies were at stake.  But a legal remedy isn’t unavailable just because the measure of damages may necessitate a look at the defendant’s business records. Reynolds was seeking “proxy damages”: quantifying its alleged damages for lost sales and goodwill by looking at Handi-Foil’s profits.  The use by a nonlawyer expert of the term “unjust enrichment” couldn’t vitiate Reynolds’ Seventh Amendment right to a jury.

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