Schutte Bagclosures Inc. v. Kwik Lok Corp., 48 F. Supp. 3d 675 (S.D.N.Y. 2014)
Kwik Lok makes clips to close bags in the US, and Schutte does so in Europe and is seeking to expand to the US. Schutte sought a declaratory judgment of noninfringement of Kwik Lok’s product design trademarks, and Kwik Lok counterclaimed for infringement and dilution; the court here declines to dismiss the counterclaims as to the Schutte design that Schutte has made active steps to disseminating in the US.
In 2010, the Court of Appeal of the Hague invalidated Kwik Lok’s European Community Trade Dress Registration No. 55848429 as functional and held that Kwik Lok didn’t have valid patent, trademark, or trade dress claims against Schutte. Kwik Lok Corporation v. Schutte Bagclosures, BV, Court of The Hague, March 30, 2010, case no. 105 007 842/01 (Dutch opinion) (short summary which Google can sort of translate). Kwik Lok has two incontestable US registered marks. One is for “a thin, rectangular plastic bag closure with two arched edges along the top and bottom, parallel edges on the sides, and a beveled triangular slot opening at the center of one of the arches”; the second is for “a thin, square plastic bag closure with beveled portions on each corner, and a beveled triangular slot opening at the center of one side.” Kwik Lok also claimed unregistered trade dress rights in similarly configured products.
|One of Kwik Lok's registered designs|
|Another registered Kwik Lok design|
Schutte Inc.’s products are generally square or rectangular, with four rounded corners with four small jagged protrusions near each rounded corner, a “v” shaped opening along one side, and a concave side opposite the side with the opening. In 2012, Schutte shipped samples of over 100,000 Clipps G–Series bag closure products for use in New York. As of December 2013, Schutte Inc. hadn’t designed, manufactured, or offered any products for sale in the United States. It was promoting the Clipps G–Series on the Schutte website, clippsamerica.com. The court found that there was an actual controversy over the G-series, but not over other models.
Schutte argued that Kwik Lok’s rights in one of the registrations was invalid for failure to identify Kwik Lok as the source, genericity, and abandonment. Incontestability was a barrier to some of this, and many of Schutte’s arguments seemed directed at Kwik Lok’s unregistered trade dress claims. Schutte argued that Kwik Lok’s claims were so vague and overbroad that the trade dress was generic. But Kwik Lok produced evidence showing that its design was unique in the industry and that it went to great lengths to promote this design as its own, creating factual disputes precluding summary judgment.
Schutte argued that Kwik Lok abandoned the registration by using the mark in a generic way, advertising the functional benefits; again there was a factual dispute. Finally, Schutte argued that Kwik Lok abandoned its trademark rights by engaging in uncontrolled or “naked” licensing by allowing third party distributors and consumers, such as bakeries, to print their own trademarks, prices, and other promotional messages on Kwik Lok’s bag closures. But naked licensing only causes abandonment if it causes a mark to lose its source significance. Here, despite the third party labeling, “Kwik Lok’s product configurations still retain their significance to the relevant market of distributors,” at least to avoid summary judgment.
As for Kwik Lok’s unregistered trade dress, Kwik Lok produced evidence that it sold the Beveled Notched Square exclusively and successfully from 1996 to 2013 and spent millions of dollars on advertising and promoting its trade dress rights. (Someone has made art out of them.) A principal target of Kwik Lok’s extensive marketing and sales was a knowledgeable group of specialized wholesale buyers, who bought large quantities of bag closures and then marketed them to bakeries and grocers. Schutte didn’t produce evidence that this group didn’t recognize the design as indicating source, so again it couldn’t win summary judgment.
Nor could it win on likely confusion. The court quoted decades-old precedent supporting the claim that “[w]hen the likelihood of confusion is in doubt, the question will be resolved in favor of the senior user.” I seriously doubt this comports with the Supreme Court’s current understanding of the Lanham Act (see, e.g., KP Permanent), but regardless there wasn’t enough evidence in the record to warrant summary judgment. Though there was no direct evidence of strength, Kwik Lok had shown that it invested a significant amount of resources into advertising and promotion, and that its sales success produced acquired distinctiveness in the relevant market. Plus, a reasonable factfinder could find that similarity favored Kwik Lok in the overall impression of the marks. (Given the sophistication of the relevant consumers?) The competition was direct, and actual confusion isn’t required and wouldn’t be expected given that Schutte was just starting to try to enter the market; the same for quality issues.
The court found that good faith weighed against Schutte, because Schutte “was well aware of Kwik Lok’s products and sought to compete directly against them by introducing a similar product.” It quoted a Schutte memo: “Schutte has been in the market with ‘a copy’ of the Kwiklok closure. Smartly done, and just a little bit different from Kwiklok” The court found this “some evidence” of bad faith.
Although the high level of consumer sophistication favored Schutte, and one factor could be dispositive, Schutte failed to carry its burden on “three of the most important factors: strength, similarity, and proximity.”
Surely, you’d think, federal dilution must go? Though Kwik Lok sold five to six billion of its bag closures per year, and spent millions of dollars in advertising, “sales and advertising numbers alone are generally insufficient to show that a product has become sufficiently famous to be protected by the TDRA.” Niche fame won’t do. Kwik Lok also appealed to “publication and circulation of product brochures and catalogs, attendance at industry trade shows, and advertisements in trade publications.” (Note that all of these are at most evidence of niche fame, not general consuming public fame.) Yet Schutte apparently conceded fame, and argued that any fame didn’t depend on the design’s distinctiveness. But that raised at least an issue of fact on fame.
[I don’t get why Schutte didn’t argue fame more aggressively. The theory of infringement directly contradicts the theory of fame: reasonable end consumers aren’t likely to think that these tags, many bearing other parties’ marks, are distinctive. The secondary meaning and confusion is explicitly argued to exist in the distributor purchasers; these are also the only ones who could experience dilution. But that’s niche fame.]