Sunday, January 06, 2008

Court of appeals gives a little bitter and a little sweet to Splenda

Via several alert readers:

McNeil Nutritionals, LLC v. Heartland Sweeteners, LLC, --- F.3d ----, 2007 WL 4478981 (3d Cir.)

District court ruling allowing copying of Splenda’s yellow trade dress for use in sucralose house brands discussed here. The court of appeals affirmed in part and reversed in part, finding that as a matter of law the likelihood of confusion factors weighed in favor of McNeil as to certain versions of the private-label packages, so that on remand the district court would have to consider whether injunctive relief was appropriate as to those versions.

The opinion began by noting that, in 2005, private label products accounted for 20% of all US supermarket, drugstore, and mass merchandiser sales, or $50 billion. At that time, more than 90% of consumers were familiar with store brands, and almost as many bought them regularly. Such brands are typically found next to the coordinate national brands, and their packaging often invites comparison with a national brand, whether by similarity in dress or by “compare to” statements. Shelf tags also explicitly invite comparisons. The court accepted as fact that consumers are generally aware that private label products are sold next to national brands, and that prominent price displays allow consumers to see the cost differences between them.

Splenda is sold in a primarily yellow package, with blue italicized lettering on a white cloud, pictures of food in need of sweetening, and the controversial sloganMade from Sugar, Tastes Like Sugar.” Defendants make private label boxes of individual sucralose packets and bags of granular sucralose for Giant, Stop & Shop, Tops, Food Lion, Safeway, Albertson’s, and Wal-Mart. They use yellow backgrounds and blue or white lettering, and pictures of food in need of sweetening.

The court stated that initial interest confusion could apply to private-label packages sold next to national brands, if it is likely to confuse consumers “‘at the point when [they] first reach[] for the product on the shelf.’” Initial interest confusion, like point of sale confusion, should be assessed using the standard multifactor test.

McNeil argued that the district court misapplied the first factor – the degree of similarity between the marks – with respect to products for which it weighed the similarity factor in favor of defendant Heartland. Similarity is the “‘single most important factor’” in determining likely confusion, and it is not usually assessed by side-by-side comparison unless, as here, the products are typically seen by consumers that way. The district court weighed similarity in defendants’ favor for the Food Lion box, Food Lion bag, and Safeway boxes.

McNeil claimed that similarities should have been weighed more heavily than differences. The court of appeals found that this was not the rule; rather, “forceful and distinctive design features” should be weighed more heavily because they are most likely to affect the overall impression of the trade dress, regardless of whether they’re similarities or differences.

The court of appeals found no clear error in the district court’s ruling on the overall impressions created by the trade dresses. The most important difference was the absence of the mark SPLENDA and the presence instead of a store name and logo. Quoting McCarthy, the court stated that the absence of SPLENDA was not in itself sufficient to cure an otherwise infringing trade dress, but the presence of a house mark can be sufficient. The presence of a house mark should be considered as part of the overall similarity analysis, not as an independent defense. Here, Food Lion and Safeway are themselves well-known to the relevant consumers, who are after all shopping there. And the marks are prominent on the packages. If, as cases from other circuits have found, it’s clear error to weigh similarity against a defendant when the defendant’s own house mark is prominently displayed, it can’t be clear error to weigh similarity in the defendant’s favor.

McNeil also argued that the history of color coding in the sweetener industry increases the likelihood of confusion – white stands for sugar, pink for saccharin, blue for aspartame, and yellow for Splenda. (One of these things is not like the others; this is an argument that goes back to Nabisco and Inwood v. Ives, among other cases – having a unique product in the market does not necessarily lead to enforceable trademark rights.) McNeil argued that yellow was shorthand for Splenda, whereas the market leaders in saccharin and aspartame waited too long to challenge imitators.

The court of appeals was unpersuaded. First, the district court fully accounted for the similarity in color in its overall similarity analysis. Second, the pink and blue experiences cut the other way: consumers understand that not all pink is Sweet ‘N Low and not all blue is Equal. Nor is all yellow Splenda – even sugar packages use yellow.

On consumer care – the weakest part of the district court’s analysis, in my opinion – McNeil argued that the district court erred by requiring a heightened level of care by consumers of no-calorie sweeteners, who are presumably health-conscious. The products are inexpensive – between $4 and $5 – and less sophisticated consumers are not buying sucralose for health reasons. But the district court relied on affidavits about the health-related motivations and extra care of ordinary consumers of no-calorie sweeteners. Moreover, prior Third Circuit language about looking at the least sophisticated consumers in a class only applies when the buyer class consists of both professional buyers and consumers. For a class consisting solely of ordinary consumers, most of whom are health-conscious, the district court didn’t need to focus on the least sophisticated of them.

McNeil also argued (persuasively) that health-conscious doesn’t mean brand conscious. Consumers may look at the active ingredient, but still be confused by the trade dress, and the district court therefore was wrong to hold them to a higher standard with respect to choosing among sucralose products. The court of appeals rejected this argument because it hadn’t been raised before the district court, and because grocery stores put sugar right next to sucralose; because sugar packages are often yellow, a reasonably prudent consumer “might be” careful not to pick up sugar by accident. In sum, there was no clear error on consumer care.

On evidence of actual confusion, McNeil argued that the district court erred in failing to count the evidence of one actually confused consumer in McNeil’s favor. But the district court carefully considered her testimony and held that she was just unusual. In fact, she usually didn’t pay attention to brands, and – this is based on a quote from McCarthy rather than record evidence – such consumers are “few” and unrepresentative. As a matter of law, brand indifferent consumers don’t count in the likelihood of confusion inquiry. (A secret pocket of materiality in trademark law! If only defendants surveyed for brand indifference, we might find out more about those “few” consumers!)

With respect to the Giant, Stop & Shop and Tops boxes and bags (collectively Ahold, since they’re all owned by Ahold), the district court weighed similarity in McNeil’s favor because there weren’t any prominently displayed distinguishing design features on those products, but still found in favor of defendants overall. McNeil argued that this was error.

The court of appeals considered this claim in the context of the overall balancing. It concluded that the district court clearly erred in not finding likely confusion for those packages. Because a number of factors weighed in McNeil’s favor and others in favor of neither party, “there is no way” the court could have balanced them against McNeil. The district court clearly erred because the single most important factor in determining likely confusion is similarity, especially when goods directly compete.

The district court relied on consumer awareness of store-brand products sold in direct competition with national brands in similar packaging, often touted by signs inviting comparison. But these factors, the court of appeals held, are insufficient on the current record to overcome the likelihood of confusion. “The danger in the District Court’s result is that producers of store-brand products will be held to a lower standard of infringing behavior, that is, they effectively would acquire per se immunity as long as the store brand’s name or logo appears somewhere on the allegedly infringing package, even when the name or logo is tiny. The Lanham Act does not support such a per se rule.” The practices the district court identified are important, but not sufficient here where the store name and logo aren’t prominently displayed on the packaging.

In other words, the generic maker is going to have to repackage the products for every store it sells – what the court of appeals called a “store-specific signature” -- in order to be better protected against suit; using a third-party name isn’t going to be good enough.

As this collage of Head & Shoulders-style house brands shows (click for larger image), there are a number of house or third-party brands that don’t track the store name. Even Wal-Mart’s Equate doesn’t use the Wal-Mart name prominently, though the comprehensiveness of Wal-Mart’s Equate brand may bring it within the Third Circuit’s holding that “the more a store’s name and/or logo are present around that store’s shoppers, the more likely those shoppers will know well that name and/or logo, which in turn may serve to differentiate materially a store-brand packaging that displays them prominently.”

Essentially, the court of appeals thought that the district court had created a near-absolute “house brand” defense independent of the confusion factors, which was inappropriate. The court of appeals recognized that a prominent house brand might allow store brands to “‘get away’ with” a little more similarity than other defendants’ comparable products. But a tiny differentiating label won’t suffice in any event.

Thus, for the Ahold boxes and bags, the court of appeals remanded for consideration of the other preliminary injunction factors, since McNeil established a likelihood of success on the merits.

The decision is an important trade dress case, further highlighting the importance of a strong house brand: to those who have much, much will be given.

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