Quite a fact pattern here: Constellation Brands, Inc. v. Arbor Hill Associates, Inc., --- F.Supp.2d ----, 2008 WL 515028 (W.D.N.Y.)
Plaintiff Constellation owns the registered marks Arbor Valley and Arbor Mist for wine. Defendant AHA owns the registered mark Arbor Hill for wine. Both are headquartered in upstate New York.
AHA’s owners John and Katharine Brahm own the Arbor Hill Vineyard, which was at one time leased to Widmer Winery, which John Brahm co-owned. Constellation bought Widmer and got rid of Brahm. The Brahms then formed AHA. In early 1987, AHA chose and registered Arbor Hill as a mark for wine-based food products, but (on the advice of counsel) not wine. Around September 1987, AHA opened the Arbor Hill Grapery, a retail shop selling Arbor Hill food products such as wine sauces, jellies, and vinegars. The Arbor Hill Grapery was located within a few miles of Constellation’s facilities and, AHA alleged, some of Constellation’s management passed by the Grapery on a daily basis. Moreover, AHA contends that John Brahm told Constellation management (his former employers) that he was starting a business using Arbor Hill and that AHA bought wine-making ingredients directly from Constellation. Arbor Hill wine was sold in retail outlets, including two retail wine stores owned by Constellation. Constellation’s former chair and founder received a bottle of Arbor Hill wine in 1991 and complimented John Brahm on it.
In 1987, Constellation began selling wine under the federally registered trademark Arbor Valley, making its first sale in upstate New York in 1991.
Around August 1988, AHA began selling wine with a label stating “made and bottled by Arbor Hill Grapery.” Sometime before June 1989, AHA began using the brand name “Arbor Hill” for wine. Sales are local and modest, but persistent, and there has been some media coverage. Between 1993 and 2004, AHA’s annual gross revenues for the sale of Arbor Hill products ranged between $200,000 and $550,000. AHA spent between $10,000 and $30,000 per year advertising Arbor Hill products, and “more than 15,000 customers visit [the Arbor Hill Grapery] for wine tasting” annually.
AHA claimed not to have been aware of Constellation’s mark until 2001. Though AHA’s attorneys conducted a trademark search in 1987 in connection with the Arbor Hill mark, the search did not reveal Constellation’s Arbor Valley.
In 1998, Constellation began selling Arbor Mist, which is wine mixed with fruit juice, to appeal to consumers who think ordinary wine is too sweet. The name Mist was chosen, without awareness of Arbor Hill wine, to evoke the frosted bottle in which the product would be sold and the “cold refreshment” of the drink. AHA became aware of Arbor Mist as soon as it entered the market.
Constellation maintained that a grape arbor is a generic term for a place where grapes are grown, and that visuals of arbors are commonly used in selling wine. Moreover, there are a number of other wines in the US that use “arbor” as part of their marks, including: Arbor, Arbor Crest, Arbor Brook, Arbor Knoll, Arbor Frost, Arbor Trails, Thornapple Arbor, Bel Arbors, Old Arbor, and California Arbor. Constellation registered Arbor Mist in 1998; though it conducted a trademark search, it didn’t specifically seek an opinion about Arbor Hill, though it was aware of the Arbor Hill Grapery.
AHA applied to register Arbor Hill for wine in 1999; the registration issued in 2000, though the mark had been in use since 1989. In early 2001, AHA complained to Constellation about Arbor Mist. Litigation ultimately ensued.
Constellation sought a declaratory judgment of no likely confusion between Arbor Mist and Arbor Hill. In the alternative, Constellation requested a finding that the Arbor Hill mark infringed the Arbor Valley mark.
Arbor Hill counterclaimed for trademark infringement and false advertising. It alleged that Arbor Mist is not considered a high-quality wine and that Arbor Mist is not actually “wine,” because its alcohol content is too low.
AHA alleged that it received a number of phone calls, emails, and letters from consumers confused about the association between Arbor Hill Grapery and Arbor Mist. It created a form letter for consumers, and “[n]early 30 such confused customers signed such forms.” Of the documented instances of alleged confusion, “four were inquiries by individuals wondering if Arbor Hill produced Arbor Mist, one of the instances involved a mistake by a telephone operator, six of the instances involved people who actually bought Arbor Mist products and thought that it was produced by Arbor Hill, and 36 of the instances involved people who assumed that they could buy Arbor Mist at the Arbor Hill Grapery.” Twice, local publications mistakenly referred to Arbor Mist as Arbor Hill.
A former AHA employee also submitted an affidavit stating that, during her six years of employment at the Grapery, 15-20 people per week sought to purchase Arbor Mist at the store, and she received complaints from consumers dissatisfied with Arbor Mist. Though the court cannot determine credibility on a summary judgment motion, it did note two “curious” features of this affidavit: First, the 15-20 people per week number is inconsistent with AHA’s submission of only 36 instances of such confusion, “even though it began documenting such instances of confusion, by asking confused customers to sign pre-printed forms, in the Fall of 2000.” More curious than that is that the employee herself signed one of the pre-printed forms in September 2000, a year after she began working at the Grapery.
AHA further submitted a summary of the results of a pilot survey of 52 consumers of “domestic wine, and/or wine coolers and/or fruit flavored wines,” in Syracuse, purportedly showing that between 15.4% and 17.3% of the respondents were “confused into believing either that Arbor Hill came from, was connected with, or received authorization from the makers of Arbor Mist,” “based only upon the brand name.” Each respondent was asked to examine a bottle of Arbor Mist as if considering a purchase; the surveyor then removed the bottle and asked questions about it. Then respondents were shown 3 bottles of wine – Arbor Hill, the fictitious Argent Mist, and Beringer – and asked more questions about confusion. AHA didn’t submit the actual questions asked or the verbatim responses.
Constellation opposed the introduction of the pilot survey, since AHA declined to produce it in discovery, claiming work product privilege. In the alternative, Constellation argued the survey was inadmissible on Daubert grounds. Separately, Constellation contended that, since 1998, it has sold hundreds of millions of bottles of Arbor Mist and never received any calls or messages indicating confusion.
Fraud
While the litigation was pending, Constellation’s patent attorney, who didn’t know about the lawsuit, notified Constellation that it was time to file a “combined Section 8 and Section 15 affidavit” concerning the Arbor Mist mark with the PTO. In such an affidavit, the affiant swears that the mark has been in use for five years and that the mark has not been the subject of any legal dispute. The patent attorney contacted Constellation’s VP/General Counsel, who was responsible for overseeing trademark matters. After some back-and-forth over whether the affidavit would be forwarded to an individual at Constellation, the VP, who at the time did not recall the specific contents of a combined 8/15 affidavit, agreed with the patent attorney’s suggestion that he (outside counsel) could just file the affidavit over his own signature, meaning that no one at Constellation actually reviewed the affidavit. The patent attorney verified that Arbor Mist was still in use by buying a bottle; he knew that it had been in continuous use because he’d seen it in stores. He believed that the mark was not the subject of litigation, because he’d represented Constellation since at least 1964 and was familiar with Constellation’s trademark affairs, including matters involving the Arbor Mist mark. Thus he didn’t ask anyone at Constellation about pending litigation.
AHA accused Constellation of fraud on the PTO. Constellation voluntarily withdrew the affidavit, but AHA amended its answer to seek cancellation of the mark on the grounds of fraud. AHA alleged that Constellation had filed ten Section 15 affidavits during the VP’s tenure, and that he must have known what such an affidavit required. (My own take: it seems much more likely that he honestly forgot – an embarrassing mistake, but a plausible one; I rarely attribute to evil intent what can be explained by negligence.)
The standard for cancellation of a registered trademark for fraud is clear and convincing evidence. Mere error or inadvertence will not suffice, only a deliberate attempt to mislead the PTO with respect to a material fact. The burden on a party seeking cancellation is heavy, and doubts must be resolved against cancellation, especially on a motion for summary judgment. The courts give registrants considerable room for “honest mistake, inadvertence, erroneous conception of rights, and negligent omission” (citation omitted). Because AHA didn’t submit evidence disputing Constellation’s account of the mistake, it couldn’t succeed in its motion.
The court nonetheless held that filing a false Section 15 affidavit could justify cancelling the registration, though the relevant authorities are scant and McCarthy appears dubious that falsity on a matter going to incontestability would justify cancelling the registration itself. In any event, the court found triable issues of fact on fraudulent intent.
Arbor Valley Claim
AHA also sought summary judgment on Constellation’s alternative claim that Arbor Hill infringes Arbor Valley. Constellation argued that, if Arbor Mist infringes Arbor Hill, then Arbor Hill must infringe Arbor Valley. AHA argued that Constellation’s infringement claim was barred by laches, since Constellation was aware of Arbor Hill for at least a decade before suing. The court agreed.
Laches requires (1) awareness of the defendant’s mark; (2) unreasonable delay; (3) prejudice to the defendant; (4) clean hands. Because the Lanham Act has no statute of limitations, courts look to analogous state limitations periods for laches purposes, and that determines which party has the burden of proving or rebutting the defense. For trademark, the analogous New York statute of limitations is six years (for fraud). Since Constellation waited longer than six years, laches may be presumed. Though Constellation stated that it had no idea when it became aware of Arbor Hill, the standard for laches is when a plaintiff should have known. Constellation knew or should have known about Arbor Hill at least twelve years before the litigation started. AHA also suffered prejudice by continuing to develop and promote Arbor Hill wines, and there was no evidence of bad faith.
Constellation argued that, if Arbor Mist infringes Arbor Hill, that would be a change in the applicable trademark law, which in fairness should allow its own infringement claim. It cited cases holding that plaintiffs aren’t dilatory when they fail to act based on a reasonable belief that the current state of the law prevents them from pursuing claims. But there’s been no change in the relevant trademark law here.
Arbor Mist Noninfringement Claim
The court found that Arbor Hill was an arbitrary mark. (Comment: Really? Not descriptive or suggestive of wine?) Arbitrary marks are conceptually strong. But marketplace strength must also be considered; there’s extensive third-party use of “arbor” in the wine industry. (Comment: Which is why the Arbor Hill mark shouldn’t be considered arbitrary.) Moreover, AHA has only achieved modest, regional success with its Arbor Hill wine.
The marks are “marginally similar” because they both contain “arbor.” Other than that and the fact that they’re sold in similarly shaped standard wine bottles, there’s little similarity. The marks don’t sound the same, and in terms of meaning, Arbor Hill suggests a geographic location (comment: see above re: not arbitrary), whereas Arbor Mist suggest a more general connection to grape arbors or vines. The marks use different typefaces and labels, including different colors, pictures, and accompanying words. The Arbor Mist bottle differs from standard wine bottles like Arbor Hill’s because it’s clear, frosted glass, and has a screw-off cap instead of a cork.
The overall impressions of the products, the court concluded, were very different, and sufficiently memorable to avoid confusion even when the products weren’t side by side. Similarity weighed heavily in Constellation’s favor.
Competitive proximity: the products are sometimes sold through the same channels of trade, and they do compete, though Arbor Mist is less expensive. But the products differ: Arbor Hill is traditional table wine, but Arbor Mist is a mix of wine and fruit juice with a lower alcohol content. (Comment: I would think that consumers might easily perceive them as related, just as the Body Shop’s White Musk perfume has a less-intense variant known as Waves of White Musk – Arbor Mist could be Arbor Hill Lite.) The products also differ in geographic distribution and market position – Arbor Mist is a major national product, and Arbor Hill is not. Ultimately, though the products compete, this factor doesn’t “overwhelmingly favor” AHA.
Bridging the gap: There’s no gap to bridge, and this factor is therefore irrelevant.
Actual consumer confusion: The court declined to consider the pilot survey because AHA refused to produce it in discovery. In any event, the court didn’t consider the two-page summary of the survey admissible. Without pictures of the actual bottles used, specification of the questions asked, or lists of the responses, the court couldn’t determine whether the survey was reliable. Moreover, surveys have little probative value “where they show only that a certain number of consumers will assume that some type of relationship exists between two companies with similar names.” In the absence of other information, consumers may presume that two companies with similar names are likely to be connected, but that doesn’t show likely public reaction under actual market conditions.
The rest of the confusion evidence was anecdotal. “Overall, it appears that six instances involved actual purchasers of Arbor Mist, and as many as 6240 instances, over a six-year period, involved people who stopped at the Arbor Hill Grapery assuming that they could buy Arbor Mist.” (The court used a 20-people-a-week figure based on the AHA employee’s affidavit.) Viewing the evidence in the light most favorable to AHA, this factor favored AHA.
Good faith: Mere knowledge of a senior user’s mark doesn’t necessarily establish bad faith. Good faith can come from selecting a mark based on the product’s characteristics, from doing a trademark search, or from relying on advice of counsel. AHA conceded that there was no attempt to benefit from Arbor Hill’s goodwill. But AHA argued that Constellation was aware of its mark. The court, though, reasoned that the specific employees who came up with the Arbor Mist name were unaware of Arbor Hill. Though “arbor” is not necessarily connected with wine, it’s suggestive of grapes and wine just as “orchard” is suggestive of apples. Thus, Arbor Mist reflects product characteristics, and Constellation had already been using Arbor Valley for over a decade.
AHA maintained that Constellation acted in bad faith by failing to seek legal advice specific to Arbor Hill. But Constellation did run a trademark search for Arbor Mist, so failure to address Arbor Hill specifically wasn’t bad faith. This factor favored Constellation.
Quality of the defendant’s product: Low quality counts against a junior user when the senior user’s reputation could be harmed by a poor-quality junior use. But big quality disparities militate against likely confusion, so AHA’s evidence of poor quality might cut against its claim. In the modern era, however, this just isn’t a very important factor in likely confusion; it goes more to likely harm from confusion. And AHA’s evidence of consumer dissatisfaction was hearsay for purposes of showing inferior quality. The only admissible evidence was that Arbor Mist is a sweeter, lower-alcohol drink that appeals to a different set of consumers. This factor favored Constellation. (Comment: And here I just told my class that this factor never favors a defendant.)
Purchaser sophistication: Courts in wine cases have said lots of things about consumer care and sophistication in choice of wine. Here, neither party submitted evidence on this point. Arbor Hill wines cost $7-$12 per bottle, and Arbor Mist costs $3-$4 per bottle. Given the cheapness of the products, both parties’ customers might be presumed to be unsophisticated. Thus, though the court was unconvinced that much sophistication was required to distinguish between the products, this factor favored AHA.
On balance, the court determined, summary judgment was inappropriate. Triable issues of fact on actual confusion precluded summary judgment.
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