Saturday, April 12, 2008

Private labels prove fatal to Electrolux trade dress claim

Imig, Inc. v. Electrolux Home Care Products, Ltd., 2008 WL 905898 (E.D.N.Y.) (magistrate)

Imig sued Electrolux for interference with business relations. Electrolux counterclaimed for trade dress infringement, copyright infringement, and false advertising. The court previously found Imig liable for copyright infringement and false advertising, and this decision deals with the subsequent trial on trade dress and remedies. Electrolux lost the trade dress claim but was awarded over a quarter of a million dollars in damages.

The Electrolux models at issue are known as Sanitaires. (Apparently, 25 vacuum cleaners “crowded the courtroom (which was, unsurprisingly, left spotless)” during the bench trial. “Because the Clerk’s office, like nature, abhors a vacuum,” only pictures remain in the court’s records.) Imig’s Perfects compete with the Sanitaires. The Perfects resemble the Sanitaires in some respects, but differ in others; the similarities are not accidental, as Imig instructed its Chinese supplier to refer to the specifications for Sanitaires in producing the Perfects. Imig attempted to avoid any patent infringement, but expressed a desire “to make a private label vacuum cleaner that is virtually identical in appearance (and perhaps also mechanically identical)” to the targeted models.

The first 425 Perfects sold with an Owner’s Guide that copied the corresponding Sanitaire guide; Electrolux had spent $9000 developing the guide for its own use. The court determined that $9000 was the appropriate measure of damages, since profits from the sales of the Perfects were obviously unrelated to the infringing nature of the manuals.

Imig advertised the Perfects as having three times as much motor life and thirty percent more strength than their “nearest competitors,” and claimed that the Perfects had a motor strength of 9.5 amps. The ads said the machines had been tested by ETL, a testing company. Later ads to the trade explicitly compared the Perfects to the Sanitaires. These claims were false, even knowingly false; trial testimony established that the tests had not been performed by ETL, and had been rigged and distorted besides.

Trade Dress

The first barrier on the trade dress claims was functionality; functionality is presumed since the trade dress is unregistered. Electrolux argued that the combination of six features claimed as trade dress were nonfunctional, mostly referring to the existence of alternative designs. But the existence of alternative designs isn’t enough; the dress may still affect the cost or quality of the article. Specifically, the shape of the hood over the base has a low profile that allows the vacuum to reach under furniture; the use on the bag of the phrase “heavy duty commercial,” which is common in the industry, has a descriptive function; the use of a dial to adjust height is cheaper than the alternative; and the dial’s location at the front of the base is useful. Indeed, Electrolux itself advertised various features of its trade dress as useful. Thus, Electrolux failed to meet its burden of showing that the trade dress was nonfunctional.

Just in case, the court also determined that Electrolux had not shown secondary meaning. Its primary evidence was a consumer survey of 157 people; 75.2% identified a Sanitaire as a Sanitaire or an Electrolux, while 32.9% misidentified a Hoover as such, leading to an alleged net 42% recognition of the trade dress. The court was dubious that the survey was valid (though it doesn’t come out and say so, when 1/3 of the respondents have to be thrown out as “noise,” the remaining results just don’t seem all that reliable). Of the respondents who correctly identified the Sanitaire, not one explained their identification by pointing to all six features that Electrolux claimed as constituting the trade dress, though each feature was mentioned at least once. A substantial percentage of the correct respondents used a non-trade dress feature to identify the vacuums. And more than 2/3 mentioned the Sanitaire’s red color, which Imig didn’t copy; the court noted that this was relevant for the likely confusion analysis.

Thus, the court found that Electrolux had not met its burden of showing that the claimed combination of features had secondary meaning; respondents might have identified the Sanitaire “simply because they saw a red upright vacuum cleaner.” It may be difficult to show secondary meaning for a combination of six features, but that’s the burden Electrolux took on when it claimed those features as its trade dress.

The best evidence of secondary meaning was Imig’s deliberate copying. But the Perfects only share some features with the Sanitaires; they also resembled—to the court’s eye, more closely—other Electrolux “private label” brands, as to which Electrolux didn’t claim trade dress protection. Imig was undoubtedly trying to copy the “overall look” of a successful competitor, but not one uniquely associated with the Sanitaire.

Adding something more than a belt and suspenders, the court went on to find no likely confusion. On strength: Electrolux authorized a number of private label vacuums that incorporate varying elements of the claimed Sanitaire trade dress. The only trade dress element that none of the private label vacuums share is the red color, which Electrolux doesn’t allow on any private label. By populating the market with several different brands of vacuum that bear a strong resemblance to each other, Electrolux strengthened the association of red with Sanitaires but simultaneously weakened the association between the brand and the other design elements for which it claimed protection. “In other words, if not for the mix-and-match approach that Electrolux has taken in designing the look of the various private label vacuums, I would find its argument on the ‘strength’ factor more persuasive.”

There were several similarities between the Perfects and the Sanitaires, but the prominently displayed brand names prevented confusing similarity. Electrolux argued that the brand name “Perfect” was relatively unknown, so the “Perfect” nameplate didn’t serve to distinguish the source. Under the circumstances, though, that argument harmed Electrolux. Like each of the private labels Electrolux makes, the Perfects share some of the elements of the Sanitaire trade dress, but not all. But Electrolux claimed that the point of making the private labels differ somewhat is to avoid confusion and preserve the strength of its mark. The Perfects were more similar to the various authorized private labels, as to which Electrolux considers there’s no risk of confusion, than to the Sanitaires themselves.

Moreover, Electrolux’s testimony about private labels and confusion weighed against confusion. Electrolux attempted to “walk a very fine line.” It has private label vacuums incorporate elements of the Sanitaire design, but only under distinct brand names. But its testimony “suggested that Electrolux tacitly fostered an understanding in the marketplace that it was in fact manufacturing the vacuums sold under those private labels.” That was the source of the argument that Imig’s partial copying would fool people into thinking that Imig was selling a private label Electrolux. Asked how consumers knew the private label brands were associated with Electrolux, Electrolux’s witness said that consumers were sophisticated and could determine source from the Electrolux part numbers and logos on the internal components. But Electrolux couldn’t have it both ways. If consumers are sophisticated enough to look at the logos on internal components, they’re sophisticated enough to recognize that the absence of such logos means the Perfects aren’t made by Electrolux. If they’re not sophisticated enough to link the private labels with Electrolux, the Perfects still aren’t confusing because they look like just another private label.

In the circumstances of the case, including Electrolux’s testimony from a witness with extensive experience as a distributor who could provide specific anecdotal evidence on other matters, the court also found it significant that Electrolux failed to provide any evidence of actual confusion.

Though the court found the testimony of Imig’s principals not credible, it did not find that Imig’s intent weighed in favor of likely confusion. They intended to compete unfairly against Electrolux by deceiving consumers through false advertising. But the nature of the deception was inconsistent with likely confusion—Imig claimed superiority to the Sanitaires. This attempt to distinguish the products, albeit false, actually undermined any inference of confusion.

False Advertising

The court enjoined past false claims, but declined to enter an injunction against “any other advertising claims ... unless those claims are truthful,” on the ground that such an extensive prior restraint seemed both unnecessary and likely to produce needless litigation.

Electrolux didn’t prove actual damages. Its witness testified that sales of the Sanitaires fell, but provided no causal link and didn’t provide underlying data supporting its assertion that sales fell. Even without actual damages, however, an award of defendant’s profits is allowed where the defendant acted willfully and in bad faith. Imig argued that the principals responsible for the ads didn’t know that the claims were false. The cout found the testimony on this to lack credibility, but even taken at face value, Imig “cherry-picked the available evidence in a patently unfair way.” Given the knowing and willful falsity, the court awarded profits.

The court declined, however, to award fees. The false advertising claim wasn’t the primary issue in litigation; the trade dress claim took up the bulk of the trial, and it failed. Moreover, the award of profits was appropriate, but almost certainly overcompensated Electrolux for actual harm. Under the circumstances, Imig had to bear the burden of potential overcompensation, but the court denied fees to avoid compounding the windfall to Electrolux.

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