Sunday, April 27, 2008

Stale cheese: delay defeats infringement claim

Wisconsin Cheese Group, Inc. v. V & V Supremo Foods, Inc., 537 F. Supp. 2d 994

The TTAB granted V&V’s petition for cancellation of Wisconsin Cheese Group’s registration for QUESERIA CARIBE. Wisconsin Cheese sued to reverse the TTAB decision and V&V counterclaimed for trademark infringement of its DEL CARIBE trademark.

The court held that the counterclaims were lached: they were barred by V&V’s fourteen-year delay.

V&V used DEL CARIBE (basically, “Carribean”) for cheese in Illinois as of 1976. Wisconsin Cheese began selling cheese in Illinois in 1992 under the mark QUESO CARIBE (“Carribean cheese”). Its application to register the mark was rejected on descriptiveness grounds; Wisconsin Cheese abandoned the application.

V&V became aware of Wisconsin Cheese’s QUESO CARIBE no later than 1993; in March of that year, V&V sent a cease and desist letter to Wisconsin Cheese, describing V&V’s mark as QUESO BLANCO SUPREMO DEL CARIBE (registered in Illinois). Despite V&V’s demand, Wisconsin Cheese refused to take any action. And neither did V&V for the next seven years. During that time, Wisconsin Cheese began selling QUESO CARIBE exclusively to Costco, with sales 1996-2000 of over $1.3 million.

In 1995, V&V applied to register DEL CARIBE, though it didn’t disclose in its application that Wisconsin Cheese was using QUESO CARIBE. The registration issued in late 1996. In 2000, V&V sent a cease and desist letter to CheesAmerica objecting to its use of CARIBE. Somehow, Wisconsin Cheese learned of the letter, but neither CheesAmerica nor Wisconsin Cheese agreed to change its marks. In the following 20 months, Wisconsin Cheese sold over $3 million of QUESO CARIBE. At the end of 2001, Wisconsin Cheese received another cease and desist letter. It ignored the letter; V&V took no action.

In 2003, Wisconsin Cheese applied to register QUESERIA CARIBE, and over the next year switched from QUESO CARIBE to QUESERIA CARIBE. Mid-2004, the application was published for opposition; V&V did not oppose. Once the registration issued, V&V filed a petition for cancellation, which was granted in early 2007.

Both parties have sales in the millions of dollars, experiencing substantial growth in the last decade, for a total of roughly $23 million on each side in the past decade..

Laches requires (1) knowledge, (2) inexcusable delay, and (3) prejudice. Laches is particularly important for the Lanham Act, which has no limitations period of its own and thus borrows from analogous state statutes. Under Wisconsin law, the analogous state statute has a three-year limitations period; after three years, then, there’s a presumption of laches.

Knowledge since 1993 was easily established. The change from Queso to Queseria is meaningless, since it’s the word Caribe that’s the alleged problem, and V&V’s letter singled out that word. The 14-year delay, nearly five times more than the 3-year statute of limitations, was also inexcusable. V&V argued that it had no knowledge of Wisconsin Cheese’s use of Caribe from 1993-2001. But lack of actual knowledge isn’t a complete excuse for unreasonable delay. Trademark owners have the affirmative duty to police their marks, and what V&V knew in 1993 gave it the duty of inquiry. It was unreasonable to assume that Wisconsin Cheese stopped using the mark on receipt of a cease and desist letter. V&V demanded a response, but didn’t get one (or not a favorable one; the facts here were contested, but no matter what, V&V had no reason to think that Wisconsin Cheese had stopped). In any event, V&V had no excuse from 2001 to 2007. Even if it had been reasonable to assume Wisconsin Cheese had ceased use of Caribe in 1993, V&V should have learned from its mistake after the second letter.

V&V also contended that the doctrine of progressive encroachment excused its inaction. Progressive encroachment excuses delay when a defendant begins use of a mark, then changes marketing or manufacturing to place itself more squarely in competition with a plaintiff. Not all changes in marketing or manufacturing matter: only those changes that worsen a potential likelihood of confusion. Increased sales aren’t progressive encroachment. A trademark owner who knows about infringement isn’t permitted to wait and see how successful a competitor will be and then destroy the competitor’s investment. Given that investment in advertising and marketing serves as evidence of prejudice, it would be “illogical” to treat increased sales as a rebuttal to laches.

V&V argued that Wisconsin Cheese entered new trade areas where V&V’s mark was already established. But the very first letter discussed the overlap in Illinois. Nor did the change to QUESERIA CARIBE put Wisconsin Cheese more squarely in competition with V&V. Finally, sending two cease and desist letters in 14 years didn’t excuse the delay. Attempts to resolve a dispute without litigation shouldn’t bolster a finding of laches, but at the same time a sparse letter writing campaign isn’t a serious attempt to resolve matters without litigation.

Prejudice is judged on a sliding scale: a short delay requires a greater showing of prejudice than a lengthy delay. Prejudice occurs when delay causes the alleged infringer “to build up a valuable business around its trademark in a way that would not have happened if the trademark owner had asserted its rights promptly.” Wisconsin Cheese relied on V&V’s delay when it “decided to invest millions of dollars in promoting its cheese under the ‘Caribe’ mark.” If V&V had acted earlier, Wisconsin Cheese could have changed its investments or simply renamed the cheese. Wisconsin Cheese’s investment, plus its increased sales, constitute prejudice as a matter of law. In any event, V&V failed to rebut the presumption of prejudice.

V&V argued that there was no prejudice because Wisconsin Cheese relied on its lawyer’s opinion on noninfringement and not on V&V’s inaction. The court agreed that prejudice requires reliance. But the circumstances establish reasonable reliance—notice of claimed infringement, coupled with a threat to sue, followed by a long period of inaction is conduct from which an alleged infinger could reasonably infer that the claimant had abandoned any claim. When there is a legal presumption of laches, the presumption can’t be rebutted merely because the alleged infringer relied in part on a lawyer’s opinion.

Then there was the question of whether laches bars an injunction, or only damages/profits. It’s easier for the latter to be lached, but in some cases delay can be long enough and prejudice significant enough to make an injunction inequitable. This was one of those cases. “It would inequitable to force plaintiff to abandon its ‘Caribe’ mark now, facing loss of its major investments and essentially taking the fall for defendant’s failure to satisfy its legal duties as a trademark owner.”

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