Monday, June 30, 2008

The sweet smell of injunctive relief

Here's news on the latest round in the Splenda wars. The pictures above show infringing Giant packaging and noninfringing Safeway packaging.

McNeil Nutritionals, LLC v. Heartland Sweeteners LLC (E.D. Pa. June 26, 2008)

McNeil sued Heartland for making packaging for its generic sucralose that was too similar to McNeil’s Splenda packaging. The district court initially handed Heartland a comprehensive victory; the Third Circuit 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 district court, following instructions, granted the requested relief, noting that the packages at issue have been redesigned to be less like the Splenda packaging but that substantial inventory ($340,000) of the old versions remains.

Given that McNeil had, by appellate mandate, a likelihood of confusion, the court only had to evaluate the other elements of the claim—starting with the distinctiveness of the trade dress at issue and its nonfunctionality. The images of sweetenable food and coffee on the packaging, the court held, were descriptive rather than suggestive, given that other producers use similar images to communicate the message that the product was a sweetener. However, the court also found persuasive Second Circuit precedent that packaging choices are almost unlimited, and thus typically packaging trade dress will be inherently distinctive. It’s the combination of standard and descriptive elements that is likely to be inherently distinctive overall.

Notably, though Wal-Mart distinguished packaging from product design, this rationale is exactly the same rationale as that provided for holding product designs inherently distinctive. I don’t think it holds up much better here. The outcome is that the inquiry will hinge, not on the protectability stage, but on the multifactor likelihood of confusion test, so that a packaging design with no secondary meaning might still sometimes prevail.

Anyway, Splenda’s trade dress—the combination of pictures, colors, labeling, and layout, including the product name’s prominent placement on the package surrounded by a distinctive white cloud—was therefore inherently distinctive. The court rejected Heartland’s arguments that the trade dress was merely a combination of standard design elements. It distinguished other cases finding trade dresses not inherently distinctive, because they were mere variations on customary designs, as fact-specific. Before Splenda, the particular color scheme at issue was not used in the sweetener marketplace.

In any event, McNeil showed secondary meaning because of Splenda’s spectacular success in the market. McNeil’s evidence of success was general, and Heartland argued that the advertising and promotion didn’t aim at increasing recognition of the packaging, as opposed to the brand name. But the court reasoned that it could consider more than only “look for” or other trade-dress-focused ads. “It seems illogical to conclude in the context of a product packaging trade dress case that just because McNeil’s advertisements do not contain language saying ‘Look for Splenda in this packaging,’ they are not probative of secondary meaning. … [A] Splenda package has been featured in nearly every Splenda television commercial and print advertisement.” In addition, other factors, including the length of use and the fact that Heartland copied Splenda’s packaging, supported a finding of secondary meaning.

Likewise, the packaging was nonfunctional. Heartland argued that the use of yellow, photos of food and beverages, and the size and shape of the packages were functional. But the trade dress was the overall appearance of the product, not individual elements. McNeil wasn’t arguing for a ban on the use of yellow, pictures of food and beverages, or a particular size and shape.

The context of this case, where the gestalt issue of likely confusion has been decided by a different decisionmaker than the one considering functionality, highlights the ways in which this "overall appearance" rule creates some interesting conceptual problems. Assuming that the color, photos, and size and shape are in fact functional, McNeil can’t stop anyone from using them. But it is inarguably the case that the confusing similarity here is largely—if not entirely—based on the combination of color, photos, and (probably to a lesser extent) the size and shape. That will regularly be the case when courts refuse to filter out functional elements of trade dress from their confusion analysis. So one who wishes to copy all the functional elements of the Splenda trade dress may have to stay further away from the nonfunctional elements of the trade dress, whatever they are. (What are they? The court doesn't say. The absence of other identifiable trade dress elements that Heartland copied is one reason, I suspect, the court focused so much in its earlier opinion on the presence of house marks on the Heartland products. The presence of a house mark is arguably all that's needed to prevent unfair competition when there's a right to copy the rest of a configuration.)

What about the other parts of the test for injunctive relief? Trademark infringement risks loss of control of reputation and potential damage to goodwill, which is regularly treated as irreparable injury, even without actual damage. Without considering eBay (and I’m not suggesting it should have!), the district court relied on 1950s Third Circuit precedent that likely confusion leads to the “inescapable conclusion” that there’s irreparable injury.

On hardship to Heartland, Heartland’s alleged lost sales would not constitute irreparable harm, because such losses are compensable by money damages and are taken into account by the bond posted by the plaintiff. The public interest is in not being confused, so essentially automatically favors the plaintiff who’s shown a likelihood of confusion. As a result, the injunction issued.

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