Friday, March 18, 2011

Nominative fair use in the Third Circuit: a district court applies the standard

Keurig, Inc. v. Strum Foods, Inc., --- F. Supp. 2d ----, 2011 WL 843932 (D. Del.)

Keurig makes single-serve coffee machines and a corresponding line of coffee-filled cartridges. Sturm makes cartridges for use in Keurig machines under the Grove Square brand name. Keurig alleged trademark infringement, trade dress infringement, dilution, and related state and federal claims (along with patent claims not addressed here). Keurig moved for a preliminary injunction and Strum moved to dismiss in part; the court denied both motions.

Keurig’s cartridges are known as K-Cups, and has registrations for KEURIG and K-CUP. The Strum package has small text on the bottom left front that reads “*For use by owners of Keurig® coffee makers.” On the bottom, a disclaimer to the left of the directions states, “*Sturm Foods, Inc. has no affiliation with Keurig, Incorporated.” The package also contains images of two Grove Square cartridges grouped together, one on its side to show its top better, and one standing up, surrounded by coffee beans. The package also shows a sliding bar graph indicating whether the coffee inside is a light, medium or dark roast, and the front has a v-shaped perforated opening ending in a u-shaped tab. The top and back of the box have “short stories that are seemingly intended to evoke a romantic association with drinking coffee.” The back promises “some of the world's highest quality Arabica beans, roasted and ground to ensure peak flavor, then packaged to lock in optimum freshness."

The court discussed nominative fair use. Under the Third Circuit rule, the plaintiff must first prove that confusion is likely. But the court nonetheless proceeded under a confusion analysis modified by nominative fair use. There was no dispute that Keurig owned its marks and that they were distinctive, but that’s not helpful to the plaintiff in a nominative fair use case: in a nominative fair use case, confusion is not inevitable simply because defendant uses an identical mark. Nor is marketing through the same sales channels or to the same group of consumers helpful to the plaintiff in such a case, because the defendant isn’t trying to use plaintiff’s marks to refer to its own products. Presumably because of the time on market and the stage of the litigation, neither the length of time used without actual confusion nor the absence of evidence of actual confusion mattered either.

The price of the goods is low, even in bulk, favoring Keurig. Strum’s intent in using the mark (the factor says “adopting,” but of course that’s not really what happened) was to inform customers of the cartridge compatibility. The disclaimer of affiliation supported this. Strum used the smallest amount of the mark possible, in plain text without stylization. “Given this minimalist use, coupled with a disclaimer on the bottom, this factor strongly favors defendant's use of the mark.”

What about the relationship of the goods in consumers’ minds? Here, Keurig’s attempts at product differentiation worked against it.
Keurig's own website shows 241 different flavors of K-Cups with dozens of different brand names. Given the fact that customers are encouraged to try different K-Cups from this wide variety, there is no reason to assume that customers would associate the poor taste or poor function of a single brand of K-Cup with the Keurig system instead of with the K-Cup's brand itself. Plaintiff's own customer testimonials show that customers are willing to switch from one brand of K-Cup to another if the brand does not meet their performance or taste criteria. Even if some customers were initially confused as to whether Grove Square coffee is authorized by plaintiff, it is of little concern to the court because "some possibility of consumer confusion must be compatible with fair use."
But isn’t Keurig’s use of different brands consistent with the idea that the consuming public might expect the plaintiff to provide both products or expand into the market? Again, in a nominative fair use case, because defendant and plaintiff necessarily compete in the same market, this factor is neutral.

So, even had Keurig shown likely success on the merits, Strum would be likely to succeed on the fair use defense. Strum satisfied the first two prongs of the Third Circuit defense: The use of plaintiff's mark was necessary to describe (1) plaintiff's product or service and (2) defendant's product or service, and only so much of the mark as necessary was used. Keurig focused on the third prong, whether the defendant's conduct or language reflects the true and accurate relationship between plaintiff and defendant's products or services. Keurig argued that courts have to consider the defendant’s failure to state or explain some aspect of the relationship, and, where a disclaimer exists, it must be considered in whether the alleged infringer accurately portrayed the relationship. (The court noted that the Third Circuit said that a court can, not must, consider the defendant’s failure to explain some aspect of the relationship.) The disclaimer here was blunt. Although it’s on the bottom of the box, it’s direclty across from the directions and “best by” date. There was no evidence that consumers wouldn’t look at it.
The court particularly approved that the disclaimer didn’t conflate trademark terms. “Were the front of the box to say something to the equivalent of ‘For use in K-Cup compatible coffee systems,’ yet the disclaimer only mentioned Keurig, there may be a colorable argument as to what message was actually imparted. Here, however, defendant made an association with its product and Keurig coffee makers, then specifically disclaimed affiliation with Keurig.”

Thus, Keurig didn’t show likely success on the merits. Comments: nice to see a court applying the potentially over-rigid Third Circuit test sensibly. Also, given how nominative fair use affects the likely confusion analysis, is it really fair to say that the plaintiff has to show likely confusion before the court considers nominative fair use as a defense? At a minimum, the analysis happens in tandem, and courts should admit that.
Keurig also alleged trade dress infringement. The Third Circuit is particularly concerned with protecting competition when a company alleges a trade dress in an entire line of products. Thus, the circuit requires a “consistent overall look” before assessing distinctiveness, nonfunctionality, and confusion. Keurig focused on the image of several K-Cups with at least one lying on its side, with spilled coffee beans around the cartridges. (The court noted that Strum combined those two properties into one image, while they’re separate in Keurig’s images.) Keurig also argued that Strum misappropriated (1) an indication of the coffee's roast strength on a graded bar below a caffeination label; (2) a story about the coffee; and (3) perforations for opening the package that forms a tapered v-shape opening ending in a u-shaped tab, all of which were part of its trade dress.
The court held that Keurig failed to show that its cartridge products had a consistency in overall look. “Quite to the contrary, its boxes use a variety of colors and images. Some display a single K-Cup, others, a small group. Some have the roast strength on a graded bar, and some do not. Some display coffee beans, some do not. The one consistent trait across the product line is the prominent use of the black and white Keurig trademark. … Even then, plaintiff's use of the Keurig mark varies in that it is sometimes a circle, and other times it is a square with "Single Cup" written under it.” Moreover, Keurig failed to even argue nonfunctionality, and the court doubted that it could do so (at least with respect to the v-shaped perforated opening).

False advertising: the state law claim had a lower burden of proof than the Lanham Act since a plaintiff need not prove competition or actual confusion to prevail (don’t know why that latter is a lower burden of proof, but ok). But Keurig lumped them together, so the court would too.

Keurig maintained that it routinely tests over 2000 cartridges for every new line of K-Cups, and any failure results in disqualification. It internally tested 30 of Strum’s cartridges, and over 25% supposedly failed under normal use. (Wonder how you do that trial double-blinded? Maybe teach the actual experimenter, who doesn’t know anything about the litigation, how to test a cartridge, and having her do it to a bunch of both parties’ cartridges.) Keurig argued that this made the statement “for use by owners of Keurig coffee makers” literally false, because the necessary implication is that the cartridges are “functionally suitable” for such use.

The court agreed that this was the necessary implication, but “functionally suitable” does not mean “up to the same quality standards” as Keurig cartridges. “Nowhere on the box does defendant claim that its products have the same failure rate or quality level as plaintiff's. Defendant's products are marketed at a less expensive price than plaintiff's products which could imply an inferior quality.” Even if the court required Strum to meet Keurig’s quality standards, the competing evidence prevented likely success on the merits. Strum’s independent testing firm tested over 100 cartridges without failure.

Keurig also briefly argued that the words “fresh brewed” on the package were false because the cartridges didn’t disclose that it contained instant coffee. This was suggestive at most and required consumer survey evidence, which was not present.

The court also, without further explanation, denied Strum’s motion to dismiss for failure to state a claim, though on this opinion Keurig would need to provide considerably more favorable facts to avoid summary judgment.

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