Schutz Container Systems, Inc. v. Mauser Corp., 2012 WL
1073153 (N.D. Ga.)
(Note: the umlaut was missing in the Westlaw caption.) The parties make and sell intermediate bulk
containers (IBCs), which are used to store and move goods. They have an outer cage and an inner
bottle. The outer cage attaches to a
pallet and can be metal, wood, or plastic, while the cube-like plastic bottle
will hold between 170 and 330 gallons.
The pallet and cage help the bottle keep its form and protect it from
impacts or contact with other containers.
Schütz is the leading seller of IBCs in the US. Its new IBCs have metal cages and bottles
made of high density polyethylene (“HDPE”) designed to fit in them. Schütz also sells used IBCs that it has
either washed or rebottled (both pretty much what they sound like: Schütz
either cleans or also provides replacement bottles). Schütz marks both the outer cages and the
inner bottles with its name.
Defendants Mauser and NCG are affiliates. They compete with Schütz; Mauser makes new
IBCs with bottles designed to fit Mauser cages.
Unlike the Schütz bottle, which is basically flat on all four sides, the
Mauser bottle has indentations on its side walls to line up with the bars on
the Mauser cage. NCG reconditions IBCs,
which includes washing and rebottling.
The key issue here is “cross-bottling,” which involves putting non-OEM
bottles in existing cages. NCG is the
biggest cross-bottler in the US; it generally cross-bottles with Mauser
bottles, which it has in ready supply, and with Schütz outer cages. It doesn’t remove the Schütz name from the
outer cage. According to
defendants—though the court says it’s not relying on this—the cross-bottled
IBCs have been certified, like Schütz IBCs, for transport of hazardous
materials in accordance with the governing regulations.
“Schütz is a staunch critic of the practice of
cross-bottling, generally, and of NCG's cross-bottling using a Schütz cage, in
particular, summing up its views on the issue as follows: ‘retention of the
SCHÜTZ mark on an IBC not manufactured, tested or sold by Schütz confuses
consumers, harms the Schütz brand, poses unclear liabilities, and is an extreme
and unacceptable risk to consumers.’” Schütz
believes that cross-bottling creates a danger that performance failures of a
cross-bottled IBC will be attributed falsely to the original manufacturer,
whose certificates may not have been removed.
Further, Schütz contends that cross-bottling confuses consumers about
who they should contact for service or information. “Finally, Schütz argues
that cross-bottled IBCs are subject to less testing, do not perform as well,
and are of lower quality than non-cross-bottled IBCs.” Schütz has said these things to IBC trade
associations and regulatory agencies as well as to customers.
Schütz sued defendants for trademark infringement, false
advertising, and unjust enrichment based on defendants’ cross-bottling in
bottles still bearing the Schütz mark and on statements that allegedly falsely
equated the quality and performance of cross-bottled products to that of a
Schütz IBC. NCG counterclaimed for false
advertising and product disparagement.
The court first addressed Schütz’s motion for summary
judgment on the false advertising/product disparagement counterclaims. Some statements weren’t actionable under the
Lanham Act because they weren’t made to consumers. The remaining statements were basically
designed to create FUD about non-OEM parts.
(And let me be clear: I have no dog in this hunt and nothing to go on
other than what the court says and a general but not strong skepticism about
OEM claims to special purity.) E.g.: “[T]he
use of non-OEM parts for certain components means that the entire system can no
longer be considered tested and approved: the results of interaction between
original and non-OEM components are unknown.” “Unclear legal, liability, and warranty
questions.” (Sometimes Schütz used
exclamation points.)
NCG argued only literal falsity, not misleadingness. In the full context, the court held, these
statements were part of Schütz’s claims for its own decades of experience and
safety testing of complete systems. The
court found that Schütz’s basic claims were (1) that an IBC with a non-OEM part
“cannot be considered tested and proven,” and (2) that the results of interaction
between original and non-OEM parts in an IBC “are unknown.” NCG argued that this was false, and that
cross-bottled IBCs could be considered “tested and proven,” with known
interactions. NCG’s cross-bottled IBCs
have in fact been tested and certified to transport hazardous materials in
accordance with UN regulations.
Schütz responded that its concerns about “rogue” or improper
cross-bottling was shared in the industry.
Moreover, cross-bottled IBCs didn’t undergo the same testing and quality controls as Schütz IBCs. And as to NCG particularly, Schütz argued
that it sells non-UN/USDOT certified cross-bottled IBCs and that, until 2010,
neither NCG nor the industry generally collected data about the performance of
cross-bottled IBCs.
The court concluded that the statements weren’t literally
false. Many of Schütz’s arguments failed
to hold water, so to speak. Even if
there were industry-wide concerns over cross-bottling or if certain
cross-bottled IBCs weren’t UN/USDOT certified, that wouldn’t mean that cross-bottled
IBCs, “in the absolute, cannot be considered tested and proven, or that the
interaction between original and non-OEM parts is absolutely unknown.” To the contrary, the existence of UN/USDOT
certified cross-bottled IBCs disproved the claim that cross-bottled IBCs
couldn’t be considered tested or proven, and therefore also disproved the claim
that the interaction of original and non-OEM components was unknown. However, a reasonable jury might conclude
that, in context, Schütz was claiming that cross-bottled IBC’s aren’t subjected
to Schütz’s internal testing and
quality controls (and that the effect of the interaction between OEM and
non-OEM parts on performance in those tests was unknown), and thus the
statements were ambiguous. Each statement
appeared in the context of a broader discussion of Schütz’s own design and
testing process.
One other statement remained: “Unclear legal, liability and
warranty questions: … Who is to blame, who is to be contacted?” The court found that this was a nonactionable
statement of opinion, despite NCG’s argument that UN/USDOT regulations governed
the relevant legal and liability issues and mande the remanufacturer
responsible. NCG failed to show that the
regulations made “legal, liability, and warranty questions absolutely clear as
a factual matter. Indeed, as any observer of the legal system knows, the
existence of a law on point does not end all controversy or confusion regarding
the issue it governs. In other words, while a regulation may exist, reasonable
minds can still differ as to the regulation's meaning, scope, or, as in this
case, clarity.” Thus, summary judgment
on this statement was also appropriate.
These holdings were also dispositive of the Georgia UDTPA
counterclaims as to those statements.
NCG argued that statements to non-customers were actionable as product
disparagement under state law, however, and the court agreed: While the
standard false advertising provision in the UDTPA tracks the Lanham Act in
interpretation, its product disparagement provision requires only publication,
following traditional defamation principles.
Schütz then argued that it was privileged to make the
remaining statements, each of which was made to a regulatory agency or trade
association. Under the Georgia statute, “Statements
made with a good faith intent on the part of the speaker to protect his or her
interest in a matter in which it is concerned” are deemed to be privileged
communications, provided that publication isn’t unnecessarily made to people
other than those whom the publisher honestly believes are concerned. Each of the statements did relate to Schütz’s
concerns with the practice of cross-bottling, which Schütz believed to be
harmful to the IBC industry and thus adverse to its business interests. There was no evidence of dissemination beyond
trade associations and regulatory bodies, nor any evidence of malice, and thus
the statements were privileged.
Defendants Mauser and NCG also moved for summary judgment on
Schütz’s trademark claims. They
allegedly infringed by inserting Mauser bottles into used Schütz cages and
selling the resulting cross-bottled product without removing the Schütz
mark. Defendants first challenged Schütz’s
common-law rights in the mark, but the court found that a reasonable jury could
find that Schütz did have secondary meaning in the name; defendants even
admitted that the Schütz name was widely recognized by the relevant
customers. Though they argued that Schütz
abandoned the mark by failing to act against other alleged infringers, there
was no proof of actual abandonment, nor did they show that the mark had become
generic through use by at least six other entities for cross-bottling. Failure to take action against these (whose
number was a matter of dispute), was “woefully” insufficient evidence of
abandonment/genericide.
The next question was what the test should be for confusion:
the multifactor test? Or Schütz’s
preferred alternative, whether there were any material differences between the
parties’ products? “Material differences”
is a limit on the first sale/exhaustion rights that allow people to resell
genuine goods. “[M]aterially different
products bearing the same trademark are inherently likely to confuse.” The threshold for materiality must be kept
low because many considerations may influence consumer preferences. (Here we have an example of a substitute for
the confusion test that favors the
plaintiff, like some early treatments of domain names/keyword ads. Despite its longer pedigree, at least with
respect to products sold to the general consuming public, this test on its face
fails to ask a fairly obvious question: do the relevant consumers know about the material differences and
buy the thing anyway?)
The court was inclined to the material differences test, but
found that under either test there was sufficient evidence from which a
reasonable jury could find likely confusion.
First, there was evidence that the cross-bottled IBC was materially
structurally different and tested to different performance standards, “such
that retention of the Schütz mark is likely to cause consumer confusion as to
the source of the cross-bottled product.”
The UN/USDOT even distinguished using an OEM bottle to repair an IBC from
using a bottle from a new source, the latter of which requires recertification
before it can be used for dangerous goods.
Likewise, under the multifactor test, a reasonable jury
could conclude that retaining the Schütz mark is likely to cause confusion. Intent: Schütz argued that intent to
misappropriate goodwill could be inferred from defendants’ retention of the Schütz
mark on their products, and defendants’ use of Schütz’s name in price quotes. A flyer advertising the Mauser IBC also
depicts it next to a Schütz IBC. The
court found this only “minimally probative” of an intent to
misappropriate. “Because NCG is in the
reconditioning business, and because it cross-bottles, it is not surprising
that quotes to customers would reference cages manufactured by Schütz or other
non-Mauser entities. Similarly, given that the parties are competitors, it is
not surprising that Defendants would show a picture of its product next to
Plaintiff's to highlight the features it contends make its product more
desirable. In short, the evidence cited by Plaintiff is equally indicative of
an effort to compete than an effort to trade on Plaintiff's name.” (Equally? I don’t get how it’s anything other than the
clearest possible disclosure of what defendants have to sell.)
The court also found “little to no evidence” of actual
consumer confusion, mentioning none.
Instead, Schütz argued that under the material differences test, likely
confusion may be presumed. (Because buyers shipping dangerous liquids are
completely careless about the source of their IBCs?) But that wasn’t enough to grant summary
judgment to defendants because the marks were identical and the products were
marketed through the same channels and to similar customers, so a reasonable
jury could still find confusion.
Defendants argued that no reasonable consumer could be
confused given that NCG puts a sticker on the IBCs: “Remanufactured IBC: Original cage and pallet
from Schütz Container Systems provided with a new inner tank manufactured by
Mauser. Remanufacturer: National Container Group. Schütz has not reconditioned
this product and is not affiliated in any way with National Container Group
and/or Mauser.” Mercifully, the court at
least agreed that this sticker would preclude confusion by a reasonable
consumer as a matter of law, holding that, to the extent that the foundational Champion Spark Plugs suggested the
contrary, that language was dicta. Champion stated that a change in a
product might go so far that retention of the original mark would be infringing
notwithstanding use of the terms “used” or “reconditioned.” Here, however, the sticker went well beyond “used,”
and disclosed that the IBC had been remanufactured, with a new inner tank from
Mauser, without Schütz’s contribution. “In
light of the sticker's detailed and explicit contents, the Court finds that no
reasonable consumer could be confused as to the source of a cross-bottled IBC
bearing this sticker.”
There was, however, a genuine dispute of material fact about
whether NCG placed the sticker on every cross-bottled IBC it sold. (By this logic, of course, if NCG showed that
it had explained what it was doing to its customers sufficiently that a
reasonable customer would have understood, there could still be no confusion as
a matter of law.) Along with testimony
generally suggesting that not all NCG cross-bottled IBCs had the sticker, the
court also thought that it mattered that when NCG receives a cross-bottled IBC
only in need of washing, it didn’t apply its own sticker: “if we place the
bottle in the cage, we affix the label. If in six months the exact same
container is returned to us, we do not affix a label.” That was evidence from which a reasonable
jury could find that the “remanufactured” label isn’t affixed to each NCG
cross-bottled IBC. I don’t get it: if
all NCG is doing is washing and not performing any new alteration, how can it
be responsible for any act constituting TM infringement? Also, presumably that sticker would not be accurate with respect to all
cross-bottled IBCs NCG just washes, since there other OEMs and other
cross-bottlers on the market, so why should the sticker be applied to IBCs that
NCG washes? That testimony sounds like
it’s about the defendants’ process when an IBC, from whatever source, is simply
cleaned. Even if the stickers rub off
eventually, I still don’t see how that could lead a reasonable consumer to experience source confusion.
So, despite having kicked out most of the infringement
claim, and provided defendants a roadmap for absolute protection going forward,
the court let the case limp on.
On to Schütz’s false advertising/unjust enrichment
claims. Schütz challenged claims that
defendants’ cross-bottled IBCs were comparable to Schütz’s in terms of overall
condition or performance, e.g., “it is assured that every remanufactured IBC
has a performance that can be compared to that of a new one”; “This program is
your guarantee that the IBC mirrors new units”; etc. Defendants argued that a number of the
statements weren’t disseminated outside defendants’ own corporate entities, and
that others weren’t sufficiently disseminated to constitute advertising or
promotion since they only went to one or two customers or only to non-US
customers.
Schütz argued that statements in documents created for
internal purposes only, which were never sent or presented to customers, were actionable
because similar statements had been disseminated to customers as part of a
broader ad campaign, according to depositions of sales reps. The court disagreed; “commercial advertising
or promotion” requires dissemination to consumers. “[T]estimony that a general message is or has
been conveyed to unspecified customers, at an unspecified time, in an
unspecified manner, and by unspecified persons is insufficient to satisfy the
threshold requirement of a Lanham Act claim--that the accused statements were
made in ‘commercial advertising or promotion.’”
Were statements made to customers sufficiently disseminated
under the standard test for advertising/promotion? Schütz argued that Mauser used a standard
PowerPoint template for its customer presentations, while defendants argued
that the identified statements were only made to one or two customers. A key question was whether the accused
statement was part of an organized campaign to penetrate the relevant market,
as opposed to isolated statements by sales personnel to individual customers. Here, Schütz failed to present sufficient
evidence that would allow a reasonable jury to conclude that the particular identified
statements had been sufficiently disseminated.
It identifed statements made to only one or two customers, and it didn’t
put forward any evidencce about the number of potential customers in the IBC
market or the size and importance of the customers to whom the statements were
made. (I don’t see why you couldn’t put
this evidence together with the deposition testimony that product equivalence
in performance would be part of the sales pitch to conclude that a reasonable
jury could find sufficient dissemination.)
Defendants sought summary judgment on the remaining
statements in brochures and on NCG’s website, as to which Schütz also argued
only literal falsity. These statements
claimed that defendants restore used IBCs to their “original” conditions or
performance standards, e.g., “We clean it [container] completely, conduct
thorough inspections, and replace worn closures, thus restoring the container
to its original condition. So you can depend on getting exactly the performance
and quality you bargained for.” Defendants argued that, since they didn’t
mention cross-bottled IBCs specifically in these statements, the statements
couldn’t be literally false.
The court disagreed: “the statements need not explicitly
reference cross-bottled products to be found literally false with respect to
them. The statements unambigously assert that NCG restores all of its products
to their original condition when it reconditions them. This would include
cross-bottled products.” So, based on
the summary judgment, could a reasonable jury find these assertions to be
literally false as applied to the cross-bottled products at issue? Schütz argued literal falsity because the
resulting product is materially different: a Schütz bottle has been replaced
with a Mauser bottle, when NCG could in theory replace a used Schütz bottle
with another Schütz bottle. The bottle
designs are different, and the Mauser bottle’s indentations don’t match up with
the bars of the Schütz cage. Thus, the
resulting IBC “is of a different design and cannot be said to have been
restored to its original condition.”
This was sufficient for a reasonable jury to be able to find falsity. As to performance, Schütz also argued that
NCG’s cross-bottled IBCs don’t perform as well as the original, according to
tests by its expert. This was also
enough to create an issue of material fact.
Defendants also contended that Schütz couldn’t prove injury
or a causal link between the injury and the accused statements. The court held that Schütz wasn’t required to
prove actual injury to prevail on a false advertising claim.
Because TM and false advertising claims survived, so did the
state law unjust enrichment claim. There
was evidence that defendants benefited from the alleged wrongdoing through
increased customer accounts and sales.
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