Monday, May 14, 2012

What a difference a defense makes: court rejects Coach's extreme claims

Coach, Inc. v. Siskiyou Buckle Co., Inc., 2012 WL 1532489 (D. Or.)

Coach sued Siskiyou for trademark infringement, and the parties cross-moved for summary judgment; the court denied both.  Coach uses its design, with four pairs of Cs oriented in different directions, on numerous goods including key chains.  Siskiyou is a supplier of key chains with licensed logos.  One of its largest customers is Hillman.  In 2007, Siskiyou supplied Hillman with key chains shaped like the sole of a flip flop and had a pattern of Cs oriented in different directions, which were were sold in Lowe's and Wal–Mart stores:

Coach sued Hillman, Lowe’s, and Wal-Mart in S.D. Cal. in 2009.  The claims were settled with prejudice.  Siskiyou was not a party, but paid $57,500 towards the settlement on behalf of Hillman, assisted with the removal and destruction of the flip flop key chains, and paid half of Hillman's attorney's fees.

Coach argued that it was entitled to a presumption of likely confusion because these were counterfeit goods.  The Lanham Act defines a counterfeit as “a spurious mark which is identical with, or substantially indistinguishable from, a registered mark.”  Stating that the standard was whether the goods were virtually identical to the genuine goods (not the marks), the court found this was a question of fact.

On likely confusion, though the Coach mark was strong, the court was not dismissive of Siskiyou’s arguments that Coach products aren’t sold in stores like Lowe’s and Wal-Mart and that the products didn’t appeal to the same class of consumers: “the type of store is relevant to the analysis.” While Coach's key chains sell for an average of $35 at retail stores, there was no record evidence of the Siskiyou price.  The court also withheld a finding on similarity; the pattern was similar, “but given the small surface area of the key chain, the most prominent feature is the letter ‘C’, which is readily visible on both parties' goods.”  Siskiyou argued that it didn’t have a bad intent, because it only acted as a broker for Hillman, its customer, in procuring the key chains from China, and that Hillman ultimately selected the design from many alternatives.  Coach argued that Siskiyou was on constructive notice of the Coach mark because of its widespread use, and that Siskiyou didn’t have policies or procedures to ensure that it was not importing infringing goods.  There was no evidence of actual confusion. 

The court seems to have thought that this dispute was half-baked, perhaps because Coach only decided to go after Siskiyou after the main case.  The court found that genuine issues of material fact remained.

Siskiyou argued claim preclusion, but neither side provided argumentative depth.  The court easily disposed of Coach’s argument that the California case wasn’t a final judgment on the merits—dismissal with prejudice following a settlement is indeed a final judgment.  Moreover, it’s not dispositive that the case didn’t involve the same parties.  But the record wasn’t developed enough.  Claim preclusion bars subsequent suit on claims that were or could have been raised in a prior action; it wasn’t clear whether there would have been personal jurisdiction over Siskiyou.  Moreover, it wasn’t clear that there was privity between Siskiyou and the other defendants; though Siskiyou didn’t fall into a traditional privity category, privity has been found when one party in the earlier case was a “virtual representative” of the nonparty, such that the nonparty “has a significant interest and participated in the prior action” and there is an “express or implied legal relationship by which parties to the first suit are accountable to non-parties who file a subsequent suit with identical issues.”  Summary judgment in Siskiyou's favor denied; Siskiyou was not part of the settlement merely because it paid half of Hillman’s legal fees, helped remove and destroy the key chains, and paid part of the settlement on behalf of Hillman.

On damages, Siskiyou argued that it didn’t make a profit on the key chains.  It sold 85,845 key chains to Hillman. Approximately 50,700 were removed and destroyed, and Siskiyou gave Hillman a credit of $38,000.  Its profits (not clear whether this is gross or net) were $26,383, but it spent $17,200 to destroy the recovered key chains, paid Hillman $54,000 in recall costs, paid Hillman $57,500 for the settlement with Coach in the California case, and paid Hillman $19,500 for legal fees Hillman incurred in the California case.  The court found that there was no authority for counting these costs as deductions from profits.

Coach argued that it suffered more than $2.4 million in lost profits because there is an approximate $29.31 profit margin on each Coach key chain.  (Interesting datum on the value of the brand.)  Siskiyou responded that because Coach customers do not shop at Lowe's or Wal–Mart, it was “unfathomable” that Coach lost any sales of its key chains. Coach’s calculation was based on the original number of key chains supplied to Hillman, and the court found that it overreached.  First, Coach didn’t establish that a Siskiyou sale would substitute for a $35 Coach sale.  Second, most of the key chains were removed unsold from stores.  But, because Coach also claimed statutory damages if it showed that the goods were counterfeit or that Siskiyou’s conduct was intentional, its claims weren’t solely dependent on lost sales, so the court denied Siskiyou’s motion for partial summary judgment on damages.

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