Thursday, September 06, 2012

Buyer-approved substitution doesn't violate Lanham Act

Suntree Technologies, Inc. v. Ecosense Intern., Inc., --- F.3d ----, 2012 WL 3832458 (11th Cir.)

District court opinion blogged here.  Suntree appealed the grant of summary judgment to defendants on Suntree’s false advertising and trademark claims.

Suntree and Ecosense make stormwater treatment structures called baffle boxes.  The City of West Melbourne sought bids for a stormwater quality project.  The bid documents required baffle boxes “to be provided by Suntree Technologies, Inc. or approved equal. Construction details and specs are identified by Suntree Technologies, Inc. Approved equal shall meet or exceed Suntree Technologies, Inc. specifications.”  Under Florida law, the city couldn’t designate Suntree as the sole approved manufacturer absent a showing of special circumstances. 
The bid solicitation required bidders to list subcontractors and suppliers, and stated that the list couldn’t be changed without written consent from the city’s engineer.  In addition, the instructions said that the contract would be awarded on the basis of what was described in the bidding documents without considering possible substitutes or equals.  Such substitutes could only be applied for after the contract was awarded, through a specified approval process.  The documents also said that “[w]henever an item of material or equipment is specified or described in the Contract Documents by using the name of a proprietary item or the name of a particular Supplier, the specification or description is intended to establish the type, function, appearance and quality required.”   “Rather than incurring the expense of pre-approving an additional, less expensive supplier, the engineers for the City and County decided to use Suntree's name in the bidding specifications.   If the contractor who was awarded the project found a less expensive baffle box that was approved to be of equal quality to Suntree's, the benefit of the reduction in cost would go to the contractor.”

Derrico submitted the low bid.  Derrico’s bid listed Suntree as the supplier because Derrico didn’t know if a substitute would be accepted.  After the bid was accepted, Derrico requested approval of Ecosense baffle boxes as an “equal” substitute.  The city’s representative reviewed the specs and inspected an installed Ecosense baffle box, then approved it.

After the project was finished, a county engineer requested that Ecosense prepare a PowerPoint to train city personnel on cleaning and maintenance.  The presentation showed baffle boxes being cleaned and maintained by City of Rockledge workers.  This city was close to Ecosense’s office, the crew was well-trained, and Ecosense had a good relationship with the city.  (Good example of not-formally-relevant facts inserted to explain the situation.)  Both Ecosense and Suntree baffle boxes had been installed in Rockledge, so the presentation had photos of both, though Suntree’s name didn’t appear in the presentation.  Ecosense gave the presentation to West Melbourne and to Titusville, another current customer.  It was on Ecosense’s website for three months, but Ecosense took it down when Suntree complained.

Suntree sued Ecosense and Derrico; Derrico settled by agreeing that it wouldn’t attempt to substitue other products for Suntree products in future bidding.  (This seems a bit … anticompetitive.)  As part of the settlement, in provided evidence that even before it began bidding, it planned to use Ecosense products and based its cost estimates on Ecosense products, but listed Suntree because it would have a greater chance of winning the bid.  It would have installed Suntree products only if it had to, if the city had denied its substitution request, but it would have upheld its commitment to the city in that case.

In discovery, Ecosense produced a brochure that displayed pictures and descriptions of its products; one photo showed a maintenance worker looking into the open hatch of a Suntree baffle box.   Ecosense destroyed all copies of the brochure except one exemplar for the litigation.

Suntree argued that listing Suntree as the baffle box supplier infringed its trademark, and that Ecosense was liable for Derrico’s conduct.  The district court held that Suntree failed to prove direct infringement, without which there could be no contributory infringement.  The district court didn’t err by deeming most of the usual confusion factors unhelpful and irrelevant (strength, similarity of marks, similarity of products, similarity of marketing channels, similarity of advertising media).  Derrico didn’t use Suntree’s mark to identify Ecosense’s product.  The key question was whether there was a genuine issue of material fact over whether Derrico “used Suntree’s reputation to win a bid and then used a ‘bait-and-switch’ tactic to substitute Ecosense's baffle boxes for those of Suntree.”

The court of appeals agreed that Suntree failed to present any evidence of intent to confuse the city about the source of the baffle boxes.  The undisputed testimony was that Derrico intended to substitute Ecosense boxes unless “no substitute was allowed.”   Equal substitutions were specifically allowed in the bidding documents, which was what Derrico was pointed to when it asked.  Undisputedly, listing Suntree in the bid complied with the instructions to bidders, which told them that the contract would be awarded without considering substitutes/equals and that those should be considered after the contract was awarded.  Thus, Suntree failed to show an intent to deceive the city or an attempt to hide an intent to seek “equal” approval.

Moreover, Suntree failed to show any evidence that the City was confused at any time, whether in its “initial interest” or later, about the quality of baffle boxes required or the fact that contractors could request approval of substitutes.  Again, the bidding instructions said that naming Suntree (or any specific producer) was “to establish the type, function, appearance and quality required” for use in the project.   Without evidence of intent to confuse or actual confusion, the court declined to reach the general question of whether initial interest confusion was actionable in the Eleventh Circuit.  (As with Louboutin, we have a very thin language of “that’s not what trademark is for,” but that concept is clearly the driving force here.)

False designation of origin claims based on the brochure and PowerPoint also failed.  Suntree argued that Ecosense’s use of photos of Suntree boxes constituted attempted reverse passing off.  In such cases, most of the usual confusion factors are irrelevant.  Suntree failed to show Ecosense intended to tout Suntree’s product as its own, and Suntree’s immediate response to Ecosense’s complaint supported its lack of intent to confuse.  There was no evidence of confusion.  Ecosense prevailed (without needing to challenge validity—which should have been the first step; unless Suntree’s product configuration is nonfunctional and has secondary meaning, how could there be a reverse passing off claim after Dastar?).

As for the false advertising bit, the first question was whether Ecosense’s acts occurred in commercial advertising or promotion.  Suntree failed to show a genuine issue of material fact on

whether the brochure and PowerPoint presentation were created “for the purpose of influencing consumers to buy defendant's goods or services” and that they were “disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.”  The presentation was created at the request of an existing product, for customers who’d already purchased it.  The engineers who worked on the project testified “that brochures would not be at all helpful in their determination as to whether or not they would buy, or allow use of, a product like a baffle box.”   Suntree also failed to offer evidence that the brochure was disseminated to any potential customers. Though in small markets small distributions may suffice, Suntree failed to put forward any evidence about the number of potential consumers to whom the statements were disseminated.  

Again, I wonder: shouldn’t Ecosense get its fees for this anticompetitive lawsuit?  Certainly the trademark claim is an unprecedented attempt to create liability from what seem to be standard bidding practices with very clear contractual provisions about substitution.

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