Wednesday, August 21, 2013

Snowball fight, part X

Southern Snow Manufacturing Co. v. SnoWizard Holdings, Inc., 921 F. Supp. 2d 527 (E.D. La. 2013)

This case seems like a good poster child for those arguing in favor of a “threats” action for US law, since current law doesn’t provide much protection against trademark overclaiming.  It’s another litigation deathmatch between producers of snowballs, shaved ice confections flavored and colored with “flavoring syrups” made from “flavor concentrate” mixed with simple syrup.

In the mid-2000s, SnoWizard began asserting various state and federal trademark rights in flavor concentrates it manufactured, registering 22 trademarks between 2003 and 2008 and sending numerous C&Ds to other industry participants.  In 2006, Southern Snow sued, claiming that SnoWizard fraudulently procured a registration for ORCHID CREAM VANILLA, made false assertions of trademark infringement of ORCHID CREAM VANILLA and WHITE CHOCOLATE & CHIPS, made false assertions of trademark rights in SNOBALL, and violated the Louisiana Unfair Trade Practices and Consumer Production Act (LUTPA).  SnoWizard counterclaimed for infringement and dilution; the case was stayed until the TTAB cancelled the ORCHID CREAM VANILLA registration on descriptiveness grounds.

In 2009, Southern Snow and a new plaintiff, Parasol, filed a new case challenging SnoWizard’s assertion of trademark rights in 10 other terms, and SnoWizard counterclaimed for infringement and dilution of eight of those terms.  In 2010, the court dismissed plaintiffs’ claims for damages for procuring a false trademark registration under state and federal law, because they didn’t show cognizable injury or ascertainable loss.  The court also dismissed infringement claims for PRALINE, KING CAKE, BUTTERED POPCORN, GEORGIA PEACH, DILL PICKLE and BUTTERCREAM, because they are generic terms.

Southern Snow, Parasol, and a new plaintiff, Simeon, then filed a new suit against SnoWizard, asserting various claims against SnoWizard for infringement of SOUTHERN SNOW and FLAVOR SNOW and challenged the validity of more SnoWizard trademarks, including CAJUN RED HOT, MOUTAIN MAPLE, TIRAMASU [sic], and ZEPHYR.  SnoWizard counterclaimed for trademark infringement and dilution and for cancellation of SOUTHERN SNOW and FLAVOR SNOW. 

In the consolidated case, the judge dismissed all of plaintiffs’ unfair competition claims based on alleged false advertising, concluding that using a trademark symbol with a generic term wasn’t literally false, and that there was no evidence of materiality to consumers or actual or likely deception.  SnoWizard also won partial summary judgment on MOUNTAIN MAPLE and SNOSWEET, because the plaintiffs “offered no evidence to rebut the presumption of validity” attached to registered trademarks.

One month before trial was scheduled to begin, plaintiffs filed a new suit, naming SnoWizard’s owner and principal officer, and six new plaintiffs with varying ties to the existing plaintiffs.  Thereafter, one of the cases went to a new judge, who ruled that many of the claims had to be dismissed as duplicative of substantially identical claims previously alleged by the same plaintiffs or their privies, violating the rule against claim-splitting.  SnoWizard argued that three plaintiffs were in privity because they were related through common ownership by one person, and that another was in privity because of an asset sale; the others were allegedly in privity because they distributed the products of manufacturer-plaintiffs.  The plaintiffs conceded that three of them were closely related through common ownership, but argued that a fourth was a competing manufacturer with no relationship to them.  Two distributors, they argued, weren’t in privity with each other; they were in different states and the owners had never met, and two plaintiffs operated snowball stands on opposite sides of the Mississippi River.  Also, plaintiffs argued that claims based on more recent conduct, such as SnoWizard’s applications for new federal trademark registrations, weren’t encompassed in the earlier suits.  But SnoWizard didn’t seek dismissal of all the claims as duplicative, only the ones that were essentially the same as those in the earlier suits—the vast majority. 

The court accepted that most of the new plaintiffs were closely enough related to the old ones to justify applying the rule against claim-splitting: the distributors were in privity with the manufacturers by virtue of their express legal relationship, and the one that bought the assets from another was also in privity.  As for the retailers who sold directly to the public, they did buy from the original plaintiffs, which might be enough for privity.  But in the absence of clear authority on this, the court declined to find that their interests were adequately represented by the plaintiffs in the original cases.  But mostly, the rule against claim-splitting applied; the only explanation the court found credible here was an attempt to “expand Plaintiffs’ procedural rights, upset the trial schedule, harass Defendants, and avoid the requirements of amendment of Plaintiffs’ claims.”  The court noted that one plaintiff filed additional lawsuits alleging similar claims in 2012.  Plus, though the cases had already been consolidated for trial, the parties “failed to come forward with any manageable way to present the issues articulated in the four consolidated cases to a jury.” Thus, the court dismissed the duplicative claims except as to the two retailer plaintiffs.

However, there wasn’t evidence establishing a material issue of fact on the claims for fraudulent procurement of trademarks and unfair competition.  The Lanham Act, §38, provides for liability to any person injured by a fraudulently procured registration, but only “for any damages sustained in consequence thereof.”  Louisiana’s trademark law has a similar provision.  LUTPA likewise requires an “ascertainable loss” of money or property due to an unfair or deceptive practice.  Plaintiffs didn’t show such injury, since apparently dealing with C&Ds and claims to own generic terms didn’t count.

The unfair competition/false advertising claim was doomed for the same reasons.  The use of a trademark symbol for a generic term wasn’t literally false, and plaintiffs didn’t show evidence of actual consumer confusion and materiality.  Circuit law clearly required such evidence in the absence of literal falsity; even expert evidence of materiality and deception is insufficient when it’s not based on reliable market survey analysis and instead relies on common sense.

Nor did plaintiffs rebut the presumption of validity established by the federal registrations of MOUNTAIN MAPLE and SNOWSWEET.

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