trade dress must be visual; Octane Fitness applies to Lanham Act

Fair Wind Sailing, Inc. v. Dempster, Nos. 13-3305 & 14-1572, -- F.3d – (3d Cir. Sept. 4, 2014)

Fair Wind, a sailing school, sued Virgin Island Sailing School (VISS) and its co-founder Scott Dempster, alleging trade dress infringement and unjust enrichment from VISS’s alleged copying of aspects of Fair Wind’s business model.  The court of appeals upheld the dismissal of the claims, but reversed the award of fees to the extent that the award covered the Lanham Act claim; the district court didn’t determine whether this case was “exceptional.”

The allegations: Fair Wind’s St. Thomas school uses only catamarans, and hired Larry Bouffard as a captain and sailing instructor with a noncompete clause covering 20 miles/2 years.  Bouffard was popular; he introduced Dempster to Fair Wind as a potential instructor and captain. Fair Wind took him on for a 2-week probationary period, was dissatisfied, and didn’t hire him.  Bouffard swiftly resigned and opened a directly competing school, in violation of his noncompete agreement.

Fair Wind alleged that VISS copied its school in several ways: (1) the use of 45-foot catamaran; (2) the same teaching curriculum and itineraries; (3) the same procedures for student feedback; (4) the same website marketing; (5) a picture of a catamaran belonging to Fair Wind on the VISS website; (6) “student testimonials” on the website from students who took classes with Dempster while he worked for Fair Wind; and (7) the website mentions Bouffard’s experience teaching “[o]ver the last year,” presumably in reference to his time teaching at Fair Wind.  (When thinking about fees, compare what the 7^th Circuit said about the anticompetitive nature of suing a former employee for conduct that is actually legal.  Extraordinary?)

The district court found that Fair Wind failed to define its alleged trade dress, and that, to the extent that the features at issue could be trade dress, they weren’t alleged to be inherently distinctive or to have secondary meaning; moreover, the features were functional.  Nor did the complaint properly allege that VISS was enriched, for purposes of unjust enrichment.

The court of appeals first examined the trade dress claim.  Copying isn’t always barred; often it’s a good thing.  In an unregistered trade dress case, the plaintiff has the duty to “articulat[e] the specific elements which comprise its distinct dress.”  This ensures that the plaintiff isn’t seeking to protect an unprotectable style, theme or idea.  But even before assessing protectability, “a district court should scrutinize a plaintiff’s description of its trade dress to ensure itself that the plaintiff seeks protection of visual elements of its business.”  While any “thing” that dresses a good can be trade dress, it must “dress” the good.  “That is, the alleged trade dress must create some visual impression on consumers. Otherwise, there is simply no ‘dress’ to protect.” 

Comment: I understand what the court is trying to do, but the way it’s expressed it risks conflict with Qualitex’s condemnation of ontological distinctions/Two Pesos’ statement that trade dress “... involves the total image of a product and may include features such as size, shape, color or color combinations, texture, graphics, or even particular sales techniques.”  (If you track down the Two Pesos reference for “particular sales techniques,” however, it’s a case about protecting the Cabbage Patch Kids gimmick of including a “birth certificate” with each purchase.  I myself think that’s functional and suspect the case would come out differently today, but regardless it does still involve a technique that can be seen rather than, say, a sequencing of sales come-ons.)  

 Maybe the court means that smells and sounds can be trademarks, but they can't be trade dress.  It might be better to say, instead of that trade dress must be visual, that it must be concrete or form a perceptible whole. And here I'll speculate wildly: given standard human perception, it might be hard for us to unify a sound and a visual; when secondary meaning does develop in one, we may simply expect the other rather than require both in order to perceive an indicator of source--e.g., the NBC chimes and the NBC peacock, which travel together but are probably separate marks.  In any event, as it turns out, given how expansive our law is, explaining what’s wrong with Fair Wind’s claim is a bit difficult other than calling it an idea.

Fair Wind asserted trade dress in “the combination of its choice to solely employ catamaran vessels” and its “unique teaching curriculum, student testimonials, and registered domain name,” which “all combine to identify Fair Wind’s uniquely configured business to the general public.”  (The complaint didn’t actually allege confusing similarity of VISS’s domain name to that of Fair Wind.  Thus similarity in domain names couldn’t play a part in the court’s analysis, and wouldn’t alter the court’s conclusion about Fair Wind’s failure to plead a cognizable trade dress even if it had been properly pleaded.)

“By its own terms, … Fair Wind’s ‘trade dress’ is simply a hodgepodge of unconnected pieces of its business, which together do not comprise any sort of composite visual effect.”  Several of the claimed elements, such as the curriculum, weren’t clearly visual aspects at all.  Copying a business does not give rise to a trade dress claim.  In a footnote, the court stated that a curriculum could be part of a trade dress “if part of, for example, an overall look of a schoolhouse or a website, could not be part of a business’s trade dress” (citing a menu case).  But the complaint didn’t allege that Fair Wind’s curriculum created any kind of visual impression. “It is not even clear from the complaint that Fair Wind’s curriculum is something that can be seen.”

Even as to its website, the complaint didn’t explain what specific elements of Fair Wind’s website comprised a distinctive trade dress or allege that its site had any distinctive ornamental features. It didn’t allege any facts at all about the substance of its own website.  The complaint alleged that VISS’s website had “a picture of a Fair Wind catamaran, as well as student feedback mechanisms, curriculum, and itineraries identical to those used by Fair Wind.” But the fact that VISS copied “aspects of Fair Wind’s business” and put them on its own website said nothing about the content or look of Fair Wind’s website.  The complaint failed to give VISS adequate notice of the overall look Fair Wind wished to protect.

Anyway, even if Fair Wind had adequately alleged an overall design, its alleged “trade dress” was clearly functional.  “Student feedback procedures, catamarans, teaching itineraries, and curriculum all affect the quality of Fair Wind’s business. They play a critical role in the consumer demand for Fair Wind’s services, rather than merely identifying Fair Wind as the source of the sailing instruction.”  Fair Wind cited cases holding that functional elements can sometimes be combined into a nonfunctional trade dress.  Comment: These cases are shaky to begin with, but to the extent that the claimed elements aren’t integrated but are just parts of the business, it’s hard to imagine that this result would ever be right.  Indeed, the court said, “Fair Wind has not explained how the identified functional elements achieve a nonfunctional ‘composite tapestry of visual effects.’”  So here’s the interaction with the visual again.  Fair Wind didn’t allege a distinctive appearance at all.

Then the court of appeals upheld the dismissal of Fair Wind’s unjust enrichment claim; Fair Wind didn’t properly plead that VISS had been enriched. Although allegations that VISS “accrued additional profits by poaching Fair Wind’s proprietary information and trade secrets” might have been enough to satisfy Rule 8, Fair Wind didn’t even allege that.

The district court awarded attorneys’ fees to VISS without attempting to segregate which fees were accrued defending the federal claim, and it also didn’t make a finding that the territorial and federal law claims couldn’t be segregated.  It should have done so, since Lanham Act fees can only be awarded in “extraordinary” cases, while Virgin Islands law allowed the award regardless.  (The court declined to decide now whether, if the claims were inextricably intertwined, an award covering the whole shebang would be appropriate, but it expressed some skepticism.  Usually courts have to make some effort to segregate claims even if the division won’t be perfect, and the court didn’t want to encourage time entries to be obfuscated.)

VISS argued that the claims here were exceptional.  Previous Third Circuit case law required a district court to find that the losing party engaged in culpable conduct relating either to the substantive violation (obviously only for losing defendants) or to the conduct of the litigation, such as willfulness or bad faith. If so, it then had to assess exceptionality.

Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S.Ct. 1749 (2014), changed the analysis for the Patent Acte.  Octane explained that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  Thus, culpability isn’t necessarily required; an “exceptionally meritless” claim might suffice even without “bad faith, fraud, malice, [or] knowing infringement.” Octane also noted that the Lanham Act fee provision is “identical” to the patent law fee provision, sending a “clear message” that its rule also applied to the Lanham Act.

So, from now on, Octane governed the Lanham Act as well.  According to the Third Circuit: “[A] district court may find a case ‘exceptional,’ and therefore award fees to the prevailing party, when (a) there is an unusual discrepancy in the merits of the positions taken by the parties or (b) the losing party has litigated the case in an ‘unreasonable manner.’”  This is a case-by-case inquiry that considers the totality of the circumstances, with no culpability threshold although blameworthiness may well play a role. The district court should perform this inquiry on remand.