Thursday, July 30, 2015

Limiting remedies when a descriptive fair use defense fails

Anhing Corp. v. Thuan Phong Co., No. CV 13-05167, 2015 WL 4517846  (C.D. Cal. Jul. 24, 2015) 
This post-trial ruling covers a lot of detailed ground on descriptive fair use, unclean hands, and remedies.  Anhing successfully sued Thuan Phong for trademark infringement; the court denied Thuan Phong’s motions and granted a permanent injunction. [NB: the Westlaw version gets rid of most of the non-English orthography; I tried to fix that but my apologies for missing instances.] 
Anhing imports food and related products, and has a private label brand, “MỸ THO,” which has existed for thirty-five years. Here are two of its rice products:   Anhing registered MY-THO (no tilde) for rice sticks and rice vermicelli in 1986.  According to the registration, “MY–THO” has a dual meaning in Vietnamese of “beauty and longevity” and “pretty autumn.” At some point, Plaintiff also began selling rice noodles in packaging with the words “MỸ THO” accompanied by ®. 

Thuan Phong is a company that began and continues to operate in the city of Mỹ Tho, Vietnam.  It makes rice paper, sold under the TUFOCO logo. The package features BÁNH TRÁNG MỸ THO in red lettering across the top and three green bamboo trees.  In 2008, it registered the mark and design “BÁNH TRÁNG MỸ THO TUFOCO DAC BIET DE LAM GOI CUON VA CHA GIO VIET NAM BAMBOO TREE HIEU BA CAY TRE VIETNAMESE RICE PAPER” for rice paper.  In 2010, Thuan Phong introduced a rice noodle product with similar packaging.   

The parties began doing business together in 2004, when Thuan Phong agreed to make rice paper for Anhing’s White Elephant Brand private label.  In 2010, Anhing discovered Thuan Phong’s US sales of rice paper with BÁNH TRÁNG MỸ THO on the label, which Anhing considered confusingly similar to its BÁNH TRÁNG MỸ-THO rice paper, and Anhing had the same objections to Thuan Phong’s “BÁNH PHỞ MỸ THO” rice noodles, given Anhing’s “BÁNH PHỞ MỸ-THO” rice noodles.  In response to Anhing’s requests, Thuan Phong maintained that the terms weren’t used as marks, but rather as information about the geographic source of the products.  However, Thuan Phong agreed to discontinue these particular phrases and to sell under “BÁNH PHỞ SẢN XUẤT TẠI THᾺNH PHỞ MỸ THO” and “HỬ TIỀU SẢN XUẤT TẠI THᾺNH PHỞ MỸ THO.”  These phrases state more clearly in Vietnamese that their rice noodles are produced in the city of Mỹ Tho.  Anhing wasn’t satisfied, because the geographic designations would still appear at the top of Defendant’s packaging, with the words “MỸ THO” in bold red lettering and in the same font size as the rest of the words on the packaging. Thuan Phong refused to move the words “MỸ THO” to the bottom of its packaging, and it didn’t change its rice paper packaging or add similar prepositional phrases.     

Anhing sued for infringement of its registered “MY-THO” mark as well as for infringement of its unregistered MỸ-THO mark and for its unregistered trade dress.  A jury found willful infringement of the registered mark and lack of fair use.  However, the jury found that Anhing didn’t prove ownership of a valid mark in “MỸ-THO” (with tilde) or likely confusion with respect to its trade dress.  The equitable issues remaining for the court were Thuan Phong’s affirmative defenses of laches and unclean hands, a counterclaim under the UCL, and Anhing’s request for a permanent injunction. Thuan Phong also sought judgment as a matter of law.   
The court rejected Thuan Phong’s laches defense based on Anhing’s delay in filing suit. Thuan Phong argued that Anhing knew about the infringement as early as 2004, when one of its representatives visited Thuan Phong’s factory, but failed to file suit until July 2013.  Laches doesn’t bar a suit against a deliberate infringer, where the public’s right not to be confused is paramount and where the infringer’s hands are unclean. Given the jury findings and instructions, its finding of “willful use” amounted to a finding of willful infringement.  The jury was instructed that it should award profits if it found willful infringement and skip an accounting otherwise, and it stated $8690.52 as Thuan Phong’s profits attributable to infringement.  Separately, Thuan Phong failed to show prejudice either in its ability to bring evidence forward or in its reliance on Anhing’s inaction to grow its business, given its position that it wasn’t using MỸ THO as a mark but as a statement of information—any delay couldn’t therefore have injured its brand or reputation.
The court further rejected Thuan Phong’s unclean hands defense based on (1) Anhing’s use of ® on rice products not disclosed in its registration for the “MY THO” trademark and next to the unregistered “MỸ-THO” mark; (2) geographic misleadingness; and (3) inequitable conduct in securing its registration. Inequitable conduct must relate to the use or acquisition of the plaintiff’s claimed rights to justify the defense, but need not be illegal or criminal.
The wrongful use of ® disturbed the court; some evidence suggested that the misuse was not inadvertent.  But it still was not sufficiently related to the subject matter of Anhing’s claims based on “MY–THO,” especially given the Ninth Circuit’s focus on balancing the parties’ willfulness and harms to each other.  (Given that the marks are so similar, it seems likely that they’d qualify for tacking if Anhing went ahead and tried to register MỸ-THO.)

Geographic deceptiveness: If the jury found that MỸ THO is confusingly similar to MỸ-THO, Thuan Phong argued, Anhing shouldn’t be allowed to use the mark, because Mỹ Tho is a city.  But the jury didn’t find confusing similarity in the abstract; it found that Thuan Phong’s use of MỸ THO as a trademark was confusingly similar to Anhing’s mark, which didn’t mean that MỸ-THO was misleading or deceptive as to geographic source.  Also, this too was unrelated to Anhing’s acquisition or use of the right it claimed.  (Hmm.  Neither of these reasons seems right to me.  Geographic terms can be used as marks, so there’s no incompatibility between geographic indication and source indication; indeed that’s why we have a descriptive fair use doctrine—to preserve others’ rights when a descriptive term has successfully been used as a mark.  And if the term is geographically deceptive, then Anhing’s claim against a producer who is in fact from the location is fundamentally related to its deceptive appropriation of a geographic term (or a confusingly similar version of the term, since I can’t see why the confusion wouldn’t go both ways).)  The court says that the right at issue is “MY–THO,” and so whether MỸ-THO is understood as a geographical reference is irrelevant, and that the connection between the terms is too tenuous to support an unclean hands defense.  But the connection was strong enough to make the terms confusing!
The court further found insufficient evidence of geographic deceptiveness. Though all of Anhing’s products were made in Thailand, there was conflicting evidence over whether the phrases displayed on its packaging was a geographic reference or pure trademark use.  Thuan Phong didn’t offer persuasive evidence to show that the mark’s “primary significance” was to refer to the city of Mỹ Tho, or any evidence of actual consumer confusion.   The products were all labeled as having been produced in Thailand.   
Unsurprisingly, Anhing’s failure to disclose the existence of the city when it registered its mark also failed to constitute sufficient inequitable conduct to justify an unclean hands defense. There was no evidence of Anhing’s knowledge of the city, understanding that it should disclose the city’s existence, or intent to deceive the PTO.
There was also no basis for Thuan Phong’s UCL counterclaim based on the misuse of ® because there was no evidence that such use caused Thuan Phong to suffer any damages. Nor did a claim based on alleged misrepresentation of source succeed—the jury could reasonably have concluded that MY-THO didn’t stand for a geographic location in most consumers’ minds.
The court also rejected Thuan Phong’s motion for judgment as a matter of law, focused mostly on its descriptive fair use defense.  Though the jury’s finding of likely confusion didn’t preclude the fair use defense under KP Permanent, the evidence supported a finding of use as a mark.  Even after Thuan Phong’s changes, the words still appeared prominently at the top and in bold red lettering, albeit in the same font and color as other words indicating the type of product (rice noodles) and the prepositions indicating geographic source.  “The jury could have found Defendant’s refusal to move the reference to ‘MỸ THO’ to the bottom or back of its packaging, or to reduce the size of the lettering, as evidence Defendant did not take sufficient precautionary measures despite its knowledge of potential infringement,” and likewise the jury could have found that its failure to change the wording on its rice paper packaging indicted an intent to attract public attention. The jury could have found that Thuan Phong displayed MỸ THO more prominently than other design features, such as its blue “TUFOCO” logo and the three green bamboo trees. 
Likewise, the jury could have found a lack of good faith, given Thuan Phong’s conduct after Anhing sent its C&D.  Thuan Phong expressly acknowledged a likelihood of confusion and agreed to modify the wording on its packaging to more clearly state its products were produced in Mỹ Tho, but refused to move this “information statement” to a less prominent place on its packaging. That refusal, combined with the lack of evidence that Thuan Phong consulted legal counsel, was sufficient to support a finding of lack of good faith.  (Wow!)  Finally, the jury was entitled to find that the use was not purely descriptive, because of testimony that Mỹ Tho isn’t a famous city and consumers don’t associate the words with a geographic place. “[T]he evidence is consistent with a finding that consumers do not interpret the words to refer to Mỹ Tho city, and that Defendant did not use the words in a trademark sense.”

As to willfulness, though there was evidence that Thuan Phong independently designed its rice paper packaging before the parties began doing business together, and chose to use “MỸ THO” not to refer to competing products but to inform consumers where its products were produced, that didn’t negate willful infringement given its continued use of the term after it became aware of the MY-THO mark. Nor did Thuan Phong’s own registration, from 2008, preclude a finding of willfulness. Though the registration was evidence of lack of willfulness, it couldn’t be viewed in isolation, and was undermined by Thuan Phong’s own statements in response to the C&D:
The words “BÁNH PHỞ MỸ THO” on the packing of Anhing Corporation and on the packing of Thuan Phong Company are likely to cause confusion in the marketplace. Thuan Phong [C]ompany does not want to use alike name of Anhing’s rice noodle (sic ). We will correct the name of our product on packing clearly in order that it will be quite different to the name of product of Anhing Corporation (sic).
“Use of an infringing mark, in the face of warnings about potential infringement, is strong evidence of willful infringement.” Likewise, failure to consult trademark counsel where such consultation would be reasonable supported a finding of willfulness.
Similarly, the evidence supported a finding of likely confusion, despite what the defendant characterized as minimal evidence of actual confusion.
The jury also awarded $10,000 in actual damages, which was supported by reasonable inferences given Anhing’s evidence that experienced a decline in sales after Thuan Phong entered the domestic marketplace, selling apparently identical/confusing staple products at a cheaper price; Anhing’s other brands didn’t suffer a decrease in sales at the same time.  The amount awarded was about 10% of Anhing’s claimed losses, making it a reasonable inference from the evidence.
Anhing also secured a permanent injunction. “Evidence of intangible injury, such as a loss of customers or damage to a party’s goodwill, can constitute irreparable harm. Evidence of a loss of control over one’s business reputation may also suffice.”  The trial evidence showed the necessary loss of control/harm, particularly because of testimony that Thuan Phong’s products were of inferior quality.  “That the jury found a likelihood of confusion substantiates this conclusion and further supports a finding of irreparable injury.”  (In other words: likely confusion is irreparable injury, so eBay doesn’t matter.) 
Irreparable injury meant legal remedies were inadequate.  “The evidentiary burden Plaintiff faced in establishing its actual damages at trial also favors injunctive relief [even though Anhing submitted evidence on actual damages and the jury made a finding]. Perhaps most important, however, is the risk that Defendant will continue to engage in infringing conduct.”
The balance of hardships favored Anhing; Thuan Phong argued that it would be harmed by being unable to adequately convey the geographic source of its products, but the fair use finding made this argument fail, though it affected the appropriate scope of an injunction. The public interest likewise favored a tailored injunction preventing confusion while allowing fair use.
Anhing argued that Thuan Phong should be limited to using the phrase “Mỹ Tho Industrial Zone” on the back of its packaging, in black ink and no more than 4 centimeters in length and 0.2 centimeters in height. There was no evidentiary basis for requiring Mỹ Tho “Industrial Zone”; the parties didn’t show that consumers would more readily recognize “Mỹ Tho Industrial Zone” as an indication of geographic source than simply “Mỹ Tho.” Nor was there an evidentiary basis for the requirement the source statement be in black ink. Thuan Phong’s packages use red, blue, green, and white ink; black ink is only used on the back, to convey information not included in its trade dress, such as nutrition facts, ingredients, and directions for use. Because the jury found no likely trade dress confusion, requiring black ink would be an unfair limitation on Thuan Phong’s trade dress rights. A ban on putting a source statement on the front of the products was also overly burdensome; some of Anhing’s own products included a statement of geographic source on the front. The jury’s confusion finding didn’t mean that any and all uses of Mỹ Tho on the front of packaging would necessarily infringe.  The same reasoning led the court to reject an absolute size constraint. “Certainly, the jury’s finding of willful infringement requires a change to Defendant’s current use of ‘MỸ THO.’ But it does not require the wholesale relegation of any and all reference to the words to an entirely inconspicuous location.”  The court allowed a six-month sell-off period, given that Anhing hadn’t shown that six more months of use would cause a significantly increased risk of harm.
Thus, Thuan Phong was enjoined from using “Mỹ Tho” in a manner likely to cause confusion; use in the same/similar manner as existing packages would be likely to cause confusion.  It had to immediately cease importing infringing products to the US.  It would be permitted to use Mỹ Tho as a location designator: “The text of the location designation shall state, in Vietnamese, ‘Product made in Mỹ Tho, Vietnam’ or ‘Produced in Mỹ Tho,Vietnam,’” and it couldn’t be bigger than the letters TUFOCO in Thuan Phong’s logo.  If on the front of the package, it couldn’t be at the top, above the “TUFOCO” logo and three bamboo trees. Thuan Phong was also ordered to immediately notify its distributors and customers in writing that it wasn’t associated with, affiliated with, sponsored by, or otherwise related to Anhing, including a copy of the final permanent injunction, and it had to immediately notify its wholesalers in writing that they were required to discontinue sales of the infringing products.     

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