Wednesday, March 22, 2017

Marketing method and display are functional, nondistinctive trade dress

AMID, Inc. v. Medic Alert Found. U.S. Inc., No. H-16-1137 (S.D. Tex. Mar. 16, 2017)

American Medical ID (AMID) sued MedicAlert Foundation United States for trade dress and copyright infringement. The parties compete in the market for medical-identification jewelry. One of their marketing techniques is sending unsolicited mass-mailed countertop displays with tear-off pads attached to doctors’ offices. “Both companies include a letter to each doctor’s office explaining what to do with the enclosed display and the importance of patients wearing medical-identification jewelry.”  I’m just going to pretend that the court said that AMID “registered its copyright” in its letter.  There, that feels better.  AMID also claimed that unsolicited mailing of countertop easel displays was a protected marketing method and that its countertop display was protected as trade dress that MedicAlert infringed

It all started when a former AMID marketing manager, Justin Noland, resigned from AMID and went to work at MedicAlert. MedicAlert hadn’t mailed unsolicited countertop displays to doctors’ offices for the previous six years, but resumed the mailings after Noland began working there.  

In July 2015, AMID complained to MedicAlert that Noland had violated his noncompete agreement with and confidentiality obligations to AMID, and that MedicAlert had made a “virtual carbon copy” of AMID’s display.  In August, MedicAlert responded that it wouldn’t fire Noland because the noncompete clause had already expired, and noted that MedicAlert would “remain mindful of all the operating boundaries concerning marketing materials between our two companies . . . .” MedicAlert didn’t agree to recall, stop using, or change the MedicAlert marketing displays or other marketing materials.  AMID responded in early September, mostly proposing a marketing partnership.  AMID sued in April 2016, making nearly 11 months between when AMID allegedly first saw the MedicAlert displays on the MedicAlert website and when it sued.  The court denied a preliminary injunction, despite finding a likelihood of success on the merits of the copyright claim.

The display method/display itself were not registered.  AMID claimed they were inherently distinctive.  Abercrombie doesn’t work well for non-word marks.  We know more about what can’t be inherently distinctive—color, product design—than what can.  Erring on the side of caution, as instructed by Wal-Mart, the court here found the claimed trade dress to be on the “product design” side, rather than product packaging, thereby requiring secondary meaning.

AMID proposed a number of different versions of its claimed trade dress.  After the PI hearing, AMID alleged rights in a “Marketing Plan and Scheme” that included:

a.         unsolicited mass-mailing to doctor and other professional offices of display;
b.         an easel display with integral order forms;
c.         real jewelry facsimiles in the upper portion of the display;
d.         an introductory letter;
e.         a see-through cardboard cover over the jewelry with one medal visible; and
f.          a clear mailing wrapper.

It also alleged rights in the “[p]ackaging as received by the professional office of the mailed [d]isplay,” and the “display as used in the professional offices,” specifically:

a.         an easel display having three panels on the front portion of the display;
b.         a top panel, followed by a larger central panel with real jewelry facsimiles followed by an order form on the lower portion of the display; and
c.         an order form pad below the central panel taking up approximately 2/3 of the display face with photographs of jewelry on the face of the order form.
AMID package

AMID display at Publix

display comparison

MedicAlert package

As the court noted, one cannot “coherently define exactly what the trade dress consists of and determine whether that trade dress is valid and if what the accused is doing is an infringement” until after the claimant submits the “discrete elements” making up the its claimed trade dress. AMID’s final version included for the first time “the proportion of space taken up by the order form pad, photographs of jewelry, and the number, position, and size of the panels.”  The court commented that it wasn’t clear at what point changing the definition of the claimed trade dress would require an amended complaint.  Without precise boundaries, determining infringement—and determining what a competitor could and couldn’t do without entering a courtroom—is very difficult.  The court referred to Wal-Mart’s instructions “to be cautious about applying vague, litigation-friendly tests for inherent distinctiveness,” and noted that AMID has changed its marketing materials over the years, helping to create a “moving target.” 

AMID’s witness claimed that all the variations shared a “family look,” but her testimony about what meant “was elastic and expansive.” She claimed that 80 percent of the displays distributed since 2012 had this “family look.” The court wasn’t clear which the other 20% were.  AMID used “displays with clearly different shapes, sizes, text size and font, color, artwork, layout, and materials,” and some didn’t contain any of the elements AMID identified as defining its trade dress. Thus, AMID failed to define its trade dress with sufficient clarity or consistency. 

Plus, erring on the side of caution as instructed, the court classified this ambiguous trade dress as product design, requiring secondary meaning for protection.  AMID argued that its trade dress was “akin” to product packaging, but AMID’s products are bracelets or dog tags and the purported trade dress didn’t “package” the actual jewelry AMID sells.  It was in the middle of the packaging and design spectrum.

AMID also failed to show secondary meaning.  Four of the claimed seven trade-dress elements were packaging designed to be removed by a doctor’s staff before putting it out for potential buyers (or doctors) to see.  AMID argued that these elements were seen by the “gatekeepers”—the staff in the medical office who make the decision to place the display on a counter visible to the “end users,” the patients.  The court commented that “[i]t stretches current law to analyze [gatekeeper staff] as the relevant consumer in the secondary-meaning inquiry.” Doctors might also be gatekeepers in deciding whether to place the display in their waiting room or whether to recommend medical-identification jewelry.  Ultimately, gatekeeper recognition couldn’t determine secondary meaning, because gatekeepers weren’t consumers of medical-information jewelry. “The parties have not cited cases in which a court found protectable trade dress, when, as here, most of the purported trade-dress elements are never seen by members of the buying public.”

Plus, the secondary meaning evidence was lacking as to consumers, especially given the many variations in displays AMID had used over the years.  MedicAlert put on a consumer survey finding negative secondary meaning—that is, 35.3% of the test group and 39.8% of the control group associated the two displays they saw with one company.  In the test group, 3.2% identified MedicAlert as the source of the display they saw, while 5.4% of the control group did.  Similar results obtained for a test of whether “Medical IDs Save Lives!” had attained secondary meaning.  AMID’s criticisms of the survey were unavailing, especially given that the survey properly targeted people who’d bought/were likely to buy medical identification jewelry.

Another survey found that 23.3% of the doctor-respondents currently displayed advertising or promotional literature from both AMID and MedicAlert; 58.5% didn’t currently display either; and the remainder were roughly split.  There was no evidence from this survey that either party’s marketing materials were replacing the other’s.

Annoyingly, the court quoted the line that “evidence of intentional copying shows the strong secondary meaning of [a product] because ‘there is no logical reason for the precise copying save an attempt to realize upon a secondary meaning that is in existence,’” right before it started in on functionality (which it found here).  But still, there was circumstantial evidence of intent to copy given Nolan’s employment and the resumption of mass mailings.  (The court did say that intent to copy was more relevant to infringement than to protectability in the first instance.)

Finally, the trade dress was functional and AMID didn’t meet its burden to show nonfunctionality.  Under the first TrafFix test, a feature is functional when it “is essential to the use or purpose of the article or if it affects the cost or quality of an article,” and it’s essential “if it serves any significant function other than to distinguish a firm’s goods or identify their source.” If the feature is functional under this definition, there is no need to consider competitive alternatives.

Evidence of functionality included that displays using an easel design and attached pad with tear-off sheets are covered by utility patents and are commonly used. Attaching sample products to countertop displays was also commonplace, and attached samples had to be placed so as not to make the display fall over. The combination of functional features wasn’t configured in a nonarbitrary manner.

And finally: there was no showing of irreparable harm, given AMID’s delay in seeking relief even after calling the display “an extreme knockoff” and expressing “great concerns about the use of those [displays] in the marketplace.”  AMID’s 2015 correspondence didn’t demand that MedicAlert stop distributing the displays or remove the display from its website.

The copyright infringement claim fared better.  The transmittal letter that introduces a healthcare professional to AMID’s marketing materials is “the first thing a healthcare professional sees on opening the display package.”  The court found “obvious” similarities, including virtually identical text at the bottom as well as overall look and other content.
AMID letter

MedicAlert letter

“While MedicAlert had a long history of using displays in its marketing campaigns up to 2009, MedicAlert has presented no evidence that it used a letter until the mailings sent after Noland arrived.”  However, there was still no irreparable harm, given AMID’s delay and MedicAlert’s cessation of its use of the similar letter.

The court declined to dismiss a common-law unfair-competition claim based on misappropriation of “valuable business methods, marketing plans, confidential know-how and proprietary information,” not rising to the level of trade secrets.

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