Thursday, November 08, 2018

A watered-down finding of TM infringement: prevailing party gets $0 and no injunction, court tells it to go home

Evoqua Water Technologies LLC v. M.W. Watermark, LLC, No. 16-cv-14, 2018 WL 5784073 (W.D. Mich. Nov. 5, 2018)

Eric Goldman will probably appreciate the court’s takeaway here: “Plaintiff and Defendants are not only business competitors, but also stepchildren, in a way, fighting about the original business of a common corporate ancestor, JWI, Inc. Maybe the original family connections help explain why the parties appear locked in perpetual and mortal combat over what seems to outside observers—including most importantly, the jury—to be of limited economic value. In the Court’s view, both sides would be better served by ending their litigation and re-focusing their competitive energies in the marketplace.”

Evoqua sued Watermark for trademark infringement, false advertising, and copyright infringement (the last of which went out on summary judgment for failure to prove ownership). A jury held that Watermark was liable for trademark infringement, which caused damages of $0, and that the infringement was not willful; it also rejected the false advertising claim.

The parties compete in the de-watering business; they sell equipment such as sludge dryers and filter presses that makes waste easier and less expensive to manage. They also sell replacement parts for used de-watering equipment made and sold by themselves or by other companies.

Evoqua claimed that Watermark infringed Evoqua’s J-Mate trademark by selling sludge dryers named “DryMate” and by using the terms “J-Mate” and “JMate” on Watermark’s website. Evoqua inherited the J-Mate mark but its predecessor Siemens decided to “exit” the market for J-Mate sludge dryers. Evoqua continued this plan and told its sales representatives about it. As a result, Evoqua did not advertise or sell any J-Mate dryers in 2014 or 2015.

Watermark refurbished and sold used J-Mate dryers. Some of its customers complained that they could no longer purchase a new J-Mate dryer, so Watermark decided to develop and sell its own new sludge dryer that was similar to the J-Mate. Since it hadn’t settled on a name, its sales representatives used different names when pitching the dryer to customers; some called it a “DryMark,” others called it a “DryMate,” and others simply referred to it as a sludge dryer. Eventually, they settled on the name DryMate. Watermark received only six orders for new sludge dryer using that name, and in 2016 it changed the name to the “M.W. Watermark Continuous Sludge Dryer,” in response to concerns raised by Evoqua. Only the first dryer shipped to the customer under the DryMate label; the others shipped under the other name. Watermark sold that first dryer at a loss.

Watermark also used the terms “J-Mate” and “JMate” on its website in a few places, such as a blog post comparing the DryMate dryer to the J-Mate dryer. Another page discussing the DryMate dryer was titled, “Is it time to replace your sludge dryer?” and tagged with terms including J-Mate and JMate. Despite the obvious utility to consumers of such references, Watermark removed all references to J-Mate from its website before trial, in response to Evoqua’s concerns.

Watermark also sold replacement parts for Evoqua equipment. That equipment contains parts that are made by third-party manufacturers, such as a filter pump made by Haskel. When Watermark acquired replacement parts from the same third-party manufacturers who supplied the equivalent parts to Evoqua, Watermark sold those parts as “OEM parts” for Evoqua equipment. Evoqua argued that this was literally false and its employees expressed their opinions that, in the de-watering industry, the “OEM” is the manufacturer and seller of the equipment that uses the component parts, even though anyone can buy the same part directly from the third-party manufacturer and then resell it, as Watermark did.  Watermark’s witness testified to the contrary, and Evoqua own website advertised the sale of “OEM parts” for filter presses made by other entities.

The court declined to disturb the trademark infringement holding; the evidence allowed a reasonable jury to go either way. The finding of no willfulness was also reasonable, given that even Evoqua’s own sales reps thought that Evoqua was abandoning the business and directed customers interested in a J-Mate sludge dryer to Watermark. Also, Watermark “had reason to use J-Mate fairly and lawfully. It sold replacement parts for J-Mate dryers, as well as refurbished J-Mate dryers. It also sold a sludge dryer that was similar to the J-Mate dryer. The jury could have reasonably concluded that Watermark intended to use the term J-Mate to fairly describe or compare its own products and services, rather than to confuse customers.” Likewise, given the cost and lead time of a sludge dryer purcase, the jury could reasonably have found that customers were unlikely to be confused.  On the theory that DryMate infringed, the jury could reasonably have found that this was unintentional because Watermark “decided on this name through an informal process at a time when they believed Evoqua was abandoning the dryer business” and avoided any use of the “J-” prefix that is characteristic of Evoqua’s trademarks. Watermark’s discontinuance of its use soon after hearing from Evoqua could also support lack of willfulness.

Likewise, it was reasonable to find no damge. There was no concrete evidence of harm, and the jury wasn’t required to accept self-interested testimony that Watermark’s actions harmed Evoqua’s business and goodwill. For the use of DryMate, the jury could reasonably have found that Evoqua wasn’t entitled to any disgorgement, which was its only damages theory. Evoqua claimed it was entitled to Watermark’s gross revenue for all six dryers, but it was reasonable to limit any disgorgement to Watermark’s profits (or lack thereof) from the sale of the first sludge dryer, because that was the only dryer that shipped to a customer with a DryMate label. Evoqua argued that it should prevail on an initial interest confusion theory, but it presented no evidence of IIC, and the core question is the same anyway, consumer confusion: “A reasonable jury could conclude that customers ordering a sludge dryer would take particular care, and would not be misled about its source after receiving one with Watermark’s label on it.”

The false advertising claim “boiled down to a credibility contest”; the jury’s choice of Watermark’s testimony was reasonable, especially given Evoqua’s own uses of “OEM.”

Evoqua asked for the court to multiply the damages award according to the principles of equity, but three times $0 is still $0, so the statute does not permit enhancement here, even if equity supported an enhancement, which it did not.  

What about a permanent injunction? Though the court quoted old precedent that irreparable injury “ordinarily follows when a likelihood of confusion or possible risk to reputation appears” from trademark infringement, Watermark stopped using the term DryMate in 2016 and removed pages on its website referring to J-Mate. The two-year gap in any questionable conduct diminished the risk of future harm and obviated the need for an injunction to remedy past harm. Evoqua argued that Watermark was a repeat offender; the Watermark did enter into a settlement agreement and consent judgment with a predecessor in 2003, in which it agreed not to use marks containing a “J-” prefix. But that wasn’t the result of a court ruling; here too Watermark stopped the complained-of conduct when Evoqua complained. Thus, the court saw no need for an injunction.

The balance of hardships also disfavored an injunction, insofar as Evoqua sought to impose stringent restrictions on Watermark’s use of Evoqua’s trademarks, even where such use would not be confusing because it fairly describes products sold by Watermark, including replacement parts for the J-Mate dryer and refurbished J-Mate dryers. Likewise, “[t]he public would not be served by a judicial order hindering Watermark’s ability to fairly compete with Evoqua in the marketplace.”

Watermark couldn’t get its fees for the copyright claim. Although Evoqua failed to prove ownership of the copyrights, “its litigating position was not objectively unreasonable.” It acquired some IP from the previous owner of its business, even though it couldn’t show that it acquired the particular assets necessary to bring its copyright claim, a question resolved only after the court asked for further briefing. Nor was Evoqua’s motive “wholly improper.” “By its own admission, Watermark obtained many materials from former Siemens/Evoqua employees, and possessed a trove of manuals for Evoqua products that Watermark copied, rebranded, and sold to its own customers.” Even if Evoqua was in part seeking to squash a smaller competitor, it wasn’t unreasonable to view this particular conduct as a concern: “Even if Watermark is a mosquito to an Evoqua elephant, the elephant is entitled to swat the mosquito when it tries to bite.”

Nor could Watermark get its fees on the false advertising claim; the parties “simply disagreed about the definition of a term that could mean different things in different contexts,” and Evoqua survived summary judgment on the issue. Both sides presented only self-interested witnesses, not objective expert testimony or evidence. Evoqua couldn’t provide evidence of damages, but those aren’t always easy to prove, and so it wasn’t unreasonable to pursue injunctive relief even without concrete evidence of monetary harm.

Nor did Evoqua’s asserted anti-competitive purpose justify a fee shift.  Though Evoqua arguably made overbroad discovery requests, there wasn’t evidence that this meaningfully increased Watermark’s burden; it simply objected and didn’t comply. “There was definitely some evidence at trial suggesting that Evoqua thought that litigation was warranted simply because Evoqua could absorb the costs more easily than Watermark. But even if true, this does not detract from the good faith basis Evoqua had to pursue its claims.”

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