Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

GEORGIA-PACIFIC CONSUMER PRODUCTS v. KIMBERLY-CLARK CORP. (July 28, 2011)

Georgia-Pacific has been selling toilet paper for over 100 years. About 20 years ago, it introduced a diamond-shaped embossed design on its toilet paper and rebranded it Quilted Northern. It obtained trademarks, copyrights, and utility and design patents. When Kimberly-Clark introduced a quilted design on its brand of toilet paper, Georgia-Pacific filed suit. The complaint alleged unfair competition and trademark infringement. Judge Kendall (N.D. Ill.) granted summary judgment to Kimberly-Clark, concluding that the diamond design was functional and not subject to trademark protection. Georgia-Pacific appeals.

In their opinion, Seventh Circuit Judges Kanne, Evans, and Sykes affirmed. Under the Lanham Act, a trademark registration creates a rebuttable presumption of validity. If a challenger, however, shows strong evidence of functionality, the mark holder has a heavy burden of demonstrating that the mark is not merely functional. The Supreme Court addressed functionality in TrafFix, where it stated that a feature is functional "if it is essential to the use or purpose of the article or if it affects the cost or quality of the article." The Court found several TrafFix factors to be relevant: a) a description of functionality in a utility patent, b) advertising the feature, c) difficulty in creating an alternative design, and d) the effect on quality or cost. First, the Court looked to the utility patents and compared the trademarks’ "essential feature" with the utility patents’ "central advance." The parties agreed that the essential feature is the embossed diamond design. All five utility patents also point to the diamond design as the central advance. This is strong evidence of functionality. The Court found support for its conclusion when it went behind the patents' claims themselves to the specifications. The first factor, therefore, supported a finding of functionality. With regard to the second factor, the Court noted significant advertising that linked the diamond design to various utilitarian benefits. That also supports functionality. The third factor, alternative designs, does not particularly support functionality since there are numerous alternatives. The final factor is the design's effect on quality. The Court agreed with the district court that Georgia-Pacific makes numerous claims of quality enhancement based on the design. The Court thus concluded that Georgia-Pacific failed to rebut Kimberly-Clark's, strong evidence of functionality. The Court briefly discussed and rejected Georgia-Pacific claims regarding packaging design and latches.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

EVA'S BRIDAL LTD. v. HALANICK ENTERPRISES (May 10, 2011)

Forty-five years ago, Eva Sweis opened the first "Eva's Bridal" shop in Chicago. The business was quite successful, selling dresses for brides and bridesmaids. The business eventually passed to her daughter and son-in-law. They sold one of their "Eva's Bridal" shops in a Chicago suburb to Nayef Ghusein. Their agreement required a $75,000 annual payment for the right to use the name. The agreement did not require Ghusein to conduct his operations according to any particular guidelines. The agreement expired in 2002 but Ghusein continues to operate the store under the same name without paying an annual fee. Eva's Bridal brought suit pursuant to the Lanham Act. Judge Darrah (N.D. Ill.) dismissed the complaint, concluding that plaintiffs abandoned the mark when they allowed Ghusein to use it without exercising any control over the nature and quality of the business. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Ripple affirmed. The Court noted that plaintiffs concede that "naked licensing" (that is, licensing without exercising control over the business) results in the abandonment of a mark. Plaintiffs contend, however, that Ghusein uses the same high-quality designers that they used when they operated the store and that they therefore had no need to oversee the business. But the Court disagreed. Trademark law does not require a licensor to insist on high-quality -- only to insist on a consistent level of quality. The degree of control required of a licensor depends both on customer expectations and the nature of the business itself. The Court concluded that it was not necessary to decide how much control was enough for these plaintiffs because they exercised no control at all. The fact that they knew the identical dresses might be available at the shop says nothing about other aspects of a customer's experience. The district court was correct in finding the mark abandoned.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

NIGHTINGALE HOME HEALTHCARE v. ANODYNE THERAPY (November 23, 2010)

Late last year, the Seventh Circuit affirmed summary judgment in favor of Anodyne Therapy and against Nightingale Home Healthcare (opinion and intheiropinion). The case involved Nightingale's purchase and later return of infrared lamps purchased from Anodyne. The Court affirmed on the grounds that Nightingale suffered no damages. After the affirmance, Judge Barker (S.D. Ind.) awarded $72,000 in attorneys' fees pursuant the Lanham Act’s allowance of such awards in "exceptional cases." Nightingale appeals.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Rovner affirmed. The Court first described the surprisingly varied definitions courts apply to "exceptional cases." It found at least seven different interpretations in the different circuits, although it admitted that a closer analysis of the facts of individual cases would be required to determine if the different interpretations resulted in different outcomes. In the face of these different approaches, the Court looked to for the principle behind this exception to the general rule against awards of attorneys' fees. It concluded that the purpose of the exception was to prevent plaintiffs and defendants from using the Act for strategic purposes, especially when the other party was economically disadvantaged. The Court adopted an "abuse of process" test (i.e., the use of the legal system to accomplish a goal for which it was not designed) to reflect the concerns addressed by the Act. Applying that test in the procedural context of a fee motion, the Court concluded that an "exceptional case" is one in which a claim or defense was objectively unreasonable. Here, the Court had no difficulty finding that Nightingale met the test. The claim was not only without merit but was made for the specific purpose of getting a price concession from Anodyne. In addition to affirming the award below, the Court awarded fees for the appeal.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

STAYART v. YAHOO! (September 30, 2010)

Beverly Stayart sounds like a bit of a renaissance woman. Self-described as "sophisticated, well-educated, and highly intelligent," she has a University of Chicago M.B.A, engages in humanitarian efforts in support of baby seals and wolves and wild horses, researches genealogy, has published scholarly papers on the Internet, and writes poetry. One day, she conducted a Yahoo! Search on her own name. That search, and others that followed, produced troubling results. In addition to the links about herself and her activities, she found links to pharmaceutical companies, pornographic websites, and much more. She demanded that Yahoo! remove the offensive links. Yahoo! declined. Stayart brought suit alleging a violation of § 43(a) of the Lanham Act. Judge Randa (E.D. Wis.) dismissed the complaint on the grounds that she had no commercial interest in her name. Stayart appeals.

In their opinion, Circuit Judges Manion and Williams and District Judge Darrah affirmed. The Court noted that Stayart did not challenge the well-established rule that § 43(a) requires a showing of commercial interest. Instead, she argued that her extensive and varied activities and presence on the Internet established a commercial interest in her name. The Court disagreed. Section 43(a) is a remedy for a commercial plaintiff who seeks to protect its commercial interest. Stayart's activities may be laudable -- they are not commercial.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

SCHERING-PLOUGH HEALTHCARE PRODUCTS v. SCHWARZ PHARMA (October 29, 2009)

Schering-Plough makes an over-the-counter oral laxative which it sells under the trade name "MiraLAX." Its chemical name is polyethylene glycol 3350. Four other companies sell polyethylene glycol 3350 as a generic, prescription medication. The FDA requires a warning on the over-the-counter version that it should not be used for more than seven days. The FDA also requires that a generic drug be labeled the same as the original drug and be bioequivalent to the original drug. Schering-Plough brought a Lanham Act action against the defendants. It alleges that the defendants' labels stating that the drug is sold by prescription only are false, in violation of the Act. Meanwhile, the FDA is conducting proceedings to determine whether the defendants' products are mislabeled. The district court dismissed Schering-Plough's suit without prejudice, noting that it could be refiled, if appropriate, after the conclusion of the FDA proceedings. Schering-Plough appeals. The defendants cross appeal, seeking a dismissal with prejudice.

In their opinion, Judges Posner, Flaum and Rovner affirmed. The Court first addressed its jurisdiction, given that the suit was dismissed without prejudice below. The Court recognized some decisions in the past that have suggested that a dismissal without prejudice is not appealable unless the plaintiff is unable to bring a later suit. Focusing on the actual holdings in those cases as well as other authority, the Court concluded that a dismissal without prejudice is appealable unless the defect is immediately curable. On the merits, the Court looked to the provisions of the Lanham Act and the Food, Drug, and Cosmetic Act. It noted that the statutes should be read so as not to conflict with each other and to be given as much effect as possible. For example, the FD&C Act should not be read to prohibit a disclaimer that would correct a misinterpretation on which a Lanham Act claim is based. The record in the case did not make it clear, however, what the Lanham Act remedy should be. Schering-Plough was not very helpful in its suggestions. In addition, the Court believed that any change in labeling adopted by the defendants would have to be approved by the FDA. The Court therefore agreed with the district court that the FDA should be allowed to consider the misbranding issue before the Lanham Act suit is allowed to proceed. Although the Court affirmed the lower court's dismissal without prejudice, it also commented briefly on the viability of the Lanham Act claim. It questioned whether Schering-Plough's reliance on the "literal falsity" doctrine was proper in the context of the case.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

GABBANELLI ACCORDIONS & IMPORTS, L. L. C. v. DITTA GABBANELLI UBALDO DI ELIO GABBANELLI (July 30, 2009)

Gabbenelli Accordions & Imports ("American Gabbenelli") used to be the American distributor for a predecessor of defendant Ditta Gabbenelli Ubaldo Di Elio Gabbenelli ("Italian Gabbenelli"). Disputes arose between the two companies in the 1990s. In 1999, the two companies entered into an agreement under which American Gabbenelli retained the exclusive right to use the Gabbenelli mark in North America and Italian Gabbenelli retained the exclusive right to use it in Italy. The parties further agreed that future disputes would be resolved by arbitration. Notwithstanding the arbitration agreement, Italian Gabbenelli sued American Gabbenelli in an Italian court and American Gabbenelli filed this suit in the United States. American Gabbenelli charged Italian Gabbenelli with trademark infringement. The district court first rejected Italian Gabbenelli's contention that the arbitration agreement deprived the court of jurisdiction. Nevertheless, the court stayed proceedings pending the outcome of the Italian litigation. When no decision was rendered within a few years, the court lifted the stay. American Gabbenelli served Italian Gabbenelli with requests for admissions in May of 2005. Italian Gabbenelli finally appeared through counsel in October of 2005 but did not respond to the requests for admissions. Italian Gabbenelli filed an opposition to American Gabbenelli's motion for summary judgment in June of 2007, and also asked for leave to deny the requests for admissions, which had since been deemed admitted. The court denied that request and granted American Gabbenelli's motion for summary judgment. Italian Gabbenelli appeals.

In their opinion, Judges Posner, Flaum and Wood affirmed in part, reversed in part and remanded. The Court rejected Italian Gabbenelli's appeal on liability. First, it agreed with the district court that the arbitration agreement did not deprive the court of jurisdiction. Second, it concluded that the Italian judgment (since rendered) was irrelevant because it was rendered after the district court judgment. Third, the Court concluded that the district court was within its rights in not allowing Italian Gabbenelli to reopen the requests for admissions after ignoring them for several years. The Court did reverse, however, with respect to damages. The district court awarded damages for lost profits plus statutory damages of $500 for each infringing accordion. The Lanham Act allows statutory damages only for violations on which compensatory damages are not awarded. The district court's award of lost profits and statutory damages with respect to the same accordions was improper. The Court also criticized the district court for awarding statutory damages on each individual item sold. The Act allows statutory damages on each "type of goods," not on individual goods. The Court remanded for a redetermination of damages.

• Email This
• Print
• Comments
• Trackbacks
• Share Link