Blatant use of competitor’s trademark was infringement; trial court’s contrary ruling reversed


July 11, 2017

Leather furniture manufacturer Omnia Italian Design was liable for infringing the STONE CREEK trademark of competitor and former business partner Stone Creek Inc., the U.S. Court of Appeals in San Francisco has ruled. A federal district court correctly found that the Tea Rose—Rectanus defense did not bar Stone Creek’s infringement claim, but it erred in finding that Omnia’s use of the STONE CREEK mark did not create a likelihood of consumer confusion. The Ninth Circuit thus reversed the district court’s adverse ruling on the likelihood of consumer confusion. It affirmed, however, the ruling that willfulness was a necessary condition for the disgorgement of profits. A 1999 amendment to the trademark statutes did not change Ninth Circuit precedent in that regard, the court explained. Nevertheless, the profits issue was remanded to determine whether Stone Creek could show that Omnia had possessed the requisite intent for a proof of willfulness. Finally, the appellate court reversed the district court’s sanctions order against Stone Creek for filing a motion for summary judgment of willfulness, but upheld a second sanctions order against Stone Creek for continuing to assert its claim for actual damages (Stone Creek, Inc v. Omnia Italian Design, Inc., July 11, 2017, McKeown, M.).

Likelihood of confusion. The parties’ marks and goods were indistinguishable, the circuit court decided, and their marketing channels converged. In addition, Omnia had admitted to blatant copying, Stone Creek had proffered evidence of actual confusion, and the STONE CREEK mark was fanciful or arbitrary, and thus inherently distinctive. Because those factors created a strong likelihood that consumers would be confused about the source of the furniture goods at issue, and because and Omnia’s deceptive intent in adopting the mark was entitled to "great weight" in the confusion analysis, the court reversed the district court’s finding that consumer confusion was unlikely.

Tea Rose—Rectanus defense. The common law Tea Rose-Rectanus doctrine protected the use of a trademark in a remote geographic area if the asserted use was made in good faith. In this case, however, Omnia’s knowledge of Stone Creek’s prior use defeated any claim of good faith. The Ninth Circuit thus affirmed the district court’s rejection of Omnia’s Tea Rose-Rectanus defense. Because consumer confusion was likely and an operative defense was unavailable, the Ninth Circuit found that Omnia was liable for the infringement Stone Creek’s trademark.

Willfulness. The appellate court affirmed the district court’s finding that a 1999 amendment to the trademark statutes did not "sweep away" its precedent requiring plaintiffs to prove willfulness to qualify for an award of profits. A remand was necessary, however, to determine whether Stone Creek could make the requisite showing of intent in this case.

Sanctions. The panel affirmed in part and reversed in part the district court’s imposition of sanctions under 28 U.S.C. §1927. With respect to the sanctions based on Stone Creek’s motion for summary judgment on the issue of willfulness, the unsettled nature of the willfulness question in the Ninth Circuit provided Stone Creek with a legitimate basis to ask the district court for a legal ruling; namely, to determine whether to present evidence of willfulness and Omnia’s profits—in addition to Stone Creek’s damages—at trial.

The unresolved legal issue, combined with the fact that another circuit had accepted the argument that the 1999 amendment did away with the willfulness requirement, legitimized Stone Creek’s arguments, the court explained. The Ninth Circuit thus reversed the sanctions order on the willfulness issue. The district court was within its discretion, however, in concluding that Stone Creek’s attorneys had "unreasonably and vexatiously" multiplied the proceedings with respect to actual damages. Awarding attorney fees as sanctions was therefore acceptable.

The case is Nos. 15-17418 and 16-15304.

Attorneys: Joshua Lloyd Benson (Glen Lerner Injury Attorneys) for Stone Creek, Inc. Daniel C. DeCarlo (Lewis, Brisbois, Bisgaard & Smith, LLP) for Omnia Italian Design, Inc.

Companies: Stone Creek, Inc.; Omnia Italian Design, Inc.

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