By Cheryl Beise, J.D.
The federal district court in in Athens, Georgia, correctly determined that firearms manufacturer FN Herstal ("FN") was the legal owner of the mark SCAR for firearms and that firearms retailer Clyde Armory infringed the mark by using a similar mark, "SCAR-Stock," on replacement gun stocks, the U.S. Court of Appeals in Atlanta has ruled. The court also discerned no error in the court’s other rulings in the case (FN Herstal SA v. Clyde Armory Inc., September 27, 2016, L. Coogler, J.).
FN began producing combat assault rifles under the mark SCAR for the U.S. military in 2004, pursuant to a 10-year contract with the United States Special Operations Forces Command (SOCOM). The solicitation of bids referred to the rifle as the "Special Operations Forces Combat Assault Rifle," abbreviated as the "SCAR." As the first assault rifle commissioned by the U.S. military since the 1960s, FN’s SCAR rifles generated much publicity and media attention. In 2008, FN began selling semi-automatic version versions of SCAR rifles to law enforcement and civilians, generating over $100 million in sales. FN owns two federal registration for "SCAR," one for a "SCAR and design" mark in connection with firearms and related products, and the other for a "SCAR" word mark for use in connection with games, toy replicas of weapons, and related items. In its firearms application, SCAR asserted November 1, 2008 as the date of first use.
In 2005, Clyde Armory and Sage International, Inc., collaborated to develop of a replacement stock system for certain rifles. The replacement stock was sold under the marks "SCAR-CQB-Stock" or "SCAR-Stock," purportedly an acronym for "Sage Clyde Armory Rifle." April 2015, Clyde Armory had sold 913 SCAR-Stock units, for a total gross revenue of approximately $450,000.
District court rulings. In March 2012, FN sued Clyde Armory for trademark infringement, unfair competition, and dilution in violation of the Lanham Act, as well as state law claims for unfair competition, deceptive trade practices, and unjust enrichment. Clyde Armory asserted affirmative defenses based on priority of its use of the SCAR- Stock mark and counterclaims for federal trademark infringement and cancellation of FN’s marks. Both sides requested jury trials.
On summary judgement, the district court ruled that Clyde Armory could not proceed with unlawful-use defense, as the Eleventh Circuit had not adopted the defense, and the undisputed facts showed that FN did not engage in a per se violation of the regulations at issue. Following a pretrial conference at which the parties admitted they were seeking only injunctive relief, the court granted FN’s motion to strike the parties’ jury demands. The judge subsequently denied Clyde Armory’s motion to amend the pretrial order and reinstate its demand for FN’s profits under § 1117(a) of the Lanham Act, which it argued constituted legal relief entitling it to a jury trial.
Following a three-day bench trial, the court ruled that FN acquired protectable trademark rights in the SCAR mark before Clyde Armory began using the SCAR-Stock mark in September 2006; Clyde Armory intentionally copied FN’s SCAR mark in bad faith; and awarded judgment to FN on all of its claims. The court ordered Clyde Armory to cease using the SCAR-Stock mark, abandon its trademark applications, assign domain names including the word SCAR to FN, dismiss its petition to cancel FN’s federal trademark registrations for SCAR, and destroy materials featuring the SCAR-Stock mark.
Clyde Armory appealed the district court’s partial grant of summary judgment in favor of FN, its grant of FN’s motion to strike Clyde Armory’s jury demand, its denial of Clyde Armory’s motion to amend the proposed pretrial order, and its entry of judgment against Clyde Armory following trial. Finding no error, the Eleventh Circuit affirmed all of the district court rulings in their entireties.
Judgment in favor of FN. Because the parties agreed before trial that simultaneous use of their marks would likely confuse the purchasing public, the only issue before the district court was whether either party owned a protectable mark, the appeals court noted.
Clyde armory argued that the district court committed three errors in its post-trial order: (1) finding that FN used SCAR as a mark in commerce before Clyde Armory began using SCAR-Stock; (2) finding that FN’s SCAR mark acquired distinctiveness through secondary meaning in the two years before Clyde Armory began using SCAR-Stock; and (3) finding that Clyde Armory used the SCAR-Stock mark in bad faith to take advantage of the popularity of FN’s SCAR mark.
Considerable evidence supported the district court’s factual finding that FN used the SCAR mark in commerce prior to Clyde Armory’s first sale of a replacement stock bearing the SCAR-Stock mark September 2006, the court said. FN’s sales of SCAR rifles to USSOCOM alone were sufficient to establish FN’s priority of use as early as 2004, according to the court. In addition, although FN did not make any actual sales in the civilian marked until late 2008, the court agreed that FN’s "open and notorious" promotional activities in 2005 and 2006 sufficiently created an association in the relevant portion of the public’s mind so that they identified the SCAR rifles with FN. The fact that FN listed a first use date of November 1, 2008, on one of its trademark applications was not relevant to the analysis of FN’s actual, common law use, the court added.
Even though FN was the first to use the SCAR mark, it also had to show that the mark had acquired secondary meaning. Considerable evidence supported the district court’s finding that the SCAR mark acquired secondary meaning at some point during the nearly two-year period before Clyde Armory began using SCAR-Stock in September 2006. During that time, FN sold millions of dollars of SCAR rifles to the U.S. military through the USSOCOM contract, and because the USSOCOM solicitation garnered wide interest, FN received extensive media attention as the winner of the bid. FN also spent a substantial amount independently promoting its SCAR rifle.
The Eleventh Circuit also observed that substantial evidence in the record supported the finding that Clyde Armory adopted its mark to take advantage of the popularity of FN’s mark on the market. However, the court did not need to review the district court’s determination that Clyde Armory acted in bad faith, because the finding was merely an alternative reason that Clyde Armory did not prevail.
Unlawful use defense. Clyde Armory contended that FN’s use was unlawful because it violated a regulation called the United States Special Operations Command Federal Acquisition Regulation Supplement ("SOFARS"), which, among other things, prohibits contractors from disclosing unclassified information pertaining to contracts with USSOCOM without prior authorization.
However, as the district court correctly pointed out, the Eleventh Circuit has not adopted the "unlawful use" doctrine, and the appeals court said it did not need to do so in this case "because Clyde Armory has not submitted evidence sufficient to raise an issue of fact in this respect." The court explained that the unlawful use doctrine appears almost exclusively in the administrative setting, originating in TTAB proceedings to oppose trademark applications or cancel registrations. If applied in this case, the defense would fail on its merits because the original contract between FN and USSOCOM did not even contain the language of SOFARS, nor has Clyde Armory established that the regulation was in effect in 2006.
Jury trial. Clyde Armory argued it was entitled to a jury trial as of right under Fed. R. Civ. P. 38. However, Rule 38 provides for a jury trial only where the right is "declared by the Seventh Amendment to the Constitution" or "provided by a federal statute." Fed. R. Civ. P. 38(a). The district court did not err in finding that the parties waived their right to a jury trial by agreeing at the pretrial conference to forgo damages and pursue only equitable remedies.
Under the facts of the case, the appeals court could not conclude that the district court abused its discretion in denying Clyde Armory’s motion to amend the proposed pretrial order to reinstate its demand to recover FN’s profits. Clyde Armory waived its claim for profits by failing to preserve it in the pretrial order.
All of the district court rulings were affirmed in their entireties.
The case is No. 15-14040.
Attorneys: Charles H. Hooker, III (Kilpatrick Townsend & Stockton, LLP), William Scott Creasman (Taylor English Duma, LLP) and Burton S. Ehrlich (Ladas & Parry LLP) for FN Herstal SA. Glenn Dean Bellamy (Wood Herron & Evans, LLP) and Michael C. Daniel (Prior Daniel & Wiltshire, LLC) for Clyde Armory Inc.
Companies: FN Herstal SA; Clyde Armory Inc.
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