By Robert Margolis, J.D.
"Reverse trademark confusion" infringement theory suffices for liability but does not support recovery of infringer’s profits.
The U.S. Court of Appeals in Chicago has affirmed a Wisconsin federal jury’s verdict finding that defendant JFTCO, Inc. ("JFTCO") infringed the registered FABICK trademark owned by plaintiff Fabick, Inc. ("FI"). The court also affirmed two district court rulings on remedies; specifically, that FI is not entitled to recover JFTCO’s profits and that a permanent injunction precluding JFTCO from ever using the Fabick family name was not necessary (Fabick, Inc. v. JFTCO, Inc., December 9, 2019, Hamilton, D.).
The jury’s verdict and subsequent judgment order arose out of trademark infringement litigation between two non-competing companies owned by brothers who had a falling out. FI, the senior user of the registered FABICK trademark and service mark, makes protective sealants in Wisconsin and Northern Michigan. JFTCO, the junior user, also operating in Wisconsin and Northern Michigan through its wholly-owned subsidiary FABCO, is the region’s exclusive Caterpillar dealership. FI originally was a subsidiary of FABCO, before family tensions led one brother to take over FI, while the other independently ran FABCO.
While still a subsidiary of FABCO, FI applied for and was granted trademark and service mark registrations for FABICK. It uses several logos featuring the FABICK mark in connection with its sealant business. JFTCO subsequently took over FABCO in 2015, and began using the trade name "Fabick CAT" in an extensive rebranding effort (from its previous "FABCO CAT"). FI contends that this use of "Fabick CAT" led to consumer confusion, and it sued JFTCO in March 2016. After cross-motions for summary judgment were denied, the case was tried. The jury returned a mixed verdict, finding JFTCO liable for trademark infringement under the Lanham Act (while rejecting its prior use defense, among others) but not common law infringement. After trial, while FI sought a permanent injunction against JFTCO using "Fabick" in connection with its business in any way, the court granted more limited relief—requiring only that JFTCO issue multiple notices and disclaimers for five years. Both sides appealed
Reverse trademark confusion. FI prevailed on its Lanham Act trademark infringement claim under a "reverse trademark confusion" theory. In such a case, the senior user is small and perhaps little known, while the larger junior user saturates the market with the result that its use threatens to overwhelm the senior user’s market identity, rather than usurp its goodwill. As a result, as the Seventh Circuit described in an earlier case, "the senior user loses the value of the trademark—its product identity, corporate identity, control over its goodwill and reputation, and ability to move into new markets." Sands Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 957 (7th 1992).
In its appeal, JFTCO argued that the district court used an improper jury instruction, by adding a phrase to the Seventh Circuit pattern jury instruction for trademark infringement. Thus, "[D]efendant JFTCO used the FABICK mark in a manner that is likely to cause confusion as to the source or origin of plaintiff’s product," which parrots the pattern jury instruction, was supplemented by the phrase, "or that plaintiff has somehow become connected to JFTCO." FI proposed that additional phrase based on the Sands decision, which in describing reverse trademark confusion, stated: "the senior user is injured because [t]he public comes to assume that the senior user’s products are really the junior user’s or that the former has become somehow connected to the latter." Sands, 978 F.2d at 957. The district court agreed that this additional phrase was appropriate, and after reviewing the instructions in their entirety, the Seventh Circuit affirmed. The language to which JFTCO objected "clearly refers to the parties’ products and/or services," the appellate court found, not an "impermissibly vague" notion of some "general confusion."
Prior use defense. JFTCO had moved for judgment as a matter of law on its prior use defense, arguing that it was actually the senior user of the mark, not FI. It presented extensive evidence of a predecessor entity’s prior use of a mark reading "Fabick," but the court found the evidence not so overwhelming as to preclude the possibility of a reasonable jury rejecting the defense. In particular, the testimony of the predecessor entity’s tractor sales in Wisconsin and Northern Michigan did not preclude a jury finding that such sales were few in number (as low as one sale of a tractor unit per year), and/or were not continuous. In addition, there was little evidence of advertising prior to 1994. Finally, FI pointed out that the predecessor entity used FABCO more prominently than the "Fabick" name. These "holes," given the standard of review, were insufficient to overturn the district court’s ruling.
Likelihood of reverse confusion. The court also denied JFTCO’s motion for judgment as a matter of law on the basis that no reasonable jury could find the likelihood of reverse confusion. JFTCO contended, among other things, that the parties’ marks are not similar, nor are the products and services, the manner of use, or the area of use. Given the standard of review, however, that the court’s ruling can be affirmed if any reasonable jury could have found a likelihood of confusion, the appellate court rejected JFTCO’s challenge. The court cited evidence that the parties use "the same relatively unusual surname" as the primary descriptor of the mark, it is reasonable to assume that FI’s sealants can be used on JFTCO equipment, and that there were instances (more than 240) of actual confusion, primarily in the form of customers contacting FI when trying to reach JFTCO.
Profits as remedy. At summary judgment, the district court held that FI could not obtain JFTCO’s profits as a remedy for trademark infringement, noting it was "hard-pressed to understand how [JFTCO was] unjustly enriched by customers assuming that [FI’s] sealants and coatings business is the same or related to JFTCO’s business." The appellate court affirmed this ruling, rejecting FI’s argument that recovery of profits is the presumed remedy for infringement. Lanham Act Section 1117 qualifies the availability of profits as being "subject to the principles of equity," the appellate court pointed out, and the district court found no evidence of bad faith or unjust enrichment to support an award of profits.
In addition, the appellate court noted that FI’s cited authority provided minimal support for recovering profits in a reverse confusion case. It is not a legal theory based on a junior user is seeking to capitalize on the well-known trademark of a senior user, with a resulting implication of intent.
Limited injunctive relief. Finally, the appellate court affirmed the district court’s denial of FI’s request for a sweeping injunction that would prevent JFTCO from using "Fabick" in any context. The district court instead entered limited injunctive relieve, requiring JFTCO to issue disclaimers clarifying that it is a different company from FI, for a period of five years. Because the evidence of confusion was only that customers seeking FI had wrongly contacted JFTCO, and were then simply directed to FI without demonstrable harm to FI, the district court’s remedy was reasonably tailored to address that harm. It was reasonable for the district court to deem the requested permanent barring of the "Fabick" name in a family business to be "overkill," the appellate court held.
Attorneys: Cathleen Anne Dettmann (Palmersheim Dettmann, S.C.) for Fabick, Inc. Jessica H. Polakowski (Reinhart Boerner Van Deuren S.C.) and Marc W. Vander Tuig (Armstrong Teasdale LLP) for JFTCO, Inc.
Companies: Fabick, Inc.; JFTCO, Inc.
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