By Thomas Long, J.D.
The U.S. Court of Appeals in San Francisco has vacated a district court’s decision on summary judgment that trademark infringement claims brought against grocery store chain Whole Foods by a New Zealand-based seller of organic foods, alleging that Whole Foods’ slogan "EatRight America" infringed its "EAT RIGHT" and "EATRIGHT" marks, were barred by laches and acquiescence. The district court erred in failing to consider evidence that the complaining food seller reasonably delayed filing suit in order to pursue settlement negotiations with Whole Foods. The district court also incorrectly analyzed the issue of the prejudice suffered by Whole Foods because it looked to actions taken by Whole Foods outside the period of delay. With respect to acquiescence, the district court failed to make factual findings as to whether Whole Foods reasonably relied on affirmative representations by the seller that Whole Foods was welcome to use the mark. The district court’s order was vacated and remanded for further consideration of the laches and acquiescence defenses (Eat Right Foods Ltd. v. Whole Foods Market, Inc., January 29, 2018, Tallman, R.).
Plaintiff Eat Right Foods Ltd. had used the "EAT RIGHT" and "EATRIGHT" marks on its food products in the United States since 2001 and 2003, respectively. It held registrations for use of "EATRIGHT" on several classes of goods, including snack foods. Defendants Whole Foods Market Services, Inc., and Whole Foods Market Pacific Northwest, Inc., were subsidiaries of Whole Foods Market, Inc. (collectively, "Whole Foods"), which operated hundreds of grocery stores in North America. From 2004 through 2013, ERF sold a line of gluten-free cookies to Whole Foods.
In late 2009, Whole Foods contracted with a third party health and nutrition company to use its patented Aggregate Nutrient Density Index (ANDI), a "food-scoring system" designed to communicate the nutritional value of foods to consumers. The agreement between Whole Foods and the third party required Whole Foods to display the ANDI value along with the third party’s trademark, "EatRight America." Whole Foods rolled out the ANDI system in early 2010 and promoted the rollout in a January 20, 2010 press release. The ANDI logo and the "EatRight America" mark were displayed on promotional materials, including chalkboards outside stores and signs inside stores.
ERF became aware of the mark and contacted Whole Foods to inform it that it believed the mark was infringing. ERF did not file suit immediately, but began negotiating with Whole Foods, including making an offer for Whole Foods to purchase the EATRIGHT brand. These negotiations were unsuccessful, and in December 2013, ERF sued Whole Foods for trademark infringement. Whole Foods moved for summary judgment on the grounds of laches and acquiescence. The district court granted the motion, and ERF appealed.
Laches—delay. Laches barred a trademark infringement claim when the mark holder knowingly allowed the infringing mark to be used without objection for an unreasonable period of time, with "unreasonable" presumptively based on the analogous statute of limitations for the relevant jurisdiction. The time period began to run when the plaintiff knew or should have known of the infringing conduct.
According to the Ninth Circuit, the district court made conflicting statements about when ERF should have known about Whole Foods’ alleged infringement. Early in the summary judgment order, it stated that "the record demonstrates actual or constructive knowledge of the alleged infringement in early 2010." Later it wrote that ERF "knew or, in the exercise of reasonable diligence, should have known that Defendants were using the allegedly infringed trademark in late 2009/early 2010." Whole Foods did not begin using the "EatRight America" mark in stores until January 20, 2010, so there was no infringement for ERF to be aware of in late 2009, the appellate court pointed out. However, the evidence could support a finding that ERF should have known about Whole Foods’ use of the mark before December 2010. Constructive knowledge was enough to start the laches evaluation period.
ERF had an ongoing business relationship with Whole Foods, which publicized its "Health Starts Here" campaign and the "Eat Right America" nutrition program in a press release and on its website in January 2010. ERF’s managing director visited a Whole Foods store in February or early March 2010, when the "EatRight America" mark was displayed throughout stores. She testified that she saw the mark on "books, DVDs and some promotional files." By November 2010, ERF was unquestionably aware of Nutritional Excellence’s attempts to register the "EATRIGHT AMERICA" mark, and knew the third-party nutrition company had a relationship with Whole Foods. Therefore, it was not an abuse of discretion for the district court to rule that ERF had constructive knowledge of Whole Foods’ alleged infringement prior to December 2010. That, however, did not end the laches analysis, the Ninth Circuit explained. The presumption of laches could be rebutted if ERF could show that its delay in suing was reasonable.
ERF argued that any delay on its part should be excused because it waited until December 2013 to file suit because it was trying to settle its claims against Whole Foods without litigation. The district court agreed with Whole Foods’ contention that the delay resulted from an attempt to cash in its trademark registrations, and not an attempt to settle. According to the appellate court, the district court erred by the cardinal rule of summary judgment: that disputed issues of material fact must be resolved in favor of the non-moving party. ERF presented evidence that it delayed filing suit because it was trying to clarify its rights in the "EATRIGHT" mark and to resolve its claims against Whole Foods. Whether ERF was trying to settle its claims with Whole was is a question of material fact because it went to the reason for—and therefore the reasonableness of—ERF’s delay. The district court impermissibly resolved a disputed question of material fact in favor of the moving party. Therefore, the Ninth Circuit vacated the district court’s reasonableness finding and remanded for further proceedings.
Laches—prejudice. Even when a plaintiff unreasonably delayed filing suit, laches will not bar the plaintiff’s claim unless the delay prejudiced the defendant. The district court found that Whole Foods established expectations-based prejudice, which exists when a defendant took actions or suffered consequences that it would not have if the plaintiff had the plaintiff brought suit promptly. The district court found that during the relevant time, Whole Foods invested in and heavily promoted the ANDI food-scoring system and Eat Right America diet and nutritional programs at its stores.
This type of evidence could support a finding of expectations-based prejudice, the appellate court said. However, the prejudice inquiry was concerned with actions the defendant took during the plaintiff’s delay in bringing suit—not all the actions it took in relation to the use of a mark. Only expenditures made after a plaintiff "knew or should have known about the potential claim" will support a finding of expectations-based prejudice. In this case, the district court treated "the time period in question" as 2009–2012, even though Whole Foods did not start using the "EatRight America" mark in stores until January 20, 2010. The evidence provided by Whole Foods did not differentiate in any way between expenditures made before and after Whole Foods actually started using the mark in stores. The evidence the district court relied on to find expectations-based prejudice included actions Whole Foods took before the mark was even in stores, and certainly before ERF could have filed suit. Therefore, the finding on prejudice was vacated and remanded, with instructions for the district court to consider only actions Whole Foods took during the period that ERF delayed filing suit.
Acquiescence. Acquiescence limited a party’s right to bring suit following an affirmative act by word or deed by the party that conveyed implied consent to use of the mark, which was reasonably relied upon by the defendant. Like laches, an acquiescence defense required proof of an unreasonable delay in bringing suit that caused prejudice to the defendant. Therefore, the district court’s analysis of acquiescence was also flawed, the appellate court said. Additionally, the district court failed to make factual findings that Whole Foods reasonably relied on affirmative representations by ERF that Whole Foods was welcome to use the mark. Therefore, the acquiescence determination was vacated and remanded with instructions for the district court to consider the extent and reasonableness of Whole Foods’ reliance on ERF’s affirmative representations.
The case is No. 15-35524.
Attorneys: Mark P. Walters (Lowe Graham Jones PLLC) for Eat Right Foods Ltd. Stephen P. Meleen (Pirkey Barber PLLC) for Whole Foods Market Services, Inc., and Whole Foods Market Pacific Northwest Inc.
Companies: Eat Right Foods Ltd.; Whole Foods Market Services, Inc.; Whole Foods Market Pacific Northwest Inc.
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