IP Law Daily Walmart avoids $32.5M trademark infringement judgment for sales of BACKYARD GRILL products
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Wednesday, April 25, 2018

Walmart avoids $32.5M trademark infringement judgment for sales of BACKYARD GRILL products

By Cheryl Beise, J.D.

The federal district court in Raleigh, North Carolina, erred in finding that retail giant Walmart’s use of the mark "Backyard Grill" as a matter of law infringed outdoor products retailer Variety Stores’ marks "The Backyard," "Backyard" and "Backyard Grill," the U.S. Court of Appeals in Richmond, Virginia, has decided. There were genuine disputes of material fact as to four of the nine likelihood of confusion factors (the strength of Variety’s mark, the similarity of marks, Walmart’s intent, and actual confusion), and the district court usurped the role of the jury by weighing them in favor of Variety Stores. The district court’s summary judgment ruling in favor of Variety Stores was reversed, its orders disgorging $32.5 million in Walmart’s profits and awarding attorney fees to Variety were vacated, and the case was remanded for trial (Variety Stores, Inc. v. Wal-Mart Stores, Inc., April 24, 2018, Floyd, H.).

Variety Stores, Inc. ("Variety") operates retail stores in 16 states and the District of Columbia and sells various outdoor products, including grills and grilling products. In 1997, Variety purchased Rose’s Stores, Inc. ("Rose’s"), and acquired its registered trademark THE BACKYARD for "retail store services in the field of lawn and garden equipment and supplies." At some point, Variety began using variations of THE BACKYARD—BACKYARD and BACKYARD BBQ— for selling not just lawn and garden equipment but also grills and grilling supplies.

In late 2010, Wal-Mart Stores, Inc. ("Walmart") adopted the name BACKYARD GRILL as the private label mark for its grills and grilling supplies. In August 2011, it applied to register BACKYARD GRILL ("Grill" disclaimed). Variety filed an opposition to the application with the Trademark Trial and Appeal Board in July 2012, but the proceeding was stayed after Variety filed this suit against Walmart, asserting claims for trademark infringement and unfair competition under the Lanham Act and related claims under North Carolina law. In the district court action, both sides moved for summary judgment.

After a hearing, district court granted partial summary judgment in Variety’s favor, finding Walmart liable for trademark infringement. Following a subsequent bench trial, the district court ordered Walmart to disgorge $32.5 million in profits made from 16 states and the District of Columbia. The district court denied Variety’s request for a separate jury trial to determine additional non-disgorgement damages and ordered Walmart to reimburse Variety for reasonable costs and attorney fees. Variety appealed from the district court’s calculation of disgorged profits and denial of its request for a jury trial. Walmart cross-appealed from the district court’s grant of partial summary judgment to Variety’s favor and its award of profit disgorgement, costs, and attorney fees.

Likelihood of confusion. The district court determined that eight of the nine of the factors used by courts in the Fourth Circuit to analyze likelihood of confusion favored Variety. Variety’s lack of proof of actual confusion was the only factor not weighing in its favor. On appeal, Walmart challenged the district court’s analysis of five likelihood of confusion factors—the strength of Variety’s mark, the similarity of the parties’ marks, the similarity of the facilities used by the parties, Walmart’s intent to confuse consumers, and actual confusion. The Fourth Circuit agreed that there were genuine disputes of material fact as to four of the five factors identified by Walmart.

Similarity of marks. The appeals court found that there was a genuine dispute of material fact as to whether the parties’ marks were similar. On one hand, Walmart’s mark "Backyard Grill," like Variety’s "Backyard BBQ," featured the word "backyard," followed by another descriptive word. On the other hand, Walmart argued greater weight should be given to the word "grill" since it was larger and more noticeable than the word "backyard" on Walmart’s logo. Viewing the evidence in the light most favorable to Walmart, the district court erred in finding this factor favored Variety as a matter of law.

Similarity of facilities. Concerning the similarity of facilities used by the parties, the Fourth Circuit agreed with the district court’s determination that it favored Variety. Variety and Walmart operated retail store chains and directly competed in similar manners in 17 jurisdictions. The court was not persuaded by Walmart’s argument that consumers would not be confused because they knew whether they were inside a Walmart store or a Variety store.

Strength of Variety’s marks. Regarding the strength of Variety’s marks, even assuming that they were suggestive, as Variety contended, the Fourth Circuit found that the marks were conceptually weak. Walmart’s state and federal trademark search showed that there were 527 active pending registrations for marks that include the term "backyard," 23 of which included "grill" in the description of covered goods, and 22 of which included "barbeque." Walmart’s private investigator found at least 12 different businesses used the word "backyard" (including "Backyard Chef," "Backyard Bbq," Backyard Grill," and "The Backyard BBQ Grill Company") for outdoor products. "If Variety’s ‘Backyard’ marks were ‘truly a distinctive term, it is unlikely that ... many other businesses ... would independently think of using the same mark or similar variants of it,’" the Fourth Circuit said, quoting Grayson O Co. v. Agadir Int’l LLC, 856 F.3d 307, 316 (4th Cir. 2017).

While the evidence showed that Variety’s marks were conceptually weak, it did not clearly show that the marks were commercially weak or strong. Both sides produced sufficient evidence to put the commercial strength of Variety’s marks in genuine dispute, according to the court. Variety’s evidence showed that it had used at least one variations of its marks since 1993 and that it had sold over $56 million worth of products under its marks, with over $8 million from sales of grills and grilling supplies. Walmart, on the other hand, produced evidence of extensive third-party use, which undercut the commercial strength of Variety’s marks. The Fourth Circuit concluded that the district court erred in weighing the strength of mark factor in Variety’s favor.

Walmart’s intent. The appeals court also concluded that a genuine dispute existed as to whether Walmart intended to infringe. Karen Dineen, Walmart’s Senior Director for General Merchandise, testified that Walmart’s legal department advised the branding team not to adopt "Grill Works," "Backyard Barbeque," and "Backyard BBQ." While Dineen’s testimony could support an intent to infringe, the court pointed out that the admission was tempered by the fact that the registration was only for "The Backyard," which covered gardening supplies but not grilling products. Moreover, Walmart claimed that it did not know about Variety’s use of "Backyard BBQ" on grills. Similarly, drawing inferences in Walmart’s favor, Dineen’s testimony revealed that Walmart acted in good faith by following the advice of counsel to not adopt several other similar marks, including "Backyard Barbeque" and "Backyard BBQ." While Walmart did not investigate how Variety’s stores marketed their products, there was evidence suggesting that this omission was simply because Variety was not identified as a major competitor. In sum, the district court erred in weighing this factor in Variety’s favor.

Actual confusion. Although Variety failed to offer evidence of actual confusion, the district court rejected Walmart’s evidence affirmatively proving the absence of actual confusion. The Fourth Circuit found that the district court applied the incorrect legal standard in discounting Walmart’s consumer survey evidence. At the summary judgment phase, the district court was required to refrain from weighing the evidence, the court explained. "In subsequent proceedings, if Walmart’s surveys carry any flaws identified by Variety, the jury—not the judge—must decide how much weight to place on them," the court said.

Conclusion. The district court committed legal error by improperly weighing four of the nine likelihood of confusion factors in favor of Variety, especially considering that three factors (mark strength, intent, and actual confusion) are often considered significant. "Whether Walmart’s mark created a likelihood of confusion is indeed a question that the jury, consisting of ordinary consumers and using the nine factors as a guide, is well-suited to evaluate," the court said. The Fourth Circuit affirmed the district court’s order denying Walmart’s motion for summary judgment, reversed the district court’s order granting Variety’s motion for partial summary judgment, and vacated the district court’s subsequent orders.

The case is Nos. 17-1503, 17-1644, and 17-1906.

Attorneys: W. Thad Adams (Shumaker, Loop & Kendrick, LLP) for Variety Stores, Inc. Mark S. Puzella (Fish & Richardson PC) and Kirsten Elena Small (Nexsen Pruet, LLC) for Wal-Mart Stores, Inc.

Companies: Variety Stores, Inc.; Wal-Mart Stores, Inc.

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