Mcneil Nutritionals, LLC v. Heartland Sweeteners

Decision Date24 December 2007
Docket NumberNo. 07-2644.,07-2644.
Citation511 F.3d 350
PartiesMcNEIL NUTRITIONALS, LLC, Appellant v. HEARTLAND SWEETENERS, LLC; Heartland Packaging Corp.
CourtU.S. Court of Appeals — Third Circuit

Steven A. Zalesin (Argued), Karla G. Sanchez, David G. Sewell, Patterson, Belknap, Webb & Tyler, New York, NY, Alfred W. Putnam, Jr., Andrea L. D'Ambra, Drinker, Biddle & Reath, Philadelphia, PA, Attorneys for Appellant.

Lizanne V. Hackett, Flaster Greenberg, Cherry Hill, NJ, Abbe F. Fletman (Argued), Flaster Greenberg, Philadelphia, PA, William L. O'Connor, Dann, Pecar, Newman & Kleiman, Indianapolis, IN, Attorneys for Appellees.

Before: FISHER, STAPLETON and COWEN, Circuit Judges.

OPINION OF THE COURT

FISHER, Circuit Judge.

This appeal requires us to decide when the trade dress on the packaging of store-brand products is so similar to that of directly competing national-brand products as to create a likelihood of confusion among consumers. The plaintiff-appellant McNeil Nutritionals, LLC (McNeil) sells and markets Splenda, a highly successful national brand of sucralose, an artificial sweetener. The defendants-appellees Heartland Sweeteners LLC and Heartland Packaging Corp. (collectively, Heartland) package and distribute sucralose as store brands to a number of retail grocery chains. McNeil brought a trade dress infringement action against Heartland, alleging that Heartland's product packaging is confusingly similar to Splenda's. McNeil also filed a motion for preliminary injunction to enjoin Heartland from advertising, selling, or distributing the allegedly infringing products. The District Court denied the motion, and this appeal followed. For the reasons that follow, we will affirm the denial of the motion in part and reverse in part and remand to the District Court.

I.
A. Presence and Effect of Private-label and Store-brand Products

Private-label products are typically manufactured by one company for sale to the consuming public under another company's name. Such products are generally made with the same active ingredient as the name-brand or national-brand product with which the private-label product competes. Private-label products are available in a wide range of industries and are often positioned as lower cost alternatives (about 25% less expensive) to national-brand products. As of 2005, private-label sales represented 20% of all U.S. supermarket, drug chain, and mass merchandiser sales and totaled $50 billion.

Store-brand products are a type of private-label product, in which the store or retail chain name is the brand name. Store-brand products have existed in retail chains since 1883, and consumers have become highly aware of them. Indeed, the Private Label Manufacturers Association reported that in 2005, more than 90% of consumers polled were familiar with store brands, and 83% bought them regularly.

Store brands are typically found on store shelves next to the analogous national-brand products. The packaging of store-brand products often includes reference points to invite the consumer to compare them to the national-brand ones. These reference points often include similar product packaging and "compare to" statements on the packaging. Stores also employ tags on store shelves (so-called shelf extenders or shelf talkers) that explicitly invite consumers to compare the store-brand product with the national-brand analog.

Consumers are generally aware of the name of the store in which they are shopping. They are aware that stores have private-label brands that in most cases are merchandised next to the national-brand products. Prices for the products are typically displayed prominently. Consumers can, therefore, see the cost difference between store brands and national brands.

B. Emergence of No-calorie Sweeteners

American consumers spend between $600 and $700 million annually on sugar substitutes, also known as artificial sweeteners. No-calorie sweeteners are a subset of artificial sweeteners. The market for no-calorie sweeteners is dominated by products that contain one of three sweetening ingredients: saccharin, aspartame, or sucralose. Saccharin was first marketed in the United States in 1957; the leading brand of artificial sweetener containing saccharin is Sweet `N Low. In 1982, the FDA approved aspartame for sale in the United States; the leading brand of artificial sweetener containing aspartame is Equal. The FDA approved sucralose as a general purpose sweetener in 1999. Sucralose is manufactured through a process in which the molecular structure of sugar itself is modified, making it more heat-resistant than saccharin and aspartame.

In September 2000, McNeil introduced Splenda, the first artificial sweetener in the United States made from sucralose. Sales of Splenda grew more than tenfold in just six years, from approximately $32 million in 2001 to approximately $410 million in 2006. Within a year of its introduction, Splenda captured 14% of the total U.S. market for no-calorie sweeteners (based on dollar volume). In 2006, Splenda captured approximately 60% of the no-calorie sweetener market, compared to approximately 15% for Equal and 14% for Sweet `N Low.

All three leading artificial sweeteners are sold in distinctive packaging that helps consumers identify and distinguish them. Sweet `N Low and other saccharin-based sweeteners use predominantly red and pink packaging. This practice informs consumers that the particular product is made primarily with saccharin and, in the case of store-brand products, that the item competes with Sweet `N Low. Equal and other aspartame-based sweeteners use primarily blue packaging. Nearly all grocery store chains sell private-label saccharin and aspartame sweeteners that compare to Sweet `N Low and Equal, respectively. Finally, Splenda uses primarily yellow packaging.

As of the time it commenced this litigation, McNeil had spent nearly $250 million to promote and publicize the Splenda brand to consumers. Through its campaign, McNeil has highlighted the yellow Splenda packaging which includes the Splenda trademark in gradated blue italicized lettering on a white cloud. A Splenda package has been featured in nearly every Splenda television commercial and print advertisement since its launch.

C. Splenda Packaging

McNeil began selling boxes of individual Splenda packets in 2000. The boxes come in 100 and 200-count sizes and are identical except for their size. The boxes are oriented horizontally. The background is yellow, while the lettering on the boxes is primarily blue. The trade name "Splenda" appears at the top-center of the front of the boxes, in italicized blue lettering. The trade name is surrounded by a white, oval-shaped cloud. On the front, lower-right side of the boxes, there is a photograph of a white cup of coffee and saucer, with an individual Splenda packet resting on the saucer. On the front, left side of the boxes, there is a photograph of a glass and pitcher of iced tea. On the bottom-left corner is a circular element that contains the blue all-caps text, "Made from Sugar, Tastes Like Sugar."

McNeil also sells granular Splenda in vertically-oriented bags. The front of the Splenda bag is exactly the same as that of the Splenda boxes, except that it displays different physical props: a piece of pie on a plate, behind which are a bowl of cereal and a scoop containing granular Splenda.

D. Ahold, Food Lion, and Safeway Packaging

In mid-2006, private-label and store-brand sucralose products began to appear in the market. Heartland manufactures and packages a number of store-brand artificial sweetener products for retailers including Giant, Stop & Shop, Tops, Food Lion, Safeway, Albertson's, and Wal-Mart. Giant, Stop & Shop, and Tops are all owned by Ahold, and the packages of the store-brand sucralose products sold by each of these stores are identical except that each packaging contains that respective store's name and/or logo.

The Giant, Stop & Shop, and Tops (collectively, Ahold) store-brand boxes of individual sucralose packets are oriented horizontally. The boxes come in 100 and 200-count sizes and are identical except for their size. The background is yellow, while the lettering on the boxes is either blue or white. The product name "Sweetener" appears at the top-center of the front of the boxes, in italicized blue font. The product name is outlined in white, but not by a cloud. On the lower-right corner is a photograph of a white cup of coffee and saucer, a glass of lemonade, and several fruits further off to the right side. There is a white rectangular border surrounding the front of the boxes. The store logo (regardless of the store name) appears just above the product name.

The Ahold stores also sell granular sucralose in vertically-oriented bags. The front of the Ahold bags is exactly the same as that of the Ahold boxes, except that it displays different physical props: a slice of cheesecake on a plate, a bowl of cereal with raspberries, and a white cup of coffee and saucer.

The Food Lion store-brand 100-count box of individual sucralose packets is oriented horizontally. The background is yellow, while the lettering on the box is either blue or black. The product name "Sweet Choice" appears on the bottom of the front of the box, in italicized blue font. The product name is not surrounded by a cloud. The front of the box contains a vertical design element that divides it into two portions. The left portion is in a darker yellow than the right, and includes the Food Lion logo (black) and store name (black) at the top. Food Lion uses this vertical design feature in some of its other store-brand packaging. The front-right portion contains a photograph of a white cup of coffee, saucer, and teaspoon, behind which are a pitcher of lemonade, two glasses of lemonade, and sliced lemons.

Food Lion also sells granular sucralose in vertically-oriented bags. The front of the Food Lion bag is exactly the...

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