Millennium Labs., Inc. v. Ameritox, Ltd.

• Decision Date: 04 April 2016
• Docket Number: No. 13–56577.,13–56577.
• Citation: 817 F.3d 1123
• Parties: MILLENNIUM LABORATORIES, INC., a California corporation, Plaintiff–Appellant, v. AMERITOX, LTD., a Texas limited partnership, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

817 F.3d 1123

MILLENNIUM LABORATORIES, INC., a California corporation, Plaintiff–Appellant,

v.AMERITOX, LTD., a Texas limited partnership, Defendant–Appellee.

No. 13–56577.

United States Court of Appeals, Ninth Circuit.

Argued Nov. 5, 2015.

Submitted and Filed April 4, 2016.

Randall E. Kay (argued), Jones Day, San Diego, CA; Craig E. Stewart and Matthew J. Silveira, Jones Day, San Francisco, CA, for Plaintiff–Appellant.

Eric D. Miller (argued), Perkins Coie LLP, Seattle, WA; Matthew F. Carmody and Michael R. Osterhoff, Perkins Coie LLP, Chicago, IL, for Defendant–Appellee.

Before: SUSAN P. GRABER and RONALD M. GOULD, Circuit Judges, and WILEY Y. DANIEL,^* Senior District Judge.

OPINION

GOULD

, Circuit Judge:

Millennium Laboratories, Inc., appeals the district court's grant of summary judgment to Ameritox, LTD, on Millennium's claims of trade dress infringement under the Lanham Act and unfair competition under California Business and Professions Code section 17200

. Millennium contends that: (1) the district court applied the incorrect standard for assessing the functionality of Millennium's trade dress; and (2) the district court erred by granting summary judgment to Ameritox on Millennium's claims. At the heart of this appeal, we consider whether a product's visual layout is functional, defeating a claim for trade dress infringement. The Ninth Circuit has not previously addressed the functionality of any publication formats. But several other circuits have done so. Tools USA & Equip. Co. v. Champ Frame Straightening Equip., Inc., 87 F.3d 654, 657–59 (4th Cir.1996) (concluding that the catalogue page format was not functional); Comput. Care v. Serv. Sys. Enters., Inc., 982 F.2d 1063, 1071 (7th Cir.1992) (holding that the computer-generated report format was not functional); Hartford House, Ltd. v. Hallmark Cards, Inc., 846 F.2d 1268, 1272–75 (10th Cir.1988) (concluding that a greeting card format was not functional). We have jurisdiction under 28 U.S.C. § 1291.

I

Millennium and Ameritox compete in the medication monitoring industry, and sell urine-testing services to healthcare providers who treat chronic pain patients with powerful pain medications. The testing services provided by these companies help the healthcare providers to evaluate whether patients are taking the pain medications as prescribed and to assess whether the patients are taking any non-prescribed drugs. Millennium gives these test results using its R.A.D.A.R.® Report.

Ameritox gives its test results using its own RX Guardian™ Report.

A few years before this lawsuit was filed, both companies were revising the way they presented the urine-test results. In May 2011, Ameritox launched a new service known as "RXGuardian CD," which included a single graph. Millennium also intensified its efforts in late 2010, and, recognizing that consumers could easily read comparative and historical results in graphical format, turned to its marketing team to "assist[ ] in the formatting on the report." On June 2, 2011, Millennium released a sample R.A.D.A.R.® Report with its new design. Within the year, Ameritox began to reevaluate its report and the use of a single graph. Ameritox considered several designs, all of which used a design similar to Millennium's new report, and introduced its new format in March 2012.

On April 30, 2012, Millennium sued Ameritox for trade dress infringement under the Lanham Act and for unfair competition under California Business and Professions Code section 17200

, alleging that Ameritox had copied its report design. Ameritox moved to dismiss the complaint, arguing that Millennium's claimed trade dress was functional and therefore did not qualify for protection. The district court dismissed the motion, ruling that "[c]onstruing Millennium's complaint liberally, it has alleged facts showing that competitors would not need the features of its report in order to compete without disadvantage."

Before discovery was complete, Ameritox moved for summary judgment on the Lanham Act claim, again arguing that Millennium's trade dress was functional. The district court granted the motion, and also concluded that Millennium's claim for unfair competition failed. Millennium appealed.

II

The Lanham Act creates a cause of action for a party injured when another entity uses "any word, term, name, symbol, or device, or any combination thereof ... which is likely to cause confusion ... as to the origin, sponsorship, or approval of his or her goods." 15 U.S.C. § 1125(a)(1)(A)

. This statute provides protection for a trade dress, TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 29, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001) ; 15 U.S.C. § 1125(a)(3) (1994 ed., Supp. V), which is the "total image of a product," including features such as size, shape, color, texture, and graphics, Disc Golf Ass'n v. Champion Discs, Inc., 158 F.3d 1002, 1005 n. 3 (9th Cir.1998).

Like most intellectual property protections, trade dress protection exists to facilitate competition.

It is well established that trade dress can be protected under federal law. The design or packing of a product may acquire a distinctiveness which serves to identify the product with its manufacturer or source; and a design or package which acquires this secondary meaning, assuming other requisites are met, is a trade dress which may not be used in a manner likely to cause confusion as to the origin, sponsorship, or approval of the goods. In these respects protection for trade dress exists to promote competition.

TrafFix, 532 U.S. at 28, 121 S.Ct. 1255

. But trade dress protection cannot be asserted for any functional features of a product.¹ 15 U.S.C. § 1125(a)(3) (1994 ed., Supp. V) ("In a civil action for trade dress infringement under this chapter for trade dress not registered on the principal register, the person who asserts trade dress protection has the burden of proving that the matter sought to be protected is not functional."); 15 U.S.C. § 1125(a)(3)

(1994 ed., Supp. V); TrafFix, 532 U.S. at 29, 121 S.Ct. 1255 ("This burden of proof gives force to the well-established rule that trade dress protection may not be claimed for product features that are functional."); see also Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1258 (9th Cir.2001) ; Disc Golf, 158 F.3d at 1006 ; Fuddruckers, Inc. v. Doc's B.R. Others, Inc., 826 F.2d 837, 842–43 (9th Cir.1987).

This limitation reflects a balance of considerations affecting the competitive process and consumer benefit. Although Congress does not want consumers to be confused about a product's source, it also does not want to restrict the availability and use of functional features that enhance the utility of the product. TrafFix, 532 U.S. at 28–29, 121 S.Ct. 1255

. This free competition allows manufacturers not only to compete with sometimes necessary features, but also to build off the features' utility, creating better products. As the Supreme Court has explained, "[t]rade dress protection must subsist with the recognition that in many instances there is no prohibition against copying goods and products. In general, unless an intellectual property right such as a patent or copyright protects an item, it will be subject to copying." Id. at 29, 121 S.Ct. 1255. And copying can lead to "salutary effects in many instances." Id.

Consider the following example: a car manufacturer places headlights at the front of the vehicle to light the road when dark. Such lights might have some distinctive appeal that could be identified with the first manufacturer to use them, but having lights in the front of the vehicle to illuminate a dark road also has a functional benefit. Once the public understands it can purchase a vehicle that allows safe driving at night, other manufacturers may not even be able to compete without some similar lighting system and the original manufacturer may gain a monopolistic stronghold on the car market, with effective barriers to entry and competition. The functionality limitation on trade dress protection eliminates this problematic result. At the same time, it is not hard to imagine variants of the car lighting system that at some point would deserve trade dress protection. For example, while some lighting system at the front of the car may be functional, a car manufacturer may be able to claim a protectable trade dress for a particular lighting pattern such as using ten small light bulbs in a triangular pattern instead of one big light bulb.

Here, the parties dispute whether the layout of Millennium's R.A.D.A.R.® Report is functional. The parties also dispute the appropriate test to apply to determine functionality. Interpreting the Lanham Act, the Supreme Court has held that "a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article." Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982)

. Expanding on this test, the Court explained further that a functional feature is one the "exclusive use of [which] ... would put competitors at a significant non-reputation-related disadvantage." Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 165, 115 S.Ct. 1300, 131 L.Ed.2d 248 (1995) (citing Inwood Labs., 456 U.S. at 850 n. 10, 102 S.Ct. 2182 ); see also TrafFix, 532 U.S. at 32–33, 121 S.Ct. 1255. The Court later clarified that the quoted passage in Qualitex was not meant to replace the test outlined in Inwood Laboratories, but instead was meant to be a secondary question. See TrafFix, 532 U.S. at 33, 121 S.Ct. 1255 ("Where the design is functional under the Inwood formulation there is no need to proceed further to consider if there is a competitive necessity for the feature.").

In 1998, three years before TrafFix clarified the relationship between Inwood Laboratories and Qualitex, we outlined a four-factor functionality test: "(1) whether the design yields a utilitarian advantage, (2) whether alternative designs are...