David Berg and Co. v. Gatto Intern. Trading Co., Inc.

• Decision Date: 06 September 1989
• Docket Number: No. 88-3254,88-3254
• Parties: , 12 U.S.P.Q.2d 1116 DAVID BERG AND COMPANY, Plaintiff-Appellant, v. GATTO INTERNATIONAL TRADING COMPANY, INC. and New England Foods International Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 306

884 F.2d 306

58 USLW 2188, 12 U.S.P.Q.2d 1116

DAVID BERG AND COMPANY, Plaintiff-Appellant, v. GATTO INTERNATIONAL TRADING COMPANY, INC. and New England Foods International Corporation, Defendants-Appellees.

No. 88-3254.

United States Court of Appeals Seventh Circuit.

Argued June 2, 1989.

Decided Sept. 6, 1989.

Richard M. Kates, Chicago, Ill., for David Berg & Co., plaintiff-appellant.

Michael R. Levinson, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., for Gatto Intern. Trading Co., Inc. and New England Foods Intern. Corp., defendants-appellees.

Before POSNER and MANION, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

MANION, Circuit Judge.

David Berg and Company (Berg) manufactures and sells meat products. Berg is suing Gatto International Trading Company, Inc. (Gatto), and New England Foods International Corporation (New England) for infringing Berg's trademark. The district court held that Berg had failed as a matter of law to prove the existence of any basis upon which to hold either Gatto or New England contributorily responsible for a fourth party's trademark infringement, and that Berg had also failed as a matter of law to meet its burden of proving any likelihood of product confusion. We affirm.

I.

Berg manufactures and sells specialty meats, primarily sausage and other processed meats, throughout the United States. In March of 1984, an ammonia leak damaged a large quantity of Berg meat stored in a warehouse. Although the U.S. Department of Agriculture determined that the damaged meat was "safe, sound and wholesome and otherwise fit for human consumption," Berg concluded that the resulting discoloration and freezer burn did not meet the quality standards necessary to be sold under the Berg and related labels.

To identify its products, Berg used several trademarks registered with the United States Patent Office. Since the USDA found the meat (the meat products) fit for sale, Berg needed to salvage what it could, but did not want the meat products sold under the Berg labels.

To facilitate these objectives, by contract dated May of 1985, Berg transferred (directly and indirectly) the meat products to the Illinois Trading Company, a meat distributor. The contract contained restrictions that the meat products (with a few specific exceptions) would be sold outside the United States, and that no future sales or advertising for the meat products could use the David Berg name. ¹ Soon thereafter Gatto agreed to purchase the meat products from ITC for $89,000. Included in the agreement was the provision that:

Purchaser agrees that the finished goods will be sold outside the continental U.S.; except for the following lots: H-401, FM-68, I-5101, I-5105, I-5205, FM-1460. All advertising or use of David Berg name in future sales is forbidden.

New England financed Gatto's purchase. Gatto and New England had an agreement to divide the profits from the sale of the meat products on a 50/50 basis after payment of costs and repayment of financing. New England was to obtain export certificates for the meat products. Gatto was to market the product, collect funds from buyers, and remit to New England any funds due New England.

Gatto sold the meat products to Lake Erie Food Sales, Inc. (Lake Erie), a broker in Cleveland, Ohio. Gatto already had advised Lake Erie of the restrictions in the Gatto/ITC purchase agreement concerning sale of the meat products and exploitation of the Berg label. Although apparently neither Gatto nor New England sold any of the meat products to anyone (retail or wholesale), other than Lake Erie, Lake Erie nevertheless did sell an unspecified amount of the meat products within the United States. Some of these sales were made in cartons bearing the Berg label.

Berg sued Gatto and New England for trademark infringement. At trial Berg claimed that Gatto infringed on Berg's trademark as a result of Gatto's sale to Lake Erie and Lake Erie's subsequent sales in the United States. Berg presented no evidence regarding the quantity of the meat products sold by Lake Erie within the United States, the portion sold in relabelled cartons, the portion sold in cartons bearing Berg's label, or where in the United States these meat products had been sold. Berg presented no evidence (which the court determined credible) that any of Lake Erie's purchasers actually had been confused about the source or quality of their purchases.

Berg's Vice President of Corporate Affairs, who had responsibility for dealing with customer complaints, received no complaint from customers concerning these meat products. Berg's Vice President of Sales who also had dealt with customer complaints, had no knowledge of any complaints about these meat products. The only purchaser of some of these meat products to testify declared that neither he nor his own customers had any complaint regarding the quality of the meat products, and this purchaser still is a Berg customer.

Berg's President testified concerning the return of some of the meat products in St. Louis, Missouri. But Berg produced no documentation reflecting this alleged return, admitted that Berg had paid out no money on account of these meat products, and admitted that no customer (including this one) ever had directly stated it would stop purchasing Berg products due to this incident.

Berg submitted a sworn Proof of Loss to the Federal Insurance Company claiming that the actual cash value of the meat products at time of loss was $666,687.37. After levying a co-insurance penalty of $268,854.44 against Berg for errors committed in the Proof of Loss, the Federal Insurance Company paid Berg $397,732.93. Berg also obtained $13,404.27, representing its share of the proceeds derived from a salvage sale of the meat products. Berg has received a total of $436,137.20 for the meat products, a sum reflecting insurance proceeds, salvage resale proceeds, and proceeds received from a settlement with Lake Erie ($25,000).

Berg attempted to establish that its sales of sausage products decreased by approximately 325,000 pounds during fiscal year 1985, the same year the salvage resale transpired. But Berg offered no evidence of general industry trends during fiscal year 1985, and Berg's Vice President of Sales testified that he had no idea of Berg's market share in the industry at any specific juncture.

Berg had no evidence that either Gatto or New England participated in, had any knowledge of, or had any reason to know of any of Lake Erie's sales of the meat products within the United States, although (according to the terms of their sale) Gatto and Lake Erie shared profits on whatever meat products Lake Erie subsequently sold. Gatto and Lake Erie had a vendor/vendee or consignor/consignee relationship.

The district court held that under the Lanham Act, trademark infringement occurs when there is a likelihood of confusion, deception or mistake on the part of the consuming public. The court also found that trademark infringement can extend beyond those who actually mislabel goods or sell them to the consuming public with the mark of another. But the court also held that anticipation of a possible illegal use of the mark is not sufficient to establish contributory responsibility for any harm done by a deceitful trademark infringement.

The district court found as a matter of law that Berg's evidence supporting its partnership theory failed to elevate the consignor/consignee or vendor/vendee relationship of Gatto and Lake Erie to the level of a partnership. The district court found as a matter of law that Berg had failed to prove the existence of a Gatto/Lake Erie partnership, and had in turn failed to establish any basis upon which to hold Gatto or New England contributorily responsible for the alleged trademark infringement by Lake Erie. The district court likewise found as a matter of law that Berg had failed to meet its burden of proving any likelihood of confusion.

II.

Under Fed.R.Civ.P. 52(a) this court may correct errors of law, including mixed findings of law and fact, and any finding of fact premised upon a rule of law. Jennings v. Tinley Park Community Consolidated School Dist. No. 146, 864 F.2d 1368, 1373 (7th Cir.1988). Although we review rulings on pure questions of law de novo, the application of law to fact we review under the clearly-erroneous standard. Air Line Pilots Ass'n, Int'l v. UAL Corporation, 874 F.2d 439, 448 (7th Cir.1989). Cf. Scandia Down Corp. v. Euroquilt, Inc., 772 F.2d 1423, 1427-29 (7th Cir.1985).

We will not set aside findings of fact under Rule 52(a) unless they are clearly erroneous. Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). When there are two permissible views of the evidence, this fact-finder's choice never is clearly erroneous. The trial judge's experience affords him expertise because his major role lies in determining facts and judging the credibility of witnesses. Id. at 574, 105 S.Ct. at 1511.

III.

Berg brings this action for trademark infringement and damages under the United States Trademark Act of 1946, the Lanham Act, 15 U.S.C. Sec. 1051, et seq. The Lanham Act establishes the rights available to holders of registered trademarks. J. Walker and Sons v. DeMert & Dougherty, Inc., 821 F.2d 399, 407 (7th Cir.1987). The question on appeal is whether there was a trademark infringement here justifying an award of damages.

Berg's claim of trademark infringement specifically depends upon 15 U.S.C. Sec. 1114(1)(a). Section 1114 provides in pertinent part:

(1) Any person who shall, without the consent of the registrant--

(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or...