AHP Subsidiary Holding Co. v. Stuart Hale Co.

• Citation: 1 F.3d 611
• Decision Date: 06 August 1993
• Docket Number: 92-1472,Nos. 92-1437,s. 92-1437
• Parties: AHP SUBSIDIARY HOLDING COMPANY, Successor in Interest to Boyle-Midway Household Products, Incorporated, a Delaware Corporation, Plaintiff-Appellant, Cross-Appellee, v. STUART HALE COMPANY, an Illinois Corporation, Defendant-Appellee, Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 611

1 F.3d 611

27 U.S.P.Q.2d 1758

AHP SUBSIDIARY HOLDING COMPANY, Successor in Interest to

Boyle-Midway Household Products, Incorporated, a Delaware Corporation, Plaintiff-Appellant, Cross-Appellee, v. STUART HALE COMPANY, an Illinois Corporation,

Defendant-Appellee, Cross-Appellant.

Nos. 92-1437, 92-1472.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 2, 1992.

Decided Aug. 6, 1993.

Alan J. Mandel, Samuel Fifer (argued), Sonnenschein, Nath & Rosenthal, Chicago, IL, Steven J. Baron, American Home Products Corp., New York City, for AHP Subsidiary Holding Co.

Scott A. Brainerd, Chicago, IL (argued), for Stuart Hale Co.

Before RIPPLE and ROVNER, Circuit Judges, and ENGEL, Senior Circuit Judge. ^*

RIPPLE, Circuit Judge.

This is an appeal from a grant of summary judgment in favor of the defendant, Stuart Hale Company (Stuart Hale) in an action brought by American Home Products Subsidiary Holding Company (American) alleging federal trademark infringement, unfair competition, and dilution of trademark. Additionally, American sought a preliminary injunction, which the district court denied as moot. In the present appeal, American renews these claims, and Stuart Hale cross-appeals the denial of sanctions under Rule 37(a) of the Federal Rules of Civil Procedure. For the following reasons, the judgment of the district court is affirmed in part, reversed in part, vacated in part, and remanded for proceedings in accordance with this opinion.

I BACKGROUND

Appellant American owns the federally registered trademark to "PAM," a nonstick cooking spray sold in nine-ounce aerosol cans In 1953, five years before American registered the mark "PAM," Stuart Hale had introduced the name "Pan-Lite" to market a nonstick cooking oil. Prior to 1988, however, Stuart Hale had only used the name "Pan-Lite" to market its cooking oil in the wholesale market by the use of fifty-five gallon drums sold directly to bakers; it was not sold in the retail grocery market. Indeed, from 1953 to 1988, Stuart Hale sold the Pan-Lite product to only six customers. In April 1988, Stuart Hale applied for federal trademark registration for the name Pan-Lite to market its nonstick cooking oil as an aerosol spray. This product was a different formulation than the product it had marketed on a wholesale basis earlier. R.64, Plaintiff's Local Rule 12(m) Statement at 2. Prior to the 1988 introduction of the retail aerosol version of Pan-Lite, Stuart Hale had never sought trademark protection for the name Pan-Lite. It is undisputed that the PAM and Pan-Lite products are now in direct competition.

in the consumer retail market. American has owned the PAM trademark since 1958 and, with a fifty to seventy-five percent market share, is currently the product leader in the cooking spray industry. Pl.Ex.D. PAM has no registered trademark rights to, and has never marketed, a "lite" or "light" version of its product.

Shortly after Stuart Hale applied for protection of the Pan-Lite name, American initiated the present action as a five-count complaint against Stuart Hale. American alleged federal trademark infringement, federal and common law unfair competition, dilution, and deceptive trade practices. ¹ American argues that consumers are likely to mistake Pan-Lite for a light version of the PAM product. It notes that there are already three distinct versions of PAM in the market: original, butter-flavored, and olive oil. Additionally, American stresses the proliferation of market products that contain less fat and fewer calories, and submits that consumers have begun to expect light versions of their favorite brand name products. Specifically, American bases its factual claim on the following product similarities between PAM and Pan-Lite: (1) the brand names sound similar; (2) both are sold in predominantly red and yellow aerosol spray cans; (3) both picture fried eggs on their cans; and (4) both cans depict, in "bullet" lettering, claims that the product has "no cholesterol," is "all natural," and is "sodium free."

American retained Dr. Hans Zeisel, now deceased, to survey consumers in order to determine the likelihood that consumers would confuse Pan-Lite with PAM. Dr. Zeisel supervised two surveys in which only primary shoppers over eighteen years of age were questioned. In the first survey, participants were shown photographs of six retail grocery items commonly sold in supermarkets. These items included Pan-Lite but not PAM. After seeing the photographs, participants were asked to recall the brand names they had seen. Forty-five percent of those recalling a brand name for the cooking spray identified Pan-Lite as PAM. ²

The second survey was performed as a control because PAM is the product leader in the market and might be identified by consumers for that reason. The control survey showed participants the same six grocery items, but substituted Mazola or Wesson-Lite (also direct competitors of PAM) for Pan-Lite. Seven percent of the participants in the second survey identified the cooking spray as PAM. Dr. Zeisel then subtracted the seven percent figure from the forty-five percent figure to control for the likelihood of misidentification that could reasonably be considered a result of PAM's status as market leader. The result was a net misidentification In a red and yellow aerosol can, Pan Lite looks and acts like PAM, a close cousin that shares grocery space.

of thirty-eight percent attributable to the similarities between Pan-Lite and PAM. Dr. Zeisel also submitted by affidavit that it was his expert opinion that the similarities between the names PAM and Pan-Lite caused consumers to misidentify the Pan-Lite product as a PAM brand cooking spray. R.106, Attach. at 4, Zeisel Aff. In addition to the survey evidence compiled by Dr. Zeisel, American submitted to the district court an article in the April 19, 1990 Chicago Tribune stating:

R.102, Attach. A. American submits that this article further evidences a likelihood of consumer confusion between the two products.

In response, Stuart Hale argues that American offered no material, probative evidence that could establish a likelihood of consumer confusion between PAM and Pan-Lite. In fact, submits Stuart Hale, the real motivation behind American's lawsuit is that it is considering marketing plans for a "light" version of PAM, for which it has yet to seek trademark protection. Appellee's Br. at 2-3. Additionally, Stuart Hale filed a Rule 37 motion for attorney fees on the ground that American had deliberately frustrated the discovery process and should be sanctioned.

II PROCEDURAL HISTORY

American's motion for preliminary injunction and Stuart Hale's motion for summary judgment were referred to a United States magistrate judge for an evidentiary hearing and a Report and Recommendation. See 28 U.S.C. Sec. 636(b)(1)(B) (1988). Subsequently, the district court reviewed the magistrate's report de novo and found it to be "thorough, accurate, and the decision proper." R.122, Order at 1. Consequently, the district court adopted verbatim the recommendations of the magistrate judge and entered summary judgment for Stuart Hale. ³ The district court applied the seven-factor "likelihood of confusion" test now common in this circuit. ⁴ With respect to several of these factors, there was no dispute between the parties. As the district court noted, the products are indisputably direct competitors and are similarly advertised in the same market. The strength of the PAM mark was also uncontradicted. However, the court specifically rejected American's theories on four of the likelihood of confusion factors.

The district court first considered the degree of similarity between the marks in appearance and suggestion. With respect to suggestion, the court determined that PAM was a completely fanciful mark, while Pan-Lite has a functional suggestion. ⁵ Similarly, the court found that "[l]ittle homogeneity exists in the products' visual appearance." Rep. and Rec. at 7. The court also rejected American's argument that the fact that Pan-Lite's dominant term "pan" sounds and appears like "PAM," coupled with consumer expectation concerning "light" products, causes a likelihood of source confusion. The court emphasized the fact that American does not currently market a light version of PAM and has no trademark rights to a PAM "light" or "lite." Accordingly, concluded the district court, American's proposition is "nothing more than mere conjecture." Id. at 8.

The district court also rejected American's argument that consumers exercise little care in distinguishing between low-cost grocery items, concluding [W]ith the prodigious advertising campaigns conducted by corporate America, consumers can not help but to be well aware of new and old products.... [G]iven that all grocery items are relatively inexpensive and sold in a multitude of brands, at the very least, some amount of careful discrimination must be exercised by consumers, if only in an effort to find their favorite brands.

Id. at 9.

On the issue of actual confusion, the district court found that American had submitted no probative evidence. Specifically, the court rejected American's consumer survey proffer that thirty-eight percent of the persons who were shown pictures of Pan-Lite believed it to be PAM, on the grounds that it was "not fairly prepared and, therefore, does not accurately gauge actual confusion among consumers." Id. at 12. Specifically, the court stated:

[T]he survey's major failing is that it does not gather data of actual confusion based upon a showing of PAM and Pan-Lite as found in the marketplace--shelved together. A proper and fair analysis would more accurately simulate consumer perception by showing the products one next to the other, or amongst a group of cooking spray brands. American's survey does not achieve proper marketplace reality.

Id. at 13.

The district court also rejected American's contention that a triable issue...