Apex Fountain Sales, Inc. v. Kleinfeld

• Decision Date: 19 May 1987
• Docket Number: 86-1563 and 86-1652,Nos. 86-1241,s. 86-1241
• Parties: APEX FOUNTAIN SALES, INC., Appellant, v. KLEINFELD, Ernie, Flo Aire, Inc., Kearney, Jr., Ralph, Kearney, Michael, Ralph Kearney & Son, Inc., Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 1089

818 F.2d 1089

3 U.S.P.Q.2d 1430

APEX FOUNTAIN SALES, INC., Appellant, v. KLEINFELD, Ernie, Flo Aire, Inc., Kearney, Jr., Ralph Kearney, Michael, Ralph Kearney & Son, Inc., Appellee.

Nos. 86-1241, 86-1563 and 86-1652.

United States Court of Appeals Third Circuit.

Argued April 6, 1987.

Decided May 19, 1987.

Norman Perlberger (argued), Norman Greenspan, Blank, Rome, Comisky & McCauley, Philadelphia, Pa., Stephen E. Feldman, New York City, for appellant.

Patrick T. Ryan (argued), William J. Lehane, Lawrence A. Nathanson, Drinker, Biddle & Reath, Philadelphia, Pa., for appellees.

Before SLOVITER, BECKER, Circuit Judges and FISHER, District Judge ^*.

OPINION OF THE COURT

BECKER, Circuit Judge.

This opinion concerns three separate appeals from seriatim orders of the district court in proceedings to enforce a consent decree. Most notably it addresses the question whether the district court erred in appointing as special masters the members of a panel whose role under the consent decree was to review design changes in certain champagne fountains manufactured and sold by defendant-appellee, Ralph Kearney & Son, to assure that they could not be identified as fountains made by plaintiff-appellant, Apex Fountain Sales. Because the question referred to the special masters was relatively simple, we conclude that the reference was inappropriate under Federal Rule of Civil Procedure 53.

The complex procedural posture of the case also requires us to review the propriety of the initial order of the district court affirming a decision of the design panel. We decide that the presentation of the evidence to the neutral panelist in the absence of the other panelists did not render the award unenforceable. We also conclude that statements in the panel's decision arguably determining the validity of Apex's trademark could not exceed the panel's authority because they were merely dicta.

Finally, we review the district court's acceptance of the masters' report insofar as the report presented pure questions of law. The court accepted the masters' view that Kearney need not continue to present its new design proposals to the design panel so long as it complied with certain design modification suggestions in the initial panel decision. We decide that the consent decree required Kearney to receive prior approval of a design before offering it for sale and that the arbitral panel had no authority to exempt appellees from this requirement. We therefore affirm in part and reverse in part and remand for further proceedings.

I. Facts and Procedural History

Apex Fountain Sales, Inc. manufactures champagne fountains for sale throughout the United States and Canada. ¹ Prior to 1983, it purchased parts for its fountains from Ralph Kearney & Son, Inc., the principal appellee. ² In early 1983, however, Apex stopped purchasing from Kearney, and in the wake of the ensuing contract dispute, Kearney began manufacturing and producing fountains virtually identical to Apex and even, apparently, using the Apex trademark. Apex sued for infringement of its mark and trade design under Sec. 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a), which provides trademark protection for unregistered marks and trade designs under certain circumstances. The parties resolved their dispute through a settlement agreement which was incorporated into a consent decree entered by the district court on September 4, 1985.

In the consent decree, Apex agreed to purchase from Kearney all the tooling Kearney had used for several fountains advertised in its brochure, and Kearney agreed not to "manufacture or use any tooling which duplicates such tooling in the future." In addition, in paragraph one of the decree, Kearney stated that it:

acknowledge[s] the validity of and will not contest [Apex's] exclusive right, title and interest in the trademarks APEX FOUNTAINS, the vertical oblong slots on fountains, and the profile including the top bowl, column, top of lower bowl, spigot and jet stream ... for champagne fountains in the United States and throughout the rest of the world.

In paragraph two, Kearney agreed not to use any mark or design "confusingly similar" to that of Apex. Then, in paragraph seven, the parties set out an arbitration provision for the approval of new fountain designs by Kearney:

Defendants will change their fountain design so that the fountains can no longer be identified as Apex Fountains and no longer use the Trademarks. Defendants will submit their new fountain designs for prior written approval to a panel consisting of Alvin Gruber, Ralph Kearney, Sr. and a third person to be chosen by the consent of Gruber and Kearney to decide on a majority basis whether the fountain designs meet the above standard and that decision will be binding on the parties.

The parties further stipulated that the agreement would be governed by Pennsylvania law, and in his order incorporating the consent agreement, the district court (Charles R. Weiner, J.) maintained jurisdiction to supervise the enforcement of the decree.

Alvin Gruber was a former executive of Apex, and Ralph Kearney was a former executive of Kearney & Co. For a year following entry of the court's decree, the two could not agree on a third panelist. On petition by Kearney, the district court, without a hearing, appointed a Philadelphia patent and trademark lawyer, Manny Pokotilow, as the third panelist. Against a challenge on appeal that the district court had modified the consent decree improperly by appointing a third panelist without conducting a hearing and without a finding of "exceptional circumstances," this court affirmed on the grounds that the facts were undisputed and that the district court had not abused its discretion. Apex v. Kleinfeld, 800 F.2d 1130 (3d Cir.1986).

Kearney then submitted a new design, and Pokotilow scheduled a hearing for October 22, 1985. At the request of Apex's counsel, the hearing was postponed until October 25, but shortly before that day, Pokotilow learned that Ralph Kearney, a panel member, had a serious health problem and could not attend. Pokotilow then proposed to counsel for both sides that he hear the evidence alone and send his opinion via counsel to Gruber and Ralph Kearney for their review. Apex did not communicate any objection, and Pokotilow scheduled a hearing for November 20, 1985. At that hearing, Apex objected to proceeding without the other panel members, arguing that the consent agreement required all panelists to hear the evidence together. Pokotilow permitted Apex to present its arguments and evidence despite the protest.

Kearney's proposed new design did not use the name Apex Fountain, nor did it contain vertical oblong slots. The hearing therefore concentrated on whether Kearney's design infringed on Apex's trade dress rights in its fountain profile. Following the hearing, Pokotilow, as promised, forwarded a proposed opinion to his fellow panel members.

Pokotilow's opinion rejected Kearney's design. It also suggested a narrow view of Apex's design mark. Pokotilow acknowledged that Paragraph 1 of the consent decree had conclusively established Apex's exclusive trademark rights to the design of its fountain's profile. Despite this acknowledgment, Pokotilow focused his analysis of the "similarities and differences" between the Kearney and Apex fountains "on the extent to which the design feature is related to the utilitarian function of the product." ³ He concluded that the similar "two saucer mirror image" and "annular recess" look of the plant cups at the top of the fountains created a likelihood of confusion. But Pokotilow went further and suggested that because of the functional nature of the remainder of the profile, he would find no likelihood of confusion if Kearney changed its plant cup. He did so despite an obvious substantial similarity in the appearances of the Kearney and Apex profiles.

As might be expected, each of the other panel members disagreed with parts of Pokotilow's opinion. Gruber, a former executive of Apex, agreed that the Kearney design was infringing, but he rejected Pokotilow's suggestion that changes in the plant cup alone would make Kearney's fountain design acceptable. Ralph Kearney, on the other hand, disagreed with Pokotilow that even the plant cup was infringing, but he agreed that a change in the plant cup would satisfy the requirements of the consent decree.

Each part of Pokotilow's opinion had the agreement of two panelists, and therefore, of the majority. Kearney moved the district court to adopt the Pokotilow opinion. Apex opposed on the grounds: (1) that the panel had not sat as a body at the hearing and thus had violated the consent decree; (2) that the panel had no authority to make design recommendations to Kearney, only to judge each fountain design as it was submitted; and (3) that the panel's failure to find infringement in Kearney's imitation of the Apex profile apart from the plant cup followed from a reevaluation of the scope of the Apex trade design that exceeded the panel's authority and effectively modified the consent decree. Without a hearing, the district court adopted the proposed opinion, and in appeal number 86-1241, the first of our three appeals, Apex renews the arguments it made in the district court.

While this appeal was pending, Kearney exhibited new champagne fountains at a show in Chicago. Two of the new fountains maintained the same profile as those exhibited before the design panel, but they contained a different style of plant cup. Kearney had also removed maple leaf cut-outs that had distinguished its previous design from Apex, and had changed its floral filigree ornamentation to a rope style similar if not identical to that used by Apex. In addition, Kearney exhibited a new, larger fountain apparently unlike any fountain previously shown the panel. Apex responded by filing a motion to hold Kearney in contempt.

In a telephone conference, the district court...