Clorox Co. v. Sterling Winthrop, Inc.

• Citation: 117 F.3d 50
• Decision Date: 26 June 1997
• Docket Number: No. 1041,D,1041
• Court: U.S. Court of Appeals — Second Circuit
• Parties: 1997-1 Trade Cases P 71,847, 43 U.S.P.Q.2d 1161 The CLOROX COMPANY, Plaintiff-Counter-Defendant-Appellant, v. STERLING WINTHROP, INC.; Reckitt & Colman, Inc., Defendants-Appellees. ocket 96-9030.

Page 50

117 F.3d 50

1997-1 Trade Cases P 71,847, 43 U.S.P.Q.2d 1161

The CLOROX COMPANY, Plaintiff-Counter-Defendant-Appellant, v. STERLING WINTHROP, INC.; Reckitt & Colman, Inc. Defendants-Appellees.

No. 1041, Docket 96-9030.

United States Court of Appeals Second Circuit.

Argued Jan. 29, 1997.

Decided June 26, 1997.

Kim J. Landsman, New York City (Robert W. Lehrburger, Carin G. Reynolds, Judith Jobin, Patterson, Belknap, Webb & Tyler LLP, New York City, on the brief), for Plaintiff-Counter-Defendant-Appellant.

Paul C. Curnin, New York City (Eleanor M. Fox, Lawrence M. Young, Pieter Van Tol, Jennifer A. Hand, Simpson Thacher & Bartlett, New York City, on the brief), for Defendants-Appellees.

Before: WALKER, PARKER and HEANEY, ^* Circuit Judges.

PARKER, Circuit Judge:

The Clorox Company ("Clorox") appeals from a decision of the United States District Court for the Eastern District of New York (Manuel Real, J.) granting summary judgment to Sterling Winthrop, Inc. ("Sterling") and Reckitt & Colman, Inc. ("Reckitt") on Clorox's antitrust claims under Sections One and Two of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2. Clorox, which recently acquired the PINE-SOL trademark, challenges a settlement agreement that its predecessor-in-interest, American Cyanamid Company ("Cyanamid") entered into in 1987 (the "1987 Agreement") with Sterling, the prior owner of the LYSOL trademark. The agreement modified an earlier trademark settlement agreement, entered into in 1967 (the "1967 Agreement") between the parties' predecessors. Each of the agreements derives from a trademark dispute between the owners of the PINE-SOL and LYSOL marks dating from the 1950s. The 1987 Agreement contains detailed provisions regulating the way PINE-SOL disinfectant products may be advertised and packaged and restricting the types of PINE-SOL disinfectant products that may be sold. Clorox argues that the 1987 Agreement unlawfully restricts competition because it serves no valid trademark purpose, as there is no longer any likelihood of consumers confusing the LYSOL and PINE-SOL marks, and it prevents Clorox from using the popular PINE-SOL brand to enter cleaning markets dominated by LYSOL-brand products. We hold that because the 1987 Agreement indisputably limits only the way that one competing trademark may be used, and does not significantly affect any competitor's ability to compete, it does not violate the antitrust laws. Accordingly, we affirm the judgment of the district court.

I. BACKGROUND

A. The Parties and Their Products

The undisputed facts developed on the summary judgment record below are as follows. Clorox makes and sells household cleaner-disinfectant products, including PINE-SOL-brand products acquired from Cyanamid in 1990. PINE-SOL is the oldest and best-selling pine-oil cleaner. The trademark has been used since 1945, and possibly as early as 1929. It has been federally registered since 1957. Today, the PINE-SOL mark appears on various pine-oil cleaners, including the original liquid product packaged in bottle form, a PINE-SOL spray pump, and the more recent innovation, Lemon Fresh PINE-SOL. Clorox advertises PINE-SOL as "America's # 1 Pine Cleaner."

Clorox is one of the largest producers of cleaning products in the world. In addition to the PINE-SOL brand, it manufactures bleaches and cleaners under many famous trademarks, including CLOROX CLEAN-UP, FORMULA 409, SOFT SCRUB, TILEX, LESTOIL, and TACKLE, among others. Clorox's liquid-cleaner products, PINE-SOL and CLOROX CLEAN-UP, are the top two dilutable cleaning products on the market. Overall, as of June 1996, Clorox enjoyed a thirty-seven percent share of the all-purpose household cleaning market. Sterling acquired the LYSOL mark in 1966. Reckitt purchased Sterling's assets in 1994, including the LYSOL line. As of June 1996, Reckitt enjoyed close to fifteen percent of the all-purpose household cleaning market, in contrast to Clorox's market share of thirty-seven percent.

The LYSOL brand name arrived on the market a few decades before PINE-SOL. LYSOL has been a federally registered trademark for disinfectants since 1906, and for cleaning products in general since the 1920s. LYSOL is famous as an aerosol spray disinfectant. The LYSOL name also marks other products including a liquid disinfectant, LYSOL PINE ACTION pine cleaner; LYSOL DIRECT multi-purpose spray cleaner; LYSOL BASIN, TUB, AND TILE CLEANER; and LYSOL and LYSOL CLING toilet bowl cleaners, among other products. The LYSOL name has become virtually synonymous with household disinfectants. The LYSOL aerosol spray disinfectant is in a class of its own, as only small brand-name products compete against it.

B. The History of the Dispute

The LYSOL and PINE-SOL marks have not coexisted amicably. The owners of these marks have been battling ever since the owners of PINE-SOL sought to register the trademark with the U.S. Patent office in the 1940s. ¹ When the maker of PINE-SOL products initially attempted to register the PINE-SOL mark, the owner of the LYSOL mark opposed the registration. The Examiner in Chief of the U.S. Patent Office denied registration of PINE-SOL on account of what the Examiner determined to be a confusing similarity between the PINE-SOL and LYSOL marks. At the time, PINE-SOL was written as one word, similar to the way LYSOL appears. The Examiner reasoned that "Pine" can be slurred as "Pi" and "Pi-Sol" can thereby be confused with "LYSOL." See Lehn & Fink Prods. Corp. v. Magnolia Chem. Co., 95 U.S.P.Q. (BNA) 57, 58 (Oct. 2, 1952).

Despite the Examiner's decision, the owners of the PINE-SOL mark continued to use it. Sterling's predecessor then brought suit to protect its senior LYSOL mark. In 1956, to settle the litigation, Sterling's and Clorox's predecessors executed a settlement agreement (the "1956 Agreement"). In the 1956 Agreement, the owner of PINE-SOL agreed to use the trademark only with preparations that include pine oil as an active ingredient, to use an illustration of pine or evergreen trees in association with the trademark on packaging labels, and to maintain separation between the two words "PINE" and "SOL." The 1956 Agreement permitted registration of the PINE-SOL trademark as a "general household cleaner consisting primarily of pine oil" or as a "pine oil cleaner, disinfectant and deodorant." The agreement explicitly left open the rights of the PINE-SOL owners to use the trademark on products other than a liquid dilutable cleaner, which was the subject of the registration.

In 1965, controversy erupted again. The owners of the LYSOL trademark sued Cyanamid, which had since purchased the PINE-SOL trademark, after Cyanamid introduced the PINE-SOL trademark into the heart of the LYSOL product category, aerosol spray disinfectants. The owners of LYSOL also opposed trademark applications whereby Cyanamid sought to register the trademark PINE-SOL for a wall and floor cleaner. The parties resolved their differences in the 1967 Agreement, which, by its terms, superseded the 1956 Agreement.

The 1967 Agreement prohibited the use of the PINE-SOL mark on any "disinfectant product," including "any product which is offered for sale, sold or promoted solely or in part" as a disinfectant or "as possessing or containing any disinfectant." In return, the 1967 Agreement granted Cyanamid the right to introduce various cleaning products under the PINE-SOL name, including "soaps or detergents, laundry preparations, finishing products for hard or soft surfaces, or deodorants." It also allowed Cyanamid to introduce agricultural fungicides, and insecticides and rodenticides, under the PINE-SOL mark. The 1967 Agreement provided that Cyanamid could continue to promote PINE-SOL as primarily a liquid cleaner with disinfecting properties, subject to the same limitations provided in the 1956 Agreement. Cyanamid agreed to discontinue manufacturing the PINE-SOL spray disinfectant, the subject of the 1965 lawsuit.

Nearly two decades later, in 1983, the battle resumed. Cyanamid sued Sterling for marketing a product called LYSOL PINE ACTION in a bottle similar to the one used by PINE-SOL. Cyanamid argued that the 1967 Agreement contained a negative covenant prohibiting Sterling from introducing LYSOL in the pine-oil product category. Cyanamid also claimed that Sterling's actions constituted unfair competition and trade dress infringement.

A few years later, with the 1983 action still pending, Cyanamid attempted to market a non-aerosol pump spray disinfectant under the PINE-SOL name. As a result, Sterling sued Cyanamid in 1987. Sterling and Cyanamid resolved both lawsuits in the 1987 Agreement. The 1987 Agreement modified the terms of the 1967 Agreement in important ways. Cyanamid obtained the ability to market a "multi-purpose pump spray household cleaner with disinfecting properties." Cyanamid obtained this limited consent from Sterling subject to many conditions, however. These include the following, which Clorox now characterizes as the 1987 Agreement's "most anticompetitive provisions":

* p 3(c)-(d) and p 4(e)--restricts the sale of "disinfectant products" under the PINE-SOL mark: only the basic liquid cleaner and a pump spray may be sold "in part" as disinfectants under the mark. The product restrictions allow only one "form, scent or formula" of these two PINE-SOL products to be sold "in a single geographic area at the same time." The provisions permit Clorox to market other disinfectant products with the PINE-SOL mark used as an endorsement mark for products sold under other trademarks, subject to limitations on the size and placement of the mark.

* p 4(a)--requires that the original PINE-SOL product be "sold, advertised, and promoted primarily as a cleaner rather than primarily as a disinfectant product." This includes the requirement that the words "cleans" or "cleaner" be set forth before the words "disinfectant" or "disinfects" and that the words "cleans" or "cleaner" be more...