Counterclaim v. Greenwich Indus.

Decision Date11 August 2010
Docket NumberNos. 07-1435, 10-2670.,s. 07-1435, 10-2670.
Citation616 F.3d 722
PartiesSPECIALIZED SEATING, INC., Plaintiff/Counterclaim Defendant-Appellee, v. GREENWICH INDUSTRIES, L.P., doing business as Clarin, Defendant/Counterclaim Plaintiff-Appellant.
CourtU.S. Court of Appeals — Seventh Circuit

OPINION TEXT STARTS HERE

Anthony S. Divincenzo (submitted), Divincenzo Schoenfield Swartzman, Chicago, IL, for Plaintiff/Counterclaim Defendant-Appellee.

James P. White, Husch Blackwell Sanders Welsh & Katz, Gregory E. Ostfeld (argued), Greenberg Traurig, Chicago, IL, for Defendant/Counterclaim Plaintiff-Appellant.

Before EASTERBROOK, Chief Judge, and POSNER and EVANS, Circuit Judges.

EASTERBROOK, Chief Judge.

For more than 80 years, Clarin has been making x-frame folding chairs. In 1999 it applied for registration of one particular x-frame design as a trademark. The Patent and Trademark Office issued Registration No. 2,803,875 in January 2004. This is the registered mark:

Image 1 (1.62" X 2.6") Available for Offline Print

The principal register describes it thus: “a configuration of a folding chair containing an X-frame profile, a flat channel flanked on each side by rolled edges around the perimeter of the chair, two cross bars with a flat channel and rolled edges at the back bottom of the chair, one cross bar with a flat channel and rolled edges on the front bottom, protruding feet, and a back support, the outer sides of which slant inward.”

Clarin was acquired by Greenwich Industries in 1993. We refer to Greenwich Industries as Clarin, the name under which it does business. Harvey Hergott, Clarin's general manager at the time of the acquisition, left later that year and, after honoring a five-year restrictive covenant, joined Specialized Seating, Inc., in 2001, two years after his son Alfred had founded that business. Specialized competes in Clarin's principal market: the sale of folding chairs to auditoriums, sports stadiums, convention centers, and other places that need to deploy lots of seats, which owners want to be as light and compact as possible for storage when not in use. Specialized sells a folding chair that to an untrained eye looks like Clarin's trademark chair. There are differences in construction and detail; the chair is not a slavish knockoff, but the basic design tracks the registered mark. That similarity had led to this litigation in which Specialized sought a declaratory judgment that its design does not violate Clarin's rights under the Lanham Act, 15 U.S.C. §§ 1051-1129, and Clarin counterclaimed for an injunction.

Clarin has been using the mark long enough for its registration to be “incontestable” under 15 U.S.C. § 1065. The word “incontestable” is misleading, however, because an incontestable mark may be contested, and defeated, on many grounds. The principal effect of incontestable status is to relieve the trademark proprietor of any need to show “secondary meaning”-in other words, whether consumers associate a mark with a particular producer is not relevant when the mark is incontestable. Clarin's customers buy in bulk and are sophisticated; it is exceedingly unlikely that any of them is confused about who makes which chair. Because the mark is incontestable, however, the absence of confusion does not matter. Still, nine defenses are available to a person charged with infringing an incontestable mark. 15 U.S.C. § 1115(b). Specialized Seating asserted two of these defenses: that “the registration ... was obtained fraudulently” (§ 1115(b)(1)) and that “the mark is functional” (§ 1115(b)(8)).

The district court held a bench trial and ruled in Specialized's favor on both of these issues. 472 F.Supp.2d 999 (N.D.Ill.2007). The judge found that the x-frame construction is functional because it was designed to be an optimal tradeoff between a chair's weight (and thus its cost, since lighter chairs use less steel) and its strength; an x-frame chair also folds itself naturally when knocked over (an important consideration for large auditoriums, where it is vital that chairs not impede exit if a fire or panic breaks out); the flat channel at the seat's edge, where the attachment to the frame slides so that the chair can fold, was designed for strength and attaching hooks to link a chair with its nearest neighbor; the front and back cross bars contribute strength (and allow thinner tubing to be used in the rest of the frame); and the inward-sloping frame of the back support allows the chair to support greater vertical loads than Clarin's older “a-back” design, which the “b-back” design, depicted in the trademark registration, succeeded. The a-back design is on the left and the b-back on the right:

Image 2 (2.63" X 1") Available for Offline Print

Clarin chairs with a-back designs failed when the audience at rock concerts, seeking a better view, sat on top of the chairs' backs and put their feet on the seats. The tubing buckled at the bend in the frame. The b-back design is less likely to buckle when someone sits on it, and it also produces a somewhat wider back, which concert promoters see as a benefit. (Patrons sometimes try to get closer to the stage by stepping through rows of chairs. The gap between b-back chairs is smaller, so they are more effective at keeping crowds in place.)

Having concluded not only that the overall design of Clarin's chair is functional, but also that each feature is functional, the district judge added that Clarin had defrauded the Patent and Trademark Office by giving misleadingly incomplete answers to the trademark examiner's questions. The examiner initially turned down Clarin's proposal to register the design as a trademark, observing that the design appeared to be functional. Clarin replied that the design was chosen for aesthetic rather than functional reasons. (This was not a complete answer, as attractiveness is a kind of function. See Jay Franco & Sons, Inc. v. Franek, No. 09-2155, 615 F.3d 855, 860-61, 2010 WL 3156539 (7th Cir. Aug. 11, 2010). 10-12. But we need not pursue that subject.) Clarin observed that a patent it held on an x-frame chair, No. 1,943,058, issued in 1934, did not include all of the features in the mark's design. What Clarin did not tell the examiner is that it held three other patents on x-frame designs: No. 1,600,248, issued in 1926; No. 2,137,803, issued in 1938; and No. 3,127,218, issued in 1964. The district judge concluded that the four patents collectively cover every feature of the design submitted for a trademark except the b-back, and that as the b-back is a functional improvement over the a-back Clarin should have disclosed all of these utility patents. Had it done so, the judge thought, the examiner would have refused to register the proposed mark.

Clarin's appeal was delayed by settlement negotiations. Briefing and argument were deferred until after they broke down. It was further delayed by the district court's failure to enter a proper judgment, a common problem in the Northern District of Illinois. See, e.g., Rush University Medical Center v. Leavitt, 535 F.3d 735 (7th Cir.2008). The judge stated that Specialized is entitled to a declaratory judgment that the registration is invalid because of both fraud and functionality. A declaratory judgment must be set out on a separate document containing its terms. Fed.R.Civ.P. 58(a). The judgment in this case does not do that. The parties, and perhaps the district judge, seem to have assumed that, if the judge's opinion names the winner, no one need bother with the step of producing a concise declaration in a separate document. But [i]f courts are to require that others follow regular procedures, courts must do so as well.” Hollingsworth v. Perry, --- U.S. ----, 130 S.Ct. 705, 715, --- L.Ed.2d ---- (2010). Clarin complicated matters by omitting the defective judgment from the appendix to its brief, despite the requirement in Circuit Rule 30(a) that it be included-and despite counsel's representation to the court, see Circuit Rule 30(d), that Rule 30(a) had been followed. The court discovered the problem on its own, and at oral argument we questioned whether appellate jurisdiction exists given the absence of any relief. See, e.g., Horn v. Transcon Lines, Inc., 898 F.2d 589 (7th Cir.1990); Azeez v. Fairman, 795 F.2d 1296 (7th Cir.1986). We invited the parties to return to the district court and ask the judge to issue a proper declaratory judgment. They did, the judge did, and Clarin's new appeal (No. 10-2670) has been consolidated with the original one (No. 07-1435). The case is at last ready for decision.

Findings of fact made after a bench trial must stand unless clearly erroneous. Fed.R.Civ.P. 52(a)(6); Anderson v. Bessemer City, 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). Although “functionality” is the “ultimate issue” in a case such as this, an “ultimate” issue (such as whether the defendant was negligent or engaged in racial discrimination) remains one of “fact” under this standard, because it is generated by applying legal principles to factual conclusions. See, e.g., Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709, 106 S.Ct. 1527, 89 L.Ed.2d 739 (1986); Pullman-Standard v. Swint, 456 U.S. 273, 102 S.Ct. 1781, 72 L.Ed.2d 66 (1982). “Functionality” certainly isn't an issue of law; it represents a fact-specific conclusion about whether aspects of a design are “essential to the use or purpose of the article or if it affects the cost or quality of the article. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982); see also TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 32-33, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001). Many decisions apply Rule 52's standard to a finding that a mark is functional. See, e.g., Service Ideas, Inc. v. Traex Corp., 846 F.2d 1118, 1123 (7th Cir.1988); Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 537 (5th Cir.1998); Fuji Kogyo Co. v. Pacific Bay...

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