Dakota Industries, Inc. v. Ever Best Ltd.

• Decision Date: 08 July 1994
• Docket Number: 93-2765,Nos. 93-2723,s. 93-2723
• Citation: 28 F.3d 910
• Parties: DAKOTA INDUSTRIES, INC., Appellant/Cross-Appellee, v. EVER BEST LTD.; Dakota Blue Corp.; Carl Eckhaus; Sam Ko; Kenneth Kwok, Appellees/Cross-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 910

28 F.3d 910

31 U.S.P.Q.2d 1355

DAKOTA INDUSTRIES, INC., Appellant/Cross-Appellee, v. EVER BEST LTD.; Dakota Blue Corp.; Carl Eckhaus; Sam Ko;

Kenneth Kwok, Appellees/Cross-Appellants.

Nos. 93-2723, 93-2765.

United States Court of Appeals,

Eighth Circuit.

Submitted March 17, 1994.

Decided July 8, 1994.

James A. Hertz, Sioux Falls, SD, argued, for appellant.

William P. Fuller, Sioux Falls, SD, argued (Gary S. Graifman, on the brief), for appellee.

Before HANSEN, Circuit Judge, HEANEY and JOHN R. GIBSON, Senior Circuit Judges.

JOHN R. GIBSON, Senior Circuit Judge.

Dakota Industries, Inc. appeals from a jury verdict in favor of Ever Best Ltd., Dakota Blue Corporation, Carl Eckhaus, Sam Ko, and Kenneth Kwok in a trademark infringement action. Dakota Industries manufactures cold-weather, outdoor-type garments under the trademark "DAKOTA," and licenses M. Fine & Sons Manufacturing, Inc. to manufacture and sell men's and boys jeanswear under the labels "DAKOTA" and "DAKOTA BLUES." Dakota Blue imports, through Ever Best Ltd., fancy jeanswear from Asia for girls, young men, and young women under the name "DAKOTA BLUE," selling its products in mall shops and lingerie catalogues. After a ten-day jury trial, the jury returned a verdict for Ever Best and Dakota Blue. Dakota Industries filed a motion for a new trial, which the district court denied. Dakota Industries now appeals, raising several issues and requesting a new trial. We reverse and order a new trial because of an error in the court's instructions to the jury.

Dakota Industries received a federal trademark registration for "DAKOTA" in 1972. This trademark was declared "incontestable" by the federal Patent and Trademark Office on August 15, 1978. Dakota Industries filed for Chapter 11 bankruptcy protection in 1987, after experiencing significant declines in its sales and customer base during the 1980s.

In 1989, Dakota Blue began importing, through Ever Best Ltd., a line of women's clothing manufactured in Asia with the label "DAKOTA BLUE." In August 1989, Dakota Industries sought a preliminary injunction to prohibit Dakota Blue and Ever Best from using the word "DAKOTA." The district court denied Dakota Industries' motion. In 1990, when Dakota Industries learned that Dakota Blue planned to import a line of men's clothing, it sought to enjoin Dakota Blue from expanding into men's clothing. The district court denied Dakota Industries' motion for preliminary injunction, and a panel of this court affirmed. See Dakota Indus., Inc. v. Ever Best Ltd., 944 F.2d 438, 440 (8th Cir.1991). Following a ten-day trial on the merits of Dakota Industries' trademark infringement action, the jury returned verdicts for Dakota Blue, Ever Best, and the individual shareholders.

Dakota Industries appeals, raising numerous issues and arguing, inter alia, that the district court: (1) improperly interpreted the incontestability provisions of the Lanham Act, and therefore erred as a matter of law in submitting the issue of ownership of the trademark to the jury; (2) erred in instructing the jury; (3) erred in allowing Dakota Blue to introduce a witness' allegedly false testimony and in allowing counsel to attempt to appeal to sympathy and prejudice during closing argument; (4) improperly allowed counsel for Dakota Blue to disclose the district court's prior rulings regarding Dakota Industries to the jury; and (5) erred in denying Dakota Industries' motion to amend its complaint. Individual shareholders of Dakota Blue, Sam Ko and Kenneth Kwok, cross-appeal, asserting that the court lacked personal jurisdiction over them.

I.

Dakota Industries first argues that the district court erred in interpreting the incontestability provision of the Lanham Act, 15 U.S.C. Sec. 1065 (1988), when it allowed Dakota Blue to challenge Dakota Industries' ownership of the trademark and by submitting the issue of ownership to the jury. Dakota Industries contends that ownership of a trademark is a question of law, and the court committed reversible error by submitting a question of law to the jury for determination.

A new trial is required when the district court erroneously submits a question of law to a jury to decide. Maryland v. Baldwin, 112 U.S. 490, 493, 5 S.Ct. 278, 279-80, 28 L.Ed. 822 (1884) (if a court commits prejudicial error either in admitting evidence or instructing the jury, the verdict cannot be upheld); Green Tree Acceptance, Inc. v. Wheeler, 832 F.2d 116, 118 (8th Cir.1987) ("When a ground for the verdict should have been decided as a matter of law, reversal and a new trial are required in spite of the presence of other grounds to support the verdict."); E.I. du Pont de Nemours v. Berkely & Co., Inc., 620 F.2d 1247, 1257 (8th Cir.1980) ("If one or more substantial grounds for the verdict presented no jury question and should have been decided as a matter of law ..., reversal and a new trial are required, notwithstanding the presence of other grounds that could have supported the verdict."); but see id. at 1258 n. 8 (no new trial where "it is reasonably certain that the jury was not significantly influenced by issues erroneously submitted to it").

The "incontestable ownership" section of the Lanham Act provides:

To the extent that the right to use the registered mark has become incontestable under section 1065 of this title, the registration shall be conclusive evidence of the validity of the registered mark and of the registration of the mark, of the registrant's ownership of the mark, and of the registrant's exclusive right to use the registered mark in commerce ... subject to [certain] defenses.

15 U.S.C. Sec. 1115(b) (emphasis added).

Thus, under this provision of the Lanham Act, five years after registering a mark, the registrant may seek to have its mark declared "incontestable." 15 U.S.C. Sec. 1065. Once a mark has become incontestable, its validity is presumed, subject to eight specifically enumerated defenses. See 15 U.S.C. Sec. 1115(b)(1)-(8). In other words, the registration of a trademark as incontestable is conclusive evidence of the registrant's exclusive right to use the mark, as well as the registrant's ownership of the trademark, subject to the enumerated defenses. Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 196, 105 S.Ct. 658, 662-63, 83 L.Ed.2d 589 (1985); Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 291 (3d Cir.) (if the trademark has become incontestable, then "validity, legal protectability, and ownership are proved"), cert. denied, --- U.S. ----, 112 S.Ct. 373, 116 L.Ed.2d 324 (1991). The eight defenses in section 1065 of the Lanham Act must be affirmatively pleaded or they will be deemed waived. Philip Morris, Inc. v. Imperial Tobacco Co., 251 F.Supp. 362, 379 (E.D.Va.1965), aff'd, 401 F.2d 179 (4th Cir.1968), cert. denied, 393 U.S. 1094, 89 S.Ct. 875, 21 L.Ed.2d 784 (1969). If one of the eight defenses is valid, registration for incontestable status falls from "conclusive evidence" of the registrant's right to exclusive use and ownership of the trademark to merely prima facie evidence. Park 'N Fly, 469 U.S. at 199 n. 6, 105 S.Ct. at 664 n. 6; Ford Motor, 930 F.2d at 291.

Dakota Industries first contends that the court erred in allowing Dakota Blue to challenge its ownership of the "DAKOTA" trademark. Dakota Industries argues that Dakota Blue did not contest Dakota Industries' ownership of the trademark, and therefore, Dakota Industries' ownership should be conclusively presumed. Dakota Blue concedes that it did not contest Dakota Industries' ownership of the trademark in its answer to Dakota Industries' complaint. Dakota Blue did, however, raise two of the enumerated defenses to an incontestable trademark action, laches and abandonment, in its answer to the amended complaint. Dakota Industries moved to strike the affirmative defenses of laches and abandonment and for summary judgment on these defenses. The district court denied the motions, stating that it believed a factual issue remained. The district court also denied Dakota Blue's motion for summary judgment on the ground that Dakota Industries did not own the mark "DAKOTA."

Dakota Blue first raised the ownership issue two weeks before trial in pre-trial motions, and focused considerable time at trial questioning Dakota Industries' ownership. For example, Dakota Blue presented as an exhibit a copy of an agreement in which Dakota Industries gave Brevet International, Inc. a lien on all of the intangible assets of Dakota Industries, including rights in the trademark "DAKOTA." Dakota Blue also called Donald Mackintosh, president of Dakota Industries, to testify about the Brevet agreement. Dakota Blue presented Dakota Industries' bankruptcy petition to the jury, arguing that because Dakota Industries did not list the trademark as part of its assets, it did not own the mark. Finally, in closing arguments, counsel for Dakota Blue again questioned whether Dakota Industries still owned the trademark after pledging it in the Brevet agreement and after filing for bankruptcy protection.

The instructions as originally given did not discuss the issue of ownership. However, a question about the ownership of the trademark was contained in the special interrogatory questions submitted to the jury. The jury did not answer this interrogatory. This special interrogatory allowed the jury to consider the ownership of the trademark, an issue that was irrelevant to the jury's deliberations and decision. In considering and denying post-trial motions, the court recognized: "I don't believe that the ownership issue was handled properly. It really wasn't an issue to start with."

During the course of jury deliberations, however, the jury submitted a question about ownership of the trademark to the court. The jury asked whether Dakota Industries still owned the mark, considering the agreement between Brevet and Dakota Industries which gave Brevet a lien on all intangibles of...