Eco Mfg. LLC. v. Honeywell Intern., Inc.

• Decision Date: 31 December 2003
• Docket Number: No. 03-2704.,03-2704.
• Citation: 357 F.3d 649
• Parties: ECO MANUFACTURING LLC, Plaintiff-Appellee, v. HONEYWELL INTERNATIONAL INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

357 F.3d 649

ECO MANUFACTURING LLC, Plaintiff-Appellee, v. HONEYWELL INTERNATIONAL INC., Defendant-Appellant.

No. 03-2704.

United States Court of Appeals, Seventh Circuit.

Argued September 4, 2003.

Decided December 31, 2003.

Rehearing Denied January 21, 2004.

David M. Lockman (argued), Maginot, Moore & Bowman, Indianapolis, IN, for Plaintiff-Appellee.

Christopher Landau (argued), Kirkland & Ellis, Washington, DC, Paul R. Garcia, Kirkland & Ellis, Chicago, IL, for Defendant-Appellant.

Before FLAUM, Chief Judge. and EASTERBROOK and MANION, Circuit Judges.

EASTERBROOK, Circuit Judge.

Eco Manufacturing proposes to make a thermostat similar in appearance to Honeywell's well-known circular, convex model with a round dial. Honeywell's model (which it calls "The Round") is on the left, Eco's on the right:

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

After receiving Honeywell's demand that it cease and desist, Eco filed this action seeking a declaratory judgment that its product would not infringe Honeywell's intellectual-property rights. Honeywell's round thermostat formerly was protected by two patents — a utility patent (No. 2,394,920) that lasted between 1946 and 1963, and a design patent (No. D176,657) that expired in 1970. Honeywell then sought a trademark registration for the shape of this product. The Patent and Trademark Office denied that application, concluding that the shape is functional and thus cannot serve as a trademark. In re Honeywell Inc., 187 U.S.P.Q. 576, 1975 WL 21267 (T.T.A.B.1975), affirmed, 532 F.2d 180 (C.C.P.A.1976). Honeywell tried again a decade later and fared better. This time the agency ruled in its favor, In re Honeywell Inc., 8 U.S.P.Q.2d 1600, 1988 WL 252417 (T.T.A.B.1988), and allowed the registration to be published for opposition. Emerson Electric objected; before this was resolved, however, Emerson and Honeywell reached a settlement and the mark's registration became final in 1990. It is this registration (No. 1,622,108) that, according to Honeywell, prevents any other firm from selling a round thermostat as long as Honeywell continues to make and sell its own product.

Honeywell filed a counterclaim seeking equitable relief. This appeal is from the district court's order declining to issue a preliminary injunction that would block Eco from bringing its product to market. 295 F.Supp.2d 854 (S.D.Ind. 2003). Like the Trademark Trial and Appeal Board in 1975, the district court concluded that the shape of Honeywell's thermostat is functional — or, to be precise, that the likelihood of such a finding after a trial on the merits is sufficiently high, and damages are sufficiently easy to calculate if Honeywell turns out to win in the end, that Eco should be allowed to sell its competing product while the litigation proceeds. A product's appearance (often called its "trade dress") can serve as a trademark to the extent that design identifies the product's maker. See 15 U.S.C. § 1127; Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 529 U.S. 205, 120 S.Ct. 1339, 146 L.Ed.2d 182 (2000); Qualitex Co. v. Jacobson Products Co., 514 U.S. 159, 115 S.Ct. 1300, 131 L.Ed.2d 248 (1995); Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 112 S.Ct. 2753, 120 L.Ed.2d 615 (1992); W.T. Rogers Co. v. Keene, 778 F.2d 334 (7th Cir.1985). But a functional aspect of the design cannot be trademarked, even if it also (at least before competition breaks out) identifies the product's source. In the district court's view, TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001), treats the grant of a utility patent as showing that the patented feature is functional. After the patent expires, the covered elements of the design are available to all. See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964); Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 59 S.Ct. 109, 83 L.Ed. 73 (1938). Cf. Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003). Only "arbitrary, incidental, or ornamental aspects" (TrafFix, 532 U.S. at 34, 121 S.Ct. 1255) of the patented product remain available for trademark use, the district court concluded, and the circular shape of Honeywell's thermostat is not just filigree. A spherical section is no more usable as a trademark than a cube or tetrahedron would be.

Honeywell's lead argument in this court is that it does not matter whether, or to what extent, the thermostat's shape is functional. That is so, Honeywell submits, because the trademark registration became incontestable in 1996, before Eco brought a competing product to market. Once a mark has been used for five years following registration, it becomes "incontestable". 15 U.S.C. § 1065. Incontestability is "conclusive evidence of the validity of the registered mark and ... the registrant's exclusive right" to use the mark in commerce. 15 U.S.C. § 1115(b). See Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 105 S.Ct. 658, 83 L.Ed.2d 582 (1985).

The words "incontestable" and "exclusive" sound more impressive than the legal rights that the Lanham Act actually conveys, however. Section 1065 says that even "incontestable" marks must yield to prior users, and that the protection dissipates if the mark becomes generic. Moreover, and more to the point, § 1065 says that a claim based on an incontestable mark may be defeated "on a ground for which application to cancel may be filed at any time under paragraphs (3) and (5) of section 1064 of this title". Section 1064(3) provides that a mark may be cancelled if it is, or becomes, functional. Thus incontestability does not avoid the question whether the thermostat's round shape is functional.

As Honeywell sees things, however, resort to the functionality proviso in § 1064(3) is anachronistic. Congress added that particular language to the Lanham Act in 1998, two years after registration No. 1,622,108 passed the five-year mark that made it incontestable. See § 201(b) of Pub. L. 105-330, 112 Stat. 3064 (effective Oct. 30, 1998). To apply a 1998 law to a mark that became incontestable in 1996 would be retroactive, Honeywell insists. New legislation is presumptively non-retroactive, see Landgraf v. USI Film Products, 511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994), and Congress did not designate § 201(b) as one of those rare enactments with retroactive effect.

This line of argument assumes that recognition of a functionality defense changed the law. Courts that had addressed the subject before 1998 were divided on the question whether functionality was a ground of cancellation despite its absence from the statutory text. Compare Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863 (8th Cir.1994) (yes), with Shakespeare Co. v. Silstar Corp., 9 F.3d 1091 (4th Cir.1993) (no). The Supreme Court had not spoken — though it later, in TrafFix, raised the possibility that functionally is a constitutionally required limitation on trade dress protection, lest patent protection effectively be of unlimited duration. 532 U.S at 35, 121 S.Ct. 1255. See also Shakespeare, 9 F.3d at 1099 (Niemeyer, J., dissenting). (Because patent law prohibits any unauthorized manufacture or use of the patented product, the product's shape necessarily will denote its origin while the patent lasts; and if this link between form and origin in turn creates trademark protection, then the patent's term lasts indefinitely.) To the extent that Congress codified rather than changed the governing rules, no retroactivity issue arises. We need not decide what the pre-1998 law required, however, because Honeywell misconceives what it means for a statute to be retroactive.

A law is retroactive when it alters the legal consequences of completed acts. See Jahn v. 1-800-FLOWERS.com, Inc., 284 F.3d 807 (7th Cir.2002). Changing the rules governing future behavior, by contrast, is a prospective application. This is why, "[w]hen the intervening statute authorizes or affects the propriety of prospective relief, application of the new provision is not retroactive." Landgraf, 511 U.S. at 273, 114 S.Ct. 1483. Honeywell does not want damages or any other remedy on account of conduct that predated Pub. L. 105-330. It wants prospective relief. Applying the 1998 law to Eco's conduct in 2003 and beyond is entirely prospective. Honeywell invokes the language of "vested rights," but statutes are malleable. All Honeywell ever has had to go on is a statutory rule; it did not have a contract or a license or a judgment — and even a judgment may be modified prospectively when the law underlying it is amended. Compare Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 115 S.Ct. 1447, 131 L.Ed.2d 328 (1995) (judgments specifying the consequences of past conduct are unalterable), with Miller v. French, 530 U.S. 327, 341-50, 120 S.Ct. 2246, 147 L.Ed.2d 326 (2000) (prospective relief may change as statutory foundation changes), and Robertson v. Seattle Audubon Society, 503 U.S. 429, 112 S.Ct. 1407, 118 L.Ed.2d 73 (1992) (same). Shortly after Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), Congress changed the statute of limitations to reopen the opportunity to litigate certain securities claims (see 15 U.S.C. § 78aa-1); and, though the Court held in Plaut that this change could not be applied to cases that had been finally dismissed before the amendment, it made clear the propriety of applying the law to litigation in progress or yet to be commenced, even though this meant that some claims were revived after the (original) statute of limitations had run. Likewise Congress could repeal the Lanham Act without infringing anyone's rights, or abolish the difference between incontestable and other marks, or increase to 25 years the time...