Gateway, Inc. v. Companion Products, Inc.
| Decision Date | 27 September 2002 |
| Docket Number | No. CIV.01-4096-KES.,CIV.01-4096-KES. |
| Citation | 320 F.Supp.2d 912 |
| Parties | GATEWAY, INC., Plaintiff, v. COMPANION PRODUCTS, INC. Defendant. |
| Court | U.S. District Court — District of South Dakota |
Douglas Rettew, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Washington, DC, Douglas S. Weinstein, Roger D. Taylor, Virginia L. Carron, Finnegan, Henderson, Farabow, Garrett & Dunner, Atlanta, GA, Lee A. Magnuson, Lynn, Jackson, Shultz & Lebrun, P.C., Sioux Falls, SD, for Plaintiff.
Karen L. Wade, Marina T. Larson, Oppedahl & Larson, LLP, Dillon, CO, Mark V. Meierhenry, Robin J. Houwman, Danforth, Meierhenry & Meierhenry, Sioux Falls, SD, for Defendant.
ORDER GRANTING SUMMARY JUDGMENT IN PART AND DENYING SUMMARY JUDGMENT IN PART
[¶ 1] Plaintiff, Gateway, Inc., brings this action against defendant, Companion Products Inc. (CPI), seeking an injunction and damages for CPI's alleged use of Gateway's cow spots and "Welcome to Gateway Country" trademarks. Gateway alleges in its complaint the following causes of action: false designation of origin and unfair competition in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) and the common law of South Dakota; trademark infringement in violation of 15 U.S.C. §§ 1051-1127 and the common law of South Dakota; trademark dilution in violation of 15 U.S.C. § 1125(c); and deceptive trade practices in violation of SDCL 37-24-6(1) and the common law of South Dakota. CPI asserts the affirmative defenses of functionality, laches and acquiescence, no likelihood of confusion, and no dilution. In its counterclaim, CPI seeks declaratory judgment of no trademark infringement, no unfair competition, and no dilution. It also seeks cancellation of Gateway's trademark registration for misuse. CPI alleges that Gateway tortiously interfered with CPI's business relationships, defamed CPI, and disparaged CPI. CPI moves for summary judgment on all of Gateway's causes of action. Gateway moves for summary judgment on CPI's counterclaims of cancellation of registration for misuse, tortious interference with business relationships, defamation, and disparagement. Gateway also moves for summary judgment on its trademark infringement causes of action.
[¶ 2] Gateway is a corporation based in North Sioux City, South Dakota, that sells computers and computer accessories throughout the world. Gateway began in 1985. Around 1991, Gateway began using black and white cows and spots as its company symbol. It also used the theme, "Welcome to Gateway Country" and "Gateway Country" in association with its stores. In 1992, Gateway registered its trademarks for the cow-spots design and the slogan. Both trademarks are used in association with Gateway's computers, computer products, and computer accessories. Gateway has launched extensive advertising campaigns during the last ten years. It has also placed its trademark on popular television shows and sponsored various sporting events. Through these efforts, Gateway has attempted to achieve publicity for and world-wide recognition of its cow-spots design.
[¶ 3] CPI, a Colorado company, sells plush stuffed animals called "stretch pets" that wrap around computer monitors, CPUs, or televisions. These stretch pets include a variety of animals, such as a polar bear, moose, and penguin. One of its top selling products is a black and white spotted cow, "Cody Cow," which CPI has sold since 1999. CPI sells these products directly over the internet, through retail stores, and indirectly at the wholesale level. CPI advertises its stretch pets through flyers, catalogs, the internet, magazines, and phone calls to various retailers. CPI has used the phrase "Welcome to Stretch Pet Country" in some of its advertisements.
[¶ 4] Gateway sent a cease and desist letter to CPI on December 8, 2000, which notified CPI that its Cody Cow infringed on Gateway's trademark and that if sales of Cody Cow did not cease, Gateway would file suit. An employee of Gateway purchased Cody Cow from CPI's stretch pet website. CPI refused to stop production of Cody Cow. On February 7, 2001, counsel for CPI informed Gateway that Cody Cow did not infringe on Gateway's trademark rights. Gateway filed suit on April 27, 2001.
[¶ 5] Under Rule 56(c) of the Federal Rules of Civil Procedure, a movant is entitled to summary judgment if the movant can "show that there is no genuine issue as to any material fact and that [the movant] is entitled to judgment as a matter of law." In determining whether summary judgment should issue, the facts and inferences from those facts are viewed in the light most favorable to the nonmoving party, and the burden is placed on the moving party to establish both the absence of a genuine issue of material fact and that such party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356-57, 89 L.Ed.2d 538 (1986). Once the moving party has met this burden, the nonmoving party may not rest on the allegations in the pleadings, but by affidavit or other evidence must set forth specific facts showing that a genuine issue of material fact exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986). In determining whether a genuine issue of material fact exists, the court views the evidence presented based upon which party has the burden of proof under the underlying substantive law. Anderson, 106 S.Ct. at 2513.
[¶ 6] I. The Lanham Act — Trade Dress Infringement
[¶ 7] CPI moves for summary judgment on Gateway's claim that CPI violated 15 U.S.C. § 1125(a)(1). "Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1), creates a federal cause of action for trade dress infringement." Insty*Bit, Inc. v. Poly-Tech Indus., Inc., 95 F.3d 663, 667 (8th Cir.1996). A product's trade dress is the "total image of a product, the overall impression created, not the individual features." Id. A trade dress is protected under § 43(a) of the Lanham Act if: "(1) it is inherently distinctive or has acquired distinctiveness through secondary meaning, (2) it is primarily nonfunctional; and (3) its imitation would result in a likelihood of confusion in consumers' minds as to the source of the product." Id.
[¶ 8] A. Functionality
[¶ 9] CPI alleges that its use of the black and white spots on Cody Cow is a functional use only. CPI claims it is imitating the spots of a cow and is not using the cow spots as a designation of origin. The issue of functionality is a question of fact. Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863, 868 (8th Cir.1994); Vuitton Et Fils S.A. v. J. Young Enters., Inc., 644 F.2d 769, 775 (9th Cir.1981). Because Gateway's mark is registered, it is entitled to a presumption that the mark is valid. Aromatique, 28 F.3d at 869. In fact, registered marks "are presumed to be distinctive and nonfunctional." Id.
[¶ 10] Functionality has long been a defense to a claim of trademark or trade dress infringement. Home Builders Ass'n of Greater St. Louis v. L & L Exhibition Mgt., Inc., 226 F.3d 944, 948 (8th Cir.2000). "In general terms, a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article." Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982). "Before a trademark or trade dress will be denied Lanham Act protection under the functionality doctrine, Qualitex requires a court to find that exclusive use of that feature would put competitors at a significant non-reputation-related disadvantage." HBA, 226 F.3d at 948 n. 5. "`The fact that the feature at issue serves some function is not enough; to be functional in the trade dress sense, the future must be necessary to afford a competitor the means to compete effectively.'" Id. at 948 (quoting Thomas & Betts Corp. v Panduit Corp., 138 F.3d 277, 297 (7th Cir.1998)).
[¶ 11] Applying these principles while viewing the evidence most favorably to Gateway, there is an issue of material fact as to whether CPI has rebutted the presumption that Gateway's mark is nonfunctional. CPI has presented no evidence that its use of black and white spots on a plush cow that wraps around a computer monitor or CPU is essential to the use or purpose of a stretch pet. A brown, red, or black cow are equally as useful. There is no evidence that a black and white spotted cow costs less to produce or is of a higher quality than solid-colored cows. Furthermore, it is a question of fact as to whether Gateway's exclusive use of black and white cow spots on computer accessories puts competitors at a significant non-reputation-related disadvantage. It is a question of material fact for the jury to determine after considering all the evidence whether CPI's use of the black and white spots on Cody Cow is a functional use or if the spots are being used to indicate sponsorship or origin.
[¶ 12] B. Likelihood of Confusion
[¶ 13] To determine whether a likelihood of confusion exists in a trade dress case, the court must consider (1) the strength of the marks; (2) the similarity between the parties' marks; (3) the competitive proximity of the parties' [products]; (4) CPI's intent to confuse; (5) evidence of actual confusion; and (6) the degree of care reasonably expected of potential customers. Insty*Bit, 95 F.3d at 667.
[¶ 14] 1. Strength of the Mark
[¶ 15] The court must first consider the strength of Gateway's mark. The strength, or distinctiveness, of a trademark is its power to identify the source of a product or services. Time, Inc. v. Petersen Publ'g Co., 173 F.3d 113 (2d Cir.1999). Three factors determine the strength of a trademark: the classification of the trademark, whether...
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