Itt Corp. v. Xylem Grp., LLC

• Decision Date: 05 August 2013
• Docket Number: No. 1:11–cv–03669–WSD.,1:11–cv–03669–WSD.
• Citation: 963 F.Supp.2d 1309
• Parties: ITT CORPORATION and Xylem, Inc., Plaintiffs/Counterclaim Defendants, v. XYLEM GROUP, LLC, Defendant/Counterclaim Plaintiff.
• Court: U.S. District Court — Northern District of Georgia

963 F.Supp.2d 1309

ITT CORPORATION and Xylem, Inc., Plaintiffs/Counterclaim Defendants,

v.XYLEM GROUP, LLC, Defendant/Counterclaim Plaintiff.

No. 1:11–cv–03669–WSD.

United States District Court,

N.D. Georgia,

Atlanta Division.

Aug. 5, 2013.

Emmet T. Flood, Robert J. Shaughnessy, Sarah F. Teich, Williams & Connolly, LLP, Washington, DC, Ellen Claire Carothers, King & Spalding, LLP, Gregory Scott Brow, McKenna Long & Aldridge, LLP, Atlanta, GA, for Plaintiffs/Counterclaim Defendants.

Gerard F. Dunne, Joseph A. Dunne, Law Office of Gerard F. Dunne, P.C., New York, NY, Christina M. Baugh, Stephen Thomas La Briola, Fellows La Briola, LLP, Atlanta, GA, for Defendant/Counterclaim Plaintiff.

Emmet T. Flood, Robert J. Shaughnessy, Sarah F. Teich, Williams & Connolly, LLP, Washington, DC, Gregory Scott Brow, McKenna Long & Aldridge, LLP, Ellen Claire Carothers, Atlanta, GA, for Plaintiffs/Counterclaim Defendants.

Gerard F. Dunne, Joseph A. Dunne, Law Office of Gerard F. Dunne, P.C., New York, NY, Christina M. Baugh, Stephen Thomas La Briola, Fellows La Briola, LLP, Atlanta, GA, for Defendant/Counterclaim Plaintiff.

OPINION AND ORDER

WILLIAM S. DUFFEY., JR., District Judge.

This matter is before the Court on (1) Defendant's Motion for Partial Summary Judgment [78], (2) Defendant's Motion to Exclude Testimony of Michael B. Mazis, Ph.D. [76], (3) Plaintiffs' Motion for Partial Summary Judgment as to Damages [70], (4) Plaintiffs' Motion to Exclude the Opinions of Robert A. Hutchins, CPA, as to a Reasonable Royalty [69], (5) Defendant's Motion to Exclude Testimony of Robert N. Yerman [75] and (6) Defendant's Motion to Exclude Certain Testimony of Philip G. Hampton, II [77].

I. BACKGROUNDA. The parties

Plaintiff ITT Corp. (“ITT”) is a “global multi-industry high-technology engineering and manufacturing organization with operations in more than sixty countries” which provides products and services in the “global defense and security; water technology; and highly engineered industrial products” markets. [1, ¶ 2].

Plaintiff Xylem, Inc. is an ITT subsidiary that was created and spun off in 2011 to own and operate ITT's water-technology business. [Id. ¶ 3; 184–1, ¶ 4]. Xylem, Inc. is an S & P 500 company with annual revenue of approximately $3.8 billion, over 60% of which derives from operations outside the United States. [171, ¶ 5; 184–1, ¶ 5]. Xylem, Inc. sells to wholesale plumbing distributors and retail chain stores including Ferguson and Home Depot. [78–2, ¶¶ 130–36; 173, ¶¶ 130–36]. As part of its rebranding and marketing process, Xylem, Inc. spent $15 million in the third quarter of 2011 and the first quarter of 2012. [230–3, at 33; 230–1, at 13].

Defendant Xylem Group, LLC, (“XG” or “Defendant”) is a Georgia limited liability company in the business of designing and selling bathroom furniture and fixtures. [13, ¶ 4]. Its products include vanities, sinks, faucets and fittings. XG has fourteen (14) employees and had sales revenue of $8,075,836.53 in 2011. XG pays to be listed in plumbing trade publications, attends tradeshows and spent roughly $46,000 on marketing and public relations in 2011. [78–2, ¶¶ 1–3, 18–20, 22; 173, ¶¶ 1–3, 18–20, 22]. XG's total equity was valued at approximately $3 million in 2009. (June Weinstein Dep., 171:22–172:16).

XG sells to wholesale plumbing distributors, including 39 distributors who also purchase from Xylem, Inc. (the “Overlapping Customers”). In particular, XG sells to Ferguson, which operates showrooms in common buildings with separate sections for commercial and residential products and customers. ¹ [78–2, ¶¶ 130–35; 173, ¶¶ 130–35]. From November 1, 2011, through July 31, 2012, XG's sales to the Overlapping Customers totaled $1,454,456.00, approximately 24.01% of XG's 2011 revenue on an annualized basis. [78–2, ¶ 136; 173, ¶ 136] [171, ¶¶ 155–56; 184–1, ¶¶ 155–56]. Home Depot and Ferguson accounted for approximately 76% of XG's sales to the Overlapping Customers. [171, ¶ 152; 184–1, ¶ 152].

Sales to the Overlapping Customers constitute only a small portion of Xylem, Inc.'s sales in the United States. From November 1, 2011, through July 31, 2012, Xylem, Inc.'s sales to the Overlapping Customers totaled $8,280,116.32, approximately 1.4% of its United States sales for that period. [78–2, ¶ 137; 173, ¶ 137] [171, ¶ 170; 184–1, ¶ 170].

XG first began using the name “Xylem” in interstate commerce in 2005. On December 12, 2006, XG obtained Registration No. 3,183,362 from the United States Patent and Trademark Office for the XYLEM mark. In November 2011, XG obtained four registrations for the XYLEM mark in the State of Georgia. [78–2, ¶¶ 4–10]. Plaintiffs do not dispute the validity of XG's trademark registrations. [173, ¶¶ 4–10].

B. The Xylem dispute

On January 12, 2011, ITT announced its intention to separate itself into three separate publicly-traded companies: a manufacturing company, a water-technology company, and a defense and security company. [78–2, ¶ 23; 173, ¶ 23].

In March 2011, ITT hired Lippincott, a brand consulting company, to consult with ITT regarding the naming of its water-technology company. Lippincott recommended seventeen possible trade names and trademarks. ITT's executives narrowed the proposed names to seven, including “XYLEM.” ITT had Baker & McKenzie, an international law firm which served as ITT's outside trademark counsel, conduct a worldwide trademark search for each of the seven marks it intended to consider to identify any legal issues associated with any of the seven proposed names. [78–2, ¶¶ 25, 27–31; 173, ¶¶ 25, 27–31].

On May 26, 2011, Baker & McKenzie presented ITT's executives with its trademark search results and provided its opinion regarding the registrability of each of the seven marks in the countries where ITT's water-technology company expected to do business. (Hampton Report ¶ 16; Gardner Report at 3–4). Baker & McKenzie reported that there may be “high difficulty” in obtaining trademark protections for the “Xylem” mark in the United States because the “XYLEM” mark was owned by XG for use in the United States, and that the mark was for a water-technology business similar to ITT's business. (Hampton Report ¶¶ 18–19; Gardner Report at 3–4).

A few days later, on June 2, 2011, Lippincott presented to ITT's executives a “summary of full legal, linguistic and URL evaluations” using information from the Baker & McKenzie report along with information from other sources (the “June 2nd Lippincott Report”). (Hampton Report ¶ 20).

On July 14, 2011, after discussions with ITT's executives and its counsel, and after ITT's review of the June 2nd Lippincott Report, ITT announced its new water-technology company would be named Xylem, Inc. (Hampton Report ¶ 21); [78–2, ¶ 100; 173, ¶ 100].

On July 20, 2011, XG sent a cease-and-desist letter to ITT alleging that its use of “Xylem” would infringe on XG's registered XYLEM mark. XG also objected to ITT's use of the new Xylem mark for its new water-technology company. (Gardner Report at 5); [78–2, ¶ 106; 173, ¶ 106].

On October 26, 2011, Plaintiffs filed their Complaint [1] seeking a declaratory judgment that their use of the Xylem name and mark does not infringe on XG's registrations,or otherwise violate XG's rights in the Xylem name and mark. [1, at 8].

On December 12, 2011, XG filed its Answer and Counterclaim [13]. In its counterclaim, XG alleges that ITT and Xylem, Inc. engaged in tradename and trademark infringement and unfair competition and had diluted XG's tradename and trademarks. XG's claims were asserted under the Lanham Act, Georgia state law and New York state law. [13, ¶¶ 73–87]. On September 23, 2012, XG filed its Amended Counterclaim [67]. XG removed its dilution claim and New York state-law claims in its Amended Counterclaim. XG, in its Amended Counterclaim, seeks injunctive relief, damages, attorney's fees and costs, prejudgment interest and punitive damages. [67, at 13–15].

On October 1, 2012, XG filed its Motion for Partial Summary Judgment on the issue of infringement [78]. In support of its motion, XG presents evidence that Plaintiffs' use of the Xylem name and mark has infringed the Xylem registrations. XG alleged, among other evidence, that Plaintiffs' use of “Xylem” caused actual customer confusion in the United States. For example, between November 2011 and September 2012, XG received (i) at least 58 checks intended for Xylem, Inc., (ii) at least 38 phone calls regarding Xylem, Inc.'s products, and (iii) 23 emails and faxes intended for Xylem, Inc. In the same period, Xylem, Inc. received at least 8 checks intended for XG. [78–2, ¶¶ 138–164]. Plaintiffs do not dispute that these instances of actual confusion occurred, but contend they are de minimis. [173, ¶¶ 138–164; 172, at 11–14].

Plaintiffs also present survey evidence from Mazis purporting to show there was little likelihood of customer confusion regarding its use of the Xylem name and mark. [170–8]. XG moves to exclude Mazis's expert opinion on the ground that it is not reliable, including because the surveyed population was not representative of the relevant market. [76, at 1–2; 177, at 6–8].

XG also seeks payment of a reasonable royalty, and in doing so, presents the expert opinion of Robert A. Hutchins, CPA. Hutchins opines that a reasonable royalty based on a hypothetical licensing agreement between XG and Plaintiffs would have resulted in a minimum royalty amount to XG of $45 million. [230–3, at 34]. Plaintiffs offered the rebutting expert opinion of Robert N. Yerman. Yerman opines that a hypothetical licensing agreement would have resulted in a royalty worth no more than $3.3 million plus a control premium, which he claims is equivalent to the approximate value of XG's total equity. [218–1, at 14] The parties moved to exclude each other's expert opinions on damages [69] [75].

In a separate expert opinion supporting Plaintiffs' valuation of a reasonable royalty between XG and the Plaintiffs, Philip G. Hampton, II...