Maker's Mark Distillery Inc v. Diageo North Am. Inc

• Decision Date: 02 April 2010
• Docket Number: Civil Action No. 3:03-CV-93-H.
• Court: U.S. District Court — Western District of Kentucky
• Parties: MAKER'S MARK DISTILLERY, INC., Plaintiffv.DIAGEO NORTH AMERICA, INC., et. al., Defendants.

703 F.Supp.2d 671

MAKER'S MARK DISTILLERY, INC., Plaintiffv.DIAGEO NORTH AMERICA, INC., et. al., Defendants.

Civil Action No. 3:03-CV-93-H.

United States District Court,

W.D. Kentucky,

at Louisville.

April 2, 2010.

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Edward T. Colbert, Erik C. Kane, William M. Merone, Kenyon & Kenyon LLP, Washington, DC, John David Dyche, R. Gregg Hovious, Fultz, Maddox, Hovious & Dickens PLC, Louisville, KY, for Plaintiff.

Anita B. Polott, J. Kevin Fee, Michael F. Clayton, Morgan Lewis & Bockius LLP, Washington, DC, John S. Reed, II, Trevor L. Earl, Reed Weitkamp Schell & Vice PLLC, John E. Hanley, Michael A. Valenti, Valenti, Hanley & Robinson, PLLC, Louisville, KY, Anthony A. Coppola, Lawrence E. Abelman, Michael Aschen, Ned W. Branthover, Abelman, Frayne & Schwab, New York, NY, for Defendants.

MEMORANDUM OPINION

JOHN G. HEYBURN, II, District Judge.

Plaintiff, Maker's Mark Distillery, Inc. (“Maker's Mark”), brings this action alleging that Defendants, Tequila Cuervo La Rojena S.A. de C.V., Casa Cuervo S.A. de C.V., Jose Cuervo International, Inc. (collectively “Cuervo”), and Diageo North America, Inc. (“Diageo”), violated federal trademark and common law when they produced and distributed a bottle of tequila capped with a red dripping wax seal similar to the one Maker's Mark has used for over 50 years. Specifically, Maker's Mark asserts that Defendants' actions constitute (1) federal trademark infringement, 15 U.S.C. § 1114(1)(a) et seq.; (2) false designation of origin, 15 U.S.C. § 1125(a); (3) dilution, 15 U.S.C. 1125(c); and (4) common law trademark infringement and unfair competition under the laws of Kentucky. This Court conducted a six-day bench trial and is now sufficiently advised to decide the numerous difficult factual and legal issues presented.

For the reasons explained below, the Court concludes that (1) Maker's Mark's red dripping wax trademark is valid; and (2) Cuervo's use of a similar red dripping wax infringes on Maker's Mark's trademark, but does not dilute the mark. Based on these findings, the Court will issue an injunction prohibiting Cuervo's future use of red dripping wax, but decline to award monetary damages.

I.

Plaintiff Maker's Mark is a Kentucky-based distiller specializing in bourbon whisky.¹ Since 1958, when it first began producing bourbon, the company has capped its bottles with a red dripping wax seal that partially covers the neck of the bottle and drips down to the bottle's shoulder. That design was the brainchild of Marjorie Samuels, mother of Maker's Mark current president Bill Samuels, who was still at home when his mother perfected the dripping wax in their family's basement. In its early years, Maker's Mark enjoyed slow and steady regional growth, but in August 1980, a front-page story in The Wall Street Journal thrust the company into the national spotlight. ² The Samuels family sought to capitalize on that momentum by launching a national advertising campaign featuring the red dripping wax seal. The unique approach worked. Today, the company sells more than 800,000 cases of Maker's Mark annually in the U.S., with a bottle retailing at about $24. Company executives continue to focus most of their advertising budget-now around $22 million annually-on promoting the red wax.

Since 1985, Maker's Mark has held a federally registered trademark, U.S. Trademark Reg. No. 1,370,465, (the “465 trademark”), consisting of the “wax-like coating covering the cap of the bottle and trickling down the neck of the bottle in a freeform irregular pattern.” Notably, the trademark does not mention the color red-it is silent as to color. This trademark later became “incontestable” pursuant to 15 U.S.C. § 1065.³ Though not asserted in this case, Maker's Mark registered another trademark in 2003, U.S. Trademark Reg. No. 2,690,813 (the “813 trademark”), which protects “the color red as applied to the seal that extends down the neck of a bottle.” The 813 trademark does not include Maker's Mark's signature drips.

The Cuervo Defendants, a group of Mexican and American corporations, are America's largest sellers of tequila products. The Cuervo brand boasts an international reputation, and the companies sell more than 3.8 million cases of tequila per year in the United States. Company directors spend $100 million annually on advertising. Thus, the Cuervo Defendants outsize Maker's Mark by almost any conceivable measure of market presence-from sales numbers to international reach to annual advertising.

The facts giving rise to this case began in the mid-1990s, when Cuervo executives decided to create a high-end tequila to celebrate the company's 200th anniversary of producing tequila products legally. They designed the new product, Reserva de la Familia, (“Reserva”), in conjunction with a U.S. marketing firm and production began in 1995. Initially, the Reserva bottle design included a straight-edge, non-dripping wax seal capping the bottle, along with a stamp of the Cuervo crest imprinted into the wax and a small blue ribbon extending from underneath the wax.

Juan Domingo Beckmann, now Chief Executive Officer of Casa Cuervo, testified that sometime around 1997, he decided to alter the wax seal to include dripping wax after seeing such a bottle in mid-production, before its drips were cut off. Beckmann thought the uncut seal, with its drips, created a unique and artisanal look. By 2001, Reserva, with its red dripping wax seal, had entered the U.S. market. Packaged in a wooden box designed each year by a different Mexican artist, it retailed for about $100 per bottle. Cuervo's production of Reserva was limited, with the company offering only about 3,000 to 4,000 bottles per year.

Defendant Diageo is a U.S.-based distributor of distilled spirits that marketed and distributed the contested Reserva product from at least 2001 to 2004.⁴ In 2003, Maker's Mark initiated this lawsuit to challenge Diageo's marketing of the Reserva product with the red dripping wax seal. At some time after that, Cuervo abandoned its use of the drips, but continued to sell a version of Reserva capped by the original red, straight-edge wax seal. ⁵ In 2007, after Maker's Mark and Diageo attempted and failed to settle the case, Maker's Mark joined the Cuervo Defendants.

In November 2009, this Court held a six-day bench trial during which it heard testimony from numerous Maker's Mark employees, including: President and Chief Executive Officer Bill Samuels; Vice President of Operations and Master Distiller Kevin Smith; Vice President of Finance Mitchell Wagner; and Director of Marketing Barry Younkie. Maker's Mark also presented testimony from Susan Schwartz McDonald, an expert on markets and consumer recognition of brands; Krista Holt, a damages expert; Barry Guihan, a wax composition expert; Jim Duncan, a collector of Maker's Mark memorabilia; and Thomas Ryan a “bottle closure” expert.

On behalf of Cuervo, the Court heard testimony from Casa Cuervo Chief Executive Officer Juan Domingo Beckmann; Cuervo Production Chief Alfredo Guerrero; Thomas Snell, former vice president of Jose Cuervo; survey expert Robert Klein; marketing expert John Kennard; brand expert Robert Frank; materials expert Robert Iezzi; alcoholic beverages expert Steve Mutkowski; and damages expert Thomas Neches.

Diageo offered testimony from Rob Warren and the Court took various other testimony by deposition. Additionally, the parties submitted post-trial briefs and responses.

II.

As a preliminary matter, the Court must address the precise scope of the 465 trademark Plaintiff asserts in this case. That mark protects a “wax-like coating covering the cap of the bottle and trickling down the neck of the bottle in a freeform irregular pattern.” ⁶ During the first five or so years of this litigation, Maker's Mark's legal arguments referred to rights in a “free-form” wax seal generally, and did not specifically mention the color red, though all its seals are red.⁷ In other words, Maker's Mark appeared to be seeking protection for any dripping wax seal, regardless of color. However, in the months leading up to trial, Maker's Mark narrowed its arguments to assert protection only for a red dripping wax seal. Despite the fact that Maker's Mark owns the separate 813 trademark incorporating the color red on the neck of a whisky bottle, it has never asserted that trademark in this case.⁸ Instead, Maker's Mark's assertion of the color red in the context of a dripping wax seal is based entirely on its continuous and regular use of that color, as one of the many colors permitted under the 465 mark.

Though Defendants argued that the belated focus on “red” prejudiced them, the Court allowed Maker's Mark to assert its rights in a red dripping wax seal because that color is such a fundamental, likely inseparable, element of the mark. Indeed, today's opinion addresses only the red dripping wax seal asserted in this case, and not any other seal potentially protected by the broader 465 mark. The Court declines to address, for instance, the validity or confusion issues concerning any trademark incorporating other colors of dripping wax. Those questions are not raised here because Maker's Mark does not typically use seals of other colors, does not assert protection for seals of other colors, and only challenges Cuervo's use of red dripping wax seals. Additionally, Maker's Mark's focus on red dripping wax actually narrows its trademark interests, rather than expanding them.⁹ Thus, the trademark that the Court refers to throughout this opinion is the Maker's Mark red dripping wax seal.

III.

The first issue the Court will address is the validity of Plaintiff's trademark.

Though the mark has become “incontestable” pursuant to 15 U.S.C. § 1065, that status merely creates a presumption of...