Max Rack, Inc. v. Core Health & Fitness, LLC

• Citation: 40 F.4th 454
• Decision Date: 14 July 2022
• Docket Number: s. 20-3598/3600
• Parties: MAX RACK, INC., Plaintiff-Appellee/Cross-Appellant, v. CORE HEALTH & FITNESS, LLC, Defendant-Appellant/Cross-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

40 F.4th 454

MAX RACK, INC., Plaintiff-Appellee/Cross-Appellant,

v.CORE HEALTH & FITNESS, LLC, Defendant-Appellant/Cross-Appellee.

Nos. 20-3598/3600

United States Court of Appeals, Sixth Circuit.

Argued: July 28, 2021

Decided and Filed: July 14, 2022

ARGUED: Robert Collings Little, BUCHALTER, Los Angeles, California, for Appellant/Cross-Appellee. Matthew J. Schonauer, SCHONAUER LAW LLC, Columbus, Ohio, for Appellee/Cross-Appellant. ON BRIEF: Robert Collings Little, C. Dennis Loomis, BUCHALTER, Los Angeles, California, for Appellant/Cross-Appellee. Matthew J. Schonauer, SCHONAUER LAW LLC, Columbus, Ohio, for Appellee/Cross-Appellant.

Before: COLE, ROGERS, and MURPHY, Circuit Judges.

MURPHY, J., delivered the opinion of the court in which ROGERS, J., joined, and COLE, J., joined in part. COLE, J. (pp. –––– – ––––), delivered a separate opinion concurring in part and dissenting in part.

MURPHY, Circuit Judge.

Trademarks allow consumers to distinguish one product from another quickly and cheaply. But they could not perform this signaling function if a trademark owner's competitors could freely use the owner's mark to sell their (potentially inferior) goods. So the Lanham Act has long prohibited trademark infringement and given trademark owners a variety of remedies to combat it. See 15 U.S.C. §§ 1114(1), 1117(a), 1125(a)(1)(A). This case raises several challenging questions under the Lanham Act.

Steve Skilken, the owner of Max Rack, Inc., invented a piece of gym equipment that he named the "Max Rack." For years, his company sold Max Racks through a licensing agreement with Core Health & Fitness, LLC. When Max Rack's last patent expired, however, Core Health decided to compete against Max Rack by selling an identical machine under a new name—the "Freedom Rack." Max Rack alleged that Core Health committed two types of infringement during its transition to the Freedom Rack: it continued to sell "Max Racks" without authorization, and it attempted to sell Freedom Racks by free riding off the "Max Rack" name. A jury agreed, awarding Max Rack $1 million in damages and $250,000 in Core Health's profits. The district court upheld the jury's liability finding, doubled its profits award to $500,000, and granted attorney's fees to Max Rack. But the court overturned Max Rack's damages award. Both sides have appealed, and we must address several liability and remedy issues. All told, we affirm in part and reverse in part.

I

A

Many avid weightlifters prefer to use free weights (think of a bench press with a standard barbell) over weightlifting machines (think of a chest-press machine) because free weights allow for more natural motions and help weightlifters develop better balance. Yet free weights also pose greater dangers. Weightlifting machines are designed to ensure that weights will come safely to rest when lifters can no longer hold them. If, by contrast, lifters without a "spotter" can no longer hold free weights, the weights can come crashing down and cause serious injury.

Inventors thus have long sought to develop equipment that combines the freedom of free weights with the safety of weightlifting machines. Take a classic "Smith Machine":

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Article, R.40-10, PageID 695. It attaches the ends of an Olympic-size barbell to two vertical "guide rods." Skilken Tr., R.99, Page ID 2202. The guide rods are themselves connected to two sturdy vertical posts that stand eight or so feet in height and six or so feet apart. The barbell moves up and down along the guide rods. Safety latches on both sides of this barbell can connect to any in a series of paired hooks (or catches, depending on the model) placed from top to bottom on the vertical posts. The posts hold the barbell on these hooks when it is not in use. Weightlifters can perform exercises like squats with this machine by lifting the barbell off the posts and twisting it with their wrists to separate the barbell's safety latches from the hooks. When they complete a set (or can no longer hold the weight), they need only twist the barbell until its latches reconnect with the closest pair of hooks. The vertical posts will again hold the barbell's weight.

Steve Skilken thought that he could make a machine with similar safety features but that better simulated the use of free weights. Born and raised in Columbus, Skilken was an athlete at The Ohio State University and continued to exercise after his graduation. While lifting at a local gym, a friend introduced him to a Smith Machine. Skilken soon came up with an idea to improve on its design. A Smith Machine allows the barbell to move only vertically (up and down), not horizontally (forward or backward). But when lifters use free weights to do exercises like lunges, the barbell will often move both up and down and forward and backward.

In the late 1980s and early 1990s, Skilken spent significant time designing a machine that allowed a barbell to move both ways. His efforts resulted in the "Max Rack." The patent for this machine contained a picture of its design:

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Patent, R.93-5, PageID 1522. In later years after significant product development, a commercially available "Max Rack" looked like this:

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Website, R.93-3, PageID 1519.

Like the Smith Machine, Skilken's design connects each side of a standard barbell to two vertical guide rods. Unlike the Smith Machine, the Max Rack has two sets of vertical posts, one in the front and the other a few feet behind. The Max Rack connects the vertical guide rods attached to the barbell to horizontal guide rods that run along the top and bottom of the front and back posts. The vertical rods can move forward and backward along these horizontal rods. This design permits the barbell that holds the weights to move not just up and down along the vertical rods, but also forward and backward along the horizontal ones. The Max Rack thus allows lifters to perform more exercises with the barbell and creates a closer feel to traditional free weights.

In 1997, Skilken's company (which he also named "Max Rack") received its first patent on the machine and registered the "Max Rack" trademark. By 2002, however, the Max Rack remained a relatively unknown piece of gym equipment. Kirt Moritz joined the company to take over marketing efforts. Four years later, the company had spent over $1 million developing and promoting the product. Among its promotional efforts, Max Rack advertised the machine on the internet, in magazines and trade journals, through late-night infomercials, and at trade shows.

These efforts began to pay off. Professional sports teams (like the Green Bay Packers) and universities (like Ohio State) added Max Racks to their weight rooms. The sales of Max Racks also continued to increase from year to year. The company sold only 25 Max Racks in 1999. By 2005, its annual sales had increased to 84. During these years, it sold a total of 365 Max Racks.

In 2005, Star Trac Strength, Inc., approached Skilken about teaming up to grow Max Rack sales. Early the next year, Max Rack and Star Trac entered into a licensing agreement. Star Trac received the exclusive right to make and distribute the Max Rack. In exchange, it agreed to pay Max Rack a royalty of $120 per unit sold and to take over marketing efforts. The agreement would continue until the expiration of the last Max Rack patent, at which point either party could opt out.

Financial troubles hit Star Trac four years later. These troubles led the two companies to sign an "addendum" to their agreement in 2010. Max Rack agreed to accept a several-month delay in the payment of some $44,000 in royalties. Star Trac agreed to pay the $120 royalty in perpetuity (not just until the last patent's expiration). Soon thereafter, Core Health bought Star Trac's assets, including its licensing agreements. As part of its due diligence, Core Health reviewed this addendum. It did not believe that courts would enforce the requirement to pay royalties forever because of caselaw barring patent holders from seeking royalties after their patent's expiration. Core Health did not inform Max Rack of this belief.

Max Rack's relationship with Core Health prospered for several years. From 2006 to 2015, Star Trac and Core Health sold over 5,300 Max Racks under the licensing agreement. Max Rack received over $640,000 in royalties.

Things changed in October 2015. Core Health sent Max Rack a letter stating its intent to get out of the agreement. The last patent on the machine would expire on November 21. Core Health did not plan to use the "Max Rack" mark on, or pay royalties for, machines made after that date. The agreement did, however, include a six-month window for Core Health to sell off remaining "Max Rack" machines that Core Health had started manufacturing before the agreement's expiration (as long as it paid royalties to Max Rack).

B

Going forward, Core Health planned to make an identical machine using a new trademark: the "Freedom Rack." Max Rack challenged the way in which Core Health executed this change. Max Rack had concerns both with Core Health's marketing and with its manufacturing.

1. Max Rack contended that Core Health did not stop using the Max Rack trademark in its marketing quickly enough. Core Health's former vice president of marketing could not remember taking any action between July and December 2015 to change to the Freedom Rack mark, even though switching a brand name can take up to two months. Emails suggest that Core Health waited until over a month after the agreement's expiration to update its website and other marketing materials. In January 2016, a marketing team attempted to scrub all marketing materials of the old mark. This review took two weeks.

But the employees did not catch everything. Max Rack's Kirt Moritz claimed that, for years, he would search Google for "Max Rack" and get back "hits" in which this mark was used with the Freedom Rack. He kept a record of one search from mid-2016. This search returned a link to Core Health's website with a caption underneath...