Minnesota Pet Breeders, Inc. v. Schell & Kampeter, Inc.

• Decision Date: 06 December 1994
• Docket Number: No. 93-4134,93-4134
• Citation: 41 F.3d 1242
• Parties: MINNESOTA PET BREEDERS, INC., Plaintiff-Appellant, v. SCHELL & KAMPETER, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1242

41 F.3d 1242

33 U.S.P.Q.2d 1140

MINNESOTA PET BREEDERS, INC., Plaintiff-Appellant, v. SCHELL & KAMPETER, INC., Defendant-Appellee.

No. 93-4134.

United States Court of Appeals,

Eighth Circuit.

Submitted June 17, 1994.

Decided Dec. 6, 1994.

Craig A. Goudy, Minneapolis, MN, argued (Orrin Haugen and Eric Haugen, on brief), for appellant.

Lionel K. Lucchesi, St. Louis, MO, argued (Michael Kovac and M. Lee Gerdelman, on brief), for appellee.

Before BOWMAN and LOKEN, Circuit Judges, and STEVENS, ^* District Judge.

LOKEN, Circuit Judge.

This appeal poses the question, is the owner of a registered trademark entitled to recover a willful infringer's profits from a trade area where the owner does not compete. The governing statute is Sec. 35(a) of the Lanham Act, 15 U.S.C. Sec. 1117(a). The district court ¹ held that the trademark owner must prove actual market penetration of a geographic area to recover an infringer's profits. The court therefore granted summary judgment dismissing Minnesota Pet-Breeders, Inc.'s ("MPB"), claim for an accounting of Schell & Kampeter, Inc.'s ("S & K"), profits. Although we conclude that the district court construed the Lanham Act's equitable remedies too restrictively, on the facts of this case we affirm.

I.

We review the judgment in favor of S & K in accordance with our well-established standards for reviewing a district court's grant of summary judgment. See, e.g., Woodsmith Publishing Co. v. Meredith Corp., 904 F.2d 1244, 1247 (8th Cir.1990).

MPB manufactures dry pet food in Glyndon, Minnesota. MPB began selling pet food under the brand name "PRO-DIET" in 1980 and was granted federal registration of the trademark "PRO-DIET" in January 1987. MPB's annual sales of "PRO-DIET" pet foods rose to a peak of $70,380 in 1989 and then declined to $24,203 in 1992. Essentially all of those sales were in the States of Minnesota, North Dakota, and South Dakota.

S & K is a Missouri company that sells dry pet food under the brand name "NUTRA-NUGGETS." In late 1986 or early 1987, S & K added the word "ProDiet" to its existing "NUTRA-NUGGETS" pet food labels. When it learned of MPB's newly-registered mark, S & K unsuccessfully attempted to purchase the mark from MPB and then made a "conscious decision" to continue using the "NUTRA-NUGGETS ProDiet" packaging and labels. S & K's president testified during discovery, "no Minnesota milk farmer is going to tell us what name we can use."

No doubt advised of the risk of trademark infringement liability, S & K rather quickly began to phase out its use of the word "ProDiet." It did this in stages--moving first to the label "NUTRA-NUGGETS Professional Diet" and then to the label "NUTRA-NUGGETS Professional." MPB alleges that S & K stretched out this transition period to maximize its wrongful use of the "ProDiet" mark. In addition, MPB notes that S & K failed to change its Uniform Product Code designations and invoicing codes, thus causing customers to equate the new "NUTRA-NUGGETS Professional Diet" and "NUTRA-NUGGETS Professional" products with the prior infringing "NUTRA-NUGGETS ProDiet" products. S & K sold $663,882 of "NUTRA-NUGGETS ProDiet" products in 1987 and 1988, and $6,649,606 of "NUTRA-NUGGETS Professional Diet" products from 1987 to 1990, when its transition to the admittedly non-infringing "NUTRA-NUGGETS Professional" mark was completed. It is undisputed that S & K did not sell any "NUTRA-NUGGETS ProDiet" or "NUTRA-NUGGETS Professional Diet" products in Minnesota, North Dakota or South Dakota, the only States in which MPB sold "PRO-DIET" products.

In May 1990, MPB commenced this action, alleging willful infringement of its registered "PRO-DIET" trademark. Among other relief, MPB sought an injunction and an accounting of S & K's profits from its sales of "NUTRA-NUGGETS ProDiet" and "NUTRA-NUGGETS Professional Diet" products. After extensive discovery, S & K moved for summary judgment on issues of available remedy. With regard to injunctive relief, the district court concluded that genuine issues of material fact precluded summary judgment, such as likelihood of customer confusion and whether S & K has voluntarily ceased using an infringing mark. However, the court granted partial summary judgment dismissing MPB's claim to recover S & K's profits, 843 F.Supp. 506. The court held that a trademark owner may recover an infringer's profits under the Lanham Act only from trade areas where the owner's trademarked products have achieved "actual market penetration," the test we applied for awarding monetary relief in Sweetarts v. Sunline, Inc., 380 F.2d 923, 929 (8th Cir.1967) (Sweetarts I ); Sweetarts v. Sunline, Inc., 436 F.2d 705, 708 (8th Cir.1971) (Sweetarts II ); and Truck Equip. Serv. Co. v. Fruehauf Corp., 536 F.2d 1210, 1221 (8th Cir.), cert. denied, 429 U.S. 861, 97 S.Ct. 164, 50 L.Ed.2d 139 (1976). On appeal, MPB concedes that it cannot satisfy this test; it argues that the district court erred in applying the test to a case of willful infringement of a registered mark.

II.

Following the district court's grant of partial summary judgment, MPB voluntarily dismissed all its remaining claims for the purpose of making the district court's profits ruling final and appealable. If MPB took this action assuming that it could later revive its claims for other relief, it has badly miscalculated.

When entered, the district court's profits order did not resolve all of MPB's claims and therefore was not appealable absent a Fed.R.Civ.P. 54(b) determination. A Rule 54(b) determination would have been an abuse of the district court's discretion--the rejection of one form of Lanham Act equitable relief, an accounting of profits, should not be appealed until the court has resolved whether MPB is entitled to Lanham Act injunctive relief. Compare Harriscom Svenska AB v. Harris Corp., 947 F.2d 627 (2d Cir.1991). That being so, MPB may not evade the final judgment principle and end-run Rule 54(b) by taking a tongue-in-cheek dismissal of its remaining claims. Those claims must be deemed dismissed with prejudice. As we discuss below, this significantly affects our disposition of the profits issue.

III.

Although this appeal involves only one type of Lanham Act relief, an accounting of an infringer's profits from a geographic area where the trademarked products do not compete, it is useful to frame the issue in its broader, historical context.

A.

Before passage of the Lanham Act in 1946, federal trademark law did not confer greater rights than existed at common law. Applying the common law of trademarks, the Supreme Court decided two landmark cases involving an infringing use in a geographic area where the trademark owner's products were not sold. The Court held that the owner of the "senior" common law mark may not oust the good faith user of a "junior" infringing mark from a local market remote from the senior user's trade area. See United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141 (1918); Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L.Ed. 713 (1916). This came to be known as the Tea Rose-Rectanus doctrine. Its application typically raises two fact-intensive issues--whether the junior user acted in good faith, and whether its infringing use was limited to a remote geographical area. See generally 3 J. Thomas McCarthy, McCarthy on Trademarks & Unfair Competition ch. 26 (3d ed. 1992).

Here, the district court relied upon Eighth Circuit cases that applied the Tea Rose-Rectanus doctrine. Sweetarts was a common law trademark case. In the first appeal, we held that defendant, the junior user, acted in good faith and therefore plaintiff, owner of the senior common law mark, had no right to protection in geographic areas independently developed by defendant. We remanded for findings on this geographic issue, stating that plaintiff must prove "market penetration ... significant enough to pose the real likelihood of [customer] confusion ... between the products of plaintiff and the products of defendants." Sweetarts I, 380 F.2d at 929. In the second appeal, we held that plaintiff had failed to prove sufficient market penetration "anywhere but in its principal market area of Washington, Oregon and California." Sweetarts II, 436 F.2d at 711.

Fruehauf was a Lanham Act suit to remedy unfair competition, namely, defendant's copying of plaintiff's unregistered trade dress (product design). The district court awarded plaintiff twenty percent of defendant's profits from sales in plaintiff's trade area, and plaintiff appealed. We held (i) that Sweetarts I limited the "scope of protection" accorded plaintiff to its "geographical area of actual product market penetration," but (ii) that plaintiff was entitled to an accounting for all of defendant's profits in that area as a necessary deterrent to defendant's willful, bad faith infringement. 536 F.2d at 1221-23.

Applying Sweetarts and Fruehauf, the district court held as a matter of law that MPB may only recover profits from S & K's infringing sales in MPB's area of "actual market penetration," Minnesota, North Dakota, and South Dakota. However, this common law test may not be borrowed without considering the fact that MPB owns a federally registered trademark. Federal registration under the Lanham Act gives the trademark owner a nationwide right to protection. In this respect, the Lanham Act partially overruled the Tea Rose-Rectanus doctrine ²--the owner of a mark registered under the Lanham Act, by expanding to a new trade area, may force any subsequent junior user to stop using an infringing mark in that area, even if the junior user adopted its mark in complete good faith. See Park 'N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 200, 105 S.Ct. 658, 664-65, 83 L.Ed.2d 582 (1985). Sweetarts and Fruehauf did not involve plaintiffs who possessed this right derived from Lanham Act registration.

B.

The Tea Rose-Rectanus doctrine denied a common law...