Nat'l Presto Indus., Inc. v. U.S. Merchants Fin. Grp., Inc., Case No. 18-cv-03321 (SRN/BRT)

• Decision Date: 18 June 2021
• Docket Number: Case No. 18-cv-03321 (SRN/BRT)
• Parties: National Presto Industries, Inc., Plaintiff, v. U.S. Merchants Financial Group, Inc., d/b/a Greenmade, Defendant.
• Court: U.S. District Court — District of Minnesota

National Presto Industries, Inc., Plaintiff,
v.
U.S. Merchants Financial Group, Inc., d/b/a Greenmade, Defendant.

Case No. 18-cv-03321 (SRN/BRT)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

June 18, 2021

MEMORANDUM OPINION AND ORDER

Andrea L. Arndt, Franklin M. Smith, and Yafeez Sohil Fatabhoy, Dickinson Wright PLLC, 2600 West Big Beaver Road, Suite 300, Troy, MI 48084; Christopher Mitchell and John S. Artz, Dickinson Wright PLLC, 350 South Main Street, Suite 300, Ann Arbor, MI 48104; and Sarah M. Stensland, Patterson Thuente Pedersen, P.A., 80 South Eighth Street, Suite 4800, Minneapolis, MN 55402, for Plaintiff.

Christopher K. Larus, George Benson Ashenmacher, and William E. Manske, Robins Kaplan LLP, 800 LaSalle Avenue, Suite 2800, Minneapolis, MN 55402, for Defendant.

SUSAN RICHARD NELSON, United States District Judge

This matter is before the Court on the Cross-Motions for Summary Judgment [Doc. Nos. 240 & 244] and Motions to Exclude Expert Testimony [Doc. Nos. 212, 222, 231, 261] filed by the parties. Based on a review of the files, submissions, and proceedings herein, and for the reasons below, the Court GRANTS in part and DENIES in part Defendant's Motion for Summary Judgment, DENIES Plaintiff's Motion for Partial Summary Judgment, and DEFERS the Motions to Exclude Expert Testimony.

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I. BACKGROUND

For over thirty years, Plaintiff National Presto Industries, Inc. ("Presto") has been the exclusive supplier of parabolic heaters to the Costco Wholesale Corporation ("Costco"). (Decl. of Franklin M. Smith ("Smith Decl.") [Doc. No. 299], Ex. 4 ("Cohen Dep."), at 294, 364-68.) In early 2017, Costco approached Defendant U.S. Merchants Financial Group, Inc. ("U.S. Merchants") to explore whether U.S. Merchants could provide an alternative product to Presto's "HeatDish" heater. (Decl. of William Manske ("Manske Decl.") [Doc. No. 253], Ex. O ("Costco Dep."), at 49.) Lester Cox, Costco's designee at its Rule 30(b)(6) deposition, testified that this request was motivated by the "one-sided" nature of Costco's relationship with Presto. (Id. at 51.) Cox explained that Costco had, at various times, requested accommodations from Presto intended to reduce costs for Costco's members—such as permitting Costco to directly import the HeatDish in order to utilize Costco's "freight and distribution synergies"—but Presto refused its requests. (Id. at 51-52.) Because Costco and Presto had come to a point "where . . . Presto wouldn't accommodate . . . our requests and also indicated that if we wanted to change the program that they wouldn't sell to us," Costco determined to pursue alternative suppliers of parabolic heaters. (Id. at 52.)

For this, Costco approached U.S. Merchants, which in turn contacted an overseas manufacturer to begin developing an alternative parabolic heater. (Manske Decl. [Doc. No. 259], Ex. Q ("Green Dep."), at 73-78.) U.S. Merchants presented its first prototype of its parabolic heater, ultimately dubbed "The Heat Machine," to Costco in June 2017. (Costco Dep. at 71-73.) Costco declined to purchase the prototype. (Id. at 74.) After incorporating

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Costco's feedback, U.S. Merchants presented a second design in March 2018. (Id. at 109-13.) Costco purchased 17,968 units of The Heat Machine, and sold them through its Arizona business centers and warehouses during the 2018-2019 heater season. (Id. at 155; Manske Decl. [Doc. No. 262], Ex. CC¹, at ¶ 12.) During this time, Costco continued to sell the HeatDish outside of Arizona. (See Costco Dep. at 204-05; Manske Decl. [Doc. No. 262], Ex. DD.) Costco did not purchase additional units of The Heat Machine for the 2019-2020 season.² (Costco Dep. at 156.)

Presto brought this lawsuit against U.S. Merchants, alleging that U.S. Merchants infringed Presto's intellectual property rights in the HeatDish. Specifically, Presto alleges that U.S. Merchants violated Presto's trade dress rights in the HeatDish product, packaging, and point-of-sale display. (See generally Compl. [Doc. No. 1].) In addition, Presto asserts claims for false designation of origin under the Lanham Act, 15 U.S.C. § 1125, trademark infringement, infringement of Presto's copyrights in its instruction manuals and packaging, tortious interference with prospective business relations, unfair competition, and false advertising. (Id.) U.S. Merchants moves for summary judgment on all of Presto's claims. (Mot. for Summ. J. [Doc. No. 240].) In turn, Presto moves for summary judgment on its

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copyright infringement claim. (Cross-Mot. for Partial Summ. J. [Doc. No. 244].) The parties have also filed several motions to exclude expert testimony [Doc. Nos. 212, 222, 231, 261].

The following recitation of the record begins with the development process for The Heat Machine, followed by a comparison of The Heat Machine and HeatDish products, packaging, and point-of-sale displays. The Court then examines the products' instruction manuals, and concludes with Presto's proffered evidence of actual consumer confusion caused by The Heat Machine.

A. Development of The Heat Machine

In early 2017, Costco approached U.S. Merchants to explore a "better and less expensive" alternative to the HeatDish. (Costco Dep. at 49, 212.) During the development process, Costco provided feedback on the appearance and functionality of The Heat Machine.³ (Green Dep. at 108-09.) Since Costco sought a replacement for the HeatDish, U.S. Merchants endeavored to create a heater that met or exceeded the HeatDish's features and performance, while maintaining a lower cost. (Id. at 186-87; Costco Dep. at 56-57; Decl. of John Artz ("Artz Decl.") [Doc. No. 250], Ex. 13, at 121.) With respect to The Heat Machine's appearance, Jeff Green, U.S. Merchants' founder and president, testified that Costco requested an "industrial looking" heater. (Green Dep. at 109.) Lester Cox, testifying

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for Costco, explained that "industrial looking" meant something "more robust," and "bigger, better, faster, hotter, thicker gauge." (Costco Dep. at 58.) Although Cox identified the HeatDish's appearance as "best in class" in the parabolic heater market, he testified that the HeatDish's appearance was not entirely "industrial," and that Costco did not tell U.S. Merchants that it wanted the heater to look like the HeatDish. (Id. at 59-60.) During the development process, Costco requested various changes to The Heat Machine's features, and approved its final name, packaging, and point-of-sale display before purchasing the product. (See id. at 174-80.) Cox testified that Costco would not have given its approval if it believed The Heat Machine violated Presto's rights in the HeatDish. (Id.)

Despite Costco's testimony that it did not instruct U.S. Merchants to copy the HeatDish's appearance and did not believe the HeatDish violated Presto's rights, the record is replete with evidence that U.S. Merchants deliberately copied the appearance of the HeatDish. In a May 2017 email from Green to Gary Ojendyk,⁴ Green wrote: "My people will be at the factory in China on Monday who [sic] is going to try and duplicate as close as possible to the Presto unit [sic]." (Smith Decl. [Doc. No. 303], Ex. 42 (all caps omitted); see also Smith Decl. [Doc. Nos. 301 & 306], Ex. 53 at 2 (May 2017 email from Green to U.S. Merchants' manufacturer, stating: "They also want it to look more industrial like what the [Presto] unit looks like."), Ex. 28 (May 2017 email from U.S. Merchants' manufacturer to Green, stating: "Presto Sample will be in my hands over the weekend, and Monday I am

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in China for 7 days between various factories to meet the Factory Engineers, with Presto sample in hand to follow exactly same, with additional features and options . . . .").) In June 2017, Green wrote to U.S. Merchants' manufacturer regarding Costco's requirements for the appearance and functionality of the heater: "With respect to the color of the unit, they [Costco] do 'not' want white, they want it to look industrail [sic], so I would suggest either black or dark gray. Look at the Presto unit and try to keep it in keeping with the way that looks." (Smith Decl. [Doc. No. 306], Ex. 52 (all caps omitted).)

U.S. Merchants sent photographs and a physical model of its first prototype to Costco in June 2017. (Costco Dep. at 71-73.) In October 2017, Costco declined to purchase the unit. Michelle Rado, Costco's purchaser, explained in an email that "[t]he unit didn't give off the same amount of heat as the Heat Dish. . . . There are also significant changes that would need to be made to the design. . . . Most importantly, the price point was too high." (Smith Decl. [Doc. No. 300], Ex. 17, at 2-3.) Rado's email included a list of requested changes, which were largely focused on the heater's functionality but which also included a request for "a textured finish like competition." (Id. at 3.) Subsequently, in December 2017, Green wrote to Ojendyk: "I . . . have asked the factory to put [a new logo] on a new grill to show them. I also asked them to make a grill the same design as Presto to see if Costco would like that design better. . . . I have asked the factory to add a metal medallion to the front of the unit like Presto had." (Smith Decl. [Doc. No. 301], Ex. 30; see also id., Ex. 31 (December 2017 email from Green to Ojendyk, noting: "I received today . . . the revised grill with our new color emblem on it, along with the design like Presto has." (all caps omitted)).)

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In March 2018, U.S. Merchants produced a second model of The Heat Machine. In an effort to meet Costco's price target for The Heat Machine, the second model removed several features (some present in the HeatDish, some that were improvements over the HeatDish). (See Smith Decl. [Doc. No. 300], Ex. 19.) Although Rado expressed concerns with The Heat Machine—noting that it is "about equal to the Presto unit," but "doesn't feel / look as robust"—Costco ultimately proceeded to purchase more than 17,000 units of The Heat Machine to test in its...