Osem Food Industries Ltd. v. Sherwood Foods, Inc.

• Decision Date: 20 November 1990
• Docket Number: 89-3310,Nos. 89-3248,s. 89-3248
• Citation: 917 F.2d 161
• Parties: OSEM FOOD INDUSTRIES LTD., Plaintiff-Appellant, v. SHERWOOD FOODS, INC., Sherwood Brands Inc., Uziel Frydman, Defendants-Appellees. OSEM FOOD INDUSTRIES LTD., Plaintiff-Appellant, v. SHERWOOD FOODS, INC., Sherwood Brands Inc., Uziel Frydman, Defendants-Appellees, and Amir Frydman, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 161

917 F.2d 161

16 U.S.P.Q.2d 1646

OSEM FOOD INDUSTRIES LTD., Plaintiff-Appellant, v. SHERWOOD FOODS, INC., Sherwood Brands Inc., Uziel Frydman,

Defendants-Appellees.

OSEM FOOD INDUSTRIES LTD., Plaintiff-Appellant, v. SHERWOOD FOODS, INC., Sherwood Brands Inc., Uziel Frydman,

Defendants-Appellees,

and

Amir Frydman, Defendant.

Nos. 89-3248, 89-3310.

United States Court of Appeals, Fourth Circuit.

Argued Jan. 8, 1990.

Decided Oct. 25, 1990.

Rehearing and Rehearing En Banc

Denied Nov. 20, 1990.

George Lester Little, Jr., argued (H.C. Roemer, Jr., Thomas E. Graham, Petree, Stockton & Robinson, on brief), Winston-Salem, N.C., for plaintiff-appellant.

Laurence R. Hefter, argued (Robert D. Litowitz, Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C., William D. Spry, Jr., David C. Smith, Allman, Spry, Humphreys, Leggett & Howington, P.A., Winston-Salem, N.C., on brief), for defendants-appellees.

Before WIDENER and SPROUSE, Circuit Judges, and HOFFMAN, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

WIDENER, Circuit Judge:

Osem Food Industries Ltd. (Osem) appeals from the district court's denial of a preliminary injunction to enjoin Sherwood Foods, Inc.'s (Sherwood ¹) continued use of a dehydrated soup package that Osem contends violates 15 U.S.C. Sec. 1125(a) of the Lanham Act. ² Osem argues that the district court erred in not giving effect to a presumption of secondary meaning from Sherwood's admitted copying of Osem's trade dress; that even without the presumption, its trade dress had secondary meaning; that the district court erred in not giving effect to a presumption of likelihood of consumer confusion from Sherwood's deliberate copying; that even if there is no presumption of confusion, the district court erred in not applying the digits of confusion test to the case; that the district court failed to give adequate consideration to evidence of actual confusion; and that the district court incorrectly balanced the harm to the parties and to the public in refusing to issue the preliminary injunction. We are of opinion that the district court did not properly consider the presumption of secondary meaning that arose from Sherwood's admitted copying, and in the same vein did not properly consider the presumption of confusion that arose from that same copying. Thus, we vacate the order appealed from and remand to the district court for it to reconsider its order regarding the preliminary injunction in the light of this opinion.

Osem, an Israeli corporation, manufactures dehydrated soup mixes and, since 1985, has distributed them in the United States. Osem has sold approximately five million of its soup packages in the United States and caused tens of thousands of leaflets advertising the packages to be distributed in the United States. For some time, Sherwood acted as a distributor for Osem. That distribution terminated in a lawsuit, and, in late 1988, Osem learned that Sherwood was distributing competing soup mixes in packages which were nearly identical in color scheme, design and graphics to Osem's packages. Sherwood has since admitted that it developed its first package by copying Osem's packaging. Osem initially brought this action against Sherwood on January 6, 1989, alleging a violation of the Lanham Act based on Sherwood's use of the package which was copied from Osem's package. Sherwood agreed to stop using the challenged package, and the district court entered its consent injunctive order preventing Sherwood from further use of the package. Some time later, Osem learned that Sherwood had slightly revised its copied package and was selling soup in the revised packaging. Sherwood's revisions were to make some color changes on the package. ³ On February 27, 1989, Osem filed a motion for a show cause order and for a preliminary injunction concerning Sherwood's use of its revised package. On April 3, 1989, the district court denied the motion for a preliminary injunction. On August 4, 1989, Osem filed a renewed motion for a preliminary injunction, based on additional evidence, which was denied by the district court on August 16, 1989. Osem appeals from the district court's denial of a preliminary injunction.

Osem's first argument is that the district court erred in not giving effect to the presumption of secondary meaning arising from Sherwood's admitted copying. In M. Kramer Mfg. Co. v. Andrews, 783 F.2d 421, 448 (4th Cir.1986), we held that "evidence of intentional direct copying establishes a prima facie case of secondary meaning sufficient to shift the burden of persuasion to the defendant on that issue." The court went on to describe its action not merely as a shifting of the burden of proof but as a "presumption" upon which a judgment "must issue" in the absence of rebutting proof. 783 F.2d at 448. Although the district court, in the case before us, found the acknowledged copying, it refused to consider the presumption of secondary meaning because the revised package "creates a significantly different overall impression" from Osem's original package. It thus erred when it considered the presumption not to be effective rather than considering the presumption to be effective and taking into consideration any impression it might have in rebuttal, if at all. It is true that at some point, when changes are made to a copy, the copy ceases to be a copy and becomes something original. However, we believe that the changes considered at this stage of this case make the revised package little other than a copy. ⁴

^,

⁵

Next, Osem argues that there should be a presumption of a likelihood of consumer confusion which flows from Sherwood's copying. In Kramer, 783 F.2d at 448 n. 24, we reserved that issue. Whether there is a presumption of likelihood of consumer confusion from proof of intentional copying of trade dress is an issue that has divided the circuits. The Second and Ninth Circuits, for example, have held that a presumption of confusion arises from copying. ⁶ The Third, Seventh, and Eleventh Circuits have held that although copying is a factor to consider, no presumption arises. ⁷ A leading commentator on the subject attributes the presumption to the Second Circuit's analysis in My-T-Fine Corp. v. Samuels, 69 F.2d 76 (2d Cir.1934), and states that it is "an integral part of the fabric of trademark analysis." See McCarthy, Trademarks and Unfair Competition Secs. 23:34-35 (2d ed. 1984). Footnote 24 in Kramer is of like import. In My-T-Fine Corp. v. Samuels, 69 F.2d at 77, the court reasoned:

[t]he plaintiff has proved no more than that the boxes look a good deal alike, and that confusion may well arise; and were it not for the evidence of the defendants' intent to deceive and so to secure the plaintiff's customers, we should scarcely feel justified in interfering at this stage of the cause [on a motion for preliminary injunction]. But where it appears, we think that it has an important procedural result; a late comer who deliberately copies the dress of his competitors already in the field, must at least prove that his effort has been futile. Prima facie the court will treat his opinion so disclosed as expert and will not assume that it was erroneous. He may indeed succeed in showing that it was; that, however bad his purpose, it will fail in execution; if it does, he will win. But such an intent raises a presumption that customers will be deceived.

We agree with that analysis. When a newcomer to the market copies a competitor's trade dress, its intent must be to benefit from the goodwill of the competitor's customers by getting them to believe that the new product is either the same, or originates from the same source as the product whose trade dress was copied. Logic requires, no less than the presumption of secondary meaning from copying, that from such intentional copying arises a presumption that the newcomer is successful and that there is a likelihood of confusion. It would be inconsistent not to require one who tries to deceive customers to prove they have not been deceived. This court, indeed, has previously observed that a "respectable body of authority" has recognized " 'that the second comer has a duty to so name and dress his product as to avoid all likelihood of consumers confusing it with the product of the first comer.' " Amp Inc. v. Foy, 540 F.2d 1181, 1187 (4th Cir.1976), quoting Harold F. Ritchie Inc., v. Chesebrough-Ponds Inc., 281 F.2d 755, 758 (2d Cir.1960). See also Communications Satellite v. Comcet, Inc., 429 F.2d 1245 (4th Cir.1970), cert. denied, 400 U.S. 942, 91 S.Ct. 240, 27 L.Ed.2d 245 (1970).

The district court declined to apply a presumption of confusion from Sherwood's copying. In this it erred. Additionally, it did not discuss the factors considered when considering the issue of likelihood of confusion. See generally Pizzeria Uno Corp. v. Temple, 747 F.2d 1522 (4th...