Schutte Bagclosures Inc. v. Kwik Lok Corp.

• Decision Date: 14 June 2016
• Docket Number: 12-cv-5541 (JGK)
• Citation: 193 F.Supp.3d 245
• Parties: SCHUTTE BAGCLOSURES INC., Plaintiff, v. KWIK LOK CORPORATION, Defendant. Kwik Lok Corporation, Counterclaim Plaintiff v. Schutte Bagclosures, Inc., and Schutte Bagclosures B.V., Counterclaim, Defendants.
• Court: U.S. District Court — Southern District of New York

193 F.Supp.3d 245

SCHUTTE BAGCLOSURES INC., Plaintiff,

v.KWIK LOK CORPORATION, Defendant.

Kwik Lok Corporation, Counterclaim Plaintiff

v.Schutte Bagclosures, Inc., and Schutte Bagclosures B.V., Counterclaim, Defendants.

12-cv-5541 (JGK)

United States District Court, S.D. New York.

Signed June 14, 2016

Carl Maria Reinier Van Der Zandt, Marc Schuyler Reiner, Hand Baldachin & Amburgey LLP, Sherli Furst, Nixon Peabody LLP, New York, NY, for Plaintiff/Counterclaim Defendants.

Brian McQuillen, Andrea Louise Christensen, Gregory Paul Gulia, Jordana Ayala Garellek, Robert Terry Parker, Sarah Peyronnel, Vanessa C. Hew, Duane Morris, LLP, New York, NY, Alison Marie Haddock, Duane Morris LLP, Atlanta, GA, Kevin S. Costanza, Seed IP Law Group PLLC, Seattle, WA, for Defendant/Counterclaim Plaintiff.

OPINION AND ORDER

JOHN G. KOELTL, District Judge

This case is about small plastic closures that are used to close bags of pastries, bread, and fruit. Kwik Lok Corporation ("Kwik Lok"), a manufacturer of bag closures, has had a long and successful history in the bag closure industry in the United States. Schutte Bagclosures, Inc. ("Schutte, Inc."), an American subsidiary of Schutte Bagclosures B.V. ("Schutte B.V."), a Dutch company that has sold similar plastic closures in Europe, is interested in entering the bag closure market in the United States and brought this action, seeking a declaration that its products, known as Clipps G, do not infringe Kwik Lok's intellectual property in the Kwik Lok bag closures. In addition to a declaration of non-infringement, Schutte, Inc., seeks a declaration of non-dilution, a declaration of invalidity, and order of cancellation of Kwik Lok's U.S. Trademark Registration No. 1,972,043 (" '043 Registration") pursuant to 15 U.S.C. § 1119.

In response, Kwik Lok filed counterclaims alleging that Schutte, Inc. and its corporate parent Schutte B.V. (referred to collectively as "Schutte") infringed Kwik Lok's exclusive trade dress rights which are protected under the '043 Registration as well as unregistered trade dress rights. Kwik Lok brought claims under the Lanham Act for trade dress infringement, unfair competition, and trade dress dilution, see 15 U.S.C. §§ 1114(1), 1125(a), 1125(c)(1), as well as state law claims for common law unfair competition and injury to business reputation under New York General Business Law § 360–1. The parties asserted several other claims and defenses that they voluntarily withdrew before proceeding to trial. See generally Schutte Bagclosures Inc. v. Kwik Lok Corp., 48 F.Supp.3d 675 (S.D.N.Y.2014).

Based on the Findings of Fact and Conclusions of Law set forth below, judgment is entered in favor of Schutte B.V. and Schutte, Inc. The Kwik Lok '043 Registration and related Product Configurations are functional because the features of the asserted trade dress configurations "affect[ ] the cost or quality of the article." TrafFix Devices v. Mktg. Displays, 532 U.S. 23, 32, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001) (internal citation omitted). The products' shape affects how the closures are produced, stored, and how the closures work in bag closing machines. The products' configuration affects how efficiently the closure serves its purpose of closing bags for various forms of merchandise. Permitting Kwik Lok to maintain property rights in the closure design would negatively impact the competition that the functionality doctrine aims to protect. See id. at 29, 121 S.Ct. 1255 ; Sweet St. Desserts, Inc. v. Chudleigh's Ltd., 69 F.Supp.3d 530, 533 (E.D.Pa.2014), appeal filed, (3d Cir. Mar. 4, 2015).¹

I. BACKGROUND

The main legal issue in this case is whether Kwik Lok can assert trade dress protection in the design of certain bag closure products. Schutte argued at trial that the shape of Kwik Lok's bag closure products that are covered by the '043 Registration and similar designs are functional and is not entitled to trade dress protection. The scope of the '043 Registration and whether the Registration covers Kwik Lok plastic bag closure products with similar or identical features, is a threshold issue that determines the burden of proof on Schutte's functionality argument.

During a five-day bench trial, the parties presented the testimony of the following witnesses: Wout Abbenhuis, the chief executive of Schutte B.V.; Frank van Drunen, the technology and innovation manager for Schutte B.V.; Dr. Paul Koch, an expert in plastics engineering who explained the mechanical operation of the Kwik Lok bag-closing machine, how the forces of the machine affect a plastic closure, and his conclusions on the viability of alternative closure designs; the video testimony of Jerre H. Paxton, the President of Kwik Lok who is now deceased; Hal Miller, a former employee of Kwik Lok who served as the Vice President of Sales and testified about Kwik Lok's distribution channels and advertising practices; Roger Keith Hart, the chief engineer at Kwik Lok who testified about the development of the Kwik Lok closures; Professor Barton Beebe who testified about the procedures at the Patent and Trademark Office related to Kwik Lok's application for a trademark in the 1990s; Richard Miksanek, a retired distributor of Kwik Lok machinery and products who testified as an expert in the bag closure industry and who provided his views on the similarities between Kwik Lok's and Schutte's products and information about how Kwik Lok's products are sold and distributed; Cooper Woodring, an industrial product designer who developed alternative closure designs and testified about the feasibility of production of these alternative designs. The parties also introduced numerous physical and documentary exhibits.

Having assessed the credibility of the witnesses and considered the evidentiary record, the Court makes the following Findings of Fact and reaches the following Conclusions of Law.

II. FINDINGS OF FACT

A.

1. The most common bag closures used by the food industry are wire-tie, tape, and the reusable plastic closures that are at issue in this litigation, which are most commonly used by bakeries. Paxton Dep. Vol. I at 86.

2. For more than 50 years, Kwik Lok has been a leading manufacturer, distributor, and seller of bag closure products. KL3 at KL0008020-22.

3. Kwik Lok is the only company in the United States that produces and sells re-usable sheet plastic closures that run through an automatic closing machine. Trial Transcript ("Tr.") 28, 305. Most bag closure products are applied in automated and semi-automated fashion by closing machines that are able to bag up to 6,600 bags per hour. SB13; Tr. 32.

4. The best-selling bag closing machine is the 872XLS automatic bag closing machine ("872 machine"). SB4 at KL0001276; Paxton Dep. Vol. I. at 261. The 872 machine has a lok track that is designed to feed closures from a reel onto an assembly line of bags running on a conveyor belt. The 872 machine seals the bags, removes the closures from a large strip of closures, and attaches the closure to the mouth of bag. Tr. 415; KL227 at KL001413-18. Kwik Lok also manufactures other models of automatic bag closing machines that are compatible with different closures. See generally KL227.

B.

5. The first bag closure product created by Floyd Paxton, the founder of Kwik Lok, was a hand-applied closure made in the early 1950s. Tr. 410.

6. In 1962, Kwik Lok introduced the first bag closure that was designed to work in an automatic bag closure machine, the J-series closure. The J-series was the first closure that was not hand applied. Tr. 414; KL411.

7. Closures are made from an extruded sheet of plastic that is slit into a specified width. The strip of plastic is then coiled up and then uncoiled to run through a die cutting machine that stamps the desired closure shape. Tr. 410-411.

8. Kwik Lok is the owner of a U.S. trademark registration, the '043 Registration, which is a graphic rendering of a bag closure for "plastic closures for bags" in International Class 20. Tr. 448. That graphic rendering is depicted below. SB2.

9. Kwik Lok has asserted the following features of the trade dress in the '043 Registration: square or slightly rectangular three-dimensional configuration of the perimeter of the plastic closure that includes chamfers or beveled portions on each corner and a beveled triangular slot opening at the center of one side. Tr. 417, 448, 530.² 10. Kwik Lok filed the application for the '043 Registration in May 1990. The application, Application No. 74/055742 ("'742 Application"), was accepted for registration by the Patent and Trademark Office ("PTO") in 1996. Tr. 337.

11. The '742 Application also included a specimen of use, known as the J-Series, an example of how the asserted trade dress was used in commerce. KL811. Kwik Lok submitted additional specimens, the W-Series and Y-Series closures, when it renewed its registration in 2001, and the J-series closure when it renewed its registration in 2006. KL808; KL821; KL 822; Tr. 353.³

12. The '043 Registration, as accepted by the PTO, included specimens of closures that were hand-applied as well as specimens of closures that were connected together in strips for automated bag application. Tr. 353:1-355:6; KL808; KL821; KL822.

13. Although Kwik Lok has distributed several slight variations of Kwik Lok's bag closure products, these products are substantially the same shape as the closure in the '043 Registration. Tr. 412, 414, 448-449.

14. Kwik Lok's claimed trade dress in this litigation, which is referred to in the pleadings as "the Beveled and Notched Kwik Lok Product Configuration," includes thirteen different series of closures, of which the "J-NRP" or Non-Residue Producing series of closures is by far the best selling. SB4; Paxton Dep. Vol. I at 122-28.

15. The J-NRP series of closures was developed in response to a problem with the webbing of other J-series closures. The J-NRP closure, illustrated below, was designed to minimize the production of residue. Tr. 420-26.

16. The J-NRP closure can be...