Select Comfort Corp. v. Baxter

• Decision Date: 13 January 2016
• Docket Number: Civil No. 12-2899 (DWF/SER)
• Citation: 156 F.Supp.3d 971
• Parties: Select Comfort Corporation; and Select Comfort SC Corporation, Plaintiffs, v. John Baxter; Dires, LLC d/b/a Personal Touch Beds and Personal Comfort Beds; Digi Craft Agency, LLC; Direct Commerce, LLC d/b/a Personal Touch Beds; Scott Stenzel ; and Craig Miller, Defendants.
• Court: U.S. District Court — District of Minnesota

156 F.Supp.3d 971

Select Comfort Corporation; and Select Comfort SC Corporation, Plaintiffs,

v.John Baxter; Dires, LLC d/b/a Personal Touch Beds and Personal Comfort Beds; Digi Craft Agency, LLC; Direct Commerce, LLC d/b/a Personal Touch Beds; Scott Stenzel ; and Craig Miller, Defendants.

Civil No. 12-2899 (DWF/SER)

United States District Court, D. Minnesota.

Signed January 13, 2016

Andrew S. Hansen, Esq., Cynthia S. Topel, Esq., Dennis E. Hansen, Esq., Elizabeth A. Patton, Esq., and Samuel R. Hellfeld, Esq., Fox Rothschild LLP, counsel for Plaintiffs.

Barbara P. Berens, Esq., Carrie L. Zochert, Esq., and Erin K. Fogarty Lisle, Esq., Berens & Miller, PA, counsel for Defendant John Baxter.

David T. Schultz, Esq., Joseph P. Ceronsky, Esq., and Michael C. McCarthy, Esq., Maslon LLP, counsel for Defendants Dires, LLC, d/b/a Personal Touch Beds and Personal Comfort Beds, Scott Stenzel, and Craig Miller.

Defendant Digi Craft Agency, LLC, pro se.

Defendant Direct Commerce, LLC, d/b/a Personal Touch Beds, pro se.

MEMORANDUM OPINION AND ORDER

DONOVAN W. FRANK, United States District Judge

INTRODUCTION

This matter is before the Court on a Motion for Summary Judgment brought by Defendant Dires, LLC (“Dires” or “Personal Comfort”), Craig Miller (“Miller”), and Scott Stenzel (“Stenzel”) (together, “Dires Defendants”) (Doc. No. 221); a Motion for Summary Judgment brought by Defendant John Baxter (“Baxter”) (Doc. No. 226); and a Motion for Partial Summary Judgment brought by Plaintiffs Select Comfort Corporation (“Select Comfort”) and Select Comfort SC Corporation (“Comfortaire”) (together, “Plaintiffs”) (Doc. No. 233). For the reasons set forth below, the Court grants in part and denies in part the motions.

BACKGROUND

Plaintiffs design, manufacture, and market adjustable air beds¹ and related products. (Doc. No. 239 (“Somers Aff.”) ¶ 2.) Select Comfort markets its products under the “Sleep Number” brand. (Id. ¶ 3.) Sleep Number products are sold in over 450 Sleep Number branded stores, online, and over the phone. (Id. ) Select Comfort is the leading manufacturer of adjustable air beds with a market share over 90%. (Doc. No. 224 (“McCarthy Decl.”) ¶ 2, Ex. A (“Marino Report”) ¶ 15.) Select Comfort owns registered trademarks for “Sleep Number,” “Select Comfort,” and “What's Your Sleep Number.” (Doc. No. 53 (Second Amend. Compl. (“SAC”)) ¶¶ 14-16, Exs. A-C.)

Comfortaire also markets and sells adjustable air beds, marketed under the “Comfortaire” mark. (Doc. No. 237 (“Karr Aff.”) ¶ 2.) Comfortaire is the second largest seller of adjustable air beds, and it sells its products through over 200 retailers, online, and over the phone. (Id. ) Comfortaire owns the registered trademark for “Comfortaire.” (SAC ¶ 17, Ex. D.) Select SC Corporation acquired Comfortaire in January 2013 via a merger. (Id. ¶ 37.) Prior to the merger, Comfortaire sold a line of adjustable air beds that competed with Select SC Corporation's products. Select SC Corporation sued Comfortaire for trademark infringement, and the parties eventually settled. (Id. ¶¶ 38-41.)

Direct Commerce, LLC (“Direct Commerce”) did business from approximately July 2011 to August 2012 and is now in forfeited status. (Doc. No. 236 (“Hansen Aff.”) ¶ 1, Ex. 1 at Answer 2.) Direct Commerce was owned by Digi Craft Agency (“DCA”), whose members were Defendants Stenzel and Baxter, as well as Marc Barriger (who is not a defendant). (Id. ; Hansen Aff. ¶ 3, Ex. 2 (“Stenzel Dep.”) at 26, 48-49; Hansen Aff. ¶ 4, Ex. 3 (“Baxter Dep.”) at 162-63; Hansen Aff. ¶ 5, Ex. 4 (“Barriger Dep.”) at 33.) Direct Commerce sold beds under the “Personal Touch” and “Personal Comfort” brands. (Stenzel Dep. at 138; Baxter Dep. at 30, 190.) Baxter and Stenzel were involved in advertising and website design at Direct Commerce. (Baxter Dep. at 13-14, 32; Stenzel Dep. at 51- 53.) DCA dissolved in February 2013. (Hansen Aff. ¶ 1, Ex. 1 at Answer 2.) Defendants submit evidence that while Direct Commerce and Dires had some common employees, the two companies are separate corporate entities. (Doc. No. 225 (“Cernosky Decl.”) ¶ 3, Ex. 4 at Answer 2.)

Dires is a limited liability company that was formed by Sizewise Rentals, LLC (“Sizewise”), Stenzel, Miller, and Baxter. (Id. ) Baxter is the former Director of Marketing for Dires and was in charge of internet marketing and advertising. (Hansen Aff. ¶ 2, Ex. 7 at Answer 5; Hansen Aff. ¶ 9, Ex. 8 (“Dires 30(b)(6) Dep.”) at 77-78; Hansen Aff. ¶ 7, Ex. 6 (“Baxter Dep. II”) at 15-16; Baxter Dep. at 22, 27, 190).) Baxter also trained salespersons. (Id. ) Stenzel was the Director of Operations at Dires and is now the Director of Marketing and Advertising. (Hansen Aff. ¶ 2, Ex. 7 at Answer 5; Stenzel Dep. at 24-25.) Stenzel has responsibility over the website and advertising. (Baxter Dep. II at 15-16, 68; Hansen Aff. ¶ 2, Ex. 7 at Answer 5.) Miller is a managing member at Dires and since the filing of this lawsuit has had input into advertising. (Hansen Aff. ¶ 10, Ex. 9 (“Miller Dep.”) at 105-06, 166-70; Baxter Dep. II at 15-16.) Miller is also the Chief Manufacturing Officer for Sizewize. (Miller Dep. at 30-33.)

Baxter was an employee of Comfortaire's parent company prior to the merger with Select SC Corporation, and was responsible for developing Comfortaire's online advertising. (Doc. No. 231 (“Zochert Aff.”) ¶ 4, Ex. 3 (“Karr Dep.”) at 65.) In July 1998, Baxter participated in and completed Google's AdWords training program. (Baxter Dep. at 44-47.)² Comfortaire used Select Comfort's trademarks as search terms in Google's AdWords program. (Baxter Dep. at 82-89.) Comfortaire also used “Number Bed” as a search term. (Karr Dep. at 199.) As a result, when a consumer entered a key word search, like “Sleep Number” or “Number Bed,” Comfortaire's ads would appear in the “ads” section of the internet search results, next to Select Comfort's ads. (Cernosky Decl. ¶ 2, Ex. 8 (“Kent Report”) ¶¶ 49-51.)³

Defendants market and sell beds online and over the phone. (Stenzel Dep. at 75.) None of the Defendants have been authorized retailers, distributors, or sellers of Sleep Number or Comfortaire. (Somers Aff. ¶ 4; Karr Aff. ¶ 3.)

On November 16, 2012, Select Comfort sued Dires and Baxter. (Doc. No. 1.) On November 8, 2013, Select Comfort filed a Second Amended Complaint adding Comfortaire as a plaintiff and Miller, Stenzel, Direct Commerce, and DCA as defendants. (Doc. No. 53.)⁴ The following causes of action remain: (1) Federal Trademark Infringement (Count I); (2) Federal Unfair Competition (Count II); (3) Federal Dilution of Trademark (Count III); (4) False Advertising (Count IV); (5) Deceptive Trade Practices (Count V); and (6) Unjust Enrichment (Count IX).⁵ (SAC.)

Defendants deny any unlawful or actionable conduct and assert three counterclaims. Relevant to the present motions, in Counterclaim I, Defendants seek a declaration that the phrase “Number Bed” is descriptive and is incapable of acquiring secondary meaning or functioning as a trademark. In Counterclaim II, Defendants also seek a declaration that the use of “Select Comfort,” “Sleep Number,” and “Comfortaire” as keywords does not infringe Plaintiffs' trademark rights. In Counterclaim III, Defendants seek to cancel two of Select Comfort's trademark registrations because the phrase “Sleep Number” is generic. In addition, Defendants assert several affirmative defenses, including unclean hands.

The parties have filed cross-motions for summary judgment. Plaintiffs seek summary judgment on their trademark infringement, unfair competition, and related state-law claims; on particular elements of its false advertising and related state-law claims; on Defendants' Counterclaims asserting that “Sleep Number” is generic and that “Number Bed” cannot function as a trademark; and on Defendants' “Number Bed” and unclean hands affirmative defenses. Baxter moves for summary judgment on Plaintiffs' trademark infringement and dilution claims, unjust enrichment claim, and any claim founded on successor liability, as well as summary judgment on Counterclaims I and II. The Dires Defendants move for summary judgment on all six of Plaintiffs' claims, as well as any possible claim that one or more of the Dires Defendants may be liable for the conduct of DCA and Direct Commerce. The Dires Defendants also move for summary judgment on Counterclaim I.

DISCUSSION

I. Legal Standard

Summary judgment is appropriate if the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Courts must view the evidence and all reasonable inferences in the light most favorable to the nonmoving party. Weitz Co. v. Lloyd's of London , 574 F.3d 885, 892 (8th Cir.2009). However, “[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed ‘to secure the just, speedy and inexpensive determination of every action.’ ” Celotex Corp. v. Catrett , 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R. Civ. P. 1 ).

The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enter. Bank v. Magna Bank of Mo. , 92 F.3d 743, 747 (8th Cir.1996). The nonmoving party must demonstrate the existence of specific facts in the record that create a genuine issue for trial. Krenik v. Cty. of Le Sueur , 47 F.3d 953, 957 (8th Cir.1995). A party opposing a properly supported motion for summary judgment “must set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

II. Internet and Search Engine Keyword Advertising

Because much of this case involves internet and key-word based advertising as used in internet search engines, the Court will provide a brief summary of how this type of advertising works and...