Spiral Direct, Inc. v. Basic Sports Apparel, Inc.

• Decision Date: 12 December 2017
• Docket Number: Case No: 6:15–cv–641–Orl–28TBS
• Parties: SPIRAL DIRECT, INC. and Spiral Direct, Ltd., Plaintiffs, v. BASIC SPORTS APPAREL, INC., Defendant.
• Court: U.S. District Court — Middle District of Florida

293 F.Supp.3d 1334

SPIRAL DIRECT, INC. and Spiral Direct, Ltd., Plaintiffs,

v.BASIC SPORTS APPAREL, INC., Defendant.

Case No: 6:15–cv–641–Orl–28TBS

United States District Court, M.D. Florida, Orlando Division.

Signed December 12, 2017

Jill S. Riola, Carlton Fields Jorden Burt, PA, David E. Cannella, Holland & Knight, LLP—Orlando, Orlando, FL, for Plaintiffs.

Edmund J. Gegan, Gegan Law Office, Tampa, FL, for Defendant.

ORDER

JOHN ANTOON II, United States District Judge

Two families own and manage the apparel companies involved in this trademark infringement lawsuit. Each company sells its garments in the United States under the brand name "Spiral," and the instant action stems from the rights to use that "Spiral" name. The case is now before the Court following a bench trial, and this Order contains the findings of fact and conclusions of law required by Federal Rule of Civil Procedure 52.

I. Background and Procedural History

Plaintiffs Spiral Direct, Inc. (Spiral US), a Florida corporation established in 2013, and Spiral Direct, Ltd. (Spiral UK), a British limited liability company established in 1999 (collectively Spiral Direct), are related companies managed by brothers Sohail and Shoaib Ghayur¹ that manufacture and sell "Gothic" and "heavy metal" style clothing under the name "Spiral." Defendant Basic Sports Apparel (Basic), which is owned by Nadia Chowaiki and managed by her two sons, Hilel and David Chowaiki, manufactures and sells outdoor and athletic apparel under the brand name "Spiral."

In 1997, Basic applied to the United States Patent and Trademark Office (USPTO) for trademark registration of "Spiral" (the Basic Mark), and the USPTO granted that registration on January 19, 1999. At some point, Basic learned of Spiral Direct's use of the Basic Mark, and on January 22, 2015, Basic's attorney sent Spiral Direct a cease-and-desist letter, demanding that Spiral Direct discontinue its use of the Basic Mark and threatening litigation. Spiral Direct then filed this lawsuit against Basic on April 22, 2015.

In its First Amended Complaint, Spiral Direct alleges seven claims. It seeks a declaratory judgment: of non-infringement (Count I); that Basic's assertion of trademark infringement is barred by laches (Count II); and that Basic's trademark is invalid due to abandonment (Count III) and fraud on the USPTO (Count IV).

(First Am. Compl., Doc. 16, at 9–11). Additionally, Spiral Direct asserts several trademark infringement claims rooted in its alleged "prior use" of the Spiral mark: unfair competition under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (Count V); unfair competition under the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) (Count VI); and Florida common law trademark infringement (Count VII). (Id. at 12–14). Although Spiral Direct originally sought monetary relief, it withdrew any claim for monetary relief during trial. (Trial Tr. Vol. 1 at 249).²

In response to Spiral Direct's Amended Complaint, Basic filed four counterclaims: federal trademark infringement (Counts I and II); unfair competition under FDUTPA (Count III); and Florida common law trademark infringement and unfair competition (Count IV). (Answer Doc. 39, at 12–16) Basic sought treble monetary damages, Spiral Direct's profits, and a permanent injunction preventing Spiral Direct from using the Basic Mark. (Id. at 16–17).

Prior to trial, both sides moved for summary judgment. (Doc. 49 & 67). Spiral Direct sought judgment on all of Basic's claims under the doctrine of judicial estoppel, claiming that Basic failed to disclose this lawsuit as an asset in a prior bankruptcy proceeding. (Doc. 49). The Court granted the motion insofar as it sought to prevent Basic from recovering monetary damages against Spiral Direct but denied the motion to the extent it sought judgment on Basic's claims for injunctive relief. (Order, Doc. 99). And the Court granted Basic's motion for summary judgment on Spiral Direct's Count II—laches—but otherwise denied it. (Order, Doc. 124). The case proceeded to a four-day bench trial on the remaining issues.

II. Trial Testimony and Findings of Fact

A. Spiral Direct

In 1990, before Shoaib and Sohail created Spiral UK and Spiral US, they, along with Shoaib's brother-in-law, M.N. Alam, created Spiral Designs Partnership (Spiral Designs), which sold clothing under the name "Spiral." (Trial Tr. Vol. 1 at 25, 29–30). Spiral Designs' first trademark was typed in an oval with a stylized typeface (SD Mark). (Id. at 29–30; Ex. 1).^{3 ,4}

Spiral Designs manufactured several categories of goods, including t-shirts, long-sleeved t-shirts, hooded sweatshirts, women's garments, and accessories. (Trial Tr. Vol. 1 at 24, 27–28, 30). Before Spiral Designs began to sell its goods in the United States, from 1990 to 1993 its products consisted of t-shirts depicting photographs of musical artists—Metallica or Michael Jackson, for example—to which Spiral Designs would affix a "hangtag" bearing the SD Mark to the sewn-in neck label of the t-shirt, which bore a third-party t-shirt manufacturer's name. (Id. at 48–49). Thus, during that time, the hangtag was the only indicator that the shirt was a "Spiral" brand shirt. (Id. at 48).

By the time Spiral Designs began selling in the United States in 1993, it was creating original artwork for its t-shirts. (Id. at 160–61). Also in 1993, Spiral Designs began to import black t-shirts from Pakistan that came with sewn-in labels bearing the SD Mark. (Id. at 48–49, 113, 206). Thus, some but not all of the black t-shirts sold by Spiral Designs had sewn-in labels bearing the SD Mark in addition to hangtags. (Id. at 48–49, 100, 163). But t-shirts in other colors did not have sewn-in SD Mark labels and came only with the hangtag displaying the SD Mark. In 1995, Spiral Designs began to import a "natural" t-shirt with sewn-in tags bearing the SD Mark. (Id. at 206). Eventually, Spiral Designs imported various other products with sewn-in labels bearing the SD Mark. (Id. at 207–08).

B. Spiral Designs' Catalogs

Spiral Designs offered its products for sale through catalogs with the SD Mark displayed on the cover. (Id. at 35–37; see Exs. 50, 51, & 52). Inside the catalog, Spiral Designs offered many products—including t-shirts—in themed groupings, but none of the interior catalog pages introduced in evidence displayed the SD Mark. (See Exs. 50, 51, & 52). The title of each theme—for example, "Alienz," "Tribal," "Tupac Shakur," "Looney Tunes," "Liquid Blue," "Fantasy," or "The Simpsons"—appeared at the top of each product group page with photographs of the related products below. (See id. ). Every other page had Spiral Designs' website address, www.spiral-net.com, at the bottom. (See Ex. 52).

Between 1993 and 1999, the products offered in the Spiral Designs catalog fell into three categories. The first category consisted of garments that depicted original artwork created by Spiral Designs. (Trial Tr. Vol. 1 at 160–61). A "majority" of black t-shirts in this category came with sewn-in labels depicting the SD Mark. (Id. at 163). Sometimes when Spiral Designs ran out of sizes and had to purchase wholesale shirts from third-party manufacturers, black t-shirts did not come with the sewn-in label bearing the SD Mark. (Id. ). The second category was comprised of garments with original Spiral Designs designs licensed from third-party companies, (Id. at 210). For example, third-party brands like Route 66, Tupac Shakur, and Atmosfear would grant Spiral Designs an exclusive license to create original designs that, after approval of the licensor, could be sold by Spiral Designs. (Id. at 160–61, 210). Again, only some shirts under the second category had sewn-in tags bearing the SD Mark because some licensors—like Route 66—did not allow Spiral Designs to attach its own labels. (Id. at 167). The third category was made up of resold third-party products. (Id. at 84–85). This category included products from brands like The Simpsons, South Park, and Looney Tunes. (Id. ). None of the garments in this category came with sewn-in tags depicting the SD Mark.

But all three categories came with hangtags that displayed the SD Mark, (id. at 29–30, 47–48, 211), and all goods sold by Spiral Designs—whether original designs or merely resold third-party goods—were packaged in plastic bags with the SD Mark. (Id. at 34). Sohail estimated that ninety percent of Spiral Designs' sales between 1993 and 1997 were of designs created by Spiral Designs. (Id. at 163–64).

C. Spiral Designs' Sales in the United States

In 1993, Spiral Designs began advertising its products in magazines, 50,000 copies of which were circulated in the United States. (Id. at 34–35). Also in 1993, Spiral Designs began sending mail-order catalogs to people who responded to its magazine ads. (Id. at 35). And by 1994, Spiral Designs had begun to make sales in the United States through its mail-order catalogs. (Id. at 34).

Shoaib provided many estimates as to the number of catalogs Spiral Designs sent to the United States and how many sales Spiral Designs made from that catalog distribution. (Id. at 78–79, 80–82, 136–37; 147–48). In 1993, Spiral Designs sent approximately 250 catalogs to individuals in the United States. (Id. at 35). In 1997, that number increased to 2,000; in 1999, 10,000 catalogs were sent. (Id. at 37, 58–59). Shoaib testified that Spiral Designs made 5–10% of its sales from the catalogs it distributed in the United States in 1993 and 1997 and 10–15% in 1999. (Id. at 37, 60). Thus, according to Shoaib's estimates, Spiral Designs made roughly 12 to 25 sales from the 250 catalogs it distributed in 1993; about 100 to 200 sales from the 2,000 catalogs in 1997; and about 1,000 to 1,500 sales from the 10,000 catalogs in 1999. However, Shoaib's testimony as to catalog sales was tenuous. His estimates were not consistent throughout his trial testimony, nor were they consistent with his deposition testimony. (Id. at 79–82). On cross-examination, Shoaib could not recall the percentages...