Jay Franco & Sons, Inc. v. Franek

                              In the

United States Court of Appeals
               For the Seventh Circuit

No. 09-2155

JAY F RANCO & S ONS, INC.,
                                                    Plaintiff-Appellee,
                                  v.

C LEMENS F RANEK,
                                               Defendant-Appellant.


             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
               No. 08 C 58—Robert M. Dow, Jr., Judge.



      A RGUED M AY 24, 2010—D ECIDED A UGUST 11, 2010




  Before E ASTERBROOK, Chief Judge, and P OSNER and
E VANS, Circuit Judges.
  E ASTERBROOK, Chief Judge. The same year Huey Lewis
and the News informed America that it’s “Hip To Be
Square”, Clemens Franek sought to trademark the cir-
cular beach towel. His company, CLM Design, Inc.,
pitched the towel as a fashion statement—“the most
radical beach fashion item since the bikini,” declared one
advertisement. “Bound to be round! Don’t be square!”
2                                               No. 09-2155

proclaimed another. CLM also targeted lazy sunbathers:
“The round shape eliminates the need to constantly get
up and move your towel as the sun moves across the
sky. Instead merely reposition yourself.”
  The product enjoyed some initial success. Buoyed by
an investment and promotional help from the actor
Woody Harrelson (then a bartender on the TV show
Cheers), CLM had sold more than 30,000 round beach
towels in 32 states by the end of 1987. To secure its status
as the premier circular-towel maker, the company in
1986 applied for a trademark on the towel’s round design.
The Patent and Trademark Office registered the “configu-
ration of a round beach towel” as trademark No. 1,502,261
in 1988. But this was not enough to save CLM: Six years
later it dissolved. The mark was assigned to Franek, who
continues to sell circular towels.
  In 2006 Franek discovered that Jay Franco & Sons, a
distributor of bath, bedding, and beach accessories, was
selling round beach towels. After settlement negotiations
failed, Franek sued two of Jay Franco’s customers, Target
and Walmart, for unauthorized use of his registered
trademark in violation of §32 of the Lanham Act, 15
U.S.C. §1114. Jay Franco had agreed to indemnify and
defend its customers in such suits, so it sued Franek to
invalidate his mark. (The pending suits against Target
and Walmart made the claim ripe, just as insurers can
bring declaratory-judgment suits to resolve disputes
about a policy’s scope once an insured has been sued
and asserts that the policy applies.) The district judge
consolidated the two cases, granted summary judgment
No. 09-2155                                                   3

in Jay Franco’s favor, and dismissed the remaining claims
and counterclaims. 2009 U.S. Dist. L EXIS 20361 (N.D. Ill.
Mar. 13, 2009). Franek appeals from that judgment;
Target and Walmart are not part of the appeal.
  One way to void a trademark is to challenge its dis-
tinctiveness. A valid trademark identifies the source of
the good it marks. Designs do not inherently commu-
nicate that information, so to be valid a product-design
mark must have acquired a “secondary meaning”—a link
in the minds of consumers between the marked item
and its source. See Wal-Mart Stores, Inc. v. Samara Brothers,
Inc., 529 U.S. 205 (2000); Bretford Manufacturing, Inc.
v. Smith System Manufacturing Corp., 419 F.3d 576,
578–80 (7th Cir. 2005). Cf. Two Pesos, Inc. v. Taco Cabana,
Inc., 505 U.S. 763 (1992). But this type of invalidation is
unavailable to Jay Franco. Franek (and before him CLM)
has continuously used the round-towel mark since its
1988 registration. That makes the mark “incontestable,”
15 U.S.C. §1065, a status that eliminates the need for a
mark’s owner in an infringement suit to show that his
mark is distinctive. See 15 U.S.C. §1115(b); Park ‘N Fly,
Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189 (1985).
  Unfortunately for Franek, incontestable marks are not
invincible. The Lanham Act lists a number of affirmative
defenses an alleged infringer can parry with; one is a
showing that the mark is “functional.” See §1115(b)(8);
Specialized Seating, Inc. v. Greenwich Industries, L.P., No. 07-
1435 (7th Cir. Aug. 11, 2010), slip op. 3–4 (discussing
functionality and other ways to defeat incontestable
marks). As our companion opinion in Specialized Seating
4                                                No. 09-2155

explains, patent law alone protects useful designs from
mimicry; the functionality doctrine polices the division
of responsibilities between patent and trademark law
by invalidating marks on useful designs. This was the
route Jay Franco pursued. The district judge agreed,
finding Franek’s mark “functional” under the definition
the Supreme Court gave that concept in TrafFix Devices,
Inc. v. Marketing Displays, Inc., 532 U.S. 23, 32–35 (2001).
The judge got it right.
   TrafFix says that a design is functional when it is “essen-
tial to the use or purpose of the device or when it
affects the cost or quality of the device,” 532 U.S. at 33, a
definition cribbed from Inwood Laboratories, Inc. v. Ives
Laboratories, Inc., 456 U.S. 844, 850 n.10 (1982). So if a
design enables a product to operate, or improves on a
substitute design in some way (such as by making the
product cheaper, faster, lighter, or stronger), then the
design cannot be trademarked; it is functional because
consumers would pay to have it rather than be indif-
ferent toward or pay to avoid it. A qualification is that
any pleasure a customer derives from the design’s iden-
tification of the product’s source—the joy of buying
a marked good over an identical generic version because
the consumer prefers the status conferred by the mark—
doesn’t count. That broad a theory of functionality
would penalize companies for developing brands with
cachet to distinguish themselves from competitors, which
is the very purpose of trademark law. In short, a design
that produces a benefit other than source identification
is functional.
No. 09-2155                                                5

   Figuring out which designs meet this criterion can be
tricky. Utility patents serve as excellent cheat sheets
because any design claimed in a patent is supposed to be
useful. See 35 U.S.C. §101; Brenner v. Manson, 383 U.S.
519, 528–36 (1966). For this reason, TrafFix held that
expired utility patents provide “strong evidence that the
features therein claimed are functional.” 532 U.S. at 29.
The parties in this case wrangle over the relevance of a
handful of utility patents that claim circular towels. We
need discuss only one (No. 4,794,029), which describes
a round beach towel laced with drawstrings that can be
pulled to turn the towel into a satchel. This patent’s
first two claims are:
   1. A towel-bag construction comprising: a non-
   rectangular towel;
       a casing formed at the perimeter of said towel;
       a cord threaded through said casing; and
       a section of relatively non-stretchable fabric of
       a shape geometrically similar to that of said
       towel attached with its edges equidistant
       from the edges of said towel.
   2. A towel-bag construction as set forth in claim 1
   wherein said towel is circular in shape, whereby
   a user while sunbathing may reposition his or
   her body towards the changing angle of the sun
   while the towel remains stationary.
Claim 2 sounds like Franek’s advertisements, which we
quoted above. The patent’s specification also reiterates,
in both the summary and the detailed description, that
6                                               No. 09-2155

a circular towel is central to the invention because of
its benefit to lazy sunbathers.
  Franek argues that claim 2 does not trigger the TrafFix
presumption of functionality because his towel does not
infringe the ‘029 patent. He notes that claim 2 incor-
porates claim 1 (in patent parlance, claim 1 is “indepen-
dent” and claim 2 “dependent,” see 35 U.S.C. §112) with
the added condition that the towel be circular. An item
can infringe a dependent claim only if it also violates
the independent claim incorporated by the dependent
claim. See Monsanto Co. v. Syngenta Seeds, Inc., 503 F.3d
1352, 1359 (Fed. Cir. 2007). Franek reasons that because
his towel lacks a perimeter casing, drawstring, and non-
stretchable section of fabric, it does not infringe claim 1,
and thus cannot infringe claim 2. Even if his towel
could infringe claim 2, Franek maintains that the claim
is invalid because the towel-to-bag patent was sought
in 1987, two years after Franek started selling a round
beach towel, and thus too late to claim its invention.
See 35 U.S.C. §102(b); Pfaff v. Wells Electronics, Inc., 525
U.S. 55 (1998).
  Proving patent infringement can be sufficient to show
that a trademarked design is useful, as it means that the
infringing design is quite similar to a useful invention. See
Raytheon Co. v. Roper Corp., 724 F.2d 951, 959 (Fed. Cir.
1983). But such proof is unnecessary. Functionality is
determined by a feature’s usefulness, not its patentability
or its infringement of a patent. TrafFix’s ruling that an
expired patent (which by definition can no longer be
infringed) may evince a design’s functionality demon-
No. 09-2155                                             7

strates that proof of infringement is unnecessary. If an
invention is too useless to be patentable, or too dissim-
ilar to a design to shed light on its functions, then
the lack of proof of patent infringement is meaningful.
Otherwise it is irrelevant. A design may not infringe a
patented invention because the invention is obvious or
taught by prior art, see 35 U.S.C. §§ 102(a), 103(a), but
those and other disqualifiers do not mean that the
design is not useful. Just so here: Franek’s towel may
lack some of the components in claim 1 necessary to
infringe claim 2, but claim 2’s coverage of a circular
beach towel for sunbathing is enough to signal that a
round-towel design is useful for sunbathers. Each claim
in a patent is evaluated individually, see Altoona Publix
Theatres, Inc. v. American Tri-Ergon Corp., 294 U.S. 477,
487 (1935), each must be substantially different, see 37
C.F.R. §1.75(b); Manual of Patent Examining Procedure
§2173.05(n)(b) (8th ed., July 2010 rev.), and each is pre-
sumed valid, 35 U.S.C. §282. We must therefore presume
that the unique component in claim 2—the round shape
of the towel—is useful.
   Nor does it matter that the ‘029 patent application was
filed two years after Franek began selling round towels.
As we’ve explained, a patent’s invalidity for a reason
other than uselessness says nothing about the claimed
design’s functionality. And a design patented yesterday
can be as good evidence of a mark’s functionality as
a design patented 50 years ago. Indeed, more recent
patents are often better evidence because technological
change can render designs that were functional years
ago no longer so. See Eco Manufacturing LLC v. Honeywell
8                                             No. 09-2155

International Inc., 357 F.3d 649, 653 (7th Cir. 2003). The
Court in TrafFix may have dealt only with expired
utility patents, but the logic it employed is not limited
to them.
  To put things another way, a trademark holder cannot
block innovation by appropriating designs that under-
gird further improvements. Patent holders can do this,
but a patent’s life is short; trademarks can last forever,
so granting trademark holders this power could perma-
nently stifle product development. If we found Franek’s
trademark nonfunctional, then inventors seeking to
build an improved round beach towel would be out of
luck. They’d have to license Franek’s mark or quell their
inventiveness. That result does not jibe with the pur-
poses of patent or trademark law.
  This “strong evidence” of the round towel’s function-
ality is bolstered by Franek’s own advertisements, which
highlight two functional aspects of the round beach
towel’s design. One, also discussed in the ‘029 patent, is
that roundness enables heliotropic sunbathers—tanners
who swivel their bodies in unison with the sun’s
apparent motion in order to maintain an even tan—to
remain on their towels as they rotate rather than exert
the energy to stand up and reposition their towels every
so often, as conventional rectangular towels require.
  Franek responds that whatever its shape (golden-
ratio rectangle, square, nonagon) any towel can satisfy a
heliotropic tanner if it has enough surface area—the
issue is size, not shape. That’s true, and it is enough to
keep the roundness of his towel from being functional
No. 09-2155                                                   9

under the first prong of TrafFix’s definition (“essential to
the use or purpose of the device”) but not the second. For
heliotropic sunbathers, a circle surpasses other shapes
because it provides the most rotational space without
waste. Any non-circle polygon will either limit full rota-
tions (spinning on a normal beach towel leads to sandy
hair and feet) or not use all the surface area (a 6N tall person
swiveling on a 6N by 6 N square towel won’t touch the
corners). Compared to other shapes that permit full
rotations, the round towel requires less material, which
makes it easier to fold and carry. That’s evidence that the
towel’s circularity “affects the . . . quality of the device.”
(The reduction in needed material also suggests that round
towels are cheaper to produce than other-shaped towels,
though Franek contends that cutting and hemming ex-
penses make them costlier. We express no view on the
matter.)
   But let us suppose with Franek—who opposed sum-
mary judgment and who is thus entitled to all rea-
sonable inferences—that round towels are not mea-
surably better for spinning with the sun. After all, other
shapes (squircles, regular icosagons) are similar enough
to circles that any qualitative difference may be lost on
tanners. Plus, the ability to rotate 180 degrees may be
an undesired luxury. Few lie out from dawn ‘til dusk
(if only to avoid skin cancer) and the daily change
in the sun’s declination means it will rise due east and
set due west just twice a year, during the vernal and
autumnal equinoxes. A towel shaped like a curved hour-
glass that allows only 150 or 120 degrees of rotation
10                                                  No. 09-2155

(or even fewer) may be all a heliotropic tanner wants.
No matter. Franek’s mark still is functional.
  Franek’s advertisements declare that the round towel
is a fashion statement. Fashion is a form of function. A
design’s aesthetic appeal can be as functional as its
tangible characteristics. See Qualitex Co. v. Jacobson
Products Co., 514 U.S. 159, 169–70 (1995); Wal-Mart, 529
U.S. at 214; TrafFix, 532 U.S. at 33; W.T. Rogers Co. v. Keene,
778 F.2d 334 (7th Cir. 1985); Publications International, Ltd.
v. Landoll, Inc., 164 F.3d 337 (7th Cir. 1998); Abercrombie &
Fitch Stores, Inc. v. American Eagle Outfitters, Inc., 280
F.3d 619 (6th Cir. 2002). And many cases say that fash-
ionable designs can be freely copied unless protected
by patent law. See, e.g., Bonito Boats, Inc. v. Thunder Craft
Boats, Inc., 489 U.S. 141 (1989); Sears, Roebuck & Co. v. Stiffel
Co., 376 U.S. 225 (1964); Compco Corp. v. Day-Brite Lighting,
Inc., 376 U.S. 234 (1964); Kellogg Co. v. National Biscuit
Co., 305 U.S. 111 (1938); Singer Manufacturing Co. v. June
Manufacturing Co., 163 U.S. 169 (1896).
  The chief difficulty is distinguishing between designs
that are fashionable enough to be functional and those
that are merely pleasing. Only the latter group can be
protected, because trademark law would be a cruel joke
if it limited companies to tepid or repugnant brands
that discourage customers from buying the marked
wares. We discussed this problem at length in Keene. See
also Eco Manufacturing, 357 F.3d at 654; Schwinn Bicycle
Co. v. Ross Bicycles, Inc., 870 F.2d 1176, 1188–91 (7th Cir.
1989). The Supreme Court broached the subject in
Qualitex when it discussed the functionality of the green-
No. 09-2155                                               11

gold color of a dry cleaning pad. Unwilling to say that
the pad required a green-gold hue or was improved by
it, the Court still thought that the color would be func-
tional if its exclusive use by a single designer “would put
competitors at a significant non-reputation-related disad-
vantage.” 514 U.S. at 165. This is a problem for Franek’s
round-towel mark.
   Franek wants a trademark on the circle. Granting a
producer the exclusive use of a basic element of design
(shape, material, color, and so forth) impoverishes other
designers’ palettes. See, e.g., Brunswick Corp. v. British
Seagull Ltd., 35 F.3d 1527 (Fed. Cir. 1994) (black color
of boat engines is functional because it is compatible
with boats of many different colors). Qualitex’s determina-
tion that “color alone, at least sometimes, can meet the
basic legal requirements for use as a trademark” (514 U.S.
at 166), means that there is no per se rule against this
practice. See also Thomas & Betts Corp. v. Panduit Corp., 138
F.3d 277, 299 (7th Cir. 1998). The composition of the
relevant market matters. But the more rudimentary and
general the element—all six-sided shapes rather than
an irregular, perforated hexagon; all labels made from
tin rather than a specific tin label; all shades of the
color purple rather than a single shade—the more likely
it is that restricting its use will significantly impair com-
petition. See, e.g., Keene, 778 F.2d at 343; Lorillard v.
Pride, 28 F. 434 (C.C.N.D. Ill. 1886); Saint-Gobain Corp. v.
3M Co., 90 U.S.P.Q. 2d 1425 (T.T.A.B. 2007). Franek’s
towel is of this ilk. He has trademarked the “configuration
of a round beach towel.” Every other beach towel manu-
facturer is barred from using the entire shape as well
12                                               No. 09-2155

as any other design similar enough that consumers are
likely to confuse it with Franek’s circle (most regular
polygons, for example).
   Contrast Franek’s mark with the irregular hexagon at
issue in Keene or the green-gold hue in Qualitex. Those
marks restrict few design options for competitors. Indeed,
they are so distinctive that competitors’ only reason to
copy them would be to trade on the goodwill of the
original designer. Cf. Service Ideas, Inc. v. Traex Corp., 846
F.2d 1118, 1123–24 (7th Cir. 1988) (purposeful copying of
a beverage server’s arbitrary design indicated a lack of
aesthetic functionality). That’s not so here. A circle is the
kind of basic design that a producer like Jay Franco
adopts because alternatives are scarce and some con-
sumers want the shape regardless of who manufactures
it. There are only so many geometric shapes; few are
both attractive and simple enough to fabricate cheaply.
Cf. Qualitex, 514 U.S. at 168–69 (functionality doctrine
invalidates marks that would create color scarcity in a
particular market). And some consumers crave round
towels—beachgoers who prefer curved edges to sharp
corners, those who don’t want to be “square,” and those
who relish the circle’s simplicity. A producer barred
from selling such towels loses a profitable portion of the
market. The record does not divulge much on these
matters, but any holes in the evidence are filled by the
TrafFix presumption that Franek’s mark is functional,
a presumption he has failed to rebut.
  Franek chose to pursue a trademark, not a design
patent, to protect the stylish circularity of his beach
No. 09-2155                                              13

towel. Cf. Kohler Co. v. Moen Inc., 12 F.3d 632, 647 (7th
Cir. 1993) (Cudahy, J., dissenting) (calling Franek’s mark
a “horrible example[]” of a registered trademark that
should have been a design patent). He must live with
that choice. We cannot permit him to keep the indefinite
competitive advantage in producing beach towels this
trademark creates.
  If Franek is worried that consumers will confuse
Jay Franco’s round beach towels with his, he can imprint
a distinctive verbal or pictorial mark on his towels. See
Publications International, 164 F.3d at 343; Keene, 778 F.2d
at 347–48. That will enable him to reap the benefits of
his brand while still permitting healthy competition in
the beach towel market.
                                                 A FFIRMED




                           8-11-10