Brunswick Corporation v. Spinit Reel Company

Appellant Brunswick Corporation is a Delaware corporation with its principal place of business in Skokie, Illinois. Zebco is a division of Brunswick which manufactures and sells fishing equipment, including spin-cast reels and tackle combinations. Zebco's most popular reel is the Zebco Model 33.

Don McIntire, a longtime employee of Zebco, left the division on January 1, 1982. Some months later Mr. McIntire, with a few friends and associates, started a business to manufacture and market closed face spin-cast fishing reels. Spinit Reel, the resulting company, began manufacture and sales of the SR 210 reel by February 1983.

Zebco developed the concept of the closed face spin-cast reel, and the Zebco Model 33, introduced in 1954, differs in appearance from any spin-cast reel in the market except the SR 210. The Zebco has a distinctive profile with a chrome, cone-shaped front cover, a "stubby" back cover and a black and chrome finish. See Appendices 1 & 2.

In mid-February 1983, Spinit was notified of Zebco's concern that the SR 210 violated Zebco's rights under the Lanham Act and other laws. Zebco requested that Spinit stop producing the SR 210 in its present form and change the front and back covers to avoid confusion. The parties attempted to negotiate changes in the design, and Zebco proposed seven different front covers for Spinit to use, but the parties failed to reach any agreement. Spinit did, however, subsequently make some changes to the shape of the SR 210.

Brunswick filed a complaint against Spinit and Mr. McIntire on March 17, 1983, charging that Spinit had engaged in unfair competition by manufacturing the SR 210 which had been deliberately copied from the Zebco Model 33 reel. In June, Brunswick applied for a preliminary injunction which the trial court denied, and set trial for the following September. On October 18, 1984, more than a year after trial, the district court ruled that sales of both versions of the SR 210 violated the Lanham Act and enjoined Spinit from further manufacture of either version of the SR 210 or anything identical or confusingly similar to the Zebco Model 33. The court also ordered Spinit to recall all models of the SR 210. The court declined to award Brunswick damages or attorney's fees.

Brunswick appeals from the trial court's ruling that Spinit did not violate the Oklahoma Deceptive Trade Practices Act, that the court denied Brunswick damages and attorney's fees under the Lanham Act and the Oklahoma Act as well as the court's denial of Brunswick's motion for discovery of post-trial damages for the year after the trial but before the court's decision was issued. Brunswick also appeals the court's failure to award damages to Brunswick for Spinit's failure to pay royalties under a licensing agreement.

Spinit cross-appeals, seeking reversal of the court's ruling that Spinit violated the Lanham Act, the imposition of the injunction and the refusal to bar Brunswick's action under a theory of laches.

Section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982), affords a civil action for a party injured by a competitor's "false designation of origin" on its product.1 The injured party may sue if it believes it has or will suffer damages because the competitor's product or packaging is so similar as to confuse purchasers of the product's source. See LeSportsac, Inc. v. K Mart Corp., 754 F.2d 71, 75 (2d Cir.1985). Although the party may not have a federally registered trademark, the product may have an image or look, referred to as "trade dress," that is so distinctive as to become an unregistered trademark eligible for protection under the Lanham Act. Id. "Although historically trade dress infringement consisted of copying a product's packaging, ... 'trade dress' in its more modern sense [may] refer to the appearance of the [product] itself...." American Greetings Corp. v. Dan-Dee Imports, Inc., 807 F.2d 1136, 1140 (3d Cir.1986) (quoting Ideal Toy Corp. v. Plawner Toy Mfg. Corp., 685 F.2d 78, 80 n. 2 (3d Cir.1982)). Generally, to be eligible for protection, the product's "trade dress" must be nonfunctional and have acquired a secondary meaning.2 If the trade dress is eligible for protection, to recover under the Lanham Act the plaintiff must further establish that there is a likelihood of confusion between the products. J.M. Huber Corp. v. Lowery Wellheads, Inc., 778 F.2d 1467, 1470 (10th Cir.1985).

In its appeal, Spinit challenges the trial court's conclusion that Spinit's production and sale of the SR 210 violated the Lanham Act on two grounds: (1) Brunswick did not demonstrate that the front cover design of the Zebco Model 33 was nonfunctional; and (2) Brunswick failed to show a likelihood of confusion between the products.

Spinit first charges that, in its determination of whether the Zebco Model 33 was protected, the trial court applied the wrong test to determine functionality. The trial court used the following standard: "The configuration of a product is functional and copying is allowed only if that particular configuration is essential to the use or purpose of the product or if an adverse effect on cost or quality would result if that configuration were not used." Amended Findings of Fact and Conclusions of Law, record, vol. 1, at 493-94 (citing Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 2187 n. 10, 72 L.Ed.2d 606 (1982)). In the Inwood Laboratories case, the Supreme Court stated the standard for determining functionality only "in general terms," and that in dictum. Nor has this court defined the standard for determining functionality. Thus, we are faced with an issue of first impression.

Spinit urges that the district court should have applied an expansive definition of functionality as first articulated in Pagliero v. Wallace China Co., 198 F.2d 339 (9th Cir.1952):

If the particular feature is an important ingredient in the commercial success of the product, the interest in free competition permits its imitation in the absence of a patent or copyright. On the other hand, where the feature or, more aptly, design, is a mere arbitrary embellishment, a form of dress for the goods primarily adopted for purposes of identification and individuality and, hence, unrelated to basic consumer demands in connection with the product, imitation may be forbidden where the requisite showing of secondary meaning is made. Under such circumstances, since effective competition may be undertaken without imitation, the law grants protection.

Id. at 343 (citations omitted). To support its argument, Spinit cites several cases in the Second and Ninth Circuits which examine whether a product feature is an important ingredient in the product's commercial success to determine functionality. See, e.g., Industria Arredamenti Fratelli Saporiti v. Charles Craig, Ltd., 725 F.2d 18, 19 (2d Cir.1984); International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 917 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981).

Both circuits, however, have since refined their interpretations of functionality. In Vuitton et Fils S.A. v. J. Young Enterprises, Inc., 644 F.2d 769, 773 (9th Cir.1981), the Ninth Circuit explicitly rejected an interpretation that would define, as a matter of law, any feature of a product that contributes to its consumer appeal and marketability, as a functional element of the product while the Second Circuit has implicitly done the same. LeSportsac, Inc., 754 F.2d at 77. Both courts instead describe a feature that may be protected as one whose principal purpose is to identify the producer. Id. at 78; Vuitton et Fils S.A., 644 F.2d at 774-75. Although the protected feature may also serve a useful role, it can be distinguished from a feature that is "functional" and thereby not entitled to protection because the "functional" feature's principal purpose is an essential benefit of the product's cost or purpose. LeSportsac, Inc., 754 F.2d at 76; Vuitton et Fils S.A., 644 F.2d at 774-75. This distinction is not drawn between features that are aesthetic and those that are operational; both courts recognize that aesthetics may play a major role in the consumer appeal of a product. LeSportsac Inc., 754 F.2d at 78; Vuitton et Fils S.A., 644 F.2d at 774. Instead, each court attempted to shape a rule that would prevent a producer from monopolizing a design feature that benefits a product's use (whether operational or aesthetic) while at the same time protecting a producer who takes the initiative to develop innovative or imaginative designs to identify his product. Both courts, therefore, rejected the "important ingredient" test because it would be a disincentive to creative design; "Trade dress associated with a product that has accumulated goodwill ... will almost always be 'an important ingredient' in the 'saleability' of the product." LeSportsac, Inc., 754 F.2d at 77. Despite their criticism of the "important ingredient" formulation, neither court clearly stated a test to be used for functionality.3

Other circuits have also rejected the "important ingredient" test. See, e.g., Sno-Wizard Mfg., Inc. v. Eisemann Prods. Co., 791 F.2d 423, 426 n. 3 (5th Cir.1986). Although courts have begun to examine the feature in light of its utility, the basis of their determinations rests on the feature's effect on competition. Thus, "[i]n trademark law, 'functional' means not that a feature serves a function; it means that the feature is one that competitors would find necessary to incorporate into their product in order to compete effectively." Vaughan Mfg. Co. v. Brikam Int'l, Inc., 814 F.2d 346, 349 (7th Cir.1987). See also Sno-Wizard Mfg., 791 F.2d at 426 n. 3; Vuitton et Fils S.A., 644 F.2d at 774; Prufrock Ltd. v. Lasater, 781 F.2d 129, 133 (8th Cir.1986). Thus, a tear-shaped plastic citrus juice container was protected, although the plastic bottle was obviously functional, because the requisite functions of the bottle (efficient shape for stacking, squeeze dispenser and light weight) did not dictate the distinctive tear-shape identifying the product. Sicilia Di R. Biebow & Co. v. Cox, 732 F.2d 417, 429 (5th Cir.1984). On the other hand, the most distinctive feature on a producer's woodburning stove, its two-level top, was held to be functional because, in addition to identifying the producer, its superior design improved the performance of three essential functions of the stove. Fisher Stoves, Inc. v. All Nighter Stove Works, Inc., 626 F.2d 193, 195 (1st Cir.1980).

The Third Circuit does not use competition as its determinant but instead focuses on a more utilitarian view, drawing a distinction between a feature whose value is in the product or service itself and a feature whose value is in identifying the producer. American Greetings Corp., 807 F.2d at 1142. Nevertheless, the Circuit still permits a court to consider whether the feature should not be protected " 'because [its] usefulness in identifying the source of the product or service is outweighed by the social interest in competition and improvements, which are advanced by giving competitors free access to' that feature." Id. (quoting United States Golf Ass'n v. St. Andrews Systems, 749 F.2d 1028, 1033 (3d Cir.1984)).

Similarly, we adopt a test whose focus is the effect on competition. That approach will better balance the dichotomy inherent in how best to promote competition. A recurring concern in many cases, one that encourages a broad definition of "functional," is that granting protection to a feature will create a monopoly which would prevent others from successfully competing with the individual who developed the feature. See, e.g., American Greetings Corp., 807 F.2d at 1142; Fisher Stoves, Inc., 626 F.2d at 195. At the same time the purpose of trademark protection is to allow manufacturers to place an identifying symbol or design on their brand to enable consumers to easily distinguish between competing products. W.T. Rogers Co. v. Keene, 778 F.2d 334, 338-39 (7th Cir.1985); Note, The Problem of Functional Features: Trade Dress Infringement Under Section 43(a) of the Lanham Act, 82 Col.L.Rev. 77, 91 (1982) [Columbia Note]. Thus, the question of whether the feature is functional should turn on whether "the protection of the configuration would 'hinder competition or impinge upon the rights of others to compete effectively in the sale of goods,' " Sno-Wizard Mfg., 791 F.2d at 426 n. 3 (quoting Sicilia Di R. Biebow & Co., 732 F.2d at 429).

Although this distinction may be subject to the same criticism as is the "important ingredient" test, that it is overbroad, we think it affords better protection to ensure that we do not discourage the "use of a spark of originality which could transform an ordinary product into one of grace." Keene Corp. v. Paraflex Indus., 653 F.2d 822, 825 (3d Cir.1981). Under our test, the claim may still be made that without a particular identifying design or feature a second-comer may be less effectively able to compete. If that feature must be slavishly copied in order to have an equally functional product, then the feature is not entitled to protection. Petersen Mfg. Co. v. Central Purchasing, Inc., 740 F.2d 1541, 1550 (Fed.Cir.1984). But if the feature enables the second-comer simply to market his product more effectively, it is entitled to protection. Sicilia Di R. Biebow & Co., 732 F.2d at 428.

This interpretation does not limit functional features to those essential to a product's operation. Because a function of certain products is aesthetic appeal, a feature intrinsic to the aesthetic appeal of those products may not be entitled to trademark protection. See Pagliero, 198 F.2d at 343-44 (producer's pattern on hotel china was an essential selling feature and therefore functional). Although the determination of functional in this setting may be difficult, the decision should nevertheless rest on whether alternative appealing designs or presentations of the product can be developed. See Vuitton et Fils S.A., 644 F.2d at 777 (protection of design on luggage did not hinder competition, although a feature of luggage is to be aesthetically pleasing, because competitor could manufacture own attractive design).

While the trial court did not articulate precisely the same test we have discussed here, its approach in determining whether the Zebco reel cover was functional incorporates our concerns. The court found that the reel cover's only functions are to hold the fishing line guide out in the front and provide a thumbstop in the back. Moreover, the particular configuration of the Zebco Model 33 was not the only design that could accommodate these functions; in fact, many spin-cast reels are made that perform the same functions, all of which have profiles different from the Zebco Model 33. Amended Findings of Fact and Conclusions of Law, record, vol. 1, at 488-89. Thus, the court implicitly considered whether the distinctive cone-shaped profile was indispensible to manufacturing a competitive spin-cast reel and determined it was not.

Spinit next argues that the trial court erred in imposing the burden of proof of functionality on Spinit. We agree with the Second Circuit that the question of functionality should be characterized as a defense. LeSportsac, 754 F.2d at 76.

Requiring the plaintiff to prove nonfunctionality in order to prevail might "defeat[ ] the Lanham Act's purpose of enabling a purchaser to distinguish one product from another because a plaintiff unable to prove that the features copied are nonfunctional will not prevail, no matter how compelling the evidence that purchasers are confused as to product source."

Id. (quoting Columbia Note at 87 n. 78) (citation omitted). The trial court correctly imposed the burden of proof of functionality on defendant. See also Inwood Laboratories, Inc., 456 U.S. at 863, 102 S.Ct. at 2193 (White, J., concurring); Vaughan Mfg. Co., 814 F.2d at 349. But see Litton Systems, Inc. v. Whirlpool Corp., 728 F.2d 1423, 1444-45 (Fed.Cir.1984); Fisher Stoves, Inc., 626 F.2d at 195 (although the appellate court did not have to address the issue, it commented that the trial court did not clearly err by placing the burden of proof on plaintiff).

Whether a product feature is functional is a factual finding and is therefore reviewed under the clearly erroneous standard. Inwood Laboratories, 456 U.S. at 857-58 n. 20, 102 S.Ct. at 2190 n. 20; LeSportsac, Inc., 754 F.2d at 76; Vuitton et Fils S.A., 644 F.2d at 775-76. Because of the trial court's ability to evaluate witness credibility and weigh evidence, we must affirm its finding unless we are "left with the 'definite and firm conviction that a mistake has been committed.' " Inwood Laboratories, 456 U.S. at 855, 102 S.Ct. at 2189 (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).

A review of the record convinces us that the trial court was justified in its finding. This case is not concerned with whether the front cover itself is functional, but whether the shape or configuration of the front cover is functional. Witnesses from both sides readily admit that the cover has a specific use. See, e.g., record, vol. 3, at 40; id., vol. 12, at 431. It is a means for picking up the fishing line, letting the line flow off the spool, id. vol. 12, at 431-32, and containing the internal mechanism, id., vol. 12, at 453. Nevertheless, the evidence indicates that such operations do not dictate the precise shape of the cover, rather a variety of shapes could accommodate those functions. Id., vol. 4, at 163, 175; vol. 6, at 407; vol. 12, at 445, vol. 13, at 552. Similarly, although the cover must fit comfortably in a fisherman's hand and be easy to use, the record does not show that the Zebco 33 cone shape is the only comfortable shape for a reel. See id., vol. 10, at 88. Thus, while the cover itself may be functional, the shape of the cover is not. See Sicilia Di R. Biebow & Co., 732 F.2d at 429; Truck Equip. Serv. Co. v. Fruehauf Corp., 536 F.2d 1210, 1218 (8th Cir.), cert. denied, 429 U.S. 861, 97 S.Ct. 164, 50 L.Ed.2d 139 (1976); Application of Mogen David Wine Corp., 328 F.2d 925, 933 (C.C.P.A.1964) (Rich, J., concurring).

Spinit's other contentions supporting its claim that the shape of the front cone is functional are also misplaced.4 Regardless of which party bore the burden of proof, the evidence is ample to support the court's finding of nonfunctionality.

This court discussed the elements to be considered in determining the likelihood of confusion as to a product's source due to a similar trademark or trade dress in Beer Nuts, Inc. v. Clover Club Foods Co., 805 F.2d 920, 927 (10th Cir.1986). Those elements are not, however, the only factors a court may consider and, indeed, were not the only factors the district court considered. The district court relied heavily on evidence of actual confusion which, although not necessary for a finding of likelihood of confusion, id. at 928, may be the strongest evidence to support such a determination. See Oreck Corp. v. U.S. Floor Systems, 803 F.2d 166, 173 (5th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 2462, 95 L.Ed.2d 871 (1987); Frisch's Restaurant, Inc. v. Shoney's Inc., 759 F.2d 1261, 1267 (6th Cir.1985); Amstar Corp. v. Domino's Pizza, Inc., 615 F.2d 252, 263 (5th Cir.), cert. denied, 449 U.S. 899, 101 S.Ct. 268, 66 L.Ed.2d 129 (1980).

Spinit claims that the trial court's finding of likelihood of confusion is clearly erroneous because Brunswick did not offer evidence of actual confusion as a result of the shape of the reel. Instead Brunswick's examples were merely expressions of differentiation unrelated to the feature at issue. Brief of Appellee's and Cross-Appellants at 4, 6. Spinit cites a number of cases for the proposition that actual confusion does not occur when the second trademark or trade dress calls to mind the original. Rather, actual confusion occurs when the source of the copy is mistaken for the source of the original. While we agree with that distinction, it does not apply here. The cases Spinit cites are ones in which the consumer was more likely to recall the original source than to mistake the copy for the original because the products involved were quite different. E.g., Carson v. Here's Johnny Portable Toilets, 698 F.2d 831 (6th Cir.1983) (men's clothing and toiletries as opposed to portable toilets). In the present case, however, testimony indicated that both customers and retailers thought that Zebco was the source of the Spinit SR 210 because of the shape of the reel. Record, vol. 3, at 24 (on first seeing SR 210, writer for fishing magazine thought it was a Zebco 33); vol. 4, at 107-09 (salesman heard customer say he had bought a Zebco when he had bought an SR 210); vol. 12, at 312 (salesman reports customer's reaction on first seeing the SR 210 was that it was a Zebco 33). Contrary to defendant's contention, the evidence also showed that the confusion was due to the similarity in the shape of the SR 210 and the 33 reel. See, e.g., record, vol. 12, at 426 (J.C. Penney merchandise manager testified no other reel so closely resembles the 33); vol. 9, at 6 (the SR 210s sold well because of an "identifiable look," similar to the Zebco 33); vol. 13, at 484 (some distributors did not want to purchase the SR 210 because it looked so similar to the 33).

Spinit also objects to any reliance the trial court may have placed on a mistaken communication from a customer. As the cases that Spinit cites suggest, by itself, an instance of mistaken communication may not support a finding of confusion; but evidence of an actual buyer communicating with the wrong source of the product is worthy of consideration. Safeway Stores, Inc. v. Safeway Discount Drugs, Inc., 675 F.2d 1160, 1167 (11th Cir.1982). Brunswick introduced evidence of an SR 210 owner who had sent the reel to Zebco for repair. Record, vol. 3, at 99-102. Although this is evidence of a single instance, the confused owner is precisely the one whose "confusion is most significant." Safeway Stores, Inc., 675 F.2d at 1167. Furthermore, such evidence of actual confusion when the product is low priced is more valuable because purchasers are more likely to avoid the brand in the future than complain. Union Carbide Corp. v. Ever-Ready, Inc., 531 F.2d 366, 383 (7th Cir.), cert. denied, 429 U.S. 830, 97 S.Ct. 91, 50 L.Ed.2d 94 (1976). The SR 210 may be considered a moderately priced item. The return to Zebco is nonetheless an indication of confusion; not only did the purchaser have to return the reel for repair but he also had to include $1.75 repair charge. Record, vol. 3, at 100. The trial court did not err in relying on such evidence.

Spinit makes two objections with respect to the survey, conducted by Dr. Sorenson, which Brunswick introduced to support its theory of confusion. Individuals in shopping areas in five cities were shown a Spinit SR 210 reel and asked several questions about the reel, including who was the manufacturer, and what made the individual name a particular manufacturer. Spinit argues the survey should not have been admitted; and second, if admissible, the trial court should not have relied on its results. The trial court did not abuse its discretion in admitting the survey. Survey evidence may be admitted as an exception to the hearsay rule if the survey is material, more probative on the issue than other evidence and if it has guarantees of trustworthiness.5 See Fed.R.Evid. 803(24); Pittsburgh Press Club v. United States, 579 F.2d 751, 758 (3d Cir.1978); Zippo Mfg. Co. v. Rogers Imports, Inc., 216 F.Supp. 670, 683-84 (S.D.N.Y.1963); 5 J. Weinstein & M. Berger, Weinstein's Evidence p 901(b)(9) at 901-118 (1983).

In a case such as this in which confusion as to product source is a material issue, a survey may be the only available method of showing the public state of mind. 5 J. Weinstein & M. Berger, Weinstein's Evidence, p 901(b)(9) at 901-120. The survey is trustworthy if it is shown to have been conducted according to generally accepted survey principles. Id.; Pittsburgh Press Club, 579 F.2d at 758. The record reflects that adequate foundation was laid to admit the survey. Record, vol. 3, at 165-85. Spinit's own expert, Dr. Vanderslice, testified that the survey "appeared to be conducted along reasonably acceptable market research techniques." Record, vol. 11, at 260.

As to the technical and methodological deficiencies in the survey that Spinit charges, those relate not the survey's admissibility but to the weight to be given such evidence. See Standard Oil v. Standard Oil, 252 F.2d 65, 75 (10th Cir.1958); Mobil Oil v. Pegasus Petroleum Corp., 818 F.2d 254, 259 (2d Cir.1987); Lois Sportswear, U.S.A. v. Levi Strauss & Co., 799 F.2d 867, 875 (2d Cir.1986). None of the flaws that Spinit lists supports its claim that the trial court's reliance on the survey is clearly erroneous; particularly in light of Dr. Vanderslice's response when asked if he would have conducted the survey differently: "Oh, there may be a few little minor word changes, a few little minor order of the questionnaires, but nothing significant. They would just be professional differences of opinions." Record, vol. 11, at 279. Spinit's many other criticisms of the survey also fail to show that the trial court abused its discretion.6

Spinit has not overcome its burden to show that the trial court was clearly erroneous when it determined that (1) the shape of the Zebco 33 is nonfunctional and (2) there is a likelihood of confusion as to the source of the Spinit SR 210. The district court's finding that