Nichino America Inc v. Valent USA LLC

PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ______________ No. 21-1850 ______________ NICHINO AMERICA, INC., Appellant v. VALENT U.S.A. LLC ______________ On Appeal from the United States District Court for the District of Delaware (D.C. No. 1-20-cv-00704) District Judge: Honorable Leonard P. Stark ______________ Argued March 22, 2022 Before: BIBAS, MATEY, and PHIPPS, Circuit Judges (Filed: August 12, 2022) Bradley L. Cohn [Argued] Jacquelyn Prom Belinda J. Scrimenti Pattishall McAuliffe Newbury Hilliard & Geraldson South Wacker Drive Suite 2900 Chicago, IL 60606 Counsel for Appellee Eric R. Clendening Flaster Greenberg 1810 Chapel Avenue West Cherry Hill, NJ 08002 Jordan A. LaVine [Argued] Flaster Greenberg Suite 1050 1717 Arch Street Suite 3300 Philadelphia, PA 19103 Counsel for Appellant ______________ OPINION OF THE COURT ______________ MATEY, Circuit Judge.

Whether a federal court may issue an injunction against an allegedly infringing trademark can be a bit confusing.

Responding, Congress passed the Trademark Modernization Act of 2020 (“TMA”).1 Nichino America Inc. says the District Court misapplied the TMA when it denied its motion for a preliminary injunction against Valent USA LLC’s allegedly infringing mark. Finding no reversible error in the District Court’s careful application of its discretion, we will affirm.

Along the way, we explain how district courts should apply the rebuttable presumption of irreparable harm created by the TMA.

I.

A. The Marks Nichino and Valent sell pesticides for farming. Since 2004, Nichino has offered a trademarked product known as “CENTAUR.” Valent trademarked a competing product called “SENSTAR” in 2019, giving it a logo resembling CENTAUR’s colors, fonts, and arrow artwork. Both pesticides are used in the same geographic areas against many of the same insects, and both are sold to farmers through distributors. But there are differences. SENSTAR comes as a liquid and uses a unique combination of two active chemicals. It costs $425 per gallon, and ships in cases containing four one-gallon containers. CENTAUR is manufactured as a solid and sold by the pallet, with each containing 622 pounds of pesticide packed into bags and cases, for $24 per pound. Yet the similarities were enough for Nichino to sue Valent for trademark infringement, and ask for a preliminary injunction against SENSTAR’s launch. A suit that would become one of the first to apply the newly effective TMA.

B. District Court Proceedings Nichino argued that Valent’s use of the SENSTAR mark would create confusion among consumers, a necessary element in a trademark infringement claim. See A & H Sportswear, Inc. v. Victoria’s Secret Stores, Inc., 237 F.3d 198, 210 (3d Cir. 2000). Confusion, said Nichino, likely to harm its reputation and goodwill, warranting injunctive relief.2 That is where the TMA enters, creating a rebuttable presumption of irreparable harm favoring a plaintiff who has shown a likelihood of success on the merits of an infringement claim.3 The District Court found Nichino narrowly demonstrated its infringement claim would likely succeed, though “there is not an abundance of evidence of likelihood of confusion” between the products. (App. at 176.) The District Court reached that conclusion by consulting the “Lapp factors,” our nearly forty-year-old, ten-part, yet non-exhaustive inquiry that guides analysis of likely confusion. See Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 462–63 (3d Cir. 1983); see also A & H Sportswear, Inc., 237 F.3d at 213 (prescribing use of the Lapp factors in all trademark cases).4 Weighing and balancing, the District Court tallied a final score of five factors favoring Nichino, two neutral, and three “very important factors” (overall degree of similarity, consumers’ purchasing habits, and Valent’s intent in selecting the mark) in Valent’s column. (App. at 161–76.) Bringing us to the TMA, which the District Court applied to presume Nichino would suffer irreparable harm without an injunction. But that presumption is rebuttable, and the District Court credited Valent’s evidence of a sophisticated consumer class that makes careful purchases, and noted the lack of any evidence of actual consumer confusion. Closing the circle, the District Court found Nichino failed to proffer evidence that it would likely suffer irreparable harm without immediate injunctive relief.5 Finally, the District Court held that the balance of equities and public interest weigh against issuing a preliminary injunction.

For those reasons, the District Court denied the injunction, and Nichino appealed, challenging the Court’s finding that Valent had rebutted the presumption of irreparable harm.6 Finding no reversible error that disturbs the District Court’s conclusion, we will affirm.7 II.

Nichino contends that the TMA precluded the District Court’s decision about irreparable harm. But the District Court admirably navigated Congress’ newly minted rebuttable presumption. While our discussion builds on the District Court’s insights, we arrive at the same conclusion. Valent rebutted the presumption, and Nichino did not independently show irreparable harm.

A. Federal Rule of Evidence 301 Grounds the TMA Like all laws, the TMA does not exist in isolation. It complements existing rules and standards and is informed by their established effect. One complement, Federal Rule of Evidence 301, aids our understanding of the best ordinary meaning of the TMA.8 Rule 301 provides that, in all civil cases, absent specific statutory language to the contrary, “the party against whom a presumption is directed has the burden of producing evidence to rebut the presumption.” Fed. R. Evid. 301. That allocation “does not shift the burden of persuasion, which remains on the party who had it originally.” Id.9 That framework applies here because the TMA creates a rebuttable presumption without explaining how it applies. Lupyan v. Corinthian Colls. Inc., 761 F.3d 314, 320 (3d Cir. 2014) (“Federal Rule [of] Evidence 301 provides the default rule for how presumptions operate in federal civil cases.”); Cappuccio v. Prime Cap. Funding LLC, 649 F.3d 180, 190 (3d Cir. 2011) (applying Rule 301 to the Truth in Lending Act, 15 U.S.C § 1601 et seq., after finding “no language . . . to create a stronger presumption”).

Because Rule 301 shifts the evidentiary burden of production, but leaves the burden of persuasion unmoved, the task of courts applying the TMA is limited. Over-scrutinizing the persuasive value of evidence proffered on rebuttal would violate Rule 301 by shifting the burden of persuasion, not just the burden of production. See Cappuccio, 649 F.3d at 189.

Instead, courts must ask only whether the rebuttal evidence is exist. John Henry Wigmore, Wigmore on Evidence: Evidence in Trials at Common Law § 2491 (4th ed. 1985). Satisfying that burden shifts “the same duty [to] the other party,” who must produce evidence on the other side of the issue. Id. § 2493.

Throughout this shifting one thing never changes: the burden of persuasion, meaning the obligation to convince the fact- finder on the issue, always remains with the same party. Id.; see also McCann, 458 F.3d at 287 (“There are two distinct elements . . . the burden of going forward with proof (the burden of ‘production’) and the burden of persuading the trier of fact (the burden of ‘persuasion’).”) (cleaned up); St. Mary’s Honor Ctr. v. Hicks, 509 U.S. 502, 507 (1993) (a Rule 301 “presumption shifts the burden of production to the defendant, [but] the ultimate burden of persuading the trier of fact . . . remains at all times with the plaintiff”) (cleaned up). enough to allow a reasonable factfinder to conclude that irreparable harm is unlikely.10 With that guidance in hand, we sketch the steps for applying the TMA’s rebuttable presumption.

Step 1. The TMA’s rebuttable presumption requires courts considering a trademark injunction to assess the plaintiff’s evidence only as it relates to a likelihood of success on the merits. Consulting the Lapp factors to analyze likelihood of confusion, but only to determine whether the infringement claim is likely to succeed. Anything more, including commenting on whether the proffered evidence of consumer confusion could show irreparable harm, veers impermissibly into the burden of persuasion controlled by Rule 301. If a court finds no likelihood of success on the merits, the inquiry ends and the injunction will be denied. See, e.g., Kos Pharms., Inc., 369 F.3d at 709; NutraSweet Co. v. Vit-Mar Enters, Inc., 176 F.3d 151, 153 (3d Cir. 1999) (“A plaintiff’s failure to establish any element in its favor renders a preliminary injunction inappropriate.”).

Step 2. If the plaintiff’s evidence does establish likely trademark infringement, the TMA is triggered, and the burden of production shifts to the defendant to introduce evidence sufficient for a reasonable factfinder to conclude that the consumer confusion is unlikely to cause irreparable harm.

See Cappuccio, 649 F.3d at 189. But note again the sequence.

So far, the court has not assessed any of the evidence for likely irreparable harm. Rather, the TMA’s presumption means the court assumes irreparable harm, even if the plaintiff has proffered nothing in support. The focus trains on the defendant’s evidence, and whether it is sufficient to rebut the TMA’s presumption. A meaningful consideration of the facts, not a box-checking review of the Lapp factors, is key, aimed at determining whether the defendant’s offering allows a reasonable conclusion that the consumer confusion shown by the plaintiff will not cause irreparable harm.

Step 3. If a defendant successfully rebuts the TMA’s presumption by making this slight evidentiary showing, the presumption has no further effect. It has done its work and simply disappears like a bursting bubble. See McCann v. Newman Irrevocable Trust, 458 F.3d 281, 287–88 (3d Cir. 2006). So the burden of production returns to the plaintiff to point to evidence that irreparable harm is likely absent an injunction. See id. (“Under Fed. R. Evid. 301 . . . the introduction of evidence to rebut a presumption destroys that presumption, leaving only that evidence and its inferences to be judged against the competing evidence and its inferences to determine the ultimate question at issue.” (quoting McKenna v. Pac. Rail Serv., 32 F.3d 820, 830 (3d Cir. 1994))). Here again, the evaluation outlined in Lapp may prove useful to assess whether consumer confusion will lead to irreparable harm.11 B. The District Court’s Rebuttal Analysis Follows Rule The District Court’s finding that Valent rebutted the TMA’s presumption follows the TMA and tracks Rule 301.

The District Court began by using the Lapp factors to assess likelihood of consumer confusion to determine Nichino’s likelihood of success on the merits without simultaneously considering irreparable harm.12 Finding that Nichino would likely succeed on the merits, the District Court properly applied the TMA by presuming irreparable harm and turning its attention to Valent’s rebuttal evidence. Here, the District Court again appropriately referenced the Lapp factors for consumer confusion, described them as “closely balanced,” and found that Valent had rebutted the presumption by producing evidence of a sophisticated consumer class. (App. at 177–80.) A framework that anticipated the steps we provide today.

Nichino is correct that the District Court erred by considering Nichino’s failure to produce evidence of actual confusion at this stage, when the sole focus is whether Valent had adduced affirmative evidence that irreparable harm is unlikely. As explained, the TMA shifted the burden of production to Valent when Nichino showed likely success.

And Valent cannot meet that production burden simply by pointing to Nichino’s lack of evidence. Faulting Nichino improperly placed the burden of production on the plaintiff at the rebuttal stage.

But that slight error does not undermine the District Court’s judgment. The Court also credited Valent’s evidence that the relevant consumers are sophisticated buyers who exercise great care in purchasing pesticides. Among the facts noted by the Court: 1) the differing prices; 2) the expense of seasonal treatment; 3) regular reliance on expert recommendations; and 4) the consequences of misapplication, including crop destruction and corresponding disastrous economic consequences. All tending to heighten purchasing care, and all making it plausible to conclude that consumers will confirm their pesticide selection before staking their farms on an inadvertent purchase. As the District Court correctly held, this evidence meets the light burden of production that the TMA’s presumption of irreparable harm placed on Valent.13 With the presumption rebutted, the burden of evidence production returned to Nichino to show likely irreparable harm absent an injunction. The District Court found that Nichino did not, and Nichino does not argue otherwise. That makes the District Court’s conclusion, and its decision to deny injunctive relief, correct, as “[a] plaintiff’s failure to establish any element in its favor renders a preliminary injunction inappropriate.”

NutraSweet Co., 176 F.3d at 153.14

III.

For these reasons, we will affirm the District Court’s order denying Nichino’s motion for a preliminary injunction.