Variety Stores, Inc. v. Wal-Mart Stores, Inc.
Opinion
This appeal arises from a protracted trademark dispute between appellant Variety Stores, Inc. ("Variety"), and cross-appellant and appellee Wal-Mart Stores, Inc. ("Walmart"). The district court granted partial summary judgment in Variety's favor, finding Walmart liable for trademark infringement. Following a subsequent bench trial, the district court ordered Walmart to disgorge $32.5 million in profits made from 16 states and the District of Columbia. The district court denied Variety's request for a separate jury trial to determine additional non-disgorgement damages and ordered Walmart to reimburse Variety for reasonable costs and attorneys' fees. Variety appeals from the district court's calculation of disgorged profits and denial of its request for a jury trial. Walmart cross-appeals from the district court's grant of partial summary judgment in Variety's favor and award of profit disgorgement, costs, and attorneys' fees. Because the district court improperly granted summary judgment in Variety's favor, we dismiss the appeal in part, affirm in part, vacate in part, and remand.
I.
This trademark dispute concerns whether Walmart's use of the mark "Backyard Grill" on its grills and grilling supplies infringes on Variety's use of its registered mark, "The Backyard," and unregistered marks, "Backyard" and "Backyard BBQ," that it claims it owns.
Variety is a Delaware corporation that operates retail stores in 16 states and the District of Columbia and sells various outdoor *657 products, such as lawn and garden equipment, grills, and grilling products. In 1997, Variety purchased Rose's Stores, Inc. ("Rose's"), and acquired its registered trademark "The Backyard" for "retail store services in the field of lawn and garden equipment and supplies." J.A. 61. When Rose's applied for the trademark in 1994, the U.S. Patent and Trademark Office ("USPTO") registered the mark without requiring proof of secondary meaning, which is required when the submitted mark is relatively weak and generally unregistrable. At some point, Variety began using variations of "The Backyard"-"Backyard" and "Backyard BBQ"-for selling not just lawn and garden equipment but also grills and grilling supplies.
In late 2010, Walmart decided to adopt a private label for its grills and grilling supplies. According to Karen Dineen, Walmart's Senior Director for General Merchandise, 1 at the time, Walmart was selling its grilling products under multiple manufacturer names and concluded that having one uniform label would improve branding and lower costs. Walmart's branding team embarked on an iterative development process of generating a list of brand names, performing a legal clearance for trademarks, and conducting surveys to gauge customer reactions to those names.
Walmart considered brand names such as "Grill Works," "Backyard Barbeque," 2 and "Backyard BBQ," but it ultimately adopted "Backyard Grill" as the name for its grills. Dineen testified that Walmart's legal team advised the branding team not to adopt "Grill Works," "Backyard Barbeque," and "Backyard BBQ." In a subsequent declaration, Dineen noted that Walmart knew that Variety owned the federal trademark registration for "The Backyard" mark for lawn and garden equipment and supplies. Dineen further submitted, however, that "Walmart was not aware of any of Variety's claimed unregistered or 'common law' uses of marks incorporating the word 'backyard' in connection with any products, including lawn and garden products." J.A. 1515. Dineen also explained that Walmart typically "comparison shop[s]" in its large competitors' stores, such as Lowe's and Home Depot, and that it was unlikely that "somebody from [Walmart] would have gone to a Variety store somewhere just see how they were using their mark." Walmart Opening Br. 25; see also J.A. 1612.
Ultimately, Walmart decided to adopt "Backyard Grill" and began selling grills bearing that mark in late 2011. On August 17, 2011, Walmart filed its trademark application for "Backyard Grill" with the *658 USPTO, while disclaiming the exclusive right to use the word "Grill." On July 10, 2012, the USPTO published Walmart's application for 30 days to allow the public to file any opposition to the registration.
Variety became aware of Walmart's trademark application for "Backyard Grill" and filed an opposition to the application with the Trademark Trial and Appeal Board ("TTAB") in July 2012. After limited discovery before the TTAB, Variety commenced civil action in the federal district court in April 2014, which stayed the TTAB proceedings. Variety brought claims for trademark infringement and unfair competition under federal law,
Variety moved for partial summary judgment with regards to Walmart's liability. Walmart also cross-moved for summary judgment. Variety submitted evidence showing that it had used "The Backyard" and its variations "Backyard" and "Backyard BBQ" (collectively, the " 'Backyard' marks") since 1993; sold over $56 million worth of products bearing the "Backyard" marks, with over $8 million in sales of grills and grilling accessories; and spent "millions" to advertise its products. Variety, however, did not quantify exactly how much it spent on promoting the mark on grills or grilling products. Variety also did not provide any evidence of confusion among consumers.
Similarly, Walmart submitted extensive evidence in support of its summary judgment motion. Most notably, Walmart submitted two expert surveys conducted after the commencement of this suit to gauge the level of actual confusion among customers. These surveys asserted that customers did not confuse the two marks. Additionally, Walmart presented evidence showing that: (1) 527 registered trademarks and pending trademark applications contained the term "backyard," (2) 121 of these marks were in the same class for which Variety's "The Backyard" mark is registered, and (3) 23 registered marks or pending applications including the term "backyard" list "grill" in the description of goods covered by the marks.
After a hearing, the district court granted partial summary judgment in Variety's favor on December 8, 2015. The district court held, first, that all of Variety's marks were protectable pursuant to its trademark registration and common law right and beyond the registered purpose of retail sales of lawn and garden products, and, second, that Walmart's mark created a likelihood of confusion. Regarding the likelihood of confusion analysis, the district court concluded that: Variety's "Backyard" marks were strong conceptually and commercially; Walmart ignored its own counsel's advice and adopted "Backyard Grill," thus exhibiting an intent to confuse consumers; the surveys showing no confusion lacked persuasiveness; and this was a case involving a large corporation trying to outlast a smaller company in competition or litigation.
Following summary judgment, the remedies phase of the litigation began. After a bench trial, the district court ordered Walmart to disgorge approximately $32.5 million in profits. The district court calculated the amount of disgorgement not based on Walmart's nationwide sales ($910 million), but based on Walmart's sales from the 17 jurisdictions in which Walmart and Variety directly competed ($395 million). In accordance with the parties' stipulation that Walmart be able to deduct the cost of goods sold, the district court deducted $285.5 million. The district court further deducted approximately $77 million in selling, general, and administrative ("SG&A")
*659 costs associated with Walmart's fixed overhead. Following the $32.5 million disgorgement order, Variety moved for a separate jury trial to determine additional non-disgorgement damages. The district court denied the motion on the grounds that disgorgement provided a sufficient remedy and non-disgorgement damages would amount to an inequitable double remedy. The district court also ordered Walmart to pay costs and attorneys' fees.
On appeal, Variety argues that the district court erred in: (1) geographically limiting the scope of disgorgement to the 17 jurisdictions in which Variety owns stores and competed with Walmart, (2) allowing Walmart to deduct SG&A costs, and (3) denying its request for a jury trial to determine additional non-disgorgement damages. Walmart cross-appeals by arguing that the district court erred in: (1) granting partial summary judgment in Variety's favor, (2) ordering disgorgement of profits, and (3) awarding costs and attorneys' fees to Variety.
II.
"We review a district court's grant of summary judgment de novo."
Lee v. Town of Seaboard
,
Under Rule 56(a), "[t]he court shall grant summary judgment 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). "A dispute is genuine if a reasonable jury could return a verdict for the nonmoving party," and "[a] fact is material if it might affect the outcome of the suit under the governing law."
Jacobs
,
Once the moving party makes a Rule 56 motion, "[t]he burden is on the nonmoving party to show that there is a genuine issue of material fact for trial ... by offering 'sufficient proof in the form of admissible evidence ....' "
Guessous v. Fairview Prop. Invs., LLC
,
*660
Tolan
,
III.
The Lanham Act protects trademark registrants from "any reproduction, counterfeit, copy, or colorable imitation of a registered mark" by allowing the registrant to commence a civil action against trademark infringers for disgorgement of profits or other damages.
We turn to examine the district court's grant of partial summary judgment in Variety's favor. Because we find the likelihood of confusion analysis dispositive, we first review the district court's conclusion that Walmart's mark created a likelihood of confusion. To determine whether a likelihood of confusion exists, we examine nine factors:
(1) the strength or distinctiveness of the plaintiff's mark as actually used in the marketplace;
(2) the similarity of the two marks to consumers;
(3) the similarity of the goods or services that the marks identify;
(4) the similarity of the facilities used by the markholders;
(5) the similarity of advertising used by the markholders;
(6) the defendant's intent;
(7) actual confusion;
(8) the quality of the defendant's product; and
(9) the sophistication of the consuming public.
Grayson O Co. v. Agadir Int'l LLC
,
Here, the district court determined that all the factors, except for actual confusion, favored Variety and concluded that Walmart's mark created a likelihood of confusion. On appeal, Walmart challenges the district court's analysis of the strength of Variety's mark (Factor 1), the similarity of the two marks to consumers (Factor 2), 3 *661 the similarity of the facilities used by the markholders (Factor 4), Walmart's intent to confuse (Factor 6), and actual confusion (Factor 7). For the following reasons, we conclude that there are genuine disputes of material fact as to whether a likelihood of confusion exists and, thus, that the district court improperly granted summary judgment in Variety's favor.
A.
In reviewing Factor 1, we examine the strength or distinctiveness of Variety's marks and find that the strength of Variety's marks is genuinely disputed. This Court has observed that this factor is " 'paramount' in determining the likelihood of confusion" since a consumer is unlikely to associate a weak or undistinctive mark with a unique source "and consequently will not confuse the allegedly infringing mark with the senior mark."
Grayson O
,
i.
Turning first to conceptual strength, we find Variety's marks conceptually weak. "Measuring a mark's conceptual or inherent strength focuses on the linguistic or graphical 'peculiarity' of the mark, considered in relation to the product, service, or collective organization to which the mark attaches."
CareFirst
,
Descriptive marks-such as "5 Minute glue" or "After Tan post-tanning lotion"-"merely describe a function, use, characteristic, size, or intended purpose of the product" and are not inherently distinctive.
Sara Lee Corp. v. Kayser-Roth Corp.
,
*662
Suggestive marks-such as "Orange Crush®"-merely suggest a product's features and require some imagination on the part of the consumer.
Grayson O
,
We need not definitively resolve whether Variety's marks are suggestive or descriptive, or whether we should consider the marks separately. Even if we assume that Variety's marks are suggestive, these marks are conceptually weak. This Court has noted on numerous occasions that "the suggestive 'designation does not resolve the mark's conceptual strength.' "
Id.
at 315 (quoting
CareFirst
,
Applying these principles to this appeal, we first note that, in considering Variety's motion for partial summary judgment, the district court erroneously failed to credit Walmart's evidence and view the evidence in the light most favorable to Walmart.
See
Tolan
,
*663
marks were "truly a distinctive term, it is unlikely that ... many other businesses ... would independently think of using the same mark or similar variants of it."
Grayson O
,
ii.
Although we conclude that Variety's mark is conceptually weak, in certain circumstances, the commercial strength of a mark can be more important than the conceptual strength.
See
Renaissance Greeting Cards, Inc. v. Dollar Tree Stores, Inc.
,
We consider many factors to determine a mark's commercial strength: "(1) advertising expenditures; (2) consumer studies linking the mark to a source; (3) sales success; (4) unsolicited media coverage of the product; (5) attempts to plagiarize the mark; and (6) the length and exclusivity of the mark's use."
Grayson O
,
Here, both Variety and Walmart have produced sufficient evidence to put the commercial strength of Variety's marks in genuine dispute. On the one hand, Variety has produced some evidence of sales success, advertising expenditures, and duration of use of its marks that demonstrate commercial strength.
See
Perini
,
In sum, when viewing the evidence in the light most favorable to Walmart, we conclude that the overall strength of Variety's marks is genuinely disputed. Because the commercial strength of Variety's marks is genuinely disputed, we find that the district court erred in weighing this factor in Variety's favor.
B.
Next, considering Factor 2, the similarity of the marks, we find that there exists a genuine dispute of material fact as to whether the marks are similar. "[I]n evaluating the similarity of two marks, ... the marks need only be sufficiently similar in appearance, with greater weight given to the dominant or salient portions of the marks."
Lone Star Steakhouse & Saloon, Inc. v. Alpha of Va., Inc.
,
Here, reasonable minds may differ on whether they find Walmart's and Variety's marks similar so as to conclude there exists a likelihood of confusion between the two marks. On the one hand, Walmart's mark "Backyard Grill," like Variety's "Backyard BBQ," features the word "backyard" followed by another descriptive word. The similar linguistic design could confuse consumers; therefore, these two marks could be deemed sufficiently similar. On the other hand, Walmart argues that we should give greater weight to the word "grill" since, on the logo, it is larger and more noticeable than the word "backyard." Based on these two reasonable arguments, and viewing the evidence in the light most favorable to Walmart, we believe there exists a genuine dispute of material fact. Therefore, we conclude that the district court erred in finding this factor in Variety's favor.
C.
Turning to Factor 4, the similarity of the facilities used by the parties, we agree with the district court that this factor favors Variety. In examining this factor, we examine whether "the parties compete[ ] in a similar manner in overlapping markets,"
George
,
D.
Turning to Factor 6, intent to confuse or infringe, we find that there exists a genuine dispute as to whether Walmart intended to confuse consumers by infringing on Variety's marks. "The intent of the defendant is sometimes a major factor in infringement cases."
Pizzeria Uno
,
The parties' arguments regarding Walmart's alleged intent to confuse consumers center around Dineen's deposition testimony. Dineen testified that Walmart's legal department advised the branding team not to adopt "Grill Works," "Backyard Barbeque," and "Backyard BBQ," and that Walmart did not investigate how Variety's stores were branding and marketing its products. In an affidavit following her deposition, Dineen attested that Walmart's branding team knew Variety had adopted "The Backyard" for gardening supplies.
Viewing these facts in the light most favorable to Walmart, we conclude that there exists a genuine dispute as to whether Walmart intended to infringe. Dineen testified that Walmart knew about Variety's registration, which could support an intent to infringe.
See
Star Indus., Inc. v. Bacardi & Co. Ltd.
,
E.
Turning to Factor 7, actual confusion, we find that the district court applied the incorrect legal standard but nevertheless conclude that there exists a genuine dispute of material fact as to whether Walmart has affirmatively proved the lack of actual confusion. Although actual confusion is "often paramount,"
Swatch AG v. Beehive Wholesale, LLC
,
Here, the district court improperly weighed Walmart's evidence suggesting the lack of actual confusion. Although Variety did not produce any evidence of actual confusion, Walmart has attempted to affirmatively prove
the absence of
actual confusion by submitting consumer surveys. The district court, however, "fundamentally disagree[d] with the way the survey was conducted, and, thus, afford[ed] it relatively little weight." J.A. 1621. This was an error because, at the summary judgment phase, the district court should have "refrain[ed] from weigh[ing] the evidence."
Lee
,
F.
In sum, of the disputed factors, Factor 4 favors Variety. And because Walmart has not raised any arguments that the district court erred in weighing Factors 3, 5, 8, and 9 in favor of Variety, we consider them waived.
See
Grayson O
,
We reiterate that "the likelihood of consumer confusion is an 'inherently factual' issue that depends on the unique facts and circumstances of each case."
Anheuser-Busch
IV.
The district court's judgment entered on April 19, 2017, incorporates the district court's orders granting Variety's motion for partial summary judgment, denying Walmart's cross-motion for summary judgment, directing Walmart to disgorge its profit in the amount of approximately $32.5 million, and denying Variety's request for a jury trial for additional damages. The district court's subsequent judgment entered on July 6, 2017, includes the order awarding Variety costs and attorneys' fees.
For the reasons stated above, we vacate the district court's order granting Variety's motion for partial summary judgment and affirm the order denying Walmart's motion for summary judgment. We also vacate every order entered subsequent to the summary judgment rulings. The district court's disgorgement order and costs and fees order were heavily dependent on its summary judgment findings and stipulations. Therefore, with the summary judgment order vacated, these orders cannot stand. We also dismiss the parties' respective cross-appeals pertaining to disgorgement, denial of jury trial, and award of costs and fees because we vacate the underlying orders. We remand for further proceedings consistent with this opinion.
DISMISSED IN PART, AFFIRMED IN PART, VACATED IN PART, AND REMANDED
We limit our recitation of the record in the following manner. First, because Dineen's deposition testimony has been sealed, we rely on unsealed, publicly available sources in reciting the relevant portions of Dineen's testimony. Additionally, in reviewing the district court's summary judgment order, we limit our review to the portion of the record that was presented to the district court as the summary judgment record.
See
Beverati v. Smith
,
The district court's summary judgment order spells this term as "Backyard Barbecue," whereas the parties on appeal spell this as "Backyard Barbeque." We adopt the parties' spelling.
Walmart's opening brief misstates that it takes issue with Factor 3, but the actual argument developed pertains to Factor 2.
These product names included were "Backyard Traditions," "Backyard Chef," "Backyard Bbq," "The BackyardKitchen," "Backyard Basics," "Backyard Feeds," "BackyardGardener.com," "Backyardcity.com," "Backyard Kitchen," "Backyard Grill," "Backyard Paradise," and "The Backyard BBQ Grill Company." J.A. 479.
Because we find that the district court erred in its likelihood of confusion analysis, and this alone is sufficient to vacate the grant of summary judgment in Variety's favor, we need not address whether Variety's marks are protectable.
Reference
- Full Case Name
- VARIETY STORES, INC., a Delaware Corporation, Plaintiff-Appellant, v. WAL-MART STORES, INC., a Delaware Corporation, Defendant-Appellee. Variety Stores, Inc., a Delaware Corporation, Plaintiff-Appellee, v. Wal-Mart Stores, Inc., a Delaware Corporation, Defendant-Appellant. Variety Stores, Inc., a Delaware Corporation, Plaintiff-Appellee, v. Wal-Mart Stores, Inc., a Delaware Corporation, Defendant-Appellant.
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- Published