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A contentious paper towel dispenser dispute between Georgia Pacific and its competitors that has swept across three circuits took another turn when the U.S. Court of Appeals for the Fourth Circuit on March 14 ruled that a district court had erred by vacating a jury's infringement verdict and allowing one of the defendants to file an untimely amended answer to assert preclusion defenses (Georgia Pacific Consumer Products L.P. v. Von Drehle Corp., 4th Cir., No. 12-1444, 3/14/13).
It was the second time that the Fourth Circuit had issued an opinion in the dispute, the first coming in 2010 when the appeals court vacated and remanded a summary judgment order in the defendant's favor. In that decision, the Fourth Circuit ruled that there was sufficient evidence for a jury to find that the Von Drehle Corp., a company that makes paper towels that are inferior to Georgia Pacific's, was contributorily liable for infringement for inducing their customers to “stuff” Georgia Pacific's paper towel dispensers with Von Drehle's products.
On remand, the district court vacated a jury's finding that Von Drehle was liable for trademark infringement. The district court's order took into account preclusion defenses Von Drehle first raised 16 months after the U.S. District Court for the Western District of Arkansas found one of Von Drehle's customers to not be contributorily liable for infringement.
The instant opinion was highly critical of the district court, calling the decision to set aside the jury's verdict “arbitrary,” and an abuse of discretion. The appeals court also said that it had “actually wasted judicial resources” to consider Von Drehle's preclusion defenses at such a late stage in the litigation. The court thus once again vacated the district court's opinion, remanded, and instructed the district court to reinstate the jury's verdict.
Georgia-Pacific Consumer Products designs and manufactures paper products and dispensers. In 2002, Georgia-Pacific introduced “enMotion” dispensers, the first commercial electronic-only, hands-free, paper towel dispensers available in the marketplace.
The enMotion dispensers are non-universal dispensers tied directly to the Georgia-Pacific marks--i.e., they are only intended to operate with enMotion toweling. The dispensers bear the Georgia-Pacific marks “enMotion,” “Georgia-Pacific,” and a stylized “GP.”
Georgia-Pacific leases the enMotion dispensers to distributors through an agreement designating that only Georgia-Pacific branded towels should be used in the dispensers.
Von Drehle Corp. is a competitor of Georgia-Pacific and, in 2004, began selling lower-quality 10-inch toweling for use in enMotion dispensers. Georgia-Pacific sued Von Drehle, alleging contributory trademark infringement and unfair competition under the Lanham Trademark Act of 1948, 15 U.S.C. §§ 1114(1) and 1125(a).
Georgia-Pacific argued that Von Drehle, by inducing and facilitating the end-user's “stuffing” of enMotion dispensers with Von Drehle's toweling, had created post-purchase confusion as to the source of such toweling among restroom visitors, thus creating the potential to harm its reputation and goodwill.
In addition to suing Von Drehle directly, Georgia-Pacific also sued several of Von Drehle's clients.
In 2008, Georgia-Pacific asserted a claim of contributory trademark infringement against Myers Supply Inc. in the U.S. District Court for the Western District of Arkansas. The district court found that Myers, which is a competing paper towel and dispenser distributor that began selling Von Drehle's paper towels in 2007, was not liable for contributory trademark infringement and dismissed the claims with prejudice. Georgia-Pacific Consumer Products L.P. v. Myers Supply Inc., 92 U.S.P.Q.2d 1468 (W.D. Ark. 2009).
In 2010, the U.S. Court of Appeals for the Eighth Circuit affirmed. 621 F.3d 771, 96 U.S.P.Q.2d 724 (8th Cir. 2010).
In another action, Georgia-Pacific sued Four-U-Packaging Inc. of Celina, Ohio, another distributor of Von Drehle paper towels, alleging trademark infringement. Four-U moved for summary judgment, arguing that the claims were barred by the ruling in the Myers Supply proceeding. The U.S. District Court for the Northern District of Ohio granted summary judgment in favor of Four-U. The Sixth Circuit affirmed. Georgia-Pacific Consumer Products L.P. v. Four-U-Packaging Inc., 701 F.3d 1093, 105 U.S.P.Q.2d 1082 (6th Cir. 2012).
Four-U noted that there were some differences in the Sixth Circuit's and Eighth Circuit's multi-factor tests for likelihood of confusion, but it determined that those differences were not sufficient to conclude that federal trademark infringement claims in Ohio would be judged according to a different legal standard than federal trademark infringement claims in Arkansas.
In the instant case, Judge Terrence W. Boyle of the U.S. District Court for the Eastern District of North Carolina initially granted summary judgment in favor of Von Drehle after he determined that Von Drehle could not be contributorily liable for infringement.
That decision was overturned on appeal with the Fourth Circuit holding that there was sufficient evidence for a jury to find a likelihood of confusion among restroom visitors as to the source of the paper toweling being dispensed. 618 F.3d 441, 96 U.S.P.Q.2d 1466 (4th Cir. 2010).
It its 2010 decision, the court had relied on Inwood Laboratories Inc. v. Ives Laboratories Inc., 456 U.S. 844 (1982), which it said stood for the proposition that trademark infringement liability is not confined merely to those who mislabel goods with another's mark. Rather, a manufacturer can still be contributorily liable if it “intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement,” the court said. It thus remanded for a jury determination on whether Von Drehle was contributorily liable for trademark infringement.
Three month's after the Fourth Circuit's remand, and a total of 16 months after Myers scored a victory in the Western District of Arkansas, Von Drehle sought leave to amend its answer in order to assert preclusion defenses based on Myers.
The district court declined to grant Von Drehle leave to amend, finding that the request was “unduly delayed.” The district court noted that Von Drehle's counsel had in fact attended the Myers bench trial, and so was immediately aware of that court's decision when it issued in 2009.
Von Drehle tried again to amend its answer in November 2011, just two months before the scheduled jury trial. This time Von Drehle wished to amend its answer in order to assert preclusion defenses based not on Myersbut on the Northern District of Ohio's decision Four-U, which had issued just four days before Von Drehle sought leave to amend.
Von Drehle also filed a motion for summary judgment based on those preclusion defenses. In the instant proceeding, the district court, however, did not rule on either of those motions before the trial.
The jury found Von Drehle liable for trademark infringement and awarded Georgia-Pacific nearly $800,000 in damages. Von Drehle then filed a post-trial motion requesting judgment as a matter of law and renewing its request to file an amended answer.
This time the court granted Von Drehle's request to assert preclusion defenses. The court said that Von Drehle's motion to amend its answer had been timely filed in light of Four-U-Packaging, which the district court said “revive[d]” the preclusion defenses that first became available after Myers.
Moreover, the district court said that even if Von Drehle had not filed the motion, it would have considered the preclusion defenses sua sponte.
The district court then determined that Georgia-Pacific's trademark infringement claims were barred by collateral estoppel and res judicata. The district court thus granted Von Drehle judgment as a matter of law, and vacated the jury's verdict. Georgia-Pacific appealed.
“Under Rule 8(c)(1) of the Federal Rules of Civil Procedure, the defenses of claim preclusion and issue preclusion are affirmative defenses that must be pleaded,” Judge Barbara Milano Keenan said. The court noted that even if these affirmative defenses were not available at the outset of the case, they may still be waived if a defendant failed to timely amend its answer after the defenses became available.
In this case, “[W]e agree with Georgia-Pacific that von Drehle's failure to timely assert the preclusion defenses based on the Myers judgment effected a waiver of those defenses,” the court said. “We conclude that the district court acted in an 'arbitrary manner,' and, thus, abused its discretion, in relying on the Four-U decision to 'revive' the preclusion defenses that substantively were based on Myers.”
The problem, the court said, was that the Four-Udecision was not on the merits with respect to Georgia-Pacific's trademark infringement, but rather was decided on preclusion defenses based on Myers.
“Thus, contrary to von Drehle's contention, the Four-U decision did not have any preclusive effect independent of the Myers decision, and did not provide a separate basis for timely assertion of the preclusion defenses,” the court said.
Alternatively, the Fourth Circuit said that it had been an error for the court to consider the preclusion defenses sua sponte. There were no “special circumstances” warranting sua sponte consideration of the preclusion defenses, the court noted. It said:
Indeed, this case was particularly ill-suited for sua sponte consideration of preclusion defenses that were known long before trial, given that the issue of trademark infringement already had been decided by the jury. Thus, the district court's sua sponte consideration of the preclusion defenses wasted judicial resources, rather than sparing them.
The court vacated the district court's order and remanded for a reinstatement of the jury's verdict in favor of Georgia-Pacific. It also instructed the district court to consider Georgia-Pacific's requests for injunctive relief.
Judge Roger Gregory and Judge Robert E. Payne of the U.S. District Court for the Eastern District of Virginia, sitting by designation, joined the court's opinion.
Georgia-Pacific was represented by Miguel A. Estrada of Gibson, Dunn & Crutcher, Washington, D.C. Von Drehle was represented by Michael Paul Thomas of Patrick Harper & Dixon, Hickory, N.C.
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