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Stone Creek, Inc. v. Omnia Italian Design, Inc.

United States Court of Appeals, Ninth Circuit

July 11, 2017

Stone Creek, Inc., an Arizona corporation, Plaintiff-Appellant,
v.
Omnia Italian Design, Inc., a California corporation, Defendant-Appellee. Stone Creek, Inc., an Arizona corporation, Plaintiff, and Adam Smith; Corey Eschweiler; Joshua Lloyd Benson; Mark Douglas Chester, Appellants,
v.
Omnia Italian Design, Inc., a California corporation, Defendant-Appellee.

          Argued and Submitted April 6, 2017 Pasadena, California

         Appeal from the United States District Court for the District of Arizona D.C. Nos. 2:13-cv-00688-DLR, 2:13-cv-00688-DLR Douglas L. Rayes, District Judge, Presiding

          Joshua L. Benson (argued) and Adam D. Smith, Glen Lerner Injury Attorneys, Las Vegas, Nevada, for Plaintiff-Appellants.

          Daniel C. DeCarlo (argued), Brittany H. Bartold, Daniel R. Lewis, and Jeffry A. Miller, Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, California, for Defendant-Appellee.

          Before: M. Margaret McKeown and Consuelo M. Callahan, Circuit Judges, and Gordon J. Quist, [*] District Judge.

         SUMMARY [**]

         Trademark

         The panel affirmed in part and reversed in part the district court's judgment, after a bench trial, in favor of the defendant in a trademark infringement action under the Lanham Act.

         Defendant Omnia Italian Design, Inc., copied and began selling the same goods branded with the mark of its (now ex) business partner, retail furniture company Stone Creek, Inc.

         Reversing in part, the panel held that Omnia's use of Stone Creek's mark was likely to cause confusion. The panel rejected Omnia's invocation of the common law defense, known as the Tea Rose-Rectanus doctrine, that protects the use of a mark in a remote geographic area when the use is in good faith. Agreeing with the Seventh and Eighth Circuits, the panel held that Omnia's knowledge of Stone Creek's prior use defeated any claim of good faith. Accordingly, Omnia was liable for infringement of the Stone Creek mark.

         Agreeing with the Federal Circuit, the panel confirmed that a 1999 amendment to the trademark statutes did not sweep away precedent requiring that a plaintiff prove willfulness to justify an award of the defendant's profits. The panel remanded for a determination of whether Stone Creek had the requisite intent.

         The panel affirmed in part and reversed in part the district court's imposition of sanctions under 28 U.S.C. § 1927.

          OPINION

          McKEOWN, Circuit Judge.

         This appeal, set in the high-stakes world of furniture sales, runs the gamut of trademark infringement issues. The facts are somewhat unusual: the alleged infringer, leather furniture manufacturer Omnia Italian Design, Inc. ("Omnia"), admits that it blatantly copied and began selling the same goods branded with the mark of its (now ex) business partner, retail furniture company Stone Creek, Inc. ("Stone Creek").

         The first question we confront is whether Omnia's use of Stone Creek's mark was likely to cause confusion. Placing an identical mark on identical goods creates a strong likelihood of confusion, especially when the mark is fanciful. Because Stone Creek also sells in overlapping marketing channels and the law dictates that other factors heighten the likelihood that consumers will be confused as to the origin of the furniture, we reverse the district court's contrary determination.

         We also reject Omnia's invocation of a common-law defense-known as the Tea Rose-Rectanus doctrine-that protects use of a mark in a remote geographic area when the use is in good faith. Omnia's knowledge of Stone Creek's prior use defeats any claim of good faith. Finally, we confirm that a 1999 amendment to the trademark statutes does not sweep away our precedent requiring that a plaintiff prove willfulness to justify an award of the defendant's profits. A remand is necessary to determine whether Stone Creek can make that showing here.

         Background

         Stone Creek, which manufactures furniture and sells directly to customers, has five showrooms in the Phoenix, Arizona area. Around 1990, Stone Creek adopted and began using the STONE CREEK mark:

         (Image Omitted)

         In 1992, Stone Creek obtained state trademark protection. Twenty years later, in 2012, Stone Creek federally registered its mark. As described in the federal registration, the STONE CREEK mark is a red oval circling the words "Stone Creek" for various types of furniture.

         In 2003, Stone Creek met representatives of Omnia-a manufacturer of leather furniture-at a California trade show. Dazzled by Omnia's pitch, Stone Creek agreed to buy Omnia's furniture. The two companies entered into an agreement under which Omnia manufactured leather furniture branded with the STONE CREEK mark. The business relationship stayed strong through 2012, but in 2013, Stone Creek discovered that Omnia had been using the STONE CREEK mark on competing furniture.

         Omnia's unauthorized use began in 2008 when Omnia was trying to woo a big client. For many years before that, Omnia had worked with retailer Bon-Ton Stores, Inc. ("Bon-Ton"), but Bon-Ton became a "significant" customer in 2008. Bon-Ton signed on for Omnia to supply Bon-Ton's leather furniture. However, Bon-Ton did not want to sell under the Omnia name; instead, Bon-Ton preferred a label that sounded "American." Although Omnia offered multiple options, Bon-Ton opted for STONE CREEK. According to Omnia, part of the allure of selecting the STONE CREEK mark was that marketing materials and a logo were already prepared.

         Omnia copied the logo directly from Stone Creek's materials. Omnia's team used old documents with Stone Creek's logo to digitally recreate the identical logo because they could not achieve sharp resolution by scanning. Then Omnia plastered the mark onto a host of items, including binders, leather samples, and color boards for display in Bon-Ton stores. Most relevant here, Omnia designed warranty cards with the STONE CREEK mark, and, from 2008 to 2013, sold leather furniture to Bon-Ton branded with the STONE CREEK mark. Near the end of this period, Stone Creek-still unaware of Omnia's misdoings- obtained its federal trademark registration.

         The STONE CREEK-labeled furniture produced by Omnia was shipped to Bon-Ton and sold to customers at Bon-Ton's various furniture galleries in the Midwest.[1]Omnia's products reached purchasers living within 200 miles of a Bon-Ton gallery, including portions of Illinois, Indiana, Iowa, Michigan, Ohio, Pennsylvania, and Wisconsin. The claimed infringing sales all occurred within that area.

         Stone Creek caught a whiff of what Omnia was doing by 2013. Multiple customers contacted Stone Creek to ask about product options and store locations in the Midwest. Another customer called about a warranty issue with a leather sofa purchased at a Bon-Ton store in Chicago. The warranty card contained the STONE CREEK mark, which led the customer to Stone Creek's website. At that point, Stone Creek's president discovered that the mark was being used on furniture sold on Bon-Ton's website, and Stone Creek asked Omnia if it was selling products with the STONE CREEK mark to other companies.

         To its credit, Omnia was candid. In an email from the Vice President of Sales, Omnia unequivocally admitted to selling furniture under the STONE CREEK mark. In a move not recommended when litigation is certainly impending, the email observed: "In this day of internet shopping and surfing, it is unfortunate and probably a nuisance for you that your stores are receiving inquiries regarding these products due to the similar name."

         Stone Creek filed suit in the District of Arizona, alleging federal and common-law trademark infringement and unfair competition. After a bench trial, the district court held that Omnia did not infringe Stone Creek's trademark because there was no likelihood of confusion.[2] The court also ruled at summary judgment that disgorgement of Omnia's profits required a showing of willful infringement, but that determination was never made because Omnia was not found to infringe. During the course of the case, the court sanctioned Stone Creek's attorneys on two occasions for filings related to Omnia's profits and damages.

         Analysis

         I. Likelihood of Confusion

         Under the Lanham Act, infringement lies for both registered and unregistered trademarks when the alleged infringer's use "is likely to cause confusion, or to cause mistake, or to deceive." 15 U.S.C. §§ 1114(1)(a), 1125(a)(1)(A). The touchstone for trademark infringement is likelihood of confusion, which asks whether a "reasonably prudent" marketplace consumer is "likely to be confused as to the origin of the good or service bearing one of the marks." Rearden LLC v. Rearden Commerce, Inc., 683 F.3d 1190, 1214 (9th Cir. 2012) (citation omitted). Although we review the district court's findings and determination of no likelihood of confusion for clear error, we address legal error de novo. See Gilman v. Brown, 814 F.3d 1007, 1017 (9th Cir. 2016) ("Because the district court applied the wrong standard, it committed legal error, and the resulting factual findings are clearly erroneous."), cert. denied sub nom. Madden v. Brown, 137 S.Ct. 650 (2017); Reno Air Racing Ass'n, Inc. v. McCord, 452 F.3d 1126, 1135 (9th Cir. 2006); see also Dorr-Oliver, Inc. v. Fluid-Quip, Inc., 94 F.3d 376, 380 (7th Cir. 1996) (noting that courts "review the district court's statement of the law de novo for legal error" in likelihood of confusion cases).

         The district court properly cited the well-established factors (the Sleekcraft factors) that guide the likelihood of confusion inquiry. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979), abrogated on other grounds by Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792 (9th Cir. 2003). In conducting the analysis, courts do not merely count beans or tally points. See Dreamwerks Prod. Grp., Inc. v. SKG Studio, 142 F.3d 1127, 1129 (9th Cir. 1998). Not all factors are created equal, and their relative weight varies based on the context of a particular case. See Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1145 (9th Cir. 2011).

         Two particularly probative factors are the similarity of the marks and the proximity of the goods. See Lindy Pen Co. v. Bic Pen Corp., 796 F.2d 254, 256-57 (9th Cir. 1986). Other potentially relevant factors include the strength of the protected mark, evidence of actual confusion, the use of a common marketing channel, the defendant's intent in selecting the allegedly infringing mark, the type of goods and the degree of consumer care, and the likelihood of product expansion. Sleekcraft, 599 F.2d at 348-49. After examining the district court's consideration of the factors in this case, we conclude that the court legally erred in framing many of the Sleekcraft factors, leading us to reverse the finding of no likelihood of confusion. The indistinguishable marks and goods, coupled with a fanciful mark, evidence of actual confusion, convergent marketing channels, and blatant copying, tell the real story.

         A. Similarity of the Marks and Proximity of the Goods

         The parties do not dispute-nor could they-the district court's finding that the factors examining similarity of the marks and the proximity of the goods favor Stone Creek. But simply acknowledging the identity of the marks and goods understates the importance of these factors and our precedent's conclusion that identical marks paired with identical goods can be case-dispositive: "In light of the virtual identity of marks, if they were used with identical products or services likelihood of confusion would follow as a matter of course." Brookfield Commc'ns, Inc. v. W. Coast Entm't Corp., 174 F.3d 1036, 1056 (9th Cir. 1999); Opticians Ass'n of Am. v. Indep. Opticians of Am., 920 F.2d 187, 195 (3d Cir. 1990) ("[L]ikelihood of confusion is inevitable, ...


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