Source: https://www.mbhb.com/intelligence/snippets/trademark-functionality-in-the-beverage-industry
Timestamp: 2019-04-18 13:18:26+00:00

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Diageo, the world’s largest producer of spirits, has recently found itself in several significant trademark disputes regarding a number of the company’s spirit lines. In a case decided in May 2012 Maker’s Mark brought suit against Diageo regarding use of the dripping red wax seal made famous by Maker’s Mark. In a case decided in March 2013 American Beverage Corporation brought suit against Diageo over use of flexible foil pouches to deliver frozen cocktail products. And in an ongoing case, Diageo brought suit against Mexcor alleging infringement of some of the company’s Crown Royal marks. This article discusses the outcome of the Maker’s Mark and American Beverage cases, and discusses the strengths and weaknesses of the arguments asserted in the yet to be decided Mexcor case.
In 1995, Jose Cuervo began producing a line of premium tequila called, “Reserva de la Familia.” The tequila bottle initially featured a red wax seal that was straight-edged and did not feature drips, but by 2001, Cuervo was selling this tequila in the United States in bottles that included a red dripping wax seal similar to that of Maker’s Mark.
In 2003, Maker’s Mark filed suit against Casa Cuervo S.A. de C.V., Jose Cuervo International, Inc., Tequila Cuervo La Rojeña S.A. de C.V., and Diageo North America, Inc. alleging state and federal trademark infringement as well as federal trademark dilution. The district court found that Maker’s Mark’s seal was a valid trademark. They also held that Cuervo had infringed that mark. Cuervo appealed the district court’s determination that the mark was not aesthetically functional, as well as some of the district court’s findings regarding its confusion analysis.
Regarding Cuervo’s functionality allegations, the Court of Appeals for the Sixth Circuit held that a trademark may be found to be functional under the traditional functionality doctrine or the aesthetic functionality doctrine. Under the traditional functionality doctrine, a trademark is functional if “it is essential to the use or purpose of the article or if it affects the cost or quality of the article.” The Supreme Court has discussed the aesthetic functionality doctrine in dicta, holding that in cases where a feature of the trademark has no “bearing on the use or purpose of the product or its cost or quality,” it is proper to inquire into a significant non-reputation-related disadvantage.
The court found that regardless of which test it used, Cuervo’s appeal on the aesthetic functionality of the Maker’s Mark trademark would not succeed. The court held that because “there is more than one way to seal a bottle with wax to make it look appealing,” Cuervo failed the Comparable Alternatives Test. Similarly, the court held that “red wax is not the only pleasing color of wax, nor does it put competitors at a significant non-reputation-related advantage to be prevented from using red dripping wax.” Thus, Cuervo failed the Effective Competition Test as well.
In another case involving a Diageo trademark dispute, in May 2012, American Beverage Corporation (ABC) filed a Motion for Preliminary Injunction against Diageo regarding the use of a flexible foil pouch to deliver frozen cocktail products. In 2005, ABC began development of a “ten-ounce, single-serve ready-to-drink frozen cocktail product to be served in a flexible foil pouch.” The result was a pouch to be sold under its Daily’s brand that has a wedge shape when viewed from the side and an hourglass shape when viewed from the front . In early 2011, as a result of the success of the frozen pouch, Diageo sought to enter this market. Diageo developed a frozen pouch product for its Parrot Bay™ and Smirnoff™ spirit lines that approximated the size and shape of the ABC pouches.
In its complaint, ABC alleged that these Diageo pouches “infringe the design patent and trade dress utilized in the frozen cocktail products produced by ABC.” ABC is the licensee of Design Patent No. D571, 672, which is directed to the ornamental design for a flexible pouch. Regarding ABC’s trade dress infringement claims, the court stated that in order to establish a likelihood of success on the merits, ABC must show that its trade dress design is nonfunctional and distinctive, and that there is a likelihood of confusion as to the source of the products.
In an ongoing case, Diageo is the plaintiff in a trademark dispute, regarding its Crown Royal™ line of Canadian Whisky. On March 26, 2013, Diageo North America filed suit against Mexcor, Inc. and EJMV Investments, LLC for trademark and trade dress infringement, unfair competition and false designation of origin.
Crown Royal is one of the most popular and recognizable brands of Canadian Whisky in the world. The whisky is packaged in a cloth purple bag with drawstrings and gold stitching. Crown Royal began selling their whisky in the United States in the 1960’s and today, its US annual sales are in the hundreds of millions of dollars.Founded in 1989, “Mexcor is a Texas-based business that import[s], market[s], sell[s] and distribute[s] a variety of brands of alcoholic beverages.” Since at least as early as 2008, Mexcor has distributed a line of Canadian whisky using names and marks that include the word “crown,” including Texas Crown Club™, Florida Crown Club™, and South Carolina Crown Club™. This line of whisky is packaged in cloth bags having a distinctive state flag theme or a distinctive theme that suggests a state or regional locale.
In its complaint, Diageo asserted that Mexcor’s branding and packaging of their Crown Club™ line of whisky “exacerbate the likelihood of consumer confusion.” Specifically, it asserted that Mexcor’s use of the “Crown-formative” trademarks, and soft, cloth bags with drawstrings at the top have caused, and will continue to cause, a likelihood of confusion and deception among members of the public, with respect to Diageo’s Crown Royal word mark, purple bag mark, and the Crown Royal trade dress.
In response, Mexcor asserted two counterclaims against Diageo. Mexcor first seeks a declaratory judgment of non-infringement. Mexcor additionally seeks cancellation of Diageo’s purple bag mark on the basis of abandonment.
Regarding its abandonment claim, Mexcor asserted that “the use of a cloth bag to package alcoholic products is a functionally desirable method of packaging such products that is in common usage in the marketplace.” Mexcor asserted that this “common usage by different entities of cloth bags for many different alcoholic products… causes such bags, without more, to lack the necessary distinctiveness to identify and distinguish a single source.” Because of this, Mexcor claimed that Diageo has abandoned, or at least partially abandoned, this mark to the extent that it might apply to other bags than those identical to that described in its trademark registration.
On first glance, it appears that Mexcor should have also asserted a functionality defense regarding Diageo’s purple bag trademark. However, upon closer consideration of the prosecution history of the mark, this might not be a strong argument. During prosecution, the Examining Attorney made an initial rejection of the mark based on functionality, stating that “the bag will simultaneously serve as ornament, protector, and carrier for the whisky.” In response, Diageo stated that “the underlying rationale for the functionality doctrine is to prevent trademark applicants from acquiring potentially perpetual patent-style protection of utilitarian features through trademark laws.” Diageo further argued that “the purple bag does not embody utilitarian features that, if used exclusively by Diageo, would place competitors at a disadvantage in terms of cost or ease of manufacture.” The Examining Attorney found this argument to be persuasive and withdrew the functionality rejection.
Based on this rationale, and in view of rulings in other cases as discussed above, the court is not likely to find that the purple bag is functional. Mexcor may yet have a route to prevail, however, if it focuses on the lack of similarity between the products and the widespread permeation of cloth bags in the spirit industry. Those in any industry where packaging is an important source identifier should follow the guidance regarding functionality set forth in the cases discussed above in order to avoid the loss of trademark rights.
 James Thompson, Johnnie Walker popularity helps Diageo to toast profits, The Independent (Aug. 27, 2010), http://www.independent.co.uk/news/business/news/johnnie-walker-popularity-helps-diageo-to-toast-profits-2063217.html.
 Maker’s Mark Distillery, Inc. v. Diageo N. Am., Inc., 679 F.3d 410, 417 (6th Cir. 2012).
 Am. Bev. Corp. v. Diageo N. Am., Inc., CIV.A. 12-601, 2013 WL 1314598 (W.D. Pa. 2013).
 Complaint, Diageo N. Am., Inc., v. Mexcor, Inc., No. 4:13-cv-00856 (S.D. Tex. Mar. 2013) [hereinafter “Diageo Complaint”].
 Makers Mark, 679 F.3d at 416-417.
 Qualitex Co. v. Jacobson Prods Co., 514 U.S. 159, 165 (1995) (quoting Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 (1982)).
 TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 33 (2001).
 Makers Mark, 679 F.3d at 418 (quoting Antioch Co. v. W. Trimming Corp., 347 F.3d 150, 155 (6th Cir. 2003).
 Id. (quoting Abercrombie & Fitch Stores, Inc. v. Am. Eagle Outfitters, Inc., 280 F.3d 619, 642 (6th Cir. 2002)).
 Id. (quoting Abercrombie, 280 F.3d at 642).
 Am. Bev. Corp., WL 1314598 at *1.
 Id. (quoting Ideal Toy Corp. v. Plawner Toy Mfg. Corp., 685 F.2d 78, 81 (3d Cir. 1982)).
 Id. at ¶¶ 14, 18.
 Answer at ¶ 83, Diageo North America, Inc., v. Mexcor, Inc., No. 4:13-cv-00856 (S.D. Tex. Mar. 2013) [hereinafter Mexcor Answer].
 Diageo Complaint, at ¶ 4.
See Mexcor Answer, at ¶¶ 114, 116.
 U.S. Trademark No. 3,137,914 (registered Sept. 5 2006).
 See id. at Office Action dated Oct. 3, 2005.
 Mexcor Answer, at ¶ 93.
 U.S. Trademark No. 3,137,914 , Office Action dated Mar. 10, 2005.
 Id. at Response dated Sept. 9, 2005.
 Id. at Office Action dated Oct. 3, 2005.

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