Source: https://law.justia.com/cases/federal/appellate-courts/F2/870/1176/312221/
Timestamp: 2019-08-25 00:13:26
Document Index: 46056275

Matched Legal Cases: ['§ 1125', '§ 636', '§ 636', '§ 636', '§ 1125', '§ 636']

Schwinn Bicycle Company, Plaintiff-appellee, v. Ross Bicycles, Inc., Defendant-appellant, 870 F.2d 1176 (7th Cir. 1989) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Seventh Circuit › 1989 › Schwinn Bicycle Company, Plaintiff-appellee, v. Ross Bicycles, Inc., Defendant-appellant
Schwinn Bicycle Company, Plaintiff-appellee, v. Ross Bicycles, Inc., Defendant-appellant, 870 F.2d 1176 (7th Cir. 1989)
US Court of Appeals for the Seventh Circuit - 870 F.2d 1176 (7th Cir. 1989)
Argued Sept. 15, 1988. Decided Feb. 27, 1989. Rehearing and Rehearing In Banc Denied March 24, 1989
Plaintiff-appellee Schwinn Bicycle Company brought suit against defendant-appellant Ross Bicycles, Inc., alleging that Ross had taken orders for a prototype of an exercise bicycle that unfairly copied the trade dress of an exercise bicycle produced by Schwinn in violation of Sec. 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).1 Schwinn moved for a preliminary injunction requesting that Ross be prohibited from selling its exercise bicycle, and the district judge designated a magistrate to conduct a hearing and issue proposed findings of fact as well as a recommendation for disposition of the motion pursuant to 28 U.S.C. § 636. After a nine-day hearing the magistrate recommended denial of the preliminary injunction motion. The district judge, after conducting a de novo review of the record, disagreed with the magistrate's recommendation and granted Schwinn's preliminary injunction motion.2 Ross appeals the district court's order granting the preliminary injunction. We vacate and remand.
In 1977 Lindsay Hooper (an engineer for Repco, an Australian company) approached the executive vice president of Schwinn with a prototype for a new exercise bicycle.3 This prototype was unique because, in addition to exercising the rider's legs like other conventional exercise bicycles, it also enables the rider to exercise his/her upper body by moving the long handle arms back and forth with his/her arms and shoulders. The prototype had air vanes (resembling the blades on an ordinary free-standing fan) mounted on a front bicycle wheel to provide resistance to the pedals and handle arms as the wheel turned which, consequently, required the rider to expend energy ("exercise"). Thus, the resistance was generated by "air displacement."4 See Schwinn Bicycle Co. v. Ross Bicycles, Inc., 678 F. Supp. 1336, 1339 (N.D. Ill. 1988). Hooper had obtained Australian and United States patents on the "linkage" mechanism connecting the foot pedals to the handle arms which allowed the handle arms to spin the pedals and, in turn, drive the front fan wheel. Hooper, before approaching Schwinn, assigned the patents to Repco (an Australian company). In effect, Hooper's patented linkage mechanism allowed the front fan wheel to be driven by the handle bars alone only if the rider took his feet off the pedals.
Ultimately, Schwinn obtained the exclusive right to use the linkage mechanism patent and, thereafter, modified the design of Hooper's exercise bicycle prototype making it more attractive, adding a protective cage around the large (27-inch) front wheel (the "fan"), and adding a locking device to keep the wheel and pedals from inadvertently moving when not being ridden by an exerciser. Schwinn has successfully marketed its version of the air displacement exercise bicycle since late 1978 under the trade name "Air-Dyne" and has spent well over $4 million in advertising the product between 1980 and 1986.5 The district court trial judge determined that " [u]ntil recently, ... there were more than 100 exercise bicycles on the market" and further that "no other manufacturer sold an exercise bicycle that looks or performs like the Air-Dyne." 678 F. Supp. at 1339. The district court was silent concerning the reason for this lack of competition, but the magistrate reported that "a major reason for the lack of competition [with the Air-Dyne] was the Hooper patent."
In 1986 Jerry Ross, President and Chief Executive Officer of Ross Bicycles, Inc., designed and developed a linkage mechanism that avoided the Hooper patent. It is uncontested that Ross actually purchased a Schwinn Air-Dyne to aid him in designing an exercycle around the patent.6 After Ross came up with a linkage mechanism design that did not infringe on Schwinn's patent, it constructed a prototype of its version of an air displacement exercise bicycle and displayed its early prototypes at trade shows in late 1986 and early 1987. According to the district court, Ross intentionally copied the Air-Dyne's "basic shape, silhouette, and primary features," 678 F. Supp. at 1342, and stated that " [a]lthough some engineering improvements were made by Ross, the basic design--apart from the gear [the linkage mechanism]--was taken from Schwinn." Id. at 1343 n. 10.
" [t]he Air-Dyne and the Ross bike are basically identical in shape, the arms of the two machines are shaped nearly the same, the wheel and enclosing cage are of the same size and configuration, and the rear and bases of the two bikes are nearly identical. While Ross uses the color creme where Schwinn has used chrome, and chrome where Schwinn uses white, the overall white, and chrome effect of the two exercisers is also similar."
678 F. Supp. at 1339.
This is an interlocutory appeal from the district court's grant of a preliminary injunction. Schwinn moved for a temporary restraining order and a preliminary injunction prohibiting the sale of Ross' exercise bicycle.7 The district court denied the temporary restraining order and designated a magistrate to hear evidence and make a report and recommendation on the motion for preliminary injunction pursuant to 28 U.S.C. § 636(b) (1) (B). After a nine-day hearing, the magistrate recommended denial of the preliminary injunction motion because Schwinn was not likely to establish some likelihood of consumer confusion at trial, and because Ross was likely to prevail on the issue of functionality. The respective parties objected to the magistrate's report, on separate grounds,8 pursuant to Rule 72(b), Fed. R. Civ. P. ; the district judge made a de novo determination based on the record of the magistrate's hearing pursuant to 28 U.S.C. § 636; and granted the preliminary injunction determining, contrary to the magistrate's recommendation, that Schwinn was likely to establish consumer confusion at trial and that Ross was not likely to prevail on the issue of functionality. We review the Memorandum and Order of the district court judge granting the preliminary injunction.9
The "scope of judicial review of a district judge's decision to grant or deny a preliminary injunction is limited." American Hosp. Supply v. Hospital Prod., Ltd., 780 F.2d 589, 594 (7th Cir. 1986) (citations omitted). Findings of fact are reversible only if clearly erroneous, Vaughan Mfg. Co. v. Brikam Int'l., Inc., 814 F.2d 346, 349 (7th Cir. 1987), and we will reverse an order granting or denying a preliminary injunction on the facts only if the district court abused its discretion. American Hosp. Supply v. Hospital Prod., Ltd., supra10 ; Maxim's Ltd. v. Badonsky, 772 F.2d 388, 390 (7th Cir. 1985). Stated another way: "To reverse an order granting or denying a preliminary injunction ... it is not enough that we think we would have acted differently in the district judge's shoes; we must have a strong conviction that he exceeded permissible bounds of judgment." American Hosp. Supply, supra, at 595.11 On the other hand, we have cautioned trial courts that " ' [t]he granting of a preliminary injunction is an exercise of a very far-reaching power, never to be indulged in except in a case clearly demanding it ' " presumably because it constrains one of the party's freedom to engage in, as in this case, non-criminal behavior. Roland Machinery Co., 749 F.2d at 389 (quoting Warner Bros. Pictures, Inc. v. Gittone, 110 F.2d 292, 293 (3d Cir. 1940) (per curiam) (citing inter alia 11 Wright & Miller, Federal Practice & Procedure Sec. 2942, at 368 (1973)) (emphasis added). "The exercise of a power so far-reaching ought to be subject to effective and not merely perfunctory, appellate review." Id. Thus, this Court does "not simply engage in a perfunctory rubber-stamping of the district court's decision." Olin Water Services v. Midland Research Laboratories, Inc., 774 F.2d 303, 307 n. 7 (8th Cir. 1985). Conclusions of law, however, are reviewed de novo. Lawson Products Inc. v. Avnet, Inc., 782 F.2d 1429, 1437 (7th Cir. 1986). Thus, "the review of a grant of preliminary injunction is mixed. Factual determinations are reviewed under a clearly erroneous standard; legal conclusions are reviewed de novo." A.J. Canfield Co. v. Vess Beverages, Inc., 796 F.2d 903, 905 (7th Cir. 1986).
This court described the legal standard for determining whether a preliminary injunction is proper in both non-mathematical and mathematical terms, but both descriptions explain the same standard. In A.J. Canfield, supra, we stated that " [t]he district court must evaluate ... [preliminary injunction] case [s] under a well-delineated four-part test; we ... review that court's analysis under that test for factual and legal error." Id. at 906. In Roland Machinery Co. v. Dresser Ind., Inc., 749 F.2d 380, 386-88 (7th Cir. 1984), we stated the four-part test in granting injunctive relief in non-mathematical form: (1) whether the plaintiff has an adequate remedy at law; (2) whether the plaintiff will suffer irreparable harm if the injunction is not granted and whether this harm is greater than any irreparable harm to defendant if the injunction is granted; (3) whether the plaintiff has some likelihood of success on the merits and how likely that success is "because this affects the balance of harms" between the parties; and (4) the consequences of an order granting or denying a motion for preliminary injunction on the public interest. See also A.J. Canfield, supra; American Hosp. Supply, supra, at 593-94. In American Hosp. Supply v. Hospital Products, Ltd., 780 F.2d 589, 593 (7th Cir. 1986) we described the standard in a mathematical fashion analyzing the probable "costs" of the parties:
" [T]he one likely to be less costly can be selected ... [and we can] grant the preliminary injunction if but only if ... the harm to the plaintiff if the injunction is denied, multiplied by the probability that the denial would be an error (that the plaintiff, in other words, will win at trial), exceeds the harm to the defendant if the injunction is granted, multiplied by the probability that granting the injunction would be an error."III. TRADE DRESS INFRINGEMENT
In this case, Schwinn contends that Ross's Futura unfairly infringes on the "trade dress" of Schwinn's Air-Dyne under Sec. 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). This court has stated that:
" [a] product's trade dress is the overall image used to present it to its purchasers; it could thus include, to give a partial list, the product's size, shape, color, graphics, packaging, and label. See Blau Plumbing Inc. v. S.O.S. Fix-It, Inc., 781 F.2d 604 (7th Cir. 1986), and LeSportsac, Inc. v. K Mart Corporation, 754 F.2d 71, 75 (2d Cir. 1985). A trademark [on the other hand] is thought of as something more specific, such as a logo."
Vaughan Mfg. Co. v. Brikam Int'l., Inc., 814 F.2d 346, 348 n. 2 (7th Cir. 1987) (emphasis added).
Section 43(a) of the Lanham Act creates a federal remedy against "a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same...." Its general purpose "is to reduce the cost of information to consumers by making it easy for them to identify the products or producers with which they have had either good experiences, so that they want to keep buying the product (or buying from that producer), or bad experiences, so that they want to avoid the product or the producer in the future." W.T. Rogers Co. Inc. v. Keene, 778 F.2d 334, 338 (7th Cir. 1986) citing Scandia Down Corp. v. Euroquilt, Inc., 772 F.2d 1423, 1429-30 (7th Cir. 1985).
Although Sec. 43(a) is often thought of in a more narrow trademark context, its remedies are "not limited to trademark infringement ... [i]t provides a remedy for trademark infringement only because that is a type of unfair competition, and it provides a remedy for other types [of infringement] as well. In fact, it does not [specifically] mention trademarks." Blau Plumbing, Inc. v. S.O.S. Fix-It, Inc., 781 F.2d 604, 608 (7th Cir. 1986) (emphasis added).12
In a trade dress infringement action the manufacturer (in this case Schwinn) must establish either that its trade dress has acquired "secondary meaning"13 or that its trade dress is a "distinctive, identifying mark." Blau Plumbing, Inc., supra, at 608. The manufacturer must also establish that consumers will be "likely confused" as to the source of the product because of the similarity of the products' appearance. See Service Ideas, Inc. v. Traex Corp., 846 F.2d 1118 (7th Cir. 1988). Finally, as the district court stated below: " [e]ven if both of ... [the first two] requirements are satisfied ... a plaintiff [Schwinn] cannot prevail if the alleged appropriated trade dress is found to be 'functional.' " Schwinn Bicycle Co. v. Ross Bicycles, 678 F. Supp. 1336, 1341 (N.D. Ill. 1988). With this general background we turn and consider Ross' contentions on appeal.
Ross does not contest the district judge's finding of "secondary meaning" for the present purpose of appealing the grant of the preliminary injunction.15 On the other hand, Ross does challenge the district judge's use of a presumption of confusion based on the Air-Dyne's secondary meaning as related to Ross' copying of the Air-Dyne. See 678 F. Supp. at 1348. Further, Ross argues that the use of the presumption tainted the district court's application of the digits (factors) of confusion test, and in any event, that the district court misapplied the digits of confusion test.
The district judge relied on Processed Plastic Co. v. Warner Communications, Inc., 675 F.2d 852 (7th Cir. 1982), for the proposition that a presumption of consumer confusion exists in this circuit: " [i]n instances of intentional copying the second ... [manufacturer] is generally presumed to have intended to create a confusing similarity of appearance and to have succeeded in doing so." Id. at 857 (emphasis added). However, we believe the district judge placed far more emphasis on this quotation than it properly deserves when he presumed a likelihood of confusion based merely upon a showing that the defendant intentionally copied the plaintiff's trade dress because the sentence preceding it stated "another important factor bearing on the likelihood of confusion issue is ... [junior manufacturer's] admission that it deliberately copied the ... [item] to capitalize on the popularity of ... [a] TV show." Id. (emphasis added). This language fails to expressly adopt a presumption but rather states that deliberate copying is one of the factors to be considered within the framework of the "digits of confusion test." Convincing reasoning against the use of a presumption was stated by the Third Circuit on an appeal from a judgment denying relief for alleged trade dress infringement:
American Home Products v. Barr Laboratories, 834 F.2d 368, 371 (3d Cir. 1987) (emphasis added). Moreover, the exclusive use of a presumption of consumer confusion without other support in granting a preliminary injunction is at odds with the general rule that " [t]he granting of a preliminary injunction is an exercise of a very far-reaching power, never to be indulged in except in a case clearly demanding it." Roland Machinery Co. v. Dresser Industries, 749 F.2d 380, 389 (7th Cir. 1984) (emphasis added).
Because intentional or deliberate copying is but one of the factors "bearing on the likelihood of confusion issue," we are of the opinion that the district judge committed error when he presumed the likelihood of confusion element from his finding that Ross intentionally copied the Air-Dyne.16 Processed Plastic Co. v. Warner Communications, Inc., supra, at 857. While the district court has discretion to determine the evidentiary weight to be given any single factor, we do not believe that the application of a presumption is a permissable or appropriate equivalent to weighing one factor more than another and, therefore, the use of a presumption was not appropriate in this case. We know of no case law that allows for the use of a presumption in this manner. Therefore, we set aside the ruling of the district court. In cases requiring determinations concerning the likelihood of confusion, the actual and reasoned weighing of the evidence is imperative and is inherent in a meaningful exercise of discretion. It is paramount for the trier of fact to look to the totality of the circumstances and evidence and then, after careful consideration and reflection, in its own sound judgment assess the likelihood of confusion. As this court has stated: "A variety of factors may be material in assessing the likelihood of confusion ... [and] this circuit has considered several factors to be important...." McGraw-Edison Co. v. Walt Disney Productions, 787 F.2d 1163, 1167 (7th Cir. 1986) (citations omitted) (emphasis added). However, " [n]one of these factors by itself is dispositive of the likelihood of confusion question, and different factors will weigh more heavily from case to case depending upon the particular facts and circumstances involved." Id. (citations omitted, emphasis added). The importance of the weighing process leads us to conclude that the district court also erred as a matter of law in the manner in which it applied the "digits of confusion test."
This court has specifically delineated several important factors to be considered by the trial court under the digits of confusion test. In Wesley-Jessen, Div. v. Bausch & Lomb Inc., 698 F.2d 862, 866 (7th Cir. 1983), we delineated some of the factors to be considered and commented on their use:
Id. (bracketed material in original) quoting Union Carbide Corp. v. Ever-Ready Inc., 531 F.2d 366, 381-82 (7th Cir.), cert. denied, 429 U.S. 830, 97 S. Ct. 91, 50 L. Ed. 2d 94 (1976).
678 F. Supp. at 1344-45. It at least appears that the factors of confusion may have been in balance, analyzed in the context of rebutting a presumption because
" [i]n making her findings with regard to ... [the likelihood of consumer confusion], the magistrate accorded insufficient weight to a number of factors--including a presumption which arises from the evidence of secondary meaning and the Air-Dyne's distinctive appearance, coupled with the evidence of Ross' intentional copying."
678 F. Supp. at 1344 (emphasis added). We have previously determined the use of the presumption of consumer confusion from the finding of secondary meaning was error; consequently, the district court erred as a matter of law because the confusion test is not or "must" not be influenced by a presumption.
Even without the use of the presumption, however, the district court failed to properly apply the confusion test when it found, with the exception of actual confusion, that each digit of confusion was supported in the evidence. First, the district court disagreed with the magistrate and deemphasized evidence relating to the conditions of purchase, the price of the products and brand labeling because it determined as a matter of law that cases relying on those factors lacked a separate finding of secondary meaning. See, e.g., Litton Systems Inc. v. Whirlpool Corp., 728 F.2d 1423 (Fed. Cir. 1984). The district court stated in its discussion of labeling, for example, that "the fact that Air-Dyne in this case has acquired secondary meaning renders the mere fact of labeling significantly less important here than it was in Litton."17
It is correct that in its discussion of labeling the Third Circuit stated in Litton that " [the district] court failed to note, in particular, that the similarity of design ..., except as to very few items, [is] a similarity shared by many microwave ovens on the market ...," thus implying the ovens were neither distinctive nor had acquired secondary meaning. However, we do not interpret this language as mandating that a finding of secondary meaning automatically obviates the label analysis under the confusion element of trade dress infringement, and the Litton court said nothing contrary to our interpretation requiring a separate analysis of the secondary meaning and consumer confusion elements. In fact, the court in Litton confined its review to the consumer confusion element and did not even consider either the secondary meaning or functionality elements indicating a distinct analysis. Id. at 1445. Moreover, the order in which the Litton court prepared its list of necessary trade dress infringement elements also supports our interpretation. The court stated:
Even so, we recognize that the same considerations supporting a factual finding of secondary meaning may mitigate against determining as a factual matter that the labels alone prohibit confusion because some of the facts supporting a finding of strong secondary meaning are the same as facts used in other cases to find consumer confusion even with unique labeling (e.g., Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254 (2d Cir. 1987)). Nonetheless, these facts must be considered separately in the factual context of consumer confusion rather than being swept aside as a matter of law based on a finding of secondary meaning as the district court did in this instance. Our emphasis on the modifying word "alone" in stating that it is possible that "labels alone" may not prohibit consumer confusion in some cases belies the second problem with the district judge's approach in applying the confusion test; that is, the serial and mechanical use of the factors as being totally independent of one another. As we stated previously it is imperative for the trier of fact to look to the totality of the circumstances and evidence and in its own sound judgment assess the likelihood of confusion. We agree with the district court that the plaintiff need not prove each and every factor in order to prevail. E.g., McGraw-Edison Co. v. Walt Disney Productions, 787 F.2d 1163, 1168 (7th Cir. 1986), quoting Marathon Mfg. Co. v. Enerlite Products Corp., 767 F.2d 214, 218 (5th Cir. 1985). However, the converse is also true; neither is it required that the defendant refute each and every factor. The weight and totality of the most important factors in each case will ultimately be determinative of the likelihood of confusion, not whether the majority of the factors tilt the scale in favor of one side or the other.20 Regarding actual confusion the district judge stated, "The law is clear that a plaintiff need not demonstrate actual confusion in order to show a likelihood of confusion." 678 F. Supp. at 1345 (emphasis in original). Concerning the conditions of purchase the district court stated, " [i]t is well settled, however, that increased consumer care in purchasing higher-priced products does not necessarily eliminate the likelihood of confusion," Id. (emphasis added) (the retail price of both exercycles is around $600), and further that "a label cannot altogether preclude the possibility of likelihood of confusion...." Id. at 1347 (emphasis added). Each of these statements is an accurate statement of the law. However, just because each factor may not alone or of itself be conclusive of consumer confusion does not mean their cumulative effect need not be considered.
Therefore, we believe that in this case the district court failed to properly apply the consumer confusion test because it rigidly applied the factors (or "digits") in a pedantic matter without assessing the totality of the circumstances. This is a misapplication of the test, and this misapplication constitutes an error of law. Moreover, the pedantic use of the factors foreclosed the judge from exercising his sound discretion on the facts and, therefore, it constitutes a factual abuse of discretion. In explaining the test the district court stated:"A plaintiff need not establish that each digit of confusion weighs in its favor in order to establish a likelihood of confusion. See Sicilia [Di R. Biebow & Co. v. Cox], supra [732 F.2d 417], at 434 [5th Cir. 1984]. Recently, for example, a likelihood of confusion was found based on the presence of seven digits, excluding only the digit of actual confusion. Chemlawn Services, supra, at 1393 [the full citation offered by the district court in a prior passage of his opinion was 652 F. Supp. 1382 (S.D. Tex. 1987), rev'd on other grounds, 823 F.2d 515 (Fed. Cir. 1987) ]."
678 F. Supp. at 1345 (emphasis in original).
Ross contends that the district court erred in finding that it failed to establish it was likely to prevail at trial on its "functionality defense." For purposes of a defense against trade dress infringement, "functional" means not simply that the feature serves a function, but that the feature is necessary to afford a competitor the means to compete effectively. We explored the contours of the functionality defense in W.T. Rogers Co. v. Keene, 778 F.2d 334 (7th Cir. 1985), and settled on a functional definition of "functionality":
The application of the "functionality" test is complicated by different verbal formulations, sometimes appearing in the same opinions that recite the approach of W.T. Rogers. For example, our opinion in Vaughan Manufacturing Co. v. Brikam International, Inc., 814 F.2d 346, 350 (7th Cir. 1987), quoted the central language of W.T. Rogers and immediately followed with this language from Sicilia Di R. Biebow & Co. v. Cox, 732 F.2d 417, 429 (5th Cir. 1984): "To achieve the status of 'functional,' a design or feature must be superior or optimal in terms of manufacture, or accommodation of utilitarian function or performance." Service Ideas, Inc. v. Traex Corp., 846 F.2d 1118, 1123 (7th Cir. 1988), then quoted the language from Cox as if it were the holding of Vaughan and followed with a paraphrase from W.T. Rogers. This would not be troubling if "superior or optimal" were the same thing as "something costly to do without," but it is not. "Superior" could mean something that is costly to do without, but "optimal" implies that unless the feature in question is the best possible way to achieve a result, it is not "functional." As the copier bears the burden of showing that the feature is functional, the burden of showing that a competitor's design is the "best possible" could extend the scope of trademark protection into the domain that, we held in W.T. Rogers, is within the bounds of lawful competition. In addition, our reference to an "essential" feature further complicates the functionality test by creating the additional task of attaching an unusual meaning to a common term. See Service Ideas, Inc., 846 F.2d at 1123.
678 F. Supp. at 1349 (emphasis in original).21 The district court then delineated three important areas of design that Ross failed to establish which would likely be found "functional" (i.e., for effective competition) at trial: (1) the size of the wheel used; (2) the nature and composition of the wire wheel guards; and (3) the overall design. 678 F. Supp. at 1349-52.
678 F. Supp. at 1340 (emphasis added). Similarly, the magistrate stated:"It is conceded in this case that the rear position of the Air-Dyne and the base are in the public domain, or otherwise are so commonly used on bicycles or exercisers that Schwinn cannot prevent Ross from utilizing these factors--which both companies have used on other exercisers--on its new exerciser."
Nonetheless, on appeal Schwinn argues that "both the front and rear portions of the Air-Dyne are part of the 'overall configuration' ... [the] 'overall look' ... which Schwinn seeks to protect." Schwinn's argument in this regard misses the mark because it is well established that trade dress protection does not extend to features already shared by different brands on the market.22 Moreover, the district court determined that the rear end design and mechanism have been used by Schwinn and its competitors on numerous other exercise bicycles for years. This finding of fact is certainly not clearly erroneous, and Schwinn does not allege any mistake of law specifically relating to the district court's finding that the design of the back portion of the Air-Dyne is "not particularly distinctive." Schwinn cites Hartford House Ltd. v. Hallmark Cards, 846 F.2d 1268 (10th Cir. 1988) as support for seeking protection of the Air-Dyne's overall design including the back end. In Hartford House, the Tenth Circuit held that a trade dress " 'claim may still be made ... without a particular identifying design feature.' " Id. at 1273 quoting Brunswick Corp. v. Spinit Reel Co., 832 F.2d 513, 519 (10th Cir. 1987). However, in the present case, the district court determined the front portion of the Air-Dyne is its primary design feature, and its existence distinguishes the present case from Hartford House. Thus, it is appropriate to look to the front end design (the particular identifying design feature) to determine whether it is functional and the district court's focus on the "distinctive" front end design was proper.23 Therefore, we review the question of whether the district court erred in determining that the distinctive feature was not functional. We review the district court's factual determinations under the clearly erroneous standard and its findings of law de novo. Ross bears the burden of proving the functionality of the design. Vaughan Mfg., supra, at 350.
The magistrate considered "the attractiveness of the Air-Dyne and its popularity with consumers as evidence of functionality" when recommending that both the 27-inch wheel and the wire wheel guard were functional. See 678 F. Supp. at 1352 n. 25. The district court did not even consider these aesthetic aspects of the design in determining that the designs were not functional, stating: "Some courts have considered the aesthetic appeal of a product to be one of the indicia of functionality.... The Seventh Circuit, however, has not adopted this approach." Id. The district court then quoted W.H. Brady Co. v. Lem Products, Inc., 659 F. Supp. 1355, 1365 (N.D. Ill. 1987), as support:" ' [a] feature may serve an aesthetic function, making the product more pleasing to the consuming public which is not indifferent to such things. However, the fact that a feature makes a product more attractive does not automatically mean that the feature is "functional." ' W.H. Brady Co., supra, at 1365, citing W.T. Rogers, supra, at 343."
The district court also stated that Ross failed "to introduce any cost data from which any comparative findings between the Air-Dyne and the Ross could be made...." 678 F. Supp. at 1351. The relevant cost comparison, however, is not between the Air-Dyne and the present Futura design but between the Air-Dyne and any alternative designs. This comparison is merely evidence to be used to assess whether any manufacturing cost differential translates to a price differential to the consumer and, in turn ultimately, whether the price differential prohibits the junior competitor (in this case Ross) from effectively competing in the marketplace. The fact that Ross failed to introduce cost studies may very well be determinative of whether Ross has sustained its burden on the question of functionality; however, the district court did not analyze this fact within the proper analytical structure whose ultimate focus is on effective competition. The district court's failure to do so is an error of law even though it may not be outcome determinative in this case.
The district court's memorandum opinion and order is reported at Schwinn Bicycle Co. v. Ross Bicycles, Inc., 678 F. Supp. 1336 (N.D. Ill. 1988). For a more detailed discussion of 28 U.S.C. § 636 see section II of this opinion
It is the district court's memorandum opinion, not the magistrate's proposed findings and recommendation, that serves as the findings of fact and conclusions of law in this case pursuant to Rule 52(a), Fed. R. Civ. P. In United States v. Raddatz, 447 U.S. 667, 681-82, 100 S. Ct. 2406, 2415, 65 L. Ed. 2d 424, rehearing denied, 448 U.S. 916, 101 S. Ct. 36, 65 L. Ed. 2d 1179 (1980), the Supreme Court explained Sec. 636 stating: " ' [t]he authority--and the responsibility--to make an informed final determination ... remains with the judge.' " Id. (editing in original) (quoting Mathews v. Weber, 423 U.S. 261, 271, 96 S. Ct. 549, 554, 46 L. Ed. 2d 483 (1976))
In both Roland Machinery Co. v. Dresser Indus., 749 F.2d 380, 390, rehearing denied (7th Cir. 1984), and American Hosp. Supply, supra, at 595, we stated that one of the reasons deference is given to the district judge's finding is his ability to observe the witnesses and the parties. For example, in Roland we stated:
"Although, considering the nature of the judge's determination and the stakes to the parties, we do not think the term abuse of discretion can be limited to cases where the judge can be said to have acted irrationally or fancifully (Delmo), we also do not think, considering the imponderable character of the balancing process and the judge's superior feel for the issues which a cold transcript may not fully communicate to the reviewing court, that we are entitled to substitute our judgment for the district judge's."
Id. (citations omitted) (emphasis added). We note that in the case at hand the record consists primarily of the magistrate's hearing and, therefore, the district court judge did not have the full advantage of a "superior feel" of the facts based on the hearing. However, the 1985 amendment to Rule 52(a), Fed. R. Civ. P., "made clear that a district court's conclusions cannot be regarded as pertaining to a 'question of law'--and thus reviewed de novo--merely because they are based on evidence that is theoretically susceptible of independent evaluation by an appellate court." American Home Products v. Barr Laboratories, 834 F.2d 368, 370 (3d Cir. 1987).
The district court properly noted that in order for a manufacturer to prevail on a claim for trade dress infringement, it must first establish that its trade dress is "inherently distinctive" or that it has acquired "secondary meaning" to consumers; the manufacturer must also show some "likelihood of confusion" on the part of consumers as to the source of the product; finally, even if both of these requirements are satisfied, a manufacturer cannot prevail if the alleged appropriated trade dress is found to be "functional." Each of these elements--secondary meaning, likelihood of confusion, and functionality--must be separately considered. 678 F. Supp. at 1341
Neither does Ross assign error in the finding that "the public interest will not be disserved by the issuance of a preliminary injunction." Schwinn Bicycle Co. v. Ross Bicycles, Inc., 678 F. Supp. at 1340 (the fourth factor of the four-part preliminary injunction test).
Additionally, we note that the use of this presumption borders on a "presumption on a presumption." We have not directly addressed whether there is a presumption of secondary meaning "where a junior competitor deliberately and closely copies the trade dress of a senior competitor in the market." Vaughan, supra, at 349. However, we have stated that we at least are in accord that intentional copying is probative evidence. Id. Here the district court judge determined that there was a likelihood of establishing secondary meaning. 678 F. Supp. at 1342 (footnotes omitted). At the very least this puts heavy, if not determinative, evidentiary weight on intentional copying for two of the three elements necessary to prove trade dress infringement (i.e., secondary meaning and consumer confusion), and the defendant bears the burden of establishing the third (the functionality defense). Moreover, this is particularly important in the context of a preliminary injunction interlocutory appeal because two of the four requirements necessary for the issuance of a preliminary injunction are also presumed. "In this case as in the usual trade dress case, lack of adequate remedy at law and irreparable harm are presumed." Id. at 1340. In other words, if there are presumptions of secondary meaning based on intentional copying and of confusion based on secondary meaning, most of the plaintiff's required proof for both trademark infringement and for preliminary injunction can be accomplished by simply filing suit and proving intentional copying.
F. Supp. at 1348 n. 19. We do not know the level on which the district court is making the comparison. Many brand name manufacturers probably do maintain competitive classes of bicycles (e.g., 10-speed and single gear racing bikes, multiple-speed mountain bikes, bikes for young children with training wheels, small bikes used for trick riding, bicycles built for two, and bikes that look like they could have been ridden out of the television show "Leave It to Beaver"). We also do not know as a factual matter whether there are classes of exercycles which would make the comparison valid. Additionally, as the listed classes indicate, it would be highly unusual and error to find that all bicycles, regardless of their competitive class, look alike. However, even if the district court erred in this comparison, we refuse to speculate what effect that error had on the ultimate findings of fact in this case
678 F. Supp. at 1348 n. 19
We also note that the district court's reliance on Chemlawn Services v. GNC Pumps Inc., 652 F. Supp. 1382, 1393 (S.D. Tex. 1987), rev'd 823 F.2d 515 (Fed. Cir. 1987), is at best questionable. The Chemlawn case was reversed by the Federal Circuit Court of Appeals because:
" [F]irst, the court failed to issue findings of fact and conclusions of law with its preliminary injunction as required by Rule 52(a). Second, the court attempted to cure that error at a time when it no longer had jurisdiction over the case because GNC had already filed an appeal to this court."
823 F.2d at 517 (emphasis added). Thus, the opinion cited by the district court (652 F. Supp. 1382) was issued absent jurisdiction and was not reviewed by the appellate court. The Federal Circuit explained:
F. Supp. at 1346 (citations omitted)
In McGraw-Edison Co. v. Walt Disney Productions, 787 F.2d 1163, 1167 (7th Cir. 1986) we stated "different factors will weigh more heavily from case to case depending upon the particular facts and circumstances involved." (Citations omitted) (emphasis added). This quotation supports the fact that the importance of any single factor may vary between cases. We also note that if the factors themselves are applied without thoughtful analysis and precision, they become virtually meaningless if not damaging to the integrity of the ultimate determination
The district court's conclusion was again contrary to the magistrate's recommendation because it determined that the rationale for the locations of features of the Ross exercise bicycle had little to do with whether Ross had to copy the Schwinn Air-Dyne trade dress in order to complete effectively. The magistrate recommended " [t]hat, apart from color, the features of the Air-Dyne allegedly copied by Ross are likely to be found functional."
See Service Ideas, Inc. v. Traex Corp., 846 F.2d 1118, 1123 (7th Cir. 1988); W.T. Rogers Co., Inc. v. Keene, 778 F.2d 334, 339 (7th Cir. 1985)