Opinion ID: 739904
Heading Depth: 2
Heading Rank: 2

Heading: Distinctiveness in the Instant Case

Text: 27 Defendants insist that the Toilet Bank's trade dress is not inherently distinctive, principally because the elements identified as part of that characterization are generic. Classification under the Abercrombie spectrum of distinctiveness is a question of fact reviewed under the clearly erroneous standard. See Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1039-40 (2d Cir.1992) (classification of trademarks). We evaluate trade dress distinctiveness by looking at all its elements and considering the total impression the trade dress gives to the observer. Paddington, 996 F.2d at 584. Concededly, a number of individual features of the Toilet Bank's trade dress are common in the toy industry; for example, the triangular shape of the box and its open styling are found everywhere on toy store shelves. The red arrows stating Try Me, the starburst (separate from the notation flushing sound), and the raised blister are similarly quite usual legends in the toy business. Although some of the individual elements of a trade dress are generic or descriptive, the impression given by all of them in combination may be inherently distinctive. Such was what the district court found here; and we cannot say that this finding is clearly erroneous. 28 Gemmy maintains that the trial court improperly considered the similarities between its product and Fun-Damental's when making the inherently distinctive determination regarding the Toilet Bank's trade dress. We disagree. Although Fun-Damental makes no claim regarding the copying of its product, it was appropriate to consider the packaging in conjunction with the product, rather than simply the empty box. [T]rade dress today encompasses a broad concept of how a product presented to the public looks, including its color, design, container, and all the elements that make up its total appearance. Mana, 65 F.3d at 1069. 29 This total look approach is the only workable way to consider such elements of the trade dress as the arrow sticker that is affixed to the Toilet Bank's tank. Because the box is open in order to display the product, it was proper to analyze Fun-Damental's trade dress as seen by consumers--including the Toilet Bank product. Further, there is no risk of spillover protection for the Toilet Bank as a product here since the injunction is limited to the sale of a similar product in a particular package, rather than an absolute ban on the sale of the Currency Can in an open-style box. In sum, we conclude that looking at the product itself in the context of its packaging is a proper method of analyzing open-style packaging for trade dress protection.III Functionality Defense 30 Gemmy and Kay-Bee assert as an affirmative defense that the features of Fun-Damental's packaging--the open-style packaging, the raised blister cover on the toilet bowl, the gray coin decal, and the tie-down strap--are functional and therefore outside the scope of Lanham Act protection. Further, they aver it was error to rule that a collection of functional features may be translated into protected nonfunctional features because they contribute to the trade dress' overall impression. 31 A key element in deciding a trade dress case is whether the trade dress is functional. If it is functional, promotion of fair competition between producers demands that such trade dress be denied Lanham Act protection. The reason is simple. When a court protects a trade symbol it precludes competitors from using the same symbol, and if that protection covers a functional feature, the first producer thereby obtains a potential monopoly placing other producers at a competitive disadvantage. Hence, a functional trade dress will not receive protection. 32 Whether a trade dress is or is not functional is a question of fact disturbed on appeal only if clearly erroneous. LeSportsac, 754 F.2d at 77. When considering the functionality of a trade dress, we must assess the degree of usefulness of the similar features on the competing dress, the degree of similarity between the non-useful, ornamental features of the packaging, and the feasibility of alternatives to the useful features. See Stormy Clime Ltd. v. ProGroup, Inc., 809 F.2d 971, 977 (2d Cir.1987). As we have observed, a useful feature of a product may also be source identifying. Fabrication Enters., 64 F.3d at 59. Accordingly, defendants must show more than usefulness of plaintiff's packaging; they must show that the features in question are essential to effective competition in a particular market. Landscape Forms, Inc. v. Columbia Cascade Co., 70 F.3d 251, 253 (2d Cir.1995); Fabrication Enters., 64 F.3d at 59 (finding of usefulness is not tantamount to finding of functionality). 33 The open-style packaging of the Toilet Bank is obviously useful. The box performs a variety of useful functions: displaying the actual product to the consumer, offering protection during shipping, and making the product easy to stack on shelves. In addition, the open-style nature of the box allows consumers easy access to the product to push the handle down to hear the flushing sound. Although this particular packaging incorporates effective features for marketing the product, the defendants failed to persuade the district court that it is essential to effective competition in the novelty toy market. The district court found that at least two alternative packaging designs provided consumer accessibility to the bank's handle and allowed for cost-effective bulk shipping. Similarly, it identified viable alternatives to the plastic blister bowl cover and the tie-in. Because Gemmy failed to prove that it would be placed at a significant competitive disadvantage if not allowed to use this particular open-style box design, plastic blister and tie-in, the district court determined that the features of the Toilet Bank's packaging are nonfunctional. This finding was not clearly erroneous. IV Likelihood of Confusion A. Polaroid Factors 34 Gemmy and Kay-Bee take issue with the trial court's holding with respect to the second prong of the trade dress protection test, i.e., its finding that there is a likelihood of confusion between Fun-Damental's Toilet Bank and Gemmy's Currency Can because of the similar trade dress. The question of whether the public is likely to confuse two products based on their packaging is not an easy one. To aid in this task, we examine likelihood of confusion in light of the eight factors articulated in Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir.1961). These non-exclusive factors are: (1) the strength of the plaintiff's trade dress, (2) the similarity between the two trade dress, (3) the proximity of the products in the marketplace, (4) the likelihood that the prior owner will bridge the gap between the products, (5) evidence of actual confusion, (6) the defendant's bad faith, (7) the quality of defendant's product, and (8) the sophistication of the relevant consumer group. We review the court's determination with respect to each individual factor under a clearly erroneous standard, but the ultimate holding of whether there is a likelihood of confusion, which is reached after weighing the above factors, is a legal issue reviewed de novo. Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70, 75-76 (2d Cir.1988). Here, none of the findings with respect to the eight factors was clearly erroneous. 35 (1) Strength of the Mark. While the assessment of the trade dress' strength depends in part upon its classification on the Abercrombie spectrum, see Centaur Communications, Ltd. v. A/S/M Communications, Inc., 830 F.2d 1217, 1226 (2d Cir.1987), the essence of the analysis is to determine the strength of the trade dress in its commercial context. We analyze therefore the tendency [of the trade dress] to identify the goods sold as emanating from a particular source, even when the source is unknown to the consumer. Id. at 1225. The district court did not err in finding the Toilet Bank's trade dress was a strong mark based on the overall effect of the packaging. 36 (2) Degree of Similarity. The district court found plaintiff's and Gemmy's trade dress to be very similar. Both the details and the overall appearance of the packaged products support that finding. As previously noted, the shape and construction of the boxes are identical. Both products are fastened into their boxes with a tie across the base of the banks, and the bowls of both products are covered by a clear plastic bubble on which a gray coin-like sticker is affixed. 37 Moreover, Gemmy's overall color schemes, particularly the bright yellow tiles on the royal blue background, are very similar to Fun-Damental's use of royal blue with yellow lettering. Although the tile pattern differs from the solid blue background on the Toilet Bank box, the overlapping use of similar colors is likely to stand out in the mind of the consumer. Most of the arrows and starbursts are placed in parallel positions on the competitors' packages, although some of these elements vary in color. The arrow pointing down to the Toilet Bank's handle is yellow with red lettering, whereas Gemmy uses a red arrow with yellow and white lettering on its brighter packaging and a purple arrow on the more subdued Currency Can package. The arrows affixed to the tanks of both toilet-shaped banks are red. Despite some variation between the individual elements of the trade dress, on the whole, these differences are minor and subtle, and the overall effect of the parallel use of multiple elements supports the finding of substantial similarity. 38 Defendants rely on Bristol-Myers Squibb for the proposition that a prominently displayed trade name on a product's packaging eliminates the possibility of confusion based on similarity of trade dress. 973 F.2d at 1046. We have recognized that the prominent presence of well-known trade names goes far toward countering any suggestion of consumer confusion arising from any of the other Polaroid factors. Id. However, the instant case involves trade names much less recognized than Tylenol and Excedrin, at issue in Bristol-Myers Squibb, and we think the district court had ample ground for concluding that consumers are more likely to remember the coin bank's packaging than its name. 39 (3) and (4) Proximity of Products/Bridging the Gap. The third and fourth factors are not disputed. The products are nearly identical and would compete in the same market, supporting the finding of a likelihood of confusion. 40 (5) Evidence of Actual Confusion. Fun-Damental offered the direct testimony of its national sales manager to demonstrate actual confusion. He testified that some retail customers complained because they thought Fun-Damental was selling its Toilet Bank at a lower price to other retailers. Defendants argue that this evidence is inadmissible hearsay upon which the district court should not have relied and, even if admissible, it does not support a finding of actual confusion. 41 There is no hearsay problem. Hearsay is an out-of-court statement admitted for the truth of the matter asserted. See Fed.R.Evid. 801. The testimony in question was not offered to prove that Fun-Damental was actually selling to some retailers at lower prices, but was probative of the declarant's confusion. Further, Federal Rule of Evidence 803(3) allows statements, otherwise excluded as hearsay, to be received to show the declarant's then-existing state of mind. The district court properly considered the statements. See Armco, Inc. v. Armco Burglar Alarm Co., Inc., 693 F.2d 1155, 1160 n. 10 (5th Cir.1982) (testimony by plaintiff's employees that customers called for defendant company was admissible to show confusion in minds of declarants). 42 With respect to the weight of the evidence, the trial court credited the sales manager's testimony and, while noting that the showing of actual confusion was not overwhelming, found the statements sufficient to support a finding of actual confusion at the preliminary injunction stage of the proceedings. 43 (6) Junior User's Bad Faith. The district court found Gemmy acted in bad faith by intentionally copying Fun-Damental's Toilet Bank and its packaging. On appeal, defendants dispute this finding as improperly based on the conclusion that Gemmy copied Fun-Damental's Toilet Bank, rather than by consideration of the trade dress itself. Defendants correctly assert that the intentional copying of a product--by itself--generally is not relevant to a trade dress infringement claim. However, the combined effect of placing an identical product in copied packaging could support the inference that the copying manufacturer/distributor was acting with the intent to create confusion with the senior user's product. 44 The finding that Gemmy intentionally copied Fun-Damental's packaging was based on the trial court's observation that the unfolded pattern of Gemmy's box is identical to that of Fun-Damental and departed from the pattern of the open-style boxes Gemmy had previously used. Additional proof presented could support the inference that Gemmy and Kay-Bee intended to mislead consumers by appearing to mark down prices on the Currency Can. Although the product always sold for $9.99, its price sticker listed an original price which was subsequently crossed out. This pricing system created the confusing impression that the higher priced product produced by plaintiff, which the consumer may have seen on an earlier occasion, is being sold now for less. Hence, the finding of bad faith was amply supported. 45 (7) Quality of the Defendant's Product. We see no clear error in the finding that Gemmy's Currency Can was of lower quality than the Toilet Bank, and that this weighed in plaintiff's favor. See Hasbro, 858 F.2d at 78 (the junior user's inferior product may affect adversely the senior user's reputation). Specifically, the district court judge, who was in the best position to make the determination, found the seams on the Currency Can inferior, and its flushing sound not as authentic as the Toilet Bank's. 46 (8) Sophistication of the Consumers. This last factor also tips in favor of Fun-Damental. The district court determined that the potential buyers of toilet-shaped coin banks, generally speaking, lack the sophistication to distinguish Gemmy's product from Fun-Damental's, particularly in view of the fact that the product is a novelty item ordinarily bought on impulse. 47 B. De Novo Review of Likelihood of Confusion 48 Although we have reviewed the district court's findings as to each of the Polaroid factors for clear error, we review de novo the district court's weighing of these factors to reach its ultimate conclusion as to likelihood of confusion. In performing this review, we bear in mind that the test of confusion is not whether the products can be differentiated when the Currency Can trade dress and the Toilet Bank trade dress are subject to a side-by-side comparison. Instead, we must ask whether they create the same general overall impression such that a consumer who has seen the Toilet Bank trade dress would, upon later seeing the Currency Can in its trade dress alone, be confused. See American Home Prods. Corp. v. Johnson Chem. Co., 589 F.2d 103, 107 (2d Cir.1978) (side-by-side test inapplicable in trademark context); RJR Foods, Inc. v. White Rock Corp., 603 F.2d 1058, 1060 (2d Cir.1979) (rejecting side-by-side test in trade dress analysis). We are satisfied that the district court did not err in concluding that the two trade dress create the same general impression and, as a result, are likely to confuse consumers. 49 Defendants declare that the district court disproportionally weighed the bad faith factor in its preliminary likelihood of confusion analysis. We have cautioned that the absence of good faith--evidenced in this case by proof of intentional copying--by itself cannot control, Centaur, 830 F.2d at 1228. Where comparison of the marks or trade dress of the two products reveal no fair issue regarding a confusing similarity of appearance, defendant's copying will not establish a Lanham Act violation. Warner Bros. v. American Broad. Co., 720 F.2d 231, 246-47 (2d Cir.1983). 50 It cannot automatically be inferred that intentionally copying a plaintiff's trade dress is for the purpose of deceiving or confusing consumers as to the source of the product. See Andrew C. Finch, When Imitation is the Sincerest Form of Flattery: Private Label Products and the Role of Intention in Determining Trade Dress Infringement, 63 U. Chi. L.Rev. 1243, 1255 (1996). A defendant who copies his competitor's trade dress may have valid reasons, wholly apart from a desire to confuse consumers, for doing so. See id. (noting that copying may be motivated by belief that trade dress is functional or generic, or by belief that copying is the best way to inform consumers that a generic product is a lower-priced alternative to the competitor's products). Indeed, copying in order to market a functionally equivalent alternative product might well benefit consumers, which is one of the aims of the Lanham Act. 51 Hence, in the absence of evidence, apart from proof of copying, that the defendant sought to confuse consumers, bad faith should not be inferred simply from the fact of copying. On the other hand, if there is additional evidence that supports the inference that the defendant sought to confuse consumers as to the source of the product, we think the inference of bad faith may fairly be drawn to support a likelihood of confusion determination. 52 In this case, the conclusion that Gemmy's copying was done in bad faith to cause confusion is supported by more than simply the fact of copying. For example, defendants' use of a false markdown--by crossing out a marked price comparable to the Toilet Bank's and selling the Currency Can at what appears to be a discount price--is additional evidence from which one could infer an intent to mislead consumers as to the source of the product. Defendant's bad faith in copying its competitor's trade dress is relevant, particularly at this stage, where Fun-Damental's burden was only to raise a serious question on the merits of its likelihood of confusion claim. 53 We conclude that Fun-Damental has met its burden. The nature of the product as a novelty item affects the way it is purchased. The consumer may see the product more than once without focusing closely on its origin and be inclined to buy it if the price is right. The overwhelming similarities of the trade dress of the two coin banks--which are not sold side-by-side on a shelf--create the same general impression to the consumer's eye. The subtle distinctions on which defendants rely fail to put the consumer on notice that there is more than one source of origin within this narrow market for toilet-shaped banks. The difference in the price of the two products adds to the confusion. In this unsophisticated market, the marked-down price on the Currency Can is likely to lead the consumer to believe the price was simply reduced from the last time the consumer saw the product, rather than to put the customer on notice that this is a less expensive and different product from the Toilet Bank. Such inference is supported by testimony that some retail customers were in fact confused. We agree with the district court's conclusion--based upon all the Polaroid factors, including but not limited to defendant's bad faith--that there is a likelihood of confusion between the two products' trade dress. 54 We add, parenthetically, that the injunction does not place an undue burden on Gemmy, as the junior market entrant. It is free to sell the Currency Can in different packaging that will avoid confusion between its product and the product of its direct competitor. Nor is Gemmy necessarily required to create a radically different package with no elements common to Fun-Damental's packaging. 55 V Extraterritorial Nature of the Injunction 56 Gemmy and Kay-Bee argue for the first time on appeal that the district court's attempt to regulate Gemmy's acquisition of Currency Can units located in China is an improper extraterritorial extension of the Lanham Act. Generally, we will not consider issues that were not raised in the lower court. Greene v. United States, 13 F.3d 577, 586 (2d Cir.1994). But this is not an absolute rule, and limited exceptions are made when the error involves subject matter jurisdiction or where necessary to remedy an obvious injustice. Schmidt v. Polish People's Republic, 742 F.2d 67, 70 (2d Cir.1984); John B. Hull, Inc. v. Waterbury Petroleum Prods., Inc., 588 F.2d 24, 27 (2d Cir.1978); see also Jack H. Friedenthal, Mary Kay Kane & Arthur R. Miller, Civil Procedure § 13.4 at 601 n. 3 (2d ed. 1993). On occasion, we have also exercised our discretion to entertain arguments not raised in the trial court when the party raises new contentions involving only questions of law, and no need exists for additional fact finding. See Vintero Corp. v. Corporacion Venezolana de Fomento, 675 F.2d 513, 515 (2d Cir.1982) (per curiam). 57 Although federal question jurisdiction over the trade dress violation clearly exists under federal trademark law, defendants challenge an exercise of extraterritorial jurisdiction under the Lanham Act. Because of the quasi-jurisdictional nature of this issue, we analyze the scope of jurisdictional power conferred upon the district court by the Lanham Act, as it applies in this case. Resolution of this issue requires no additional fact finding. 58 Federal courts have applied the Lanham Act to activity occurring outside the United States when necessary to prevent harm to United States commerce. Thus, for example, the Supreme Court enforced the Lanham Act against an American citizen selling fake Bulova watches in Mexico on the ground that his sales in both Mexico and the United States harmed the American trademark holder. Steele v. Bulova Watch Co., 344 U.S. 280, 286, 73 S.Ct. 252, 255-56, 97 L.Ed. 319 (1952). At the same time we recognize that the extraterritorial reach of the Lanham Act is limited, and have stated that an injunction against a Canadian retailer using a Canadian trademark to sell products in Canada exceeded the scope of the Lanham Act. Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633, 642-43 (2d Cir.1956). 59 We have read Bulova as establishing a three-part test for analyzing extraterritorial extensions of the Lanham Act. To apply the Act a court must be able to answer affirmatively the following questions: (1) does defendant's conduct have a substantial effect on United States commerce; (2) is defendant a United States citizen; and (3) is there an absence of conflict with trademark rights established under foreign law? Id. at 642. Relying on our decision in Sterling Drug, Inc. v. Bayer AG, 14 F.3d 733, 746 (2d Cir.1994), defendants aver that the district court erred by not explicitly analyzing the case under the Bulova factors prior to its issuance of the extraterritorial injunction. Central to Sterling Drug was the district court's failure adequately to consider the extraterritorial effects of its injunction. 60 Although Bulova 's three-part framework was not explicitly utilized in the instant case, the defendants present no proof to support their claims that the preliminary injunction subject to challenge here is outside the limited extraterritorial authority of the Lanham Act. It directs Gemmy to acquire title to products that are currently warehoused in China and intended for its purchase and resale to Kay-Bee, the party that imports the units into the United States. The injunction aims to regulate an aspect of Gemmy's conduct--the importation of products--that clearly has substantial impact on United States commerce. To control the importation of the products in the packaging at issue, the district court reasonably required Gemmy to acquire the units in the allegedly violative packaging and ship them to the United States. Moreover, the injunction directly implicates only specific extraterritorial conduct of Gemmy, a United States corporation; the injunction does not prevent either Gemmy or the Chinese factory from producing the Currency Can and selling it in different packaging. Nor has Gemmy pointed to anything that would indicate that this injunction creates a conflict of trademark rights under foreign laws. The Bulova test as explicated in Vanity Fair has therefore been satisfied.