Court Opinion

ID: 9614891
Source: CourtListenerOpinion
Date Created: 2023-08-22 04:29:28.201952+00
Date Added: 2024-06-11T18:03:40.109060
License: Public Domain

KLEINFELD, Circuit Judge,
dissenting:
I respectfully dissent.
“[Ejquity aids the vigilant, not those who slumber on their rights, or Vigilanti-bus non dormientibus, aequitas subvenit ...."1
The majority opinion could have used what Learned Hand wrote about prejudice, and left it at that:
[the plaintiff] did nothing; not a word of protest, or gesture of complaint, escaped it for six years more; and still [defendant’s business] kept increasing. What equity it can have the hardihood now to assert; how it can expect us to stifle a competition which with complete complaisance, and even with active encouragement, it has allowed for years to grow like the mustard tree; why we should destroy a huge business built up with its connivance and consent: this we find it impossible to understand.2
I concur in most of the steps of the majority’s analysis, as stated below. But when the majority gets to prejudice, the majority defies circuit precedent,3 and for no equitable reason that I can see. And when the majority reaches injunction law, it defies Supreme Court precedent.4 We have now enunciated a new and unfair standard for prejudice in trademark law. The majority gives no good reason why.
The key, and new, holding is “[i]f this prejudice could consist merely of expenditures in promoting the infringed name, then relief would have to be denied in practically every case of delay,”5 applied in this case to a time period well in excess of the analogous statute of limitations period (6 years compared with 4) and exponential increases in business and business-building expenses around a trademark (438% increase in general business expenses and a 14,931% increase in advertising expenditures). Notably, the language the majority uses in its holding comes from a case where the delay was less than *995a year,6 the infringement was deliberate,7 and in which longer periods of delay were distinguished.8 The practical effect of this new rule is to eviscerate the defense of laches in trademark law.
I. Facts
The critical dates in this case are 1998, when Internet Specialties West, Inc. (Internet Specialties) discovered that Milon-DiGiorgio Enterprises, Inc. was using a domain name similar to its own, and 2005, when it finally did something about Milon DiGiorgio’s innocent infringement. Internet Specialties waited more than 6 years before writing a cease and desist letter and then filing suit. No one contends that Milon-DiGiorgio’s infringement was willful. The only willful decision was by Internet Specialties, who let things ride in the hope that its competitor would go out of business.
When Internet Specialties discovered Milon-DiGiorgio’s unwittingly infringing ISPWest domain name in 1998, ISPWest had about 2,000 customers. In 2002, Internet Specialties again had the infringement brought to its awareness. Someone called Internet Specialties to collect on a bill thought to be owed by ISPWest. Thus, Internet Specialties knew both that ISPWest was infringing and, from this and a few other calls, that the infringement caused confusion. Yet Internet Specialties still did not even trouble itself to send a cease and desist letter to ISPWest.
In mid-2004, almost 6 years after Internet Specialties discovered ISPWest’s infringement, ISPWest began offering DSL service in addition to dialup, i.e., much faster upload and download speeds. Internet Specialties found out. Still, no action. Finally, a few months later, in 2005, Internet Specialties sent a cease and desist letter to ISPWest and filed this lawsuit.
Internet Specialties’ first claim of infringement and demand that ISPWest stop its activities was more than 6 years after Internet Specialties knew that ISPWest was infringing on its trademark. ISPWest had meanwhile grown from 2,000 customers to 13,000, by dint of over $1.5 million in marketing expenses.
II. Analysis
The majority opinion is correct up to the discussion of prejudice. We are agreed that: (1) jury instruction 18.15 was not an abuse of discretion; (2) “[t]he limitations period for laches starts ‘from the time that the plaintiff knew or should have known about its potential cause of action;’ ”9 (3) the two companies offered similar enough services that Internet Specialties should have recognized the likelihood of confusion in 1998, when it became aware that ISP-West was providing Internet access, email, and web-hosting; (4) Internet Specialties’ progressive encroachment argument is foreclosed by Grupo Gigante S.A. De C.V. v. Dallo & Co.10 and Tillamook Country Smoker, Inc. v. Tillamook County Creamery Association11 because they were not entitled to wait until ISPWest’s business grew large enough to constitute a real threat to Internet Specialties; (5) Internet Specialties was not diligent;12 (6) *996Internet Specialties did not file suit within the analogous 4-year statute of limitations period and therefore, a presumption in favor of laches applies;13 and (7) Internet Specialties’ delay in bringing suit was unreasonable, so laches bars equitable remedies unless there was no prejudice to ISP-West as a result of the delay.14
We part ways on prejudice and on the majority’s affirmance of the injunction.
A. Laches
Ninth Circuit law, and the law of our sister circuits, has long held that prejudice is established when the party asserting laches “prov[es] that it has continued to build a valuable business around its trademark during the time that the plaintiff delayed the exercise of its legal rights.”15 That was proved here. In 1998, ISPWest had 2,000 customers. In 2004, it had 13,-000. In 1998, ISPWest had $518,848 in sales. In 2004, it had $2,422,463 in sales. At the heart of this expansion was the use of the trademark, ISPWest. Customers received “@ispwest” e-mail addresses and used the ISPWest domain name. All this expansion happened while Internet Specialties knew about the infringement and did nothing to stop it. Until today, ISP-West’s five or sixfold expansion of its business would have been more than enough to establish prejudice.
As the majority concedes, Jarrow Formulas, Inc. v. Nutrition Now, Inc., establishes that laches is presumed to bar a claim made outside of the analogous limitations period, 4 years here.16 The district court did not apply this presumption because, as the majority holds, it failed to determine the proper period for laches.17 In fact, the district court applied a presumption against laches. Accordingly, the district court necessarily committed an abuse of discretion on this issue, and we cannot properly defer to its discretion. The majority’s deferential review is erroneous.
We extensively considered laches in Grupo Gigante, a trademark case in which the plaintiffs delay was only 4 years, not 6 as in the case at bar.18 We held that prejudice is established (and was in that case) when the party asserting laches “has continued to build a valuable business around its trademark during the time that the plaintiff delayed the exercise of its legal rights.”19 We are obligated to follow circuit precedent, so this rule controls and resolves the case. We did not require, in *997Grupo Gigante, “brand awareness” or “public association.”20 Neither of those phrases appear in Grupo Gigante’s discussion of prejudice. In the case at bar, the majority mistakenly contends that we did require these things.
We held in Grupo Gigante that laches barred equitable relief that would require the defendant to change the name on its existing stores.21 First, we held that to obtain judicial enforcement of a trademark, a plaintiff “must conduct an effective policing effort”22 and “[a]t the very least, that effort must involve actually contacting the alleged infringer about its use of a trademark.”23 Internet Specialties chose not to contact ISPWest during the 6 years that ISPWest developed its business around its trademark. In Grupo Gigante, as in this case, the larger firm gambled on the smaller firm’s failure, so that it would not need to send a letter and deal with whatever discussion might ensue. We held that “the plaintiff ‘cannot simply wait without explanation to see how successful the defendant’s business will be and then ask for an injunction to take away the good will developed by defendant in the interim.’ ”24 In other words, we should not cover the larger firm’s losing bet.
Our express holding on prejudice in Grupo Gigante cannot be reconciled with today’s majority opinion.25 The majority argues that in Grupo Gigante, prejudice was established because “[a] grocery store’s very identity rests in its name.”26 I am not sure what the majority means by “very identity.” The majority seems to be saying the brand name of a grocery store means more than the domain name of an Internet provider. For most of us, the grocery store we use has more to do with driving, parking, quality, selection, and price, than name. ISPWest’s name appeared in their website address and customers’ e-mail addresses and did not require parking or fresh tomatoes. A customer accesses ISPWest’s website by entering the ISPWest domain name into their browser. A customer sends and receives email by way of “@ISPWest.” No new driving directions are needed if the grocery store changes its name, but they are if ISPWest does. That ISPWest continued to build a valuable business while Internet Specialties delayed policing its mark for 6 years establishes prejudice under Grupo Gigante.27
We likewise applied laches in E-Systems v. Monitek, Inc., where the defendant “incurred substantial advertising expenditures and rapidly expanded its business.”28 In E-Systems, the plaintiff sued the same year it discovered the infringement,29 but was barred by laches because of the 6-year delay from when it should have known about the infringement, and the infringer was expanding rapidly and incurring substantial advertising expenses during those 6 years.30
*998Where the presumption of prejudice applies, as it does in this case and did in Jarrow, prejudice exists where an in-fringer is “forced to abandon its long-term investment in its presentation of [its product] to the public.”31 In Jarrow Formulas, we said that had the plaintiff “filed suit sooner, [the infringer] could have invested its resources in an alternative identity ... in the minds of the public.”32 Likewise, had Internet Specialties sent a letter to ISPWest when it knew of the infringement, ISPWest would have had to deal with a name change for only 2,000 customers, not 13,000, and could have invested its resources in familiarizing the market and its customers with a new name. Jarrow quotes with approval Seventh Circuit language, that “investments to exploit [a market position with respect to the product at issue] are sufficient prejudice to warrant the application of laches.”33 Our decisions in Tillamook and Whittaker Corp. v. Execuair Corp. are to the same effect.34
The majority’s new doctrine, that “[i]f this prejudice could consist merely of expenditures in promoting the infringed name, then relief would have to be denied in practically every case of delay,”35 cannot be reconciled with these cases or any others. The majority’s only authority is a quote from a Seventh Circuit case, Tisch Hotels, Inc. v. Americana Inn, Inc.36 Tisch expressly distinguished “prolonged and inexcusable” delay,37 which we have in the case at bar. The delay in Tisch was less than a year.38 And, unlike this case, Tisch involved “deliberate infringement,” where a cheaper hotel attempted to foist itself off as a luxury hotel by using the luxury hotel’s name.39 We would have also applied a presumption against laches in that ease, whereas we apply a presumption in favor of laches here.40
Our authorities compel the conclusion that laches applies.
B. Injunctive relief
Even if laches did not bar the claim, the injunction would be an abuse of discretion. Reversing our decision in Winter v. Natural Resources Defense Council, Inc., the Supreme Court held that “[a]n injunction is a matter of equitable discretion; it does not follow from success on the merits as a matter of course.”41 The Court held that a plaintiff seeking a preliminary injunction, as with a permanent injunction, “must establish ... that an injunction is in the public interest.”42 The Court quoted with approval a remark we had made in an earlier panel decision in that case, which stayed the injunction because “[t]he district court did not give serious consideration to the public interest factor.”43
Likewise in this case, the district court failed to give any consideration at all to the public interest. There are two differ*999ent public interests at play in this case. One is the usual one in trademark law, avoidance of consumer confusion.44 That interest has no force in this case, because we held in Jarrow that the interest in avoiding confusion defeats an application of laches “only when the suit concerns allegations that the product is harmful or otherwise a threat to public safety and well being.”45 Accordingly, the majority’s emphasis on “avoiding confusion to consumers” is inapplicable in this case.46
The second, and dispositive, public interest in this case is the burden imposed on the public by the injunction.47 In this case, the injunction directed at ISPWest imposed the burden of changing e-mail addresses on 13,000 people. Probably tens of thousands more, who had the ISPWest’s customers as correspondents, were left with obsolete e-mail addresses in their address books and mailing lists. The public has an interest in not being burdened with difficulties caused by a long-standing infringement it had nothing to do with. Failure to give that public interest any consideration at all makes the injunction an abuse of discretion. An injunction granted without consideration of the public interest must be vacated under Winter.48
ISPWest’s growth from 2,000 customers to 13,000 customers occurred after Internet Specialties knew of the infringement but before the lawsuit. Had Internet Specialties diligently pursued its claim, around 11,000 customers and their many correspondents would not have come to rely on a stable e-mail address from ISPWest. This burden on the public is imposed not by the time a lawsuit takes,49 but rather by Internet Specialties’ delay in bringing the lawsuit or even writing a cease and desist letter. Thousands of individuals ought not be required to alert family, friends, business contacts, banks, listservs, and their online subscription providers of a change in e-mail address, all because of Internet Specialties’ delay. An injunction without even weighing these burdens on the innocent is an abuse of discretion.50
The majority’s evisceration of laches means that a big company can lurk in the tall grass while its little prey gradually fattens itself by dint of great effort and expense. Then, when the small competitor has succeeded, the big company can shake it down for a cut of its hard-won success, or destroy the name under which it innocently did business for years. That is trademark law as protection racket, rather than trademark law as prevention of consumer confusion.

. John Norton Pomeroy, I A Treatise on Equity Jurisprudence, § 364 (2d ed. 1899); see also Ricard v. Williams, 20 U.S. (7 Wheat.) 59, 116, 5 L.Ed. 398 (1822) (Story, J.).

. Dwinell-Wright Co. v. White House Milk Co., 132 F.2d 822, 825-26 (2d Cir.1943).

. Grupo Gigante S.A. De C.V. v. Dallo & Co., 391 F.3d 1088, 1105 (9th Cir.2004) (citing 5 McCarthy on Trademarks and Unfair Competition § 31:12 at 31-42 & n. 4 (4th ed.2002)); Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 837-38 (9th Cir.2002); Whittaker Corp. v. Execuair Corp., 736 F.2d 1341, 1347 (9th Cir.1984).

. Winter v. NRDC, Inc., - U.S. -, 129 S.Ct. 365, 381, 172 L.Ed.2d 249 (2008).

. Majority Op. at 991-92 (quoting Tisch Hotels, Inc. v. Americana Inn, Inc., 350 F.2d 609, 615 (7th Cir.1965)).

. Tisch, 350 F.2d at 610 (the infringement was discovered late in 1960 and the defendants sent a cease and desist letter in August 1961).

. Id. at 613, 615.

. Id. at 615.

. Tillamook Country Smoker, Inc. v. Tillamook County Creamery Ass’n, 465 F.3d 1102, 1108 (9th Cir.2006) (quoting Profitness Phys. Therapy Ctr. v. Pro-Fit Orthopedic and Sports Phys. Therapy P.C., 314 F.3d 62, 70 (2d Cir.2002)).

. 391 F.3d 1088, 1103 (9th Cir.2004).

. 465 F.3d at 1110.

. See id.; Grupo Gigante, 391 F.3d at 1103.

. Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 835-36 (9th Cir.2002).

. Id. at 838.

. Grupo Gigante S.A. De C.V. v. Dallo & Co., 391 F.3d 1088, 1105 (9th Cir.2004) (citing 5 McCarthy on Trademarks and Unfair Competition § 31:12 at 31-42 & n. 4 (4th ed.2002)); see also, e.g., Whittaker Corp. v. Execuair Coip., 736 F.2d 1341, 1347 (9th Cir.1984) (detrimental reliance found in merely continuing a business, "incurring additional potential liability” by reason of the plaintiff's delay); Hylo Co. v. Jean Patou, Inc., 42 C.C.P.A. 723, 215 F.2d 282, 284 (Cust. & Pat.App.1954); Anheuser-Busch, Inc. v. Du Bois Brewing Co., 175 F.2d 370, 375 (3d Cir.1949) (prejudice established by defendant’s advertising expenses and local goodwill); Pro-Football, Inc. v. Harjo, 284 F.Supp.2d 96, 143 (D.D.C.2003) ("[P]rejudice is equated with investment in the trademark that theoretically could have been diverted elsewhere had the suit been brought sooner.”), remanded on an alternative ground Pro-Football, Inc. v. Harjo 415 F.3d 44 (D.C.Cir.2005); Haviland & Co. v. Johann Haviland China Corp., 269 F.Supp. 928, 956 (S.D.N.Y.1967).

. 304 F.3d 829, 835-36 (9th Cir.2002).

. Majority Op. at 990-91.

. Grupo Gigante, 391 F.3d at 1105.

. Id. (citing 5 McCarthy on Trademarks and Unfair Competition § 31:12 at 31-42 & n. 4 (4th ed.2002)).

. Majority Op. at 992.

. Grupo Gigante, 391 F.3d at 1105.

. Id. at 1102 (citations omitted).

. Id.

. Id. at 1102-03 (quoting 5 McCarthy on Trademarks and Unfair Competition § 31:14 at 31-50 (4th ed.2002)).

. Id. at 1105 (citing 5 McCarthy on Trademarks and Unfair Competition § 31:12 at 31-42 & n. 4 (4th ed.2002)).

. Majority Op. at 992-93.

. Grupo Gigante, 391 F.3d at 1105.

. 720 F.2d 604, 607 (9th Cir.1983).

. Id. at 606.

. Id.

. Jarrow, 304 F.3d at 840.

. Id. at 839.

. Id. (quoting Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 824 (7th Cir.1999)).

. Tillamook, 465 F.3d at 1108; Whittaker Corp., 736 F.2d at 1347.

. Majority Op. at 991-92.

. 350 F.2d 609, 615 (7th Cir.1965).

. Tisch, 350 F.2d at 615.

. Id. at 610.

. Id. at 610-11; 615.

. Jarrow, 304 F.3d at 835-36.

. Winter v. NRDC, Inc., - U.S. -, 129 S.Ct. 365, 381, 172 L.Ed.2d 249 (2008), rev’g 518 F.3d 658 (9th Cir.2008).

. Id. at -, Id. at 374, 381-82.

. Id. at -, Id. at 378 (quoting NRDC, Inc. v. Winter, 502 F.3d 859, 863 (9th Cir.2007)).

. See Jarrow, 304 F.3d at 841.

. Id.

. Majority Op. at 993.

. See Winter, - U.S. at -, 129 S.Ct. at 377.

. Id. at -, id. at 378-79.

. See Jarrow, 304 F.3d at 839.

. Winter, - U.S. at -, 129 S.Ct. at 381-82.