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S.C. Johnson & Son Inc. v. Nutraceutical Corp.

United States District Court, E.D. Wisconsin

March 22, 2019

S.C. JOHNSON & SON, INC., Plaintiff,
v.
NUTRACEUTICAL CORPORATION, and NUTRAMARKS, INC., Defendants.

          ORDER GRANTING MOTION FOR JUDGMENT CONSISTENT WITH SEVENTH CIRCUIT'S OPINION (DKT. NO. 119), GRANTING DEFENDANTS' MOTION FOR ATTORNEY'S FEES (DKT. NO. 130) AND GRANTING PLAINTIFF'S MOTION TO RESTRICT DOCUMENT (DKT. NO. 148)

          HON. PAMELA PEPPER UNITED STATES DISTRICT JUDGE

         This case has stuck around much longer than the pesky mosquitos the parties' products sought to repel; plaintiff S.C. Johnson & Son, Inc. filed its complaint seven and a half years ago. Dkt. No. 1. Judge Rudolph T. Randa presided over a February 2014 bench trial and, after post-trial briefing, entered judgment in favor of the plaintiff. Dkt. No. 89. On appeal, the Seventh Circuit reversed, finding that the plaintiff had pulled a “bait-and-switch” on the defendants. Dkt. No. 117; S.C. Johnson & Son, Inc. v. Nutraceutical Corporation, 835 F.3d 660, 667 (7th Cir. 2016). After remand, the defendants filed a motion for a judgment consistent with the Seventh Circuit's opinion. Dkt. No. 119. On February 21, 2017, this court issued an order finding for the defendants on their first and second counterclaims. Dkt. No. 127. The court held oral argument on the amount of profits to be disgorged, and gave the defendants time to submit their motion for attorney's fees and costs. Dkt. No. 128. They did so on April 7, 2017. Dkt. No. 130.

         On July 17, 2018, the court issued an order asking the plaintiff to provide briefing on the proper amount of disgorgement, and asking the parties to explain whether the Supreme Court's holding in Octane Fitness, LLC v. Icon Health & Fitness, Inc., 572 U.S. 545 (2014) applied to the defendants' motion for attorney's fees. Dkt. No. 143. The parties provided their responses on August 17, 2018. Dkt. Nos. 145-150. The court now awards the defendants $232, 000 in disgorged profits, grants the defendants' motion for attorney's fees and grants the plaintiff's motion to restrict document.

         I. BACKGROUND

         A. Procedural History

         The complaint alleged that defendants Nutraceutical Corp. and Nutramarks, Inc. had engaged in trademark counterfeiting, trademark infringement, false designation of origin, and unfair competition regarding a “BUG OFF” mark. Dkt. No. 1. The defendants answered and counterclaimed on January 23, 2012, alleging that they were the senior users of the BUG OFF mark by virtue of their predecessor's-Sunfeather Natural Soap Company, Inc. (“Sunfeather”)-nationwide use of the mark since 1992. Dkt. No. 5 at 7. The parties proceeded through discovery and on August 15, 2013, the plaintiff filed a motion for summary judgment. Dkt. No. 29.

         1. Summary Judgment

         For reasons that will become clear later in this decision, the court recounts here only the plaintiff's arguments at summary judgment.

         In its opening brief, the plaintiff asserted that it had acquired a federal registration for the BUG OFF mark with a first use date of 1998. Dkt. No. 30-1 at 3. It argued that because it had shown a valid registration, the defendants had the burden of demonstrating a “prior use” defense-in other words, that they had established common law trademark rights in the BUG OFF mark prior to the plaintiff's first use date in 1998. Id. at 9. The plaintiff contended that the defendants could not show this because (a) they could not identify the specific geographic territories where the prior good faith use had occurred and (b) they could not demonstrate that the prior good faith use was both continuous and substantial. Dkt. No. 30-1 at 1. The plaintiff urged the court to apply the “market penetration” test to analyze whether the defendants' prior use had established nationwide common law rights to the mark. Id. at 11 (citing Brandt Industries, Ltd. v. Pitonyak Machinery Corp., No. 1:10-cv-0857-TWP-DML, 2012 WL 3777145 (S.D. Ind. Aug. 29, 2012)). This test would require the court to analyze four factors on a state-by-state or region-by-region basis to determine the scope of the defendants' alleged common law rights to the mark. Id. at 11-17 (citing Natural Footwear, Ltd. v. Hart, Schaffner & Marx, 760 F.2d 1383, 1397 (3d. Cir. 1985)).

         The plaintiff also argued that the defendants could not show substantial and continuous use of the mark. Id. at 18. This argument focused on how the defendants' product appeared only in nationwide catalogs and not specific territories. Id. at 20. The plaintiff did not argue (or mention) that the defendants' post-2012 sales (or lack thereof) would render their defense and counterclaims meritless.

         In its reply brief, the plaintiff re-iterated its focus on the pre-1998 time period. Dkt. No. 47. It conceded that the defendants had used the mark prior to 1998, but maintained that this “use” was not sufficient to establish common law trademark rights. Dkt. No. 47 at 7 (“[The plaintiff does not dispute that Defendants' ‘use' of BUG OFF occurred prior to [the plaintiff's] priority date of June 22, 1998.”). The plaintiff again advocated for the district court to apply a market-by-market market penetration test to determine whether the defendant could establish nationwide common law rights to the mark. Id. It said:

A common law trademark is only protected in identified geographic areas where customers would associate the mark with the senior user's product. Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 415-16 (1916). Federal courts therefore apply the ‘market penetration' test to determine in what markets, if any, the senior user's mark is used and known. Based on the lack of evidence regarding specific markets where Defendants' product was sold, no reasonably jury could find that defendants are entitled to a common law trademark in any market.

Dkt. No. 47 at 7. As in its opening brief, the plaintiff's reply brief did not raise the defendants' alleged (lack of) post-2012 use as a ground for granting summary judgment.

         Judge Randa's January 14, 2014 decision recounted both the plaintiff's and the defendants' histories using the BUG OFF mark. Dkt. No. 65. He neither adopted nor rejected the plaintiff's recommendation that he apply the “market penetration” test, instead finding (after reviewing Sunfeather's use of the BUG OFF mark prior to 1998) that

[v]iewed in the light most favorable to Sunfeather, it has presented sufficient evidence upon which a reasonably jury could find that it was the senior user of the mark and was distributing its BUG OFF product nationally prior to January 26, 1998, the date of first use in commerce claimed by the Chervitz registration that [the plaintiff] eventually purchased and now owns. Therefore, [the plaintiff's] motion for summary judgment on the issue of trademark ownership is denied.

Dkt. No. 65 at 26. Notably, Judge Randa also observed that “[t]he Defendants' sales records demonstrate continued sale of Sunfeather BUG OFF, from the time of acquisition through present.” Id. at 20.

         2. February 4, 2014 Bench Trial

         The parties filed their final pre-trial reports on January 6, 2014 (dkt. nos. 58, 61)-before Judge Randa issued the summary judgment decision on January 14, 2014. Neither party's “Statement of Issues” mentioned the defendants' post-2012 sales as an issue for trial. The plaintiff framed the issues with a focus on the years prior to 1998:

Determining who owns superior rights in the BUG OFF mark is a major issue in this case, and turns on whether Nutraceutical can prove prior good faith use of its mark by establishing substantial mark penetration in any specific geographical market prior to June, 1998. . . . [The plaintiff] does not believe [the defendants] can meet [their] burden of proof because the evidence reveals only sporadic and insubstantial sales by SunFeather prior to June of 1998.

Dkt. No. 58 at 3.

         During its opening argument at trial, the plaintiff again advocated for the court to analyze whether the defendants had established their common law trademark rights on a market-by-market, state-by-state basis. Dkt. No. 76 at 10 (“Courts uniformly require parties to establish their common law rights on a market-by-market, state-by-state basis.”). The plaintiff's argument did not mention the defendants' post-2012 use (or alleged lack of use) of the BUG OFF mark as a basis for Judge Randa to find in favor of the plaintiff. See Dkt. No. 76 at 6-20.

         The bench trial started on February 3, 2014 and concluded the next day. Dkt. Nos. 75, 76. Instead of closing arguments, the parties asked Judge Randa to allow them to submit post-trial briefs, and he agreed. Dkt. No. 75 at 111. On February 25, 2014, the parties submitted proposed findings of fact and proposed conclusions of law. Dkt. No. 77-79.[1] They filed their responses to each other's proposed findings of fact and conclusions of law on March 11, 2014. Dkt Nos. 84-86.

         3. Post-Trial Briefing

         The court will touch on two relevant aspects of the post-trial submissions. First, the plaintiff's proposed findings of fact offered no facts about the defendants' post-2012 use of the BUG OFF mark. Dkt. No. 78. In its conclusions of law submission, the plaintiff said,

The evidence further does not support the broad conclusion that any use of the BUG OFF mark in particular geographic markets was continuous from prior to S.C. Johnson's earliest registrations through the present. Indeed, the evidence establishes that sales decreased over time, and that from one year to the next, sales in any given market were inconsistent and sporadic.

Dkt. No. 79 at 11 (emphasis added). The plaintiff clarified its position in its opposition to the defendants' post-trial submissions; in response to the defendants' proposed finding of fact eighty-five, the defendant wrote:

Incomplete. [The defendants] submitted documentary evidence of sales of the SunFeather Bug OFF products only for 2011 and 2012, not for 2013 and 2014 (Trial Ex. 1108.) This document demonstrates that a BUG OFF product was sold in approximately twenty-two states, which is far from nationwide. (Trial Ex. 1108.) The sales that do exist are too small to demonstrate continued use for purposes of establishing prior common law rights. (Tr. Ex. 1108.) There is no testimonial evidence supporting continued use either. The testimony cited by Nutraceutical does not indicate that SunFeather BUG OFF products are available in retail stores or where these purported retail stores are located. (Tr. Tran. 2, pp. 103:18-104:2.) Instead, the testimony merely states that SunFeather products are manufactured by Nutraceutical subsidiaries. (Tr. Tran. 2, pp. 103:18-104:2).

Dkt. No. 85 at 35. In its response brief to the defendants' conclusions of law, the plaintiff asserted that “[the defendants] ha[ve] not presented any evidence of sales from 2013 through the present. It simply failed to provide evidence that any market penetration was continuous from first use through the present day.” Dkt. No. 86 at 7.

         2. Judge Randa's August 29, 2014 Verdict

         Judge Randa issued his decision on August 29, 2014. After recounting the histories of the parties' use of BUG OFF, he analyzed whether the defendants had established common law rights to BUG OFF. Id. at 22. He observed that the parties disagreed on “the proper test for establishing a common law interest in a trademark and whether a party may prove a nationwide common law trademark.” Id. at 25. He recounted that the plaintiff advocated using the “market penetration test” to determine whether a party had established common law trademark rights and cited Natural Footwear, 760 F.2d at 1395, in support of its proposition. Id. at 25. Judge Randa commented that the defendants objected to the market penetration test, citing Buzz Off Insect Shield, LLC v. S.C. Johnson & Son, Inc., 606 F.Supp.2d 571 (M.D. N.C. 2009) as case from-at the time-five years earlier, in which the plaintiff itself had argued for a totality-of-the-circumstances test (rather than a market penetration test) when it suited the plaintiff's interests. Id. at 25.

Indeed, in litigating BuzzOff outside this Circuit, [the plaintiff] advocated and prevailed with its contention that “[e]stablishment of common law rights is determined ‘on a case by case basis, considering the totality of the circumstances.' Johnny Blastoff, Inc. v. L.A. Rams Football Co., 188 F.3d 427, 433 (7th Cir. 1999) (affirming determination of prior established common law rights as basis for infringement and injunctive relief.” (Ex. A, Def's Reply (SCJ's Mem. Support Permanent Nationwide Inj.) 8.) (ECF No. 84-1) [The plaintiff] now argues for a market penetration test and does not mention Johnny Blastoff-a decision which is binding on this Court. At best, SCJ's position regarding the proper test for establishing nationwide common law rights in chameleonic, and its contradictory behavior concerns the court.

Id. at 26. Judge Randa used the totality of the circumstances test to determine that the defendants had established protectable rights in the mark. Id. at 26-30. He concluded that

[t]he totality of the circumstances indicate that Sunfeather has established a national presence based on the promotion and sales of its product in Frontier and Smith & Hawken's catalogs, its availability in Smith & Hawken's stores, its internet presence, its own national catalog circulation, and its marketing and sales at craft and trade shows. Thus, Sunfeather has presented sufficient evidence that it was the senior user of the BUG OFF mark and it was using the mark nationally from the cancellation of SCJ's mark until June 22, 1998. See Johnny Blastoff, Inc., 188 F.3d at 433-34.

Dkt. No. 89 at 29-30.

         Despite this criticism of the plaintiff, Judge Randa found that the defendants “ha[d] not presented evidence that they have continuously used the BUG OFF mark.” Id. at 30. He noted that while the defendants' sales records demonstrated continued sale of Sunfeather BUG OFF from the time of acquisition through 2012, “they do not demonstrate continued sales after 2012. This constitutes non-use for more than one year. Therefore, the Defendants have not demonstrated continuous use of the BUG OFF mark.” Id. He then found that the plaintiff had not abandoned its use of the BUG OFF mark. Id. at 30-35.

         Judge Randa concluded that because “[t]he Defendants ha[d] not established their prior common law continuous use of the BUG OFF mark, SCJ's abandonment of the mark, or the invalidity of the mark, ” Judge Randa found that the plaintiff had established the elements of its federal trademark infringement claim and that the defendants could not establish the elements of their counterclaims. Id. at 36-37. He issued a permanent injunction against the defendants and ordered them to turn over all infringing product to the plaintiff. Id. at 39.

         The defendants filed a motion under Fed.R.Civ.P. 59(e) and 60(b), asking Judge Randa to reconsider that decision. Dkt. No. 98. They argued that “in finding that the Defendants failed to present evidence of continuous use from 2012 to the time of trial . . . the Court seemingly overlooked both [the plaintiff's] repeated admissions and representations on this issue, as well as the Court's own earlier recognition that this fact was undisputed.” Id. at 4. Judge Randa denied the motion on September 22, 2015, finding that the defendants had not established a manifest error of fact or law regarding the court's determination that the defendants had not established continuous use of the mark post-2012. Dkt. No. 107.

         3. Appeal

         The defendants appealed. Dkt. No. 109. On August 25, 2016, the Seventh Circuit reversed the judgment in favor of the plaintiff and remanded the case to this court for further proceedings. Dkt. No. 117; see also Nutraceutical, 835 F.3d 660 (7th Cir. 2016).

         The Seventh Circuit recounted that

[the defendants] defended on the ground of prior and continuous use. From the time the pleadings were filed through the trial, the parties all agreed that the period in dispute was before 1998. But the earth under [the defendants] shifted after the district court requested post-trial briefing in lieu of closing argument. For the first time, [the plaintiff] argued that [the defendants] had failed to prove continuous use of the mark aft ...

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