Expanding Boundaries of Trademark Infringement

December 13, 2010, 12:14 PM

Lets say you need to tune up your Toro gas leaf blower and take it in to the dealer. Lets also say Toro recommends that only Toro brand oil be used in its machines, and actually requires that its dealers use its oil. But your repair shop wants to save a buck, so uses Brand X oil. Perhaps Brand X really isnt as good, and maybe you dont think the blower works quite as well when you get it back. In this story, the store, if it is a Toro dealer, probably is violating its dealer agreement with Toro. But is it also infringing Toros trademark? Is the producer of Brand X oil contributorily infringing?

According to a recent decision of the U.S. Court of Appeals for the Fourth Circuit, the answer may be yes in both cases. In Georgia Pacific Consumer Prods., LP v. Von Drehle Corp., Nos. 09-1942, -0224 (August 10, 2010), the Fourth Circuit reversed a grant of summary judgment for Von Drehle and held that it may have contributorily infringed Georgia Pacifics enMotion mark by selling replacement paper towel rolls for use in Georgia Pacifics enMotion automatic paper towel dispensers. Georgia Pacifics theory of infringement is unusual, at least as applied to the facts, but it succeeded in the court of appeals. The decision has potentially broad implications. If the theory is embraced by the lower court (the case was remanded for determination of whether there was infringement on the merits) and other courts, manufacturers may have a potent new weapon to extend their brands, limit competition and boost profits.

Georgia Pacific designed and marketed enMotion automatic paper towel dispensers for use in restaurant restrooms and the like. It also developed and sold enMotion paper towel rolls specifically for use with the machines. Georgia Pacifics marketing strategy was to insist that only the branded enMotion tower rolls could be used with the enMotion dispensers. To accomplish this, it manufactured both the machine and the rolls to be wider than most towel dispensers. It leased rather than sold the machines, contractually requiring lessees (distributors and sublessee end-user businesses) to use only enMotion rolls. The machines bore the enMotion brands, and notices were printed on the inside of the machine stating that they were to be filled only with the special towel rolls. The enMotion towel rolls were sold separately and installed as needed; the towel rolls themselves did not bear the enMotion mark.

The dispensers proved to be very popular. Von Drehle decided to manufacture and sell wider paper rolls to be used with the enMotion dispensers. Its replacement rolls were not as smooth as the Georgia Pacific rolls, but they fit the machines and some distributors and end users bought and used them. The rolls were sold under Von Drehles own name and mark, so distributor or end-user purchasers knew what they were getting. Von Drehle never applied the enMotion brand or any variant of it to the rolls or their packaging. The paper towel rolls themselves did not bear any brand.

The practice of using one brand of towel rolls in another brand of dispenser is called stuffing, and it is a common practice in the industry. Georgia Pacific was trying to prevent stuffing by contractually requiring use of its special towels in its special dispenser. It also argued that restaurants and distributors infringed its trademark by installing the towels, and that Von Drehle contributorily infringed by providing the towels with knowledge that they would be used to infringe. It contended that restroom occupants would be less happy with the lower quality of towels, and that would damage the enMotion brand because the users would mistakenly think that the towels were enMotion towels.

The Fourth Circuit agreed that the practice could be a form of misbranding or mislabeling. It concluded that the distributors and restaurants were using the enMotion mark in commerce (one essential element of infringement claims) because the practice was no different from a hotel placing a Coca-Cola brand fountain dispenser in its lobby for the complimentary consumption of its patrons, while surreptitiously stocking it with generic cola. And, in the most important point of disagreement with the decision below, it held (correctly, in my view) that the potential for confusion among restroom patrons was relevant even though they werent purchasers of the towels. That is, the relevant audience for determining a likelihood of confusion isnt limited to customers. Because there remained material questions of fact as to whether those patrons mistakenly thought the towels were enMotion towels, it remanded the matter for trial.

Whether restroom occupants would mistakenly think the towels coming from enMotion dispensers were enMotion-brand towels is a factual question, and there evidently was conflicting evidence on the question. The question depends on what they expect, whether they assume or have learned that a branded towel comes from the branded machine (or, put differently, whether they concluded that the brand on the dispenser means that the towels within were similarly branded). I have my doubts, but can see why the court thought the issue should survive summary judgment.

What is more difficult to understand is the courts quick conclusion, really as a matter of law, that the distributors were using the enMotion mark just because that mark was on the machine from which the towels came. To my mind, that question also necessarily depends on what consumers expect. Hotel guests and most people have come to think that a Coke dispenser dispenses Coke; the brand on the dispenser amounts to little more than packaging. The prominent Coke logo on the machine is an ad of sorts, an effort to entice people to get a Coke. By contrast, a hotel or restaurant restroom patron may think, should the question ever pass their minds, that a brand name on a towel dispenser is just the brand of the machine. They would be more likely to think so if they knew stuffing was a common practice. And one would think the hotel or restaurant owner is not trying to induce restroom users to use branded towels when it installs a machine that happens to bear the enMotion brand.

If consumers dont expect the towels to bear the same brand, then I would argue that the dealers cant be using the enMotion mark. The brand just happens to be on the machine, indicating the brand of the machine (like, perhaps, the name of a company that manufactures the dispenser). Certainly the distributors are not trying to persuade the restroom patrons that the towels are enMotion towels (they dont much care about the end user, and are just trying to sell towels to the restaurants), and the restaurants buying the towels are not fooled at all. Similarly, the leaf blower repair shop that adds brand X oil is not using the TORO mark just because TORO appears on the side of the leaf blower.

Many questions in trademark law center on consumer perception. Consumer perception is difficult to measure, and it can change over time. This case is an example. Maybe Georgia Pacific is correct and restroom users have come to expect that towels from enMotion machines bear the same brand. Given that its marketing strategy was a departure from the historical norm, however, one would expect such a perception to evolve, if at all, only over a long period of intense marketing.

Why is all this so interesting? Georgia Pacific set up an elaborate contractual and marketing scheme in order to create public perception that the enMotion brand on the dispensers meant that the towels were of the same brand. It then asserted that the perception meant that the dealers and end user businesses were infringing by using other towel rolls, even though neither type of towel as dispensed bore any brand at all. The advantage of claiming infringement is that Georgia Pacific could (and did) sue the producer of the aftermarket towels as well as distributors with whom it has no relation, even though they were not parties to any contract or lease. It is a lot easier to sue one party, the competitor, than hundreds of distributors and restaurants, who happen to be customers, for breach of contract. Further, it is a substantial extension of infringement theory to allege that the aftermarket supplier contributed to confusion of restroom patrons where neither Georgia Pacifics towels or the aftermarket towels as dispensed bore any mark at all.

The strategy is also a powerful marketing and competitive tool. If successful, it expands trademark rights by using a brand on one product only to claim trademark rights in another, unmarked product. (It is curious that Georgia Pacific chose not to imprint enMotion on the towels themselves). It also amounts to using trademark law to lock customers into Georgia Pacifics aftermarket supplies, thus reducing competition and presumably boosting profits on those consumables. Attempts to lock in purchasers to ones aftermarket parts or consumables usually are not valid in the absence of patent rights or unusual circumstances supporting an antitrust claim. This strategy is not unprecedented, but this case demonstrates an aggressive use of it.

The final outcome of the Fourth Circuit dispute will likely turn on a messy fight in the trial court over survey results. Notably, Georgia Pacific has also sued on this theory in Arkansas, unsuccessfully. Recently the U.S. Court of Appeals for the Eighth Circuit affirmed a trial court judgment, on very similar facts, that no contributory infringement occurred because neither survey nor expert testimony showed any confusion among either purchasers or restroom users. As to the latter, it found no basis for concluding that patrons believed that the brand on one product (the machine) was a source identifier for another (the towels). The difference in outcomes in part reflects the difference in procedural posture the Fourth Circuit decision being on summary judgment. Yet, it is apparent from both that defendants seeking to resist the theory face factual questions that will not be resolved short of trial.

If Georgia Pacifics strategy works on remand, and even if not, we may see others emulate the practice. Someday, Toro might require dealers to use its oil by contract, and Toro might then argue that use of another brand of oil in its products (even by nondealers) is a use of the TORO mark causing confusion in violation of the Lanham Act. --Christopher J. Mugel