Otr Wheel Engineering v. West Worldwide Services

Citation: 897 F.3d 1008Docket: 16-35897

Court: Court of Appeals for the Ninth Circuit; July 24, 2018; Federal Appellate Court

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The Ninth Circuit affirmed the district court's judgment against defendants West Worldwide Services and Samuel West for reverse passing off under the Lanham Act. West solicited a supplier to provide sample tires made from OTR Wheel Engineering's molds, instructing the removal of OTR's identifying marks to misrepresent the products as his own to OTR's customer. The court confirmed that West's actions constituted reverse passing off, as he was not merely copying intellectual property but misrepresenting genuine OTR products. The court also upheld the district court's findings that West failed to prove OTR committed fraud on the Patent and Trademark Office, emphasizing that such fraud must be demonstrated by clear and convincing evidence. Additionally, the court affirmed the rejection of a jury instruction regarding unregistered trade dress infringement, clarifying that while an unregistered claim can arise from a registered claim if the registration is invalidated, a plaintiff must provide sufficient notice in their pleadings if the unregistered claim extends beyond the registered claim. The decision included discussions on related issues in a separate memorandum.

The case features OTR Wheel Engineering, Inc., Blackstone/OTR, LLC, and F.B.T. Enterprises, Inc. as plaintiffs, with West Worldwide Services, Inc., Samuel J. West (individually and with his marital community), SSL China, LLC, Qingdao STW Tire Co. Ltd., and SSL Holdings, Inc. as defendants. The parties are collectively referred to as 'OTR' for the plaintiffs and 'West' for the defendants in the proceedings.

Judgments favored OTR against all defendants in some instances, while in others, West prevailed against all plaintiffs, eliminating the need for distinctions among the parties. The opinion addresses issues related to the Lanham Act, affirming the district court's finding that West failed to prove OTR committed fraud on the U.S. Patent and Trademark Office (PTO), emphasizing that such fraud requires clear and convincing evidence. Additionally, the court upheld the denial of a new trial concerning trade dress validity and clarified how a finding of PTO fraud influences a plaintiff's burden in trademark claims. It rejected West's proposed jury instruction on unregistered trade dress infringement, noting that an unregistered claim can arise from an invalidated registered claim, but if it extends beyond the registered claim, the plaintiff must provide notice through pleadings.

The Lanham Act aims to prevent consumer confusion regarding the origin of goods and services, allowing producers to enforce trademark rights. It protects trademarks, which identify goods, and trade dress, encompassing product design and packaging. 

Factual history indicates that OTR sells industrial tires, including the 'Outrigger,' for which it holds a registered trademark and trade dress. OTR partnered with Solideal to manufacture size '355' Outrigger tires in China for aerial work platforms, produced by Superhawk. West competes with OTR and sought to sell tires to OTR's customer, Genie.

In December 2011, West initiated discussions with the Chinese manufacturer Superhawk to produce a 355-size tire for resale to Genie. By spring 2012, West requested 16 tires for testing, but Superhawk indicated a 50-day timeline for mold creation. West insisted on a quicker solution, suggesting the use of Solideal’s existing mold, which Superhawk initially refused due to contractual obligations. Despite this, West proposed to modify the mold to remove identifying marks. Superhawk later confirmed that the 355-size tires were indeed OTR Outrigger tires made for Solideal. By summer 2013, Genie shifted its purchases from OTR to West.

OTR filed claims against West under the Lanham Act for trade dress infringement, counterfeiting, and reverse passing off, alongside state law claims under the Washington Consumer Protection Act (WCPA) for trade secret misappropriation and tortious interference. The jury found West liable for reverse passing off and violations of the WCPA, specifically tortious interference with contracts involving Solideal, OTR, and Genie. However, West was not found liable for trade dress infringement or misappropriation of trade secrets, and the jury deemed OTR's trade dress claim invalid due to fraud in obtaining registration.

The district court later set aside the jury's fraud determination but upheld the jury's other findings, canceling OTR's trade dress registration. OTR was awarded actual damages of $967,015, along with prejudgment and post-judgment interest. A preliminary injunction against West was also maintained pending appeal. On appeal, the court reversed the prejudgment interest ruling, vacated the injunction, and affirmed other findings.

The appeal raises four issues regarding the Lanham Act, particularly West's liability for reverse passing off. West contends that the verdict contradicts the Supreme Court's decision in Dastar, which restricts reverse passing off claims to instances of intellectual property copying. The court concluded that West's actions involved using tires from an anticipated OTR order and misrepresenting them as his own, rather than mere copying. The discussion also includes considerations of waiver and the sufficiency of evidence supporting the jury's verdict.

The jury found that OTR committed fraud in obtaining its tire tread trade dress registration, but the district court later set aside this finding, which West challenges. The court confirms that fraud on the PTO requires clear and convincing evidence, and agrees with the district court that West failed to meet this standard. Additionally, the jury deemed OTR's trade dress claim invalid. OTR contests this verdict, asserting it stemmed from the fraud finding, which was invalidated; it argues the invalidity finding should also be overturned. However, the court concludes that substantial evidence supports the jury’s invalidity finding.

OTR also proposed a jury instruction for an unregistered trade dress infringement claim, which the trial court rejected due to OTR not having pled such a claim. OTR argues it had included an unregistered claim that included "something more" than the registered one. The court holds that the trial court acted within its discretion in rejecting the instruction, noting OTR's failure to clearly assert this in its pleadings. It clarifies that an unregistered claim can be enforceable, but if a registration fails, it alters the burden of proof at trial.

In the matter of reverse passing off, the jury found West liable for misrepresenting an Outrigger tire as his own. West challenges this verdict on several grounds, including claims of preclusion by the Supreme Court's Dastar decision, lack of substantial evidence for his actions, and insufficient establishment of likelihood of confusion by OTR. OTR counters that West waived his arguments related to Dastar and likelihood of confusion by not raising them in a timely Rule 50(a) motion before the jury deliberated, which is necessary to preserve those arguments for appellate review.

A party cannot introduce arguments in a post-trial Rule 50(b) motion that were not included in a pre-verdict Rule 50(a) motion, leading to waiver of those arguments on appeal. West's Rule 50(a) motion claimed OTR failed to prove he removed the Outrigger mark from tires, but did not touch on Dastar or likelihood of confusion, typically resulting in waiver. However, if OTR does not object to the waiver in response to West’s Rule 50(b) motion, OTR waives its defense of waiver. In this case, OTR did not raise waiver when West presented Dastar and likelihood-of-confusion arguments, allowing all of West's arguments to be considered.

Under Section 43(a) of the Lanham Act, a claim for reverse passing off is limited by the Supreme Court’s ruling in Dastar, which clarified that "origin" refers to the producer of goods, not the creator of ideas, thereby excluding intellectual property issues from trademark claims. West contends that his use of OTR's mold does not constitute passing off, yet evidence indicates he did pass off genuine OTR tires. Specifically, he arranged for Superhawk to manufacture OTR tires to fulfill a future order for Solideal, OTR's partner, suggesting he intended to present these tires as his own. This evidence could lead a jury to conclude that he was indeed passing off genuine OTR products.

West cites the Sixth Circuit's ruling in *Kehoe Component Sales Inc. v. Best Lighting Products, Inc.*, which held that a manufacturer’s continued use of molds after fulfilling a customer’s order constituted copying, thereby precluding a reverse passing-off claim under *Dastar*. Importantly, unlike the Kehoe case, West passed off products made for OTR as his own. The pivotal inquiry is whether consumers are aware of the actual producer of the product, as emphasized in *Bretford Mfg. Inc. v. Smith Sys. Mfg. Corp.*. 

West disputes the jury's finding that he removed identifying information from the Outrigger tire's sidewall. He communicated with Superhawk about needing tires quickly and suggested buffing off the Solideal name, despite Superhawk warning against using Solideal’s mold due to an existing agreement. West’s insistence on using the Solideal mold without an order from Solideal raised questions about his intent. Expert testimony indicated that West utilized an Outrigger mold and placed blank spring plates to obscure identifying information. West argued he was unaware the tires were Outriggers at the time of his request but had previously confirmed via email that the tire was "Solideal branded the OTR Outrigger." He also contested the existence of a plate over the identifying information, suggesting it would leave marks, yet OTR noted that the molds were with Superhawk, not OTR or Solideal, and West failed to provide evidence to suggest otherwise.

West's arguments presented to the jury were ultimately unpersuasive, as the jury found sufficient evidence to support its conclusions. He contended that a blank spring plate would have left deeper tire imprints, but the jury was not obligated to accept this expert testimony and was responsible for assessing its weight against the totality of evidence. An internal Solideal email referenced by West indicated that Superhawk claimed it did not use Solideal’s mold; however, the jury could have deemed this statement self-serving, especially since Superhawk had previously warned West that using Solideal’s mold could be 'dangerous' due to contractual obligations. 

West also argued that his development tire was structurally different from an Outrigger and thus not a genuine Outrigger. However, the jury had sufficient evidence to determine that the development tires originated from an order intended for OTR and Solideal. An expert testified that any structural differences were likely attributable to variations in manufacturing processes, asserting that these differences did not affect the tire tread pattern.

To establish a claim under section 43(a), OTR needed to demonstrate a likelihood of consumer confusion regarding the origin of the Outrigger tires with identifying information removed. The jury assessed whether a prudent consumer would likely be confused, without needing evidence of actual confusion. They were presented with comparative images of an OTR production tire and West's development tire, which could reasonably lead to conclusions of consumer confusion. West's claim that the customer Genie was not confused was unconvincing for two reasons: he admitted that Genie believed the tire was not a genuine Outrigger, which implies actual confusion, and his referenced evidence was excluded from the trial and thus could not be used to challenge the jury’s verdict. The jury's decision was supported by substantial evidence.

OTR secured a trade dress registration for its Outrigger tire tread design and subsequently claimed infringement against West. West countered that the registration was invalid due to fraud on the U.S. Patent and Trademark Office (PTO), a claim the jury initially supported. However, the district court later overturned this finding, ruling there was insufficient evidence to substantiate the fraud claim under the clear and convincing evidence standard.

The standard of review for a judgment as a matter of law is de novo, meaning the appellate court reassesses the evidence as the district court would have. A jury's verdict is upheld if substantial evidence supports it, meaning evidence that adequately justifies the jury's conclusion, even if contrary conclusions are possible. The evidence must be viewed favorably for West, with reasonable inferences drawn in its favor.

Claims for cancellation of a trademark based on fraud require proof of five elements: 1) a false representation of a material fact; 2) knowledge or belief by the registrant that the representation is false; 3) intent to induce reliance; 4) actual reliance; and 5) damages resulting from that reliance. The clear and convincing evidence standard applies to such fraud claims, necessitating a higher degree of proof than a mere preponderance of the evidence, aiming to produce a strong conviction in the ultimate factfinder that the claims are highly probable.

The district court granted OTR's motion to set aside the jury's fraud finding, determining that clear and convincing evidence for the fraud claim was lacking. Two key pieces of evidence were evaluated: an email from a consultant indicating that the Outrigger tread design aided in self-cleaning, which was not deemed a material omission as the self-cleaning attribute had been previously disclosed to the PTO; and a declaration from OTR manager Patrick Smith asserting that the Outrigger was immediately identifiable by its tread design. The court classified Smith's statement as a sincerely held opinion rather than a false fact. 

West contended that Smith's declaration was fraudulent due to lack of data supporting the claim. However, Smith did not present survey results, and thus his statement did not qualify as clear and convincing evidence of a false representation. Additionally, West did not demonstrate that Smith knew his statement was false or that there was reasonable reliance on it. The PTO examiner had previously denied the trade dress registration application on grounds of functionality and non-distinctiveness, indicating that OTR failed to prove acquired distinctiveness under Section 2(f) of the Trademark Act. Following a subsequent amendment from OTR, which included evidence of $48 million in sales over 14 years, the examiner eventually found acquired distinctiveness. The court concluded that Smith's initial declaration about immediate recognizability did not influence the examiner's later decision on acquired distinctiveness.

Ray Evans, a tire engineering consultant for OTR, described the unique functionalities of the Outrigger tires in an email, emphasizing their self-cleaning ability essential for adverse muddy conditions. West contended that Evans’ omission of this functionality in a later declaration to the PTO constituted fraud, arguing that functional features are not eligible for trade dress protection. However, since the PTO had already been informed by Patrick Smith that all R-4 tires, including the Outrigger, were self-cleaning, the court found no material omission by OTR. Consequently, the district court agreed with the conclusion that West did not provide clear and convincing evidence of fraud.

The jury had initially found OTR's trade dress registration fraudulent, but the district court overturned that finding. The jury also deemed OTR’s trade dress claim invalid, a decision the district court upheld, denying OTR’s motion for a new trial. Under trademark law, to succeed in an infringement claim, a plaintiff must demonstrate a valid, protectable mark and that the defendant’s use is likely to cause consumer confusion. Validity requires that the mark is distinctive and non-functional. The jury's instructions included these requirements, and they determined that OTR's trade dress was neither valid nor protectable. 

The jury also concluded, with clear and convincing evidence, that OTR’s trade dress registration was obtained through fraud. Although this finding could lead to cancellation of the registration, it does not inherently invalidate the trademark itself, as registration provides only a presumption of validity. The burden remains on the defendant to prove otherwise in court.

A plaintiff can claim infringement of trade dress rights even if the trademark is unregistered, provided they can demonstrate distinctiveness and non-functionality. If a mark is canceled due to fraud on the Patent and Trademark Office (PTO), infringement claims based on the unregistered mark can still proceed. Fraud does not invalidate a trademark’s enforceability, but if fraud is established, the plaintiff must then prove distinctiveness and non-functionality. The plaintiff always carries the burden of proving consumer confusion.

In the case at hand, OTR contends that the jury's determination of trade dress invalidity stemmed from a prior finding of fraudulent registration. They cite a jury instruction suggesting that if fraud was found, the registration should be deemed invalid. However, this argument is speculative, as the jury's process is not clearly indicated to have skipped the validity question. The special verdict form instructed the jury to address validity first, with subsequent questions contingent on that answer. There was no indication of jury confusion, and the answers provided by the jury aligned with the questions posed, allowing them to determine trade dress validity without considering fraud.

Under the Seventh Amendment, there is an obligation to harmonize a jury’s answers on a special verdict form if possible. In this case, it is presumed that the jury answered Question No. 1 as phrased, without considering fraud. OTR failed to object to the special verdict form before it was presented to the jury, and therefore cannot later claim confusion as a reason to disregard the verdict. There was substantial evidence for the jury to determine that the tire tread trade dress was either functional or non-distinctive, justifying a "No" answer to Question No. 1. While OTR contended that the specific angle of the tire tread was not functional, the jury could have reasonably disagreed, supported by evidence such as an email from Ray Evans highlighting the design's contribution to the tire's self-cleaning ability and recognizability. The jury could also have found that the tread design lacked secondary meaning due to similarity with other designs.

OTR's request for a new trial based on claims of jury prejudice from West's fraud allegations was not persuasive; juries are capable of navigating conflicting claims. The district court did not err in denying OTR’s motion for a new trial. Regarding OTR's claim of unregistered trade dress infringement under 15 U.S.C. § 1125(a), the trial court rejected OTR's proposed jury instruction since OTR had not pled such a claim. The court assessed whether OTR’s complaint sufficiently notified the defendants of this claim. A complaint must clearly state the claim to guide discovery and inform the defendant of necessary evidence. OTR did not explicitly assert an unregistered trade dress claim in its complaint, nor did it demonstrate that it had done so before the close of discovery. Simply referencing section 43 of the Lanham Act was insufficient, as that section encompasses both registered and unregistered marks. The court emphasized that OTR’s failure to specify its claim prejudiced the defendant, as new theories of recovery cannot be introduced after discovery has concluded.

OTR's reference to section 43 did not indicate an unregistered trade dress claim, as it primarily alerted West to specific claims, including a violation related to the registered "Outrigger" word mark and a reverse passing off claim. OTR's first amended complaint emphasized its registrations, suggesting reliance on that validity rather than indicating intent to pursue an unregistered trade dress claim. The district court acted within its discretion by not instructing the jury on the unregistered trade dress claim, which was inadequately raised. While OTR's unregistered claim could survive if it asserted broader grounds than the registered claim, it needed to be clearly articulated in the complaint, which it was not. OTR's argument that its unregistered claim included additional aspects of the tire's appearance was insufficient without proper pleading. The court affirmed the district court's decisions on all Lanham Act issues, with further issues addressed in a separate memorandum disposition.