Court: Court of Appeals for the Second Circuit; December 27, 1998; Federal Appellate Court
Appellant Wal-Mart Stores, Inc. appeals a July 17, 1997 judgment from the Southern District of New York, which denied its Motion for Judgment as a Matter of Law concerning claims made by appellee Samara Brothers for violations of the Copyright Act, the Lanham Act, and New York deceptive trade laws. Wal-Mart also seeks a new trial, alleging errors in jury instructions.
Samara, a manufacturer of children's clothing, particularly seersucker garments, discovered that Wal-Mart had contracted with Judy-Philippine, Inc. (JPI) to produce similar clothing based on Samara's designs, which were visible on the order paperwork. JPI copied sixteen of Samara’s garments with minor modifications for Wal-Mart's 'Small Steps' label, generating over $1.15 million in profits for Wal-Mart. Complaints from a J.C. Penney buyer led Samara to investigate and confirm that its designs were being sold at Wal-Mart and other retailers, prompting Samara to file a lawsuit for copyright infringement and unfair competition after unsuccessful cease and desist attempts.
Wal-Mart's cross-claims against JPI for indemnification were settled, while Samara's claims against Wal-Mart proceeded to trial. The jury found Wal-Mart liable on all counts, awarding significant damages, and the district court denied Wal-Mart’s post-trial motions but granted Samara injunctive relief and awarded attorneys’ fees and costs. The court chose to draft its own injunction rather than accept Samara's version and denied requests for enhanced damages and prejudgment interest.
Wal-Mart appeals four decisions made by the district court: 1) not overturning the verdict on the Lanham Act claim; 2) denying its proposed jury instruction regarding clothing labels; 3) not finding the state law claims preempted by the Copyright Act; and 4) rejecting claims that some of Samara’s copyrights are legally invalid. The appeal primarily stems from the district court's denial of Wal-Mart's Motion for Judgment as a Matter of Law, which the Court reviews 'de novo,' favoring the non-movant and granting reasonable inferences in their favor. A jury's verdict can only be set aside if the evidence leads to a single reasonable conclusion contrary to the verdict. Wal-Mart argues that the trend in intellectual property law, referencing Markman v. Westview Instruments, Inc., suggests that the court, rather than a jury, should decide trade dress protectability issues. However, the Court finds no support for this trend in case law, emphasizing that Markman pertains specifically to patent claim construction and does not extend to trade dress cases. The Court maintains confidence in juries' ability to evaluate complex trade dress claims. Regarding the jury instruction, an erroneous instruction necessitates a new trial unless the error is deemed harmless.
Section 43(a) of the Lanham Act allows for legal action against individuals or entities whose use of words, symbols, or designs in commerce could confuse consumers regarding the origin or sponsorship of products. The purpose of trade dress law is to inform the public about the source of products while not unduly hindering competition from similar products. To establish a claim for trade dress infringement, a plaintiff must demonstrate that their trade dress is either inherently distinctive or has acquired distinctiveness through secondary meaning, and that there exists a likelihood of confusion with the defendant's product.
In this case, Wal-Mart contends that Samara’s claim fails because its clothing lacks distinctiveness and does not cause consumer confusion. In response, Samara argues that its seersucker children’s clothing is distinctive and that evidence shows Wal-Mart’s designs caused marketplace confusion regarding the source of the goods. The court agrees with Samara, affirming the jury's verdict on trade dress.
The court emphasizes that the primary issue is whether Samara's garments are inherently distinctive, as there is no claim of secondary meaning. It notes that trade dress protection for product designs is more challenging to establish than for packaging. Citing previous cases, the court indicates that the key consideration is whether the design signals the product's source. Wal-Mart compares this case to a prior case where trade dress protection was denied due to the aesthetic nature of the designs. However, the court finds that the testimony presented demonstrates that Samara's designs were intended to be source-identifying, distinguishing them from the prior cases.
Samara's product line is fundamental to its business, with testimony indicating it is essential for company survival, while alternative designs have negatively impacted sales. In contrast, Knitwaves produced a line of sweaters that had not been previously manufactured and lacked intent to establish a recognizable 'fall motif' as its core product. Consequently, Knitwaves does not support Wal-Mart's request for a judgment as a matter of law. Although Wal-Mart highlights similarities to the case of Landscape Forms, the reasoning in that case leads to a different conclusion here. Wal-Mart argues that Samara's portrayal of its "overall look" is too vague for trade dress protection. The Landscape Forms court noted that plaintiffs seeking trade dress for a product line face challenges in demonstrating distinctiveness, as protection for an entire line may conflict with competition interests. While trade dress can protect an overall look, a plaintiff must articulate specific elements that comprise the claimed trade dress to facilitate court evaluation of uniqueness. A failure to do so may indicate an overly broad claim for an unprotectable style or idea. The Landscape Forms case involved a preliminary injunction against a furniture manufacturer, where the plaintiff's description of its trade dress was deemed insufficiently specific to demonstrate inherent distinctiveness, rendering the claim too abstract to qualify for protection.
Evidence presented at trial establishes that Samara’s trade dress, characterized by a unique combination of design elements such as seersucker fabric, large bold appliques, and specific structural features, qualifies for protection under Section 43(a). Testimony indicated a notable absence of common children's clothing features like printed images and heavy ornamentation, contributing to a distinctive overall look. Despite some challenges faced by witnesses in articulating this 'overall look,' the jury could reasonably conclude that Samara’s product line is 'inherently distinctive.' Notably, a Wal-Mart buyer recognized this distinctive appearance.
Regarding consumer confusion, Wal-Mart argued for judgment in its favor, claiming Samara failed to demonstrate actual consumer confusion regarding the knock-offs sold by Wal-Mart. However, consumer confusion can be inferred from evidence of deceptive intent. Samara did not present proof of actual confusion but contended that sufficient evidence indicated Wal-Mart's intent to mislead consumers about the product source. The court found that evidence supported the jury's conclusion that Wal-Mart engaged in willful piracy, intending to deceive consumers, thereby upholding the jury's determination.
Evidence indicates that Wal-Mart requested JPI to create seersucker garments based on Samara samples, leading to the production of sixteen garments that were "strikingly similar" to Samara's designs. A Wal-Mart witness acknowledged awareness of the copying, and Wal-Mart admitted that it had evidence of knowing it was purchasing copied garments. However, Wal-Mart argued there was no intent to deceive customers regarding the source of the products, noting the absence of Samara branding on the garments. Wal-Mart cited a precedent asserting that mere imitation does not equate to deception without intent. The conclusion drawn is that the significant extent of copying indicates an intent to deceive customers about the origin of the garments, warranting a demand for Wal-Mart to explain its actions, which it failed to do. Wal-Mart's defense of using its own labels as a means to inform customers was rejected, as labels alone do not shield an infringer from liability. Consequently, the jury's finding of a violation of Section 43(a) of the Lanham Act is upheld.
Regarding the district court's injunction, while the jury's verdict on trade dress is affirmed, the injunction is deemed overly broad. The district court's injunction prohibits Wal-Mart from producing or distributing garments that are directly or indirectly copied from any Samara garment, without adequately defining Samara's trade dress. This could potentially restrict Wal-Mart from using any basic design element associated with Samara, which misinterprets trademark law. The appellate court intends to clarify the specific boundaries of Samara's protected trade dress for the district court to craft an appropriate injunction on remand.
Protected trade dress includes key elements such as exclusive use of seersucker fabric, the presence of two or three identically shaped cloth appliques in vibrant colors integrated into a large white collar, full-cut garment bodies, and the absence of three-dimensional features or text. The distinctiveness of the 'Samara look' arises from the unique combination of these elements, rather than their individual characteristics. Although some garments submitted for protection did not meet these criteria (specifically three out of forty-three trial exhibits and two out of sixteen from the Wal-Mart line), it is emphasized that not all garments must share identical design features to qualify for protection. Essential elements include the specific placement of appliques along the collar or collar line. The ruling clarifies that garments lacking main design features (like seersucker fabric or proper applique placement) do not warrant protection, ensuring that competition is not unfairly restricted. The court confirmed the jury’s verdict, acknowledging the challenges of trade dress claims, but supported it with evidence. Additionally, it was determined that two of the sixteen garments were not part of the protectable trade dress.
Two garments, one featuring a tow truck applique and the other a circus car with animals, lack collars or pockets and each has a single applique at the center. The circus car garment does not have a copyright registration, but Samara received $68,633.53 for trade dress infringement related to it. The jury awarded Samara a total of $912,856.77 in lost profits due to Wal-Mart’s infringement of thirteen copyrights, which includes $34,534.33 for the tow truck garment. The jury also awarded $240,458.53 for lost profits on three other outfits, including the circus car garment. However, since the circus car garment is not protected under trade dress, the lost profits award for it must be reversed.
Wal-Mart contends that a new trial on the Lanham Act claim is necessary because the district court did not include Wal-Mart’s proposed jury instruction regarding labeling. Wal-Mart argued that if the label, rather than the overall product appearance, leads consumers to believe it is a Samara product, then Samara cannot prove protectable trade dress. This claim was waived because Wal-Mart did not properly raise the issue during the charging conference, despite including it in its proposed instructions. The court referenced precedent establishing that merely submitting a proposed instruction does not preserve an objection unless it has been explicitly raised in court. Unlike a similar case, Anderson, where objections were made during the charging conference, Wal-Mart did not raise the labeling issue, and thus its claim is waived under the ruling in Caruso. The court did not find evidence of plain error, so a new trial is not warranted based on this argument.
Wal-Mart claims that the Copyright Act preempts Samara's New York common law unfair competition claim and the General Business Law §349 claim. However, the court disagrees, stating that the Copyright Act only preempts state laws that protect rights equivalent to those under federal copyright. The "extra element" test is applied to determine preemption; if a state law claim requires an additional element beyond copyright infringement, it is not preempted. The court finds that the "intentional deception" element in the §349 claim constitutes such an extra element, distinguishing it from copyright infringement. The requirement of misrepresentation is also noted as a necessary component for liability under deceptive trade practices, which is absent in copyright claims.
Regarding the unfair competition claim, the court states that it is not solely based on copying but requires proof of "actual confusion" among consumers. Although Wal-Mart argues that Samara failed to prove actual confusion, the court acknowledges that Samara demonstrated intentional deception through substantial copying of its designs. The jury was instructed to presume actual confusion based on the evidence of intentional deception, which Wal-Mart did not successfully rebut. Thus, the court concludes that both the §349 claim and the unfair competition claim are not preempted and may proceed based on the established findings.
Samara's state law claims are upheld as not preempted by federal law. The court examined the validity of five copyrights held by Samara, which Wal-Mart argued were not original enough to warrant protection under the Copyright Act. Wal-Mart specifically contested the originality of designs featuring strawberries, daisies, hearts, and tulips, all of which are registered with the U.S. Copyright Office. The court noted that a copyright registration provides prima facie evidence of validity, which Wal-Mart failed to rebut during trial. Wal-Mart did not present evidence to challenge the originality or independent creation of these designs. While the court acknowledged that copyrights for common objects receive limited protection, it emphasized that virtually identical copying could lead to successful infringement claims.
The conclusion affirms in part and reverses in part the district court's decision. The court upheld the denial of Wal-Mart’s motion for judgment on Samara’s claims under the Lanham Act and the Copyright Act, as well as the rejection of a new trial due to jury instruction errors. However, it reversed the district court's injunction in favor of Samara, instructing a remand for the issuance of a revised injunction and recalculation of damages. The court also expressed confidence that juries can differentiate between protections under the Lanham Act and the Copyright Act.
The complaint fails to adequately establish the "inherent distinctiveness" of the trade dress for legal protection. However, the jury's decision was informed by comprehensive evidence beyond the allegations in the complaint, including numerous garments from both parties. Testimony from Mr. Kleist, a buyer for Wal-Mart, indicates he recognized a "Samara type of look" but could not confirm which garments had Samara labels. While Wal-Mart argues that confusion must be proven among consumers, not experts, the district court used Kleist's testimony to support the jury's conclusion of a recognizable Samara style rather than to establish actual consumer confusion.
The dissent critiques individual design elements, suggesting that some, like seersucker fabric and large appliques, lack distinctiveness. However, the majority maintains that it is the combination of these elements that contributes to the distinct Samara appearance, not any single feature alone. Wal-Mart questions the jury's verdict on the Lanham Act claim, pointing to jury instructions based on Abercrombie, which the court believes are appropriate for design trade dress cases. The jury was instructed to evaluate the product's overall appearance rather than its individual elements.
Additionally, unlike in Folio Impressions, there was no evidence presented that the design elements were copied from the public domain. Testimony from Samara’s Vice-President suggested a consistent design approach, but this alone is insufficient to demonstrate entitlement to trade dress protection. Ultimately, the critical issue is whether the clothing line possesses a distinctive combination of features qualifying for such protection.
