Court: District Court, D. South Carolina; March 20, 2014; Federal District Court
On February 27, 2012, Fuel Clothing Company, Inc. initiated legal action against Nike, Inc. for multiple claims including federal trademark infringement, common law trademark infringement, unfair competition, false designation of origin, trademark dilution, and violations of the South Carolina Unfair Trade Practices Act (SCUTPA). Nike responded on May 7, 2012, denying allegations and filing counterclaims for declaratory relief, to which Fuel replied on May 23, 2012. Following the exchange, Nike moved for summary judgment on May 23, 2013, with subsequent responses and hearings taking place throughout June and November of that year.
Fuel specializes in apparel for the action sports industry and has been using the "Fuel" mark since its founding in 1992, with trademark registration granted in 1999 for various clothing items. The mark has been utilized in diverse formats and designs, including variations accompanied by images and phrases. Fuel has actively protected its trademark against infringement, engaging in litigation and settlements with several companies.
The dispute arose after Nike introduced the term "Fuel" in its product offerings, specifically with the creation of the "NikeFuel" activity measurement system and the NIKE FUELBAND, an electronic wristband designed to track physical activity metrics. The name "NikeFuel" was intended to reflect the system's focus on physical activity, while "Band" indicated the wearable nature of the device.
The NIKE FUELBAND features the Nike "swoosh" mark on its clasp and displays various images, including the "swoosh" and "Fuel" marks, on its scrolling screen. Launched in January 2012, the product's packaging prominently displays the "swoosh," "NIKE FUELBAND" in capital letters, and the word "FUEL." Nike also promoted the FUELBAND with t-shirts featuring phrases like "Fuel it up," which included the "swoosh" and "NIKE FUELBAND" marks; these shirts accounted for less than one percent of FUELBAND sales. To further promote the product, Nike released a video with renowned athletes showcasing the FUELBAND. Subsequently, the U.S. Patent and Trademark Office registered "NIKE FUELBAND" in multiple classes for electronic and health monitoring devices, as well as watches, and registered "NIKEFUEL" for various related services. However, Nike did not seek registration for "Fuel" in the apparel category. Fuel alleges that Nike's use of the "Fuel" mark could confuse consumers and infringe on Fuel’s mark, a claim Nike denies as it moves for summary judgment on all claims, arguing there are no genuine disputes over material facts. Summary judgment is appropriate if the movant can demonstrate entitlement to judgment as a matter of law. A genuine dispute exists when a reasonable jury could find for the non-moving party. The principles governing summary judgment apply equally in trademark cases.
In a motion for summary judgment, a court evaluates evidence favorably for the non-moving party, who must present specific facts to demonstrate a genuine issue for trial, rather than mere allegations or denials. The standard requires sufficient evidence to necessitate a jury or judge’s resolution of factual disputes, while speculation is insufficient to oppose summary judgment. Nike seeks summary judgment on two grounds: first, claiming Fuel has abandoned its mark through "naked licensing," and second, asserting no likelihood of confusion exists regarding Fuel’s trademark claims. Fuel counters with claims of factual disputes over both abandonment and likelihood of confusion.
Nike argues that agreements with Fuel TV, Safari Shirt Company, and Fuel Helmets constitute "naked licenses," leading to abandonment of Fuel's mark, which Fuel disputes. Trademark abandonment occurs when a licensor fails to maintain control over the mark's use, as defined by the Lanham Act. Naked licensing arises when a trademark owner does not exercise adequate control, causing the mark to lose its significance and quality assurance.
All agreements permitting the use of a protected trademark must be evaluated to determine if they qualify as "licenses" in the context of naked licensing. The key factor is whether the agreement allows infringing use. Some agreements may be classified as "consent-to-use" rather than licenses, focusing on preventing consumer confusion rather than transferring trademark rights. Courts should refrain from recognizing a trademark license if the agreement avoids misleading consumers regarding the origin of goods.
If an agreement is deemed a "license," the court must assess whether it includes an express right for the licensor to inspect or supervise the licensee’s operations. In the absence of such rights, the licensor's actual quality control efforts are considered. The necessary level of control is not easily defined, as it varies across different licensing contexts.
Naked licensing is primarily relevant to claims of unintentional trademark abandonment, imposing a stringent burden of proof on third parties asserting abandonment through naked licensing.
In the case of the settlement agreement between Fuel and Fuel TV, which arose from trademark infringement litigation, Fuel TV is restricted from using the "Fuel" mark independently and must include "TV" or "Television" alongside it. Fuel TV is also required to compensate Fuel for certain sales and is prohibited from entering the media sector with the "Fuel" mark. Nike argues that this agreement constitutes a license due to the absence of quality control provisions, thus categorizing it as a naked license. Conversely, Fuel argues that no quality control is necessary, asserting that the agreement merely restricts the use of the "Fuel" mark rather than granting a license.
The court determines that a reasonable jury could view the settlement agreement between Fuel TV and Fuel as restricting Fuel TV's use of the "Fuel" mark, potentially preventing infringement that could confuse consumers. The classification of the agreement is treated as a factual inquiry, where references to it being a "license" by Mr. Gould and Fuel’s counsel do not conclusively define its legal nature. The court acknowledges that the legal characterization of an agreement cannot be altered merely by labeling it differently.
In the case of Fuel's settlement with Safari Shirt Company, stemming from trademark infringement issues, the agreement mandates that Safari Shirt cease all use of the "Fuel" mark by August 9, 2007, with provisions for fees if use continues beyond this date, culminating in total cessation by August 9, 2008. Nike argues this agreement is a license lacking quality control measures, while Fuel asserts it is a phase-out agreement designed to eliminate use of the mark. The court finds that a reasonable jury could interpret the agreement as a phase-out, which would prevent it from being classified as a license. Discrepancies regarding Safari Shirt's usage of the "Fuel" mark post-August 9, 2008, further complicate the classification, leading the court to conclude that factual disputes exist over whether the agreement is a license, thus deferring any analysis of Fuel's quality control at this stage.
Fuel Helmets, Inc. owns the trademark "Fuel" for motorcycle helmets, while Fuel owns the same mark for clothing. Their "Consent Agreement" mandates that Fuel Helmets stop using the "Fuel" mark in connection with clothing or off-road helmets but permits its use for safety helmets and motorcycle gloves related to on-road activities. Nike argues this agreement functions as a license without quality control provisions, claiming Fuel has not exercised quality control over Fuel Helmets. In contrast, Fuel asserts the agreement is a co-existence arrangement, allowing each party to use "Fuel" in their respective markets, thereby preventing confusion and infringement.
The court concludes that the Consent Agreement could be interpreted as a consent-to-use agreement rather than a license, which raises factual issues regarding its classification. Consequently, the court does not need to address the quality control aspect at this stage. Regarding Fuel's other agreements, the court finds unresolved factual issues surrounding potential "naked licensing," leading to a denial of Nike’s motion for summary judgment related to abandonment claims. Additionally, Nike contends there is no likelihood of consumer confusion regarding Fuel's claims of trademark infringement and unfair competition under the Lanham Act, which requires proof of a valid trademark and likelihood of confusion from the defendant's use.
The determination of liability in trademark infringement hinges on whether there is a likelihood that a significant number of average consumers will be misled or confused about the source of the goods. Summary judgment is appropriate if no reasonable jury could find a likelihood of confusion based on undisputed facts. The Fourth Circuit recognizes nine factors relevant to this inquiry: 1) strength of the plaintiff's mark; 2) similarity of the marks; 3) similarity of the goods/services; 4) similarity of facilities used; 5) advertising similarities; 6) the defendant’s intent; 7) actual confusion; 8) quality of the defendant’s product; and 9) consumer sophistication. These factors are not uniformly weighted and may not all apply in every case; they serve as guidelines rather than strict requirements. The evaluation of confusion should focus on how the parties actually use their marks in the marketplace. While summary judgment on likelihood of confusion is permissible, this issue is inherently factual and often suited for jury resolution. The terms "forward confusion" and "reverse confusion" are both relevant; forward confusion arises when consumers believe the junior user's goods are from the senior user, while reverse confusion occurs when a larger junior user oversaturates the market, leading consumers to mistakenly associate the senior user’s products with the junior user. The court will consider both types of confusion as asserted by the parties.
The strength of a trademark is assessed through its conceptual and commercial strength. Conceptual strength evaluates how uniquely a mark is associated with a source, while commercial strength focuses on its recognition in the marketplace among consumers. A strong mark in the commercial sense can gain protection through secondary meaning, even if conceptually weak. Marks are categorized into four groups based on distinctiveness: generic (not protectable), descriptive (requires secondary meaning for protection), suggestive (inherently distinctive), and arbitrary/fanciful (inherently distinctive and often made-up or unrelated to the product). Nike argues that Fuel's mark is descriptive, citing examples of its use in a descriptive context. In contrast, Fuel claims its mark is not descriptive, supported by a statement from Mr. Gould indicating that "Fuel" was not chosen with descriptive intent.
The "Fuel" mark is determined to be suggestive and inherently distinctive, as it does not describe a specific feature of action sports apparel. The mark's conceptual strength is impacted by third-party usage; a strong trademark is infrequently used by others, whereas a weak one is commonly used. Evidence shows substantial third-party use of "Fuel," with over 1,000 federal trademark registrations that include the term, and at least 15 within the same class as Fuel's registration. Nike presents examples of the word "Fuel" being used in connection with various apparel and sporting goods, while Fuel argues these do not weaken its mark since they are not in action sports. However, some registrations overlap into related fields. The presence of the mark in a crowded field diminishes its distinctiveness, and even unrelated third-party use can indicate a lack of strength. While Fuel cites litigation against infringing parties as a means of protecting its mark, such evidence is only significant if it effectively maintains the mark's distinctiveness in the relevant market.
The court acknowledges that Fuel's efforts to police its mark indicate an attempt to prevent dilution; however, these efforts are insufficient to counterbalance the extensive third-party use of the mark in various markets. Although the mark is deemed at least suggestive and inherently distinctive, its conceptual strength is diminished due to this widespread use. Regarding commercial strength, the court evaluates factors established by the Fourth Circuit, which include advertising expenditures, consumer studies, sales success, media coverage, attempts at plagiarism, and duration of exclusive use. Evidence shows that Fuel’s advertising expenses average less than $20,000 annually since 1993, and it has operated at a loss for 14 of the last 19 years, totaling over $1 million in losses compared to approximately $500,000 in profits. Fuel’s average revenue over the last 11 years is slightly above $300,000. Nike argues these figures are minimal compared to the sports industry, suggesting commercial weakness, while Fuel contends the figures lack context without comparison to the action sports sector. The court emphasizes that it is the trademark owner’s responsibility to provide context for their sales and advertising figures relative to similar products, which Fuel has failed to do. Consequently, the evidence presented does not support a claim of commercial strength for the mark, as the absence of comparative data renders the evidence insufficient.
The first and third factors do not indicate commercial strength for Fuel's trademark, as reliance on raw sales and advertising figures alone is insufficient unless they are extraordinarily large. Although consumer studies are typically persuasive in establishing commercial strength, Fuel's lack of such studies does not automatically negate a finding of commercial strength, but it does not support it either. Regarding unsolicited media coverage, Fuel's evidence, obtained through an internet search, is contested by Nike, which argues that this evidence should not be considered due to its late introduction during discovery. Even if deemed justifiable, the minimal media coverage presented does not support a finding of commercial strength. The fifth factor, concerning attempts to plagiarize the mark, favors Fuel, as it has documented litigation against five companies and consent agreements with others regarding the "Fuel" mark, aligning with case law that supports commercial strength when there is evidence of defending against infringement. Lastly, the sixth factor acknowledges that Fuel has been using its mark since 1992.
Numerous third-party uses of the “Fuel” mark diminish its commercial strength, as highlighted in the case of CareFirst, where extensive third-party use indicated a lack of distinctiveness for the mark. Despite some unsolicited media attention and attempts at plagiarism, there is insufficient evidence that consumers associate the “Fuel” mark exclusively with Fuel. The court notes that minimal advertising expenditures and the absence of consumer studies contribute to this conclusion, leading to a determination that the mark is weak. Consequently, the first factor of likelihood of confusion, which considers the strength of the mark, does not support a finding of confusion.
The second factor evaluates the similarity between the marks in question. The Fourth Circuit's guidance emphasizes examining the dominant portions of the marks and their similarities in sight, sound, and meaning as perceived by ordinary consumers. Fuel employs its mark across various apparel and accessories in the action sports industry, utilizing diverse colors, designs, and accompanying imagery. In contrast, Nike integrates the “Fuel” mark within its “NIKE+FUELBAND” branding, prominently displaying it on packaging and promotional materials alongside its own “swoosh” mark. This distinct usage by both parties necessitates careful consideration of how consumers perceive these marks in context.
Nike argues that the "Fuel" mark is not similar to its own marks because "Fuel" is used as part of compound brand names (e.g., NIKE-I-FUELBAND, NI-KEFUEL) or alongside the "NIKE" house mark and the "swoosh" mark. Evidence shows that "Fuel" appears alone only in a limited number of contexts: on a scrolling display for NikeFuel points, on the packaging of the NIKE FUELBAND, and on promotional t-shirts with phrases like “Fuel the People.” In each instance, "Fuel" is accompanied by the "NIKE" branding, which diminishes the potential for consumer confusion. The legal principle indicates that if one mark is typically paired with other material, this reduces confusion despite textual similarities. The "Fuel" mark is considered weak, and consumers are likely to notice the differences when it appears alongside the prominent "NIKE" branding. The distinctive branding and packaging further differentiate the marks, with Nike’s "Fuel" appearing fleetingly on displays and more permanently on products, while the opposing mark is used diversely across various apparel with additional designs like skulls or flames. Consequently, the consistent pairing of Nike’s marks with "Fuel" and the differences in presentation and packaging lessen the likelihood of confusion, leading the court to conclude that the similarity factor does not support a finding of confusion.
The third likelihood of confusion factor examines the similarity of goods or services associated with the marks, establishing that products need not be identical or in direct competition for confusion to occur; relatedness can suffice (Swatch, S.A. 888 F.Supp.2d at 751-52). Courts assess this similarity based on actual market performance (CareFirst, 434 F.3d at 272). Nike argues that its NIKE. FUELBAND, a unique consumer electronic product, differs significantly from Fuel's offerings, which do not include consumer electronics. Nike emphasizes that its promotional t-shirts featuring the "Fuel" mark are unlikely to cause confusion, as they are merely promotional items related to the NIKE. FUELBAND. In contrast, Fuel asserts that its t-shirts and wristbands are directly competitive with Nike's, highlighting that both brands feature the word "Fuel." The NIKE. FUELBAND is an electronic wristband priced around $149, while Fuel's wristband is a leather accessory without electronics, priced between $16.00 and $26.00. Testimony indicates that Fuel has no plans to sell electronic products, and the functional and aesthetic differences between the two wristbands suggest a low likelihood of consumer confusion (IDV N.A. Inc. v. S. M Brands, Inc. 26 F.Supp.2d 815, 826). Regarding the promotional t-shirts, although they share similarities, Nike's limited sales of these shirts—less than one percent of total NIKE. FUELBAND sales—undermine the argument for confusion, as the court considers each party's actual marketplace performance (Anheuser-Busch, Inc. 962 F.2d at 319). Ultimately, the evidence supports the conclusion that the goods in question are dissimilar, negating the likelihood of confusion.
The third likelihood of confusion factor, concerning the similarity of goods or services, indicates a lack of confusion due to substantial differences between the products offered by the parties. The fourth factor examines the similarity of the facilities used by the markholders, focusing on the channels through which their goods are sold. Nike asserts that its NIKE. FUELBAND is sold exclusively through Nike and Apple retail outlets and large retailers, which do not carry Fuel's products. In contrast, Fuel distributes its products through its own retail store, independent shops, and online platforms, including Amazon.com. Although Fuel claims to share similar distribution channels with Nike, the court finds that the actual overlap is minimal and insufficient to support a finding of confusion. Citing precedents, the court concludes that the differences in their distribution methods are significant, leading to the determination that the fourth factor weighs against likelihood of confusion. The fifth factor, addressing the similarity of advertising, considers various elements such as media used and geographic reach. Nike’s advertising emphasizes broad consumer appeal and versatility of the NIKE. FUELBAND, indicating a strategy that targets a wide audience across different activities.
Nike limits its advertising to trade-specific publications, sponsorship of athletes, and online platforms, while Fuel acknowledges similar advertising methods but also includes retail publications and trade shows. Both companies target overlapping demographics, evidenced by Nike’s use of a professional skateboarder to promote its NIKE. FUELBAND at action sports trade shows. The court identifies significant similarities in their advertising strategies, suggesting a potential for consumer confusion.
Regarding the defendant's intent, it is a crucial factor in assessing likelihood of confusion. Nike argues it chose the term "Fuel" for its positive connotations, claiming no awareness of Fuel's brand during the naming of the NIKE. FUELBAND. Fuel counters that Nike, despite its size, likely had an intention to benefit from Fuel's reputation in the action sports market. Fuel cites challenges Nike has faced in establishing credibility in this market as evidence that it may aim to leverage Fuel's goodwill. Additionally, Fuel references a deposition from a Nike executive, who previously worked in the action sports industry, suggesting potential bad faith intent in Nike's branding choices.
Fuel argues that a jury might conclude Mr. Schriber had prior knowledge of the Fuel brand before naming the NIKE+ FUELBAND. However, Mr. Schriber denied any knowledge of Fuel during his time at Burton Snowboards. The court determined that the evidence does not indicate Nike intended to mislead consumers or cause confusion, as knowledge of another brand does not equate to intent to deceive. Previous case law supports Nike’s good faith in developing and promoting its product, leading to the conclusion that there is insufficient evidence of bad faith on Nike's part.
Regarding the seventh factor—actual consumer confusion—courts assess whether any confusion allows a seller to misrepresent their goods as another's. The Fourth Circuit emphasizes that evidence of actual confusion is often crucial, especially when a plaintiff's mark is strong. Nonetheless, minor instances of confusion may not suffice to prevent summary judgment. Actual confusion can be illustrated through anecdotal accounts and surveys.
Nike presented a survey by Dr. Gerald L. Ford, which indicated no likelihood of confusion among respondents regarding a promotional t-shirt featuring the slogan “Fuel the People.” Conversely, Fuel did not conduct its own confusion survey but submitted an affidavit from expert Jason Wolfe critiquing Dr. Ford's survey methodology. Fuel also presented anecdotal evidence, including three emails and a Facebook post, to suggest instances of actual consumer confusion, notably citing an email from sponsored athlete Ryan Neptune.
Mr. Neptune's email raises concerns about Nike's promotion of its "Fuel" products, initially suggesting that Fuel Clothing Company must have authorized Nike to use its "Fuel" trademark. Allan Brown echoes these concerns in his email, stating that he assumed either a beneficial or detrimental arrangement existed between Fuel Clothing and Nike. Marie Hartis shares an article from The Wall Street Journal highlighting the NIKE FUELBAND as one of the year's best products. Additionally, Shaun Milor's Facebook post inquires whether Nike is paying Fuel royalties for advertising the Nike FUELBAND.
The court finds that the anecdotal evidence of actual confusion presented by Fuel is insufficient to create a genuine issue regarding consumer confusion. It cites previous case law indicating that confusion expressed by friends and family does not reliably represent the broader consumer perspective. The evidence submitted, primarily from acquaintances of Mr. Gould and sponsored athletes, fails to reflect the views of the general public. Moreover, the court considers the evidence to be minimal, noting that Fuel's total revenues in 2012 exceeded $500,000 during the launch of the NIKE FUELBAND.
Fuel presented evidence of only four instances of actual confusion regarding its trademark, which the court deemed de minimis and insufficient to create a factual dispute about likelihood of confusion. This finding is supported by precedent indicating that minimal evidence of confusion is inadequate, even when the plaintiff's sales volume is substantial. The court noted that the eighth factor, concerning the quality of the defendant’s products, was irrelevant as both parties agreed that the products were not knockoffs, given comparable pricing. Likewise, the ninth factor regarding the sophistication of the consuming public did not favor either side, as evidence did not support Nike's claim that Fuel's customers were particularly discerning. Ultimately, the court concluded that, despite some factors suggesting potential confusion, the overall analysis—including the weakness of Fuel's mark, the differences between the marks, the absence of bad faith, and the scant evidence of actual confusion—indicated that no reasonable jury could find a likelihood of forward confusion.
Despite some factors indicating a likelihood of confusion favoring the plaintiffs, the court grants summary judgment for the defendant due to the significant lack of similarity between the marks and insufficient evidence of actual confusion. The most crucial factor, actual confusion, weighs heavily against the plaintiffs, alongside the absence of predatory intent and minimal overlap in advertising. The Fourth Circuit has not recognized reverse confusion claims, although some district courts have applied the doctrine. In evaluating the concept, the court notes that reverse confusion involves a stronger junior user overwhelming a weaker senior user in the market. Nike argues that it did not saturate Fuel's market, as Fuel had not actively promoted its mark before Nike's entry. Conversely, Fuel asserts that its promotional efforts and brand protection demonstrate a typical case of reverse confusion. Ultimately, the court concludes that a reverse confusion claim is inappropriate, noting that the senior user risks losing trademark value, product identity, and market control. It highlights the existence of over 1,000 federal trademark registrations containing the word "Fuel" at the time Nike entered the market, reinforcing the conclusion against reverse confusion.
Nike holds at least 15 registrations in International Class 25, with 22 specifically for the word "Fuel." Evidence presented indicates multiple non-party uses of "Fuel" in promoting apparel and sports equipment, suggesting that the market was already saturated when Nike entered. The court referred to a precedent where a senior user’s claim of market overwhelm was deemed unfounded due to a lack of prior promotion. Consequently, the court found no likelihood of reverse confusion among consumers. As a result, summary judgment was deemed appropriate for Fuel's claims regarding federal trademark infringement, common law trademark infringement, unfair competition, federal unfair competition, false designation of origin, and violations of the South Carolina Unfair Trade Practices Act. The court noted that while the elements of proof for these claims are similar to those under the Lanham Act, the absence of confusion does not negate Fuel's federal trademark dilution claim. The court acknowledged that dilution can be established without proving confusion, thus leaving Fuel's dilution claim as the only remaining issue.
The owner of a famous mark, whether distinctive inherently or through acquired distinctiveness, is entitled to an injunction against another party whose use of a similar mark is likely to cause dilution, as per 15 U.S.C. 1125. To prove a federal dilution claim, a plaintiff must establish that (1) they own a famous, distinctive mark; (2) the defendant uses a potentially diluting mark in commerce; (3) an association exists due to the similarity of the marks; and (4) this association is likely to impair the famous mark's distinctiveness. The court notes that the evaluation of a mark's fame for dilution claims parallels the assessment of a mark's strength in trademark infringement cases.
Nike's motion for summary judgment focuses solely on the affirmative defense of abandonment concerning Fuel's federal trademark dilution claim, not addressing the likelihood of confusion arguments. Consequently, the parties have not fully engaged with the merits of Fuel’s dilution claim in their briefs, leading the court to deny Nike's motion for summary judgment on this claim without prejudice, allowing Nike 30 days to file a renewed motion addressing the claim’s merits.
In conclusion, Nike’s motion for summary judgment is partially granted and partially denied: granted regarding Fuel’s claims for federal trademark infringement, common law trademark infringement, unfair competition, federal unfair competition, false designation of origin, and violations of the South Carolina Unfair Trade Practices Act; denied without prejudice regarding Fuel’s federal trademark dilution claim. The court finds Internet printouts relevant as evidence for assessing the strength of the mark, despite Fuel's objections regarding their use without evidence of actual business use.
Fuel has submitted six unsolicited media articles from various sources and included Mr. Gould's Declaration, which mentions plans to create and sell rubberized Fuel wristbands featuring the brand. However, the court determines this assertion does not substantiate a genuine issue of fact regarding the similarity of goods, as no evidence beyond Mr. Gould’s declaration was provided, despite opportunities during his deposition. Citing case law, the court emphasizes that self-serving affidavits and speculative claims are insufficient to counter summary judgment. The retailers involved include TJX, Ross, Academy, Sports Authority, and Marshalls. While Nike claims it does not sell the NIKE FUELBAND on Amazon, the court accepts Fuel's assertion as true for summary judgment purposes. Fuel also presented an expert report from Jason Wolfe, who claimed actual confusion exists; however, the court regards the supporting evidence as minimal and insufficient to establish a genuine issue of fact regarding actual confusion. Consequently, any declaratory relief sought by Fuel in its fifth cause of action is also unsuccessful. The court finds summary judgment appropriate for Fuel’s SCUTPA claim, concluding that no reasonable jury could find a likelihood of confusion among consumers, thus rendering further discussion on public interest unnecessary.
