Variety Stores, Inc. v. Wal-Mart Stores, Inc.

Citations: 150 F. Supp. 3d 583; 2015 U.S. Dist. LEXIS 167180; 2015 WL 8975616Docket: No. 5:14-CV-217-BO

Court: District Court, E.D. North Carolina; December 7, 2015; Federal District Court

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Cross-motions for summary judgment have been filed in the case overseen by Judge Terrence W. Boyle. The plaintiffs' motion for partial summary judgment has been granted. The background details reveal that in 1993, Rose’s Stores, Inc.'s predecessor began using the trademark THE BACKYARD for lawn and garden products, registering it in 1994. Following Rose's acquisition by Variety in 1997, the BACKYARD marks continued to be used and expanded, generating over $56 million in sales since 2002, including more than $8 million from grills and accessories.

In 2010, Walmart initiated plans to create an in-house brand for grill products, considering various names, including BACKYARD BBQ. Despite repeated legal advice against using BACKYARD BBQ due to Variety’s existing trademark, Walmart decided to proceed with it. Walmart's representative acknowledged awareness of the trademark registration in 2011 and noted that the company did not conduct standard store visits to observe Variety’s mark usage before launching BACKYARD GRILL in late 2011, leading to the current lawsuit.

The document also outlines that summary judgment is only granted when there are no genuine issues of material fact, placing the burden of proof on the moving party, as established by Celotex Corp. v. Catrett.

A trial court assesses whether genuine issues of material fact exist for trial by viewing evidence in favor of the nonmoving party. A mere scintilla of evidence is insufficient to counter a motion for summary judgment; substantial evidence must support the nonmoving party’s claims. Variety has asserted claims for trademark infringement and unfair competition under both federal and state laws, requiring proof that its marks are protectable and that the defendant’s use is likely to confuse consumers. The registered and incontestable mark, THE BACKYARD, provides Variety with considerable protection and a presumption of validity. Although only THE BACKYARD is registered, Variety asserts common law rights in other BACKYARD marks, which are valid through actual use. Trademark rights, whether under the Lanham Act or common law, hinge on commercial use. Evidence confirms Variety as the prior user of the BACKYARD marks, with Walmart acknowledging its knowledge of Variety's use prior to marketing its BACKYARD GRILL brand. Additionally, Variety argues that its trademark rights extend beyond the registration’s specified purpose. A relevant case, Synergistic Int’l v. Korman, illustrates that trademark rights can cover broader usage than outlined in registration.

The Fourth Circuit determined that suggestive trademarks are protected against similar or confusing marks associated with the same or closely related products. This protection applies even to products that may seem unrelated but are likely perceived by the public as emanating from the same source. The court emphasized that the United States Patent and Trademark Office (PTO) should broadly construe the registration of suggestive marks, noting that windshield repair and installation are related services. Consequently, the registration of GLASS DOCTOR was deemed to protect against the use of THE WINDSHIELD DOCTOR for similar services.

In a similar vein, Variety’s registration of BACKYARD marks was found to be protectable against Walmart's use of a similar mark in selling outdoor equipment, like grills and accessories. Variety must demonstrate that Walmart's use likely causes consumer confusion, guided by nine factors, including the strength of the mark, similarity of the marks and goods, and the intent behind the use. While not all factors are equally relevant, the court will evaluate each case-by-case.

The strength of a trademark involves both conceptual and commercial strength, with marks categorized as generic, descriptive, suggestive, or arbitrary/fanciful. Distinguishing between descriptive and suggestive marks can be challenging; a descriptive mark imparts direct information, while a suggestive mark requires imagination to connect it to the goods. Examples of suggestive marks include CopperTone and Playboy, whereas descriptive marks would include terms that directly describe the product. The USPTO’s classification of a mark provides prima facie evidence of its nature; if deemed descriptive, the registrant must show secondary meaning for registration. The court classified BACKYARD marks as suggestive, thus granting them a higher level of protection, as they necessitate imaginative association with the goods.

The BACKYARD marks are deemed suggestive, requiring a logical leap for connection to the product, similar to associations seen with brands like CopperTone and Playboy. The lack of evidence showing that the USPTO required proof of secondary meaning for THE BACKYARD mark supports its suggestive classification. Strength of a mark is assessed not only conceptually but also commercially, considering factors such as advertising spending, consumer recognition, sales success, media coverage, instances of plagiarism, and the mark's duration and exclusivity of use. Walmart argues that Variety's advertising has been insufficient and notes the prevalence of "backyard" in third-party marks, which affects commercial strength. Although Variety lacks evidence for all six factors, it asserts its mark's strength due to its long-term use since 1993, sales exceeding $56 million, and significant advertising expenditures. These factors indicate that Variety’s marks are both conceptually and commercially strong, supporting claims of likelihood of confusion.

The similarity of the marks further favors Variety, with THE BACKYARD, BACKYARD, and BACKYARD BBQ being closely related to BACKYARD GRILL, as they all prominently feature the word "backyard." The Fourth Circuit emphasizes the importance of the dominant portions of marks, which here are identical. Additionally, the similarity of goods and services supports Variety's position, as evidenced by a side-by-side comparison of products associated with both parties.

Plaintiff and Defendant demonstrate significant similarities in their use of trademarks on grill-related products, with both parties marketing items such as grills, grill accessories, and related equipment. While Defendant claims that its use of the BACKYARD mark on a broader range of products does not infringe on Plaintiff’s mark, Walmart acknowledges that both parties sell similar goods, which supports Plaintiff’s likelihood of confusion claim. 

The Court emphasizes the similarity of the facilities utilized by both parties, noting that both Walmart and Variety operate numerous retail stores in overlapping locations, making them direct competitors. Walmart's assertion that consumers can distinguish between its stores and Variety’s does not undermine the potential for confusion, as the analysis focuses on the likelihood that customers may shop at both outlets.

Additionally, both parties employ comparable advertising strategies, primarily in-store promotions, which further supports Plaintiff’s position. The Court also highlights Walmart's intent as a strong factor in favor of Variety, pointing out that Walmart's legal team had previously advised against using the BACKYARD mark, yet it was used regardless. Overall, the evidence strongly favors Plaintiff's arguments regarding trademark infringement and the likelihood of consumer confusion.

Walmart's decision to use a similar mark (BACKYARD) to that of a smaller competitor (Variety) raises strong implications of intent to confuse consumers, particularly as Walmart deviated from standard practices by not investigating Variety's use of the marks. The record suggests Walmart was aware of Variety's branding and opted to proceed, possibly due to exhaustion in seeking an alternative name or a belief that its size would allow it to withstand potential litigation.

The Court examines the issue of actual confusion, with Walmart claiming it is a key factor in their favor. Walmart argues that the multi-factor analysis used by the Fourth Circuit serves as a proxy for determining actual confusion. However, the Court cites Fourth Circuit precedents indicating that while evidence of actual confusion is important, it is not a requirement for establishing a likelihood of confusion. In fact, the absence of such proof does not negate the possibility of proving confusion based on other evidence.

The Court highlights that the strength or distinctiveness of the marks is the foremost factor in the analysis. The plaintiff contends that likelihood of confusion can be established without evidence of actual confusion, while the defendant presents survey evidence claiming no confusion exists. Nonetheless, the Court critiques the methodology of the survey, deeming it inadequate as it does not effectively address the core confusion issue presented in the case.

Consumer perceptions of BACKYARD branded products do not indicate ownership by Variety, as shoppers at stores like Rose’s or Walmart view BACKYARD as a separate brand akin to other grill brands such as Char-Broil or Weber. Consequently, consumer responses regarding confusion may not accurately reflect material issues in the case. The court acknowledges the importance of actual confusion but finds no supporting evidence from the plaintiff, which diminishes its significance in this instance.

The court evaluates additional factors such as product quality and consumer sophistication, with both parties agreeing on their similarities. The plaintiff asserts that the goods are of similar quality and that consumers, specifically outdoor grill cooks, lack sophistication regarding these relatively inexpensive products. The court concurs that these factors favor the plaintiff's claim of likelihood of confusion.

The larger context reveals that a financially robust company (Walmart) chose a product name containing the same dominant word as a smaller company (Variety) while being aware of Variety’s trademark use. The similar products were sold in the same types of stores, targeting the same customer demographic, heightening the likelihood of confusion.

The court concludes that Variety possesses a protectable interest in the BACKYARD marks and that Walmart's usage creates a likelihood of confusion. As a result, Variety's motion for partial summary judgment is granted, while Walmart's motion for summary judgment is denied. All related motions to seal documents are also granted, and the clerk is instructed to file the order under seal. The BACKYARD trademark is established as incontestable, providing conclusive evidence of validity and ownership under U.S. trademark law. Furthermore, like previous cases, Walmart was required to disclaim the term 'GRILL' in its trademark application, emphasizing the dominance of the term 'BACKYARD' in its branding. Notably, Walmart’s argument that Variety's sales have increased since the introduction of BACKYARD GRILL further suggests consumer confusion regarding brand identity.