Opinion
Civ. 2001-4096
August 19, 2003
Douglas Rettew, Garrett Dunner, LLP, Washington, DC, for Plaintiff
Douglas S. Weinstein, Roger D. Taylor, Virginia L. Carron, Finnegan, Henderson, Farabow, Garrett Dunner, Atlanta, GA, for Plaintiff
Lee A. Magnuson, Lynn, Jackson, Shultz Lebrun, P.C., Sioux Falls, SD, for Plaintiff
Karen L. Wade, Marina T. Larson, Oppedahl Larson, LLP, Dillon, CO, for Defendant
Mark V. Meierhenry, Robin J. Houwman, Danforth, Meierhenry Meierhenry, Sioux Falls, SD, for Defendant
MEMORANDUM OPINION AND ORDER
Plaintiff, Gateway, Inc., brings this action against defendant, Companion Products, Inc. (CPI), seeking to enjoin CPI's alleged use of Gateway's cow spots and "Welcome to Gateway Country" trademarks. The complaint alleges the following causes of action: false designation of origin and unfair competition in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) and the common law of South Dakota; trademark infringement in violation of 15 U.S.C. § 1051-1127 and the common law of South Dakota; trademark dilution in violation of 15 U.S.C. § 1125(c); and deceptive trade practices in violation of SDCL 37-24-6(1) and the common law of South Dakota. CPI contends that its product neither infringes nor dilutes Gateway's trademark. The case was tried before an advisory jury on February 4-7, 2003. The jury found that Gateway's mark was famous, but that CPI's product neither infringed nor diluted Gateway's trademark.
FACTS
The court finds the following facts have been proven by a preponderance of the evidence: Gateway is a corporation based in North Sioux City, South Dakota, that sells computers, computer products, computer peripherals, and computer accessories throughout the world. Gateway also sells related electronic products, such as digital cameras, printers, scanners, and plasma televisions. (Tr. 32). Gateway began in 1985. In 1988, Gateway ran its first national advertisement using black and white cows and spots. (Tr. 37). By 1991, black and white cows and spots became its company symbol. (Tr. 37). It also used the theme, "Welcome to Gateway Country" and "Gateway Country" in association with its stores. (Ex. 5-30). In 1992, Gateway registered its trademarks for a stylized black and white cow-spots design and its slogan "Gateway Country." Gateway registered the trademarks in association with computers and computer peripherals. (Ex. 111-112).
During the last ten years, Gateway has launched extensive, nationwide advertising campaigns, which display black and white cows and spots. From 1991 through 2001, Gateway spent over $1.3 billion worldwide and over $1 billion in the United States on advertising and promotional items. (Tr. 84-85). Through these efforts, Gateway has attempted to achieve publicity for and worldwide recognition of its cow-spots design. Gateway ads have appeared in many different media, including television, newspapers and magazines, product guides, brochures, catalogs, and the internet. Gateway has placed its trademark on popular television shows and has sponsored various sporting events, including the 2002 Winter Olympics. (Tr. 42, 99, 117). "Gateway Country" stores across the nation are painted with a black and white cow spotted pattern. (Tr. 41). Gateway imprints the black and white cow-spots design on a variety of computer accessories and promotional products, including mouse pads and supports, CD binders and sleeves, and screen savers. Gateway sells these products through its catalogs, at Gateway Country stores, and ships them with computer systems in black and white spotted boxes. (Tr. 41-43).
CPI, a Colorado company, sells plush stuffed animals called "stretch pets" that wrap around computer monitors, CPUs, or televisions. (Tr. 309-310). "StretchPets" is CPI's registered trademark. CPI produces sixteen characters with a variety of animals, such as a polar bear, moose, several dogs, and a penguin. (Tr. 312). One of its top selling products is a black and white spotted cow, "Cody Cow," which CPI began selling in 1999. (Tr. 313). It has sold a total of approximately 45,000 stretch pets and approximately six or seven thousand Cody Cows.
CPI advertises its stretch pets through flyers, catalogs, the internet, magazines, independent sales representatives, and phone calls to various retailers. (Tr. 349-350, 370-373). Its advertisements and web site feature the stretch pets wrapped around computer monitors and CPU towers. CPI has used the phrase "Welcome to Stretch Pet Country" in some of its advertisements. CPI sells these products directly over the internet, through retail stores, catalogs, and indirectly at the wholesale level. Each stretch pet has a tag hanging from its ear and a tag sewn into its butt that contains the trademark "StretchPets" and the name "Companion Products."
In retail stores, stretch pets are sold in red, yellow, and blue boxes that feature the moose character. The words "StretchPets" and "Companion Products" are prominently displayed on each box. They are priced at approximately $19.95. (Tr. 336-351). Retail sales make up a small part of CPI's total business. When a stretch pet is sold over the internet, CPI sends the character in a clear, cellophane, poly bag, which contains no identifying marks or tags. (Tr. 351-352). CPI charges an additional $4 to $4.50 for shipping and handling. At the wholesale level, CPI sells the stretch pets for between $7.20 and $10. Some wholesalers resell the stretch pets without any information on the product indicating who manufactured the character. (Tr. 355-360). They display only a picture of the character wrapped around a computer monitor. Id.
CPI's president, Dennis Byer, considered creating a product for Gateway. (Tr. 316-322). Byer viewed Gateway as a great customer because he knew Gateway used black and white cow spots in its advertising. Id. He labeled a document featuring Cody Cow wrapped around a computer monitor with a black and white cow spotted design displayed on the screen as "an idea for Gateway." (Tr. 320). On June 1, 1999, CPI sent a sample of the Cody Cow character and a letter to Gateway stating that "our initial sample was a black and white cow designed with Gateway in mind." (Ex. C). For its second sample, CPI used a stuffed, black and white cow Byer bought from a Gateway Country store. Gateway rejected CPI's offer and told Byer that Gateway had a registered trademark for its cow spot design. (Tr. 334-335). Gateway's rejection caused Byer to become depressed. Id.
After a Gateway employee purchased Cody Cow from CPI's website, Gateway sent a cease and desist letter to CPI on December 8, 2000. (Tr. 223). The letter notified CPI that its Cody Cow infringed on Gateway's trademark and noted that if sales of Cody Cow did not cease, Gateway would file suit. (Ex. 142). CPI refused to stop production of Cody Cow. On February 7, 2001, counsel for CPI informed Gateway that Cody Cow did not infringe on Gateway's trademark rights. (Tr. 224). Gateway filed suit on April 27, 2001. (Tr. 224).
The court ruled on cross motions for summary judgment on September 27, 2002. The court denied summary judgment on Gateway's claims for trademark infringement, unfair competition, and dilution, but granted summary judgment on its claims of misuse of its trademark, tortious interference with business relationships, defamation, and disparagement. The court denied CPI's motion on the issues of trade dress infringement, trademark infringement, state common-law claims of trademark infringement, and dilution. It granted CPI's motion on its claim for deceptive trade practices.
On December 18, 2002, Gateway waived its claim for damages and moved to strike CPI's jury demand. The court granted the motion to strike the jury demand and ordered an advisory jury pursuant to Rule 39(c). The trial commenced on February 4, 2003, and the jury returned a verdict on the issues of trademark infringement, trade dress infringement, and dilution on February 7, 2003. The advisory jury found in favor of CPI on all three claims. The parties subsequently filed post-trial briefs.
STANDARD OF REVIEW
When an action is not triable of right by a jury, Rule 39(c) permits the court to impanel an advisory jury either upon motion or by its own initiative. Fed.R.Civ.P. 39(c); Indiana Lumbermens Mut. Ins. Co. v. Timberland Pallet Lumber Co., 195 F.3d 368, 374 (8th Cir. 1999). Thus, where an action seeks only equitable relief, the "court has the right to call a jury in an advisory capacity and to submit such issues of fact as [it] may elect." Fireman's Ins. Co. of Newark, N.J. v. Smith, 180 F.2d 371, 374 (8th Cir. 1950). It is then recommended that the court notify the parties of the jury's advisory capacity. Indiana Lumbermens, 195 F.3d at 375. A court must still make independent findings of fact and conclusions of law. Merex A.G. v. Fairchild Weston Sys., Inc., 29 F.3d 821, 826 (2d Cir. 1994).
Indeed, "[t]he responsibility for the decision rendering process remains with the judge even though an advisory jury is used." Indiana Lumbermens, 195 F.3d at 376. It is wholly within the judge's discretion whether to accept or reject, in whole or part, the jury's verdict. Id. The judge has "complete freedom" to use or disregard the jury's findings. Id. See Gragg v. City of Omaha, 20 F.3d 357, 358-59 (8th Cir. 1994) (court is free to accept or reject advisory jury's verdict when making its findings); Harris v. Secretary, United States Dep't of the Army, 119 F.3d 1313, 1320 (8th Cir. 1997) ("when a district court submits a claim to an advisory jury, the court is free to accept or reject the jury's advisory verdict in making its own findings").
DECISION
I. The Lanham Act — Trademark Infringement
A trademark is defined in the Lanham Act as "(1) a `symbol,' (2) `use[d] . . . as a mark,' (3) `to identify and distinguish the seller's goods from goods made or sold by others,' but that it not be `functional.'" Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 165, 115 S.Ct. 1300, 1304, 131 LEd2d 248 (1995) (quoting J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 3.01[1] (4th ed. 2002)). To succeed on the merits of its trademark infringement claim, Gateway must prove, by a preponderance of the evidence, that its stylized black and white cow spot design is entitled to trademark protection and that CPI's use of Cody Cow in commerce is likely to confuse consumers as to the source of CPI's product. See Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc., 182 F.3d 598, 601 (8th Cir. 1999).
A. Entitlement to Trademark Protection
Gateway asserts that it owns a black and white stylized design that functions as a valid, protectable trademark. Color alone can meet the legal requirements for designation as a trademark. Qualitex, 115 S.Ct. at 1304. Color "can act as a symbol that distinguishes a firm's goods and identifies their source, without serving any other significant function." Id. A combination of colors together with a distinctive arbitrary design, therefore, may serve as a trademark. Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 204 (2d Cir. 1979). Likewise, animals or animal designs arbitrarily used to identify the source of products also meets the legal requirements for designation as a trademark. See Animal Fair, Inc. v. AMFESCO Indus., Inc., 620 F. Supp. 175 (D. Minn. 1985), aff'd without opinion, 794 F.2d 678 (8th Cir. 1986) (bear foot trademark used on slippers subject to trademark protection). Accordingly, Gateway's black and white cow spot design used with regard to computers, computer accessories, and computer peripherals can act as a trademark.
CPI argues that its product is simply "a cow," and therefore does not serve as a "trademark." While anyone is free to make and market a stuffed black and white spotted cow, that is not what CPI is selling. CPI makes and sells a black and white spotted cow that wraps around a computer monitor and a CPU. When black and white cow spots are used together with computer accessories, the use of the cow spots can act as a symbol that distinguishes the goods and identifies the source of the product. The question is whether the black and white cow spots used on Cody Cow causes consumers to be confused as to the source of Cody Cow.
Registered marks "are presumed to be distinctive and nonfunctional." Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863, 869 (8th Cir. 1994). They become incontestable and "should be afforded the utmost protection." Lois Sportswear, USA., Inc. v. Levi Strauss Co., 799 F.2d 867, 871 (2d Cir. 1986); Hubbard Feeds, 182 F.3d at 601 n. 2. Marks registered for five years are "strong and worthy of full protection." Wynn Oil Co. v. American Way Serv. Corp., 943 F.2d 595, 600 (6th Cir. 1991).
Gateway has had a registered trademark for a "stylized design representing cow spots, consisting of black amorphous shapes on a white background" for computers and computer peripherals since 1991. (Ex. 111). It was declared incontestable in 1998. Gateway also registered the phrase "Gateway Country," used in association with its retail stores featuring computers, computer software and peripherals, and demonstration of computer products in 1998. Based on these incontestable registrations, the court finds that Gateway owns trademarks for the phrase "Gateway Country" and the stylized black and white cow-spots design used on computers and computer peripherals and that these trademarks are valid and protectable. See Aromatique, 28 F.3d at 869.
B. Likelihood of Confusion
"A trademark is not that which is infringed. What is infringed is the right of the public to be free of confusion and the synonymous right of a trademark owner to control his product's reputation." James Burrough Ltd. v. Sign of Beefeater, 540 F.2d 266, 274 (7th Cir. 1976). Under the Lanham Act, therefore, "plaintiff must prove that defendants' use of the [mark] creates a likelihood of confusion, deception, or mistake among an appreciable number of ordinary buyers as to the source of or association between the two [marks]." Duluth News-Tribune v. Mesabi Publ'g Co., 84 F.3d 1093, 1096 (8th Cir. 1996). Plaintiffs must demonstrate that defendants' use of the mark is likely to confuse ordinary buyers as to whether plaintiffs have sponsored, endorsed, or are otherwise affiliated with the defendants' products. Hubbard Feeds, 182 F.3d at 602. The likelihood of consumer confusion is the "hallmark of any trademark infringement claim." Minnesota Mining Mfg. Co. v. Rauh Rubber, Inc., 130 F.3d 1305 (8th Cir. 1997) (quoting Polymer Technology Corp. v. Mimran, 37 F.3d 74, 80 (2d Cir. 1994)).
To determine whether a likelihood of confusion exists, the court must consider (1) the strength of the marks; (2) the similarity between the parties' marks; (3) the competitive proximity of the parties' [products]; (4) defendant's intent to confuse; (5) evidence of actual confusion; and (6) the degree of care reasonably expected of potential customers. Duluth News-Tribune, 84 F.3d at 1096 (citing Anheuser-Busch, Inc. v. Balducci Publications, 28 F.3d 769, 774 (8th Cir. 1994), cert. denied, 513 U.S. 1112, 115 S.Ct. 903, 130 LEd2d 787 (1995)).
1. Strength of the Mark
The strength, or distinctiveness, of a trademark is its power to identify the source of a product or services. Time, Inc. v. Petersen Publ'g Co., 173 F.3d 113 (3d Cir. 1999). Three factors determine the strength of a trademark: the classification of the trademark; whether the trademark is registered; and the nature, extent, and use of the trademark by others. General Mills, Inc. v. Kellogg Co., 824 F.2d 622, 626-27 (8th Cir. 1987).
a. Classification
Classification refers to whether a mark is generic, fanciful, descriptive, or arbitrary. Home Builders Ass'n of Greater St. Louis v. LL Exhibition Mgt., Inc., 226 F.3d 944, 949 (8th Cir. 2000). An arbitrary mark is a common word, symbol, or picture that is applied to a good or service in an unfamiliar manner. Insty*Bit, Inc. v. Poly-Tech Indus., Inc., 95 F.3d 663, 673 (8th Cir. 1996). Arbitrary marks are inherently strong marks because they primarily identify the product rather than describe it. HBA, 226 F.3d at 949. Such marks are entitled to full trademark protection. Id. Black and white cow spots are completely unrelated to computers or computer products. Gateway's cow-spots design, therefore, identifies its computer products rather than describes them. Thus, Gateway's use of these spots is arbitrary, strong, and entitled to full protection.
b. Registration
Registration of a mark is prima facie evidence of the mark's validity, the registrant's ownership of the mark, and the registrant's exclusive right to use the mark. General Mills, 824 F.2d at 626. Registration does not conclusively prove infringement, however. Id. Evidence that other companies frequently use the registrant's mark undermines the mark's strength and indicates relative weakness in the market. Id. at 627.
Gateway's marks for "Gateway Country" and its black and white stylized design are registered. This is prima facie evidence of Gateway's ownership, the marks' validity, and Gateway's right to exclusively use the marks. Additionally, the record proves that Gateway has sent cease and desist letters and commenced litigation to maintain the exclusivity of its mark. It has largely focused on companies who use black and white cow spots on computers and computer related products. For instance, Gateway has caused companies to stop producing black and white cow spotted mouse and keyboard arm rests, joy sticks, and computer covers. Because Gateway has vigilantly policed its registered trademark, this court finds that its registered black and white cow-spots design is strong.
During the trial, defendant introduced evidence that TuCows, a company that sells computer software to be downloaded, uses the heads of a black cow and a white cow on its website. Defendant offered this evidence to show that Gateway did not police its mark. The website does not use cow spots but rather has two cow heads, side by side, with the word "TuCows" prominently placed next to the cow heads. (Tr. 291-298, 536-539). The court finds that this single use of a black cow and a white cow on a computer web site does not undermine the strength of Gateway's trademark.
The court also is not persuaded that non-related third-party uses of black and white cow spots prove that Gateway's trademark is not strong. CPI's evidence of black and white spotted cow figurines, stuffed animals, coasters, and kitchen products does not weaken the strength of Gateway's mark. (Tr. 465-470). These products are entirely unrelated to computers and part of a completely different market. As a result, they do not demonstrate any relative weakness of Gateway's mark. "Use of a like mark in a different market for different products or services need not undermine the mark's strength in its own market." Morningside Group Ltd. v. Morningside Capital Group, L.L.C., 182 F.3d 133, 139 (2d Cir. 1999). The court finds that Gateway's registered trademark in the black and white cow-spots design is strong. See Scarves by Vera, Inc. v. Todo Imports Ltd., 544 F.2d 1167, 1174 (2d Cir. 1976); National Cable Television Ass'n v. American Cinema Editors, Inc., 937 F.2d 1572, 1580 (Fed. Cir. 1991) (evidence of third-party use in a different market did not involve the relevant public, was unpersuasive, and "essentially meaningless"); National Lead Co. v. Wolfe, 223 F.2d 195, 204 (9th Cir. 1955) (inconsequential third party uses do not weaken a party's mark); Fleischmann Distilling Corp. v. Maier Brewing Co., 314 F.2d 149, 154 (9th Cir. 1963) (use on "wholly unrelated products, goods or services, cannot possibly cause confusion or mistake").
c. Effect on Consumers and Fame
In addition to these factors, the strength of the mark relates to its effect on consumers: the public will remember a mark that is strong because of its fame or uniqueness and is more likely to associate it with a large variety of products than a weak or unknown mark. James Burrough, Ltd., 540 F.2d at 276. See Arrow Distilleries, Inc. v. Globe Brewing Co., 117 F.2d 347, 349 (4th Cir. 1941) (a distinctive mark stimulates more sales because consumers associate it with similar marks on other goods). "A strong and distinctive trademark is entitled to greater protection than a weak or commonplace one." SquirtCo v. Seven-Up Co., 628 F.2d 1086, 1091 (8th Cir. 1980).
Strength is also closely tied to the fame of the mark. Kenner Parker Toys, Inc. v. Rose Art Indus., Inc., 963 F.2d 350, 353 (Fed. Cir. 1992). The more publicly recognized a mark, the more protection it deserves and will receive. Id. "[T]he Lanham Act's tolerance for similarity between competing marks varies inversely with the fame of the prior mark. As a mark's fame increases, the Act's tolerance for similarities in competing marks falls." Id.
Gateway's cow-spot mark is a strong, distinctive, and widely recognized mark. Gateway engaged in an extensive, ten-year advertising campaign that raised public recognition of Gateway's mark and resulted in consumers associating the cow-spot mark with Gateway's computer products. It promoted its mark by sponsoring events such as the 2002 Winter Olympics, the Boys and Girls Clubs, and several golf tournaments. (Tr. 42, 99, 117). Gateway advertised in a variety of media, spending over $1 billion dollars. (Tr. 84-85). Gateway Country stores across the nation are painted with black and white cow spots. (Tr. 41). Gateway sells a multitude of products with the cow-spots design, and it ships its products and accessories in boxes decorated in cow spots. (Tr. 41-43). Gateway ships an estimated 11,500 cow-spotted boxes daily. (Tr. 41).
The cow-spots design is acknowledged in a book as one of the world's most recognized trademarks. (Tr. 126-127). See Insty*Bit, 95 F.3d at 670 (favorable recognition in magazines and television programs helped establish strength of the trademark). The cow-spots design has entered America's popular culture, as evidenced by questions regarding Gateway's use of cow spots in the board game Trivial Pursuit and the television game show, Who Wants to Be a Millionaire? (Tr. 54-56). Dr. Luanne Flikkema, director of customer insight and relationship marketing at Gateway, testified that over the past seven and half years, at least half of all consumers in focus groups associated black and white cow spots with Gateway without prompting. (Tr. 49). See Academy of Motion Picture Arts Sciences v. Creative House Promotions, Inc., 944 F.2d 1446, 1455 (9th Cir. 1991) (trademark strong where many members of society recognized it).
Gateway's competitors and even the defendant recognize the fame of Gateway's mark. For example, when Gateway contacted Toys R Us about a cow-spotted video controller, the sales clerk referred it as the "Gateway controller." (Tr. 206). Defense witnesses Margaret Cunningham and Dennis Byer, CPI's president, acknowledged that Gateway's cow-spots design is well known. (Tr. 316, 486). The advisory jury indicated in response to the interrogatories that Gateway's mark was famous. Indeed, the record is replete with evidence of the strength and fame of Gateway's cow-spots design. Gateway's extensive promotion of its mark has resulted in wide public recognition of the mark and with associating black and white cow spots on computer goods with Gateway. Accordingly, this court finds that Gateway's black and white stylized cow-spots mark is strong.
2. The Similarity Between the Parties' Marks
The second factor the court must consider to ascertain the likelihood of confusion is the similarity of the parties' marks. In determining whether the parties' marks are similar, the court "must evaluate the impression that each mark in its entirety is likely to have on a purchaser exercising the attention usually given by purchasers of such products." Duluth News-Tribune, 84 F.3d at 1097. Thus, similarity is based on the products viewed in their entirety, rather than a side-by-side comparison. Beer Nuts, Inc. v. Clover Club Foods Co., 805 F.2d 920, 925 (10th Cir. 1986); Wynn Oil, 943 F.2d at 601. Closely related products require less similarity to support a finding of infringement. SquirtCo., 628 F.2d at 1091 (citing David Sherman Corp. v. Heublein, Inc., 340 F.2d 377, 380 (8th Cir. 1965)). Courts must also weigh similarities more heavily than differences. Beer Nuts, 805 F.2d at 925.
CPI argues that the court must compare Gateway's trademark, the stylized cow-spots design, with CPI's trademark, the word "StretchPets." CPI then argues that its trademark is completely dissimilar from Gateway's trademark. Although the law instructs the court to compare the parties' marks, courts have not construed this language as narrowly as CPI contends. Because courts must examine the allegedly infringing use of the black and white cow spots as consumers would encounter it in the marketplace, courts are not limited to examining only the actual designated trademark. See Beer Nuts, 805 F.2d at 925. Thus, the analysis includes whether, in their entirety, the products are similar. "The question is, are the uses related so that they are likely to be connected in the mind of a prospective purchaser?" Fleischmann Distilling Corp., 314 F.2d at 160.
In Academy of Motion Picture Arts Sciences, the defendant manufactured a trophy, the Star Award, that depicted a naked, muscular male figure holding a star in its hand. 944 F.2d at 1449. Plaintiff contended that the award infringed on its trademarked Oscar award, a trophy of a naked, muscular man holding a sword. Id. at 1450. The court did not focus on the dissimilarities between the names of the companies and names of the awards. Id. at 1455. Rather, the court concluded that the awards, in their entireties, appeared similar. Id. See Hubbard Feeds, Inc., 182 F.3d at 600 (defendant's use of a half barrel to sell an animal block-feed product may have infringed upon plaintiff's trademarked half barrel containing the same product even though defendant sold its product under the name "Smartlic" and plaintiff used "Crystalyx").
Likewise, in Payless Shoesource, Inc. v. Reebok Int'l Ltd., the Federal Circuit compared Reebok's shoes with the trademarks STARCREST and STRIPECHECK with five styles of shoes sold by Payless under the name ProWings. 998 F.2d 985, 986-87 (Fed. Cir. 1993). The court did not find the different names associated with the shoes dispositive. Id. at 989. Instead, the court compared the appearance of the shoes and described the degree of similarity as "remarkable." Id. See also Keds Corp. v. Renee Int'l Trading Corp., 888 F.2d 215, 217 (1st Cir. 1989) (comparing defendant's shoes that had the words "Apples" and "Renee" imprinted on blue and pink labels on the back of the shoes with plaintiff's trademarked blue label containing "Keds" on the back of shoes).
The proper comparison, therefore, is not between Gateway's trademarked black and white stylized design and CPI's trademarked name "StretchPets." Rather, this court must compare the similarities between the black and white cow spots on CPI's Cody Cow and Gateway's trademarked cow-spot design. The record supports the conclusion that CPI's Cody Cow is similar to Gateway's black and white stylized cow-spots design. First, Byer admitted that CPI purchased a plush cow from a Gateway Country store to produce the Cody Cow sample CPI sent to Gateway. (Tr. 330). The initial design of Cody Cow, therefore, was not just similar to Gateway's cow-spots design, but identical to it.
Second, Jamie Hackett, a market research analyst for Gateway from 1997 to 1999 and a brand specialist and brand manager from 1999 to 2001, reviewed all marketing and promotional material produced by Gateway to ensure the proper placement and appearance of the black and white cow-spots design. Hackett testified that the black and white cow spots on Cody Cow looked similar to the black and white cow spots used and trademarked by Gateway. (Tr. 149). Third, CPI's witness Margaret Cunningham, a retail seller of Cody Cow, acknowledged that the spots on Cody Cow were similar to the cow spots used by Gateway. (Tr. 486). Fourth, from the court's visual inspection, the court concludes that Cody Cow is remarkably similar to Gateway's trademarked design. See Calvin Klein Cosmetics Corp. v. Lenox Lab. Inc., 815 F.2d 500, 504 (8th Cir. 1987) ("visual inspections by the court are permissible as an aid in determining likely confusion"); Insty*Bit, 95 F.3d at 669 (court can rely on visual inspection so long as it is neither the primary nor exclusive factor in determining similarity).
Finally, because consumers are unlikely to engage in a side by side comparison of Gateway's cow-spotted products with Cody Cow, the presence of two tags stating "StretchPets" on Cody Cow does not eliminate the similarities that ultimately lead to confusion. Beer Nuts, 805 F.2d at 926. Cody Cow is similar enough to deceive the public despite the StretchPet tags. See Fleischmann Distilling, 314 F.2d at 161 (infringing product, although not identical, was similar enough to mislead the public). Nothing indicates that "the mere presence of [CPI's] word mark avoids a likelihood of confusion." Levi Strauss Co. v. Blue Bell, Inc., 632 F.2d 817, 822 (9th Cir. 1980). See Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145, 148 (4th Cir. 1987) (affixing a label with defendant's brand name to the infringing product does not dispel confusion where the products are strikingly similar). Thus, the court finds that CPI's use of cow spots on a computer accessory is similar to Gateway's trademarked cow spots.
3. The Competitive Proximity of the Parties' Products
The third factor to consider in determining whether there is a likelihood of confusion is the competitive proximity of the parties' products. "The greater the similarity between products and services, the greater the likelihood of confusion." Elvis Presley Enters., Inc. v. Capece, 141 F.3d 188, 202 (5th Cir. 1998). The products need not directly compete, however, for there to be confusion. SquirtCo., 628 F.2d at 1091. Indeed, trademark law protects against infringement even when the products do not directly compete. Mutual of Omaha Ins. Co. v. Novak, 836 F.2d 397, 399 (8th Cir. 1987).
Gateway sells computers, computer-related products, and computer accessories in its Gateway Country stores. Its accessories include mouse pads, wrist supports, CD binders and sleeves, and screen savers. Gateway also sells other products decorated with its cow-spots design, including apparel, golf balls and bags, toys, stuffed cows, and mugs. Gateway's products are sold worldwide, and it ships its computers and products in cow-spotted boxes. Gateway advertises through a plethora of media, including magazines, catalogs, retail stores, and the internet. Gateway's target market is people who want to buy computers or related products.
CPI conducts most of its sales through the internet, catalogs, retail stores, and novelty shops. CPI sells its products nationwide. In a letter to its manufacturer, CPI described its test market as " CompUSA, Circuit City, Best Buy, Office Depot, Office Max and many others." (Ex. 173). All of these stores sell computer products and accessories and many sell computer systems. After disappointing sales at CompUSA, CPI focused less on selling its StretchPets to computer stores and more toward gift shops, catalogs, and other retail stores. CPI's promotional materials, however, continue to market the StretchPets for use with computers. (Tr. 545-548). Presumably, people who purchase StretchPets either use them with their own computers or give them to someone with a computer. Byer and Cunningham describe the target market as people who collect black and white cow-spotted products.
Even though CPI does not share an identical market with Gateway, they both compete for similar segments in the market. See Scarves by Vera, 544 F.2d at 1172 (trademark rights protected from use of related, non-competing goods as a result of the realities of mass media salesmanship and the purchasing behavior of consumers). Both parties attract people who own computers and who purchase computer accessories. Both sell products in stores and on web sites related to computer goods. StretchPets often appear next to other novelty computer accessories, which are similar to certain products Gateway sells. Gateway and CPI also utilize similar media for advertising and sales, including the internet, catalogs, and magazines. Because of these similarities, the court finds that Gateway and CPI are in close competitive proximity.
4. The Alleged Infringer's Intent to Confuse
The fourth factor in determining the likelihood of confusion is a defendant's intent to "pass off" its products as those of plaintiff. "Proof of an intent to confuse the public is not necessary to a finding of a likelihood of confusion," but "[i]f a mark was adopted with the intent to confuse the public, that alone may be sufficient to justify an inference of a likelihood of confusion." Elvis Presley Enters., 141 F.3d at 203. See Fuji Photo Film Co. v. Shinohara Shoji Kabushiki Kaisha, 754 F.2d 591, 596 (5th Cir. 1985) (good faith is not a defense to infringement; bad faith, however, may, without more, prove infringement). A defendant's intent to copy alone does not sufficiently indicate confusion. Rather, the necessary intent focuses on a "purposeful manipulation" of a defendant's mark to resemble a plaintiff's mark. A H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 237 F.3d 198, 226 (3d Cir. 2000). "[A] defendant who purposely chooses a particular mark because it is similar to that of a senior user is saying, in effect, that he thinks that there is at least a possibility that he can divert some business from the senior user-and the defendant ought to know at least as much about the likelihood of confusion as the trier of fact." Little Caesar Enters., Inc. v. Pizza Caesar, Inc., 834 F.2d 568, 572 (6th Cir. 1987).
The evidence supports a conclusion that CPI intended to capitalize on Gateway's trademark when it produced Cody Cow. The testimony of CPI's president demonstrates CPI's intent to pass off Cody Cow as a Gateway product. First, Byer was aware of Gateway's extensive use of black and white cow spots on its computer products. (Tr. 314). Cody Cow was CPI's attempt to tap into Gateway's well-established use of black and white cow spots on computer products. See Keds, 888 F.2d at 222 (infringement resulted where defendant intended to capitalize on the popularity of plaintiff's product); Wynn Oil Co., 943 F.2d at 603 (knowledge of another's prior use of the mark supports an inference of intentional infringement).
Second, Byer's testimony and his letter to Gateway states that CPI purchased a plush cow from a Gateway Country store to create the initial sample of Cody Cow. (Tr. 330). CPI intended Cody Cow to mirror a Gateway plush cow. Byer admitted that the current Cody Cows look the same as the sample based on the Gateway cow. (Tr. 390). See Nat'l Lead Co., 223 F.2d at 202 (a latecomer who intentionally copies a competitor "raises a presumption that customers will be deceived"); Beer Nuts, 805 F.2d at 927 ("deliberate adoption of a similar mark may lead to an inference of intent to pass off goods as those of another which in turn supports a finding of likelihood of confusion").
Third, Byer testified that he thought it would be "beneficial" to use A A Plush, the company that manufactured Gateway plush cows, to create Cody Cow. He stated that "A A Plush obviously already has a road into . . . Gateway stores. They already sell product in Gateway stores." (Tr. 330-331). This indicates that CPI intended to copy and profit from Gateway's black and white cow-spots design. See Fleischmann Distilling Corp., 314 F.2d at 158 (where party deliberately adopted another's trademark to achieve some advantage from their good will, good name, and good trade built up, "then the inference of likelihood of confusion is readily drawn, for the very act of the adopter has indicated that he expects confusion and resultant profit"); Academy of Motion Picture Arts Sciences, 944 F.2d at 1456 (same).
Fourth, CPI created a document depicting Cody Cow wrapped around a computer monitor that displayed a black and white cow-spotted screen saver. The document is labeled "Idea for Gateway." (Ex. C). This document demonstrates Byer's desire to include Cody Cow in Gateway's collection of cow spotted computer merchandise. Fifth, Byer testified that Gateway's rejection of Cody Cow was "pretty much a set back at that point" and that he became depressed. (Tr. 335). This indicates that CPI wanted to profit from associating its computer accessory with Gateway's black and white cow spots.
Sixth, Byer continued to sell Cody Cow despite knowing that it likely infringed Gateway's trademark. Byer testified that although he made a stretch pet out of a stuffed Elmo character, he could not sell it because he knew the Jim Henson group held rights to Elmo. (Tr. 311). He also testified that he would object to another company's use of the word "StretchPets." (Tr. 383-384). Nonetheless, when Gateway employee, Jean Montagne, informed Byer that Gateway held trademark rights to black and white cow spots on computer products, Byer did not discontinue sales. Gateway's trademark registration gave Byer constructive notice of its trademark, and his conversation with Montagne provided actual notice. Because Byer knew that he could not sell products in which another company possessed trademark rights, his continued sales of Cody Cow evidences bad faith. See Wynn Oil Co., 943 F.2d at 603 (intent to infringe existed where defendants continued using the mark after being notified of plaintiff's prior use).
The court does not find Byer's testimony credible that he made Cody Cow simply because people collect black and white cows. While it may be true that people prefer black and white spotted cows, the fact that Byers created Cody Cow from a cow purchased at a Gateway store undermines his stated motivation. Furthermore, Byer's reaction to Gateway's rejection, as testified to both in court and in his deposition, indicates that he intended to create a cow for Gateway not for cow-collecting consumers.
Byer admitted during the trial that he created a cow picture showing Cody Cow wrapped around a computer monitor displaying black and white cow spots as a screen saver with Gateway in mind. (Tr. 321). He acknowledged that the picture was created around the time he was trying to "do something for Gateway." (Tr. 320). While Byer denies that he had Gateway in mind when he prepared the cow monitor wrap, the court does not find this testimony credible. Byer's testimony on this issue was confusing, evasive, and contradictory. For example, Byer denied sending the letter about Cody Cow to Gateway. (Tr. 323). He stated that he could not be certain that his co-worker actually mailed the letter. (Tr. 324). He refused a second time to acknowledge that the letter was sent and that Gateway received the letter, despite testifying to Gateway's response to the letter. (Tr. 325). This trial testimony was contradicted by his deposition testimony. (Tr. 325-326).
Byer testified that he wrote, "Our initial sample was a black and white cow designed with Gateway in mind" in the letter to personalize it. (Tr. 329). According to Byer, the statement was "just good marketing lingo to go ahead and say, hey, this is especially designed just for you. It's just marketing, similar to getting a letter in the mail, saying, hey, you've won, open me up, see what is inside. We wanted to personalize the letter certainly to make Gateway feel special." (Tr. 328). At trial, Byer testified that he did not remember saying at his deposition that he wrote the letter to Gateway because it was a computer company that used black and white cow spots. (Tr. 328-329). The court does not believe Byer's trial testimony on this issue.
Other portions of Byer's trial testimony were contradicted by his deposition and appeared evasive and untruthful. At trial, although admitting that the plush cow came from a Gateway Country store, he could not recall whether he had purchased it. (Tr. 330). He did not remember going to a Gateway Country store, but he felt like he had been to one. (Tr. 613). "I don't know when, and I don't even know if it's an actual fact that I did go to a Gateway Country store." Id. Byer could not say whether either he or his co-worker went into a Gateway Country store for the sole purpose of buying a plush, black and white cow even though he admitted that neither was interested in looking at computers. (Tr. 615-616). He provided no explanation for why they would have entered a Gateway Country store other than to buy the plush cow. (Tr. 616-617).
Byer testified that he did not make the plush cow that was purchased from Gateway into a sample to send to Gateway. (Tr. 575-576). This testimony is contradicted by the letter Byer sent to Gateway, which indicates that Byer made the initial Cody Cow sample from a Gateway cow, and discredits Byer's later explanation. (Ex. J, Tr. 614).
On cross examination, Gateway's attorney confronted Byer with many of the inconsistencies in his testimony. The attorney asked whether the statement in the letter that the "initial sample was a black and white cow designed with Gateway in mind" was the truth. (Tr. 593). Byer said it was true in part, that he did not "know how to answer that because no matter what I say I would be lying if I gave you an answer other than the one I gave you saying in part that is true." (Tr. 594). When asked whether that statement was a lie, Byer responded that no, it was not a lie: it was marketing and a way to personalize the letter. Id. Later, he said he designed the initial sample with Gateway, other stores, and cow collectors in mind. (Tr. 594-595). While Byers claimed that he sent his Cody Cow idea to other companies, including Chick-fil-A, he did not have any letters or documents similar to those sent to Gateway that referenced any other company. (Tr. 607).
Much of Byer's testimony conflicted with his deposition testimony and with documentary evidence. His testimony was internally inconsistent and evasive. The portions discussed above were generally uncorroborated by any additional evidence. As a result, the court does not find Byer's testimony credible and will give it no weight. The court finds by a preponderance of the evidence that Byer created Cody Cow with the intent to capitalize on Gateway's trademarked black and white cow-spots design. See Wynn Oil Co., 943 F.2d at 603-04 (court did not err in rejecting defendant's credibility because record evidenced that he knew of the value of plaintiff's trademark and intentionally used it).
5. Evidence of Actual Confusion
The fifth factor the court must consider is whether there is evidence of actual consumer confusion. "[P]eople do not confuse trademarks, trademarks confuse people." James Burrough Ltd., 540 F.2d at 274. Although a plaintiff is not required to prove any instances of actual confusion, "when determining whether there exists a likelihood of confusion, weight is given to the number and extent of instances of actual confusion." Duluth News-Tribune, 84 F.3d at 1098 (quoting Life Tech., Inc. v. Gibbco Scientific, Inc., 826 F.2d 775, 777 (8th Cir. 1987)). Manifestations of actual confusion serve as strong evidence of the likelihood of confusion. Mutual of Omaha, 836 F.2d at 400. The marks must mislead an appreciable number of reasonable consumers to be considered evidence of actual confusion. Duluth News-Tribune, 84 F.3d at 1099.
Surveys can supply such evidence. "Substantial weight may be accorded the result of a properly conducted survey . . . Indeed, survey evidence may be the most practical manner of approaching the evaluation of public reaction in such cases." Anheuser-Busch Inc. v. Stroh Brewery Co., 750 F.2d 631, 639 (8th Cir. 1984). A survey's "evidentiary value depends on the relevance of the questions asked and the technical adequacy of the survey procedures." ConAgra, Inc. v. George A. Hormel Co., 990 F.2d 368, 370 (8th Cir. 1993).
Gateway conducted a nationwide survey to determine actual confusion among consumers as to the source of CPI's product. Philip Johnson is the chief executive officer at Leo J. Shapiro and Associates, a research and consulting firm where he has worked for 31 years. He designed and explained the survey, which was conducted in June of 2002. The relevant universe for the survey consisted of purchasers or potential purchasers of personal computer accessories. These people were drawn from twelve shopping malls in cities in every major region across the country. Neither the people conducting the survey nor the people being surveyed knew the purpose of the survey or for whom the survey was conducted. This ignorance prevented any potential bias. (Tr. 398-403).
People were asked whether they had purchased, either for themselves or another, any DVDs, cell phones, or personal computer accessories in the past twelve months.
Johnson explained that other products were included to avoid alerting people's interest in one particular area prior to conducting the survey.'
Johnson testified that mall intercepts are accepted in the scientific community as a preferred method of testing visual issues, such as possible confusion after seeing Cody Cow in the marketplace.
Johnson then explained that the participants were randomly divided into two groups. The test cell was exposed to a photograph of Cody Cow wrapped around a computer monitor; the control cell saw a photo of the tiger stretch pet wrapped around a monitor. The surveys were otherwise conducted identically. Participants were instructed not to guess and to leave blank any questions they could not answer. Once the participants completed the survey, they could no longer view the photograph. The exposure to the photograph mimicked the overall commercial impression consumers would receive in the marketplace. It also resembled how consumers would view Cody Cow in advertising materials. (Tr. 403-408).
While allowing the survey participants to look at the photograph, the person conducting the survey stated:
Here is a picture of a product that is used to decorate or personalize a computer monitor. As you can see from the picture, it stretches to fit around the screen. Please take a look at this as you would if you saw it on somebody's computer or if you were shopping for personal computer accessories either on the internet or in a computer store. Take as much time as you normally would when looking at something like this or when shopping for such products. Let me know when you are finished.
Participants were first asked, "Based on what you just saw, do you or do you not have a belief as to who or what company or companies makes or puts out the product in the picture that I just showed you?" Those who had a belief were asked "Who or what companies do you believe makes the product in the picture that I showed you?" They were also asked whether they knew of other products made by whomever made the product in the picture, what those products were, and whether they believed that whoever made the pictured product is or is not related to, sponsored by, or associated with any other source or company. After each question, they were asked to explain why they came to that conclusion. (Tr. 408-410).
Johnson testified that 50 percent of the people in the test group had a belief as to who made or put out the product. Thirty-six percent of those people identified Gateway as the source of the product. Johnson described thirty-six percent as a significant amount. Survey participants who identified Gateway indicated that they based their conclusion on the cow, the logo, the trademark, the packaging, the black and white spots, and the colors. In addition, eighteen percent of the participants associated Cody Cow with computers and twelve percent believed the people who made the stretch pet also made computers. Seven percent believed that Gateway sponsored or somehow approved the stretch pet because of the cow in the photograph. (Tr. 412-418).
Johnson surveyed a total of 406 people. The test group consisted of 206 people.
Seven percent named NEC, which was the name on the monitor in the picture, 3 percent said Dell, and 3 percent said Microsoft. Johnson indicated that leaving the brand name on the monitor mirrored a real life situation more closely.
Of the control group who saw the tiger, 86 percent had no belief as to the source of the product. There was a variety of answers to the question asking what other products the maker of the tiger produced. Eighteen percent of the people had a belief as to whether a company sponsored or was somehow related to or associated with the tiger. People named a variety of companies, including toy stores and computer companies, with one person naming Gateway.
Johnson explained the importance of having a control and a test group. He subtracted the percentage of people who identified Gateway in the control group from the percentage of people who named Gateway in the test group. This resulted in the adjusted likelihood of confusion, which is the statistic used to judge the confusion rate in the marketplace: 39 percent in this case.
Johnson explained that 39 percent, approximately two out of five people in the relevant universe, erroneously believed that Gateway manufactured or sponsored Cody Cow. He testified that in his experience, this represents a high level of confusion. From the survey, he concluded that black and white cow spots on computer-related items has a high degree of secondary meaning and that Cody Cow causes initial interest confusion. Johnson testified that consumer confusion will largely remain the same regardless of where Cody Cow is sold because consumers understand that retailers sell items that they do not manufacture. (Tr. 419-422).
The survey had an error rate of 6 percent, so the actual incidence of confusion could be as low as 33 percent or as high as 45 percent.
CPI argues that the survey is seriously flawed and should be disregarded. First, the photograph differs drastically from how a consumer would view Cody Cow either on the internet or in store displays. Both retail displays and the StretchPets website prominently display the trademark StretchPets in several places. A hang tag with the name StretchPets on it would hang from Cody Cow's ear. Other objects, including other stretch pets, would surround Cody Cow. Next, CPI argues that the relevant universe is not potential purchasers of computer products, but people who frequent gift shops and who collect cow-related goods. Finally, CPI alleges that the absence of information about the participants' ages and sex skewed the survey.
The court does not find CPI's arguments persuasive. "[T]he survey qualifies as a reliable reproduction of prospective consumer reaction." James Burrough Ltd., 540 F.2d at 274. An experienced market researcher designed and interpreted the survey. Insty*Bit, 95 F.3d at 671. It was conducted by impartial interviewers, the questions were not slanted or leading, and the responses were reported verbatim to eliminate any bias. James Burrough Ltd., 540 F.2d at 279. See Anheuser-Busch, 750 F.2d at 639 (survey accorded substantial weight where it was fairly and scientifically conducted by qualified experts and impartial interviewers, where it drew responses from a sample of a relevant portion of potential consumers, and where the questions were neither misleading nor biased); SquirtCo., 628 F.2d at 1089-90 (court found confusion and upheld results of survey despite defendant's arguments that the questions and the relevant universe were not accurate).
Furthermore, the expert concluded that Cody Cow confused a statistically significant number, 39 percent of consumers. Insty*Bit, 95 F.3d at 671. See Scarves by Vera, 544 F.2d at 1175 (confusion demonstrated if defendant's product misleads many customers). Courts have found confusion existed with statistically smaller percentages of confusion. See James Burrough Ltd., 540 F.2d at 279 (confusion existed where 15 percent of consumers were confused); Mutual of Omaha, 836 F.2d at 400 (court gave substantial weight to survey and found confusion where 10 percent of those surveyed believed plaintiff "went along with" defendant's product). Accordingly, there is evidence of an actionable amount of actual confusion.
Even if consumers did not believe Gateway manufactured Cody Cow, infringement occurs if consumers erroneously believed that Gateway sponsored or was somehow affiliated with Cody Cow. See Morningside Group Ltd., 182 F.3d at 141-42 ("actual confusion as to sponsorship or affiliation . . . is often the most telling indication that confusion is likely"). "[T]he test is not whether the public would confuse the marks, but whether the viewer of an accused mark would be likely to associate the product or service with which it is connected with the source of products or services with which an earlier mark is connected." James Burrough Ltd., 540 F.2d at 275. When consumers wrongly affiliate Cody Cow with Gateway, CPI is unjustly trading on Gateway's established reputation. See World Carpets, Inc. v. Dick Littrell's New World Carpets, 438 F.2d 482, 488 (5th Cir. 1971). Consumers will therefore attribute any perceived inferior quality of Cody Cow to Gateway, which can damage Gateway's reputation and image. See Payless Shoesource, 998 F.2d at 989; Polo Fashions, 816 F.2d at 148; World Carpets, 438 F.2d at 488.
Displaying Cody Cow in the post-sale context, moreover, does not invalidate the survey since the Lanham Act protects post-sale as well as point-of-sale confusion. See Insty*Bit, 95 F.3d at 671. Payless Shoesource, 998 F.2d at 989 (court erred in not considering extent of post-sale confusion). "Once a product is injected into commerce, there is no bar to confusion, mistake, or deception occurring at some future point in time." Esercizio v. Roberts, 944 F.2d 1235, 1244 (6th Cir. 1991). Evidence of confusion, moreover, not only applies to purchasers of the product but also to the public who sees the product. Id. at 1245. In the post-sale context, consumers will transfer the good will they feel for Gateway to CPI. "This misuse of goodwill is at the heart of unfair competition." Lois Sportswear, 799 F.2d at 873.
Post-sale confusion is particularly relevant in this case because Cody Cow is often sold in catalogs and on the internet without the StretchPet packaging and other identifying marks. After Cody Cow is purchased, the point of sale materials are removed by the purchaser, and it has no "confusion obviating effect" when seen on a computer. See Blue Bell, 632 F.2d at 822. Indeed, in the post-sale context, the marks that would usually distinguish Cody Cow from Gateway products are not present. See Lois Sportswear, 799 F.2d at 873. Companies who initially purchase Cody Cow are exposed to CPI's marketing presentations, while individuals who later see Cody Cow displayed on a computer are not. See Academy of Motion Picture Arts Sciences, 944 F.2d at 1456. Consumers are unaware of the fact that Cody Cow and Gateway computers, products, and accessories might be sold in different stores. See Payless Shoesource, 998 F.2d at 990.
Even if consumers take note of the tags saying StretchPets and CPI, they may nonetheless connect Cody Cow to Gateway because of the black and white cow spots. Consumers could believe that Gateway consented to the production of Cody Cow. See Lois Sportswear, 799 F.2d at 873; Keds, 888 F.2d at 222. Furthermore, because these tags are small and difficult to read from a distance, they will likely go unnoticed by consumers. Their presence, therefore, is unlikely to dispel consumer confusion. See Keds, 888 F.2d at 222 (where the label cannot be read unless only a few feet from the eyes, post-sale confusion is relevant).
CPI points to testimony by Cunningham, who owns and operates the Dakota Zone in the Empire Mall in Sioux Falls, South Dakota, that she never associated Cody Cow with Gateway as evidence of lack of confusion. (Tr. 472-473). The court assigns no weight to this argument. The relevant question, however, is not whether Cunningham was confused, but whether an appreciable number of consumers are likely to be confused. See Keds, 888 F.2d at 218. See Fleischmann Distilling, 314 F.2d at 156 (law is to protect the general public, "that vast multitude which includes the ignorant, the unthinking and the credulous, who in making purchases, do not stop to analyze, but are governed by appearance and general impressions . . . It safeguards from deception also the ignorant, the inexperienced, and the gullible"). Cunningham, moreover, purchased Cody Cow wholesale, directly from CPI. She had the benefit of viewing the marketing materials that identify CPI as the manufacturer. Many customers will neither buy Cody Cow through this channel of trade nor see those materials.
Cunningham's testimony that customers in her store never stated any confusion about whether Gateway produced Cody Cow is also not persuasive. (Tr. 473, 484-485). Cody Cow sells for a relatively inexpensive price, approximately $19.95. "Purchasers are unlikely to bother to inform the trademark owner when they are confused about an inexpensive product." Beer Nuts, 805 F.2d at 928. Cunningham's testimony fails to establish a lack of confusion and does not refute the results of the survey demonstrating 39 percent actual confusion among consumers. Accordingly, this court holds that Gateway has proven actual confusion.
6. The Degree of Care Reasonably Expected of Potential Customers
The final factor for the court to weigh in determining whether there is a likelihood of confusion is the degree of care reasonably expected of potential customers. In evaluating this factor, the court must consider the degree of care expected of an ordinary purchaser. Duluth News-Tribune, 84 F.3d at 1096. "In general, the less care that a purchaser is likely to take in comparing products, the greater the likelihood of confusion." Wynn Oil, 943 F.2d at 602. In addition, the court can examine defendant's labeling, packaging, or other attempts to distinguish its products from plaintiffs. Mutual of Omaha, 836 F.2d at 401.
As previously noted, Cody Cow sells for approximately $19.95. This relatively low price indicates that consumers will not spend substantial time considering their purchase. "Buyers typically exercise little care in the selection of inexpensive items that may be purchased on impulse. . . . These items are more likely to be confused than expensive items which are chosen carefully." Beer Nuts, 805 F.2d at 926. Byer testified that some past purchases of Cody Cow were likely on impulse, and Johnson classified Cody Cow as an impulse purchase. The tags that say "StretchPets" on Cody Cow, therefore, will not eliminate confusion because consumers exercise little care in purchasing this product. See Beer Nuts, 805 F.2d at 926.
"[O]nce a consumer has drawn the inference that [Gateway] is affiliated with [CPI's cow], inspection of [CPI's] products will not yield information sufficient to dispel the misperception; that is, the consumer remains confused." Mutual of Omaha, 836 F.2d at 401 n. 7. The two StretchPet tags do not definitively distinguish the spotted cow from Gateway's products. It is also improbable that consumers would engage in further investigation of Cody Cow to determine its origin prior to purchase. See id. As a result, because consumers exercise a low degree of care when purchasing Cody Cow, this court finds that this factor demonstrates a likelihood of confusion.
The record establishes by a preponderance of the evidence that CPI's Cody Cow is likely to confuse consumers. Gateway has also demonstrated the elements necessary to prove trademark infringement. Accordingly, this court finds in favor of Gateway on the issue of trademark infringement.
II. The Lanham Act — Trade Dress Infringement
"Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1), creates a federal cause of action for trade dress infringement." Insty*Bit, 95 F.3d at 667. A product's trade dress is the "total image of a product, the overall impression created, not the individual features." Id. Trade dress is protected under § 43(a) of the Lanham Act if: "(1) it is inherently distinctive or has acquired distinctiveness through secondary meaning, (2) it is primarily nonfunctional; and (3) its imitation would result in a likelihood of confusion in consumers' minds as to the source of the product." Id.
A. Functionality
Functionality has long been a defense to a claim of trade dress infringement. HBA, 226 F.3d at 948. "In general terms, a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article." Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 72 LEd2d 606 (1982). "Before a trademark or trade dress will be denied Lanham Act protection under the functionality doctrine, Qualitex requires a court to find that exclusive use of that feature would put competitors at a significant non-reputation-related disadvantage." HBA, 226 F.3d at 948 n. 5. "`The fact that the feature at issue serves some function is not enough; to be functional in the trade dress sense, the feature must be necessary to afford a competitor the means to compete effectively.'" Id. at 948 (quoting Thomas Betts Corp. v. Panduit Corp., 138 F.3d 277, 297 (7th Cir. 1998)).
The court finds that Gateway's trade dress is nonfunctional. Although CPI presented evidence that customers and collectors of cow products prefer black and white spotted cows (Tr. 385-386, 470), there is no evidence that CPI's use of black and white spots on a plush cow that wraps around a computer monitor or CPU is essential to the use or purpose of a stretch pet. Brown, red, or black cows are equally as useful. While a black and white spotted cow may increase CPI's competitiveness, it is not necessary for CPI to compete effectively in the marketplace. Furthermore, there is no evidence that a black and white spotted cow costs less to produce or is of a higher quality than solid-colored or brown spotted cows. The inability to produce a black and white cow would not place CPI at a significant disadvantage. Thus, Gateway's use of black and white cow spots is nonfunctional and is an indicator of origin.
B. Inherently Distinctive or Secondary Meaning
An arbitrary mark is deemed inherently distinctive and is entitled to protection because its "intrinsic nature serves to identify a particular source of a product." Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 769, 112 S.Ct. 2753, 2757-58, 120 LEd2d 615 (1992). A descriptive mark merits protection only if it has acquired a secondary meaning. Insty*Bit, 95 F.3d at 673. "A trademark or trade dress has acquired secondary meaning if it has `by long and exclusive use and advertising . . . come so associated in the public mind with such goods . . . at it serves to identify them and distinguish them from other goods.'" Insty*Bit, 95 F.3d at 673 (quoting Stuart Hall Co. v. Ampad Corp., 51 F.3d 780, 789 (8th Cir. 1995)).
Secondary meaning occurs when "in the minds of the public, the primary significance of a [mark] is to identify the source of the product rather than the product itself." Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 211, 120 S.Ct. 1339, 1343, 146 LEd2d 182 (2000). When a party uses a color as its trademark, it cannot be inherently distinctive. Id. at 1344. "[O]ver time, customers may come to treat a particular color on a product or its packaging as signifying a brand." Id. When color indicates a product's origin, it is protectable upon a showing of secondary meaning. Id.
Although Gateway's cow-spots design is not inherently distinctive, the court finds that it has acquired a secondary meaning. First, as previously discussed in Section I(B)(1)(a), Gateway's cow spot design is arbitrary, which affords it the greatest level of protection. Second, Gateway's extensive ten-year advertising campaign has resulted in making its mark both strong and famous. Third, the record indicates that people associate the stylized black and white cow-spots design with Gateway. Flikkema testified that in all focus groups she conducted, at least 50 percent of the people recognized the cow-spots design as Gateway's brand. (Tr. 49). Finally, the survey conducted by Johnson shows that a significant portion of the public associates black and white cow spots with Gateway. (Tr. 398-422). Accordingly, the court finds that Gateway's trade dress has acquired secondary meaning and is entitled to protection.
C. Likelihood of Confusion
In determining whether a likelihood of confusion exists, the same factors apply to trade dress infringement as to trademark infringement. See Insty*Bit, 95 F.3d at 667; Payless Shoesource, 998 F.2d at 990 ("post-sale confusion is equally relevant to a claim of trade dress infringement as it is to trademark infringement"). The analysis, therefore, in Section I(B) applies here and results in a finding that CPI's use of cow spots on Cody Cow infringes upon Gateway's trade dress. The court finds that Gateway has proven, by a preponderance of the evidence, that CPI's use of black and white cow spots on Cody Cow infringes on Gateway's trade dress.
III. Dilution of the Trademark
The theory of dilution is distinct from trademark infringement. Luigino's, Inc. v. Stouffer Corp., 170 F.3d 827, 832 (8th Cir. 1999). See McCarthy, § 24.70 (dilution prevents more than just the likelihood of confusion). "Dilution occurs when consumers associate a famous mark that has traditionally identified the mark holder's goods with a new and different source." Luigino's, 170 F.3d at 832.
The gravamen of a dilution complaint is that the continuing use of a mark similar to the plaintiff's mark will inexorably have an adverse effect upon the value of the plaintiff's mark, and that, if he is powerless to prevent such use, the plaintiff's mark will eventually be deprived of all distinctiveness. . . . [D]ilution is a cancer which, if allowed to spread, will inevitably destroy the advertising value of the mark.WSM, Inc. v. Hilton, 724 F.2d 1320, 1332 (8th Cir. 1984). To be covered by the anti-dilution statute, Gateway must prove that CPI is making a commercial use of the mark. 15 U.S.C. § 1125(c). Additionally, Gateway must establish (1) that its mark is famous, (2) that CPI used a similar or identical mark after Gateway's mark became famous, and (3) that CPI's mark dilutes the distinctive quality of Gateway's mark by causing consumers to connect the plaintiff's mark with different products. Luigino's, 170 F.3d at 832.
A. Mark Must be Famous
The federal anti-dilution statute lists non-exclusive factors to determine whether a mark is famous: (1) the degree of distinctiveness of the mark, (2) the duration and extent of use of the mark in relation to the goods with which the mark is used, (3) the duration and extent of advertising and publicity of the mark, (4) the geographical extent of the trading area where the mark is used, (5) the channels of trade for the goods with which the mark is used, (6) the degree of recognition of the mark, and (7) the nature and extent of use of same or similar marks by other parties. 15 U.S.C. § 1125(c)(1).
The evidence indicates that Gateway's mark is famous. First as explained in Section I(B)(1), Gateway's cow-spots mark is classified as arbitrary, and therefore, highly distinctive. Second, Gateway has used the cow-spots mark with its computers, computer peripherals and accessories, and shipping boxes for over ten years. Cow spots cover every computer box, and all of Gateway's products contain the cow-spots logo. This demonstrates the long duration and extent of Gateway's use of cow spots. Third, Gateway has promoted its mark through various media and has sponsored many prominent events. It has spent over a billion dollars advertising its cow-spots mark nation— and world-wide for over ten years.
Fourth, because of the increased popularity and prevalence of computers since Gateway entered the field in 1991, recognition of Gateway's mark has expanded beyond the computer market. Fifth, as evidenced by the survey, by Flikkema's testimony, by extensive advertising campaigns, and by its injection into popular culture, the court finds that Gateway's mark has achieved a high degree of recognition. Seventh, Gateway has vigilantly policed its mark in the relevant industry to prevent similar use of cow spots on computer related products. Evidence of the software company TuCows' use of a black cow and a white cow and of third-party uses of cow spots does not constitute extensive use of a similar mark. Finally, Gateway registered its black and white stylized cow-spots design. These factors point to the conclusion that Gateway's trademark is famous.
B. Commercial Use of the Mark
The federal anti-dilution statute requires a commercial use of the mark. 15 U.S.C. § 1125(c). A mark is used "in commerce (1) on goods when — (A) it is placed in any manner on goods . . . and (13) the goods are sold or transported in commerce[.]" 15 U.S.C. § 1127. The defendant must use the mark in commerce subsequent to the plaintiff's mark becoming famous.
The court finds that CPI is using Gateway's black and white cow-spots mark in commerce. Cody Cow is a black and white plush cow covered in black and white spots that CPI sells over the internet, in catalogs, and in stores. The fact that CPI does not identify black and white cow spots as its actual trademark is not dispositive. Consumers could view the black and white spots as the trademark despite CPI actually intending StretchPet to be its trademark. The tags identifying StretchPets as the trademark are small and may go unnoticed; thus, consumers will likely identify the black and white spots as the trademark. CPI's use of black and white spots on its plush cow amounts to placing Gateway's mark on CPI's goods and placing them in commerce. CPI began selling Cody Cow in 1999, eight years after Gateway began publicizing its cow-spots mark. Thus, CPI has used Gateway's mark in commerce subsequent to the mark becoming famous.
C. CPI's Use of the Same or Similar Mark
"To support an action for dilution . . . the marks must at least be similar enough that a significant segment of the target group of customers sees the two marks as essentially the same." Luigino's, 170 F.3d at 832. The legislative history of the dilution statute does not explicitly require an identity of the marks when determining similarity. McCarthy, § 24:90.2. Based on the analysis in Section I(B)(2), the court concludes that Gateway's trademark is identical to CPI's Cody Cow. The evidence shows that the black and white spots on Cody Cow are essentially the same as the black and white spots Gateway uses as its trademark.
D. Consumer Connection of the Mark with Other Products
"The owner of a famous mark is entitled to injunctive relief against another person's commercial use of a mark or trade name if that use 'causes dilution of the distinctive quality' of the famous mark. This text unambiguously requires a showing of actual dilution, rather than a likelihood of dilution." Moseley v. V Secret Catalogue, Inc., 537 U.S. 418, 123 SCt 1115, *1124, 155 LEd2d 1 (2003). To recover, plaintiffs need not prove actual loss of sales or profits; however, "the mere fact that consumers mentally associate the junior user's mark with a famous mark is not sufficient to establish actionable dilution." Id. This is particularly true where the marks are not identical. Id.
Gateway has not proven that CPI's sale of Cody Cow actually dilutes the strength of its mark. Although the consumer survey demonstrates that a significant portion of the public associates Cody Cow with Gateway, it does not demonstrate actionable dilution. There is no evidence that Cody Cow, in actuality, lessens the strength of Gateway's trademark. No evidence demonstrates that Cody Cow undermines the ability to identify and distinguish Gateway's products. See Ringling Bros.-Barnum Bailey Combined Shows, Inc., v. Utah Div. of Travel Dev., 170 F.3d 449, 463 (4th Cir. 1999) (no dilution where junior user's mark did not actually harm plaintiff's mark). Accordingly, the court finds that Gateway has not proven actual dilution.
CONCLUSION
Gateway has proven by a preponderance of the evidence that CPI's Cody Cow infringes on its black and white stylized cow-spots design and its trade dress. It has failed to prove that Cody Cow actually dilutes its trademark. Accordingly, it is hereby
ORDERED that judgment be entered in favor of the plaintiff Gateway on the issues of trademark and trade dress infringement.
IT IS FURTHER ORDERED that defendant Companion Products, Inc., its officers, agents, servants, employees, representatives, attorneys, related companies, successors, assigns, and all others in active concert or participation with it or any of them, are hereby enjoined and restrained from:
(a) using a cow-spots design or any other colorable imitation of Gateway's cow-spots trademark on a computer, computer accessory, or computer peripheral, including a StretchPet;
(b) doing any other act or thing likely to induce the belief that CPI'S business or products are in any way connected with Gateway's businesses or products or are sponsored by or approved by Gateway; and
(c) doing any other act or thing which dilutes Gateway's cow-spots trademark.
IT IS FURTHER ORDERED that CPI shall deliver up for destruction all packages, literature, labels, advertising, and other materials of an infringing nature in CPI's possession or control and CPI shall file with this court and serve on Gateway a report in writing under oath setting forth in detail the manner and form in which CPI has complied with the terms of this injunction.
IT IS FURTHER ORDERED that judgment be entered in favor of defendant CPI on the issue of trademark dilution.