The opinion of the court was delivered by: Marvin J. Garbis United States District Judge
MEMORANDUM AND ORDER RE: JUDGMENT AS A MATTER OF LAW
The Court has before it Defendants' Renewed Motion for Judgment as a Matter of Law pursuant to Fed. R. Civ. P. 50 and the materials submitted related thereto. The Court has held a hearing and had the benefit of the arguments of counsel.
The instant case grew out of the competition between two producers of pet vitamins and dietary supplements to obtain a contract with a national chain of vitamin distributors.
In 2004, the Garmon Corporation, led by Scott Garmon ("Garmon") was a well-established producer of pet products, primarily selling to large retailers such as Petco, PetSmart, and Pet Supermarket, under various trademarked brand names, e.g., Green Tree, Pet Organics, and NaturVet. At this time, Bill Bookout ("Bookout") was the President of the National Animal Supplement Council ("NASC"), an industry trade association. Bookout was also operating a "side" business - Genesis, Limited - that sold pet products primarily to veterinarians who resold the products to their patient's owners.
Garmon and Bookout decided to form a jointly-owned business that would sell primarily to pet professionals, i.e., breeders, trainers, rescue groups, kennels, etc. They chose a name for the new business that was unassociated with either Garmon or Bookout, since (1) the joint venture would be somewhat in competition with customers of both the Garmon Corporation and Genesis Limited, and (2) Bookout would be engaged in business with one of the members of the board of NASC, a board that included competitors of the Garmon Corporation.
They formed Plaintiff, Optimal Pets, Inc. ("OPI"). OPI purchased products from Garmon Corporation and Genesis Limited. OPI's shares were owned 50% by Garmon, and 50% were in the name of Bookout's cousin.*fn1 OPI set up a website and commenced efforts to sell pet products under the name "Optimal Pets" in January 2004, aiming to develop a national niche market presence.
As discussed in more detail herein, OPI started in early 2004 with a sales effort that, by 2008, had dwindled down to primarily accepting orders trickling in from the continuing offer of products on the internet website. By 2008, the sales "success" of "Optimal Pets" products was de minimis. Indeed, OPI's total gross sales for the entire period for which there is evidence of sales volume, January 2004 through to March 2009, (five years and three months) was less than $35,000.00,*fn2 which averages less than $6,700.00 per year. In terms of an alleged nationwide market presence, there was not a single sale in the entire five-year period in 16 states. In 28 states, the total gross sales for the entire five-year period - not sales per year - was less than $5,400.00. This is an average of less than $200.00 in total sales per state during the entire five-year period. Accordingly, by the time of the events pertinent to the instant lawsuit, OPI was a minimally functioning business, essentially filling orders through its website.
In late 2007, Defendant Vitamin Shoppe Industries, Inc. ("Vitamin Shoppe") decided to add a product line of pet vitamins and supplements to sell in its chain of some 422 retail stores in 37 states and on the internet. Vitamin Shoppe was interested in having Garmon Corporation provide the products and commenced discussions with Garmon. There was no problem with the production side of the arrangement, but there was a problem with the brand name for the products.
Vitamin Shoppe did not like any of the brand names that Garmon Corporation proposed for the private label. Garmon did not propose the name "Optimal Pets," presumably because using that name would have raised the possibility that the Bookout side of OPI would be entitled to some share of the Vitamin Shoppe business. Eventually, Vitamin Shoppe decided to find a different source of product and commenced discussions with Defendant Nutri-Vet, LLC ("Nutri-Vet").
Initially, Nutri-Vet was no more able than Garmon to find a name that Vitamin Shoppe would accept. Ultimately, however, the name "Optimal Pet" was proposed, liked by Vitamin Shoppe, and cleared by Nutri-Vet's trademark attorney as available for use and trademark registration. Thus, the name "Optimal Pet" was adopted as the brand name for the new line of products. NutriVet applied for federal trademark registration of the "Optimal Pet" name in May 2008.*fn3
Nutri-Vet thereafter began production of products under the name "Optimal Pet" for Vitamin Shoppe. The Vitamin Shoppe product launch of the "Optimal Pet" line of pet vitamins and supplements began on August 1, 2008. Within a few days, Garmon learned of the use of the name "Optimal Pet." In September 2008, OPI had an attorney send a "cease and desist" letter to Defendants Vitamin Shoppe and Nutri-Vet. The letter stated that OPI had nationwide common law rights to the trademark "Optimal Pets" for pet products and demanded that the Defendants cease and desist infringing by use of the name "Optimal Pet."
Defendants, deciding that OPI did not have common law trademark rights nationwide, or anywhere for that matter, refused to cease and desist. Garmon then decided to institute the instant lawsuit but found that Bookout did not wish to be associated - even through a cousin - with litigation against a member of the NASC board. Thereupon, Garmon acquired Bookout's cousin's ownership interest, and OPI filed the instant lawsuit.
The Court, having denied Defendants' motion for summary judgment,*fn4 proceeded to trial by jury. Prior to submission of the case to the jury, both sides moved for Judgment as a Matter of Law under Fed. R. Civ. P. 50. Defendants sought judgment on all claims on the ground that OPI failed to introduce evidence sufficient to prove market penetration, resulting in the inability to establish that it had a valid and legally enforceable common law trademark.*fn5 The Court denied the motion without prejudice to its renewal after verdict. OPI sought Judgment as a Matter of Law on Defendants' lack of likelihood of confusion defense.*fn6 The Court granted this motion.
Thus, the case was submitted to the jury for determination of whether, and to what extent, OPI had established enforceable common law trademark rights, and whether Defendants had adopted the name "Optimal Pet" in bad faith.
As detailed in the Appendix hereto, the jury ultimately returned a partial verdict on a Second Revised Verdict Form, providing unanimous answers to the questions relating to trademark rights as follows:
Question 1. In which geographical areas, if any, has Plaintiff Optimal Pets, Inc. proven by a preponderance of the evidence that, by August 2008, it had used in commerce the name "Optimal Pets" as a trademark for the products at issue? Answer: The entire United States
Question 2 A. In which geographical area of the United States, if any, do you unanimously agree that Plaintiff Optimal Pets, Inc. has proven by a preponderance of the evidence that, by August 1, 2008, it had legally sufficient market penetration to establish common law ownership rights in "Optimal Pets?"
Answer: Zip codes 86305*fn7 and 64113.*fn8
Question 2B. In which geographical area of the United States,
if any, do you unanimously agree that Plaintiff Optimal Pets, Inc. has
not proven by a preponderance of the evidence that, by August 1, 2008,
it had legally sufficient market penetration to establish common law
ownership rights in "Optimal Pets?"
Answer: [Sixteen named states].*fn9
The jury did not reach a unanimous verdict as to the following questions related to Defendants' intent:
Question 3. Has Plaintiff Optimal Pets, Inc. proven by a preponderance of the evidence that Defendant Nutri-Vet, LLC adopted the name "Optimal Pet" for the products at issue in bad faith?
Question 4. Has Plaintiff Optimal Pets, Inc. proven by a preponderance of the evidence that Defendant Vitamin Shoppe Industries, Inc. adopted the name "Optimal Pet" for the products at issue in bad faith? Answer: No unanimity
By the instant motion, Defendants seek judgment as a matter of law establishing that OPI has failed to present evidence adequate to prove (1) that it had sufficient market penetration to establish common law ownership rights in "Optimal Pets" in any geographical area, (2) that neither Defendant adopted the name "Optimal Pet" for the products at issue in bad faith, and
(3) that OPI cannot establish that any infringement would have been willful.
A. COMMON LAW TRADEMARK RIGHTS
One can establish enforceable trademark rights through the use of a trademark in commerce and federal registration under the Lanham Act*fn10 (nationwide rights), some analogous state registration systems (statewide rights), or by virtue of a common law trademark in a particular area. OPI did not register the trademark at issue with the United States Patent and Trademark Office or with any state. Accordingly, the issue presented is whether, as of the date that Defendants used the name "Optimal Pet" in commerce (August 2008), OPI had acquired common law trademark rights with regard to a geographical area in which Defendants used the name.
To establish common law trademark rights in a geographical area, OPI had to be the first to use the name "Optimal Pets" in commerce to designate the pertinent products in the area and had to continue to so use the name in that area. See Halicki Films, LLC v. Sanderson Sales & Marketing, 547 F.3d 1213, 1226 (9th Cir. 2008)(citing Sengoku Works Ltd. v. RMC Int'l, Ltd., 96 F.3d 1217, 1219 (9th Cir. 1996)); Quiksilver, Inc. v. Kymsta Corp., 466 F.3d 749, 761-62 (9th Cir. 2006)(describing the common law innocent-use defense).
The first to use a mark in an area is deemed the "senior" user and has the right to enjoin "junior" users from using confusingly similar marks in the same industry and market or within the senior user's natural zone of expansion. Brookfield Commc'ns, Inc. v. West Coast Entm't Corp., 174 F.3d 1036, 1047 (9th Cir. 1999). Thus, in the absence of federal registration, both a senior and junior user would have the right to expand into unoccupied territory and establish customer recognition in that territory. See id. at 1054 ("Even where there is precise identity of a complainant's and an alleged infringer's mark, there may be no consumer confusion - and thus no trademark infringement - if the alleged infringer is in a different geographic area . . . .").
To maintain a common law trademark right there must be a continuing use. Quiksilver, Inc. v. Kymsta Corp., 466 F.3d 749, 762 (9th Cir. 2006). "To be a continuing use, the use must be maintained without interruption." Casual Corner Assocs., Inc. v. Casual Stores of Nevada, Inc., 493 F.2d 709, 712 (9th Cir. 1974); see also Dep't of Parks & Recreation v. Bazaar Del Mundo Inc., 448 F.3d 1118, 1126 (9th Cir. 2006)(requiring proof that the mark's actual use in commerce was continuous and not interrupted). Trademark rights are not created by a sporadic or casual use; there must be an active and public attempt to establish trade. See id.
To establish enforceable common law trademark rights in a geographical area, a plaintiff must prove that, in that area, (1) it is the senior user of the mark, and (2) it has established legally sufficient market penetration. See, e.g., Credit One Corp. v. Credit One Financial, Inc., 661 F. Supp. 2d 1134, 1138 (C.D. Cal. 2009)("A party asserting common law rights must not only establish that it is the senior user, it must also show that it has 'legally sufficient market penetration' in a certain geographic market to establish those trademark rights." (quoting Glow Indus. Inc. v. Lopez, 252 F. Supp. 2d 962, 983 (C.D. Cal. 2002)).*fn11
In the Glow decision, the court stated that a senior user of a distinctive unregistered mark must demonstrate the territorial scope of its trademark use. See 252 F. Supp. 2d at 983 ("Generally, in the absence of federal registration, both parties have the right to expand their use of an unregistered mark into unoccupied territory and establish exclusive rights by being first in that territory. In effect, it is a race between the parties to establish customer recognition in unoccupied territory." (citations omitted)).
The Glow court recognized that a senior trademark user is entitled to assert its rights only in areas in which it has legally sufficient market penetration. Id. The court stated that legally sufficient market penetration "is determined by examining the trademark user's volume of sales and growth trends, the number of persons buying the trademarked product in relation to the number of potential purchasers, and the amount of advertising." Id. (adopting the test for legally sufficient market penetration from Natural Footwear, Ltd. v. Hart, Schaffner & Marx, 760 F.2d 1383, 1398-99 (3d Cir. 1985)).
a. Senior User With regard to the senior use issue, the Court instructed the jury, without objection:
Optimal Pets, Inc. would have used the name "Optimal Pets" in commerce as a trademark for the products at issue in an area if, following its first use of the name "Optimal Pets" in commerce in that area, there was a follow up of activities that, in the context of the particular industry or trade, was sufficient to show a genuine intent to put the product on the market under that name on a commercial scale in the context of the market within a reasonable time.
The jury returned the following verdict:
Question 1. In which geographical areas, if any, has Plaintiff Optimal Pets, Inc. proven by a preponderance of the evidence that, by August 2008, it had used in commerce the name ...