The opinion of the court was delivered by: Stephen V. Wilson United States District Judge
I. INTRODUCTION AND PROCEDURAL HISTORY
FINDINGS OF FACT AND CONCLUSIONS OF LAW
On September 17, 2010, Plaintiff Bobrick Equipment, Inc. filed a complaint against Defendant American Specialties, Inc., alleging:
(1) trademark infringement under Section 32 of the Lanham Act;
(2) unfair competition by false designation of origin under Section 43(a) of the Lanham Act; (3) common law unfair competition;
(4) violation of Cal. Bus. & Prof. Code § 17200 et seq.; and (5) unjust enrichment. (Dkt. 1). On November 5, 2010, Defendant filed a motion to dismiss the complaint, (Dkt. 17), which the Court denied on December 15, 2010, (Dkt. 28). On April 13, 2011, Plaintiff filed the operative First Amended Complaint ("FAC"). (Dkt. 48).
On August 22, 2011, Defendant filed a Motion for Summary Judgment, in which it argued that Plaintiff's claimed trademark (and related trade dress) is functional, and, therefore, cannot qualify for protection under the Lanham Act or related statutes. (Dkt. 98). On October 5, 2011, the Court denied the motion, noting that while it believed the factual record before it favored a finding of functionality under the four-factor test applied in the Ninth Circuit, "the Court nevertheless concludes that triable issues of material fact remain with respect to the proper determination and weighing of these factors." (Dkt. 142, at 1).*fn1
Court trial commenced on October 25, 2011. On October 27, 2011, the Court continued the trial pending the completion of further discovery. Trial resumed on July 17, 2012, and concluded on July 18, 2012.
II. FACTUAL BACKGROUND*fn2
Both Plaintiff and Defendant manufacture and sell washroom accessories. In 1993, Plaintiff launched its "Contura" line of washroom products. Products in the Contura line have a front face that curves along the horizontal axis. Thus, when viewed from above, the face of the Contura products is in the shape of a convex arc (this design is referred to herein as the "Convex Arc").
In 2003, Plaintiff filed an application with the United States Patent and Trademark Office ("USPTO"), seeking trademark protection for the Convex Arc design. On May 17, 2005, Plaintiff was granted U.S. Trademark Reg. No. 2,951,014.
The Convex Arc is described in the 2,951,014 registration as follows:
The mark consists of the shape of the front face of a washroom product, the front face having a convex "arc" shape as viewed from above. The height of the front face is exemplary only and can be taller or shorter depending on the product. The matter shown in broken lines is the portion of the product that is not claimed as part of the mark, which includes any openings, windows, locks or other components in the front face of the washroom product.
In 2010, Defendant introduced its "Roval" line of products, which also features products with a curved front face. Plaintiff claims that these products infringe its registered trademark in the Convex Arc design, as well as the unregistered trade dress associated therewith. In particular, the unregistered trade dress claimed by Plaintiff is comprised of the Convex Arc combined with the following five product features: (1) cabinets and doors including rounded edges and corners which match one another, and which are curved to complement the Convex Arc; (2) recessed cabinet flanges including rounded edges and corners which are curved to complement the Convex Arc; (3) partially exposed flanges behind the doors; (4) partially exposed flanges behind the waste receptacles; and (5) outward-facing surfaces formed of #4 satin finish stainless steel (collectively, the "Unregistered Trade Dress"). (See Plaintiff's Supplemental Proposed Findings of Fact, ¶ 17).
Before reaching the merits of this dispute, the Court first will address Plaintiff's request for sanctions in connection with Defendant's discovery-related misconduct and alleged spoliation of relevant evidence.
On October 14, 2011, Plaintiff filed its Sixth Motion in Limine, seeking an Order (1) requiring Defendant to preserve and produce evidence; and (2) for spoliation sanctions in connection with Defendant's failure to institute an appropriate litigation hold notice and its repeated failure to produce relevant emails and other electronic documents requested by Plaintiff. (Dkt. 206). Defendant initially opposed the motion, arguing that it had fully complied with its discovery obligations. (See Dkt. 226). On the third day of trial, however, Defendant's counsel formally withdrew Defendant's Opposition to the motion, stating that he had discovered (the previous evening) that the Opposition contained several inaccurate representations. (See Dkt. 256). At that time, Defendant's counsel conceded that Defendant had failed to produce (or even search for) relevant emails and other electronic documents for numerous key employees.
The Court continued trial, and subsequently appointed Matthew Ghourdjian, CEO of Cogility Software Corporation, as an independent expert pursuant to Federal Rule of Evidence 706. The Court ordered Mr. Ghourdjian to perform an independent search and analysis of Defendant's servers. (Dkt. 259, 260). Mr. Ghourdjian was further ordered to produce to both parties a copy of any electronic documents containing one or more "keywords" selected by Plaintiff. (Dkt. 260). Pursuant to the Court's Order, Defendant would bear all reasonable costs incurred by Mr. Ghourdjian. (Id.).
On July 10, 2012, Plaintiff filed a Supplemental Brief in support of its Spoliation Motion. (Dkt. 293). Defendant filed an Opposition on July 16, 2012, (Dkt. 303), and the Court heard the motion on July 17, 2012.
"The failure to preserve electronic or other records, once the duty to do so has been triggered, raises the issue of spoliation of evidence and its consequences." Thompson v. U.S. Dep't of Housing & Urban Dev., 219 F.R.D. 93, 100 (D. Md. 2003). Spoliation is the destruction or material alteration of evidence, or the failure to otherwise preserve evidence, for another's use in litigation. . . . "A party seeking sanctions for spoliation of evidence must prove the following elements: (1) the party having control over the evidence had an obligation to preserve it when it was destroyed or altered; (2) the destruction or loss was accompanied by a 'culpable state of mind;' and (3) the evidence that was destroyed or altered was 'relevant' to the claims or defenses of the party that sought the discovery of the spoliated evidence[.]"
Surowiec v. Capital Title Agency, Inc., 790 F. Supp. 2d 997, 1005 (D. Ariz. 2011).
A trial court's discretion regarding the form of a spoliation sanction is broad, and can range from minor sanctions, such as the awarding of attorneys' fees, to more serious sanctions, such as dismissal of claims or instructing the jury that it may draw an adverse inference. The court's discretion is not, however, without its limits. Courts must weigh several factors when deciding which type of sanction to impose on a spoliator. Any remedy applied to a spoliator should be designed to: (1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore the prejudiced party to the same position he would have been absent the wrongful destruction of evidence by the opposing party. Sanctions under these inherent powers must be exercised with restraint and should be appropriate to the conduct that triggered the sanction.
Apple Inc. v. Samsung Elecs. Co., Ltd., 2012 U.S. Dist. LEXIS 103958, *15-16 (N.D. Cal. July 24, 2012) (internal citations omitted). The sanction imposed "must be the least drastic available to adequately mitigate the prejudice" suffered by the opposing party. Id. at *64.
1. Failure to Produce Documents
In many respects, Plaintiff's motion for sanctions conflates Plaintiff's failure to produce relevant documents in a timely fashion with Plaintiff's alleged spoliation of documents. Defendant's failure to produce documents was both significant and inexcusable. Despite repeated requests by Plaintiff, Defendant failed to perform even the most basic search of its key custodians' emails and electronic documents. Nevertheless, through the first two days of trial, Defendant consistently maintained -- both to Plaintiff and to this Court -- that it had fully complied with all of its discovery obligations. Only on the third day of trial, after the Court had begun to hear witness testimony regarding this issue, did Defendant finally admit that it had failed to do so.
The Court already has taken measures, however, to address Defendant's failure to search for and timely to produce relevant documents. The Court appointed Mr. Ghourdjian (at Defendant's expense) to perform a thorough search and analysis of Defendant's electronic information. All potentially-relevant documents were produced to Plaintiff. Trial was continued for roughly nine months in order to allow Mr. Ghourdjian to complete his analysis, and to allow Plaintiff to review the documents produced by Mr. Ghourdjian.
According to Defendant, Mr. Ghourdjian's invoices totaled $168,045. (Opposition, at 13). The Court finds that this is an adequate sanction for Defendant's failure timely to produce relevant documents.
With respect to spoliation, the Court finds that Defendant failed to implement an adequate litigation hold notice in connection with this litigation. Plaintiff's complaint was filed on September 17, 2010. Defendant failed to distribute a written hold notice until March 3, 2011 -- nearly six months later. Moreover, this notice was distributed to only three employees -- Charles La Barbera, Howard Harper, and Dennis Jackson, (Dkt. 206, Exh. D) -- and there is no evidence that Defendant took any steps to ensure that its employees actually complied with the notice. To the extent that Adrienne Rolla testified she orally informed certain employees of the need to preserve documents prior to the distribution of the written hold notice, such measures were insufficient to satisfy Defendant's obligation to preserve relevant documents.
However, while there is some evidence that spoliation of relevant evidence actually occurred, such evidence is minimal. Howard Harper testified in his deposition that he had deleted certain emails relating to Requests For Quotes ("RFQs") in connection with Roval products. (Harper Depo., at 133:7-134:1). Although these documents fell within the scope of documents requested by Plaintiff, Harper mistakenly believed that they were not relevant to this litigation. (See id.).
Other than Harper's deposition testimony, however, there is no direct evidence of any spoliation of relevant evidence. Pursuant to the Court's November 22, 2011 Order, Defendant produced to Mr. Ghourdjian monthly backup tapes for its Exchange server (containing email documents) dating back to January 2010, and backup tapes for its file server (containing other electronic documents) dating back to August 2010. Thus, Mr. Ghourdjian was provided with at least one "snapshot" of the contents of each of Defendant's servers prior to the filing of the instant complaint on September 17, 2010. In his expert report, Mr. Ghourdjian noted that Defendant's monthly backup procedure "is not an uncommon practice as it provides a simple, cost-effective backup solution." (Ghourdjian Final Report, at 4).
Plaintiff contends that if Defendant had taken steps to preserve documents immediately upon the filing of the complaint, additional backup tapes would have been available. This contention is directly contrary to the unrefuted testimony of Adrienne Rolla that:
1. In December 2009, Defendant discovered that its Exchange server backup tapes were corrupted; thus, as of the September 17, 2010 filing of the complaint, Defendant's Exchange server backup tapes went back only to January 2010; all of these tapes were produced to Mr. Ghourdjian, (Dkt. 304, Rolla Decl., ¶ 4), and
2. in August 2010, Plaintiff installed a new file server backup tape system, at which point Plaintiff discarded all of the old backup tapes, which were incompatible with the new system; thus, as of the September 17, 2010 filing of the complaint, Defendant's file server backup tapes went back only to August 2010; all of these tapes were produced to Mr. Ghourdjian, (id. at ¶ 5).
Plaintiff correctly points out that because Defendant backs up its files only once per month, an email that was created, e.g., on the 10th of the month and deleted on the 20th of the month would never show up on a monthly backup. (See Ghourdjian Final Report, at 5). Thus, it is possible that Defendant's employees deleted relevant emails, which were never preserved in a monthly backup tape. Notably, however, Defendant's servers were not configured automatically to delete emails after a certain period of time. Instead, users were permitted to delete emails on an individual basis. Cf., e.g., Surowiec v. Capital Title Agency, Inc., 790 F. Supp. 2d 997, 1008 (D. Ariz. 2011) (holding an adverse jury instruction was appropriate where:
Capital routinely deleted electronic records pursuant to its 30-day retention policy. Although Capital asserts that it began preserving all emails as a matter of course in October of 2007, its failure to stop email destruction in April of 2007 resulted in the loss of emails between March and September of 2007, not to mention older emails on Romley's computer. The year 2007 was a period of intense communication and negotiation concerning the Shamrock Glen problem, and the Court has no doubt that preserving emails exchanged in March through September of that year would have provided valuable information to Plaintiff. Similarly, acting in April of 2007 to preserve the older emails then on Romley's computer surely would have preserved valuable evidence for Plaintiff. One example is the February 1, 2007 email that managed to survive and provided very helpful evidence to Plaintiff.).
Plaintiff requests the following sanctions, listed in order of preference: (1) default judgment; (2) adverse inferences with respect to functionality, secondary meaning, and likelihood of confusion; and
When considering a default sanction in response to spoliation of evidence, the court must determine (1) the existence of certain extraordinary circumstances, (2) the presence of willfulness, bad faith, or fault by the offending party,
(3) the efficacy of lesser sanctions, [and] (4) the relationship or nexus between the misconduct drawing the [default] sanction and the matters in controversy in the case. In addition, the court may consider the prejudice to the moving party as an optional consideration where appropriate. This multi-factor test is not a mechanical means of determining what discovery sanction is just, but rather a way for a district judge to think about what to do.
UMG Recordings, Inc. v. Hummer Winblad Venture Partners (In re Napster, Inc. Copyright Litig.), 462 F. Supp. 2d 1060, 1070 (N.D. Cal. 2006) (quoting Halaco Eng'g Co. v. Costle, 843 F.2d 376, 380 (9th Cir. 1988)); Valley Engineers, Inc. v. Electric Eng'g Co., 158 F.3d 1051, 1057 (9th Cir. 1998)) (internal citations and quotation marks omitted).
Default judgment clearly is inappropriate in this case. Plaintiff's conduct with respect to discovery amounted to gross negligence, but it did not rise to the level of culpability sufficient to warrant default judgment under these circumstances. Cf. Leon v. IDX Sys. Corp., 464 F.3d 951, 961 (9th Cir. 2006) (affirming default judgment where the defendant admitted he had intentionally deleted information from his company-issued laptop and had written a program to "wipe" any deleted files from the computer's hard drive, noting the district court's "bad-faith determination, which is a prerequisite to dismissing a case pursuant to a court's inherent power . . . was not clearly erroneous") (emphasis added).
Moreover, there is no "nexus" between Defendant's misconduct and the matters in controversy in this case. As evidenced by the Court's analysis of the merits (discussed below), the key issues in this case -- functionality, secondary meaning, and likelihood of confusion -- are largely objective, externally-focused inquiries. While technically "relevant" under the broad scope of Rule 26, the RFQs deleted by Harper would not have materially altered the Court's analysis in any way.
Similarly, the Court would not expect any documents that may have been destroyed due to Defendant's inadequate document preservation efforts to be probative of the substantive issues in this case. This conclusion is bolstered by the Court's review of the documents that were (belatedly) produced by Defendant in this case, which do not materially advance Plaintiff's claims. Cf. Surowiec, 790 F. Supp. 2d at 1008 (noting destroyed emails "surely would have [included] valuable evidence for Plaintiff. One example is the February 1, 2007 email that managed to survive and provided very helpful evidence to Plaintiff.").
For similar reasons, the Court finds that the adverse inferences requested by Plaintiff are not an appropriate sanction. "[A]lthough [adverse inference] instructions are less harsh than so-called terminating sanctions, they are properly viewed as among the most severe sanctions a court can administer." Rimkus Consulting Group, Inc. v. Cammarata, 688 F. Supp. 2d 598, 619 (S.D. Tex. 2010). Instead, the Court finds that monetary sanctions will "adequately mitigate the prejudice" suffered by Plaintiff. See Apple Inc., 2012 U.S. Dist. LEXIS 103958 at *64.
Defendant's failure to comply with its discovery obligations in this case has resulted in a significant burden on both Plaintiff and this Court. Accordingly, the Court finds that further monetary sanctions, in addition to the $168,045 in fees owed to Mr. Ghourdjian, are warranted. In particular, Defendant shall reimburse Plaintiff for all reasonable costs and attorney fees incurred in connection with the following:
* any discovery-related motions filed with the magistrate judge in this action;
* preparation for, and appearance at, the third day of trial on October 27, 2012;
* Plaintiff's Motion in Limine No. 6 (including supplemental briefing and argument);
* communication with Mr. Ghourdjian regarding his review and production of Defendant's electronic documents; and
* Defendant's motions for judgment on partial findings, (see Dkt. 275, 279, 281, 282, 284), which were ill-conceived, inconsistent with the Court-ordered pretrial process (in light of the appointment of Mr. Ghourdjian), and largely inconsistent with the parties' related stipulation, (see Dkt. 257).
Within fourteen (14) days of the date of this Order, Plaintiff shall submit a request for costs and attorney fees in accordance with this Order, including appropriate evidentiary support for the amount requested. Plaintiff may file an objection to this request no later than seven (7) days later. The matter is set for hearing on September 17, 2012, at 1:30 p.m.
IV. MERITS OF PLAINTIFF'S CLAIMS
In order to succeed on its claims of trademark and trade dress infringement, Plaintiff must establish that the asserted trademark and trade dress are: (1) non-functional; (2) either inherently distinctive or have acquired secondary meaning; and (3) likely to be confused with Defendant's products by members of the consuming public. International Jensen, Inc. v. Metrosound U.S.A., Inc., 4 F.3d 819, 823 (9th Cir. 1993). The Court will address each element in turn.
A trademark is functional "when it is essential to the use or purpose of the device or when it affects the cost or quality of the device." TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 33 (2001). To determine whether a product feature is functional, the Ninth Circuit considers four factors: (1) whether the design yields a utilitarian advantage; (2) whether alternative designs are available;
(3) whether advertising touts the utilitarian advantages of the design; and (4) whether the particular design results from a comparatively simple or inexpensive method of manufacture. Disc Golf Ass'n v. Champion Discs, Inc., 158 F.3d 1002, 1006 (9th Cir. 1998). ...