PTO descriptiveness finding inadmissible where court ruled mark suggestive

Innovation Ventures, LLC v. NVE, Inc., 2015 WL 871137, No. 08–11867 (E.D. Mich. Feb. 27, 2015)
Various evidentiary rulings in the latest round of this trademark/false advertising case over energy shots, the first of which presages what I expect to be increasing uncertainty in the courts until the Supreme Court revisits the issue.  The others are in moderately decreasing order of broader importance, but the later ones have enough human interest to include here.
Here, Innovation wanted to exclude evidence that the PTO refused its ITU application for “5-Hour Energy” in 2005 on grounds of mere descriptiveness.  The mark was subsequently registered on the Supplemental Register.  In 2008, the PTO refused another application, again on mere descriptiveness grounds.  The Sixth Circuit, however, held that “[t]he line between merely descriptive and suggestive marks is admittedly hazy and can be difficult to discern” but that 5-Hour Energy was suggestive. Thus, Innovation argued, evidence about the PTO proceedings would be contrary to the law of the case and would confuse the jury. NVE responded that the PTO proceedings were probative of the relative strength or weakness of the mark.
The court agreed that this evidence would have some probative value, but concluded that on balance it was more prejudicial than probative:
Introducing prior USPTO findings which conclude that the mark is merely descriptive, and therefore not protectable, would contradict the Sixth Circuit’s legal conclusion and serve only to confuse the jury. Even with a limiting instruction, proof that the USPTO had repeatedly denied Plaintiff a trademark could carry definitive weight with the jury, and suggest that they were allowed to reach a conclusion inconsistent with the Sixth Circuit’s ruling.
Nor did NVE cite cases where PTO rulings were presented to a jury as probative of the strength of a mark for purposes of likely confusion analysis.  Though arguably relevant to strength, the rulings were more directly probative of protectability, and the Sixth Circuit had already determined protectability.
[Comment: It seems to me that this question implicates two issues before the Supreme Court this Term: from Hana Bank, if classifying a term/mark is a question of fact and not law (and if placing a term on one side of the generic/mark line is a question of fact, why wouldn’t the descriptive/suggestive line be the same?), then shouldn’t a jury get to decide it and not the Sixth Circuit, given that court’s conclusion that the matter is not free from doubt?  Relatedly, Hargis may tell us the kind of deference the PTO’s conclusion is due when the applicant had the opportunity to contest the finding—at the very least, I’d think it should be evidence for the jury to consider.]
Innovation also unsuccessfully sought to preclude NVE’s unclean hands defense. NVE initially argued fraud on the PTO, though it lost that part of the argument. It also argued that Innovation “usurped” NVE’s 6 Hour Power mark by registering “” and “” in bad faith, and also brought forth an expert who identified and discussed alleged anti-competitive behavior such as Innovation’s “STS rack program” that paid retailers to keep NVE’s products off the front counters at convenience stores. These allegations of anti-competitive and unfair conduct were enough to preserve an unclean hands defense.
The defense must be established by “‘clear, unequivocal and convincing’ evidence,” but that didn’t mean that NVE had to maintain viable counterclaims for cybersquatting and antitrust violations. The facts underlying an unclean hands defense need not be of “such a nature as to be punishable as a crime or as to justify legal proceedings of any character.”
Innovation also sought to exclude evidence or argument contrary to the Sixth Circuit’s mandate, but the court concluded that Innovation overread that mandate.  Innovation argued that NVE couldn’t introduce evidence: (i) that Innovation was not the first to use the mark in specific geographic areas, when the Sixth Circuit stated that Innovation used its mark “nationwide” since June 2005; (ii) that the “5–hour ENERGY” mark was weak when NVE entered the market; and (iii) that Innovation’s conduct supported NVE’s unclean hands defense.  The trial court reviewed the court of appeals opinion and disagreed.  The Sixth Circuit didn’t excuse Innovation from carrying its burden of proof on its common-law trademark infringement claim, and part of that is the plaintiff’s burden to establish first use of its mark in every geographic area in which it claims superior rights.  The use of the term “nationwide” was part of the court of appeals’ recitation of background facts, not a definitive ruling or finding of fact intended to establish the date upon which Innovation’s  use of its mark occurred in particular geographic areas.
Innovation argued that the Sixth Circuit’s finding of suggestiveness prevented NVE from introducing evidence of 5-Hour Energy’s relative strength when NVE entered the market.  But that argument improperly conflated protectability with likely confusion.  The Sixth Circuit found likely confusion to be a “factually intensive issue” and a “close call” that could be “decided either way.” NVE was not precluded from introducing evidence that Innovation’s mark was weak when it entered the market as part of the likely confusion analysis.
Nor would NVE be precluded from introducing evidence of alleged cybersquatting and antitrust/anti-competitive behavior as part of its unclean hands defense, because those counterclaims have been dismissed from the case. The evidence pertaining to them could nevertheless be offered as relevant to support an unclean hands defense. The Sixth Circuit didn’t address the merits of the unclean hands defense, and there was no clear mandate negating that defense.
NVE also moved to exclude expert testimony from Dr. Dan Sarel, a marketing consultant who conducted a mall intercept survey in 2009.  The respondents were limited to “buyers and potential buyers of 2–ounce energy drinks who are 18–35 years old, ¾ males,¼ females, residing all over the country.”  NVE challenged the methodology for including an improper survey population, employing an improper control, utilizing leading and suggestive questions, and failing to replicate market conditions. In late 2011, a very similar survey and report from Dr. Sarel was excluded in another case brought by Innovation, on the grounds that its methodology had “multiple flaws” resulting in an “unreliable scientific foundation for its conclusions.”  The court found that the report here suffered from many of the same kinds of problems.
The previous exclusion relied in part on the fact that Dr. Sarel did not allow the survey participants to handle the actual sample bottles, but rather used pictures of the various products. Here, respondents were allowed to handle the bottles. But other significant flaws remained, including leading questions, failure to provide a “don’t know” option, and use of an inadequate control product, the energy shot “ROCK ON.” That control had “blatantly obvious differences” from the 5–Hour ENERGY product in color, lettering, theme, imagery, and name. (NB: The image I found of Rock On does have orange on the label, but apparently the control used had “no significant red, orange, yellow, or blue coloring.”) ROCK ON didn’t emphasize time or duration, have a bright red bottle to coordinate with its flavor, depict an image of fruit, or feature durational language in a bold font in horizontal writing.

Innovation commissioned a new survey with different methodology; that could be relied on at trial, but not this original survey.
NVE also moved to exclude Innovation’s Teflon survey conducted by Howard Marylander.
Marylander opined that: (1) 5–Hour ENERGY “is recognized as a brand name in the context of foods and food supplements … [and] that brand recognition is a strong one[ ]” and (2) “[b]ecause of its clear recognition as a brand, … 5–HOUR ENERGY has strong secondary meaning.” NVE argued that the Teflon survey was mooted by the Sixth Circuit’s finding of suggestiveness, and also argued that the survey had various methodological flaws.
Innovation responded that the survey could be used to show the strength of its mark, a likely confusion factor, and the court agreed that it was relevant for this purpose, given the unique procedural posture of the case.  Teflon surveys are generally reliable and widely accepted; Marylander’s methodology was patterned after other surveys that have been judicially scrutinized and approved by other courts. Any errors did not make it unreliable but could be tested in front of the jury.
NVE further moved to exclude Innovation’s expert witness Dr. Gregory Carpenter.  Innovation agreed not to elicit testimony about Carpenter’s opinion of NVE’s intent in selecting its name, or on the ultimate issue of likely confusion/infringement. Thus, the only disputed issue was whether Dr. Carpenter’s opinion about Innovation’s brand strength was cumulative.  Dr. Carpenter, a professor of marketing strategy at Northwestern University, was a well-credentialed professor specializing in market research concerning “pioneering brands,” or brands that have a “first mover” advantage.  NVE argued that he didn’t conduct any independent investigation, study, or survey.  Innovation argued that his testimony would show how a pioneering brand draws competitors and why others would want to trade on the power of the brand, and would explain how NVE’s actions were indicative of these types of competitors.  The court agreed that this testimony could be helpful to the jury “in understanding how the various expert surveys support the marketing theory that pioneering brands have high brand strength.”
NVE further moved to exclude Innovation’s food and beverage industry expert, Tom Pirko. His opinion, based on over 35 years of experience in marketing and sales in the food and beverage industry, would be that Innovation’s merchandising, display and incentive programs were consistent with the industry standard and NVE’s own practices. This would be relevant to the unclean hands defense. However, certain portions of his report and testimony shouldn’t be presented to the jury, such as his testimony about the effect of the “Legal Notice” Innovation sent out saying it had won an injunction against the sale of a 6 Hour energy shot (albeit not this 6 Hour energy shot; the problem was that Innovation tried to use this injunction to get all such shots pulled off shelves).  Pirko’s report said that the Notice was clear and didn’t name NVE’s 6 Hour Power; didn’t actually demand removal of the product from shelves; couldn’t have damaged NVE; and, if it was misread, that was NVE’s fault for choosing a confusingly similar name.  Those kinds of statements crossed the line from proper opinion evidence to improper factual and legal conclusions.
Pirko could properly testify concerning how recall notices were normally handled in the beverage industry, and what kinds of actions a typical merchant would ordinarily take in response to a Legal Notice of the type sent out by Innovation. He could not opine on the intended scope of the Legal Notice or speculate about its “meaning,” or how others would understand or interpret that meaning. He could not summarize what he believed to be the testimony or statements of other people who have read the Legal Notice and he could not offer any opinion on the ultimate issue as to whether the Legal Notice was misleading or whether NVE’s 6–Hour POWER brand was confusingly similar to Innovation’s 5–Hour ENERGY.
Pirko could, however, still be an expert on the general practices of the beverage industry, even though he wasn’t recently published on the subject matters in this suit and listed no-peer reviewed or non-peer-reviewed articles citing him as an expert. He had over 35 years of experience in advising food and beverage managers, manufacturers and sellers, including nearly 25 years of experience with recalls. He had offered consultation services regarding energy shot products, as well as other relevant experience. Expert testimony can legitimately be based entirely on experience.
NVE successfully excluded references to misstatements or slips of the tongue made by NVE’s counsel or expert witnesses.  During the over six years this case had been pending (!), NVE’s counsel and experts occasionally misstated the names of the parties’ products during discovery, such as “5–Hour POWER.” This wasn’t relevant to the question of actual confusion in the marketplace of consumers. See, e.g., Marshall Field & Co. v. Mrs. Field’s Cookies, 25 U.S.P.Q.2d 1321, 1992 WL 421449, at *16 (T.T.A.B.1992) (“It is obvious that respondent’s attorney was quite aware of the differences between the two [trademarks] and that what occurred was nothing more than a slip of the tongue under the pressure of conducting the interrogation”); VMC Corp. v. Distrib. Marketing Serv., 192 U.S.P.Q 227, 1976 WL 21124, *3 n. 4 (T.T.A.B.1976) (“This slip of the tongue under the tension of being subjected to interrogation by opposing counsel is not indicative of a marketing environment”). “This evidence is not probative of trademark confusion. Moreover, the spectacle of Plaintiff’s presenting misstatements by Defendant’s counsel or witnesses to prove actual confusion would be fraught with unfair prejudice that would greatly outweigh whatever miniscule probative value such evidence may have.”
As to instances of alleged actual confusion not related to 6-Hour Power’s product or name, Innovation would have to lay a foundation showing that the confusion asserted related to NVE’s product, not some other 6-Hour product.  But evidence of commingling the parties’ products on a common display shelf could be introduced, at a bare minimum to show the same marketing channels.  As to alleged hearsay, the Sixth Circuit admonished that “the strict application of the rules of evidence to a claim that depends on customer confusion places too heavy a burden on” the offering partyand that customer calls “were not relied on to show the content of the conversations, but rather were introduced merely to show that the conversations occurred and the state of mind of the declarants.”
Evidence about lawsuits filed by consumers against NVE  for personal injuries and wrongful death allegedly caused by the ingestion of NVE’s discontinued products which contained ephedra was excluded because its probative value is substantially outweighed by the danger of unfair prejudice.  This evidence offered no support for claims of trademark infringement, but would only serve to suggest that NVE was a bad actor.  If NVE’s president, Robert Occhifinto, made statements at trial inconsistent with his sworn testimony before Congress as part of an investigation into the lawsuits, then he could be impeached with that testimony, but that was it.
NVE was unsuccessful in its attempt to exclude the testimony of Jesus “Joe” Palmeroni, a former NVE VP terminated in 2006 due to purported theft and fraudulent conduct in his role as a sales rep.  NVE sued him to recover the allegedly stolen monies.  NVE presented evidence that a lawyer purportedly acting on Palmeroni’s behalf contacted NVE’s counsel and offered for him to provide favorable deposition testimony in this litigation in exchange for a favorable settlement in the NVE-Palmeroni lawsuit.  A transcript of the purported phone call allegedly stated that “Joe” (presumably Mr. Palmeroni) “could either be forgetful of not so forgetful” during his deposition testimony, and that the attorney wished to “have a dialogue about how we can help each other bring finality to both things” (presumably, the two lawsuits). NVE didn’t accept this apparent solicitation, and Palmeroni ultimately provided deposition testimony that was unfavorable to NVE, testifying that he believed that the name 6-Hour Power was chosen by NVE to “trade off the success and reputation” of 5–Hour ENERGY.
During the deposition, NVE cross-examined Palmeroni at length and he said he was unaware of any communications between the parties’ lawyers.  NVE had no corroborating evidence that he knew of or participated in any kind of offer to provide favorable testimony.  While NVE could question him at trial about this, his testimony would not be excluded.
NVE moved to bar Innovation from arguing that its Legal Notice was literally true, given that the Sixth Circuit deemed it “on the cusp between ambiguity and literal falsity,” and thus not literally false. Whether parts of the Legal Notice were literally true was somewhat beside the point, since it could still be misleading.  The court wouldn’t bar Innovation from arguing that the Notice contained some true statements, but the jury question was whether the Notice was misleading, deceptive to its intended audience, and actually deceived recipients.
Also, the court granted NVE’s motion to preclude Innovation from introducing evidence of Occhifinto’s 1991 criminal convictions for importation of hashish and money laundering. Neither involved an act of dishonesty or false statement, and in any event more than ten years passed since conviction/release from confinement. Evidence of convictions more than ten years old will “very rarely and only in exceptional circumstances” be admitted. Those circumstances weren’t present here.  Innovation argued that because of his drug-related convictions, in 2003, Occhifinto must have been lying when he testified to Congress that he only learned after naming
certain ephedra-containing products “Yellow Jacket” and “Black Beauty” that those names were also street names for illicit drugs. Innovation also apparently wanted to argue that Occhifinto had a propensity to copy from other product names and then lie about name selection.  “This tortured logic simply does not give rise to adequate probative value, sufficient to overcome the highly prejudicial nature of presenting Mr. Occhifinto’s prior criminal convictions to the jury.”
Finally, Innovation moved to exclude NVE’s theory of lost market share damage from its Lanham Act false advertising counterclaim.  But NVE’s witnesses had offered evidence on that theory all through the case.  NVE principals’ testimony about lost market share was admissible lay opinion testimony based on their specific knowledge of NVE’s business.
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