Limiting remedies when a descriptive fair use defense fails

Anhing Corp. v. Thuan Phong Co., No. CV 13-05167, 2015 WL
4517846  (C.D. Cal. Jul. 24, 2015) 
 
This post-trial ruling covers a lot of detailed ground on
descriptive fair use, unclean hands, and remedies.  Anhing successfully sued Thuan Phong for
trademark infringement; the court denied Thuan Phong’s motions and granted a
permanent injunction. [NB: the Westlaw version gets rid of most of the
non-English orthography; I tried to fix that but my apologies for missing instances.] 
 
Anhing imports food and related products, and has a private
label brand, “MỸ THO,” which has existed for thirty-five years. Here are two of
its rice products:   Anhing registered
MY-THO (no tilde) for rice sticks and rice vermicelli in 1986.  According to the registration, “MY–THO” has a
dual meaning in Vietnamese of “beauty and longevity” and “pretty autumn.” At
some point, Plaintiff also began selling rice noodles in packaging with the
words “MỸ THO” accompanied by ®. 
 

Thuan Phong is a company that began and continues to operate
in the city of Mỹ Tho, Vietnam.  It makes
rice paper, sold under the TUFOCO logo. The package features BÁNH TRÁNG MỸ THO
in red lettering across the top and three green bamboo trees.  In 2008, it registered the mark and design “BÁNH
TRÁNG MỸ THO TUFOCO DAC BIET DE LAM GOI CUON VA CHA GIO VIET NAM BAMBOO TREE
HIEU BA CAY TRE VIETNAMESE RICE PAPER” for rice paper.  In 2010, Thuan Phong introduced a rice noodle
product with similar packaging.   
 

The parties began doing business together in 2004, when
Thuan Phong agreed to make rice paper for Anhing’s White Elephant Brand private
label.  In 2010, Anhing discovered Thuan
Phong’s US sales of rice paper with BÁNH TRÁNG MỸ THO on the label, which
Anhing considered confusingly similar to its BÁNH TRÁNG MỸ-THO rice paper, and
Anhing had the same objections to Thuan Phong’s “BÁNH PHỞ MỸ THO” rice noodles,
given Anhing’s “BÁNH PHỞ MỸ-THO” rice noodles. 
In response to Anhing’s requests, Thuan Phong maintained that the terms
weren’t used as marks, but rather as information about the geographic source of
the products.  However, Thuan Phong
agreed to discontinue these particular phrases and to sell under “BÁNH PHỞ SẢN
XUẤT TẠI THᾺNH PHỞ MỸ THO” and “HỬ TIỀU SẢN XUẤT TẠI THᾺNH PHỞ MỸ THO.”  These phrases state more clearly in
Vietnamese that their rice noodles are produced in the city of Mỹ Tho.  Anhing wasn’t satisfied, because the geographic
designations would still appear at the top of Defendant’s packaging, with the
words “MỸ THO” in bold red lettering and in the same font size as the rest of
the words on the packaging. Thuan Phong refused to move the words “MỸ THO” to
the bottom of its packaging, and it didn’t change its rice paper packaging or
add similar prepositional phrases.     
 

Anhing sued for infringement of its registered “MY-THO” mark
as well as for infringement of its unregistered MỸ-THO mark and for its
unregistered trade dress.  A jury found
willful infringement of the registered mark and lack of fair use.  However, the jury found that Anhing didn’t
prove ownership of a valid mark in “MỸ-THO” (with tilde) or likely confusion
with respect to its trade dress.  The
equitable issues remaining for the court were Thuan Phong’s affirmative
defenses of laches and unclean hands, a counterclaim under the UCL, and Anhing’s
request for a permanent injunction. Thuan Phong also sought judgment as a
matter of law.   
 
The court rejected Thuan Phong’s laches defense based on
Anhing’s delay in filing suit. Thuan Phong argued that Anhing knew about the
infringement as early as 2004, when one of its representatives visited Thuan
Phong’s factory, but failed to file suit until July 2013.  Laches doesn’t bar a suit against a deliberate
infringer, where the public’s right not to be confused is paramount and where
the infringer’s hands are unclean. Given the jury findings and instructions,
its finding of “willful use” amounted to a finding of willful
infringement.  The jury was instructed
that it should award profits if it found willful infringement and skip an
accounting otherwise, and it stated $8690.52 as Thuan Phong’s profits attributable
to infringement.  Separately, Thuan Phong
failed to show prejudice either in its ability to bring evidence forward or in
its reliance on Anhing’s inaction to grow its business, given its position that
it wasn’t using MỸ THO as a mark but as a statement of information—any delay
couldn’t therefore have injured its brand or reputation.
 
The court further rejected Thuan Phong’s unclean hands
defense based on (1) Anhing’s use of ® on rice products not disclosed in its
registration for the “MY THO” trademark and next to the unregistered “MỸ-THO”
mark; (2) geographic misleadingness; and (3) inequitable conduct in securing
its registration. Inequitable conduct must relate to the use or acquisition of
the plaintiff’s claimed rights to justify the defense, but need not be illegal
or criminal.
 
The wrongful use of ® disturbed the court; some evidence
suggested that the misuse was not inadvertent. 
But it still was not sufficiently related to the subject matter of
Anhing’s claims based on “MY–THO,” especially given the Ninth Circuit’s focus
on balancing the parties’ willfulness and harms to each other.  (Given that the marks are so similar, it
seems likely that they’d qualify for tacking if Anhing went ahead and tried to register
MỸ-THO.)

Geographic deceptiveness: If the jury found that MỸ THO is confusingly similar
to MỸ-THO, Thuan Phong argued, Anhing shouldn’t be allowed to use the mark,
because Mỹ Tho is a city.  But the jury
didn’t find confusing similarity in the abstract; it found that Thuan Phong’s
use of MỸ THO as a trademark was confusingly similar to Anhing’s mark, which
didn’t mean that MỸ-THO was misleading or deceptive as to geographic source.  Also, this too was unrelated to Anhing’s
acquisition or use of the right it claimed.  (Hmm. 
Neither of these reasons seems right to me.  Geographic terms can be used as marks, so
there’s no incompatibility between geographic indication and source indication;
indeed that’s why we have a descriptive fair use doctrine—to preserve others’
rights when a descriptive term has successfully been used as a mark.  And if the term is geographically deceptive, then Anhing’s claim against a producer
who is in fact from the location is fundamentally related to its deceptive
appropriation of a geographic term (or a confusingly similar version of the
term, since I can’t see why the confusion wouldn’t go both ways).)  The court says that the right at issue is “MY–THO,”
and so whether MỸ-THO is understood as a geographical reference is irrelevant,
and that the connection between the terms is too tenuous to support an unclean
hands defense.  But the connection was
strong enough to make the terms confusing!
 
The court further found insufficient evidence of geographic
deceptiveness. Though all of Anhing’s products were made in Thailand, there was
conflicting evidence over whether the phrases displayed on its packaging was a
geographic reference or pure trademark use. 
Thuan Phong didn’t offer persuasive evidence to show that the mark’s
“primary significance” was to refer to the city of Mỹ Tho, or any evidence of
actual consumer confusion.   The products were all labeled as having been produced
in Thailand.   
 
Unsurprisingly, Anhing’s failure to disclose the existence
of the city when it registered its mark also failed to constitute sufficient
inequitable conduct to justify an unclean hands defense. There was no evidence
of Anhing’s knowledge of the city, understanding that it should disclose the
city’s existence, or intent to deceive the PTO.
 
There was also no basis for Thuan Phong’s UCL counterclaim
based on the misuse of ® because there was no evidence that such use caused Thuan
Phong to suffer any damages. Nor did a claim based on alleged misrepresentation
of source succeed—the jury could reasonably have concluded that MY-THO didn’t
stand for a geographic location in most consumers’ minds.
 
The court also rejected Thuan Phong’s motion for judgment as
a matter of law, focused mostly on its descriptive fair use defense.  Though the jury’s finding of likely confusion
didn’t preclude the fair use defense under KP
Permanent
, the evidence supported a finding of use as a mark.  Even after Thuan Phong’s changes, the words
still appeared prominently at the top and in bold red lettering, albeit in the
same font and color as other words indicating the type of product (rice
noodles) and the prepositions indicating geographic source.  “The jury could have found Defendant’s refusal
to move the reference to ‘MỸ THO’ to the bottom or back of its packaging, or to
reduce the size of the lettering, as evidence Defendant did not take sufficient
precautionary measures despite its knowledge of potential infringement,” and
likewise the jury could have found that its failure to change the wording on
its rice paper packaging indicted an intent to attract public attention. The
jury could have found that Thuan Phong displayed MỸ THO more prominently than
other design features, such as its blue “TUFOCO” logo and the three green
bamboo trees. 
 
Likewise, the jury could have found a lack of good faith,
given Thuan Phong’s conduct after Anhing sent its C&D.  Thuan Phong expressly acknowledged a
likelihood of confusion and agreed to modify the wording on its packaging to
more clearly state its products were produced in Mỹ Tho, but refused to move
this “information statement” to a less prominent place on its packaging. That
refusal, combined with the lack of evidence that Thuan Phong consulted legal
counsel, was sufficient to support a finding of lack of good faith.  (Wow!) 
Finally, the jury was entitled to find that the use was not purely
descriptive, because of testimony that Mỹ Tho isn’t a famous city and consumers
don’t associate the words with a geographic place. “[T]he evidence is
consistent with a finding that consumers do not interpret the words to refer to
Mỹ Tho city, and that Defendant did not use the words in a trademark sense.”

As to willfulness, though there was evidence that Thuan Phong independently
designed its rice paper packaging before the parties began doing business
together, and chose to use “MỸ THO” not to refer to competing products but to
inform consumers where its products were produced, that didn’t negate willful
infringement given its continued use of the term after it became aware of the
MY-THO mark. Nor did Thuan Phong’s own registration, from 2008, preclude a
finding of willfulness. Though the registration was evidence of lack of
willfulness, it couldn’t be viewed in isolation, and was undermined by Thuan
Phong’s own statements in response to the C&D:
 
The words “BÁNH PHỞ MỸ THO” on the
packing of Anhing Corporation and on the packing of Thuan Phong Company are
likely to cause confusion in the marketplace. Thuan Phong [C]ompany does not
want to use alike name of Anhing’s rice noodle (sic ). We will correct the name
of our product on packing clearly in order that it will be quite different to
the name of product of Anhing Corporation (sic).
 
“Use of an infringing mark, in the face of warnings about
potential infringement, is strong evidence of willful infringement.” Likewise,
failure to consult trademark counsel where such consultation would be
reasonable supported a finding of willfulness.
 
Similarly, the evidence supported a finding of likely
confusion, despite what the defendant characterized as minimal evidence of
actual confusion.
 
The jury also awarded $10,000 in actual damages, which was supported
by reasonable inferences given Anhing’s evidence that experienced a decline in
sales after Thuan Phong entered the domestic marketplace, selling apparently
identical/confusing staple products at a cheaper price; Anhing’s other brands
didn’t suffer a decrease in sales at the same time.  The amount awarded was about 10% of Anhing’s
claimed losses, making it a reasonable inference from the evidence.
 
Anhing also secured a permanent injunction. “Evidence of
intangible injury, such as a loss of customers or damage to a party’s goodwill,
can constitute irreparable harm. Evidence of a loss of control over one’s
business reputation may also suffice.” 
The trial evidence showed the necessary loss of control/harm,
particularly because of testimony that Thuan Phong’s products were of inferior
quality.  “That the jury found a
likelihood of confusion substantiates this conclusion and further supports a
finding of irreparable injury.”  (In
other words: likely confusion is irreparable injury, so eBay doesn’t matter.) 
 
Irreparable injury meant legal remedies were
inadequate.  “The evidentiary burden
Plaintiff faced in establishing its actual damages at trial also favors injunctive
relief [even though Anhing submitted evidence on actual damages and the jury
made a finding]. Perhaps most important, however, is the risk that Defendant
will continue to engage in infringing conduct.”
 
The balance of hardships favored Anhing; Thuan Phong argued
that it would be harmed by being unable to adequately convey the geographic
source of its products, but the fair use finding made this argument fail,
though it affected the appropriate scope of an injunction. The public interest
likewise favored a tailored injunction preventing confusion while allowing fair
use.
 
Anhing argued that Thuan Phong should be limited to using
the phrase “Mỹ Tho Industrial Zone” on the back of its packaging, in black ink
and no more than 4 centimeters in length and 0.2 centimeters in height. There
was no evidentiary basis for requiring Mỹ Tho “Industrial Zone”; the parties
didn’t show that consumers would more readily recognize “Mỹ Tho Industrial
Zone” as an indication of geographic source than simply “Mỹ Tho.” Nor was there
an evidentiary basis for the requirement the source statement be in black ink. Thuan
Phong’s packages use red, blue, green, and white ink; black ink is only used on
the back, to convey information not included in its trade dress, such as
nutrition facts, ingredients, and directions for use. Because the jury found no
likely trade dress confusion, requiring black ink would be an unfair limitation
on Thuan Phong’s trade dress rights. A ban on putting a source statement on the
front of the products was also overly burdensome; some of Anhing’s own products
included a statement of geographic source on the front. The jury’s confusion
finding didn’t mean that any and all uses of Mỹ Tho on the front of packaging
would necessarily infringe.  The same
reasoning led the court to reject an absolute size constraint. “Certainly, the
jury’s finding of willful infringement requires a change to Defendant’s current
use of ‘MỸ THO.’ But it does not require the wholesale relegation of any and
all reference to the words to an entirely inconspicuous location.”  The court allowed a six-month sell-off period,
given that Anhing hadn’t shown that six more months of use would cause a
significantly increased risk of harm.
 
Thus, Thuan Phong was enjoined from using “Mỹ Tho” in a manner
likely to cause confusion; use in the same/similar manner as existing packages
would be likely to cause confusion.  It
had to immediately cease importing infringing products to the US.  It would be permitted to use Mỹ Tho as a
location designator: “The text of the location designation shall state, in
Vietnamese, ‘Product made in Mỹ Tho, Vietnam’ or ‘Produced in Mỹ Tho,Vietnam,’”
and it couldn’t be bigger than the letters TUFOCO in Thuan Phong’s logo.  If on the front of the package, it couldn’t
be at the top, above the “TUFOCO” logo and three bamboo trees. Thuan Phong was
also ordered to immediately notify its distributors and customers in writing
that it wasn’t associated with, affiliated with, sponsored by, or otherwise
related to Anhing, including a copy of the final permanent injunction, and it
had to immediately notify its wholesalers in writing that they were required to
discontinue sales of the infringing products.     

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