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RNA Corp. v. Procter & Gamble Co.

October 21, 2010

RNA CORPORATION, PLAINTIFF/COUNTER-DEFENDANT,
v.
THE PROCTER & GAMBLE COMPANY, DEFENDANT/COUNTER-PLAINTIFF.



The opinion of the court was delivered by: Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

I. PROCEDURAL HISTORY

Defendant and Counterclaimant, The Procter & Gamble Company ("P&G"), is an Ohio corporation with its principal place of business in Cincinnati, Ohio. P&G is a worldwide producer of branded products and services that sells products labeled HERBAL ESSENCES (including "hello hydration" moisturizing shampoo and conditioner) that feature P&G's registered trademarks and patented designs. Plaintiff and Counterclaim Defendant RNA Corporation ("RNA") is an Illinois corporation that is a contract manufacturer of private label products for stores like Walgreens and Family Dollar, and has sold products labeled "Hydrating Herbal Shampoo" and "Hydrating Herbal Conditioner" (the "Family Dollar product").

On August 21, 2008, P&G filed a complaint in the Southern District of Ohio, praying that RNA be permanently enjoined from manufacturing its hydrating herbal shampoo and conditioner for Family Dollar, and alleging that RNA's product infringes P&G's unregistered trade dress rights as well as a certain registered trademark and certain design patents. Neither Family Dollar nor GK Packaging, Inc. ("GK") -- the actual designer and manufacturer of the allegedly infringing bottle -- were named as defendants in the Ohio Complaint.

RNA filed a motion to dismiss the complaint in September of 2008 -- two weeks after GK was issued a Notice of Allowance of a design patent for the design of the bottle used in the Family Dollar product.*fn1 RNA's motion to dismiss was granted on the basis of lack of personal jurisdiction on December 19, 2008, and the dismissal was subsequently affirmed by the Federal Circuit.

On October 16, 2008, while the Ohio action was still pending, RNA filed a declaratory judgment action in the Northern District of Illinois. On November 12, 2008, this court entered an agreed stay of proceedings in the Northern District pending a ruling on the Ohio motion to dismiss. While the Ohio dismissal was pending appeal, P&G asserted counterclaims in this court, followed by a February 2, 2009 motion for preliminary injunction. The parties spent a couple of months in unsuccessful negotiations regarding the preliminary injunction. Meanwhile, on March 31, 2009, RNA received notice from Family Dollar that Family Dollar was ending its supply agreement with RNA for the shampoo and conditioner at issue.

In light of its cessation of production of the Family Dollar product, on April 6, 2009, RNA filed a Motion to Deem P&G's Motion for Preliminary Injunction Moot and to Schedule a Settlement Conference. This court denied RNA's Motion to Deem Moot, but granted RNA's motion for a settlement conference. On April 16, 2009, the parties agreed to the scope of a preliminary injunction, which was entered by this court on May 19, 2009. A settlement conference was also set for June 12, 2009.

At the settlement conference, the parties were able to reach a general agreement as to the scope of a permanent injunction, but could not resolve their dispute over damages. The parties agreed to continue to try and resolve their disagreement, but were unable to do so and required a second settlement conference with this court on August 21, 2009. At the second conference, the parties agreed to submit to a damage resolution procedure whereby they waived their rights to trial and agreed to submit all remaining disputes to Judge Zagel.

The Order Governing Damage Resolution Process, dated April 19, 2010, stipulates that the evidence shall consist of written submissions by the parties, and that, after trial, the court shall enter a final, binding, and non-appealable order stating the amount of damages--if any--that the court determines should be awarded to either party. Separate from any damage award, all remaining claims in the matter were to be dismissed with prejudice. In the Consent Decree and Permanent Injunction, also dated April 19, 2010, RNA explicitly denies "that it in any way acted in bad faith or with intent to violate any of P&G's intellectual property rights." Consent Dec. & Perm. Inj. at 2. The agreed injunction further emphasizes that it was created "in order both to resolve this dispute without further expense and without any admission of liability by either party." Id.

Both parties' final responses were submitted on June 15, 2010.

II. ARGUMENTS OF THE PARTIES

Almost without exception, all of the testimony upon which either side bases its arguments comes from sworn statements given by each company's own employees.

A. P&G'S CLAIMS FOR DAMAGES AND ATTORNEYS' FEES

Procter & Gamble argues that the relevant statutes provide it rights to RNA's profits, its own damages, attorneys' fees, "and an adjustment in the discretion of the court for equitable reasons." P&G Memo at 5.*fn2 One such statute is the Lanham Act, which states:

When a violation . . . has been established, the plaintiff shall be entitled, subject to [statute] and the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action . . . In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed.

P&G Memo*fn3 at 5, citing 15 U.S.C. § 1117(a).

P&G further argues that it should receive enhanced damages in the 'likely instance' that "imprecise damage calculations [would] fail to do justice." Taco Cabana Int'l, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1127 (5th Cir. 1991), aff'd on other grounds, 505 U.S. 763 (1992). Continuing to cite Taco Cabana, P&G argues that, although enhancement of damages should be compensatory rather than punitive, it may be based on a finding of willful infringement.

P&G also cites the Patent Act reasonable royalty clause: "Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer. . ." 35 U.S.C. § 284. Here, P&G argues, a reasonable royalty based upon RNA's unit sales is appropriate.

Both the Lanham Act and the Patent Act also provide awards of attorneys' fees in "exceptional cases." 15 U.S.C. § 1117(a); 35 U.S.C. § 285. An example given by P&G in the Seventh Circuit of an exceptional trademark case "may be one in which the defendant engaged in purposeful or deliberate infringement of the plaintiff's mark." P&G Memo at 6. Basically, P&G argues that it is entitled to (1) RNA's profits; (2) P&G's damages; (3) P&G's attorneys' fees; and (4) an equitable damage award in the form of a reasonable royalty. Overall, P&G does not address liability in its first brief, aside from a short discussion of confusion as it related to creating a loss for P&G.

In its response brief, RNA argues that it received no profits from the Family Dollar product (and in fact suffered a loss). RNA contests the idea of customer confusion here, disparaging the manner in which P&G 'manipulated' its quarterly financial data here to show confusion. Indeed, RNA says, the record demonstrates a lack of consumer confusion because of the prominence of the Family Dollar logo on the allegedly infringing product. Basically, RNA asserts P&G's damage claim relies entirely on the existence of diverted sales, which it cannot satisfactorily establish with its financial data.

As far as the 'exceptional case' attorneys' fees, RNA argued "P&G can never be a prevailing party on its claims for patent infringement, nor can P&G prevail on its Lanham Act cases, as the elements of trade dress identified by P&G are neither protectable, nor present on the Family Dollar product. RNA also highlights that it is necessary to be a prevailing party in order to secure damages on all of the statute-based claims, indicating that P&G is not.

Substantively, RNA indicates that the presence of the GK patent demonstrates that the bottle used for the Family Dollar product was in fact patented and non-infringing. Additionally, RNA reiterates its lack of profits and asserts that P&G's claimed trade dress is not protectable because it is not inherently distinctive and does not have a secondary meaning. Furthermore, RNA argues that P&G cannot establish the requisite likelihood of confusion because of the existence of the obvious Family Dollar mark coupled with the 40% price difference between the Family Dollar product and the P&G products. RNA also argues P&G's claimed elements of trade dress are not present on the Family Dollar Product, and the totality of the circumstances demonstrates that a consumer would not be confused as to the source of the Family Dollar product.

RNA argues it did not infringe P&G's trademark because of the "Compare to Herbal Essences . . ." language on the Family Dollar product's bottle, and further incorporates the lack of confusion arguments from its trade dress defense. RNA also contests P&G's stated claim for damages in more detail, analyzing the quarterly sales information. According to RNA, an analysis of quarterly sales shows that "P&G sales at Family Dollar increased while overall sales decreased in the second and last quarters that the alleged infringing product was sold at Family Dollar." RNA Resp. at 19.

In P&G's response, it emphasizes RNA's insistence on 'expensive' discovery between February and April 2009, delayed stipulation to a preliminary injunction, delayed stipulation to the eventually agreed-upon permanent injunction and delayed acceptance of this damages resolution process. Because of the delays and discovery, P&G asserts it is entitled to 'special case' damages and attorneys' fees.

With regard to RNA's alleged liability for infringement overall, P&G argues that RNA's failure to produce "any reason why its actions do not constitute patent, trademark, and trade dress infringement," is tantamount to an admission of liability. However, P&G also attacks RNA's defenses to liability before asserting that standard liability analyses establish liability in this case.

P&G declares RNA is liable for trademark infringement because (1) the marks are confusingly similar; (2) the products are directly competitive and sold adjacent to each other in Family Dollar stores; (3) consumers exercise a low degree of care for this type of product; (4) the HERBAL ESSENCES logo is very strong; and (5) RNA deliberately copied P&G's product. P&G also mentions ...


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