In Magic Kitchen LLC v. Good Things International Ltd., et al., the California Court of Appeal (Second App. Dist., July 30, 2007) was confronted with the issue of whether to apply the statute of limitations or the equitable doctrine of laches to determine whether plaintiffs’ claims for trade dress infringement were barred as a matter of law. The Court held that it was unnecessary to address the split of authority on the issue because it found that plaintiffs’ claims for trade dress infringement were barred by the doctrine of laches. The Court affirmed the trial court’s entry of a directed verdict against plaintiffs as to these claims.
The Pampered Chef, one of the defendants, purchased and distributed a cooking tool from plaintiff, Kitchen Connection, Inc., called the “Tartmaster” from the mid-1980s until 1993. The Tartmaster is a hand-operated metal device used to cut and crimp the edges of dough and bread. Plaintiff sold Tartmasters to The Pampered Chef in two sizes: 3-inch and 4-inch. In 1992, defendant learned that the patent for the Tartmaster design had expired and the design was in the public domain. Defendant stopped purchasing the Tartmaster from plaintiff in early 1993. At about the same time, The Pampered Chef began sourcing 3-inch and 4-inch variations of the Tartmaster product, which it called the “Cut-N-Seal,” from defendants Good Things and Ten Mark in Taiwan. The Cut-N-Seal incorporated the same design as the Tartmaster but was made of stainless steel and used a different type of spring.
In mid-1993, plaintiff discovered that Pampered Chef was having copies of the Tartmaster made in Asia and sent a letter to The Pampered Chef stating that it was aware that it was selling the Tartmaster design. The letter also stated that The Pampered Chef was selling plaintiffs’ pancake molds in violation of plaintiffs’ patents as to those molds. Importantly, plaintiff did not claim any intellectual property rights to the Tartmaster. During the next decade, The Pampered Chef made substantial investment in its Cut-N-Seal product, including traveling to Asia, promoting the product and, in the late 1990s, developing and marketing a 3½ -inch version of the Cut-N-Seal. This 3½-inch version of the Cut-N-Seal was introduced into the market in 2000 and The Pampered Chef stopped selling the 3-inch and 4-inch versions at that time.
In January 2003, the plaintiffs filed suit against defendants and included claims for trade dress infringement in violation of section 43 of the Lanham Act (15 U.S.C. §1125). The parties tried the case over 17 days in two phases. After the trial court heard argument and the evidence, it granted defendants’ motions for non-suit, or in the alternative, for directed verdict finding that plaintiffs’ claims for trade dress infringement were barred by the statute of limitations and the doctrine of laches. Plaintiffs appealed.
Analyzing plaintiffs’ claims for trade dress infringement, the appellate court began by recognizing that “trade dress `refers to the “total image of a product” and may include features such as size, shape, color, color combinations, texture or graphics.’” Furthermore, “[a] seller’s adoption of a trade dress confusingly similar to a competitor’s constitutes unfair competition that is actionable under section 43(a) of the Lanham Act.”
The appellate court recognized that the purpose of trademark and trade dress protection is to enable a business “to identify itself efficiently as the source of a given product through the adoption of a mark which may in the form of a slogan, symbol, ornamental design or other visual insignia.” The court emphasized, however, that “trade dress protection `is not intended to create patent-like rights in innovative aspects of product design. Thus, trade dress protection unlike patent law . . ., does not foster innovation by preventing reverse engineering or copying of innovative product design features . . . Trade dress protection extends only to incidental, arbitrary or ornamental product features which identify the product’s source.’”
The court turned next to the primary issue whether it should apply the equitable doctrine of laches or the statute of limitation in determining whether plaintiffs’ claims for trade dress infringement were timely. Other courts had found the interplay between these two issues to be “somewhat illusive.” The Lanham Act does not contain an explicit statute of limitations, however, “some federal cases hold that Lanham Act claims are governed by the statute of limitations applicable to analogous state law claims.” Other jurisdictions disagree and hold that since the relief available under section 43(a) of the Lanham Act is primarily equitable, congress might have intended that “laches be the sole time limits bar to suit.” The appellate court held that it was unnecessary to resolve this debate because it found plaintiffs’ claims to be barred by the equitable defense of laches.
After recognizing the well known maxim “equity aids the vigilant, not those who sleep on their rights,” the court ruled that defendant needed to demonstrate three elements to assert a laches defense: “(1) delay in asserting a right or a claim; (2) the delay was not reasonable or excusable; and (3) prejudice to the other party against whom laches is asserted.”
The court recognized that the first element of delay is measured by the period “from when the plaintiff knew (or should have known) of the allegedly infringing conduct until the initiation of the lawsuit in which the defendant seeks to counterpose the laches defense.” The court found that if there is an applicable statute of limitations to an analogous state claim, a Lanham Act claim filed after the expiration of that period is strongly presumed to be barred by the doctrine of laches. The court held that it was undisputed that plaintiffs had learned Pampered Chef was selling 3-inch and 4-inch Cut-N-Seals no later than July 1993 and that its delay in filing the action for nearly 10 years (well after any statute of limitations would have run) made it presumptively untimely. Plaintiffs argued that even if some of their damages for trade dress infringement may have been untimely, they were nevertheless entitled to recover for damages incurred within the limitations period. The court rejected this argument finding that “when evaluating whether laches bars a damages claim, a continuing tort is considered a single act rather than a series of separate acts.”
Plaintiffs argued that even if their claims as to the older versions of the Cut-N-Seal were time-barred, they were timely as to the 3½-inch version because it was not introduced into the marketplace until less than three years before they filed suit. The appellate court rejected this argument and held that “where a family of products is alleged to infringe on a competitor’s trademark or trade dress, courts have held that delay is measured from the time the plaintiff became aware of `the conduct which [it] claims is infringement’ not the introduction of each individual product.” Because the size of the 3½-inch Cut-N-Seal was irrelevant to plaintiffs’ trade dress claim, it was barred on the same grounds as plaintiffs’ other claims.
In examining whether plaintiff’s delay was reasonable, the court recognized that “[d]elay has been held permissible, among other reasons, when it is necessitated by the exhaustion of remedies through the administrative process, when it is `used to evaluate and prepare a complicated claim,’ and when its purpose is `to determine whether the scope of proposed infringement will justify the cost of litigation.’” By contrast, “delay is impermissible when its purpose is to capitalize on the value of the alleged infringer’s labor, by determining whether the infringing conduct will be profitable.” The court rejected plaintiffs’ argument that its delay was reasonable because it was litigating other matters against defendant during the ten-year period. The court found that plaintiffs offered no reason why the litigation of other matters constituted a reasonable delay.
Finally, the court examined the prejudice to defendants as a result of plaintiffs’ delay in bringing the lawsuit. The court cited case law that “found prejudice sufficient to support a finding of laches where, as a result of plaintiffs delay in bring suit, a defendant has invested resources in developing and marketing a product.” The court affirmed the trial court’s finding that the undisputed evidence showed that defendants were prejudiced because The Pampered Chef invested significant resources in developing and selling the Cut-N-Seal which included traveling to Taiwan, producing millions of Cut-N-Seals, developing the 3½-inch version, creating recipes, printing catalogs and promoting the product. The court further noted that had plaintiff brought its claim in a timely manner, The Pampered Chef could have invested “its resources in other areas or altered the Cut-N-Seal in a way that would have avoided the present suit.” Thus, the court found that defendants had established the three elements to warrant a finding that plaintiffs’ claims were barred by the doctrine of laches.
It is important that once a company learns that a competitor is infringing on its trade dress rights, it file suit as soon as possible to protect those rights. Failure to act in a timely manner could result in a court finding that such claims are barred by the doctrine of laches and/or the applicable statute of limitations.
James Kachmar is a Senior Associate in Weintraub Genshlea Chediak Tobin & Tobin’s litigation section. He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes. For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com.