Petition for Writ of Certiorari — Omnia Italian Design, Inc., Petitioner v. Stone Creek, Inc.

App. 1

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

STONE CREEK, INC., an

Arizona corporation,

Plaintiff-Appellant,

v.

No. 15-17418

D.C. No

2:13-cv-00688DLR

OMNIA ITALIAN DESIGN, INC.,

a California corporation,

Defendant-Appellee.

STONE CREEK, INC., an

Arizona corporation,

No. 16-15304

Plaintiff,

and

ADAM SMITH; COREY ESCHWEILER;

JOSHUA LLOYD BENSON; MARK

DOUGLAS CHESTER,

Appellants,

D.C. No.

2:13-cv-00688DLR

ORDER AND

AMENDED

OPINION

v.

OMNIA ITALIAN DESIGN, INC.,

a California corporation,

Defendant-Appellee.

Appeal from the United States District Court

for the District of Arizona

Douglas L. Rayes, District Judge, Presiding

Argued and Submitted April 6, 2017

Pasadena, California

App. 2

Filed July 11, 2017

Amended August 30, 2017

Before: M. Margaret McKeown and Consuelo M.

Callahan, Circuit Judges, and Gordon J. Quist,*

District Judge.

Order;

Opinion by Judge McKeown

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COUNSEL

Joshua L. Benson (argued) and Cory M. Eschweiler,

Glen Lerner Injury Attorneys, Las Vegas, Nevada, for

Plaintiff-Appellants.

Daniel C. DeCarlo (argued), Brittany H. Bartold, Daniel R. Lewis, and Jeffry A. Miller, Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, California, for

Defendant-Appellee.

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ORDER

The opinion filed on July 11, 2017, and appearing

at 862 F.3d 1131, is hereby amended as follows: on page

1140, “Omnia asserts that its use of Stone Creek’s

mark is protected under the Tea Rose-Rectanus doctrine and argues that we may affirm the district court’s

judgment of no liability on this alternative basis.” is

* The Honorable Gordon J. Quist, United States District

Judge for the Western District of Michigan, sitting by designation.

App. 3

replaced with “The Tea Rose-Rectanus doctrine is an

affirmative defense separate and apart from the underlying infringement claim. 5 McCarthy, supra,

§ 26:4. Omnia asserts that its use of Stone Creek’s

mark is protected under that doctrine and argues that

we may affirm the district court’s judgment of no liability on this alternative basis.”

With this amendment, Judges McKeown and Callahan vote to deny the petition for rehearing en banc,

and Judge Quist so recommends.

The full court has been advised of the petition for

rehearing en banc, and no active judge has requested

a vote on whether to rehear the matter en banc. Fed.

R. App. P. 35.

The petition for rehearing en banc is denied. No

further petitions for panel or en banc rehearing shall

be permitted.

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OPINION

McKEOWN, Circuit Judge:

This appeal, set in the high-stakes world of furniture sales, runs the gamut of trademark infringement

issues. The facts are somewhat unusual: the alleged infringer, leather furniture manufacturer Omnia Italian

Design, Inc. (“Omnia”), admits that it blatantly copied

and began selling the same goods branded with the

mark of its (now ex) business partner, retail furniture

company Stone Creek, Inc. (“Stone Creek”).

App. 4

The first question we confront is whether Omnia’s

use of Stone Creek’s mark was likely to cause confusion. Placing an identical mark on identical goods creates a strong likelihood of confusion, especially when

the mark is fanciful. Because Stone Creek also sells in

overlapping marketing channels and the law dictates

that other factors heighten the likelihood that consumers will be confused as to the origin of the furniture, we

reverse the district court’s contrary determination.

We also reject Omnia’s invocation of a commonlaw defense – known as the Tea Rose-Rectanus

doctrine – that protects use of a mark in a remote geographic area when the use is in good faith. Omnia’s

knowledge of Stone Creek’s prior use defeats any claim

of good faith. Finally, we confirm that a 1999 amendment to the trademark statutes does not sweep away

our precedent requiring that a plaintiff prove willfulness to justify an award of the defendant’s profits. A

remand is necessary to determine whether Stone

Creek can make that showing here.

Background

Stone Creek, which manufactures furniture and

sells directly to customers, has five showrooms in the

Phoenix, Arizona area. Around 1990, Stone Creek

adopted and began using the STONE CREEK mark:

App. 5

In 1992, Stone Creek obtained state trademark

protection. Twenty years later, in 2012, Stone Creek

federally registered its mark. As described in the federal registration, the STONE CREEK mark is a red

oval circling the words “Stone Creek” for various types

of furniture.

In 2003, Stone Creek met representatives of Omnia – a manufacturer of leather furniture – at a California trade show. Dazzled by Omnia’s pitch, Stone

Creek agreed to buy Omnia’s furniture. The two companies entered into an agreement under which Omnia

manufactured leather furniture branded with the

STONE CREEK mark. The business relationship

stayed strong through 2012, but in 2013, Stone Creek

discovered that Omnia had been using the STONE

CREEK mark on competing furniture.

Omnia’s unauthorized use began in 2008

when Omnia was trying to woo a big client. For many

years before that, Omnia had worked with retailer

Bon-Ton Stores, Inc. (“Bon-Ton”), but Bon-Ton became

a “significant” customer in 2008. Bon-Ton signed on for

Omnia to supply Bon-Ton’s leather furniture. However,

Bon-Ton did not want to sell under the Omnia name;

instead, Bon-Ton preferred a label that sounded

“American.” Although Omnia offered multiple options,

Bon-Ton opted for STONE CREEK. According to

App. 6

Omnia, part of the allure of selecting the STONE

CREEK mark was that marketing materials and a logo

were already prepared.

Omnia copied the logo directly from Stone Creek’s

materials. Omnia’s team used old documents with

Stone Creek’s logo to digitally recreate the identical

logo because they could not achieve sharp resolution

by scanning. Then Omnia plastered the mark onto a

host of items, including binders, leather samples, and

color boards for display in Bon-Ton stores. Most relevant here, Omnia designed warranty cards with the

STONE CREEK mark, and, from 2008 to 2013, sold

leather furniture to Bon-Ton branded with the STONE

CREEK mark. Near the end of this period, Stone Creek

– still unaware of Omnia’s misdoings – obtained its

federal trademark registration.

The STONE CREEK-labeled furniture produced

by Omnia was shipped to Bon-Ton and sold to customers at Bon-Ton’s various furniture galleries in the Midwest.1 Omnia’s products reached purchasers living

within 200 miles of a Bon-Ton gallery, including portions of Illinois, Indiana, Iowa, Michigan, Ohio, Pennsylvania, and Wisconsin. The claimed infringing sales

all occurred within that area.

Stone Creek caught a whiff of what Omnia was doing by 2013. Multiple customers contacted Stone Creek

to ask about product options and store locations in the

1

We refer to the Midwest for ease of reference. The relevant

states covered are Illinois, Michigan, Ohio, Pennsylvania, and

Wisconsin.

App. 7

Midwest. Another customer called about a warranty issue with a leather sofa purchased at a Bon-Ton store

in Chicago. The warranty card contained the STONE

CREEK mark, which led the customer to Stone Creek’s

website. At that point, Stone Creek’s president discovered that the mark was being used on furniture sold

on Bon-Ton’s website, and Stone Creek asked Omnia if

it was selling products with the STONE CREEK mark

to other companies.

To its credit, Omnia was candid. In an email from

the Vice President of Sales, Omnia unequivocally admitted to selling furniture under the STONE CREEK

mark. In a move not recommended when litigation is

certainly impending, the email observed: “In this day

of internet shopping and surfing, it is unfortunate and

probably a nuisance for you that your stores are receiving inquiries regarding these products due to the similar name.”

Stone Creek filed suit in the District of Arizona,

alleging federal and common-law trademark infringement and unfair competition. After a bench trial, the

district court held that Omnia did not infringe Stone

Creek’s trademark because there was no likelihood of

confusion.2 The court also ruled at summary judgment

that disgorgement of Omnia’s profits required a showing of willful infringement, but that determination was

never made because Omnia was not found to infringe.

During the course of the case, the court sanctioned

2

Earlier in the case, the district court rejected Omnia’s Tea

Rose-Rectanus defense based on Omnia’s lack of good faith.

App. 8

Stone Creek’s attorneys on two occasions for filings related to Omnia’s profits and damages.

Analysis

I.

Likelihood of Confusion

Under the Lanham Act, infringement lies for both

registered and unregistered trademarks when the alleged infringer’s use “is likely to cause confusion, or to

cause mistake, or to deceive.” 15 U.S.C. §§ 1114(1)(a),

1125(a)(1)(A). The touchstone for trademark infringement is likelihood of confusion, which asks whether a

“reasonably prudent” marketplace consumer is “likely

to be confused as to the origin of the good or service

bearing one of the marks.” Rearden LLC v. Rearden

Commerce, Inc., 683 F.3d 1190, 1214 (9th Cir. 2012) (citation omitted). Although we review the district court’s

findings and determination of no likelihood of confusion for clear error, we address legal error de novo. See

Gilman v. Brown, 814 F.3d 1007, 1017 (9th Cir. 2016)

(“Because the district court applied the wrong standard, it committed legal error, and the resulting factual

findings are clearly erroneous.”), cert. denied sub nom.

Madden v. Brown, 137 S. Ct. 650 (2017); Reno Air Racing Ass’n, Inc. v. McCord, 452 F.3d 1126, 1135 (9th Cir.

2006); see also Dorr-Oliver, Inc. v. Fluid-Quip, Inc., 94

F.3d 376, 380 (7th Cir. 1996) (noting that courts “review

the district court’s statement of the law de novo for legal error” in likelihood of confusion cases).

The district court properly cited the wellestablished factors (the Sleekcraft factors) that guide

App. 9

the likelihood of confusion inquiry. See AMF Inc. v.

Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979),

abrogated on other grounds by Mattel, Inc. v. Walking

Mountain Prods., 353 F.3d 792 (9th Cir. 2003). In conducting the analysis, courts do not merely count beans

or tally points. See Dreamwerks Prod. Grp., Inc. v. SKG

Studio, 142 F.3d 1127, 1129 (9th Cir. 1998). Not all factors are created equal, and their relative weight varies

based on the context of a particular case. See Network

Automation, Inc. v. Advanced Sys. Concepts, Inc., 638

F.3d 1137, 1145 (9th Cir. 2011).

Two particularly probative factors are the similarity of the marks and the proximity of the goods. See

Lindy Pen Co. v. Bic Pen Corp., 796 F.2d 254, 256-57

(9th Cir. 1986). Other potentially relevant factors include the strength of the protected mark, evidence of

actual confusion, the use of a common marketing channel, the defendant’s intent in selecting the allegedly infringing mark, the type of goods and the degree of

consumer care, and the likelihood of product expansion. Sleekcraft, 599 F.2d at 348-49. After examining

the district court’s consideration of the factors in this

case, we conclude that the court legally erred in framing many of the Sleekcraft factors, leading us to reverse

the finding of no likelihood of confusion. The indistinguishable marks and goods, coupled with a fanciful

mark, evidence of actual confusion, convergent marketing channels, and blatant copying, tell the real

story.

App. 10

A. Similarity of the Marks and Proximity of the

Goods

The parties do not dispute – nor could they – the

district court’s finding that the factors examining similarity of the marks and the proximity of the goods favor Stone Creek. But simply acknowledging the

identity of the marks and goods understates the importance of these factors and our precedent’s conclusion that identical marks paired with identical goods

can be case-dispositive: “In light of the virtual identity

of marks, if they were used with identical products or

services likelihood of confusion would follow as a matter of course.” Brookfield Commc’ns, Inc. v. W. Coast

Entm’t Corp., 174 F.3d 1036, 1056 (9th Cir. 1999); Opticians Ass’n of Am. v. Indep. Opticians of Am., 920 F.2d

187, 195 (3d Cir. 1990) (“[L]ikelihood of confusion is inevitable, when, as in this case, the identical mark is

used concurrently by unrelated entities.”). The case for

confusion based on identical marks and identical goods

could hardly be stronger than here.

Omnia’s mark is an exact replica of Stone Creek’s

logo that Omnia copied from materials given to Omnia

by Stone Creek. And the goods on which the marks appeared are identical: not only do Stone Creek and BonTon sell leather furniture, but they both sell leather

furniture that is manufactured by Omnia. As McCarthy, a leading trademark scholar, has observed, cases

involving identical marks on competitive goods are

rare and “hardly ever find their way into the appellate

reports” because liability is “open and shut.” 4 J.

Thomas McCarthy, McCarthy on Trademarks and

App. 11

Unfair Competition § 23:20 (4th ed. 2017); Wynn Oil

Co. v. Thomas, 839 F.2d 1183, 1190-91 (6th Cir. 1988).

We examine the remaining factors to determine

whether they displace the powerful case of likelihood

of confusion.

B. Strength of the Protected Mark

The strength of the mark is a key factor with two

components: the mark’s recognition in the market (i.e.,

its commercial strength) and the mark’s inherent distinctiveness (i.e., its conceptual strength). See Lahoti v.

Vericheck, Inc., 636 F.3d 501, 508 (9th Cir. 2011). The

district court analyzed only half of the equation when

it said that “[t]he STONE CREEK mark is strong in

Arizona, but it is not recognized in the [Midwest] for

its relationship to Stone Creek.”3 As we explain below,

this crabbed view of commercial strength is misplaced.

But the court’s omission of the inherent distinctiveness

of the mark is even more significant because, on the

spectrum of conceptual strength, Stone Creek’s mark

falls at the high end as a fanciful or arbitrary mark.

See Entrepreneur Media, Inc. v. Smith, 279 F.3d 1135,

1141 (9th Cir. 2002). Its mark is not a suggestive or

descriptive mark that is less likely to act as a unique

identifier of the source in a consumer’s mind. Id. at

3

To reach its conclusion, the court relied on survey evidence

indicating limited awareness of the Stone Creek brand in the Midwest. Because we ultimately conclude that Stone Creek has established a likelihood of confusion, we need not reach Stone

Creek’s challenges to the admission of Omnia’s expert and surveys.

App. 12

1141-42. The district court committed legal error in not

adducing and evaluating this aspect of the strength

factor. See id. at 1141 (describing the importance of the

strength factor in determining the scope of trademark

protection).

C. Evidence of Actual Confusion

Given the other factors favoring likelihood of confusion, it is not surprising that Stone Creek has put

forward several instances of actual confusion. Such evidence is not necessary for a finding of likelihood of

confusion, but it bears on the inquiry and is particularly potent. See Sleekcraft, 599 F.2d at 352-53. The district court disregarded Stone Creek’s evidence because

the court focused on whether there was “actual confusion by any consumer in the [Midwest] who purchased

Omnia furniture believing it was manufactured or sold

by Stone Creek.” This approach misapprehends the

breadth of likelihood of confusion, which can exist even

when consumers are not “confused as to the source of

a product they actually purchase.” Brookfield

Commc’ns, 174 F.3d at 1057.

When we widen the lens to embrace the full scope

of qualifying actual confusion evidence, we credit the

examples of customers seeking to purchase furniture

or having already purchased Bon-Ton furniture who

misdirected their queries to Stone Creek. Cf. Nutri/

Sys., Inc. v. Con-Stan Indus., Inc., 809 F.2d 601, 606

(9th Cir. 1987). These consumers did not ask whether

Stone Creek and Bon-Ton are affiliated; they were

App. 13

actually confused as to the source. See Cohn v.

Petsmart, Inc., 281 F.3d 837, 842 n.7 (9th Cir. 2002) (per

curiam). The customers requested information about

product options and store locations – issues likely to

affect their buying habits and their view of the company associated with the mark. See Rearden LLC, 683

F.3d at 1214 (characterizing trademark infringement

as concerned with consumers’ purchasing decisions).

They also contacted Stone Creek about warranty problems with Omnia furniture from Bon-Ton. These occasions of actual confusion cannot be dismissed out of

hand but must be considered in context and in light of

the other evidence of likelihood of confusion. See 4

McCarthy, supra, § 23:14; see also Streamline Prod.

Sys., Inc. v. Streamline Mfg., Inc., 851 F.3d 440, 457 (5th

Cir. 2017) (“[C]ourts may not ignore competent evidence of actual confusion.” (citation omitted)); Daddy’s

Junky Music Stores, Inc. v. Big Daddy’s Family Music

Ctr., 109 F.3d 275, 284 (6th Cir. 1997) (explaining that

one instance of actual confusion “favors plaintiff at

least to some extent”).

D. Convergence of Marketing Channels

The district court’s consideration of overlapping

marketing channels rested on the faulty legal assumption that geographic separation automatically means

no intersection in marketing channels. This misconception led the court to unduly weigh this factor

against Stone Creek. Even when parties “operate in

different geographical areas,” they may still “provide

[goods] in convergent marketing channels.” Park ‘N

App. 14

Fly, Inc. v. Dollar Park & Fly, Inc., 782 F.2d 1508, 1509

(9th Cir. 1986). This principle is highlighted here because Stone Creek uses its website as a substantial

channel to market its furniture beyond its physical

stores in Arizona.

The parties tacitly agree that the analysis of marketing channels should look to Bon-Ton’s sales to customers rather than Omnia’s sales to Bon-Ton. Thus, we

focus on Stone Creek and Bon-Ton. Both are retail furniture stores, and their products are identical pieces of

leather furniture manufactured by Omnia. Selling

similar, let alone interchangeable, products suggests

that Stone Creek and Bon-Ton share the same general

class of customers. See Pom Wonderful LLC v. Hubbard, 775 F.3d 1118, 1130 (9th Cir. 2014).

That Stone Creek does most of its business in the

Phoenix area does not foreclose overlapping marketing

channels with Omnia. The district court found that

Stone Creek placed its mark on its website, stonecreekfurniture.com, as early as 2000 and optimized search

engine searches so that its website appears early in Internet search results. During the period of alleged infringement, Stone Creek also advertised in a

nationwide magazine with readership in the Midwest.

Since its inception, Stone Creek has made more than

$200,000,000 in sales; $610,384 of those sales occurred

in the Midwest.

The district court’s factual findings confirm that

Stone Creek’s print and online advertising reached the

Midwest. Stone Creek’s marketing traction in the

App. 15

Midwest is buttressed by the finding that Stone Creek

had customers and made sales in that region at the

same time that Bon-Ton was selling the STONE

CREEK-labeled furniture sourced from Omnia. To be

sure, those sales represent a small fraction of Stone

Creek’s total sales, but, in light of the particular facts

of this case, the small volume of the overall sales does

not undercut Stone Creek’s distribution of furniture in

the Midwest.

What appears to have led the district court astray

in analyzing the marketing channels factor (and permeates much of the court’s discussion of other factors)

is a myopic focus on the considerable distance between

Stone Creek’s physical showrooms in Arizona and BonTon’s in the Midwest. As the court explained, Stone

Creek follows the retail furniture business model,

where sales are generally limited to customers living

within a drivable distance from the brick-and-mortar

stores. But the territorial separation is not so welldelineated or physically defined: Stone Creek and

Bon-Ton were simultaneously advertising and selling

under the STONE CREEK mark in the Midwest. Thus,

the likelihood of confusion is not so diminished that

Stone Creek’s nationwide right to enforce its mark in

the alleged infringer’s area has not yet ripened into a

remedy. See Mister Donut of Am., Inc. v. Mr. Donut, Inc.,

418 F.2d 838, 844 (9th Cir. 1969) (finding that likelihood of confusion was not precluded because the parties were “no longer confined to separate and distinct

market areas”).

App. 16

E. Intent in Selecting the Allegedly Infringing

Mark

Omnia’s reason for adopting the STONE CREEK

mark also plays a critical role: when the alleged infringer intended to deceive customers, we infer that its

conscious attempt to confuse did in fact result in confusion. Playboy Enters., Inc. v. Netscape Commc’ns

Corp., 354 F.3d 1020, 1028 (9th Cir. 2004). Recognizing

the difficulty of collecting evidence of a party’s motive,

we have held that choosing a designation with

knowledge that it is another’s trademark permits a

presumption of intent to deceive. Hokto Kinoko Co. v.

Concord Farms, Inc., 738 F.3d 1085, 1096 (9th Cir.

2013).

The district court found that “Omnia adopted and

used the STONE CREEK mark with full knowledge of

Stone Creek’s senior use,” an explicit finding establishing the factual predicate to apply the presumption.4

Yet the court nowhere assesses or acknowledges the

presumption, and that error colored its analysis and

conclusion. Omnia’s bare assertion that the mark was

picked for its “American” sound does not counteract the

intent to deceive, especially when Omnia had endless

options for suitably “American”-sounding names to offer to Bon-Ton. This rationale is no more convincing

4

We see no reason to modify the applicability of the presumption simply because Stone Creek had not yet federally registered its mark at the time that Omnia adopted the mark.

Omnia’s understanding of the scope of Stone Creek’s rights is relevant to rebutting the presumption, but it does not undercut the

rationale for applying the presumption in the first place.

App. 17

than if a contemporary marketeer decided to appropriate the long-standing Häagen-Dazs mark believing

that a foreign-sounding name would appeal to customers.5 And Omnia’s replication of the mark from Stone

Creek’s materials and unauthorized use on identical

furniture contribute to an intentional appropriation.

See AuTomotive Gold, Inc. v. Volkswagen of Am., Inc.,

457 F.3d 1062, 1076 (9th Cir. 2006).

Additionally, conjectural statements by Omnia’s

president about the scope of Stone Creek’s business do

not amount to a “good faith belief that there [would be]

no conflict between the marks as used on [Omnia’s]

goods.” 4 McCarthy, supra, § 23:115. Although the

president “understood” that Stone Creek sold in Phoenix, he never researched where or how the furniture

was sold. Nor did Omnia ask or investigate where

Stone Creek’s customers were located before using the

mark. Omnia has not unseated the presumption, and

its deceptive intent is “entitled to great weight” in the

ultimate determination of likelihood of confusion.

Kendall-Jackson Winery, Ltd. v. E. & J. Gallo Winery,

150 F.3d 1042, 1048 (9th Cir. 1998) (citation omitted).

5

The irony, of course, is that the creators, who started the

business in New York, invented the fanciful mark because they

thought there would be cache in the foreignness of the mark. As

it turned out, they were prescient about market identification because customers thought the ice cream came from Scandinavia.

See Alison Spiegel, Häagen-Dazs Doesn’t Come From Where You

Think It Comes From, HuffPost (May 13, 2015, 7:00 AM), http://

www.huffingtonpost.com/2015/05/13/haagen-dazs-comes-from_n_

7266208.html.

App. 18

F. Degree of Consumer Care and Likelihood of

Product Expansion

The remaining two factors – the degree of consumer care based on the type of goods and the likelihood of product expansion – do not support either

party; at best, they weakly support Omnia. As the district court found, since furniture is an expensive good,

likelihood of confusion is diminished because we justifiably expect that consumers will make purchases with

more research and closer scrutiny. Multi Time Mach.,

Inc. v. Amazon.com, Inc., 804 F.3d 930, 937 (9th Cir.

2015), cert. denied, 136 S. Ct. 1231 (2016). But this factor is less instructive in cases like this one where the

marks and goods are identical for the simple reason

that even the trained eye will not be able to discern

any difference. McGregor-Doniger Inc. v. Drizzle Inc.,

599 F.2d 1126, 1137 (2d Cir. 1979), superseded on other

grounds as recognized by Cross Commerce Media, Inc.

v. Collective, Inc., 841 F.3d 155 (2d Cir. 2016); 4 McCarthy, supra, § 23.96. Similarly, while the district court

did not clearly err in finding that Stone Creek has not

demonstrated non-speculative plans to expand, that

fact has minimal legal significance because Stone

Creek established an overlap in goods and marketing

channels. See Playboy Enters., 354 F.3d at 1029.

G. Conclusion

We reverse the district court’s finding of no likelihood of confusion because it is based on faulty legal

foundations. We credit the court’s factual findings, but

its circumscribed view of the legal landscape left the

App. 19

court with an incomplete picture. The slam-dunk evidence of a conceptually strong mark together with the

use of identical marks on identical goods is difficult to

surmount. Viewing the facts through the correct legal

lens, there is no substantial argument that the other

factors and evidence overcome the robust case that

Omnia’s use of the STONE CREEK mark is likely to

cause confusion.

II.

The Tea Rose-Rectanus Doctrine

Our determination of a likelihood of confusion

with respect to the STONE CREEK mark does not end

the infringement analysis. The Tea Rose-Rectanus doctrine is an affirmative defense separate and apart from

the underlying infringement claim. 5 McCarthy, supra,

§ 26:4. Omnia asserts that its use of Stone Creek’s

mark is protected under that doctrine and argues that

we may affirm the district court’s judgment of no liability on this alternative basis. The district court rejected this defense, and so do we.

The Tea Rose-Rectanus doctrine has its roots in

the common law: it is named for a pair of Supreme

Court cases, Hanover Star Milling Co. v. Metcalf, 240

U.S. 403 (1916) (“Tea Rose”), and United Drug Co. v.

Theodore Rectanus Co., 248 U.S. 90 (1918). The central

proposition underlying the two cases is that commonlaw trademark rights extend only to the territory

where a mark is known and recognized, so a later

user may sometimes acquire rights in pockets geographically remote from the first user’s territory. The

App. 20

question we address is whether Omnia acquired common-law rights in the Midwest under the Tea Rose Rectanus doctrine.

Omnia’s common-law rights, if they exist, are not

wiped out merely because Stone Creek later filed a federal registration. Although federal registration presumptively entitles the senior user to nationwide

protection, 15 U.S.C. § 1057(b), the Lanham Act preserves legal and equitable defenses that could have

been asserted prior to registration, id. § 1115(a). Under this rule, already-established common-law rights

are carved out of the registrant’s scope of protection.

Id. § 1115(b)(5); Johnny Blastoff, Inc. v. L.A. Rams Football Co., 188 F.3d 427, 435 (7th Cir. 1999). In other

words, the geographic scope of a senior user’s rights in

a registered trademark looks like Swiss cheese: it

stretches throughout the United States with holes cut

out where others acquired common-law rights prior to

the registration. 5 McCarthy, supra, § 26:31. Because

Omnia began using the mark in 2008, well before

Stone Creek’s federal registration in 2012, the Tea

Rose-Rectanus defense is available to Omnia if it is applicable.

To take advantage of the Tea Rose-Rectanus doctrine, the junior user must establish good faith use in

a geographically remote area. See Rectanus, 248 U.S.

at 100; cf. Grupo Gigante SA De CV v. Dallo & Co., 391

F.3d 1088, 1096 & n.26 (9th Cir. 2004). Like the district

court, we limit our discussion to the question of good

faith because it is dispositive.

App. 21

The varying descriptions of good faith in the leading Supreme Court cases have spawned a circuit split,

and our circuit has not yet weighed in. See Grupo Gigante, 391 F.3d at 1096 n.26. On one side, some circuits

have held that the junior user’s knowledge of the senior user’s prior use of the mark destroys good faith. See,

e.g., Nat’l Ass’n for Healthcare Commc’ns, Inc. v. Cent.

Ark. Area Agency on Aging, Inc., 257 F.3d 732, 735 (8th

Cir. 2001); Money Store v. Harriscorp Fin., Inc., 689

F.2d 666, 674-75 (7th Cir. 1982). In contrast, other circuits have held that knowledge is a factor informing

good faith, but the “focus is on whether the [junior]

user had the intent to benefit from the reputation or

goodwill of the [senior] user.” GTE Corp. v. Williams,

904 F.2d 536, 541 (10th Cir. 1990); see C.P. Interests,

Inc. v. Cal. Pools, Inc., 238 F.3d 690, 700 (5th Cir. 2001).

We conclude that the better view is that there is no

good faith if the junior user had knowledge of the senior user’s prior use.

Looking back to the origins of the Tea RoseRectanus doctrine informs why knowledge defeats a

claim of good faith use. In Tea Rose, the senior user began selling “Tea Rose” flour in approximately 1872;

many years later, the junior user began selling “Tea

Rose” flour without any knowledge of the senior user’s

prior use. 240 U.S. at 407-08. At the time that the

trademark infringement action was filed, the senior

user had made sales in Massachusetts, Ohio, and

Pennsylvania, while the junior user’s sales had

reached Mississippi, Alabama, Georgia, and Florida.

Id. at 408-10. Rectanus arose on similar facts: the

App. 22

senior user began selling “Rex” drugs around 1877 and

operated in New England, while the junior user began

selling “Rex” drugs around 1883 and operated in Kentucky, with neither party being aware of the other’s use

of the “Rex” mark for more than twenty years. 248 U.S.

at 94-96. In both cases, the Supreme Court held that

the senior user could not enjoin the junior user’s use of

the same mark because the junior user adopted the

mark in good faith and had developed a local reputation in an area where the mark was not recognized as

designating the senior user. See id. at 103-04; Tea Rose,

240 U.S. at 415-16.

When describing good faith, the Supreme Court

emphasized that the junior user had no awareness of

the senior user’s use of the mark. The Court in Tea

Rose states that the junior user “adopted and used [the

trademark] in good faith without knowledge or notice

that the name ‘Tea Rose’ had been adopted or used . . .

by anybody else.” 240 U.S. at 410. The Court also refers

to the situation as one where the two parties “independently” employ the same mark. Id. at 415. And the

Court’s reasoning concentrates on knowledge:

Under the circumstances that are here presented, to permit the [senior user] to use

the mark in Alabama, to the exclusion of the

[junior user], would take the trade and good

will of the latter company – built up at much

expense and without notice of the former’s

rights – and confer it upon the former, to the

App. 23

complete perversion of the proper theory of

trademark rights.

Id. at 420 (emphasis added).

The same focus on notice emerges in Rectanus,

which grants protection for an “innocent” junior user

who has “hit upon” the same mark and avers that the

parties acted “in perfect good faith; neither side having

any knowledge or notice of what was being done by the

other.” 248 U.S. at 96, 103. The Court also relies on a

case that says that the defendants there acted in good

faith because they “believ[ed] [their] use to be original

with them.” Richter v. Anchor Remedy Co, 52 F. 455,

455 (C.C.W.D. Pa. 1892), aff ’d sub nom. Richter v. Reynolds, 59 F. 577 (3d Cir. 1893). Seventy years later, Justice Brennan stressed that application of the Tea Rose

-Rectanus doctrine requires an absence of knowledge.

See K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 314 n.8

(1988) (Brennan, J., concurring in part and dissenting

in part) (“[A] firm can develop a trademark that is

identical to a trademark already in use in a geographically distinct and remote area if the firm is unaware

of the identity.”).

The Seventh and Eighth Circuits and the Trademark Trial and Appeal Board (“TTAB”) agree with this

reading. The Seventh Circuit put it explicitly: “A good

faith junior user is one who begins using a mark with

no knowledge that someone else is already using it.”

Money Store, 689 F.2d at 674. The court went on to analyze whether the junior user in that case had constructive or actual knowledge of the senior user’s use.

App. 24

Id. at 675. The Eighth Circuit follows the same approach, parroting the language from Tea Rose and Rectanus. See Nat’l Ass’n for Healthcare Commc’ns, 257

F.3d at 735 (“adopted the [mark] in good faith, without

knowledge of [the] prior use”). And the TTAB, the administrative board charged with deciding certain

trademark disputes and appeals, similarly holds that

“appropriat[ing] a mark with knowledge that it is actually being used by another” means “that use is not

believed to be a good faith use.” Woman’s World Shops

Inc. v. Lane Bryant Inc., 5 U.S.P.Q.2d 1985, 1988

(T.T.A.B. 1988).

The courts that have ruled the other way have

latched on to one line in the Tea Rose case which reads:

[W]here two parties independently are employing the same mark upon goods of the

same class, but in separate markets wholly remote the one from the other, the question of

prior appropriation is legally insignificant;

unless, at least, it appear that the second

adopter has selected the mark with some design inimical to the interests of the [senior]

user, such as to take the benefit of the reputation of his goods, to forestall the extension of

his trade, or the like.

240 U.S. at 415 (emphasis added). But this brief reference to “design inimical” does not override the central

focus on knowledge; it is not without significance that

“design inimical” does not appear anywhere else in the

opinion. The Court in Rectanus repeats the “design inimical” language as a direct quote of the language from

App. 25

the Tea Rose case and mentions offhand that the junior

user did not have a “sinister purpose.” 248 U.S. at 101.

More salient are the various points in the leading opinions that draw a close connection between “good faith”

and “knowledge” or “notice.” See, e.g., id. at 96 (“in perfect good faith; neither side having any knowledge or

notice of what was being done by the other”); id. at 103

(“in good faith, and without notice of any prior use by

others, selected and used the ‘Rex’ mark”); Tea Rose,

240 U.S. at 410 (“trademark was adopted and used [by

the junior user] in good faith without knowledge or notice that the name ‘Tea Rose’ had been adopted or used

by the [senior user]”); id. at 419 (“in good faith and

without notice of the [senior user’s] mark”).

Tying good faith to knowledge makes sense in

light of the policy underlying the doctrinal framework.

As the Supreme Court explained, the Tea RoseRectanus doctrine operates to protect a junior user who

unwittingly adopted the same mark and invested time

and resources into building a business with that mark.

Rectanus, 248 U.S. at 103; Tea Rose, 240 U.S. at 419. A

junior user like Omnia who has affirmative knowledge

of the senior user’s mark has not serendipitously chosen the same mark and independently built up its own

brand. Instead, a user like Omnia knows that its actions come directly at the expense of the senior user,

potentially blocking the senior user from entering into

the new market. Viewed in this light, the junior user

has acted in bad faith, which “serve[s] as evidence that

the [senior] user’s mark, at least in reputation, has extended to the new area.” Developments in the Law

App. 26

Trade-Marks and Unfair Competition, 68 Harv. L. Rev.

814, 859 (1955); 5 McCarthy, supra, § 26:12.

The knowledge standard also better comports

with the Lanham Act. The statutory section preserving

the Tea Rose-Rectanus defense for junior users acting

pre-registration requires that the junior user’s mark

“was adopted without knowledge of the registrant’s

prior use.” 15 U.S.C. § 1115(b)(5) (emphasis added).

More broadly, one major change effected by the Lanham Act is that securing federal registration affords

nationwide rights regardless of where the registrant

has used the mark, a result accomplished by a provision that puts would-be users on constructive notice.

See id. §§ 1057(b), 1072; 5 McCarthy, supra, § 26:32. In

other words, the Lanham Act displaces the Tea RoseRectanus defense by charging later users with

knowledge of a mark listed on the federal register. If

constructive notice is sufficient to defeat good faith, it

follows that actual notice should be enough too.

Once knowledge is accepted as a determinative

factor in deciding good faith, the Tea Rose-Rectanus

doctrine has no applicability here. The district court

found that “[Omnia] was a non-innocent remote user”

who “acquired no common law trademark rights in the

[Midwest].” That conclusion flows from the parties’

agreement that Omnia adopted Stone Creek’s mark

with knowledge of Stone Creek’s previous use. The Tea

Rose-Rectanus doctrine provides no shelter to Omnia

for infringement of Stone Creek’s mark.

App. 27

III. Willfulness and Disgorgement of Profits

Under the remedies provision of the Lanham Act,

a court may award (1) the defendant’s profits, (2) the

damages sustained by the plaintiff, and (3) the costs of

the action. 15 U.S.C. § 1117(a). At issue here is the applicable standard to award disgorgement of profits. In

an effort to shape its trial strategy, Stone Creek filed a

motion for summary judgment asking the district

court to rule that willfulness is not required for such

an award. The court denied the motion and sanctioned

Stone Creek for filing it.

Because we conclude that Omnia infringed Stone

Creek’s mark, we address the standard for awarding

disgorgement of profits as it will be front and center on

remand. Historically, we have imposed a willfulness requirement with respect to disgorgement of profits. Now

we must decide what effect, if any, a 1999 amendment

to the Lanham Act’s remedies provision has on our

precedent regarding awarding of profits. We agree with

the district court that the 1999 amendment has not

changed the state of the law on disgorgement and that

willfulness is still required.

The evolution of the remedies provision – including the ever-persisting circuit split – is key to understanding the impact of the 1999 amendment, so we

recount the history and the current state of affairs. Before 1999, the trademark remedies provision –

§ 1117(a) – stated:

When a violation of any right of the registrant

of a mark registered in the Patent and

App. 28

Trademark Office, or a violation under section

1125(a) of this title, shall have been established in any civil action arising under this

chapter, the plaintiff shall be entitled, subject

to the provisions of sections 1111 and 1114 of

this title, and subject to the principles of equity, to recover (1) defendant’s profits, (2) any

damages sustained by the plaintiff, and (3)

the costs of the action.

15 U.S.C. § 1117(a) (1996). The spirited debate among

the circuits has been reserved for how the phrase “subject to the principles of equity” applies to an award of

the defendant’s profits.

Our circuit fell in line with the camp that requires

a showing of willfulness. We held that an award of the

defendant’s profits “is not automatic and must be

granted in light of equitable considerations”; equity

dictates that the plaintiff must show that the defendant’s infringing acts were accompanied by some form

of intent. Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400,

1405-06 (9th Cir. 1993), abrogated on other grounds by

SunEarth, Inc. v. Sun Earth Solar Power Co., 839 F.3d

1179 (9th Cir. 2016) (per curiam). At that time, the

Third Circuit was in accord that “a plaintiff must prove

that an infringer acted willfully before the infringer’s

profits are recoverable.” SecuraComm Consulting Inc.

v. Securacom Inc., 166 F.3d 182, 190 (3d Cir. 1999), superseded by statute as stated in Banjo Buddies, Inc. v.

Renosky, 399 F.3d 168 (3d Cir. 2005). Other circuits

agreed. See, e.g., George Basch Co. v. Blue Coral, Inc.,

968 F.2d 1532, 1540 (2d Cir. 1992); ALPO Petfoods, Inc.

App. 29

v. Ralston Purina Co., 913 F.2d 958, 968 (D.C. Cir.

1990). In the other camp were circuits who viewed willfulness as one factor in the overall determination of

whether an award of profits is appropriate. See, e.g.,

Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 554-55

(5th Cir. 1998), abrogated on other grounds by TrafFix

Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23

(2001); Roulo v. Russ Berrie & Co., 886 F.2d 931, 941

(7th Cir. 1989). These decisions all predate the 1999

amendment.

The amendment became necessary after Congress

made a substantive change to the Lanham Act in 1996.

That year, Congress added § 1125(c), which created a

federal cause of action for trademark dilution. See H.R.

Rep. No. 104-374, at 2 (1995), as reprinted in 1996

U.S.C.C.A.N. 1029, 1029. The provision expressly allowed holders of famous trademarks to enjoin uses

that diluted the distinctive quality of their marks. See

15 U.S.C. § 1125(c) (1996). Section 1125(c) also purported to provide monetary relief under the remedies

provision, § 1117(a), when dilution was “willfully intended.” But Congress failed to make the requisite

cross-reference in § 1117(a) to harmonize that section

with the amendment and soon discovered the missing

link between the two statutory provisions.

That statutory mismatch spurred the 1999

amendment. Congress revised the remedies section,

§ 1117(a), to include reference to a “willful violation

under section 1125(c).” The amendment thus made

clear that a plaintiff with a dilution claim could recover

App. 30

money damages. The current version of § 1117(a)

reads:

When a violation of any right of the registrant

of a mark registered in the Patent and Trademark Office, a violation under section 1125(a)

or (d) of this title, or a willful violation under

section 1125(c) of this title, shall have been established in any civil action arising under this

chapter, the plaintiff shall be entitled, subject

to the provisions of sections 1111 and 1114 of

this title, and subject to the principles of equity, to recover (1) defendant’s profits, (2) any

damages sustained by the plaintiff, and (3)

the costs of the action.

15 U.S.C. § 1117(a) (emphasis added). To put it in plain

English, if there is

[1] a violation of the rights in a registered

mark, an unregistered mark (§ 1125(a)), or a

mark used as a domain name (§ 1125(d)), or

[2] a willful violation under the dilution

statute (§ 1125(c)),

then, “subject to the principles of equity,” the plaintiff

is entitled to relief. Critically, Congress did not modify

the “subject to the principles of equity” language.

The contrast in language between clause [1],

which does not reference willfulness, and newly inserted clause [2], which does, has caused ripples

through the circuit courts, which remain divided on the

role of willfulness in awarding profits. The Federal Circuit, interpreting Second Circuit jurisprudence, held

App. 31

that “nothing in the 1999 amendment . . . allows us to

depart from . . . precedent requiring willfulness for the

recovery of profits in infringement cases.” Romag Fasteners, Inc. v. Fossil, Inc., 817 F.3d 782, 791 (Fed. Cir.

2016), cert. granted, judgment vacated, 137 S. Ct. 1373

(2017), opinion reinstated in relevant part, 2017 WL

1906904 (Fed. Cir. May 3, 2017) (per curiam). Other circuits have adhered to or adopted the rule that willfulness is one piece of the puzzle. See Synergistic Int’l,

LLC v. Korman, 470 F.3d 162, 175 & n.13 (4th Cir.

2006); Quick Techs., Inc. v. Sage Grp. PLC, 313 F.3d 338,

347-49 (5th Cir. 2002). The Third Circuit switched

sides, concluding that the 1999 amendment upended

its precedent requiring willfulness. Banjo Buddies, 399

F.3d at 175.

We have not yet addressed this question. See FiftySix Hope Rd. Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d

1059, 1073-74 (9th Cir.) (omitting substantive analysis

of the effect of the 1999 amendment but finding sufficient evidence of willfulness), cert. denied, 136 S. Ct.

410 (2015). We now decide that the 1999 amendment

does not change the foundation of Ninth Circuit precedent – willfulness remains a prerequisite for awarding

a defendant’s profits.

Our conclusion is consistent with the Federal Circuit’s analysis. See Romag Fasteners, 817 F.3d at 791.

We agree with its approach to start with the history of

the amendment and thoroughly examine the context

in which the amendment came to be. See id. at 785-91.

Several circuits have ruled the other way without looking at the backstory of the remedies provision. See

App. 32

Synergistic Int’l, 470 F.3d at 175 & n.13; Banjo Buddies, 399 F.3d at 173-75; Quick Techs., 313 F.3d at 34649. That history is illuminating and reveals why the

1999 amendment does not upend our prior interpretation of the remaining language in § 1117(a).

The history of enactment convincingly shows that

the 1999 amendment was intended only to correct a

conspicuous drafting error in the 1996 version of the

remedies provision. The legislative history bolsters the

view that Congress’s sole purpose was to correct the

mistaken omission of willful violations of the dilution

statute, § 1125(c), from the remedies provision,

§ 1117(a). H.R. Rep. No. 106-250, at 4 (1999) (“[The

amendment] seeks to clarify that . . . Congress did intend to allow for . . . damages against a defendant

found to have wilfully [sic] intended to engage in commercial activity that would cause dilution of a famous

mark.”).6

Equally important is what Congress changed.

Congress created a new predicate – namely, a willful

violation of § 1025(c) – that permits monetary recovery.

6

In 1999, Congress also passed legislation directed at preventing cyberpiracy related to trademarks and domain names. 15

U.S.C. § 1125(d). This subsection of the statute – often referred to

as the cybersquatting provision – provides further evidence that

Congress did not intend a wholesale revision of the remedies provision. In particular, while the remedies provision was amended

to list violations of the cybersquatting provision (§ 1125(d)) and

willful violations of the dilution provision (§ 1125(c)), the former

requires “bad faith intent” for all forms of relief, whereas the latter requires “willfull[] inten[t]” only for monetary relief. Compare

15 U.S.C. § 1125(d)(1)(A)(i), with id. § 1125(c)(1), (c)(5)(B).

App. 33

But it did not touch the other language in § 1117(a),

which has consistently provided for an award of defendant’s profits under the “principles of equity.” Our

holding in Lindy Pen – that a plaintiff can secure the

defendant’s profits only after establishing willfulness

– is based entirely on an interpretation of that unaltered language. 982 F.2d at 1405-06.

Thus, it would be a mistake to draw a negative implication from the unrelated and later-introduced language that the amendment somehow negated our

circuit’s well-settled willfulness requirement. See Russello v. United States, 464 U.S. 16, 23 (1983); Antonin

Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 331 (2012) (“A clear, authoritative

judicial holding on the meaning of a particular provision should not be cast in doubt and subjected to challenge whenever a related though not utterly

inconsistent provision is adopted in the same statute. . . .”). As McCarthy has explained, it would be improper to “leverage[ ] this statutory change beyond its

intended scope in order to adjust the equities in ordinary infringement cases.” 5 McCarthy, supra, § 30:62.

This conclusion has added force because we see no indication that the legislature meant to take sides in the

entrenched circuit split on willfulness. See Jama v. Immigration & Customs Enf ’t, 543 U.S. 335, 349 (2005)

(rejecting congressional ratification where there was

no “judicial consensus so broad and unquestioned that

we must presume Congress knew of and endorsed it”).

For these reasons, the district court properly ruled

that Stone Creek must show intentional or willful

App. 34

infringement before disgorgement of Omnia’s profits

could be awarded. Because the court denied summary

judgment based on a triable issue of fact about

whether Omnia infringed, the court had no need to

reach the question of willfulness. We note that many of

the factual findings that the court has already made –

including those on Omnia’s intent in selecting and using the STONE CREEK mark – may be relevant to

willfulness. See 4 McCarthy, supra, § 23:112. However,

we decline Stone Creek’s invitation to rule that Omnia’s infringement was willful as a matter of law and

instead remand for the district court to make this determination.

IV. Sanctions Orders

The district court, relying on 28 U.S.C. § 1927,

twice sanctioned Stone Creek’s attorneys. Section 1927

permits sanctions against an attorney who “multiplies

the proceedings in any case unreasonably and vexatiously” and tailors the amount awarded to the costs

and fees “reasonably incurred because of such conduct.” Without more, reckless, but nonfrivolous, filings

may not be sanctioned. B.K.B. v. Maui Police Dep’t, 276

F.3d 1091, 1107 (9th Cir. 2002). The district court’s first

sanctions order runs afoul of that rule, but the second

order falls well within the court’s discretion. See Pac.

Harbor Capital, Inc. v. Carnival Air Lines, Inc., 210

F.3d 1112, 1117 (9th Cir. 2000) (reviewing for abuse of

discretion).

App. 35

The court sanctioned Stone Creek’s attorneys for

filing a summary judgment motion on willfulness, reasoning that summary judgment was not an appropriate vehicle for Stone Creek to request a legal ruling

that willfulness is not required for a disgorgement of

profits. The court stated that it could not rule on willfulness until it had ruled on infringement and held

that Stone Creek’s arguments were frivolous on the

merits because Fifty-Six Hope forecloses Stone Creek’s

argument that, after the 1999 amendment, a showing

of willfulness is not necessary for disgorgement.

On the latter point, the district court was incorrect

as a matter of law. Fifty-Six Hope does not address the

effect of the 1999 amendment on the continuing vitality of the willfulness requirement. 778 F.3d at 1073-74.

Although the 1999 amendment is referenced in a citation, there is no analysis or determination about the

import of the amendment. Id. at 1073. Instead, the

court in Fifty-Six Hope took willfulness as a given and

did not need to go further because willfulness was adequately established as a factual matter. Id. at 1074.

Importantly, at the time that Stone Creek filed its motion, the interplay between the amendment and the

prior version of the statute remained an open question.

This point is underscored in the Ninth Circuit’s Model

Jury Instructions: “The Ninth Circuit has not addressed . . . whether willfulness remained a prerequisite to disgorgement of a defendant’s profits as a result

of the Trademark Amendments Act of 1999.” Manual

of Model Civil Jury Instructions for the Ninth Circuit

15.29 cmt. (2017).

App. 36

Although we ultimately disagree with Stone

Creek on the merits of this issue, its arguments were

not frivolous. The unsettled nature of the question in

our circuit provided Stone Creek with a legitimate basis to ask the district court for a legal ruling – namely,

to determine whether to present evidence of willfulness and Omnia’s profits, in addition to Stone Creek’s

damages, at trial. The unresolved legal issue, combined

with the fact that another circuit had accepted the argument that the 1999 amendment did away with the

willfulness requirement, see Banjo Buddies, 399 F.3d

at 175, legitimizes Stone Creek’s arguments. See W.

Sys., Inc. v. Ulloa, 958 F.2d 864, 873-74 (9th Cir. 1992).

We reverse the sanctions order related to the willfulness issue.

On the other hand, the court’s second sanctions order reflects a discretionary judgment adequately

grounded in the law and record. The court sanctioned

Stone Creek for not earlier dropping its actual damages claim when it intended to pursue only Omnia’s

profits. As the court described, Stone Creek had no evidence to support an actual damages claim and, with

the knowledge that “its actual damages claim was meritless,” Stone Creek failed to withdraw the claim and

opposed Omnia’s motion to strike the claim.

It is true that actual damages and defendant’s

profits are two distinct and well-recognized remedies

available to the plaintiff. 15 U.S.C. § 1117(a)(1)-(2); 5

McCarthy, supra, § 30:57. The district court’s order

does not offend that principle. The court did not question Stone Creek’s right to pursue actual damages as

App. 37

an appropriate avenue of recovery; instead, the court

determined that Stone Creek had not actually done so.

As the district court explained, while Stone

Creek’s expert finally determined that proving actual

damages would be “too difficult,” Stone Creek never

provided any analysis from its expert on actual damages or identified what information it was seeking during discovery to shed light on the issue. Stone Creek’s

expert acknowledged in his deposition that he had not

been asked to perform a damages analysis or calculation. With the actual damages claim still on the table,

Omnia was forced to expend time and resources defending against the claim by, for example, taking depositions and having its expert prepare a report. When

confronted with Omnia’s motion to strike the actual

damages claim before trial, Stone Creek opposed that

effort even though it could point to no evidence to support the claim. The district court acted within its discretion in concluding that Stone Creek’s attorneys

“unreasonably and vexatiously” “multiplie[d] the proceedings” and awarding Omnia the resulting attorneys’ fees.

Conclusion

We reverse the district court’s finding that there is

no likelihood of confusion and reject the application of

the Tea Rose-Rectanus defense. Thus, we hold that Omnia is liable for infringement of the STONE CREEK

mark. We affirm the district court’s conclusion that

willfulness remains a necessary condition for a

App. 38

disgorgement of profits but remand for a determination on whether Omnia had the requisite intent. Finally, we reverse the district court’s sanctions order

with respect to Stone Creek’s summary judgment on

willfulness but uphold the sanctions order with respect

to Stone Creek’s continued assertion of the actual damages claim.

AFFIRMED IN PART, REVERSED IN PART,

AND REMANDED.

Costs on appeal shall be awarded to Stone Creek,

Inc.

App. 39

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Stone Creek Incorporated,

Plaintiff,

No. CV-13-00688-PHXDLR

ORDER

v.

Omnia Italian Design

Incorporated, et al.,

(Filed Aug. 28, 2014)

Defendants.

Before the Court are Defendant Omnia Italian Design Inc.’s Motion for Summary Judgment or, in the Alternative, for Partial Summary Judgment (Doc. 79)

and Plaintiff Stone Creek Inc.’s Motion for Partial

Summary Judgment (Doc. 81).1 The Court has considered the motions, the responses, the replies, the corresponding statements of facts, and the objections

thereto. For the following reasons, Defendant’s Motion

for Summary Judgment is granted in part and denied

in part, and Plaintiff ’s Motion for Partial Summary

Judgment is granted in part and denied in part.2

1

Preliminarily, in its motions and statements of facts Plaintiff placed all citations to case law and the record in footnotes.

This is discouraged, as footnote citations make the Court’s review

much more difficult and time-consuming. The parties are instructed, going forward, not to place citations to case law or the

record in footnotes.

2

The request for oral argument is denied because oral argument will not assist the Court in reaching its decision. See Fed. R.

Civ. P. 78(b); LRCiv. 7.2(f ).

App. 40

BACKGROUND

Plaintiff is a locally owned and operated furniture

company in Phoenix, Arizona. (Docs. 80, 85 at ¶ 1.)

Plaintiff markets its products using the label “STONE

CREEK,” written in all capital letters and surrounded

by a stylized, red oval (“the Stone Creek mark” or “the

mark”). (Doc. 94 at ¶ 2, Doc. 1 at Ex. 1). Plaintiff first

adopted and used the Stone Creek mark in 1990. (Doc.

94 at ¶ 1, Doc. 1 at Ex. 1). Plaintiff obtained federal

registration of the mark on February 7, 2012. (Docs. 80,

85 at ¶ 11; Doc. 1, Ex. 1.)

Defendant is a California-based manufacturer of

leather furniture. (Docs. 80, 85 at ¶ 2.) In 2003, Defendant entered into an Agreement with Plaintiff to manufacture and distribute leather sofas on Plaintiff ’s

behalf. (Docs. 80, 85 at ¶ 3.)

The Bon-Ton Stores, Inc. (“Bon-Ton”) operates

furniture galleries in Illinois, Wisconsin, Pennsylvania, Ohio, and Michigan. (Docs. 80, 85 at ¶ 5.) In 2008,

Defendant and Bon-Ton entered into an agreement under which Defendant would manufacture leather furniture for Bon-Ton under a private label (“the Accused

Sales”). (Docs. 80, 85 at ¶ 7.) The furniture could be

purchased and delivered to customers who resided

within 200 miles of a Bon-Ton Furniture Gallery.

This area included portions of Iowa, Ohio, Wisconsin,

Pennsylvania, Illinois, and Michigan (collectively “the

App. 41

Bon-Ton Trading Territory”).3 (Docs. 80, 85 at ¶ 8.)

None of the Accused Sales occurred in Arizona. (Docs.

80, 85 at ¶ 9.)

Although Defendant did not utilize any of Plaintiff ’s furniture designs or specifications, (Docs. 80, 85

at ¶ 12), Defendant utilized the Stone Creek mark as

the private label for the Accused Sales. (Docs. 82, 91 at

¶¶ 23-26.) Defendant decided to use the Stone Creek

mark as Bon-Ton’s private label partly because it had

marketing materials readily available. (Docs. 82, 91 at

¶ 26.) Defendant recreated the mark using old documents containing the Stone Creek mark. As a result,

the private label designed for Bon-Ton was identical to

the Stone Creek mark Plaintiff provided to Defendant.

(Docs. 82, 91 at ¶¶ 24-27.) Defendant never obtained

Plaintiff ’s permission to use the mark, nor did Defendant research where Plaintiff sold its furniture or where

its customers were located prior to adopting the mark

for the Accused Sales. (Docs. 82, 91 at ¶¶ 28-29.)

After discovering Bon-Ton’s use of the Stone Creek

mark, Plaintiff sued Defendant under various theories

of trademark infringement, contract, and tort. (Doc. 1.)

Defendant moved for summary judgment on all claims.

Plaintiff moved for partial summary judgment on its

first three causes of action – claims for federal and

common law trademark infringement and Lanham Act

unfair competition.

3

Plaintiff contends the Bon-Ton Trading Territory includes

California because Defendant manufactured and sold the furniture from there. (Doc. 85 at ¶ 10.)

App. 42

LEGAL STANDARD

Summary judgment is appropriate if the evidence,

viewed in the light most favorable to the nonmoving

party, demonstrates “that there is no genuine dispute

as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a). Substantive law determines which facts are material and

“[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly

preclude the entry of summary judgment.” Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable

jury could return a verdict for the nonmoving party.’ ”

Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061

(9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Because “[c]redibility determinations, the weighing of the

evidence, and the drawing of legitimate inferences

from the facts are jury functions, not those of a

judge. . . . [t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in

his favor” at the summary judgment stage. Anderson,

577 U.S. at 255 (citing Adickes v. S.H. Kress & Co., 398

U.S. 144, 158-59 (1970)).

DISCUSSION

I.

Trademark Infringement and Lanham Act

Unfair Competition (Counts I, II, and III)

Plaintiff asserts claims for federal and common

law trademark infringement and Lanham Act unfair

competition. Federally-registered trademarks are

App. 43

protected against infringement by 15 U.S.C. § 1114(1).

Unregistered trademarks are protected by 15 U.S.C.

§ 1125(a) (also known as Section 43(a) of the Lanham

Act). See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S.

763, 768 (1992) (“[Section] 43(a) protects qualifying unregistered trademarks. . . .”); New W. Corp. v. NYM Co.

of Cal., Inc., 595 F.2d 1194, 1198 (9th Cir. 1979) (“To

recover for a violation of this section it is not necessary

that a mark . . . be registered.”). This section grants essentially the same protection to unregistered trademarks as to registered trademarks. Two Pesos, 505 U.S.

at 776 (Stevens, J., concurring). To prevail on its trademark infringement and unfair competition claims,

Plaintiff must show: (1) it owns a valid mark; (2) the

mark was used without its consent and; (3) such unauthorized use is likely to cause confusion. Credit One

Corp. v. Credit One Fin., Inc., 661 F. Supp. 2d 1134,

1137 (C.D. Cal. 2009).

A. Ownership of the Stone Creek Mark

i. Federal Registration

Federal registration of a trademark is prima facie

evidence of the mark’s validity and of the registrant’s

exclusive ownership of and right to use the mark. 15

U.S.C. § 1057(b); Brookfield Commc’ns, Inc., v. W. Coast

Entm’t Corp., 174 F.3d 1036, 1047 (9th Cir. 1999). However, federal registration does not preclude an alleged

infringer from proving any legal or equitable defense

that might have been asserted prior to registration.

15 U.S.C. § 1115(a). One such defense is continuous,

App. 44

good-faith prior use. A party charged with infringement will not be liable if it proves it adopted and continuously used the mark prior to its registration

without knowledge of the registrant’s prior use. 15

U.S.C. § 1115(b)(5). If such is the case, the non-registrant is permitted to use the mark free from interference within the area in which it continuously and in

good faith used the mark prior to its registration. Id.;

see also 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 26.31 (4th ed. 1996)

(“Neither application for nor registration of a mark at

the federal level wipes out the prior non-registered,

common law rights of others . . . [T]he non-registered

rights of those who used a conflicting mark prior to the

registration date are expressly preserved by the Lanham Act.’’).

It is undisputed that Plaintiff obtained federal

registration for the Stone Creek mark on February 7,

2012. (Docs. 80, 85 at ¶ 11; Doc. 1, Ex. 1.) Thus, Plaintiff

acquired exclusive nationwide trademark rights to the

Stone Creek mark as of the date of registration, except

against those with common law rights to the mark

prior to its registration. Defendant contends it is not

liable for trademark infringement because, prior to obtaining federal registration of the mark, Plaintiff had

no common law trademark rights in the Bon-Ton Trading Territory. The Court understands Defendant’s argument to be that, prior to the mark’s registration,

Defendant acquired common law rights to the mark in

the Bon-Ton Trading Territory. Resolution of the ownership question is contingent, then, upon the parties’

App. 45

common law trademark rights prior to federal registration.

ii. Priority of Use

The basic rule governing common law trademark

ownership is priority of use. See United Drug Co. v.

Theodore Rectanus Co., 248 U.S. 90, 100 (1918) (“Undoubtedly, the general rule is that, as between conflicting claimants to the right to use the same mark,

priority of appropriation determines the question.”).

Although federal registration grants the registrant superior trademark rights everywhere (subject to certain

legal and equitable defenses), exclusive ownership of

an unregistered trademark is territorially limited. Id.

(noting the general priority of use rule “does not extend

to a case where the same trademark happens to be employed simultaneously by two manufacturers in different markets separate and remote from each other”).

Rights to an unregistered trademark reach only to territory in which the mark is known and recognized.

Hanover Star Milling Co. v Metcalf, 240 U.S. 403, 41516 (1916); McCarthy on Trademarks and Unfair Competition § 26.2.

It is undisputed that Plaintiff first adopted and began using the Stone Creek mark in 1990 and, therefore, is the senior user.4 (Doc. 94 at ¶ 1, Doc. 1 at Ex. 1)

4

A senior user is the first in the country to adopt and use the

trademark. A junior user is the second in the country to adopt and

use the trademark, even though the junior user might be the first

in time within a given territory. McCarthy on Trademarks and

Unfair Competition § 26.1; see Brookfield, 174 F.3d at 1047 (“The

App. 46

Instead, the parties dispute the territorial reach of

Plaintiff ’s rights to the mark prior to federal registration. Defendant argues Plaintiff ’s common law trademark rights did not extend into the Bon-Ton Trading

Territory because Plaintiff had not sold nor developed

a reputation in those areas. As explained below, the territorial limitations of Plaintiff ’s common law trademark rights are governed by the Tea Rose-Rectanus

doctrine.

a. The Tea Rose-Rectanus Doctrine

Under the Tea Rose-Rectanus doctrine, a senior

user cannot prevent the use of a similar mark by a

good-faith, junior user if the junior user was the first

to use the mark in a location remote from the senior

user’s territory. See United Drug, 248 U.S. at 100;

McCarthy on Trademarks and Unfair Competition

§ 26.2. Central to the Tea Rose-Rectanus doctrine is

that the remote junior user’s adoption and use of the

contested mark be in good faith. Thrifty Rent-a-Car

Sys. Inc., v. Thrift Cars, Inc., 639 F. Supp. 750, 753 (D.

Mass. 1986) aff ’d 831 F.2d 1177 (1st Cir. 1987) (“The

essence of the [Tea Rose-Rectanus doctrine], then, is

that two parties who innocently adopt similar trademarks and use them in separate markets carve out territories for themselves. Within its territory, each party

can use its mark free from interference by the other.”).

first to use a mark is deemed the ‘senior’ user and has the right

to enjoin ‘junior’ users from using confusingly similar marks in

the same industry and market or within the senior user’s natural

zone of expansion.”).

App. 47

The remoteness prong prevents a senior user from monopolizing the mark in areas where it does no business,

but the good-faith prong ensures that a junior user is

not rewarded for knowingly appropriating the senior

user’s mark. Bright Beginnings Inc. v. Care Comm Inc.,

No. CV 93-1676 ER, 1994 WL 237356, *4 (C.D. Cal. Feb.

28, 1994). Thus, a senior user may assert superior

rights as against an innocent junior user only in areas

where the senior user has developed a reputation, but

may assert superior rights as against a non-innocent

junior user regardless of the area in which the junior

user employs the mark.

In this context, the Court understands Defendant’s position to be that the Bon-Ton Trading Territory

is sufficiently remote to protect its concurrent use of

the Stone Creek mark there. The Court recognizes that

there appears to be a genuine factual dispute over

whether or to what extent Plaintiff sold or advertised

in, or otherwise penetrated the Bon-Ton Trading Territory. However, the Tea Rose-Rectanus doctrine only

protects good-faith remote use. McCarthy on Trademarks and Unfair Competition § 26.4 (“A clear majority of the cases applying the common law Tea RoseRectanus doctrine hold that in order to prove the defense, the junior user must prove both of two elements:

(1) its first use was in ‘good faith;’ and (2) its first use

was in a ‘remote area.’). Although Plaintiff ’s presence

in or absence from the Bon-Ton Trading Territory is

relevant to determining whether the location in which

Defendant used the mark was sufficiently remote, the

market penetration dispute is immaterial to the

App. 48

ownership issue if as a matter of law, Defendant

adopted and used the Stone Creek mark in bad faith.

See Tuccillo v. Geisha NYC, LLC, 635 F. Supp. 2d 227,

246-47 (E.D.N.Y. 2009) (noting junior user never developed common law rights in unregistered trademark because it adopted and used the mark in bad faith);

Johanna Farms, Inc. v. Citrus Bowl. Inc., 468 F. Supp.

866, 876 (E.D.N.Y. 1978) (“If it is found that the junior

user did not adopt the mark in good faith, he will not

be accorded the right to exploit the mark, even in areas

previously untouched by the senior user.”).

In a majority of jurisdictions, the junior’s

knowledge of the senior’s use defeats good faith. See

Tuccillo, 635 F. Supp. 2d at 246-47 (“Because the Court

has made the factual finding that Tuccillo was aware

of Geisha’s use of the mark when he copied it, he did

not have the requisite good faith when he adopted the

mark, even assuming arguendo that Geisha’s trademark rights under the common law had not yet extended to New York.”); Woman’s World Shops Inc. v.

Lane Bryant Inc., 5 U.S.P.Q.2d 1985, *3 (T.T.A.B. 1988)

(“Where a junior user appropriates a mark with

knowledge that it is actually being used by another,

that use is not believed to be a good faith use. . . .”);

Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 674

(7th Cir. 1982) (“A good faith junior user is one who

begins using a mark with no knowledge that someone

else is already using it.”); Johanna Farms, 468 F. Supp.

at 877 (“[I]f a junior’s use of a mark in the face of constructive notice of the senior’s use by virtue of the federal registration of the mark negates an inference of

App. 49

good faith, then actual notice of another’s claim to the

mark must demand a similar conclusion.” (internal citation omitted)); McCarthy on Trademarks and Unfair

Competition § 26.9 (“The majority of case law and commentary adopt the view that proof the junior user’s

knowledge of the senior user’s mark at the critical date

is sufficient to destroy the ‘good faith’ element of the

territorial defense.”).

In a minority of jurisdictions, the junior’s

knowledge of the senior’s use is strong evidence and

permits an inference of bad faith, but does not necessarily preclude a finding of good faith. See C.P. Interests, Inc., v. Cal. Pools, Inc., 238 F.3d 690, 700 (5th Cir.

2001) (noting the Fifth Circuit adheres to the view that

“knowledge of use is but one factor in a good faith inquiry”); GTE Corp. v. Williams, 904 F.2d 536, 541 (10th

Cir. 1990) (“While a subsequent user’s adoption of a

mark with knowledge of another’s use can certainly

support an inference of bad faith, mere knowledge

should not foreclose the inquiry.” (internal citations

omitted)); ACCU Pers., Inc. v. AccuStaff, Inc., 846

F. Supp. 1191, 1211 (D. Del. 1994) (“[A] junior user’s

prior knowledge of a senior user’s trademark use is

probative of but not dispositive of, the question

whether the junior user acted in bad faith.”); McCarthy

on Trademarks and Unfair Competition § 26.10 (“The

minority view of cases and commentary is that while

the junior user’s knowledge alone of the senior use

does not destroy the possibility of good faith, it is an

important and weighty piece of evidence.”). Under the

minority view, “the ultimate focus is on whether the

App. 50

second user had the intent to benefit from the reputation or goodwill of the first user.” GTE Corp., 904 F.2d

at 541.

It is undisputed that Defendant knew of Plaintiff ’s use of the mark at the time Defendant appropriated it for Bon-Ton’s private label. Defendant admits it

copied the Stone Creek mark from materials already

on hand from its prior dealings with Plaintiff. (Docs.

82, 91 at ¶¶ 23-27.) Plaintiff encourages the Court to

adhere to the majority view, under which Defendant,

as a matter of law, is not a good-faith junior user. Defendant, however, urges the Court to adopt the minority approach. Defendant relies on Bright Beginnings

Inc., v. Care Comm, Inc., No. CV 93-1676 ER, 1994 WL

237356, *4 (C.D. Cal. Feb. 28, 1994), wherein the district court noted:

[I]t is the majority rule that it is not necessary

to show a “design inimical” to defeat the remote junior user defense; however, that rule

simply recognizes the difficulty in proving a

“design inimical,” and permits an inference of

bad faith from a finding of knowledge on the

part of the junior user. It cannot be denied,

however, that the underlying concern of the

Hanover and Rectanus cases was avoiding a

junior user’s plundering of the senior user’s

good-will. . . .

However, the district court later found the defendant

qualified as a good-faith remote junior user because

“there is absolutely no evidence that defendant had

any knowledge of plaintiff. . . .” Id. at *5; see also

App. 51

E-Systems, Inc. v. Monitek, Inc., 720 F.2d 604, 606 (9th

Cir. 1983) (“Neither E-Systems nor Monitek had actual

knowledge of the other’s existence. . . . Monitek

adopted and used its trademark . . . in good faith, without any actual knowledge of the existence of the

‘Monitek’ . . . trademark. . . .”).

The Court finds the majority view is the better

view and agrees with the Johanna Farms court that if

constructive notice of a senior’s use by virtue of federal

registration defeats an inference of good faith, then, in

the absence of a registered mark, actual knowledge of

a senior’s use of the mark requires a similar conclusion. 468 F. Supp. at 877. This result is reinforced by

the Lanham Acts requirement that, to be protected, a

junior user’s adoption of a senior’s mark occur “without

knowledge of the registrant’s prior use.” 15 U.S.C.

§ 1115(b)(5); see Two Pesos, 505 U.S. at 776 (Stevens, J.,

concurring) (noting that under the Lanham Act unregistered trademarks receive essentially the same protection as those that are registered). There being no

dispute that Defendant adopted the Stone Creek mark

with full knowledge of Plaintiff ’s senior use, Defendant was a non-innocent remote user. As such, Defendant acquired no common law trademark rights in the

Bon-Ton Trading Territory. Accordingly, Plaintiff ’s senior use and subsequent registration establish, as a

matter of law, its ownership of the Stone Creek mark.

App. 52

B. Permission to Use

It is undisputed that Defendant did not obtain

Plaintiff ’s permission to use the Stone Creek mark for

Bon-Ton’s private label. (Docs. 82, 91 at ¶ 28.)

C. Likelihood of Confusion

Likelihood of confusion is the core element of

trademark infringement. E. & J. Gallo Winery v. Gallo

Cattle Co., 967 F.2d 1280, 1290 (9th Cir. 1992). “Likelihood of confusion exists when customers viewing the

mark would probably assume that the product or service it represents is associated with the source of a different product or service identified by a similar mark.”

Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d

837, 845 (9th Cir. 1987) (internal quotations and citations omitted). The Ninth Circuit has identified eight

factors that assist in determining the likelihood of confusion: (1) the similarity of the marks; (2) the relatedness of the goods; (3) the marketing channels used;

(4) the strength of the mark; (5) Defendant’s intent in

selecting the mark; (6) evidence of actual confusion;

(7) the likelihood of expansion into other markets; and

(8) the degree of care likely to be exercised by purchasers. GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199,

1205 (9th Cir, 2000); Official Airline Guides, Inc. v.

Gross, 6 F.3d 1385, 1391 (9th Cir. 1993). This eight-factor test is a pliant one. Brookfield, 174 F.3d at 1054.

“Although some factors – such as the similarity of the

marks and whether the two companies are direct competitors – will always be important, it is often possible

App. 53

to reach a conclusion with respect to the likelihood of

confusion after considering only a subset of the factors.” Id. Furthermore, the list is not exhaustive, and

“non-listed variables may often be quite important.”

Id. Because the likelihood of confusion inquiry is flexible and fact-intensive, however, courts are generally

reluctant to decide the issue at the summary judgment

stage, and summary judgment based on likelihood of

confusion is generally disfavored. Rearden LLC v.

Rearden Commerce, Inc., 683 F.3d 1190, 1210 (9th Cir.

2012).

The similarity of the marks is critical to the likelihood-of-confusion analysis. GoTo.com, 202 F.3d at

1205. The greater the similarity, the greater the likelihood of confusion. Id. This factor weighs heavily in favor of Plaintiff because it is undisputed that Defendant

appropriated an identical mark. Additionally, related

goods are more likely than unrelated goods to cause

consumer confusion. Brookfield, 174 F.3d at 1055. This

factor, too, weighs heavily in favor of Plaintiff. The

goods consist of leather furniture manufactured by Defendant on behalf of furniture galleries. Not only are

the goods of the same type, but they are also produced

by the same manufacturer, and sold and distributed in

essentially the same manner. When identical marks

are used with identical products, confusion is exceedingly likely. Id.

Nevertheless, genuine factual disputes touch on

several of the remaining factors. Specifically, the parties genuinely dispute whether Plaintiff was known or

ever sold to consumers in the Bon-Ton Trading

App. 54

Territory or was likely to expand into the Bon-Ton

Trading Territory, (Docs. 80, 85 at ¶ 10), whether or to

what extent Plaintiff marketed to consumers in the

Bon-Ton Trading Territory, (Docs. 80, 85 at ¶ 10; Docs.

91, 94 at ¶¶ 5-13), and whether the evidence reveals

actual customer confusion resulting from the concurrent use of the mark, (Docs. 91, 94 at ¶¶ 33, 36-41).

Further, consumer recognition of the Stone Creek

mark is relevant to determining the strength of the

mark. See GoTo.com, 202 F.3d at 1207 (noting that

strength of a mark is evaluated in terms of its conceptual and commercial strength). Although the marks

and goods are identical, the fact finder should determine whether resolution of the aforementioned factual

disputes eliminates any real likelihood of consumer

confusion. Accordingly, the Court grants partial summary judgment in favor of Plaintiff as to its ownership

of the mark and Defendant’s lack of permission to use

it, but denies summary judgment for either party as to

Defendant’s ultimate liability under Counts I, II, and

III due to factual disputes surrounding the marketing

channels used, the likelihood of expansion into other

markets, consumer recognition of the mark, and evidence of actual confusion.5

5

Plaintiff requested summary judgment only on Counts I, II,

and III, but not on Count IV for common law unfair competition.

Defendant articulates no arguments other than those already discussed in this Order for granting summary judgment in its favor

on Count IV. Accordingly, the Court denies summary judgment

for either party on Count IV in accordance with its ruling on

Counts I, II, and III.

App. 55

II.

State Trademark Infringement (Count V)

It is undisputed that none of the Accused Sales occurred in Arizona. (Docs. 80, 85 at ¶ 9.) Pursuant to

A.R.S. § 44-1451(a):

[T]he owner of a mark . . . may proceed by civil

action against any person who, without the

consent of the registrant:

1. Uses in this state the registered mark or a

mark similar to the registered mark on or in

connection with any goods or services . . . in

any manner that is likely to cause confusion. . . .

(Emphasis added.) Plaintiff does not address this

claim in any summary judgment pleading. Because

there is no evidence Defendant used the Stone Creek

mark in Arizona, the Court grants summary judgment

for Defendant.

III. Arizona Trade Secrets Violation (Count VI)

It is undisputed that Defendant did not utilize any

of Plaintiff ’s furniture designs or specifications, or

steal any secret proprietary information from Plaintiff.

(Docs. 80, 85 at ¶ 12.) A.R.S. § 44-401(4) defines “trade

secret” as:

[I]nformation, including a formula, pattern,

compilation, program, device, method, technique or process, that both:

(a) Derives independent economic value, actual or potential, from not being generally

App. 56

known to, and not being readily ascertainably

by proper means by, other persons who can obtain economic value from its disclosure or use.

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its

secrecy.

Plaintiff does not address this claim in any summary

judgment pleading. There being no evidence that Defendant used or stole any of Plaintiff ’s trade secrets,

the Court grants summary judgment for Defendant.

VII.

Conversion (Counts VII and VIII)

In Arizona, conversion requires an intentional exercise of dominion or control over a chattel which so

seriously interferes with the right of another to control

it that the actor may justly be required to pay the other

the full value of the chattel.” Focal Point, Inc. v. U-Haul

Co. of Ark., Inc., 155 Ariz. 318, 319, 746 P.2d 488, 489

(Ariz. Ct. App. 1986) (quoting the Restatement (Second) of Torts § 222(A)(1) (1965)). There is no genuine

dispute that Defendant did not convert any of Plaintiff ’s tangible property. (Doc. 80 at ¶ 13, Ex. G at

114:12-116:7.) Plaintiff ’s conversion claims are reformulated versions of its state trademark infringement

and misappropriation of trade secrets claims. Plaintiff

does not address any of these claims in any summary

judgment pleading. There being no evidence of conversion, the Court grants summary judgment for Defendant.

App. 57

VIII. Unjust Enrichment (Counts IX and X)

Defendant argues that it is entitled to summary

judgment because “unjust enrichment is a type of damage, it is not an independent tort.” (Doc. 79 at 16.) Arizona recognizes unjust enrichment as a cause of action.

See City of Sierra Vista v. Cochise Enter., Inc., 144 Ariz.

375, 381-82, 967 P.2d 1125, 1131-32 (Ariz. Ct. App.

1984). “Unjust enrichment occurs whenever a person

has and retains money or benefits which in justice and

equity belong to another.” Id. at 381. To recover under

a theory of unjust enrichment, a plaintiff must prove:

“(1) an enrichment; (2) an impoverishment; (3) a connection between the enrichment and the impoverishment; (4) absence of justification for the enrichment

and the impoverishment and (5) an absence of a remedy provided by law.” Id. Defendant has not articulated

any reasons why it is entitled to summary judgment

on this claim. However, the Court notes that Plaintiff ’s

claim of unjust enrichment in Count X is based on Defendant’s alleged misappropriation of Plaintiff ’s furniture designs, specifications, and marketing materials.

(Doc. 1 at 16.) As explained previously, there is no evidence that Defendant utilized any of Plaintiff ’s furniture designs or specifications, and it is not genuinely

disputed that the marketing materials utilized by Defendant belonged to Defendant, not to Plaintiff. (Doc.

80 at ¶¶ 12, 13; Ex. H at nos. 5 and 6; Ex. F at 24:1222, 25:9-27:18; Ex. G at 113:18-116:7.) The Court,

therefore, grants summary judgment for Defendant on

Count X but denies summary judgment on Count IX.

App. 58

IX.

Breach of Contract (XI)

It is undisputed that the only contract between the

parties consisted of a series of purchase orders. Further, it is undisputed that none of the purchase orders

contained a term prohibiting Defendant from using the

Stone Creek mark. (Docs. 80, 85 at ¶ 4, Doc. 80 at Ex.

F 39:20-40:11, Ex. G 113:5-17, 116:8-117:2.) Plaintiff

presents no evidence that Defendant did not perform

its obligations under the purchase orders. Instead,

Plaintiff ’s breach of contract claim is a reformulation

of its trademark infringement claims. Plaintiff does

not address this issue in any summary judgment

pleading. The Court grants summary judgment for Defendant.

X.

Breach of Implied Covenant of Good Faith

and Fair Dealing (XII)

“Arizona law implies a covenant of good faith and

fair dealing in every contract.” Bike Fashion Corp. v.

Kramer, 202 Ariz. 420, 423, 46 P.3d 431, 434 (Ariz. Ct.

App. 2002) (internal quotation omitted). “[A] party can

breach the implied covenant of good faith and fair dealing both by exercising express discretion in a way inconsistent with a party’s reasonable expectations and

by acting in ways not expressly excluded by the contract’s terms but which nevertheless bear adversely on

the party’s reasonably expected benefits of the bargain.” Id. at 424, 46 P.3d at 435. It is undisputed that

the only contract between the parties consisted of purchase orders for leather furniture manufactured by

App. 59

Defendant on behalf of Plaintiff. There is no evidence

that Plaintiff did not receive the full benefit of those

purchase orders. Plaintiff ’s claim for breach of the implied covenant of good faith and fair dealing is another

reformulation of its trademark infringement claims.

Any expectation of Plaintiff ’s that its mark would not

be misappropriated by Defendant derived not from any

express or implied contractual term, but from common

law and statutory trademark law. The Court grants

summary judgment for Defendant.

CONCLUSION

For the foregoing reasons, the Court grants partial

summary judgment for Plaintiff on Counts I, II, III,

and IV on the issues of ownership of the Stone Creek

mark and Defendant’s lack of permission to use the

mark for the Accused Sales. The Court denies partial

summary judgment on Defendant’s ultimate liability

under Counts I, II, III, and IV, however, because

whether the concurrent use of the Stone Creek mark

created a likelihood of consumer confusion is genuinely

disputed. Additionally, the Court grants summary,

judgment for Defendant on Counts V, VI, VII, VIII, X,

XI, and XII, but denies summary judgment on Count

IX. Accordingly,

IT IS ORDERED that Defendant’s Motion for

Summary Judgment (Doc. 79) is GRANTED IN PART

AND DENIED IN PART in accordance with this Order.

App. 60

IT IS FURTHER ORDERED that Plaintiff ’s

Motion for Partial Summary Judgment (Doc. 81) is

GRANTED IN PART AND DENIED IN PART in accordance with this Order.

Dated this 28th day of August, 2014.

/s/ Douglas L. Rayes

Douglas L. Rayes

United States District Judge

App. 61

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Stone Creek Incorporated,

Plaintiff,

No. CV-13-00688-PHXDLR

v.

ORDER

Omnia Italian Design

Incorporated, et al.,

(Filed Nov. 9, 2015)

Defendants.

This matter was tried before the Court without a

jury for four days commencing on October 20, 2015,

and concluding on October 23, 2015. Having considered

the evidence introduced at trial, the arguments of

counsel, and the applicable law, the Court makes the

following findings of fact and conclusions of law.

FINDINGS OF FACT

1.

Plaintiff Stone Creek, Inc. (“Stone Creek”), an Arizona Corporation, brought this case against Omnia Italian Design, Inc. (“Omnia”) alleging claims

of federal and common law trademark infringement and unfair competition.

2.

Stone Creek is a company that manufactures and

sells furniture in Arizona.

3.

Stone Creek has operated solely out of the Phoenix, Arizona area, except for a period from 2004

to 2008, during which it also manufactured and

sold furniture in Dallas, Texas.

App. 62

4.

Around 1990, Stone Creek adopted and began using the STONE CREEK mark:

5.

The STONE CREEK mark is a “red oval-shape

circle around the words ‘Stone Creek.’ ”

6.

In 1992, Stone Creek first obtained state trademark and trade name registrations for the trade

name “Stone Creek Furnishings” and the following trademark: “oval encircling the trade name of

Stone Creek.”

7.

Stone Creek renewed the trade name and trademark certifications in 2006.

8.

On February 7, 2012, Stone Creek became the

owner of U.S. Registration No. 4,095,866 for the

word mark STONE CREEK in standard characters, and U.S. Registration No. 4,096,079 for the

wording STONE CREEK surrounded by a stylized, red oval.

9.

Household furniture is typically sold locally to

customers living within a drivable radius from

the furniture outlet retail store.

10.

The size, weight, and costs to ship, as well the

customers’ preference to see and sit on the furniture, has created the retail furniture business

model; local furniture stores.

App. 63

11.

Stone Creek follows the typical retail furniture

store business model, selling its furniture locally

in the Phoenix area.

12.

Stone Creek delivers furniture locally but does

not ship furniture out of state.

13.

Stone Creek has a website, but does not sell furniture directly through its website. It does not engage in internet sales.

14.

Stone Creek operates five showrooms in the

Phoenix, Arizona area.

15.

The President and owner of Stone Creek, Ron

Jones, has had a goal of expanding Stone Creek,

but there are no plans to expand and there have

been no acts directed toward expanding after

Stone Creek closed its Texas operations.

16.

The Bon-Ton Stores, Inc. (“Bon-Ton”) is a large

retailer that operates furniture galleries in Illinois, Wisconsin, Pennsylvania, Ohio, and Michigan.

17.

Omnia’s products are sold to purchasers living

within 200 miles of a Bon-Ton Furniture gallery,

which includes portions of Iowa, Indiana, Ohio,

Wisconsin, Pennsylvania, Illinois, and Michigan,

the Bon Ton trading territory. (the “BTTT”).

18.

The parties’ distinct trading territories are separated by over 1000 miles at their closest points

and nearly 2000 miles at their furthest.

19.

From 1993 through 1998, Stone Creek advertised

its brand in the monthly Southwest Airlines

Spirit magazine and America West’s in-flight

magazine (“airline magazines”).

App. 64

20.

These airlines travelled in Arizona, as well as

throughout the BTTT.

21.

In 1998, Stone Creek began advertising in Phoenix Magazine and Phoenix Home and Garden

Magazine (“Phoenix magazines”).

22.

Neither the airline magazines nor the Phoenix

magazines had or have a significant presence in

any of the BTTT states and none of them created

awareness of Stone Creek in the BTTT.

23.

Stone Creek’s marketing channels existed only

within the State of Arizona during the relevant

time period.

24.

Stone Creek did not target advertising or marketing at the BTTT during the relevant time period.

25.

Stone Creek placed its mark on its website, stonecreekfurniture.com, as early as 2000.

26.

Stone Creek hired Netwirks to increase its brand

exposure through search engine optimization.

27.

Netwirks has been successful at establishing the

STONE CREEK mark.

28.

Consumers can access Stone Creek’s website by

going to stonecreekfurniture.com or by searching

for “stone creek” and “leather,” “furniture” or

“sofa.”

29.

The website has not created awareness of Stone

Creek in the BTTT.

30.

The vast majority of Google searches for Stone

Creek Furniture originate in Arizona.

App. 65

31.

The number of Google searches for the Stone

Creek website from the BTTT is negligible.

32.

Consumers in the BTTT are not aware of Stone

Creek Furniture.

33.

There are many businesses within the BTTT that

operate under the name of Stone Creek. These

businesses do not sell furniture.

34.

Dr. Cowan, an expert in statistics and economics,

conducted a brand awareness survey in the

BTTT.

35.

99.75% of the respondents to the survey are not

familiar with Stone Creek in Arizona and Stone

Creek has no brand awareness in the BTTT.

36.

Stone Creek has realized more than

$200,000,000 in sales since inception, mostly in

the Phoenix area. Approximately 0.3% of its total

sales occurred in the BTTT, breaking down as follows:

Date of

Years with

Total

State

First

Sales

Sales $

Sale

Illinois

1/4/1996 1996-2009,

$346,820.90

2011-2013

Ohio

1/29/1996 1996-1998,

$32,014.25

2002, 2003,

2005-2007,

2009

Pennsylvania 1/31/1996 1996-2003,

$65,607.25

2005-2007,

2009, 2011

App. 66

Michigan

Wisconsin

Totals

2/7/1996

1996-2004,

2006, 2007,

2009, 2010,

2013

3/26/1996 1996-1999,

2003-2006,

2008, 2010,

2011, 2013

$88,517.33

$77,424.71

$610,384.44

37.

Stone Creek has the customer list for its approximate 65,000 transactions since its inception, including the approximate 150 customers from the

BTTT who, since inception, purchased Stone

Creek furniture.

38.

The number of Stone Creek customers and the

total value of those sales from the BTT since

Stone Creek’s inception is trivial considered in

light of the number of total sales and the total

value of those sales over that period of time.

39.

There is no evidence presented as to how any of

the approximate 150 customers from the BTTT

came to know of Stone Creek or why any customer from the BTTT purchased from Stone

Creek.

40.

In 2003, Stone Creek met Omnia at a trade show

in San Francisco.

41.

Omnia is a California-based manufacturer of

leather furniture.

42.

Omnia marketed its products to Stone Creek by

explaining Omnia’s leather furniture would fit

App. 67

well with Stone Creek’s existing sofa and seating

lines.

43.

In 2003, Omnia entered into an Agreement with

Stone Creek to manufacture leather branded

with Stone Creek’s STONE CREEK mark for

Stone Creek’s business.

44.

From 2003 through 2012, Stone Creek was Omnia’s customer.

45.

Prior to 2008, Omnia had solicited Bon-Ton’s

business for a number of years.

46.

In 2008, Bon-Ton became one of Omnia’s “significant” customers.

47.

Bon-Ton did not want to sell Omnia’s furniture

under the “Omnia brand,” it wanted a private label – i.e. a name other than Omnia to avoid competition with Omnia’s other customers.

48.

After Omnia and Bon-Ton agreed that Omnia

would become Bon Ton’s supplier of leather furniture, Bon Ton indicated that it would like a label with an “American made name.”

49.

Omnia’s president offered several suggestions,

including STONE CREEK.

50.

Bon Ton decided to market some of its furniture

under the STONE CREEK name.

51.

Bon Ton’s decision to use Omnia as a supplier

was not tied to nor conditioned on the use of the

STONE CREEK mark.

App. 68

52.

Omnia knew of Stone Creek’s use of the mark at

the time Omnia offered it for Bon-Ton’s private

label.

53.

Omnia copied the STONE CREEK mark from

materials provided to it by Stone Creek.

54.

Omnia’s president provided old documents that

had the STONE CREEK logo on it to its brand

manager and told him to recreate the identical

STONE CREEK logo.

55.

The mark was digitally recreated because the

resolution from scanning the old documents was

too low.

56.

Omnia selected the STONE CREEK mark for

Bon-Ton’s private label, in part, because it

sounded American and because marketing materials and a logo were already prepared.

57.

Omnia did not choose the mark with the intent of

trading off of Stone Creek’s goodwill.

58.

The logo was the identical STONE CREEK mark

that Stone Creek provided to Omnia for use on

its private label.

59.

Omnia never asked Stone Creek if it could use

the mark.

60.

Omnia never consulted an attorney regarding

whether it could place the STONE CREEK mark

on furniture being sold to Bon-Ton.

61.

Omnia’s president since 2004, Peter Zolferino,

having been in the furniture business and having

done business with Stone Creek, understood that

Stone Creek sold in the Phoenix area, but he

App. 69

never researched where Stone Creek sold its furniture.

62.

Omnia never performed an internet or other documentary search to determine where or how

Stone Creek sold its furniture.

63.

Omnia never asked where Stone Creek’s customers were located prior to using the mark.

64.

Omnia never performed any internet or documentary searches to determine where Stone

Creek’s customers were located.

65.

Omnia adopted and used the STONE CREEK

mark with full knowledge of Stone Creek’s senior

use.

66.

Bon-Ton entered into an agreement under which

Omnia would manufacture leather furniture for

Bon-Ton using a private label and Bon Ton would

sell the furniture in the BTTT (the “Accused

Sales”).

67.

All of the Accused Sales occurred in the BTTT;

none of them occurred in Arizona.

68.

From 2008 to 2013, Omnia sold leather furniture

to Bon-Ton branded with the STONE CREEK

mark.

69.

Omnia created point-of-sale binders branded

with the STONE CREEK mark.

70.

Omnia created a wood leg color board for display

in Bon-Ton stores, which had the STONE

CREEK mark prominently displayed.

App. 70

71.

Omnia created sample leathers for point-of-sale

reference, which were marked with the STONE

CREEK mark.

72.

Omnia redesigned warranty cards with the

STONE CREEK mark and ordered 5,000 new

warranty cards for Bon-Ton’s STONE CREEK

line.

73.

In 2013, after inquiries from individuals in the

BTTT, Stone Creek asked Omnia if it sold products under the STONE CREEK mark to other

companies.

74.

Stone Creek’s president also fielded a telephone

call into its office regarding a customer concerned

about a warranty issue on a leather sofa.

75.

The customer indicated that he purchased the

sofa, which was a STONE CREEK brand, from a

Bon-Ton store in Chicago.

76.

The customer described a warranty document

that had the STONE CREEK mark on it, and the

mark led the customer to Stone Creek’s website.

77.

Stone Creek’s president then found its mark being used on furniture sold on Bon-Ton’s website.

78.

Omnia’s use of the STONE CREEK mark was

confirmed by Murray Eastern, Omnia’s Vice

President of Sales, in an email dated January 24,

2013, wherein Mr. Eastern admitted selling furniture under the STONE CREEK mark: “Ron,

yes, we do sell our products to those stores under

their marketing name ‘Stone Creek Leather.’ ”

79.

Mr. Eastern’s email went on: “In this day of internet shopping and surfing, it is unfortunate and

App. 71

probably a nuisance for you that your stores are

receiving inquiries regarding these products due

to the similar name . . . ”

80.

After Stone Creek notified Omnia of its complaints in 2013, Omnia changed the name of the

furniture that it had been selling under the

STONE CREEK name to Red Canyon.

81.

Stone Creek’s trademark did not earn any goodwill, reputation, or consumer recognition in the

BTTT.

82.

There was no actual confusion by a consumer in

the BTTT purchasing Omnia STONE CREEK

furniture.

83.

Stone Creek owns the website stonecreekfurniture.com.

84.

In February 2013, Omnia was still using the

STONE CREEK mark with the red oval around

the words “Stone Creek.”

85.

Omnia’s gross revenue from the Accused Sales

was $4,455,352.

CONCLUSIONS OF LAW

86.

Stone Creek asserts claims for federal and common law trademark infringement and Lanham

Act unfair competition.

87.

A trademark is any word, name, symbol, device,

or any combination thereof, used by a person to

identify and distinguish that person’s goods from

those of others and to indicate the source of the

App. 72

goods, even if that source is generally unknown.

15 U.S.C. § 1127.

88.

“A trademark is a limited property right in a particular word, phrase or symbol.” New Kids on the

Block v. New Am. Pub., Inc., 971 F.2d 302, 306 (9th

Cir. 1992). It identifies the source of goods.

Brookfield Commc’ns, Inc. v. W. Coast Entm’t

Corp., 174 F.3d 1036, 1051 (9th Cir. 1999).

89.

To prevail on its trademark infringement and unfair competition claims, Stone Creek must show:

(1) it owns a valid mark; (2) the mark was used

without its consent; and (3) such unauthorized

use is likely to cause confusion among ordinary

consumers as to the source, sponsorship, affiliation, or approval of the goods. See Credit One

Corp. v. Credit One Fin., Inc., 661 F. Supp. 2d

1134, 1137 (C.D. Cal. 2009) (collecting cases and

authorities).

90.

On August 28, 2014, the Court granted summary

judgment for Stone Creek on the issues of ownership of the STONE CREEK mark and Omnia’s

lack of permission to use the mark for the Accused Sales.

91.

At trial, Stone Creek had the burden to establish

that Omnia’s unauthorized use was likely to

cause confusion. Stone Creek failed to meet its

burden.

92.

The holder of a trademark in a Lanham Act

claim, “must show that the defendant’s use of its

trademark ‘is likely to cause confusion, or to

cause mistake, or to deceive.’ ” Fortune Dynamic,

Inc. v. Victoria’s Secret Stores Brand Mgmt., 618

App. 73

F.3d 1025, 1030 (9th Cir.2010) (quoting 15 U.S.C.

§ 1125(a)(1)-(a)(1)(A)). “The test for likelihood of

confusion is whether a ‘reasonably prudent consumer’ in the marketplace is likely to be confused

as to the origin of the good or service bearing one

of the marks.” Dreamwerks Prod. Grp. v. SKG

Studio, 142 F.3d 1127, 1129 (9th Cir. 1998). “The

confusion must ‘be probable, not simply a possibility.’ ” Murray v. Cable Nat’l Broad. Co., 86 F.3d

858, 861 (9th Cir. 1996) (citing Rodeo Collection,

Ltd. v. W. Seventh, 812 F.2d 1215, 1217 (9th Cir.

1987)).

93.

Likelihood of confusion is the core element of

trademark infringement. “The limited purpose of

trademark protections set forth in the Lanham

[Trademark] Act is to ‘avoid confusion in the marketplace’ by allowing a trademark owner to ‘prevent[ ] others from duping consumers into buying

a product they mistakenly believe is sponsored by

the trademark owner.’ ” Mattel, Inc. v. Walking

Mountain Prods., 353 F.3d 792, 806 (9th Cir.

2003) (citing Mattel, Inc. v. MCA Records, Inc.,

296 F.3d 894, 900 (9th Cir. 2002)).

94.

“Generally, to assess whether a defendant has infringed on a plaintiff ’s trademark, we apply a

‘likelihood of confusion’ test that asks whether

use of the plaintiff ’s trademark by the defendant

is ‘likely to cause confusion or to cause mistake,

or to deceive as to the affiliation, connection, or

association’ of the two products.” Id. at 806-807

(citing Cairns v. Franklin Mint Co., 292 F.3d

1139, 1149 (9th Cir. 2002)). “[T]he ultimate test is

whether the public is likely to be deceived or confused by the similarity of the marks. Whether we

App. 74

call the violation infringement, unfair competition or false designation of origin, the test is identical[:] is there a ‘likelihood of confusion?’ ” New

W. Corp. v. NYM Co. of California, Inc., 595 F.2d

1194, 1201 (9th Cir. 1979) (citations omitted).

95.

The Court finds no evidence of actual confusion

by any consumer when purchasing STONE

CREEK furniture in the BTTT, but even had

Stone Creek shown a trivial number of purchasers had been actually confused, a trivial number

of instances of actual confusion does not meet the

test for trademark infringement. The test is

whether the defendant’s mark is “likely to confuse an appreciable number of people as to the

source of the product.” Falcon Stainless, Inc. v.

Rino Cos., 572 Fed. App’x 483, 486 (9th Cir. 2014)

(citing Entrepreneur Media, Inc. v. Smith, 279

F.3d 1135, 1151 (9th Cir. 2002)); see also Playboy

Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d

1020, 1026 (9th Cir. 2004) (“[A]ctual confusion

among significant numbers of consumers provides strong support for the likelihood of confusion.”).

96.

When assessing the likelihood of confusion,

the Court may consider the following, nonexhaustive factors: (1) strength of the mark; (2)

proximity of the goods; (3) similarity of the

marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the

degree of care likely to be exercised by the purchaser; (7) defendant’s intent in selecting the

mark; and (8) likelihood of expansion of the product lines. AMF Inc. v. Sleekcraft Boats, 599 F.2d

341, 348-49 (9th Cir. 1979), abrogated on other

App. 75

grounds by Mattel, Inc. v. Walking Mountain

Prods., 353 F.3d 792, 806 (9th Cir. 2003).

97.

These factors must be applied in a “flexible fashion” as they are intended merely as a proxy or

substitute for consumer confusion, “not a rote

checklist.” Rearden LLC v. Rearden Commerce,

Inc., 683 F.3d 1190, 1209 (9th Cir. 2012). “A determination may rest on only those factors that are

most pertinent to the particular case before the

court” and the analysis is “best understood as

simply providing helpful guideposts.” Id. at 120910 (quotations and citations omitted).

98.

The Sleekcraft factors weigh in favor of Omnia.

Applying the Sleekcraft factors, the Court finds:

A. The STONE CREEK mark is strong in Arizona, but it is not recognized in the BTTT for

its relationship to Stone Creek.

B.

The goods sold by Omnia and Stone Creek

are the same.

C.

The marks are the same.

D. There is no evidence of actual confusion by

any consumer in the BTTT who purchased

Omnia furniture believing it was manufactured or sold by Stone Creek.

E. The parties had distinct marketing channels

with no opportunity for crossover. Because of

the local nature of the furniture industry,

consumers in the BTTT were not targeted for

marketing by Stone Creek.

F.

Furniture is expensive and consumers are

therefore expected to exercise greater care.

App. 76

G. Bon-Ton selected the mark because it had an

American sound to it, and because the marketing material and logo already existed and

were in the possession of Omnia. There was

no intent to trade off of Stone Creek’s goodwill.

H. Stone Creek has no plans to expand.

99.

Even if the Sleekcraft factors weighed in Stone

Creek’s favor, they may take a back seat when

territorial divisions prevent confusion. “Even

where the Sleekcraft factors weigh in favor of the

[plaintiff ], . . . territorial divisions may prevent

confusion. An unauthorized junior mark user . . .

can contest likelihood of confusion by arguing

that, since ‘the registrant and the unauthorized

user are confined to two sufficiently distinct and

geographically separate markets,’ there is no

likelihood of confusion.” Russell Rd. Food & Beverage, LLC v. Spencer, No. 2:12-cv-01514-LRHGWF, 2013 WL 321666, at *2 (D. Nev. Jan. 28,

2013) (citing Dawn Donut Co., Inc. v. Hart’s Food

Stores, Inc., 267 F.2d 358, 364 (2d Cir. 1959)); cf.

Mister Donut of Am., Inc. v. Mr. Donut, Inc., 418

F.2d 838, 844 (9th Cir. 1969) (“[W]here a federal

registrant has expanded its business to the point

that the use of the conflictingly similar marks by

the registrant and the unauthorized user are no

longer confined to separate and distinct market

areas and there is established the likelihood of

public confusion, the federal registrant is entitled

under the authority of the Lanham Act to injunctive relief.”) (emphasis added).

App. 77

100. Because furniture consumers are local consumers, and because Stone Creek’s entire market was

Arizona and Bon Ton’s market was the five Midwest states of the BTTT – markets that are over

1000 miles at their closest points and nearly 2000

miles at their furthest – territorial isolation prevented the likelihood of confusion of an appreciable number of consumers in the BTTT.

101. “[T]he sine qua non of trademark infringement is

consumer confusion,” Network Automation, Inc. v.

Advanced Sys. Concepts, 638 F.3d 1137, 1149 (9th

Cir. 2011). Because of the separate markets that

exist here, there is no likelihood of confusion under any test, including the Sleekcraft factors.

102. The evidence supports a finding that separate

markets prevented the likelihood of confusion:

A. Consumers in the BTTT were unaware of

Stone Creek;

B.

The vast majority of Google searches for

Stone Creek Furniture originate in Arizona;

C.

The number of Google searches for the Stone

Creek website from the BTTT were negligible;

D. Stone Creek had no brand awareness in the

BTTT;

E. There was no actual confusion by a consumer

in the BTTT purchasing Omnia STONE

CREEK furniture.

103. Omnia is not liable to Stone Creek on any of

Stone Creek’s claims. Accordingly,

App. 78

IT IS ORDERED finding in favor of Defendant

Omnia Italian Designs, Inc., and against Plaintiff

Stone Creek, Inc. on all counts and all causes of action.

The Clerk shall enter judgment in accordance with

this Order.

Dated this 9th day of November, 2015.

/s/ Douglas L. Rayes

Douglas L. Rayes

United States District Judge

App. 79

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Stone Creek Incorporated,

Plaintiff,

No. CV-13-00688-PHXDLR

v.

JUDGMENT IN A

CIVIL CASE

Omnia Italian Design

Incorporated, et al.,

(Filed Nov. 9, 2015)

Defendants.

Decision by Court. This action came for consideration before the Court. The issues have been considered and a decision has been rendered.

IT IS ORDERED AND ADJUDGED that pursuant

to the Court’s Order filed November 9, 2015, judgment

is entered in favor of defendant Omnia Italian Design

Incorporated and against plaintiff Stone Creek Incorporated on all counts and causes of action.

Brian D. Karth

District Court Executive/

Clerk of Court

November 9, 2015

s/ Erica Aragon

By Deputy Clerk