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Poly-America, L.P v. Stego Industries

July 27, 2011

POLY-AMERICA, L.P., PLAINTIFF,
v.
STEGO INDUSTRIES, L.L.C., DEFENDANT.



The opinion of the court was delivered by: A. Joe Fish Senior United States District Judge

MEMORANDUM OPINION AND ORDER

On December 17, 2008, Poly-America, L.P. ("Poly-America") filed this suit against Stego Industries, LLC ("Stego") seeking a judgment declaring that (1) Stego's trademark is not registrable under the Lanham Act, 15 U.S.C. §§ 1051, et seq. (the "Act"), (2) Stego has no common law right to its trademark, and (3) Stego engaged in unfair competition by defrauding the United States Patent and Trademark Office ("PTO"). See generally Complaint (docket entry 1). After reviewing the evidence presented during a two-day bench trial, and for the reasons set forth below, the court finds that Stego's mark is functional and not legally protectable, but Poly-America has not proven its fraudulent procurement claim by clear and convincing evidence.

I. BACKGROUND

A. Procedural Background

The court held a bench trial in this case from May 16 to May 17, 2011, in which it received evidence and heard testimony from Terry Mallory ("Mallory"), the Senior Sales Manager for Poly-America; Paul Blasdel, a co-founder of Stego; Carroll Bryan ("Bryan"), a former trademark lawyer and co-founder of Stego; Matthew Blasdel, a current employee of Stego and the son of Paul Blasdel; and Marshall Grove ("Grove"), the Vice President of Manufacturing and Operations for Shields Bag and Printing Company -- a company that manufactures vapor barrier for Stego and identifies Stego as its largest single customer. As a result of that trial, the court finds the following facts and reaches the following conclusions of law.

B. Findings of Fact

1. History and Use of Vapor Barrier In many construction projects, before a concrete slab is poured, it is imperative to address vapor retardation under the concrete foundation. Joint Pretrial Order ("Pretrial Order") at 18 ¶ 30 (docket entry 104). If allowed to permeate the concrete slab and penetrate a building's footprint, vapor might cause adhesives used for carpet or flooring to erode or toxic mold or other toxic conditions to develop. Id. at 18 ¶ 32. Not surprisingly, the toxic-mold litigation of the 1990s increased awareness of, and the desire to prevent, the migration of moisture and gas from the earth to the concrete slab. Tr. 319:21-320:19. By 1998, builders and contractors generally employed a thin layer of black low-grade plastic sheeting as a barrier to prevent such migration. Pretrial Order at 19 ¶ 36. In those days, plastic sheeting was often laid down in a haphazard fashion and without concern for the integrity of the sheeting itself. Tr. 315:14-317:19.

At some point, however, the construction industry began developing standards for vapor barrier,*fn1 culminating in the American Society for Testing and Materials ("ASTM")'s promulgation of ASTM 1745, specifying industry standards for tensile strength, puncture resistance, and impermeability of vapor barrier, and ASTM 1643, setting forth industry standards for vapor barrier installation. Tr. 362:2-363:13; see also Defendant's Exhibits ("DX") 9, 10. ASTM standards specifically instruct that all damaged areas be repaired, DX 20, 23, and all tears, punctures, and even pinholes be identified and rectified, Tr. 214:15-20, to prevent vapor from seeping through the damaged area and penetrating the building's footprint. Pretrial Order at 18 ¶¶ 31-32. Laborers must visually inspect for damaged areas by walking the site -- spanning as much as 1.6 million square feet -- to try and spot tears, punctures, and pinholes in the vapor barrier. Tr. 216:8-217:2.

The ASTM standards, however, are neither comprehensive nor exhaustive.*fn2

Instead, they are products of unanimity within the ASTM committees responsible for their development. Tr. 361:4-20, 437:4-10. Nothing can be added or removed from ASTM 1745 or ASTM 1643 unless every member of the respective committee agrees to the proposed alteration. Tr. 437:4-10. The committees are all-volunteer organizations comprised of "anyone really who has an interest in a particular construction field . . . [who] becom[es] a voting member" and intended to help provide the best products possible to the building and construction industry. Tr. 361:4-20.

Generally speaking, before vapor barrier is laid down, the underlying soil is compacted and flattened by heavy machinery. Tr. 349:15-22. Occasionally, a two-inch layer of sand might be leveled out on top of the soil.*fn3 Tr. 350:5-17. Once the substrate is flat and compact, the vapor barrier is rolled out, Tr. 350:5-11, and overlapped six inches at the edges, with the overlapping areas taped at the seams. See Tr. 351:19-352:19. All pipe penetrations are then sealed, rebar is installed on top of the vapor barrier, and workers walk the site to visually inspect the vapor barrier for tears, punctures, and pinholes. See Tr. 351:19-352:19; see also DX 20, 23. After all necessary repairs are made, concrete is poured for the slab. Id.

2. Stego's Yellow Vapor Barrier

Stego, formed in 1998 by Paul Blasdel and Carroll Bryan to develop and distribute high performance vapor barrier for use in construction related applications, Pretrial Order at 19 ¶ 38, was the first company to market vapor barrier that purported to satisfy ASTM 1745. Tr. 318:7-319:3. Stego was also the first company to pick a bright, light color -- yellow -- for its vapor barrier. See Tr. 317:25-318:2. Stego first began using yellow as its trademark in November of 1998. Pretrial Order at 19 ¶ 42.

On April 6, 2002, Stego filed an application with the PTO for a trademark on the color yellow as applied to vapor barrier used in building construction. Id. at 14 ¶ 13. On August 22, 2002, the PTO refused Stego's application, stating, among other things:

REGISTRATION REFUSED -- SINGLE COLOR The trademark attorney must refuse registration on the Principal Register because the proposed mark appears to be functional. . . . That is, the proposed mark consists of a color which serves a utilitarian purpose. . . .

Please note that where a proposed mark identifies a color which is functional, it is not registrable on either the Principal or Supplemental Register. A color mark may be functional if it serves a purpose, such as yellow or orange for safety signs. In this case the proposed mark could be functional because the vapor barrier is more easily seen when installed and thereby allow contractors to ensure that the product is in place, a clear safety benefit.

Id. at 14-15 ¶¶ 14-15.

On February 20, 2003, Stego responded to the PTO's declination, advising the PTO examiner that "the mark is neither functional nor serves a utilitarian purpose." Id. at 15-17 ¶¶ 16, 17. Stego submitted with its response more than one-hundred pages of supplemental materials, including an advertisement that stated:

Stego Wrap vapor barrier is yellow for a reason. First, the natural extrusion of Stego Wrap polyolefin plastic & additives is a clear plastic much like visquene or poly. Bright yellow dye is added to distinguish Stego Wrap from poly laminates. Second, most vapor retarders are black poly laminates. Black poly absorbs tremendous heat creating very hot jobsite conditions for laborers. Third, punctures or tears (although unlikely) can be seen and easily repaired in our bright yellow membrane.

Id. at 15-16 ¶ 19. Stego included this entire advertisement, without any redactions, in its response to the PTO. Tr. 229:14-23.

On December 9, 2003, presumably after reviewing Stego's response and supplemental material, the PTO issued Stego a trademark for the color yellow as applied to "plastic sheeting used in the construction industry as a vapor barrier and as a vapor retarder," Registration No. 2,790,352 ("the mark"). See Pretrial Order at 16

¶ 19 and 19-20 ¶ 43. Thereafter, Stego -- under the direction of Bret Houck, the company's National Marketing Manager -- began its "Think Yellow" promotional campaign. That campaign is typified by the following advertisement:

Think Yellow!

There are two key reasons why Stego Wrap is bright yellow: It's easier for contractors to see damaged areas and it draws less heat on-site, according to Stego's Bret Houck.

Field tests have proven that it's difficult to find and repair rips in black or clear barriers, says Houck. Although Stego Wrap rarely tears or punctures, if they can see the puncture, then they can repair it, which helps maintain the integrity of the overall system.

He adds that while it may be sunny yellow, Stego Wrap also absorbs less heat than a midnight black or dark-colored barrier. This eliminates any potential curing problems associated with pouring cold concrete on a hot barrier surface.

Id. at 15-16 ¶ 19. Since its inception, Stego has sold hundreds of millions of square feet of yellow vapor barrier. Tr. 346:2-8.

3. Stego's Competitors

Poly-America, formed in the 1970s, manufactures and sells a variety of plastic products. Pretrial Order at 13 ¶¶ 1, 2. In late 2006 or early 2007, responding to customer requests, Poly-America manufactured vapor barrier in yellow. Id. at 16 ¶¶ 20, 21. On January 3, 2007, Stego sent Poly-America a cease and desist letter, demanding that Poly-America "avoid any use of the color yellow" with its products that would likely lead to confusion with Stego's mark. Id. at 17 ¶ 22. As a result, Poly-America did not sell any of the yellow vapor barrier that it manufactured; instead, it began selling vapor barrier in orange. Id. at 17 ¶¶ 24, 25.

Like Poly-America, Stego's other major competitors entered the market for high-performing vapor barrier at some point between 2000 and 2007. Tr. 320:24-322:19, 313:17-24. Some of Stego's competitors have elected to manufacture, market, and/ or sell vapor barrier in color (including, but not limited to, blue, gray, green, red, seafoam, black, and white), while others have chosen to use no color at all. Tr. 369:20-372:8. At least one of Stego's competitors uses color to distinguish the different lines of vapor barrier it ...


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