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Streamline Production Systems, Inc. v. Streamline Manufacturing, Inc.

United States Court of Appeals, Fifth Circuit

April 11, 2017

STREAMLINE PRODUCTION SYSTEMS, INC., Plaintiff - Appellee
v.
STREAMLINE MANUFACTURING, INC., Defendant-Appellant

          Appeal from the United States District Court for the Southern District of Texas

          Before STEWART, Chief Judge, and KING and DENNIS, Circuit Judges.

          KING, Circuit Judge

         Streamline Production Systems, Inc. filed this trademark infringement suit against Streamline Manufacturing, Inc. seeking damages under the Lanham Act and Texas common law. After stipulating to an injunction, the parties proceeded to a jury trial on the issues of infringement and damages. The jury returned a verdict finding that Streamline Manufacturing, Inc. infringed on Streamline Production Systems, Inc.'s valid trademark in its name and awarded damages for lost royalties, unjust enrichment, and exemplary damages, each in the sum of $230, 000, for a total award of $690, 000. The district court denied Streamline Manufacturing Inc.'s motion for judgment as a matter of law, as well as its renewed motion for judgment as a matter of law, or in the alternative, for a new trial. Finding insufficient evidence to support the damages awards, we AFFIRM the jury's finding of trademark infringement but VACATE the damages awards.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         A. Facts

         Plaintiff-Appellee Streamline Production Systems, Inc. (SPSI) was established in 1993 by Michael Renick in Beaumont, Texas. SPSI initially began as an oilfield services company. In 1997, SPSI began custom fabricating pressure vessels, and today, it produces a range of custom fabricated natural gas processing equipment, such as gas separators, heat exchangers, re-boilers, and pressure vessels, and sells that equipment to customers nationwide, in addition to continuing to provide oilfield services and repair. Later on, Renick founded three other companies that all use "Streamline" in their names and share staff with and operate in the same region as SPSI but do not manufacture custom fabricated natural gas processing equipment. SPSI's 2013 sales exceeded $27 million. According to Renick, his company has been successful over the years because it is "well-known in the oil field."

         SPSI's logo consists of the word "Streamline" written on a ring encircling the image of a piece of natural gas production equipment. SPSI includes this logo, along with its phone number, on a metal placard that it attaches to each piece of equipment it produces. SPSI also uses this logo for its advertising, which includes printed brochures, branded merchandise, branded racecars, and a website. SPSI's current website is streamlinetexas.com. The website's color scheme is blue and white. The banner at the top of the website depicts "Streamline Production Systems" written in white lettering and integrated with a piece of natural gas production equipment against a blue background. Prior to operating its website at this URL, SPSI operated a website at the URL streamlinetx.com, which, according to SPSI's business manager, was "very generic" and was not relied upon for business.

         Defendant-Appellant Streamline Manufacturing, Inc. (SMI) was founded in 2009 in Houston by Luis Morales and Bob Tulio. SMI also fabricates natural gas processing equipment, including pressure vessels, boilers, heat exchangers, skids, and separators, and sells them to customers nationwide. But unlike SPSI, it does not do any oil field servicing or repair work. SMI also attaches a placard to each piece of equipment it produces identifying SMI as the manufacturer, but unlike SPSI's placard, it does not include SMI's phone number. Both Morales and Tulio worked at another oil and gas equipment manufacturing company, RCH Industries, before they founded SMI. Initially, all of SMI's business came from customers with whom Morales and Tulio had preexisting relationships through their prior work at RCH Industries, and those customers have continued to comprise the majority of SMI's business. Some of these customers are equipment resellers who sell SMI's equipment to end-market users. Relying on this customer base, SMI reached over $1 million in sales in its first full year of business, and between 2009 and 2014, it had over $20 million in total sales.

         According to Morales and Tulio, they selected the name "Streamline Manufacturing, Inc." for their new company after conferring with family members and "bouncing names around, " with the goal of "trying to find something short" and "not[] confusing." They sought a name with a three letter acronym because that was how their previous company (RCH) was referred to and because they thought such a concise name "denote[d] efficiency." They brainstormed several possible names that they "pull[ed] . . . out of the air, " one of which was "Streamline Manufacturing, Inc." They provided these possible names to their lawyer so he could check the availability of the names with the Texas Secretary of State, and SMI showed as available, so it was chosen. In choosing this name, Morales and Tulio professed to be entirely unaware of SPSI's name, location, degree of success, customers, and even its mere existence; nor did they know Renick. After choosing SMI as a name, Morales sought to establish a website. He used a commercial website to search available domain names, and the search indicated that his first choice for a domain name, SMI.com, was not available. Morales then searched for "Streamline, " and streamline.com was also not available, but the search provided a drop down box indicating several other available variations. Morales picked the shortest available variation shown in the drop down box, streamlinetx.com, as SMI's website domain name. This was the same domain name previously used by SPSI. SMI's website was predominantly blue and white in color scheme, and its homepage displayed SMI's logo: "SMI" in blue font against a background of a photo of natural gas equipment overlaid against an outline of the state of Texas. Besides this website, SMI did not engage in any advertising or marketing efforts and did not even have a sign outside its office.

         Around 2011, SPSI began to learn of SMI's existence. First, it attempted to update its website but learned that its registration had lapsed and that SMI had taken over the domain. It also began to encounter customers and vendors who confused SPSI and SMI. In 2012, Renick learned that one of SPSI's oil field services customers, Century Exploration, had a piece of equipment manufactured by SMI that it mistakenly believed it had purchased from SPSI. Another customer, Union Services, mistakenly sent a $130 check intended for SPSI to SMI instead. Renick also received a call from a purchasing agent at Pioneer Resources, a natural gas company, who said he had a pressure vessel with a "Streamline" placard on it but no phone number and he was interested in purchasing more. It became clear that the purchasing agent was an SMI customer, had an SMI-manufactured vessel, and had erroneously called SPSI. According to Renick, SPSI's vendors also occasionally erroneously shipped equipment to SMI's offices. And two vendors refused to sell equipment and materials to SPSI because they confused it with SMI, who had unpaid bills. Despite these instances of confusion, SPSI did not contact SMI.

         At the same time SPSI was learning of SMI's existence, SMI was also learning of SPSI. In 2011, a representative from the Texas Secretary of State called SMI seeking to collect franchise taxes owed by SPSI. In addition, a third-party insurance inspector mentioned to Morales that he knew of another company called "Streamline." SMI also received at least one phone call intended for SPSI. And in 2013, an employee at one of SMI's customers, Mustang, told Morales that there was another business called "Streamline" in Texas but it is not clear that he mentioned what type of work it did. SMI did not investigate SPSI after any of these instances of confusion. Tulio explained that at first he thought SPSI was a movie production business due to the presence of "production" in its name. He also justified his lack of concern over the confusion based on the fact that SMI did not "run into" SPSI.

         In February 2013, Renick submitted an application to the United States Patent and Trademark Office (PTO) for trademark registration of the mark "Streamline Production Systems, " and the PTO issued the trademark for this phrase on October 29, 2013. On November 26, 2013, SPSI sent a cease and desist letter to SMI, demanding that SMI "immediately cease and desist the use, display, and distribution of any materials bearing the phrase STREAMLINE MANUFACTURING." The letter stated that SPSI was the holder of the common law, state, and federal trademark in Streamline Production Systems and that SMI's use of "Streamline Manufacturing" infringed on SPSI's trademark because it was "highly similar in look, sound, and connotation" and used in conjunction with similar goods and services. SMI's counsel responded in a letter on January 14, 2014, disclaiming any infringement of SPSI's trademark. In March 2014, Renick signed an agreement with SPSI assigning his "entire right, title and interest in and to" his trademark in "Streamline Production Systems" to SPSI.

         B. Proceedings

         On May 9, 2014, SPSI filed suit against SMI, alleging, in relevant part, infringement of its trademark under the Lanham Act and Texas common law and seeking damages as well as injunctive relief. In its answer, SMI denied all claims.[1] Nevertheless, SMI ultimately stipulated to a preliminary injunction on August 28, 2014. Pursuant to the injunction, SMI agreed to, within 120 days, change its name and discontinue all use of "Streamline Manufacturing" on its marketing and communications materials, and within 30 days, discontinue its use of the domain name "streamlinetx.com." SMI eventually changed its name to Strongfab Solutions, Inc. SPSI's suit proceeded to a five-day jury trial on the issues of trademark infringement and damages, commencing on November 16, 2015. The jury heard testimony from SMI's and SPSI's principals, SPSI's damages expert, and two representatives of companies that were customers of SMI. At the conclusion of SPSI's case, SMI moved for a directed verdict on SPSI's common law trademark infringement claim, arguing that SPSI had not demonstrated any actual damages, which the district court denied. At the conclusion of all testimony, SMI moved for judgment as a matter of law (JMOL) on all of SPSI's claims, which the district court also denied. The jury was given a lengthy jury charge outlining the burden of proof on each verdict question and the elements of each claim.[2]

         The jury returned its verdict on November 23, 2015. The jury found that SPSI proved by a preponderance of the evidence that SPSI had a valid trademark under the Lanham Act and Texas common law in "Streamline Production Systems" and that SMI had infringed on this trademark.[3] The jury further found that this infringement was the proximate cause of damages to SPSI. However, the jury found that SPSI failed to prove it was entitled to any profit that SMI had earned that was "directly attributable" to its infringing use of the trademarks and that SMI had earned "zero" profit through its infringing use of the trademarks. Nevertheless, the jury awarded SPSI $230, 000 as a "reasonable royalty" for SMI's use of the trademark, another $230, 000 for unjust enrichment to SMI through its infringing use, and a final $230, 000 as exemplary damages, for a total damages award of $690, 000.

         The district court entered a final judgment in the case on November 24, 2015. SMI then filed a renewed JMOL motion, or in the alternative, a motion for new trial. SMI argued it was entitled to JMOL, in relevant part, on (1) the trademark infringement claims, (2) the claim for unjust enrichment, and (3) the jury's finding that SMI's infringement was done with "malice, gross negligence, willfulness, or willful blindness" and its corresponding finding that SPSI was thus entitled to exemplary damages. The district court denied this motion without explanation. SMI timely appealed.

         II. TRADEMARK INFRINGEMENT

         SMI appeals the district court's denial of its renewed motion for JMOL, or in the alternative, a new trial on the issue of trademark infringement. We review the denial of a renewed JMOL motion de novo, applying the same standard in reviewing the motion as the district court.[4] Cowart v. Erwin, 837 F.3d 444, 450 (5th Cir. 2016). "When a case is tried to a jury, a [JMOL] motion . . . 'is a challenge to the legal sufficiency of the evidence supporting the jury's verdict.'" Id. (quoting Heck v. Triche, 775 F.3d 265, 272 (5th Cir. 2014)). In reviewing a challenge to a jury verdict, "we draw all reasonable inferences and resolve all credibility determinations in the light most favorable to the [verdict]." Id. (quoting Heck, 775 F.3d at 273). The motion should be denied "unless there is no legally sufficient evidentiary basis for a reasonable jury to find as the jury did." Id. (quoting Heck, 775 F.3d at 273).

         We review the district court's denial of a motion for a new trial for abuse of discretion. Id. "The district court abuses its discretion by denying a new trial only when there is an 'absolute absence of evidence to support the jury's verdict.'" Cobb v. Rowan Cos., 919 F.2d 1089, 1090 (5th Cir. 1991) (quoting Irvan v. Frozen Food Express, Inc., 809 F.2d 1165, 1166 (5th Cir. 1987)). When the district court has denied, rather than granted, such a motion, "[o]ur review is particularly limited" and we affirm the denial "unless the evidence-viewed in the light most favorable to the jury's verdict-points so strongly and overwhelmingly in favor of one party that the court believes that reasonable men could not arrive at a contrary [conclusion]." Cowart, 837 F.3d at 450 (alterations in original) (quoting Alaniz v. Zamora-Quezada, 591 F.3d 761, 770 (5th Cir. 2009)).

         SPSI brought its trademark infringement claim under both the Lanham Act, 15 U.S.C. § 1114, and Texas common law, [5] and the parties agreed in their joint pretrial order that both governed the trademark infringement claim. To prevail on its claim of trademark infringement under the Lanham Act, SPSI must show two elements: (1) it possesses a legally protectable trademark and (2) SMI's use of this trademark "creates a likelihood of confusion as to source, affiliation, or sponsorship." Nola Spice Designs, L.L.C. v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015). The elements of common law trademark infringement under Texas law are the same as those under the Lanham Act. Hot-Hed, Inc. v. Safehouse Habitats (Scotland), Ltd., 333 S.W.3d 719, 730 (Tex. App.-Houston [1st Dist.] 2010, pet. denied). We consider the evidence on both of these elements in turn.

         A. Possession of a legally protectable trademark

         SMI argues that no reasonable juror could have found that "Streamline Production Systems" was a legally protectable trademark. The Lanham Act defines a trademark as "any word, name, symbol, or device, or combination thereof" that is used "to identify and distinguish . . . goods . . . from those manufactured or sold by others and to indicate the source of the goods." 15 U.S.C. § 1127. "To be legally protectable, a mark must be 'distinctive' in one of two ways": (1) inherent distinctiveness or (2) acquired distinctiveness through secondary meaning. Nola Spice Designs, 783 F.3d at 537 (citing Am. Rice, Inc. v. Producers Rice Mill, Inc., 518 F.3d 321, 329 (5th Cir. 2008)). Registration of a mark with the PTO is "prima facie evidence that the mark[] [is] inherently distinctive." Id. But this evidence can be rebutted "by demonstrating that the mark[] [is] not inherently distinctive, " id., and if so, we cancel the trademark registration, Xtreme Lashes, LLC v. Xtended Beauty, Inc., 576 F.3d 221, 232 (5th Cir. 2009).

         To assess the distinctiveness of a word mark, as opposed to a design mark, we "rel[y] on the spectrum set forth by Judge Friendly in Abercrombie & Fitch Co. v. Hunting World Inc., 537 F.2d 4, 9 (2d Cir. 1976)." Nola Spice Designs, 783 F.3d at 537. This spectrum divides the distinctiveness of marks into five categories: "(1) generic, (2) descriptive, (3) suggestive, (4) arbitrary, and (5) fanciful."[6] Id. The latter three categories are inherently distinctive, whereas generic marks cannot be distinctive and "descriptive marks are distinctive only if they have acquired 'secondary meaning.'" Id. In categorizing a mark, we "examine the context in which it is used, " including "'how [the term] is used with other words, ' 'the products or services to which it is applied, ' and 'the audience to which the relevant product or service is directed.'" Id. (alteration in original) (emphasis omitted) (quoting Union Nat'l Bank of Tex., Laredo v. Union Nat'l Bank of Tex., Austin, 909 F.2d 839, 847 (5th Cir. 1990)). We ask: What do the buyers understand by the term? Id. at 537-38. When evaluating a multi-word mark, such as "Streamline Production Systems, " we consider the mark "as a unitary whole in its given arrangement, and do not parse apart the constituent terms." Xtreme Lashes, 576 F.3d at 232.

         The jury found that SPSI's mark, "Streamline Production Systems" is "suggestive, arbitrary, or fanciful." Because it made this finding, it did not reach the question of whether the mark had achieved secondary meaning. SMI argues that the mark is merely descriptive and has not acquired secondary meaning, and thus is not sufficiently distinctive to warrant trademark protection. SPSI counters that its mark is, at minimum, suggestive and, even if it is merely descriptive, it has acquired secondary meaning and is thus sufficiently distinctive to warrant trademark protection. Since the question of whether SPSI's mark is legally protectable depends on whether it is descriptive (receiving no trademark protection unless it has secondary meaning) or suggestive (receiving trademark protection), Nola Spice Designs, 783 F.3d at 537, our analysis will focus on these two categories of distinctiveness.

         "A descriptive term identifies a characteristic or quality of an article or service, such as its color, odor, function, dimensions, or ingredients." Id. at 539 (quoting Amazing Spaces, Inc. v. Metro Mini Storage, 608 F.3d 225, 241 (5th Cir. 2010)). "Thus, in many cases, a descriptive term will be an adjective such as 'speedy, ' 'friendly, ' 'green, ' 'menthol, ' or 'reliable.'" Union Nat'l Bank, 909 F.2d at 845. "Examples of descriptive marks would include Alo with reference to products containing gel of the aloe vera plant and Vision Center in reference to a business offering optical goods and services." Nola Spice Designs, 783 F.3d at 539 (quoting Amazing Spaces, 608 F.3d at 241). We have previously recognized that "[d]escriptiveness is construed broadly." Xtreme Lashes, 576 F.3d at 232.

         In contrast, a suggestive term "'suggests, rather than describes, ' some characteristic of the goods to which it . . . applie[s] and requires the consumer to exercise his imagination to reach a conclusion as to the nature of those goods." Soweco, Inc. v. Shell Oil Co., 617 F.2d 1178, 1184 (5th Cir. 1980) (quoting Vision Center v. Opticks, Inc., 596 F.2d 111, 115-16 (5th Cir. 1979)). Examples of suggestive terms include "Penguin" for a refrigerator brand, id., and "Coppertone" for sun tanning products, Zatarains, Inc. v. Oak Grove Smokehouse, Inc., 698 F.2d ...


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