Tuesday, December 25, 2007

Johnson & Johnson gets early Christmas gift from Third Circuit in its Splenda® trade dress infringement lawsuit.

On Monday, December 24, 2007, the Third Circuit Court of Appeals held that McNeil Nutritionals, LLC (“McNeil”), the Johnson & Johnson division that makes Splenda® artificial sweetener (a brand of the artificial sweetener, sucralose), can get a second chance at obtaining a preliminary injunction against Heartland Sweeteners LLC and Heartland Packaging Corp. (“Heartland”) which produce and distribute store-brand sucralose for several supermarkets, including the Giant, Stop & Shop, and Tops supermarket chains owned by Royal Ahold NV. See McNeil Nutritionals, LLC v. Heartland Sweeteners LLC et al, No. 07-2644 (3rd Cir. December 24, 2007). A copy of the decision can be downloaded here. The Court of Appeals decision reverses in part the District Court decision by Judge John R. Padova of the United States District Court for the Eastern District of Pennsylvania which denied McNeil’s motion for a preliminary injunction.

Background articles on the dispute can be found at law.com here and here. On December 5, 2006, McNeil filed a seven-count complaint against Heartland under federal and state law. See McNeil Nutritionals, LLC v. Heartland Sweeteners LLC et al, Case No. 06-cv-05336 (E.D. Pa.). McNeil sought relief for both the Splenda trade dress and the slogan “Made from Sugar, Tastes Like Sugar.” On December 14, 2006, McNeil filed its motion for preliminary injunction to stop Heartland from advertising, selling, or distributing the alleged confusingly similar products. After an evidentiary hearing on the motion held on February 7, 2007 and oral argument on March 13, 2007, the District Court denied the motion with respect to all of the allegedly infringing packages in a written memorandum and order dated May 21, 2007. McNeil filed a timely notice of appeal from that decision on May 29, 2007. On appeal, McNeil did not raise any arguments with respect to the “Tastes Like Sugar” slogan or any arguments under state law.

The court reviewed the District Court’s denial of a preliminary injunction for abuse of discretion with any findings of facts reviewed for clear error and any legal conclusions reviewed de novo.

The District Court denied McNeil’s motion for a preliminary injunction on the grounds that McNeil did not demonstrate a likelihood of success on the merits (the first of the four factors that a party must demonstrate to obtain a preliminary injunction). The four factors that a moving party must demonstrate to prevail on a motion for a preliminary injunction are: 1) the likelihood that the moving party will succeed on the merits; (2) the extent to which the moving party will suffer irreparable harm without injunctive relief; (3) the extent to which the nonmoving party will suffer irreparable harm if the injunction is issued; and (4) the public interest. See Shire US Inc. v. Barr Labs. Inc., 329 F.3d 348, 352 (3d Cir. 2003).

While a plaintiff, in order to establish trade dress infringement under the Lanham Act must prove that (1) the allegedly infringing design is non-functional, (2) the design is inherently distinctive or has acquired secondary meaning, and (3) consumers are likely to confuse the source of the plaintiff’s product with that of the defendant’s product, the District Court only analyzed, and sided with Heartland on, the likelihood of confusion question. As such, the court limited its analysis to only this issue. The court proceeded to apply the Third Circuit’s likelihood of confusion test – the Lapp factors. See Interpace Corp. v. Lapp, Inc., 721 F.2d 460 (3d Cir. 1983).

Regarding the first Lapp factor (degree of similarity between the plaintiff’s trade dress and the allegedly infringing trade dress), the District Court had concluded that this factor favored a finding of no likelihood of confusion for Heartland’s products except the ones sold by the Ahold supermarkets. The court’s decision reviewed the product packaging used by Heartland in its products for the Ahold supermarkets, Food Lion, and Safeway. The court could not find any clear error in the District Court’s decision regarding Heartland’s products for Food Lion and Safeway, noting that the most important differences was that the trade name “Splenda” was not present, but instead the respective stores name and/or logo were prominently displayed. Heartland did not challenge the District Court’s finding with respect to the first Lapp factor on the Ahold sucralose products, so the court accepted the District Court’s finding that it favored McNeil.

Regarding the third Lapp factor (degree of consumer care), the District Court had concluded that the level of care and attention consumers use when purchasing no-calorie sweeteners are actually heightened because they often purchase them for health reasons. The court could not find any clear error in the District Court’s decision that this factor did not weigh in favor of McNeil because the reasonably prudent consumer in this case exercises some heightened care and attention when buying sucralose because health considerations typically override the products’ low cost.

Regarding the sixth Lapp factor (evidence of actual confusion), the District Court held that there was no credible evidence of actual confusion, and thus the factor did not favor either McNeil or Heartland. The court could not find any clear error in the District Court’s decision to reject the single affidavit of consumer confusion submitted by McNeil from a so-called “surgical strike” shopper (one who intentionally shops at a faster pace than others), finding such a shopper to be brand indifferent and otherwise unrepresentative of the typical shopper,

Because the court did not find any error with the District Court’s application of the Lapp factors, the question remained whether the District Court nonetheless committed clear error in not finding a likelihood of confusion for those products where District Court found that the first Lapp factor favored McNeil (i.e., the Heartland sucralose products sold by the Ahold supermarkets).

The court held that the District Court committed clear error in that there was no way the District Court could have ultimately balanced the Lapp factors against McNeil weighing the first, second, seventh, eighth, and ninth Lapp factors in McNeil’s favor (and the third, fourth, and tenth factors in favor of neither party) with respect to the sucralose sold by the Ahold supermarkets. In particular, the District Court clearly erred in the ultimate balancing of the Lapp factors because it did not provide sufficient weight to the single most important factor in determining likelihood of confusion – the degree of similarity – which the District Court found in favor of McNeil.

The sucralose products sold by the Ahold supermarkets did not have a store name or logo prominently displayed, which would have substantially reduced the degree of similarity and thus the likelihood of confusion because the more a store’s name and/or logo are present around that store’s shoppers, the more likely those shoppers will know well that name and/or logo, which in turn serves to differentiate materially a store-brand packaging that displays such name and/or logo prominently. Also, the product name “Sweetener” appears at the top-center of the front of the boxes, in italicized blue font, which is a similar color and font as that used on boxes of Splenda.

Sucralose product sold by Ahold's Giant Supermarket

Regarding the issue of Heartland’s use of yellow-colored packets, the court was not sympathetic to McNeil:
[J]ust because a consumer sees yellow packaging in the sugar aisle does not mean that she believes McNeil or Splenda to be the source, especially because consumers are generally aware of the use of pink and blue by manufacturers other than those of Sweet ‘N Low and Equal, respectively. The sugar aisle in a representative grocery store also contains yellow packages of products other than sucralose, including sugar itself. In this factual context, we cannot conclude that whenever any other sucralose producer uses yellow packaging, consumers are likely to associate that product with Splenda.
Slip op. at 27.

"The Yellow Stuff"

The court affirmed the District Court’s denial of preliminary injunctive relief as to the Food Lion and Safeway sucralose products, but reversed the denial as to the Ahold sucralose products. The court remanded the case to the District Court to consider whether McNeil establishes a likelihood of success on the remaining elements of trade dress infringement under the Lanham Act as well as the remaining factors for preliminary injunctive relief.

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