PRL USA Holdings, Inc. (“PRL”) produces various clothing, fragrances and accessories under the name Ralph Lauren and, since 1972, has been selling clothing using the famed logo showing in silhouette a mounted polo player with polo mallet raised.
In March 2000, PRL filed a trademark infringement lawsuit in the U.S. District Court for the Southern District of New York against the United States Polo Association (“USPA”), the governing body for the sport of polo in the U.S.; United States Polo Association Properties, Inc., the wholly-owned subsidiary of USPA which registers USPA-related trademarks for licensing on products; and Jordache, Ltd., which since 1998 has licensed the right to produce clothing bearing the USPA’s trademarks (together, the “defendants”). PRL alleged in its complaint that four of USPA’s logos showing a pair of mounted polo players (the “double horsemen” mark) being used by the defendants on clothes infringed PRL’s polo player logo.
The Double Horsemen
The fight between PRL and USPA goes back to the 1980s, when the USPA first began selling clothing. In 1984, PRL obtained an injunction enjoining the USPA from using certain marks that were found to be infringing PRL’s trademarks, but which also explicitly stated that USPA was free to conduct a retail licensing program utilizing a mark featuring “a mounted polo player or equestrian or equine symbol” so long as it was distinctive from PRL’s polo player logo.
At some time in 1996 while PRL and USPA were engaged in settlement discussions regarding various contested marks, PRL, according to the USPA, made statements assuring the USPA that it would not object to the USPA’s use of a version of the double horsemen mark. USPA alleged that such assurances is what prompted it to develop and license a version of the double horsemen mark for use, and which Jordache subsequently spent over $41 million developing a clothing line bearing the mark. PRL denied that it had consented to the USPA’s use of a double horsemen mark.
While the parties had settled many of the disputes arising from PRL’s trademark infringement lawsuit by September 2003, the settlement agreement did not resolve whether the four double horsemen marks infringed PRL’s trademarks. The parties agreed to have the remaining issues resolved by a jury trial.
The defendants, in addition to presenting evidence to contradict PRL’s evidence of likelihood of confusion, also tried to argue the affirmative defense of estoppel by acquiescence by presenting evidence from a former USPA employee regarding PRL’s statements during the 1996 settlement discussions whereby PRL gave the USPA consent to use a version of the double horsemen mark and implied that it was not “offensive” to PRL. While PRL objected to the admission of such evidence under Federal Rule of Evidence 408 because such statements were made during settlement negotiations, the district court allowed the evidence under the exception to the Rule.
The jury ultimately rejected the defendants’ claim of estoppel by acquiescence and found that only one of defendants’ four double horsemen mark (a solid silhouette of the two horsemen) infringed PRL’s registered trademarks while no likelihood of confusion was found with respect to USPA’s other three marks (solid silhouette of the two horsemen with the letters “USPA” underneath; an outline of the two horsemen; and an outline of the two horsemen with the letters “USPA” underneath). The district court entered judgment accordingly
PRL appealed the judgment in favor of the defendants arguing that the district court committed reversible error a) by allowing the aforementioned evidence from the parties’ settlement negotiations, b) by failing to give the jury an instruction that the defendants were required to maintain a “safe distance” from PRL’s mark because of past infringement, and c) by excluding a document that PRL argues demonstrates USPA’s intent to use a confusingly similar trademark.
The Court of Appeals ultimately rejected PRL’s arguments and affirmed the district court judgment.
Evidence of Compromise Negotiations
Under Federal Rule of Evidence 408 (the version in effect in 2005), evidence of conduct or statements made in “compromise negotiations” is “not admissible to prove liability for or invalidity of [a] claim or its amount.” An exception is made where such evidence is offered for other purposes. The district court ruled that USPA’s evidence of PRL’s statements during negotiations was admissible to prove the defendants’ estoppel defense.
PRL first argued that the USPA was using the defense of estoppel as a pretext for introducing such evidence, and that USPA’s true intention in introducing such evidence was to suggest to the jury that PRL, by not objecting to USPA’s double horsemen logos, believed that the logos were not confusingly similar to PRL’s own logo.
While the court recognized that PRL’s statements could be used to suggest to a jury that the owner of the mark did not believe the mark in question was likely to cause confusion, the court nonetheless rejected PRL’s argument, finding such evidence that PRL may have made assurances to USPA regarding its double horsemen mark to be a necessary piece of evidence for USPA to prove that it was entitled to the defense of estoppels:
[I]t is well established that if a trademark owner tells a potential defendant that it will not assert a claim of infringement based on the use of a particular mark, and the recipient of that assurance relies on the assurance to its substantial detriment, as by spending substantial sums in the development of the mark on which it received the assurance, estoppel will bar the trademark owner from subsequently claiming infringement. See Times Mirror Magazines, Inc. v. Field & Stream Licenses Co., 294 F.3d 383, 395 (2d Cir. 2002) (describing the affirmative defense of acquiescence); 6 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 31:42 (4th ed. 2008).
The court even suggested that if PRL had really been concerned about the evidence improperly influencing the jury in deciding likelihood of confusion, PRL could have asked the court to bifurcate the trial – deciding likelihood of confusion first and only after that issue is decided would the jury determine whether the defense of estoppel applies.
PRL next tried the clever argument that evidence of statements made in compromise negotiations are barred by Rule 408 when admitted to prove estoppel because estoppel would establish the “invalidity” of PRL’s claim. The court rejected this argument as depriving the exception in Rule 408 of all meaning:
All of the evidence a party offers at trial is intended to help establish its own position and defeat the adversary’s position. In a sense, all evidence offered seeks either to “prove liability for or invalidity of [a] claim or its amount.” If we accepted PRL’s contention of the meaning of the Rule, there would be no evidence falling within the category whose exclusion is “not require[d]” because it is “offered for another purpose.” The exception would be meaningless.
The court noted that the intent of the Rule 408 exception is to admit evidence arising from compromise negotiations when such evidence focuses on issues different from the elements of the primary claim in dispute. In this case, USPA’s affirmative defense of estoppel by acquiescence raises issues distinct from the elements of a claim of trademark infringement (citing Starter Corp. v. Converse, Inc., 170 F.3d 286, 293-94 (2nd Cir. 1999) (affirming district court’s decision to admit settlement evidence to prove an estoppel claim, and noting that the “basic elements of estoppel” do not “overlap with factors used to determine likelihood of confusion between trademarks”)).
PRL also attempted to argue that allowing this settlement evidence caused “spillover” prejudice resulting from the jury’s impermissible use of the evidence to support the inference that PRL did not believe USPA’s marks would be likely to cause confusion. The court held, however, that the district court did not abuse its discretion and that any “spillover” prejudice to PRL from this evidence was insufficient to require retrial. The court noted that the alleged consent given by PRL upon which USPA relies to make its case for estoppel only related to one of the USPA logos at issue – and it was the one logo the jury found to be infringing. In addition, the jury rejected the estoppel defense. While the court noted that USPA’s counsel, during opening and closing arguments, did make references to the evidence that PRL believed USPA’s marks were not infringing, the court found that overall USPA used the settlement evidence for its estoppel defense, and not as proof of PRL’s beliefs about USPA’s marks. The court found such remarks not of such significance as to warrant retrial
Lastly, the court rejected PRL’s argument that the district court erred by refusing to give a particular limiting instruction sought by PRL which would have “required the jury to ignore any evidence that it concluded was made in the context of settlement negotiations, regardless of whether the settlement evidence was received for a purpose authorized by Rule 408.” Slip op. at 14. Because such an instruction would be contrary to the plain language of Rule 408, the court held that the the district court did not err in refusing to give it (citing Clark v. Pa. R.R. Co., 328 F.2d 591, 595 (2nd Cir. 1964) (“[A] failure to grant a request for instructions that are in any respect incorrect and unsound does not constitute error.”)). The court also noted that PRL did not seek a limiting instruction informing the jury for what purpose they could, and could not, consider the settlement evidence, and thus PRL cannot now complain about the lack of such limiting instruction.
“Safe Distance” Jury Instruction
PRL’s next major grounds for reversal is that the district court erred in refusing to instruct the jury that USPA, as a previously adjudicated infringer, was required to keep a “safe distance” from PRL’s mark. PRL had requested the court provide a jury instruction to the effect that USPA, as a prior adjudicated infringer of PRL’s marks who must thereafter keep a “safe distance,” is held to a higher standard of conduct with respect to the adoption of a new mark and that the jury should determine if USPA satisfied its safe distance obligation with respect to PRL’s marks when it adopted its double horsemen logos.
The court noted that the obligation of a previously adjudicated infringer to maintain a safe distance from infringing a plaintiff’s marks is most useful for courts in fashioning injunctions based on such findings of infringement as well as in contempt proceedings in order to determine if an enjoined infringer has violated an injunction. Slip op. at 15-16.
PRL, however, did not cite any authority establishing that such an instruction must be given in a civil infringement action alleging a new infringement by one previously adjudicated to have infringed the plaintiff’s mark. The court noted that adding the concept of “safe distance” to the liability standard for trademark infringement would ultimately change the basic likelihood of confusion standard for trademark infringement: “If the ‘safe distance’ instruction were used, the jury would be invited to find liability based on a mark which was not likely to cause confusion, leaving unclear to the jurors which standard should govern.” Slip op. at 16.
The court added that such an instruction would be even more confusing to a jury given the express provisions of the prior infringement injunction which expressly allowed USPA to continue to use marks with “a mounted polo player or equestrian or equine symbol which is distinctive from” PRL's polo player logo.
Instructing the jury that USPA was required to “keep a safe distance” without explaining USPA’s rights under the prior infringement action could result in a jury finding liability based on the use of a mark that he earlier injunction expressly allowed. As such, the court concluded that the district court did not err in refusing to give such instruction.
The “Ralph Rip-Off” Document
PRL’s final argument was that the district court erred in refusing to admit a document which read “The Ralph Rip-off. Everyone knows we’re ripping off Ralph. Including us. It is the mission of our advertising to deny it by appearing to be true to the sport. After all, Ralph did rip-off the sport.” PRL argued that the document was attributable to Jordache because it was made by an agent of Jordache within the scope of the agency and was relevant to the issue of infringement because it disclosed a bad faith intent by Jordache to trade off of the goodwill in PRL’s polo player marks. The district court excluded the document as inadmissible hearsay and also on the basis that its probative value was substantially outweighed by the likelihood of unfair prejudice to the defendants (Federal Rule of Evidence 403).
The court found no abuse by the district court of its “considerable discretion” in deciding whether to exclude a document based on unfair prejudice. The court agreed with the district court’s conclusion that the document had little or no proper probative value as to Jordache’s intentions, but had an obvious capacity to cause prejudice. The court noted that the man hired by Jordache who created the document was not involved in the creation of the double horsemen marks; and as such, he was not Jordache’s authorized representative on the issue of the creation of the double horsemen marks and his state of mind could not be attributable to Jordache. The evidence also showed that the man had no knowledge of Jordache’s intentions relating to the double horsemen marks, and thus there was no basis for finding that his statements in the above document were those of Jordache with respect to the double horsemen marks. Because of the minimal probative value of the document and the high capacity of the document to cause prejudice, the court found no error or abuse of discretion on the district court’s part in excluding it.