Gatorade's Fair Use Defense Defeats SportFuel Trademark Infringement Lawsuit

On June 14, 2018, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of PepsiCo, Inc. and its subsidiary, The Gatorade Company (“Gatorade”), against the trademark infringement claims brought by SportFuel, Inc. (“SportFuel”), the owner of the registered trademark SPORTFUEL, over Gatorade’s use of the advertising slogan “The Sports Fuel Company.”  SportFuel, Inc. v. PepsiCo, Inc. et al, Case No. 16-cv-07868 (N.D. Ill. 2018) (decision here).

SportFuel is a Chicago-based sports nutrition and wellness consulting firm that also sells a variety of SportFuel-branded dietary supplement powders and capsules.  SportFuel owns two registered trademarks for the name SPORTFUEL – one for “food nutrition consultation,” “nutrition counseling,” and “providing information about dietary supplements and nutrition” (U.S. Trademark Registration No. 3,495,513) and another for “dietary supplements” and “sports drinks enhanced with vitamins” (U.S. Trademark Registration No. 4,832,297).

Gatorade began using the phrase “sports fuel” internally in 2012 in marketing presentations describing their “Sports Fuel” products (which it defined as products designed to improve athletic performance in contrast to sports nutrition products) and describing the growing “Sports Fuel” product market.  In 2015, with full knowledge of SportFuel’s trademark rights, Gatorade began a nationwide rebranding campaign using the slogan “Gatorade The Sports Fuel Company.”  Gatorade obtained a trademark registration for GATORADE THE SPORTS FUEL COMPANY in 2016 (Reg. No. 5,025,026) – although it included a disclaimer of any exclusive rights to “The Sports Fuel Company” apart from the mark as shown in response to an office action which found “The Sports Fuel Company” to be merely descriptive.  Gatorade maintained that it did not use the slogan on any product packaging or labeling – rather, its products used the GATORADE trademark or the G-bolt design mark. 

SportFuel filed its lawsuit against Gatorade and PepsiCo in August 2016 alleging causes of action for trademark infringement, unfair competition, and false designation of origin in violation of the Lanham Act as well as related claims of trademark infringement and unfair competition under state law and common law.  Gatorade filed a motion for summary judgment on all of SportFuel’s claims on two separate grounds – 1) SportFuel has not presented evidence from which a reasonable jury could find likelihood of confusion (a necessary element to all of SportFuel’s claims) and 2) Gatorade’s use of the term “Sports Fuel” in the slogan “Gatorade The Sports Fuel Company” is protected under the fair use doctrine.  The court granted Gatorade’s motion entirely on the grounds of fair use and did not address the likelihood of confusion argument. 

The court first identified the fair use defense and its elements:

Under section 1115(b)(4) of Lanham Act, however, the “fair use” defense allows a junior user of a mark to use the mark “in good faith in its descriptive sense, as opposed to its trademark sense.” Ideal Indus., Inc. v. Gardner Bender, Inc., 612 F.2d 1018, 1027 (7th Cir. 1979); see also 15 U.S.C. § 1115(b)(4); Sorensen v. WD-40 Co., 792 F.3d at 722. The fair use defense “is based on the principle that no one should be able to appropriate descriptive language through trademark registration.” Packman, 267 F.3d at 639 (citation omitted). To prevail on a fair use defense, the defendant must show that (1) it did not use the mark as a trademark; (2) the mark is descriptive of the defendant’s goods or services, and; (3) it used the mark “fairly and in good faith.” Sorensen, 792 F.3d at 722.

With respect to the first element of the fair use defense – showing that it did not use “Sports Fuel” as a trademark – Gatorade argued that it used the term “Sports Fuel” in its slogan “Gatorade The Sports Fuel Company” to describe the type of products it sells rather than to signify the source of the products.  Even though there was no dispute that Gatorade uses its name and G-bolt design mark on its product packaging and advertising, this did not preclude a finding that Gatorade’s use of the words “Sports Fuel” could be viewed as a source identifier of Gatorade’s products.  Nonetheless, in analyzing Gatorade’s actual use of the slogan “The Sports Fuel Company,” the court focused heavily on how the word “Gatorade” typically appeared above the slogan and in a much more noticeably larger and bolder font.  And in those instances where the word “Gatorade” appeared on the same line and in the same font as the slogan, the word “Gatorade” was bolded so that it would stand out from the slogan.

  

The court found that “The fact that the Gatorade house mark appears more prominently than the rest of the slogan reduces the likelihood that Gatorade is using “Sports Fuel” as an indicator of source.”  The court rejected SportFuel’s argument that a Gatorade executive had admitted using “Sports Fuel” as a trademark given that he was not a trademark expert and just giving an opinion.  Moreover, the fact that Gatorade had sought to register “Gatorade The Sports Fuel Company” as a trademark did not change the court’s analysis given Gatorade’s express disclaimer of “The Sports Fuel Company” as part of its trademark registration. 

With respect to the second element of the fair use defense – showing that Gatorade’s use of “Sports Fuel” was in a manner which is descriptive of its goods or services – Gatorade’s argument that its use of “Sports Fuel” would clearly be recognized by consumers as descriptive of “foods and beverages designed to be consumer before, during, or after sports activity” was bolstered by the fact that the PTO had also determined that the phrase “The Sports Fuel Company” was descriptive and had to be disclaimed by Gatorade in its trademark registration application (“As SPORTS FUEL is commonly used in reference to sports nutrition, consumers encountering the wording THE SPORTS FUEL COMPANY in the proposed mark would readily understand it to mean that the goods are provided by a company that provides sports nutrition.”). In addition, Gatorade’s internal marketing documents regarding the slogan “The Sports Fuel Company” had identified “Sports Fuel products” as “[i]tems specifically designed to improve athletic performance.”  As such, the court found that Gatorade’s use of “Sports Fuel” was in a manner which is descriptive of its goods or services and further found that SportFuel had not presented any evidence giving rise to a genuine factual dispute regarding whether Gatorade used the term “Sports Fuel” to describe the nature of the products it sells.

Finally, with respect to the third element of the fair use defense – showing that Gatorade used “Sports Fuel” fairly and in good faith only to describe its own goods or services – Gatorade argued that there was no genuine factual issue in dispute given that “sports fuel” did accurately describe Gatorade’s expanded product line, Gatorade disclaimed exclusive rights to “The Sports Fuel Company” in its registered trademark, and the concurrent use of its famous GATORADE mark and/or G-bolt design mark in conjunction with the advertising slogan left no doubt regarding the source of Gatorade’s products. 

SportFuel tried to argue that summary judgment was not warranted on the issue of Gatorade’s intent and good faith because Gatorade was aware of SportFuel’s marks prior to beginning public use of its slogan and because Gatorade did not stop using the slogan even after SportFuel had put Gatorade on notice regarding its claims of infringement.  However, the court held that “evidence that Gatorade had knowledge of SportFuel’s mark is insufficient to permit a reasonable inference of bad faith” and Sport Fuel “must point to something more that suggests subjective bad faith.”  Further, the court held that “the fact that Gatorade did not stop using the slogan after SportFuel filed this lawsuit alleging infringement is not probative of bad faith” since Gatorade believed its use did not constitute infringement and there had been no prior adjudication of the issue.  The court found that SportFuel failed to offer any evidence that would support a reasonable inference that Gatorade acted in bad faith.

The court concluded that even with all reasonable inferences drawn in SportFuel’s favor, “no reasonable jury could find that Gatorade’s use of the phrase “Sports Fuel” in its slogan “Gatorade The Sports Fuel Company” is anything other than a fair use.”  As such, the court concluded that Gatorade’s use of “Gatorade The Sports Fuel Company” is protected under the fair use doctrine and granted summary judgment in Gatorade’s favor on all of SportFuel’s claims.  And having granted summary judgment based on fair use, the court chose not to address the parties’ arguments on the issue of likelihood of confusion.  See KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111, 124 (2004) (a defendant invoking the fair use defense need not establish that its use of the mark in question will not cause consumer confusion).

Court Decision Upholds Jus Tertii Defense in BASMA Trademark Lawsuit

United Food Imports, Inc. (“United Food”), a wholesale distributor of packaged food products imported from Egypt, sued several food distributors alleging trademark infringement for the unauthorized use of the mark BASMA in connection with products being sold to members of the Middle Eastern community residing in the United States. See United Food Imports, Inc. v. Baroody Imports, Inc. et al, Case No. 09-cv-02835 (D. N.J.).

As part of the Defendants’ counterclaims against United Food, Defendants claimed that a company named Orouba Agrifoods Processing Co. (“Orouba”), which produced the allegedly infringing goods distributed by the Defendants, is the rightful owner of the BASMA mark which United Food is claiming as its trademark. United Food filed a motion to dismiss Defendants’ counterclaims arguing that Defendants’ counterclaims improperly asserted a jus tertii defense (i.e., a claim asserting that a third party has rights in a trademark superior to the party claiming trademark rights).

Defendants allegations incorporated the factual allegations that Orouba set forth in its own petition to cancel United Food’s U.S. trademark registration of the BASMA mark. See Orouba Agrifoods Processing Company v. United Food, Cancellation No. 92050739 (T.T.A.B. Filed March 23, 2009). In short, Orouba claimed that it began using the BASMA mark in the United States in late 1999 (although its own application for the BASMA mark currently reflects date of first use anywhere as December 31, 1999 and use in commerce as February 17, 2003) and owns several foreign registrations of such mark (in Egypt, Turkey, United Arab Emirates, and Germany). In 1998, Orouba entered into an agreement to supply United Food with goods for resale in the United States. In 2004, United Food filed a trademark registration application with the United States Patent and Trademark Office (“PTO”) to register the BASMA mark in connection with various frozen fruits and vegetables (claiming use since January 1, 1998). Orouba terminated its agreement with United Food in September 2005. Orouba attempted to oppose United Food’s application (see Orouba Agrifoods Processing Company v. United Food, Opposition No. 91172895 (T.T.A.B. Filed September 15, 2006), but the opposition was dismissed with prejudice by the Board on February 12, 2008, after Orouba failed to file a brief on the merits in the case. The mark was then registered by the PTO on March 18, 2008. On March 23, 2009, Orouba filed the aforementioned cancellation petition, which was suspended in July 2009 pending the outcome of a separate lawsuit by United Food alleging trademark infringement against Orouba. See United Food Imports, Inc. v. Orouba Agrifoods Processing Co., Case No. 09-cv-04484 (S.D.N.Y.).

Defendants’ counterclaims in the instant case sought a judgment declaring that Orouba is the rightful owner of the BASMA trademark, cancellation of United Food’s registration, and damages arising from United Food’s fraudulent registration (pursuant to 15 U.S.C. § 1120).

While the court granted United Food’s motion to dismiss the counterclaims on the grounds that Defendants do not have standing to bring claims that affirmatively assert Orouba’s rights, the court chose not to prevent Defendants from asserting its arguments as an affirmative defense since the Defendants were in privity with Orouba. See United Food Imports, Inc. v. Baroody Imports, Inc. et al, 2010 U.S. Dist. LEXIS 33585 (D. N.J. April 6, 2010) (unpublished).

The court noted that Defendants’ counterclaims were essentially claims against United Food on behalf of Orouba. As such, the court dismissed such counterclaims outright for lack of third party standing on the part of the Defendants to bring these claims on behalf of Orouba. Moreover, the rare exceptions where third party standing is acceptable (i.e., where the third party is unable to assert their rights and there is an identity of interests between the third party and the party bringing claims) did not apply in light of the ongoing litigation between United Food and Orouba in which Orouba could assert such claims against United Food.

Defendants then argued in the alternative that their arguments should be allowed as an affirmative defense instead of a counterclaim. United Food argued that Defendants should not be allowed to assert any arguments regarding Orouba’s rights on the basis that it would constitute an improper jus tertii defense:

“Jus tertii in the trademark context arises when defendant alleges that plaintiff has no ‘title’ because plaintiff itself is an infringer of a third party with rights allegedly superior to plaintiff.” McCarthy, § 31:157. Thus, “[d]efendant in effect argues that, ‘Somebody has a right to sue me, but it’s not you.” McCarthy, § 31:158.

The court decided in favor of allowing Defendants to assert Orouba’s rights as a jus tertii defense given the contractual relationship that allegedly existed between Defendants and Orouba in that Orouba supplied the Defendants with the allegedly infringing goods. This contractual relationship placed the Defendants in privity with Orouba such that Defendants could claim some entitlement to the priority rights of Orouba with respect to the BASMA mark.

Accordingly, while the court dismissed Defendants’ counterclaims, because the court could infer from the allegations that Orouba and Defendants were in privity with one another, the court decided not to preclude the Defendants at this pleading stage of the case from presenting their arguments as an affirmative defense to the suit.