December 01, 2019 Feature

Reverse Confusion: A Trademark Doctrine in Decline or on the Rise?

Robert D. Litowitz

©2019. Published in Landslide, Vol. 12, No. 2, November/December 2019, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

Everything dies, baby that’s a fact. But maybe everything that dies someday comes back.

—Bruce Springsteen, “Atlantic City”

In “Atlantic City,” the memorable track from his sparse, haunting album Nebraska, Bruce Springsteen paints a portrait of a small-time hustler desperate for a place at the table with the big players. In a way, the Boss’s imagery could be a metaphor for small businesses and their trademarks. For much of the history of trademark law, infringement went only one way—forward. The trademark owner had to prove consumers were likely to confuse the infringer’s products with the owner’s or that the infringer was trying to trade on the trademark’s goodwill. That burden was daunting for new and small businesses with still-developing reputations. Because the conventional notion of trademark infringement flowed only forward, small, less powerful plaintiffs could not argue that their marks were being infringed because their customers were confused. Small brand owners therefore were vulnerable to having their little-known trademarks snatched by big companies with big litigation budgets.

In 1977, however, the balance of trademark power between small and large companies shifted seismically. In the Big O case,1 the U.S. Court of Appeals for the Tenth Circuit became the first circuit court to recognize reverse confusion—the type of confusion that occurs when a major company ignores the trademark rights of a much smaller competitor, causing confusion as to the source of the first user’s goods. Fifteen years later, the U.S. Court of Appeals for the Seventh Circuit appeared to have cemented reverse confusion into trademark jurisprudence in the Thirst-Aid case.2 The Seventh Circuit, joining several other circuits, expressly recognized reverse confusion, agreeing that “the objectives of the Lanham Act—to protect an owner’s interest in its trademark by keeping the public free from confusion as to the source of goods and ensuring fair competition—are as important in a case of reverse confusion as in typical [forward] trademark infringement.”3

Big O, Thirst-Aid, and the cases in between seemed to portend a new era of protection for the Davids of the trademark world in cases against brand-swamping Goliaths. In both the Big O and Thirst-Aid cases, the courts affirmed injunctive and monetary relief. The damage award in Thirst-Aid in fact remains among the largest amount ever awarded in a trademark infringement case. But as with many things, unintended consequences followed. Some smaller businesses began viewing reverse confusion opportunistically. The bigger the defendant, the larger its profits, creating a recipe for windfall recoveries. Unsurprisingly, judicial reaction to this lottery ticket approach to reverse confusion was less than enthusiastic. Courts found no likelihood of reverse confusion in cases brought by small businesses against large corporations such as PetSmart, Nike, Comcast, and Philips.4

Recently, however, the tide may have turned. In a case against Wal-Mart, a small chain of stores scored a major trademark victory when Wal-Mart was found to have infringed the small company’s BACKYARD trademark, obtaining a jury verdict of $95 million, to which the court tacked on another $4 million in attorney fees for “willful infringement.”5

This article explores the genesis of reverse confusion, charting its course from the foundational Big O and Thirst-Aid cases, through cases where the courts were not receptive to reverse confusion claims, up to the recent BACKYARD case, which may give reverse confusion renewed vitality.

Big O v. Goodyear—The BIGFOOT Case

The case that got reverse confusion rolling was about a trademark for tires. In September 1974, Goodyear launched a massive multi-million-dollar nationwide television ad campaign for a new brand of radial tires called BIGFOOT.6 Before the BIGFOOT launch, and with plenty of time to change the name, Goodyear discovered that a much smaller company, Big O, had already begun selling tires it called BIG O BIG FOOT and BIG O BIG. Unwilling to alter its plans, Goodyear asked Big O to consent to it too using BIGFOOT. Big O refused because it “believed any such use would severely damage Big O.”7 Big O told Goodyear that it was not interested in money—it just wanted Goodyear to stop using BIGFOOT. But with its BIGFOOT tire campaign poised to launch during ABC’s widely viewed Monday Night Football program, Goodyear put its foot on the advertising accelerator. Big O then sued.

At trial, Big O did not claim that Goodyear intended to trade on Big O’s goodwill or pass off its BIGFOOT tires as Big O’s BIG FOOT brand. Instead, Big O asserted a novel theory: that Goodyear’s use of BIGFOOT created a likelihood of confusion concerning “the source of Big O’s [BIG FOOT] tires.”8

As the district court recognized, “the usual trademark infringement case involves a claim by a plaintiff with a substantial investment in a well-established trademark,” but this case “involves . . . the infringer’s use of [the] plaintiff’s mark [that] results in confusion as to the origin of [the] plaintiff’s product.”9 The court searched for precedent that would support such a reversal of traditional trademark principles. Finding none, the court turned to the policy underlying trademark law. To protect the public from confusion, the court reasoned, “the scope of [trademark] protection” needed to be widened.10 The court therefore extended Colorado’s common law to include reverse confusion.

In affirming, the Tenth Circuit concluded that the district court had “very persuasively answered Goodyear’s argument that liability for trademark infringement cannot be imposed without a showing that Goodyear intended to trade on the goodwill of Big O or to palm off Goodyear products as being those of Big O’s.”11 The district court’s “answer” to Goodyear’s argument was as pragmatic as it was equitable—to deny Big O protection against reverse confusion would allow “anyone with adequate size and resources [to] adopt any trademark and develop a new meaning for that trademark as identification of the second user’s products.”12

Both the district court and the Tenth Circuit seemed driven by instinct rather than scholarly analysis. Their decision to protect Big O from reverse confusion was facilitated by Goodyear’s conscious disregard of Big O’s prior rights and by evidence of actual confusion—more than a dozen witnesses testified that after seeing Goodyear’s BIGFOOT commercials they were confused as to the source of Big O’s BIG FOOT tires.13 Goodyear’s indifference to Big O’s rights and the actual confusion evidence led the court to award almost $700,000 for corrective advertising to dispel the effects of Goodyear’s massive campaign.14 However, the guiding principles for determining when and how to analyze and decide reverse confusion cases would remain for later courts to establish.

Sands, Taylor & Wood v. Quaker Oats—The THIRST-AID Case

Thirst-Aid is another instance where a junior user embarked on a multimedia nationwide advertising campaign despite knowing about a small company’s prior trademark. This time, the product was the sports drink GATORADE, and the slogan was “THIRST AID for That Deep-Down Body Thirst.”15 Quaker Oats, which then owned Gatorade, invested millions in its THIRST AID campaign. It knew, however, that just a few years earlier, a potential rival had test-marketed a directly competing sports drink called THIRST-AID. That THIRST-AID product had managed to snag a 25 percent market share from Gatorade in a test market. But any hopes of taking that THIRST-AID sports drink nationwide were dashed when Gatorade launched its massive THIRST AID slogan and nationwide campaign.

This case had all the ingredients for a successful reverse confusion claim. First, the marks were identical. Second, the plaintiff’s THIRST-AID mark was a unique wordplay on “first aid” and so was at the very least a suggestive, conceptually strong mark. Third, there was a vast size disparity between Gatorade and the plaintiff—a small company that had merely licensed its mark for the short-lived test marketing but was looking for a new partner to commercialize its THIRST-AID brand. Fourth, Gatorade executives knew about the prior THIRST-AID mark but went ahead with the THIRST AID slogan anyway. The case was “aided” by surveys. One showed that Gatorade, with an earworm “Gatorade Is Thirst Aid” jingle, had indelibly linked the senior user’s THIRST-AID mark to the Gatorade brand. A second survey showed 24 percent confusion between the test-marketed THIRST-AID product and Gatorade.16

Significantly, the court addressed what has become a key issue for reverse confusion: How should the relative strength of the parties’ marks factor into the likelihood of confusion analysis? In forward confusion cases, courts consider the strength of the plaintiff’s mark—the more unique and more well-known the mark, the greater its scope. But, as the Thirst-Aid court recognized, that calculus does not work for reverse confusion, where the focus turns to the strength of the junior user’s mark. The stronger the junior user’s mark, the more likely it is to swamp the senior user’s mark and create reverse confusion. So, for Gatorade’s case, the strength of its THIRST AID mark became a weakness that led to a finding of reverse confusion.

The court’s ruling was a bitter one for Gatorade. The trial court awarded $24 million in disgorgement of Gatorade’s profits.17 The Seventh Circuit reversed, suggesting that a reasonable royalty might be a better measure of damages.18 On remand, the district court reduced the damage award to $16 million,19 which remains one of the largest trademark infringement damage awards on record.

Reverse Confusion after Thirst-Aid—Not So Fast

After the Thirst-Aid case, the equation for reverse confusion cases seemed clear: small company with little-known trademark plus big corporate infringer using the same or highly similar mark equals big damage award. But then, in a series of cases, small plaintiffs hoping for a windfall discovered that the math did not add up for them.

First, in Cohn v. Petsmart, Inc.,20 a small veterinary clinic whose slogan was CRITTER CLINIC—WHERE PETS ARE FAMILY sued the national pet store chain PetSmart for adopting the identical WHERE PETS ARE FAMILY slogan. The theory? Reverse confusion, with the plaintiff asserting that “Petsmart has used his mark so extensively that consumers are likely to mistake [the plaintiff’s] clinic as being associated with Petsmart.”21 Even though the marks were identical, the services were highly similar, and PetSmart’s nationwide business dwarfed the plaintiff’s small clinic, the district court granted summary judgment for PetSmart and the Ninth Circuit affirmed.22 The other likelihood of confusion factors—including the sophistication of pet owners, the absence of actual confusion, and the evidence that PetSmart had not acted in bad faith—mattered more than the similarity between the marks and services. It was also significant that both parties used the marks at issue “merely as . . . tagline[s]” that were subordinate to “their distinctive business names.”23

Other courts similarly have rejected overreaching reverse confusion claims. In Fuel Clothing Co. v. Nike, Inc.,24 the owner of the mark FUEL for action sports apparel and accessories unsuccessfully asserted forward and reverse confusion claims against Nike’s use of NIKE+FUELBAND and the “swoosh” design for electronic wristband fitness trackers, as well as against Nike’s use of slogans such as “Fuel It Up” on promotional T-shirts. The court recognized a “chief danger” inherent in most reverse confusion claims—that the senior user who has stood on the sidelines and failed to develop its brand will suddenly threaten to block “innovative junior users, who have invested heavily in promoting a particular mark” that the senior user has not “invested in, or promoted.”25 That concern, along with a plethora of third-party FUEL marks for apparel and sports-related products, doomed the plaintiff’s reverse confusion claim. Thus, as the court found, “Nike’s entry into the mark did not ‘overwhelm’ Fuel, as the market was saturated upon Nike’s entry.”26

Similar fates befell the plaintiffs’ reverse confusion claims in two cases decided by the U.S. District Court for the District of New Jersey, Fancaster, Inc. v. Comcast Corp.,27 and Koninklijke Philips Electronics N.V. v. Hunt Control Systems, Inc.28 In Fancaster, the court rejected the plaintiff’s claim that its mark FANCASTER for sports-related videos had been swamped by mega-cable TV company Comcast and its FANCAST mark. Influencing the court’s decision was the prevalence of third-party FAN marks, which made it “unlikely that consumers would associate websites featuring video content related to sports and other fans with a particular source, regardless of Comcast’s commercial strength.”29 Also influential were the differences between the marks’ respective logos and colors (a pastel “expanding universe” for FANCAST versus “a pair of [light-blue] headphones” for FANCASTER).30 Finally, the court dismissed out of hand the plaintiff’s claim for $73 million for corrective advertising, finding “not a shred of evidence of any damage to the [FANCASTER] mark caused by Comcast.”31

In Philips v. Hunt, the New Jersey district court likewise gave short shrift to Hunt’s reverse confusion and outsized damage claims. Hunt, a small lighting company, owned the trademark SIMPLICITY for professional grade lighting controls.32 Long after Hunt began using SIMPLICITY, the multinational lighting company Philips applied for a U.S. trademark for its corporate tagline SENSE AND SIMPLICITY. Philips’s application covered a range of products, including lighting controls. Hunt opposed Philips’s application at the Trademark Trial and Appeal Board (TTAB) and won.33 Philips then appealed that decision by filing a complaint in the District of New Jersey seeking a de novo trial with new evidence, as permitted under the Lanham Act. (Philips could have, alternatively, appealed directly to the Federal Circuit, which would have decided the appeal on the TTAB record.) Hunt responded by suing Philips for trademark infringement, alleging reverse confusion and demanding over $5 billion in damages, supposedly representing Philips’s profits from Philips’s U.S. sales of lighting products. The court, however, dismissed all of Hunt’s damage claims on summary judgment.34 As in Fancaster, the court found no evidence either that Hunt had suffered any damages from Philips’s use of SENSE AND SIMPLICITY as a tagline, or that any of Philips’s profits were attributable to that tagline.

With Hunt’s damage claims stricken, the case proceeded to a bench trial, after which the court issued a lengthy opinion detailing numerous reasons for rejecting Hunt’s reverse confusion theory of infringement. Among them was the fact that Philips’s tagline was always subordinate to its well-known PHILIPS name such that the tagline itself had no measurable commercial impact.35 Philips also showed, through an expert linguist, that SENSE and SIMPLICITY had a transformative meaning that called to mind the book and film SENSE AND SENSIBILITY rather than Hunt’s trademark.36 Furthermore, Philips presented voluminous evidence showing that Hunt’s mark had already been swamped by widespread use of “Simplicity” throughout the professional lighting industry.37 Philips also presented survey evidence showing that Hunt’s customers did not believe that Hunt was associated with Philips.38 And there was no credible evidence of any actual confusion.39 Thus, the court concluded “that Hunt has overwhelmingly failed to meet its burden of proof in establishing a likelihood of confusion with regard to any of the products that it contends were infringed by Philips’s activity.”40

Variety v. Wal-MartThe BACKYARD Case: Is Reverse Confusion Back?

To the extent that the PetSmart, Nike, Comcast, and Philips cases represent a judicial trend toward approaching reverse confusion claims cautiously, that trend may have shifted in the case of Variety v. Wal-Mart. Variety, which operates a chain of discount stores, had been using the incontestable registered mark THE BACKYARD as well as common law marks BACKYARD and BACKYARD BBQ for garden and barbecue equipment since 1993.41 When mega-retailer Wal-Mart introduced a BACKYARD GRILL plus design mark for grills and grilling supplies in 2011, Variety sued. Although not expressly styled as a reverse confusion case, the dynamics had all the hallmarks of the David vs. Goliath matchups in Big O and Thirst-Aid. Wal-Mart knew about Variety’s prior incontestable registration for THE BACKYARD.42 In fact, its lawyers warned Wal-Mart not to use that mark. But the company went ahead anyway with its BACKYARD GRILL line of products. That decision proved lucrative—Wal-Mart’s sales under the BACKYARD GRILL mark approached $1 billion, dwarfing Variety’s sales of its own BACKYARD products.43 Wal-Mart’s decision also proved ill-fated. Given Wal-Mart’s commercial success, Variety did not merely want to stop Wal-Mart from using BACKYARD, it also wanted to disgorge Wal-Mart’s profits.

Seizing on Wal-Mart’s decision to adopt BACKYARD GRILL despite knowing of Variety’s prior trademark, the U.S. District Court for the Eastern District of North Carolina had little sympathy for the Arkansas-based corporation, stating: “It is apparent from the record that Walmart knew a smaller chain (Variety) used the BACKYARD marks in the way Walmart itself wished to and . . . because it knew it was bigger and could likely outlast the smaller chain in litigation . . . decided to use the marks in that way anyway.”44 The district court granted summary judgment for Variety, awarding damages of $32 million.45

On appeal, the U.S. Court of Appeals for the Fourth Circuit reversed the grant of summary judgment, concluding that the district court had improperly resolved contested fact and remanding the case for a new trial.46 That trial took place in late 2018. Hearing the same evidence about Wal-Mart’s indifference to Variety’s BACKYARD trademark, the jury found Wal-Mart liable for willful infringement and awarded Variety $95 million.47

SportFuel v. PepsiCoFury over “Sports Fuel”

A recent decision by the Seventh Circuit—involving Gatorade and its latest slogan “The Sports Fuel Company”—suggests a reboot of that court’s attitude toward reverse confusion. Decades earlier, in the Thirst-Aid case, the court rejected Gatorade’s fair use defense and found the sports drink company liable for reverse confusion. But it found Gatorade’s THE SPORTS FUEL COMPANY slogan protected by the descriptive fair use doctrine notwithstanding Gatorade’s effort to obtain a federal registration containing that slogan.48 Having disposed of the case on fair use grounds, the court declined to consider whether Gatorade’s adoption and use of the plaintiff’s SPORTS FUEL mark as part of Gatorade’s slogan created reverse confusion.49

You may ask yourself, “Well, how did I get here?” . . . Same as it ever was.

—Talking Heads/Brian Eno, “Once in a Lifetime”

Conclusion

The BACKYARD case resembles the foundational reverse confusion cases Big O and Thirst-Aid in that a small brand owner prevailed against a commercial powerhouse that had been aware of the plaintiff’s prior trademark, decided to use it anyway, and made huge profits, only to be held liable for trademark infringement and damages. Whether the BACKYARD case rejuvenates the reverse confusion doctrine may depend on how the Fourth Circuit decides Wal-Mart’s inevitable appeal. But whether the appeals court upholds, trims, or throws out the verdict, reverse confusion will remain an available theory of trademark infringement where a much larger company ignores and usurps the trademark first used by a smaller competitor.

Endnotes

1. Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365 (10th Cir. 1977).

2. Sands, Taylor & Wood Co. v. Quaker Oats Co. (Thirst-Aid), 978 F.2d 947 (7th Cir. 1992).

3. Id. at 958 (quoting Banff, Ltd. v. Federated Dep’t Stores, Inc., 841 F.2d 486, 490 (2d Cir. 1988)).

4. See infra text accompanying notes 20–40.

5. See infra text accompanying notes 41–47.

6. Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365, 1368 (10th Cir. 1977).

7. Id.

8. Id. at 1371.

9. Id.

10. Id. at 1372 (citing Wood v. Woods Homes, Inc., 519 P.2d 1212, 1215–16 (Colo. App. 1974)).

11. Id.

12. Id.

13. Id.

14. Id. at 1375.

15. Thirst-Aid, 978 F.2d 947, 950 (7th Cir. 1992).

16. Id. at 960.

17. Id. at 961.

18. Id. at 963.

19. Sands, Taylor & Wood Co. v. Quaker Oats Co., No. 84 C 8075, 1995 WL 221871, at *3 (N.D. Ill. Apr. 12, 1995).

20. 281 F.3d 837 (9th Cir. 2002).

21. Id. at 841.

22. Id. at 843.

23. Id. at 842.

24. 7 F. Supp. 3d 594 (D.S.C. 2014).

25. Id. at 624.

26. Id.

27. 832 F. Supp. 2d 380 (D.N.J. 2011).

28. No. 11-3684 (SRC)(CLW), 2017 WL 3719468 (D.N.J. Aug. 29, 2017). The author and Kelly IP were trial counsel for Philips in this case.

29. Fancaster, 832 F. Supp. 2d at 417.

30. Id. at 412.

31. Id. at 423.

32. Philips, 2017 WL 3419468, at *2.

33. Id. at *18.

34. See id. at *19.

35. Id. at *28–29.

36. Id. at *12.

37. Id. at *26.

38. Id. at *28–29.

39. Id. at *33.

40. Id. at *36.

41. Variety Stores, Inc. v. Wal-Mart Stores, Inc., 150 F. Supp. 3d 583, 589 (E.D.N.C. 2015).

42. Id. at 590.

43. See Variety Stores, Inc. v. Wal-Mart Stores, Inc., 888 F.3d 651, 658 (4th Cir. 2018).

44. Variety Stores, 150 F. Supp. 3d at 591.

45. Variety Stores, 888 F.3d at 656.

46. Id. at 667.

47. Verdict Form, Variety Stores, Inc. v. Wal-Mart Stores, Inc., No. 5:14-CV-217-BO (E.D.N.C. Feb. 2, 2019).

48. SportFuel, Inc. v. PepsiCo, Inc., No. 18-3010, 2019 WL 3521672, at *3–6 (7th Cir. Aug. 2, 2019).

49. Id. at *7.

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Robert D. Litowitz is a partner at Kelly IP, LLP in Washington, D.C. He specializes in trademark, copyright, and unfair competition litigation.

 

The author thanks Hani Gazal, associate at Kelly IP, for his contribution to this article.