MN Mining & Mfg. Co. v. Rauh Rubber

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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Nos. 97-1018MN, 97-1019MN
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*
No. 97-1018MN *
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*
Minnesota Mining & Manufacturing *
Company, * On Appeal from the United
* States District Court
Appellant, * for the District of
* Minnesota.
v. *
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Rauh Rubber, Inc.; Gaia Enterprises, *
Inc.; James T. Rauh; and *
James Thomas, *
*
Appellees. *
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No. 97-1019MN *
_____________ *
*
Minnesota Mining and Manufacturing *
Company, * On Appeal from the United
* States District Court
Appellee, * for the District of
* Minnesota.
v. *
*
Rauh Rubber, Inc.; Gaia Enterprises, *
Inc.; and James T. Rauh, *
*
Appellants. *
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Submitted: October 20, 1997
Filed: December 11, 1997
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Before RICHARD S. ARNOLD, Chief Judge, LOKEN and HANSEN, Circuit Judges.
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RICHARD S. ARNOLD, Chief Judge.
In this case, Minnesota Mining & Manufacturing Company (“3M”) appeals the
District Court’s order granting only in part 3M’s motion for a preliminary injunction.
This litigation involves claims by 3M against Rauh Rubber, Inc., GAIA Enterprises,
Inc., James T. Rauh, and James Thomas (the “Rauh defendants”), alleging trademark
infringement in violation of the Lanham Trademark Act of 1946, 15 U.S.C. §§ 1114(1)
and 1125(a) (1994); trademark dilution in violation of the Lanham Act, 15 U.S.C.
§ 1125(c); common-law breach of express and implied contract; and deceptive trade
practices in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1), and the
Minnesota Deceptive Trade Practices Act, Minn. Stat. §§ 325D.43 - 325D.58 (1997).
Rauh Rubber and GAIA Enterprises cross-appeal, arguing that the district judge1 erred
in denying their motion to increase the amount of the bond 3M was required to deposit
with the District Court. We now affirm the District Court’s holding as to both the
appeal and the cross-appeal.
I.
1
The Hon. John R. Tunheim, United States District Judge for the District of
Minnesota.
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3M is a Delaware corporation based in St. Paul, Minnesota, which manufactures
industrial, commercial, residential, and office products. Part of 3M’s business
involvesthe manufacture of reflective material, which is done primarily at a facility in
Brownwood, Texas. The reflective material is manufactured in large rolls and then is
subjected to an extensive quality-control process. Surplus or inadequate reflective
material is either sold or discarded in a landfill. Beginning in September 1993, 3M
began selling this surplus or inadequate material to Rauh Rubber, Inc., a family-owned
Ohio corporation which buys scrap material to resell or recycle it. James Rauh is an
officer and 40% shareholder in Rauh Rubber. Rauh and his family own and operate
both Rauh Rubber and GAIA Enterprises, Inc., which also buys and then resells or
recycles scrap products, and which also bought reflective materials from 3M.
After purchasing these materials from 3M, Rauh Rubber and GAIA began to sell
them to 3M’s customers at lower prices than 3M was offering for its own reflective
material. In September 1994, when 3M learned that Rauh Rubber and GAIA were
selling these materials, 3M began negotiating the repurchase of the materials. The
negotiations continued through 1995, and were not successful. 3M filed a complaint
with the District Court on March 3, 1996, alleging trademark infringement, trademark
dilution, breach of contract, and unfair trade practices on the part of the Rauh
defendants.
On March 8, 1996, after a hearing, the District Court granted 3M’s motion for
a temporary restraining order, which prevented the Rauh defendants from selling or
disposing of any reflective materials they had purchased from 3M. The Court also
required 3M to post a $100,000 bond. The District Court conducted an extensive four-
day hearing in May 1996 to consider a motion by 3M for a preliminary injunction and
motions by the Rauh defendants to dismiss the complaint for lack of personal
jurisdiction and improper venue. At this hearing, both sides presented evidence of the
quality of the reflective materials 3M sold to the Rauh defendants and evidence of
confusion of the Rauh defendants’ customers as to the quality of the materials that
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Rauh Rubber and GAIA had bought from 3M. On October 17, 1996, the District Court
issued an opinion denying most of the Rauh defendants’ motion to dismiss and granting
in part 3M’s motion for a preliminary injunction.2
In its October 17 order, the District Court held that 3M is unlikely to prevail in
a trial on the merits on its claim that an express or an implied contract existed between
3M and the Rauh defendants obligating the Rauh defendants not to resell the reflective
material bought from 3M, but instead to grind it up for use in rubber products.3 The
District Court also held that 3M is likely to succeed on its trademark-infringement
claims, because it demonstrated that some of the reflective material it sold to the Rauh
defendants was not “genuine,” and that there was some likelihood of confusion by the
Rauh defendants’ customers as to the quality of the reflective materials. Next, the Court
held that 3M is not likely to prevail in its trademark-dilution claim. Finally, the Court
held that 3M is likely to prevail in its state and federal unfair-trade-practices claims
against the Rauh defendants. The Court went on to consider any irreparable harm 3M
might have faced if the District Court did not issue an injunction, to balance the harms
each party might face, and to consider the public interest in issuing an injunction. See
Minnesota Mining & Manufacturing Co. v. Rauh Rubber, Inc., 943 F. Supp. 1117 (D.
Minn. 1996).
2
The District Court granted the Rauh defendants’ motion to dismiss the
complaint against Joseph Rauh, an officer and shareholder in Rauh Rubber and GAIA,
for lack of personal jurisdiction. The Court denied the motions to dismiss as to James
Rauh, Rauh Rubber, and GAIA. Neither party raises these issues on appeal, so we
need not consider them.
3
3M does not contest on appeal the limited holding that it is not likely to prevail
on the merits of its claim that an express or implied contract not to resell the materials
existed between it and the Rauh defendants. 3M is free to pursue its breach-of-contract
claim in a trial on the merits.
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Taking these factors into account, the District Court granted in part 3M’s motion
for a preliminary injunction. In an order dated November 15, 1996, the Court required
the Rauh defendants to include the following written disclosure statement on any
documents accompanying an offer to sell or deliver the reflective materials they bought
from 3M:
Please take notice that this product may not be first-quality goods. This
product was purchased by Seller from 3M as rejected, excess and/or
scrapped material. Seller is not an authorized 3M dealer and 3M has not
authorized the sale of this product. You should do your own inspection or
testing to determine whether this product is suitable for your intended use.
3M does not extend any express or implied guarantees, representations, or
warranties with respect to this product.
In this order, the Court also denied an earlier motion by the Rauh defendants to increase
the bond 3M was required to submit to the Court. This case is now before us on appeal
of 3M, which argues that this injunction was insufficient, and that the District Court
should have enjoined the Rauh defendants from selling any reflective materials they
bought from 3M. The Rauh defendants cross-appeal, arguing that the District Court
should have increased the amount of 3M’s bond.
In affirming the District Court’s order, we emphasize the preliminary nature of
our holding. This opinion reflects our view that the District Court’s injunction
adequately preserves the status quo while protecting the interests of all parties and the
public at this stage of the litigation. Any conclusions of law we announce today are
tentative, and 3M is not prohibited from pursuing claims raised in its complaint with
respect to the Rauh defendants’ pre-suit conduct in a trial on the merits.
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II.
A.
A district court considering a motion for a preliminary injunction should consider
the likelihood that the moving party will prevail on the merits, the threat of irreparable
harm to the moving party, the balance between the harm to the moving party and the
harm the injunction will cause to other parties, and the public interest. Goff v. Harper,
60 F.3d 518, 520 (8th Cir. 1995). The District Court considered these factors in
deciding whether to issue an injunction, including the likelihood that 3M would prevail
on the merits on its trademark-infringement claim.
In order to prevail on a trademark-infringement claim, a plaintiff must prove a
likelihood of consumer confusion, which is the “hallmark of any trademark infringement
claim.” Polymer Technology Corp. v. Mimran, 37 F.3d 74, 80 (2d Cir. 1994). See also
Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107-08 (4th Cir. 1991). In
determining whether a likelihood of confusion exists, a court should take the following
factors into consideration:
1) the strength of the owner’s mark; 2) the similarity between the owner’s
mark and the alleged infringer’s mark; 3) the degree to which the products
compete with each other; 4) the alleged infringer’s intent to pass off its
goods as those of the trademark owner . . .; 5) incidents of actual
confusion; and 6) whether the degree of purchaser care can eliminate any
likelihood of confusion which would otherwise exist.
Life Technologies, Inc. v. Gibbco Scientific, Inc., 826 F.2d 775, 776 (8th Cir. 1987)
(citing SquirtCo v. Seven-Up Co., 628 F.2d 1086, 1091 (8th Cir. 1980)). This Court
reviews a district court’s finding of a likelihood of confusion under the clearly erroneous
standard of review. Id. at 776.
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We cannot say that the District Court erred in holding that requiring the Rauh
defendants to include disclosure language in sales documents would sufficiently remedy,
for the period before trial on the merits, any likelihood of confusion. The issue in this
case is the likelihood that the Rauh defendants’ customers will be confused as to the
quality of the reflective materials. Because sales contracts will feature prominently the
court-ordered disclosure statement, there is little likelihood that a consumer would
confuse scrap reflective materials sold by the Rauh defendants with high-quality
reflective materials sold by 3M. It is true that the strength of 3M’s trademark is
uncontested, that 3M’s mark is the same as the mark on the scrap sold by the Rauh
defendants, and that 3M and the Rauh defendants may continue to compete with one
another for buyers. However, the other three factors to be considered militate in favor
of the District Court’s injunction. The District Court found no evidence to suggest the
Rauh defendants attempted to represent themselves as authentic 3M dealers. The
evidence presented at the hearing revealed that even before the District Court required
the disclosure statement to be placed in sales documents, very few actual customers
believed they were buying quality 3M material from the Rauh defendants. A purchaser
exercising a minimal degree of care will realize that he may potentially be buying scrap
if he reads the warning on the sales documents. See Prestonettes, Inc. v. Coty, 264 U.S.
359, 368 (1924) (“When the [trademark] is used in a way that does not deceive the
public we see no such sanctity in the word as to prevent its being used to tell the truth.
It is not taboo.”) (Holmes, J.).
3M argues that the District Court’s injunction would be effective only if
disclosure language were included on every piece of scrap material sold by the Rauh
defendants. However, given the weak evidence of actual confusion by the Rauh
defendants’ customers before the District Court issued the injunction, we cannot hold
that the Court erred in requiring the language to appear only in sales contracts and
documents. Therefore, we affirm the District Court’s holding that an injunction
requiring the Rauh defendants to disclose the quality of the scrap reflective material in
sales contracts is sufficient to avoid a likelihood of consumer confusion. Because proof
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of consumer confusion is a necessary element of a trademark-infringement claim, and
because we hold, on the basis of the record now before us, that the District Court’s
injunction remedies the likelihood of future consumer confusion, we need not now reach
the other trademark-infringement issues in this case.
B.
We also uphold the District Court’s finding that 3M failed to demonstrate a
likelihood of success on the merits of a trademark-dilution claim under the Lanham Act,
15 U.S.C. § 1125(c), and that an injunction absolutely prohibiting the re-sale of 3M’s
reflective material was therefore inappropriate. As the District Court noted, 3M was
able to produce little evidence that the Rauh defendants’ sale of scrap materials it
bought from 3M tarnished, degraded, or diluted 3M’s own mark.
C.
Finally, we agree that the injunction issued by the District Court will prevent
possible violations by the Rauh defendants of deceptive trade practices prohibited by
the Lanham Act, 15 U.S.C. § 1125(a), and the Minnesota Deceptive Trade Practices
Act, Minn. Stat. § 325D.44. Both of these statutes prohibit false or misleading
representations or representations which have a tendency to deceive. The injunction
ordered by the District Court prevents misrepresentations as to the quality of the
reflective material sold by the Rauh defendants, because it warns customers that the
material they are buying may be scrap and may not be of the highest quality. Because
this injunction remedies the problems addressed by these two deceptive trade-practices
statutes, we affirm the District Court’s order.
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III.
As to the Rauh defendants’ cross-appeal, we uphold the District Court’s denial
of the motion to increase the amount of 3M’s $100,000 bond. We find no abuse of
discretion on the part of the District Court, given the fact that even if the Rauh
defendants have been or will be damaged by the injunction against them, they are free
to pursue 3M, a solvent corporation, for the full extent of the damages. The $100,000
bond is a security device, not a limit on the damages the Rauh defendants may obtain
against 3M if the facts warrant such an award.
IV.
For the reasons discussed above, the order of the District Court is affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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