Otr Wheel Engineering, Inc. v. West Worldwide Services, Inc.

FILED
NOT FOR PUBLICATION MAR 18 2015
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
OTR WHEEL ENGINEERING, INC.; No. 14-35563
BLACKSTONE/OTR, LLC; F.B.T.
ENTERPRISES, INC., D.C. No. 2:14-cv-00085-LRS
Plaintiffs - Appellees,
MEMORANDUM*
v.
WEST WORLDWIDE SERVICES, INC.;
SAMUEL J. WEST, individually, and his
marital community,
Defendants - Appellants.
Appeal from the United States District Court
for the Eastern District of Washington
Lonny R. Suko, District Judge, Presiding
Argued and Submitted February 3, 2015
Seattle Washington
Before: FISHER, BEA and MURGUIA, Circuit Judges.
West Worldwide Services, Inc., and Samuel West (collectively “West”)
appeal the district court’s order granting a preliminary injunction in favor of OTR
Wheel Engineering, Inc., and affiliated plaintiffs (collectively “OTR”). We have
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
jurisdiction under 28 U.S.C. § 1292(a)(1). We review the district court’s order for
abuse of discretion. See Flexible Lifeline Sys., Inc., v. Precision Lift, Inc., 654 F.3d
989, 994 (9th Cir. 2011). We therefore review the district court’s legal rulings de
novo and its findings of fact for clear error. See Indep. Living Ctr. of S. Cal., Inc.
v. Shewry, 543 F.3d 1050, 1055 (9th Cir. 2008). We affirm the order granting a
preliminary injunction but modify its terms.
A plaintiff who seeks a preliminary injunction must show “[1] that he is
likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the
absence of preliminary relief, [3] that the balance of equities tips in his favor, and
[4] that an injunction is in the public interest.” Winter v. Natural Res. Def.
Council, Inc., 555 U.S. 7, 20 (2008). If the balance of equities tips “sharply” in the
plaintiff’s favor, then a court may issue a preliminary injunction upon a showing
that there are “serious questions going to the merits – a lesser showing than
likelihood of success on the merits.” Shell Offshore, Inc. v. Greenpeace, Inc., 709
F.3d 1281, 1291 (9th Cir. 2013) (quoting Alliance for the Wild Rockies v. Cottrell,
632 F.3d 1127, 1135 (9th Cir. 2011)). “Serious questions need not promise a
certainty of success, nor even present a probability of success, but must involve a
‘fair chance of success on the merits.’” Republic of the Philippines v. Marcos, 862
F.2d 1355, 1362 (9th Cir. 1988) (quoting Nat’l Wildlife Fed’n v. Coston, 773
2
F.2d 1513, 1517 (9th Cir. 1985)).1
1. The district court did not clearly err when it found there was a fair chance
OTR would prove that its trade dress was nonfunctional, a required element for
trade dress protection. See Secalt S.A. v. Wuxi Shenxi Constr. Mach. Co., 668 F.3d
677, 683 (9th Cir. 2012). The court properly relied on the presumption of
nonfunctionality that results from OTR having registered its trade dress with the
U.S. Patent and Trademark Office. See Talking Rain Beverage Co. Inc. v. S. Beach
Beverage Co., 349 F.3d 601, 603, 605 (9th Cir. 2003). Aromatique, Inc. v. Gold
Seal, Inc., 28 F.3d 863 (8th Cir. 1994), held only that the presumption of secondary
meaning, a different element of trade dress, becomes effective as of the date of
registration. See id. at 870.2 West presents no argument for why we should extend
the Aromatique rule to the element of nonfunctionality.
Even without the presumption, there is sufficient evidence in the record to
conclude that OTR had a fair chance of proving nonfunctionality. OTR introduced
sworn declarations from its employees and an expert showing that, although all
1
West does not contest the district court’s use of the less-demanding “fair
chance of success on the merits” standard.
2
West argued in its reply brief that the district court’s finding regarding
secondary meaning was also in error. Because West did not “specifically and
distinctly” make this argument in its opening brief, the issue is waived. See Dream
Games of Ariz., Inc. v. PC Onsite, 561 F.3d 983, 994-95 (9th Cir. 2009).
3
alternating-tread tires serve a self-cleaning purpose, the specific angle and spacing
of the lug bars on the tire produced a tread pattern that was purely aesthetic. See
Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1259 (9th Cir. 2001)
(“The fact that individual elements of the trade dress may be functional does not
necessarily mean that the trade dress as a whole is functional; rather, ‘functional
elements that are separately unprotectable can be protected together as part of a
trade dress.’” (quoting Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837,
842 (9th Cir. 1987))).
2. The district court did not clearly err in finding that OTR had a fair chance
of success on its trade secret claim. See Wash. Rev. Code § 19.108.010(4). The
court identified OTR’s trade secret as its tire “recipe.” In the record, OTR
representatives provided slightly more definition to the trade secret, describing it as
the “specific instructions on how to prepare and manufacture the Outrigger tires”
that were provided to its manufacturer Superhawk, and as a “unique layout of steel
and nylon reinforcing materials, and a phased method of construction using
specific types of rubber.” The declarations OTR proffered are sufficient to find it
has a fair chance of proving it has identifiable trade secrets for the purpose of a
preliminary injunction. See id.
4
OTR also presented sufficient evidence that it undertook reasonable efforts
to maintain the secrecy of the Outrigger tire recipe. See § 19.108.010(4)(b). It
produced declarations and processing agreements showing that it required the
entities involved in the production of the tire to sign confidentiality agreements.
The evidence is enough, at this stage, for the district court to have concluded that
OTR had a fair chance of later establishing it made reasonable efforts at secrecy.
OTR also demonstrated it had a fair chance of proving West misappropriated
its tire recipe. See § 19.108.010(2). Expert analysis revealed the tires were nearly
identical in their geometry, indicating that West was not only imitating the trade
dress, but also that it possessed the confidential information required to make a
virtual replica of OTR’s tire. Declarations also revealed that the same
manufacturer of West’s Extremelift tire had at one time possessed confidential
information for the construction of OTR’s Outrigger tire. The district court
therefore drew a reasonable inference that West, through its manufacturer,
improperly used trade secrets related to OTR’s Outrigger tire. See id.3
3
As with the issue of secondary meaning, West waived any argument that
OTR has not shown trade secret novelty, because West did not “specifically and
distinctly” argue the issue in its opening brief. Dream Games of Ariz., 561 F.3d at
994-95.
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3. The district court did not clearly err in finding that OTR was likely to
suffer irreparable harm absent a preliminary injunction. Loss of control over
business reputation and damage to goodwill are cognizable irreparable harms in the
trademark infringement context. See Herb Reed Enters., LLC v. Fla. Entm’t
Mgmt., Inc., 736 F.3d 1239, 1250 (9th Cir. 2013). Although the district court’s
finding of reputational injury was not based on any evidence that West’s lookalike
tire was an inferior product, see id. at 1250-21 (holding that likelihood of
irreparable harm must be based on evidence in the record, not “unsupported and
conclusory statements regarding harm [the plaintiff] might suffer”), the court’s
finding of goodwill injury was supported by some record evidence. West was
selling its allegedly infringing tire to OTR’s major customer, Genie Industries,
leading OTR to admonish its customer and eventually to question Genie whether it
had leaked OTR’s confidential information to West. From this, it was reasonable
to conclude that OTR would likely suffer a nonquantifiable injury to the goodwill
it had created with its customer, and that an injunction preventing West from
selling the allegedly infringing tires to Genie and other OTR customers would
forestall further deterioration in its business relationships.
4. Finally, we do agree with West that the terms of the injunction are
overbroad. Although the district court has “considerable discretion in fashioning
6
the terms of an injunction,” an injunction must be “tailored to eliminate only the
specific harm alleged.” E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280,
1297 (9th Cir. 1992). Subsections b, c and d of the district court’s injunction order
all prohibit West from engaging in activities that are not alleged, much less shown,
to have caused injury to OTR in this case. We therefore modify the terms of the
injunction as shown below. See id. at 1298 (affirming the terms of an overbroad
injunction with modifications to narrow its scope).
1. In subsection b, strike the following: “of OTR’s trademarks or”.
2. In subsection c, replace “OTR” with “OTR’s Outrigger model tires,”
and strike the following: “or (ii) making any false description or
representation of origin concerning any goods or services offered for
sale by Defendants;”.
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3. In subsection d, between the phrases “trade secrets” and “for any
reason,” insert the following: “pertaining to the Outrigger model
tire”.4
4
The following shows how the modified injunction order shall read in full,
with strikes through text that has been removed from the original order, with
brackets surrounding text that has been added and with all changes in bold:
1. Defendants, together with their respective agents, servants,
employees, affiliates, attorneys, and persons in active concert or
participation with them, are hereby enjoined pending entry of
judgment in this action from:
a. Directly or indirectly making any commercial use of
OTR’s registered trade dress as defined in U.S. Trademark
Registration No. 4,220,169 for the Outrigger tire tread design, or any
tire tread design that is confusingly similar to the Outrigger tire tread
design;
b. Directly or indirectly using OTR’s Outrigger trade
dress, or any of OTR’s trademarks or colorable imitations thereof,
in connection with the sale, offer for sale, advertising or promotion of
any goods or services;
c. Directly or indirectly: (i) manufacturing, producing,
distributing, circulating, selling, offering for sale, advertising,
promoting or displaying any product or service which tends to relate
or connect such product or service in any way to OTR[’s Outrigger
model tires]; or (ii) making any false description or representation
of origin concerning any goods or services offered for sale by
Defendants; and
d. Directly or indirectly utilizing any of OTR’s
confidential and proprietary trade secrets [pertaining to the
Outrigger model tire] for any reason.
2. This injunction shall take effect upon OTR’s posting of a
bond of $1,800,000 with the Clerk of the Court for the payment of
costs and damages that may be incurred by any party found to be
wrongfully restrained by this order.
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Each party shall bear its own costs on appeal.
AFFIRMED IN PART and MODIFIED IN PART.
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