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Variety Stores, Inc v. Wal-Mart Stores, Inc.

United States Court of Appeals, Fourth Circuit

April 24, 2018

VARIETY STORES, INC., a Delaware corporation, Plaintiff - Appellant,
v.
WAL-MART STORES, INC., a Delaware corporation, Defendant-Appellee VARIETY STORES, INC., a Delaware corporation, Plaintiff - Appellee,
v.
WAL-MART STORES, INC., a Delaware corporation, Defendant-Appellant. VARIETY STORES, INC., a Delaware corporation, Plaintiff - Appellee,
v.
WAL-MART STORES, INC., a Delaware corporation, Defendant-Appellant.

          Argued: January 25, 2018

          Appeals from the United States District Court for the Eastern District of North Carolina, at Raleigh. Terrence W. Boyle, District Judge. (5:14-cv-00217-BO)

         ARGUED:

          W. Thad Adams, III, SHUMAKER, LOOP & KENDRICK, LLP, Charlotte, North Carolina, for Appellant/Cross-Appellee.

          Mark S. Puzella, FISH & RICHARDSON P.C., Boston, Massachusetts, for Appellee/Cross-Appellant.

         ON BRIEF:

         Samuel A. Long, Jr., Christina D. Trimmer, SHUMAKER, LOOP & KENDRICK, LLP, Charlotte, North Carolina; Scott P. Shaw, CALL & JENSEN, A PROFESSIONAL CORPORATION, Newport Beach, California, for Appellant/Cross-Appellee.

          William W. Wilkins, Kirsten E. Small, NEXSEN PRUET, LLC, Greenville, South Carolina; John A. Dragseth, Minneapolis, Minnesota, R. David Hosp, Sheryl Koval Garko, Boston, Massachusetts, Elizabeth E. Brenckman, Michael A. Anderson, Jeffrey C. Mok, FISH & RICHARDSON P.C., New York, New York, for Appellee/Cross-Appellant.

          Before KING, FLOYD, and THACKER, Circuit Judges.

          FLOYD, Circuit Judge:

         This appeal arises from a protracted trademark dispute between appellant Variety Stores, Inc. ("Variety"), and cross-appellant and appellee Wal-Mart Stores, Inc. ("Walmart"). The district court granted partial summary judgment in Variety's favor, finding Walmart liable for trademark infringement. Following a subsequent bench trial, the district court ordered Walmart to disgorge $32.5 million in profits made from 16 states and the District of Columbia. The district court denied Variety's request for a separate jury trial to determine additional non-disgorgement damages and ordered Walmart to reimburse Variety for reasonable costs and attorneys' fees. Variety appeals from the district court's calculation of disgorged profits and denial of its request for a jury trial. Walmart cross-appeals from the district court's grant of partial summary judgment in Variety's favor and award of profit disgorgement, costs, and attorneys' fees. Because the district court improperly granted summary judgment in Variety's favor, we dismiss the appeal in part, affirm in part, vacate in part, and remand.

         I.

         This trademark dispute concerns whether Walmart's use of the mark "Backyard Grill" on its grills and grilling supplies infringes on Variety's use of its registered mark, "The Backyard, " and unregistered marks, "Backyard" and "Backyard BBQ, " that it claims it owns.

         Variety is a Delaware corporation that operates retail stores in 16 states and the District of Columbia and sells various outdoor products, such as lawn and garden equipment, grills, and grilling products. In 1997, Variety purchased Rose's Stores, Inc. ("Rose's"), and acquired its registered trademark "The Backyard" for "retail store services in the field of lawn and garden equipment and supplies." J.A. 61. When Rose's applied for the trademark in 1994, the U.S. Patent and Trademark Office ("USPTO") registered the mark without requiring proof of secondary meaning, which is required when the submitted mark is relatively weak and generally unregistrable. At some point, Variety began using variations of "The Backyard"-"Backyard" and "Backyard BBQ"- for selling not just lawn and garden equipment but also grills and grilling supplies.

         In late 2010, Walmart decided to adopt a private label for its grills and grilling supplies. According to Karen Dineen, Walmart's Senior Director for General Merchandise, [1] at the time, Walmart was selling its grilling products under multiple manufacturer names and concluded that having one uniform label would improve branding and lower costs. Walmart's branding team embarked on an iterative development process of generating a list of brand names, performing a legal clearance for trademarks, and conducting surveys to gauge customer reactions to those names.

         Walmart considered brand names such as "Grill Works, " "Backyard Barbeque, "[2]and "Backyard BBQ, " but it ultimately adopted "Backyard Grill" as the name for its grills. Dineen testified that Walmart's legal team advised the branding team not to adopt "Grill Works, " "Backyard Barbeque, " and "Backyard BBQ." In a subsequent declaration, Dineen noted that Walmart knew that Variety owned the federal trademark registration for "The Backyard" mark for lawn and garden equipment and supplies. Dineen further submitted, however, that "Walmart was not aware of any of Variety's claimed unregistered or 'common law' uses of marks incorporating the word 'backyard' in connection with any products, including lawn and garden products." J.A. 1515. Dineen also explained that Walmart typically "comparison shop[s]" in its large competitors' stores, such as Lowe's and Home Depot, and that it was unlikely that "somebody from [Walmart] would have gone to a Variety store somewhere just see how they were using their mark." Walmart Opening Br. 25; see also J.A. 1612.

         Ultimately, Walmart decided to adopt "Backyard Grill" and began selling grills bearing that mark in late 2011. On August 17, 2011, Walmart filed its trademark application for "Backyard Grill" with the USPTO, while disclaiming the exclusive right to use the word "Grill." On July 10, 2012, the USPTO published Walmart's application for 30 days to allow the public to file any opposition to the registration.

         Variety became aware of Walmart's trademark application for "Backyard Grill" and filed an opposition to the application with the Trademark Trial and Appeal Board ("TTAB") in July 2012. After limited discovery before the TTAB, Variety commenced civil action in the federal district court in April 2014, which stayed the TTAB proceedings. Variety brought claims for trademark infringement and unfair competition under federal law, 15 U.S.C. §Â§1114, 1125, and unfair and deceptive practices and trademark infringement under North Carolina law, N.C. Gen. Stat. §Â§75-1.1, 80-11.

         Variety moved for partial summary judgment with regards to Walmart's liability. Walmart also cross-moved for summary judgment. Variety submitted evidence showing that it had used "The Backyard" and its variations "Backyard" and "Backyard BBQ" (collectively, the "'Backyard' marks") since 1993; sold over $56 million worth of products bearing the "Backyard" marks, with over $8 million in sales of grills and grilling accessories; and spent "millions" to advertise its products. Variety, however, did not quantify exactly how much it spent on promoting the mark on grills or grilling products. Variety also did not provide any evidence of confusion among consumers.

         Similarly, Walmart submitted extensive evidence in support of its summary judgment motion. Most notably, Walmart submitted two expert surveys conducted after the commencement of this suit to gauge the level of actual confusion among customers. These surveys asserted that customers did not confuse the two marks. Additionally, Walmart presented evidence showing that: (1) 527 registered trademarks and pending trademark applications contained the term "backyard, " (2) 121 of these marks were in the same class for which Variety's "The Backyard" mark is registered, and (3) 23 registered marks or pending applications including the term "backyard" list "grill" in the description of goods covered by the marks.

         After a hearing, the district court granted partial summary judgment in Variety's favor on December 8, 2015. The district court held, first, that all of Variety's marks were protectable pursuant to its trademark registration and common law right and beyond the registered purpose of retail sales of lawn and garden products, and, second, that Walmart's mark created a likelihood of confusion. Regarding the likelihood of confusion analysis, the district court concluded that: Variety's "Backyard" marks were strong conceptually and commercially; Walmart ignored its own counsel's advice and adopted "Backyard Grill, " thus exhibiting an intent to confuse consumers; the surveys showing no confusion lacked persuasiveness; and this was a case involving a large corporation trying to outlast a smaller company in competition or litigation.

         Following summary judgment, the remedies phase of the litigation began. After a bench trial, the district court ordered Walmart to disgorge approximately $32.5 million in profits. The district court calculated the amount of disgorgement not based on Walmart's nationwide sales ($910 million), but based on Walmart's sales from the 17 jurisdictions in which Walmart and Variety directly competed ($395 million). In accordance with the parties' stipulation that Walmart be able to deduct the cost of goods sold, the district court deducted $285.5 million. The district court further deducted approximately $77 million in selling, general, and administrative ("SG&A") costs associated with Walmart's fixed overhead. Following the $32.5 million disgorgement order, Variety moved for a separate jury trial to determine additional non-disgorgement damages. The district court denied the motion on the grounds that disgorgement provided a sufficient remedy and non-disgorgement damages would amount to an inequitable double remedy. The district court also ordered Walmart to pay costs and attorneys' fees.

         On appeal, Variety argues that the district court erred in: (1) geographically limiting the scope of disgorgement to the 17 jurisdictions in which Variety owns stores and competed with Walmart, (2) allowing Walmart to deduct SG&A costs, and (3) denying its request for a jury trial to determine additional non-disgorgement damages. Walmart cross-appeals by arguing that the district court erred in: (1) granting partial summary judgment in ...


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