The Eight Circuit affirmed summary judgment for Myers Supply Inc. against Georgia-Pacific Consumer Products LP (“G-P”) on the issues of contributory trademark infringement and tortious interference with contract where Myers sold von Drehle (“VD”) paper towels for use in G-P machines to a church and school district. Georgia-Pac. Consumer Prods., LP v. Myers Supply Inc., No. 09-2980 (8th Cir. filed Sep. 15, 2010) (PDF). G-P leases automatic paper towel dispensers and produces non-universal paper towels of fabric quality with which to load the machines. In fact, the G-P licenses require the distributor and end-users to use the branded paper towels. The Myers court considered the 4th Circuit decision to vacate summary judgment on similar issues regarding VD’s production and sale of inferior paper towels intended for use solely in the G-P branded dispenser, but distinguished the decision. Georgia-Pac. Consumer Prods., LP v. Von Drehle Corp., No. 09-1942 (4th Cir. Aug. 10, 2010) (PDF).
In Myers, the court required that G-P show that these inferior paper towels loaded into the G-P dispensers were likely to confuse restroom patrons as to the source of the paper towel to satisfy the Lanham Act’s standard for infringement. See 15 U.S.C. § 1125(a)(1)(A). The Fourth Circuit, however, determined that there is “room for the factfinder [sic] to consider confusion among the non-purchasing public in the likelihood-of-confusion inquiry if it can ‘be shown that public confusion will adversely affect the plaintiff’s ability to control his reputation among its laborers, lenders, investors, or other group with whom plaintiff interacts.’” The Eighth Circuit distinguished this holding because the Fourth Circuit did not necessarily conclude that there was confusion among the post-purchase patrons, just that, as a matter of law, the district court should have considered that audience’s likelihood of confusion.
VD is a manufacturer and seller of sub-par paper towels, and did not themselves load the product into the G-P branded dispensers. As such, a direct trademark infringement claim was not available to G-P. Instead, G-P argued that VD’s sale of an inferior a paper towel and promotion of “stuffing” the G-P dispensers with the VD paper product amounted to “contributory trademark infringement in violation of § 32 of the Lanham Act, 15 U.S.C. § 1114(1).” As “the tests for trademark infringement and unfair competition under the Lanham Act are essentially the same as that for common law unfair competition under North Carolina common law,” the court focused on “the likelihood of confusion as to the source of the goods involved.”
The Fourth Circuit’s analysis of the Lanham Act began with a discussion of Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982) (PDF). Taking guidance from Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 439 n.19 (1984), the court in Inwood determined that
a manufacturer or distributor could be held liable to the owner of a trademark if it intentionally induced a merchant down the chain of distribution to pass off its product as that of the trademark owner’s or if it continued to supply a product which could readily be passed off to a particular merchant whom it knew was mislabeling the product with the trademark owner’s mark.
VD’s actions could be liable for infringement for its actions under this logic. The G-P dispenser was the only of its kind in 2002, and used a width of paper towel that was also unique in the market, 10 inches. The VD toweling was designed and marketed as a substitute for the G-P dispenser’s toweling for a lower price in 2004.
After the Fourth Circuit determined VD was possibly liable, it established direct infringement by the end-users. The first four elements derived from 15 U.S.C. §§ 1114(1), 1125(a) were easily met: “(1) G-P possesses one or more trademarks; (2) end-user customers used one or more of such trademarks; (3) in commerce; (4) in connection with the sale, offering for sale, distribution or advertising of goods.” The fifth element identified by the court, “in a manner likely to cause confusion in the relevant public” is the sticking point. The Fourth Circuit was occupied with identifying the relevant public, while the Eight Circuit focused on the presence of a likelihood of confusion in that group.
“To be actionable . . . confusion must threaten the commercial interests of the owner of the mark, but it is not limited to the confusion of persons doing business directly with the actor.” Restatement (Third) of Unfair Competition § 20 cmt. b (1995). The facts identified by the Fourth Circuit tend to show that G-P is hurt by VD’s product: there were complaints about the impostor towel at the distributor level and the poor quality affected the dispenser’s functioning. The Eighth Circuit, in not finding confusion, was influenced by a poorly executed restroom patron survey and less so by the business interests of G-P.
Sources, such as cyberlawcases.com, feel that the Fourth Circuit got it right and that contractually prohibiting generic refills for paper towel dispensers is anti-competitive. However, the method of using branding to achieve market share and revenue may not be so conniving. The Fourth Circuit analogized to a Coca-Cola dispenser requiring a refill with actual Coke, not generic.
However, there are other mechanisms common for a hardware distributor to ensure continuing revenues by manufacturing a branded complimentary product. Consider printers and printer ink. It is a common tactic in industrial organization for a firm to make the complimentary products incompatible with generic versions. The unique width of the G-P paper product may be indicative of such a motivation.
There are anti-competitive and consumer considerations when producing a product with a unique complimentary product, such as locking the consumer into purchasing an expensive refill after purchasing a dispenser. However, G-P’s contract terms gave an end-user a chance to contemplate that “lock-in” effect before subleasing the dispenser from the distributor. In the absence of contract terms, a consumer might unknowingly purchase a piece of hardware with expensive operation costs ensured by technical protection measures making cheaper alternatives unusable.
Moreover, the VD product, though its only intended use was in the G-P dispenser, is of notably lesser quality. Though the towels in the survey evaluated by the Eighth Circuit were not always mistaken for a G-P product when being dispensed, it stands to reason that a post-purchase consumer would notice the difference between a fabric-like product and a crinkly generic. VD is capitalizing on the benefits of a sanitary, hands-free dispenser that it did not produce to the detriment of the innovator, G-P, and the post-purchase consumer. Thus, this contractual obligation imposed on distributors and end-users at once is a means of ensuring revenue and not necessarily anti-competitive towards a generic substitute of questionable legitimacy.