RJ Machine Company, Inc. v. Canada Pipeline Accessories Co.Ltd.
Filing
138
OPINION AND ORDER that Plaintiff RJ Machine Company, Inc. is not entitled to any of the declarations or relief requested in its 1 Complaint. Signed by Judge Sam Sparks. (klw)
IN THE UNITED STATES DISTRICT COURT
FILED
FOR THE WESTERN DISTRICT OF TEXAS2015 JUL
AUSTIN DIVISION
15
t:
L5
RJ MACHINE COMPANY, INC.,
Plaintiff,
Case No. A-13-CA-579-SS
-vs-
CANADA PIPELINE ACCESSORIES CO. LTD.,
Defendant.
ORDER
BE IT REMEMBERED on the 1st day of June, 2015, the Court held a bench trial in the
above-styled cause, and the parties appeared by and through counsel. The trial of this matter lasted
two days, and the Court heard testimony from the following witnesses: Dale Sawchuk, Blame
Sawchuk, Michael Roseborough, John Chandler Schuessler, Gregg Perkin, Gary Martin, and Stephen
Stark. Having considered the evidence and testimony presented at trial, the arguments of counsel,
the parties' briefs, and the governing law, the Court enters the following findings of fact and
conclusions of law.
Findings of Fact
I.
Background
Plaintiff RJ Machine Company, Inc. (RJ Machine) manufactures and sells a "flow
conditioner" product and seeks to call its product by the name "50E." Defendant Canada Pipeline
Accessories Co. Ltd. (CPA), which owns registered trademarks in the words "50E" and "CPA 50E,"
opposes RJ Machine's efforts to call its flow conditioner by the name "50E" and has threatened
enforcement of its trademark rights in the event RJ Machine proceeds to market using CPA' s mark.
In response, RJ Machine filed the instant declaratory judgment action, seeking, among other things,
a finding by the Court that CPA's registered marks are not protectable under trademark law.
In basic terms, a "flow conditioner" is a device used in pressurized pipelines to assist in the
measurement of the flow of fluids (liquid or gas). The basic goal of a flow conditioner is to
manipulate fluid flow conditions to achieve accurate metering. Testimony from multiple witnesses
indicated there are different types of flow conditioners. For instance, CPA's expert, Stephen Stark,
testified there are tube bundle flow conditioners, which existed as early as the mid-i 900s, vane-style
flow conditioners, and tabbed flow conditioners. Another category of flow conditioner is the
perforated plate, which, in layman's terms, is a metal plate with holes, and the holes can vary in
number, size, and arrangement. There a number of different manufacturers of perforated plate flow
conditioners, including Gallagher, Emerson, Canalta, Mitsubishi, and others. CPA sells a particular
type of perforated plate flow conditioner at issue in this case, which it calls the "CPA 50E" or the
"50E." RJ Machine also makes a perforated plate flow conditioner and seeks to call it the "50E."
II.
Origins of the CPA 50E
Blame Sawchuk, an engineer, previously worked for a company called NOVA Gas
Transmission (NOVA) from 1979 to 1997. While working for NOVA, he became familiar with a
prototype flow conditioner developed and tested internally by NOVA's research and development
team.
Dr. Umesh Karnik performed the research and testing, and labeled the prototype the
"NOVA5O-E"1 in a paper he wrote in 1995. Pl.'s Trial Ex. 10 (the 1995 Karnik Paper).
In Kamik's original paper from 1995, he first described his prototype as the "NOVA5O-E." See P1's Trial
Ex. 10. In that same paper, Karnik referred to some of the various prototypes with the form "NOVA-50" or "NOVA-60."
Id. Since that original work, the "NOVA5O-E" has been referred to in various forms. See, e.g., Pl.'s Trial Ex. 50 (a
collection of research papers on the "NOVA5O-E" but referring to that prototype in different ways including "NOVA
50E," "NOVA5OE," and "NOVA-50E"). In considering the briefing and the record in this case, the Court observes the
parties most often refer to the prototype as the "NOVA 50E." For simplicity and consistency, the Court will do the same.
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The NOVA 50E flow conditioner discussed in the 1995 Karnik Paper was an improvement
on a design originally invented and patented by Elizabeth Laws. Id. at 4. The patent, United States
Patent No. 5,341,848, is owned by Den Norske Stats Oljeselskap A.S. (Statoil). Pl.'s Trial Exs. 14
(the Laws Patent), 13 (Statoil/CPA License Agreement indicating Statoil's ownership of the Laws
Patent). The design from the Laws Patent involved one center hole, a circle of eight holes around
that center hole, and a circle of sixteen holes around the circle of eight holes. Laws Patent at
1.
The
Court refers to the concentric circles design from the Laws Patent as the "1-8-16 Design." Karnik
considered two 1-8-16 Designs: the NOVA 60 because it had an overall solidity of 60% and the
NOVA 50 because it had an overall solidity of 50%. 1995 Karnik Paper at 4. The NOVA 50 was
tested with a number of different hole sizes, creating the NOVA 50A, NOVA SOB, NOVA 50C,
NOVA 50D, NOVA SUE, NOVA 50F, and NOVA 50G. Id. at 10. The paper concluded the NOVA
SUE was the
highest performing flow conditioner among the NOVA 50 options. Id. at 11.
Blame Sawchuk read the 1995 Karnik Paper and learned about the NOVA SUE while
working for NOVA. Blame Sawchuk confirmed he understood the "50" in "NOVA SUE" to refer
to the solidity of the flow conditioner and that he understood the different NOVA 50 models were
based only on slight changes in hole diameter. In 1997, he left NOVA to start his own company with
his brother, Dale Sawchuk. That company was CPA. After starting CPA, the Sawchuks obtained
permission from NOVA "to manufacture and sell the flow conditioner developed by NOVA."
See
P1.'s Trial Ex. 22 (NOVA Permission Letter). NOVA is in the business of gas transmission and only
conducted research and development with respect to flow conditioners. While the NOVA SUE
prototype emerged from that research and development work, NOVA has never manufactured or sold
flow conditioners itself, nor used "NOVA SUE" or "SUE" in commerce.
-3-
According to the NOVA Permission Letter authored by NOVA engineer Phil Barg and dated
March 25, 1997, NOVA was "happy to grant [CPA] permission" to manufacture and sell the flow
conditioner developed by NOVA, but NOVA included the following four conditions: (1) all patent
issues were to be resolved by CPA; (2) the flow conditioner "should not be named the NOVA Flow
Conditioner, or after NOVA in any other way"; (3) CPA' s literature should reference the work done
by NOVA; and (4) CPA should not imply NOVA supports or endorses the marketing of the flow
conditioner. Id. Barg stated NOVA "appreciate[d] the work [CPA] [was] doing to move the
[NOVA-developed] flow conditioner through the process to be accepted by Industry Canada, and
[would] try to provide data or help if [CPA] need[ed] it." Id.
In addition, since at least part of the technology underlying the NOVA 50E was covered by
the Laws Patent, CPA obtained a license in 1997 from Statoil for the right to use the flow conditioner
design disclosed by the Laws Patent.
See
Statoil/CPA License Agreement. Specifically, Statoil
granted "CPACL"2 a non-exclusive license "to manufacture and install in metering stations in
Canada and United States of America an unrestricted number of the K-Lab Laws and K-Lab Laws
Model Nova Flow Conditioner under PATENTS."3 Id. ¶ 3.1.
Tn
other words, CPA obtained a non-
Apparently, CPA referred to itself as CPACL, as in Canada Pipeline Accessories Company Ltd., in its early
stages. In addition, while not entirely clear, the record indicates CPA did not call its flow conditioner the "CPA 50E"
or the "50E" until approximately 1999. From 1997 to 1999, the company apparently called the flow conditioner the
"CPACL flow conditioner." The record evidence supporting this understanding includes: (1) Dale Sawchuk's testimony;
(2) the "CPA 50E" trademark application with the PTO, indicating a first use date of December 31, 1997, but a use-incommerce date of June 30, 1999, see Pl.'s Trial Ex. 2; and (3) a report from June 1998 authored by Umesh Karnik and
others for the Intemational Pipeline Conference discussing the "CPACL flow conditioner," see Pl.'s Trial Ex. 50 at
74-83.
"PATENTS" refers to Exhibit
Agreement2.2; id. at 16.
1
of the agreement and includes the Laws Patent.
See
Statoil/CPA License
exclusive license to make and sell the NOVA 50E. The license would end upon the expiration of
the Laws Patent, which occurred in March 2012.
Under the agreement, however, CPACL obtained no ownership rights in the
"TECHNOLOGY." Id. ¶ 3.2. "TECHNOLOGY" is defined as "any and all technical information
related to the K-Lab Laws Flow Conditioners as claimed in the PATENTS and as described in
TECHNICAL iNFORMATION." Id. ¶ 2.3. "TECHNICAL INFORMATION" references Exhibit
2
of the agreement, and Exhibit 2 includes the "Design Manual for K-Lab Laws Flow Conditioner."
Id. ¶ 2.5; Id. at 17. The K-Lab Design Manual describes the basis for the design and installation
different types of K-Lab flow conditioners, including the NOVA 50E.
Lab Design Manual) at
1.
See Pl.'s
of
Trial Ex. 26 (the K-
The K-Lab Design Manual includes detailed descriptions for the NOVA
50E. Id. ¶ 4.3. In sum, CPA had a non-exclusive rightas of 1997to manufacture and sell flow
conditioners with the NOVA 50E design, but it did not own the underlying technology.
After 1997, CPA executed multiple amendments with Statoil to the license agreement.
See
Pl.'s Trial Ex. 32. In 2002, the parties executed their fourth amendment, which gave CPA an
exclusive license to make and sell
flow
conditioners with the NOVA 50E design. Id.
The
amendment was made "[i]n order to improve the penetration and the commercial viability of K-Lab
Laws flow conditioners (FC), in particular the model NOVA 50E.
.
.
." Id. At trial, Blame Sawchuk
acknowledged that under the license agreement, CPA was to pay royalties to Statoil based on sales
of flow conditioners with the NOVA SOE design, and CPA did pay such royalties. Blame Sawchuk
simultaneously acknowledged CPA calculated and made those royalty payments based on sales of
what CPA referred to as the "50E" or "CPA 50E."
-5-
III.
CPA's Business from 1997 to 2015
A.
The Promotional Package
Once CPA had the right to make and sell a flow conditioner with the NOVA 50E design, the
next critical step in the company's success was effectively marketing its flow conditioner product
and establishing its reputation with consumers. Sometime around 1999 or 2000, Blame Sawchuk
compiled a set of research papers as part of a promotional package he sent to potential customers.
See P1.' s
Trial Ex. 50 (the Promotional Package). The general aim of the Promotional Package was
to convince customers that CPA's flow conditioner was a quality product that had undergone
research and testing, and was compliant with applicable regulations and standards. The actual flow
conditioner that was the subject of the research and testing, however, was the NOVA 50E prototype,
not
s 50E flow conditioner.
Indeed, each research paper in the Promotional Package is
prefaced with a "CPACL NOVA 50E RESEARCH PAPER SUMMARY" written by Blame
Sawchuk. The following is a list of the research papers with a title provided by the Court, the date
of the paper's publication, and a brief description of each based on Blame Sawchuk's summaries:
(1) The 1995 Karnik Paper (March 1995): This is Karnik's original paper, "[a]
detailed design paper which is the first paper released to industry announcing the
development of the NOVA 50E flow conditioner."
(2) The Morrow Report (December 1997): Dr. Tom Morrow of the Southwest
Research Institute tested a variety of flow conditioners in 4-inch lines. This report
reflects the research he performed on what he referred to as "the NOVA Perforated
Plate #50E Flow Conditioner" in addition to "the Standard 19-Tube Bundle
Straightening Vane Flow Conditioner"; "the Stuart C-3 Tube Bundle Straightening
Vane Flow Conditioner"; and "the Gallagher Perforated Plate #21 Flow
Conditioner."
(3) The KarniklStudzinski/Geerligs/Kowch Report (June 1999): This research
project tested the NOVA 50E flow conditioner on an 8-inch line as compared to a 4inch line and verified its scalability.
(4) The 1998 Karnik Paper (June 1998): Karnik performed testing on the NOVA
50E as compared to a tube bundle when it comes to work on ultrasonic meters, and,
according to Blame Sawchuk, "[t]he CPACL NOVA 50E flow conditioner improves
the performance of both ultrasonic meters " while "the 19[-]tube bundle is
inconsistent and hence deemed to be unsatisfactory."
(5) The Brown Paper (May 1998): Michael Brown examined the results of a
metering facility using ultrasonic meters and "NOVA 5UE flow conditioners."
(6) The Sawchuk!Beck Paper (June 1998): Blame Sawchuk and Bill Peck authored
this "entry level paper which is used to provide a technical overview for the
measurement practitioner who is not involved in the technology."
(7) The Centaur Project Paper (April 1999): "The Centaur Project began in January
of 1999 as a design for a suitable traceable reference for TransCanada
Calibrations['s] multimillion dollar high pressure test facility. Its design includes a
NOVA SUE flow conditioner, multipath ultrasonic meter, reference turbine meter and
meter tubes with a fusion bonded epoxy coating applied to their internals."
(8) The 1994 Karnik Paper (May 1994): Karnik wrote this paper, which "provides
a very technical background relating to the effects of velocity profile and turbulence
profile on orifice metering" before the "NOVA model SUE" was invented, but the
"information initiated a strong effort to develop the NOVA SUE (CPACL) Flow
Conditioner Plate."
(9) The Morrow Tube Bundle Paper (May 1997): In this paper, Morrow "does not
provide performance of flow conditioner perforated plates, but [he] does provide
clear evidence as to why the classical 19[-]tube[] tube bundle does not work."
(1U) The Morrow Periodical (August 1995): This periodical discusses some
of
Morrow's research done with the Southwest Research Institute and references the
positive performance of "the NOVA SUE."
(11) The Morrow Paper (May 199S): Morrow, while working for the Southwest
Research Institute, was the first to test the performance of "the NOVA SUE flow
conditioner." This research contains substance similar to that of the Morrow Report
described above.
(12) The Measurement Canada Approval (March 1997): "This is the Canadian
Government approval document which approves the use of the NOVA SUE for use
in custody transfer measurement applications in Canada. [Without] this document,
the SUE [cannot] be used in Canada for measuring natural gas for fiscal purposes.
Noteworthy is the detailed presentation of the tube bundle for inspection purposes[;]
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other type[s] of Flow Conditioners [cannot] be inspected due to the secrecy regarding
design."
Id.
In addition to these twelve documents, which are all part of Exhibit 50, the record also
contains at least one other similar exhibit, Exhibit 31, which contains a research paper with a
"CPACL NOVA 50E RESEARCH PAPER SUMMARY" cover page. Exhibit 31 is a paper
authored by Phil Barg, Blame Sawchuk, and Dale Sawchuk (the BarglSawshuk Paper) in May2000,
and it "reviews testing carried out by Southwest Research Inc. and the NOVA Research and
Technical Centre performed on the CPA 50E flow conditioner in accordance with AGA-3/API 14.3
and ISO 51 67-2." P1.' s Trial Ex. 31. Blame Sawchuk admitted the testing referenced was actually
performed on the NOVA 50E, not the CPA 50E.
While CPA's witnesses claim otherwise, the record indicates CPA continued to send out the
Promotional Package (or other similar materials reflecting research and testing performed on the
NOVA 50E) to potential purchasers of the CPA 50E as recently as 2012. For instance, in 2010, the
three Sawchuks authored a paper for a presentation to the American School of Gas Measurement.
See
Pl.'s
Trial Ex. 27. The paper reviews "testing carried out by Southwest Research Inc. and the
NOVA Research and Technical Centre performed on the CPA 50E flow conditioner in accordance
with AGA3/API 14.3 and ISO 5167." Id. at
1.
In other words, the Sawchuks summarized the
research and testing from Karnik and Morrow that was performed on the NOVA 50E. In addition,
in 2011, Danny Sawchuk sent emails to a potential customer drawing the connection between the
NOVA 50E research and the CPA 50E, stating: "I've attached some papers that show the
"AGA-3/API 14.3" refers to the American standard for orifice plates used to measure flow conditions, and
"ISO 5167-2" refers to the international standard.
CPA5OE/NOVA5OE effectiveness on USM performance." Pl.'s Trial Ex. 40. Finally, Chandler
Schuessler of RJ Machine testified that he came across some of the research papers related to the
NOVA 50E on CPA's website in 2012, although he did not specifically identify which papers.
B.
Marketing and Development of CPA's Brand
Dale Sawchuk, who has mostly handled the business operations and sales of CPA, testified
regarding the development of CPA over the years. The company began in 1997 as a two-man
operation with Dale and Blame Sawchuk, and the two brothers have built CPA into a successful
venture over almost twenty years. CPA currently has three principals in Dale, Blame, and Danny
(Dale's son) Sawchuk and nine employees. Since around 2000, CPA has spent a significant amount
of its total revenuearound $400,000 to $600,000 per yearon marketing its products to potential
customers worldwide. Those marketing efforts have included direct communications through mail,
email, phone, and personal meetings; attendance at trade shows, courses, and seminars; promotional
brochures; presenting papers at industry conferences; and a website. Dale Sawchuk credibly testified
CPA has spent an enormous amount of effort and resources trying to establish CPA and its 50E flow
conditioner in the marketplace. CPA has also labeled its flow conditioners with the marks "CPA
50E" and "50E" and used these marks in advertisements.
See, e.g.,
DeL's Trial Exs. 7A-7P
(examples of CPA advertisements and promotional materials).
One of CPA's main objectives in pursuing growth has been to convince customers to put
CPA and its flow conditioners on the specification forms common in the industry. Examples of
those specification forms are in the record and reflect various consumers requesting a "CPA 50E
flow conditioner" be used on the project at issue.
See, e.g.,
Pl.'s Trial Exs. 44-48; Def.'s Trial Exs.
51, 52. Also in the record are emails from consumers indicating their interest in "CPA 50E" flow
conditioners or the "50E."
See, e.g.,
Def.'s Trial Exs. 11, 13-14, 16. These specifications and
emails reflect both that customers associate "50E" with CPA and that the "CPA 50E" is a brand of
flow conditioner.
Dale Sawchuk testified that he has never discussed with a customer the significance of"50"
as it relates to the solidity of the plate, nor has he ever discussed the significance
of"E" as it relates
to the configuration and size of the holes. CPA's expert, Stephen Stark, who has worked in the
measurement industry since 1977, credibly testified plate solidity is not a factor that is important to
him in selecting a flow conditioner.
Generally speaking, CPA has developed a successful flow conditioner business and
effectively established a strong reputation for itself and its 50E flow conditioner among industry
participants. Chandler Schuessler, RJ Machine's manager of flow conditioner operations, conceded
that CPA, and more specifically Blame and Dale Sawchuk, are well known in the industry.
Schuessler further acknowledged that no company other than CPA has ever used the mark "50E" to
refer to its flow conditioner and that customers understand "50E" to refer to a CPA product.
C.
Trademark Registrations with the PTO
CPA registered two trademarks with the United States Patent and Trademark Office (PTO):
(1) the word mark "CPA 50E" in 2005 (U.S. Trademark Registration No. 2,994,138); and (2) the
word mark "50E" in 2011 (U.S. Trademark Registration No. 3,934,642). Pl.'s Trial Exs. 2,
1.
Regarding the "CPA 50E" mark, the PTO ultimately issued a certificate of incontestability after the
applicable five-year statutory period passed. Regarding the "50E" mark, CPA applied on October
12,2009, and along with the application, Blame Sawchuk provided the following sworn declaration:
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The undersigned, being hereby warned that willful false statements and the like so
made are punishable by fine or imprisonment, or both, under 18 U. S.C. § 1001, and
that such willful false statements may jeopardize the validity of the application or
form or any resulting registration, declares that he is properly authorized to execute
this application on behalf of the applicant, he believes the applicant to be the owner
of the trademark sought to be registered, and that the mark is in use in commerce, or,
if the application is being filed under 15 U.S.C. § 1051(b), 1126(d), or 1126(e), he
believes applicant to be entitled to use such mark in commerce; to the best of his
knowledge and belief no other person, firm, corporation, or association has the right
to use the mark in commerce, either in the identical form thereof or in such near
resemblance thereto as to be likely, when used on or in coimection with the
goods/services of such other person, to cause confusion, or to cause mistake, or to
deceive, and that all statements made of his own knowledge are true, and that all
statements made on information and belief are believed to be true.
P1,'sTrialEx. 12.
P.
Quality Control
Regarding its quality control, CPA does not manufacture its
flow conditioner
products and
instead outsources that task to four independent companies. CPA employees who oversee the quality
control process include Blame Sawchuk, Danny Sawchuk, and Ralph Salerio. Although the specifics
of CPA's quality control process were not made clear at trial, there does appear to be some sort of
process in place. Once a shipment of flow conditioners arrives, it is quarantined, and each
flow
conditioner is inspected against the original drawings. If a product passes inspection, it is allowed
into CPA' s inventory in order to be shipped to consumers. If it fails inspection, it returns to the
machine shop. Blame Sawchuk testified inspection sheets are filled out as part of the quality control
process, and those documents are maintained in hard copy form.
IV.
RJ Machine's Business
Gary Martin, the president of RJ Machine, started the company approximately twenty years
ago, but it was only after expiration of the Laws Patent in March 2012 that RJ Machine decided it
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wanted to enter the flow conditioner market. The individual hired to design RJ Machine's flow
conditioner, Michael Roseborough, used the NOVA 5 0E as the basis for RJ Machine's new product.
As all sides agree, RJ Machine is free to use the NOVA 50E design, or the CPA 50E design, for its
flow conditioner. Relatedly, all sides agree RJ Machine can advertise the solidity of its plate and its
relationship to the NOVA 50E and the NOVA 50E research contained in the Promotional Package.
RJ Machine started selling its flow conditioner in 2013. Chandler Schuessler has spoken
with many customers in the flow conditioner industry, and according to his testimony, he has never
discussed with a customer the NOVA prototypes, the 1995 Karnik Paper, the solidity of flow
conditioners, or the importance of an "E" design for a flow conditioner. In fact, Schuessler testified
he does not even know the solidity of RJ Machine's flow conditioner.
Similarly, Michael
Roseborough, the designer of RJ Machine's flow conditioner, testified he is not familiar with the
solidity of RJ Machine's flow conditioner.
RJ Machine has apparently sold thousands of flow conditioners since entering the market in
2013 without using the "50E" designation.
See, e.g.,
Def's Trial Ex. 27 (order form from RJ
Machine customer). RJ Machine produced some of its purchase orders, which came from a number
of different customers, and CPA summarized these voluminous records, highlighting the fact that
only one time in 238 purchase orders did a customer use the "50E" or "CPA 50E" designation.
See
Def's Trial Ex. 44. Instead, RJ Machine's customers have used a variety of other ways to describe
the flow conditioner they sought to purchase from RJ Machine.
exhibit, Schuessler did not dispute its accuracy.
See id.
Schuessler also stated that employees of RJ
Machine do not refer internally to their flow conditioner as the "50E."
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When presented with this
At some point in 2013, RJ Machine sought to call its flow conditioner the "50E" because,
in its view, that term has become standard in the industry for this particular type of flow conditioner
and is what consumers now call this particular type of flow conditioner. While not entirely clear,
one of the reasons why RJ Machine arrived at this conclusion was the specification forms filled out
by customers specifically requiring a "CPA 50E" or "50E" flow conditioner. In RJ Machine's view,
it produced a similar, if not identical, flow conditioner and at half the price. As such, RJ Machine
wanted to call its flow conditioner "50E" in order to be covered by the specification form requests
and compete with CPA's 50E.
V.
Current Lawsuit and Procedural History
A.
Pre-Suit Activity
While RJ Machine wanted to start calling its flow conditioner "50E," it was also aware of
CPA's opposition to any entrants into the market who were using its trademarks. Specifically, CPA
had previously filed a trademark infringement lawsuit against a company called Canalta Controls
Ltd. (Canalta), which had apparently tried to market and sell a flow conditioner similar in design to
the CPA 50E and called it the "Contour 50F." The parties eventually settled, and Canalta now sells
its flow conditioner with the name "Contour K5."
RJ Machine, wanting to enter the market like Canalta but not wanting to be sued, approached
CPA, seeking assurances CPA would not try to prevent RJ Machine from marketing flow
conditioners using the 50E design and designation. RJ Machine presented CPA's counsel with
proposed marketing material which compared RJ Machine's product directly with CPA's.
See DeL's
Trial Exs. 43A-43C. Counsel for CPA responded in a letter indicating CPA would sue RJ Machine
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if RJ Machine advertised or marketed its 50E flow conditioners using the same design as CPA's 50E
flow conditioner or used the term "50E" to identify its flow conditioner.5 Compl. [#1 -5] Ex. E.
B.
The Complaint and the Answer
On July 10, 2013, RJ Machine filed this lawsuit against CPA, alleging the following four
counts: (1) violations of 15 U.S.C.
§
2 (Sherman Act); (2) violations of the Texas Free Enterprise
and Antitrust Act of 1983; (3) unfair competition and unfair trade practices; and asking for (4) a
declaratory judgment. Id. [#1]
¶IJ
4 1-64. The Court granted CPA's motion to dismiss counts
(1)(3), leaving only the declaratory judgment action.
See Order
of Nov. 22, 2013 [#35].
CPA filed an answer and also asserted a number of counterclaims.
See Answer & Countercl.
[#36]. Subsequently, CPA filed an Amended Answer in which it removed all of its counterclaims.
See
Am. Answer [#77]. Therefore, the only live claim in this case is RJ Machine's declaratory
judgment action. While RJ Machine originally sought a variety of declarations, see Compl. [#1] at
9-11, the only remaining disputed issue in the case, distilled to its core, is whether CPA has legally
protectable trademarks in "CPA 50E" and "50E."
C.
CPA's Motion for Summary Judgment
After the close of discovery, CPA filed a motion for summaryjudgment, laying out its theory
of the case. CPA' s basic argument is that it has used its trademarks for over fifteen years and, before
expiration of the Laws Patent, developed customer recognition of CPA's brand name. Mot. Summ.
J. [#79] at 1. According to CPA, to allow RJ Machine to call its imitation flow conditioner "50E"
In addition to opposing RJ Machine's use of its marks, CPA also originally opposed RJ Machine's use of the
same design as the CPA 50E and threatened trade dress enforcement. Indeed, CPA asserted trade dress counterclaims.
CPA, however, has since withdrawn those claims and agreed in its briefing and at trial that RJ Machine is free to
manufacture a flow conditioner with the same design as the NOVA 50E.
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would rob CPA of benefits earned by fifteen years of promotion and marketing, would confuse
customers, and would deprive customers of the ability to associate the well-known "50E" trademark
with its recognized source: CPA. Id. CPA argues its trademarks do not qualify as "generic" or
"descriptive without secondary meaning." Instead, CPA contends its marks are distinctive to CPA
because CPA, and CPA alone, has spent time and resources selling flow conditioners under the
"50E" brand, creating a significance in the mind of relevant consumers to associate the "50E" marks
with flow conditioners sold by CPA. Id. The two trademarks at issue were unopposed, creating a
presumption of validity (a presumption that, as to "CPA 50E," is incontestable because it was sold
in the market for five years post-registration). Id. CPA argues these marks are fanciful and do not
describe or refer generally to flow conditioners. Id.
RJ Machine responds that CPA is attempting to exploit fraudulently acquired trademarks in
order to prevent RJ Machine from competing in the market. Resp. [#81] at 1. According to RJ
Machine, the name "50E," rather than being a source identifier for CPA, is actually the name for a
particular type of flow conditioner with a specific set of technical characteristics. Id. at 2. RJ
Machine contends the fact "50E" describes a type of flow conditioner means the mark is generic and
not distinctive to CPA. Id. at 2. To combat CPA's assertion of presumptions of validity of its
trademarks, RJ Machine argues CPA made material misrepresentations to the PTO in applying for
its marks, and if CPA disclosed the information it should have, the PTO would not have registered
the marks. Finally, RJ Machine argues the validity of a trademark can come into question post-
registration if there is a lack of quality control in the manufacturing, which results in an inconsistent
product. Id. RJ Machine contends CPA has failed to exercise quality control over its 50E flow
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conditioners. As a result, RJ Machine argues CPA' s registered trademarks have ceased to function
as trademarks and have become generic. Id.
On March 31, 2015, the Court denied CPA's motion for summary judgment, finding the
parties' competing evidence created fact issues concerning the distinctiveness of CPA's marks and
the related question of secondary meaning.
See
Order of Mar. 31, 2015 [#107] at 18. The Court also
identified fact issues with respect to RJ Machine's fraud-on-the-PTO and quality control arguments.
Id. at 18-20. All that remained in the case was resolution of these disputed fact questions on a full
trial record.
D.
The Exclusion of Industry Witnesses
Prior to the bench trial, CPA moved to exclude six of RJ Machine's fact witnesses who are
flow conditioner industry participants proffered to testify concerning the meaning of "CPA 50E" and
"50E" in the relevant marketplace. RJ Machine previously submitted affidavits of these six
individuals in responding to CPA's motion for summary judgment, and CPA moved to strike them.
The Court denied the motion to strike and considered the affidavits as part of the summary judgment
record.
See
id.
at 20-23. The Court, however, made clear it would not necessarily permit these
witnesses to testify at trial if they were not timely disclosed as indicated by CPA. Id. at 23. Indeed,
the Court subsequently granted CPA's motion to exclude these witnesses from testifying at trial
because RJ Machine had failed to disclose them in compliance with deadlines agreed to by the
parties themselves (after numerous agreed extensions).
6
See
Order of Apr. 17, 2015
[#1131.6
In its order, the Court explained in detail the multiple agreed scheduling order extensions the parties sought
and received for the witness disclosure and discovery deadlines. See Order of Apr. 17, 2015 [#113] at 2.
Notwithstanding these extensions, RJ Machine still failed to comply with its own deadlines to disclose witnesses and
failed to offer any good reason for its tardiness. Id. at 2-3. The Court further explained that to allow RJ Machine's
witnesses would either result in prejudice to CPA if the case proceeded to trial as scheduled or a continuance to early
2017, the earliest date this Court's busy docket would permit. Id. at 4.
-16-
Conclusions of Law
I.
Legally Protectable Trademarks
Trademark infringement is governed by the Trademark Act of 1946 (the Lanham Act), 15
U.S.C.
§
1051 et seq. The Lanham Act defines a "trademark" as:
any word, name, symbol, or device, or any combination thereof. . . used by a person
to identif' and distinguish his or her goods [or services] . . . from those
manufactured or sold [or provided] by others and to indicate the source of the goods
[or services], even if that source is unknown.
15 U.s.c. § 1127.
There are two elements to a successful infringement claim under the Lanham Act. The
plaintiff must first "establish ownership in a legally protectible mark, and second,
infringement by a demonstrating a likelihood of confusion." Amazing Spaces, Inc.
v.
.
.
.
show
Metro Mini
Storage, 608 F.3d 225,235-36(5th Cir. 2010) (citations omitted). The instant case does not involve
the typical scenario where a plaintiff trademark holder sues an alleged infringer. Instead it involves
a declaratory judgment in which the plaintiff, who is the potential infringer, seeks to show the
defendant's registered trademarks "50E" and "CPA 50E" are invalid. If the marks are invalid, then
the plaintiffs use of the marks does not amount to infringement. Therefore, the only issue in the
present case is the threshold question of whether CPA's marks are legally protectable.
"To be protectable, a mark must be distinctive
. . .
." Id. at 237 (citations omitted). The
Supreme Court has explained a mark can be distinctive by either (1) being inherently distinctive
because the mark's "intrinsic nature serves to identifi a particular source," or (2) having acquired
distinctiveness if it has developed secondary meaning, which occurs when, "in the minds of the
public, the primary significance of a [mark] is to identify the source of the product rather than the
-17-
product itself." Wal-Mart Stores, Inc.
v.
Samara Bros., Inc., 529 U.S. 205,210-11(2000) (citations
omitted).
II.
Application
A.
Effect of Registration
Before examining the distinctiveness of CPA's marks, the Court first addresses the effect of
CPA's registrations with the PTO. "Proof of the registration of a mark with the PTO constitutes
prima facie evidence that the mark is valid and that the registrant has the exclusive right to use the
registered mark in commerce with respect to the specified goods or services." Amazing Spaces, 608
F.3d at 237; 15 U.S.C.
§
1057(b) & 1115(a). Commercial use of a mark for more than five years
post-registration makes the mark "incontestable," and the mark can only be cancelled if: "(1) the
mark has become generic; (2) the mark was abandoned; (3) the registration was obtained
fraudulently; or, (4) the mark was used to misrepresent the source of the goods or services." Meineke
Disc. Muffler
'NFly,
Inc.
v.
v.
Jaynes, 999 F,2d 120, 125 (5th Cir. 1993) (citing 15 U.S.C. §S 1064, 1065; Park
Dollar Park and Fly, Inc., 469 U.S. 189, 197 (1985); Selva & Sons, Inc.
Footwear, Inc., 705 F.2d 1316, 1326 (Fed. Cir. 1983)).
v.
Nina
If the mark has not yet attained
"incontestable" status, it still benefits from a presumption of validity. This presumption, however,
may be rebutted by establishing the mark is not inherently distinctive. Amazing Spaces, 608 F.3d
at 237 (citing Vision Center v. Opticks, Inc., 596 F.2d 111, 119 (5th Cir. 1979) ("[The] presumption
is rebuttable and may be overcome by establishing the generic or descriptive nature of the mark.").
In this case, CPA registered its "CPA 50E" mark in 2005 and has since obtained from the
PTO a certificate of incontestability. RJ Machine challenges the validity of the incontestable mark,
however, based on two permissible grounds: (1) the mark has become generic, and (2) the
registration was obtained fraudulently.
Regarding CPA's "50E" mark registered in 2011, it is not incontestable, but the Court
presumes its validity. RJ Machine may rebut this presumption by establishing that "50E" is generic
or descriptive. If RJ Machine does so, it will have "reduced the presumption of validity to evidence
that the PTO is of the opinion that the ["50E" mark] is sufficiently distinctive to be legally
protectable as a mark." Amazing Spaces, 608 F.3d at 239.
B.
The Distinctiveness of CPA's Marks
In evaluating the distinctiveness of word marks, "courts have applied the now-classic test
originally formulated by Judge Friendly" inAbercrombie & Fitch Co.
v.
Hunting World, Inc., 537
F.2d 4 (2d Cir. 1976). Wal-Mart Stores, Inc., 529 U.S. at 210-11. In his test, Judge Friendly created
categories of marks existing across the distinctiveness spectrum. The Fifth Circuit has summarized
the Abercrombie categories as follows:
A generic term is the name of a particular genus or class of which an
individual article or service is but a member. A generic term connotes the basic
nature of articles or services rather than the more individualized characteristics of a
particular product. Generic terms can never attain trademark protection.
Furthermore, if at any time a registered trademark becomes generic as to a particular
product or service, the mark's registration is subject to cancellation. Such terms as
aspirin and cellophane have been held generic and therefore unprotectable as
trademarks.
A descriptive term identifies a characteristic or quality of an article or service,
such as its color, odor, function, dimensions, or ingredients. Descriptive terms
ordinarily are not protectable as trademarks; they may become valid marks, however,
by acquiring secondary meaning in the minds of the consuming public. Examples of
descriptive marks would include Alo with reference to products containing gel of the
aloe vera plant and Vision Center in reference to a business offering optical goods
and services. As this court has often noted, the distinction between descriptive and
generic terms is one of degree. The distinction has important practical consequences,
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however; while a descriptive term maybe elevated to trademark status with proof of
secondary meaning, a generic term may never achieve trademark protection.
A suggestive term suggests, rather than describes, some particular
characteristic of the goods or services to which it applies and requires the consumer
to exercise the imagination in order to draw a conclusion as to the nature of the goods
or services. A suggestive mark is protected without necessity of proof of secondary
meaning. The term "Coppertone" has been held suggestive in regard to sun tanning
products.
Arbitrary orfancful terms bear no relationship to the products or services to
which they are applied. Like suggestive terms, arbitrary and fanciful marks are
protectable without proof of secondary meaning. The term "Kodak" is properly
classified as a fanciful term for photographic supplies. "Ivory" is an arbitrary term
as applied to soap.
Zatarains, Inc.
v.
Oak Grove Smokehouse, Inc., 698 F.2d 786, 790-91 (5th Cir. 1983) (citations and
quotation marks omitted), abrogated on other grounds by KB Permanent Make-Up, Inc.
Impression I, Inc., 543 U.s.
ill, 125(2004).
are inherently distinctive.
v.
Lasting
As indicated, suggestive, arbitrary, and fanciful marks
Descriptive marks are not inherently distinctive but may acquire
distinctiveness through secondary meaning. Finally, a generic mark is never distinctive.
In categorizing a term, courts must examine the context in which the term is used. Nola
SpiceDesigns, L.L.C. v. Haydel Enters., Inc., 783 F.3d 527, 537 (5thCir. 201 5) (citing Union Nat'l
Bank of Tex., Laredo, Tex.
v.
Union Nat'l Bank of Tex., Austin, Tex., 909 F.2d 839, 847 (5th Cir.
1990)). Court should consider "how [the term] is used with other words,' 'the products or services
to which it is applied,' and 'the audience to which the relevant product or service is directed."
Id. (quoting Bayer Co. v. United Drug Co., 272 F. 505, 509 (S.D.N.Y. 1921) (Hand, J.)).
1.
Are the marks generic?
RJ Machine carries a heavy burden to establish CPA' s registered marks are generic. See
Amazing Spaces, 608 F.3d at 239 ("The presumption of validity flowing from trademark registration
-20-
has a burden-shifting effect, requiring the party challenging a registered mark to produce sufficient
evidence to establish that the mark is non-distinctive by a preponderance of the evidence.").
"Because a finding of genericness may result in the loss of rights which could be valuable
intellectual property, a court should not find genericness without persuasive and clear evidence that
the contested term has become generic among a majority of the buyer group." MCCARTHY
ON
TRADEMARKS AND UNFAIR COMPETITION § 12:12 (4th ed., rev. 2015) (McCARTHY).
"The test for generidness is whether the public perceives the term primarily as the designation
of the article." Nola Spice Designs, 783 F.3d at 538 (quoting Soc iv of Fin. Exam 'rs v. Nat'l Ass 'n
ofCert ed Fraud Exam 'rs Inc., 41 F.3d 223,227(5th Cir. 1995) (internal quotation marks, citation,
ifi
and alterations omitted)). A generic term is the name of the genus or class as compared to the
species, which is a grouping within a given genus. See Zatarains, 698 F.2d at 790; MCCARTHY
§
12:23. "An example of a generic word is 'fish.' 'Fish' is a generic term which applies with equal
force to sole, haddock, perch, salmon, bass and carp." Union Nat. Bank of Tex., 909 F.2d at 845.
Therefore, the first key question becomes: what is the genus of goods at issue? See H. Marvin Ginn
Corp.
v.
Int'l Ass 'n ofFire Chiefs, Inc., 782 F.2d 987, 990 (Fed. Cir. 1986) (breaking the primary
significance test into a two-step inquiry: "First, what is the genus of goods or services at issue?
Second, is the term sought to be registered or retained on the register understood by the relevant
public primarily to refer to that genus of goods or services?").
The parties dispute the genus at issue in the case. RJ Machine argues "CPA 50E refers to
a class of goods which contains species within that class." Pl.'s Proposed Findings of Fact and
Conclusions of Law [#114] at 5. RJ Machine, however, did not support this contention with
-21-
argument or evidence at trial.6 Moreover, the facts clearly show "CPA 50E" and "50E" do not refer
to a class of goods but instead refer specifically to a flow conditioner made by CPA. Beyond CPA,
there are no members of the class "50E." A "class" with one member cannot be a genus.7 While RJ
Machine complains CPA's status as the only manufacturer of the 50E is due to CPA's exclusive
license with Statoil, the Court fails to see the relevance of this point. Trademark law is the focus of
this case, and CPA's exclusive license with Statoil, along with its permission from NOVA, simply
gave it the right to make a flow conditioner with a certain design. These agreements did not exclude
any company from making a flow conditioner and calling it the "50E." The relevant point is that
CPA, and CPA only, established the "50E" mark in commerce and developed brand recognition.
CPA arguesand the Court
agreesthe applicable genus to the facts of this case is "flow
conditioner." Within this genus are species like tube-bundle flow conditioners, vane-style flow
conditioners, tabbed flow conditioners, and perforated plate flow conditioners. Alternatively, the
Court finds perforated plate flow conditioners would be the genus for the circumstances of this case.
Within the class of perforated plates, there are a variety of manufacturers and brands, including
CPA's 50E, Canalta's Contour K5, Gallagher's Savant, and Emerson's Profiler. One specification
ordered the flow conditioner to be a "CPA or equivalent," suggesting different brands of perforated
plates can substitute for one another. Pl.'s Trial Ex. 48. CPA's expert, Stephen Stark, who has
6
In its pre-trial briefing, RJ Machine suggested "CPA 50E" was the class, and the species within that class are
different types of CPA 5OEs that differ based on installation method (e.g., flange vs. pin) or size (e.g., two-inch vs. fourinch). See Proposed Findings ofFact and Conclusions of Law at 5. The Court rejects this argument. First, RJ Machine
did not develop this line of argument at trial. Second, RJ Machine offers no legal authority for the notion that a single
product can become a genus simply because the product comes with multiple installation options and in different sizes.
The NOVA 50E does not constitute a member of the alleged "50E" genus for trademark purposes because
it was never used as a mark in commerce. Rather, it was an internal designation within NOVA's research and
development project.
-22-
extensive experience in the flow conditioner industry, testified that in his opinion, the relevant class
was perforated flow conditioners and that in his view the CPA 50E had not been used generically
as a class of product.
Having established the relevant genus as "flow conditioner," or alternatively "perforated plate
flow conditioner," the next question becomes whether the terms "50E" and "CPA 50E" are
understood by the relevant public primarily to refer to the genus "flow conditioner." The answer is
"no." As just explained, the 50E is a subset of perforated plate flow conditioners, which is a subset
of flow conditioners.
"50E"
is
not the genus for the goods or services in question.
RJ Machine's only argument at trial concerning genericness was that the 50E was "born
generic" because of its origins with the NOVA
50E.
As an initial matter, the Court is unclear on
what it means to be "born generic," a phrase used by RJ Machine in trial and in its briefing with no
citation to any legal authority. Furthermore, the Court fails to see how the mark "50E" was born
generic with the NOVA 50E when the NOVA 50E was never used as a mark. Prior to 1997, "50E"
was simply an internal designation for a prototype researched and developed by Karnik on behalf
of NOVA. NOVA has never sold a flow conditioner nor commercialized the NOVA
50E in any
manner. The Sawchuks took the initiative to start a business, solicit permission from NOVA to use
the NOVA 50E design, obtain a license from Statoil to use the technology from the Laws Patent,
manufacture a flow conditioner, and then introduce a "CPA 50E" flow conditioner to the
marketplace. Until then, "50E" was not a mark and did not exist as a brand. To suggest "50E" was
"born generic" when it was no more than a research project ignores that trademark law concerns the
use of marks to identify a seller's goods and distinguish that source from other sources for the benefit
-23-
of consumers. See
15
U.S.C.
§
1127.8
In addition, while the record clearly shows that the CPA 50E is similar to, if not identical to,
the NOVA SOB and that CPA represented to the consuming public its flow conditioner's close
connection to the NOVA 50E as recently as 2012, CPA simply directed customers to the research
performed on the NOVA 50E. Any customer who read those papers would not find any information
suggesting the NOVA 50E was a flow conditioner manufactured and sold in the market. The only
50E ever available to flow conditioner purchasers has been CPA's, and CPA has policed that mark
against other companies like Canalta and RJ Machine when they have tried to use the same or similar
mark.
Moreover, while CPA has a history of sending NOVA 50E research materials to customers,
representatives from both companies testified they have never discussed with any customer the
NOVA research. And because RJ Machine failed to timely disclose its industry witnesses, there was
8
In its pre-trial briefing, RJ Machine recited the following passagewithout further discussionfrom Singer
Manufacturing Co. v. June Manufacturing Co., 163 U.S. 169 (1896), describing a legal theory by which a mark can
become generic:
[W]here, during the life of a monopoly created by a patent, a name, whether it be arbitrary or be that
or the inventor, has become, by his consent, either express or tacit, the identi1'ing and generic name
of the thing patented, this name passes to the public with the cessation of the monopoly which the
patent created. Where another avails himself of this public dedication to make the machine and use
the generic designation, he can do so in all forms, with the fullest liberty, by affixing such name to the
machines, by referring to it in advertisements, and by other means, subject, however, to the condition
that the name must be so used as not to deprive others of their rights, or to deceive the public; and,
therefore, that the name must be accompanied with such indications that the thing manufactured is the
work of the one making it, as will unmistakably inform the public of that fact.
Id. at 199-200. At trial, however, RJ Machine did not develop this legal argument. In fact, in closing argument, counsel
for RJ Machine argued to the contrarywithout citing any legal authoritythat trademarks can be used after a patent
expires so long as the trademark applicant was actually the owner of the patent at issue rather than, for example, a patent
licensee like CPA. Moreover, RJ Machine did not present any evidence that the consuming public, during the life of the
Laws Patent, came to understand "50E" to be the identifying and generic name of the invention disclosed by the Laws
Patent. In sum, to the extent RJ Machine asserts the legal proposition offered by Singer, RJ Machine failed to develop
the theory and failed to support it with evidence.
-24-
no direct testimony from any flow conditioner consumers stating they understand "50E" to
generically refer to a category of flow conditioners rather than as a CPA brand. The only evidence
of consumer perception in the record are: (1) the specifications and customer emails, which, taken
together, indicate consumers' association of "50E" with CPA; and (2) the testimony of CPA's
expert, Stephen Stark, that "50E" has not been used generically and rather is a brand associated with
CPA. Indeed, Schuessler from RJ Machine confirmed this reality by agreeing flow conditioner
customers associate "50E" with CPA.
In sum, RJ Machine fails to meet its burden to establish the marks "CPA 50E" and "50E"
are generic.
2.
Are the marks descriptive?
RJ Machine argues, if the "50E" mark is not generic, then it is descriptive without secondary
meaning.9
Again, Ri Machine bears the burden to rebut the presumption of validity of the "50E"
mark and establish its descriptive nature. "When a word or phrase conveys an immediate idea of the
qualities, characteristics, effect, purpose, or ingredients of a product or service, it is classified as
descriptive... ." Zatarains, 698 F.2d at 792. In Zatarains, the Fifth Circuit discussed a number of
tests for courts to apply to the descriptiveness inquiry: (1) the dictionary definitions of the words;
(2) whether imagination or thought is required to understand what the mark describes; (3) whether
other producers require the term to describe their product; and (4) the extent to which others actually
use the term in marketing a similar service or product. Id. at 792-93. The Court addresses each test.
First, there is no evidence in the record of any dictionary definitions of"50E." Second, the
9As explained above, due to the incontestability of "CPA 50E," RJ Machine cannot challenge that mark on the
ground it is descriptive. In comparison, U Machine can challenge "50E," which is not incontestable, by establishing
its descriptive nature.
-25-
imagination test "seeks to measure the relationship between the actual words of the mark and the
product to which they are applied." Id. at 792. "If a term requires imagination, thought and
perception to reach a conclusion as to the nature of goods, it is considered a suggestive term."
Id. (internal quotation omitted). "Alternatively, a term is descriptive if standing alone it conveys
information as to the characteristics of the product." Id. Here, the record shows Dr. Umesh Karnik
created the NOVA 50E, and the "50" referred to the plate's 50% solidity. Blame Sawchuk knew the
"50"
signified 50% solidity, and he modeled the CPA 50E on the NOVA
Court sees how
"50" describes
50E.
In that sense, the
the flow conditioner at issue. The focus of trademark law, however,
is consumer perception, and the evidence at trial indicated solidity is not an important factor to either
flow conditioner manufacturers or consumers. For instance, while CPA sent its Promotional
Package and other NOVA-based research materials to consumers, CPA' s representatives all testified
they do not discuss the solidity of their plate with potential customers. Their expert, Stephen Stark,
also confirmed solidity is not a factor that is important to him in selecting flow conditioners. RJ
Machine's witnesses agreed. Schuessler testified he had never discussed solidity with a customer,
and Roseborough, the designer of RJ Machine's flow conditioner, testified he was not even familiar
with the solidity of the RJ Machine flow conditioner. The specifications and customer emails
contain no mentions of solidity whatsoever. Considering this evidence, the Court finds that a flow
conditioner customer confronting the "50E" mark would not immediatelyunderstand that "50" refers
to 50% solidity and instead would need to exercise imagination, thought, and perception to reach that
conclusion.
Turning to the second part ofthe mark, the "E" is even less descriptive than "50." According
to Karnik's research, the "E" was one of many different models: the NOVA 50A, NOVA SOB,
-26-
NOVA 50C, NOVA 50D, NOVA 50F, and NOVA 50G. Each had the 1-8-16 Design, and they
differed in the diameter of the holes. The "E" does not describe this design and instead is an
arbitrary designation for the fifth in a series of research prototypes. Moreover, as previously stated,
the record indicates
flow
conditioner customers are not generally familiar with the NOVA research
and would not understand the significance of "E" in "50E" without carefully consulting those
materials. For example, Stephen Stark, an expert in the field, testified he is unfamiliar with the
meaning of "E" as it relates to hole configuration.
Finally, the Court has considered the component parts of "50E" separately merely to show
that neither is descriptive. Considering the mark as a whole, however, is the approach courts should
take in analyzing its descriptiveness. See Union Nat 'iBank, 909 F.2d at 848 n.25 ("The commercial
impression of trade-mark is derived from it as a whole, not from its elements separated and
considered in detail. For this reason it should be considered in its entirety.
. .
.") (quoting Estate
ofP.D. Beckwith v. Comm 'r of Patents, 252 U.S. 538, 545-46 (1919)). If neither "50" nor "E" are
descriptive, "50E" is only less so.
A third test is whether producers of flow conditioners, or even producers of perforated plate
flow conditioners,
need to use "50E" as a descriptor. The evidence demonstrates they do not. "A
descriptive term generally relates so closely and directly to a product or service that other merchants
marketing similar goods would find the term useful in identifying their own goods." Zatarains, 698
F.2d at 793 (citing Vision Center, 596 F.2d at 116-17). There are many other flow conditioner
manufacturers who use a variety of different descriptors and brands to label their respective products.
Within perforated plate flow conditioner manufacturers alone, competitors use different brands to
describe their product like Gallagher's Savant, Emerson's Profiler, and Canalta' s Contour K5. Even
-27-
Canalta, which apparently makes an imitation CPA SOB and had wanted to call it the "Contour 5 OF,"
decided it could sells its flow conditioner by calling it the Contour KS, albeit after CPA sued it for
trademark infringement. The record also shows RJ Machine customers have successfully ordered
(and RJ Machine has sold) thousands of RJ Machine flow conditioners using terms other than "SOE"
since RJ Machine entered the market in 2013, indicating RJ Machine does not need to call its flow
conditioner the "50E." The evidence shows "SOE" has only been used to refer to CPA's flow
conditioner, and there is no evidence indicating competitors need to call their flow conditioner the
"SOB" in order to identify them.1°
Fourth, the Court considers "the extent to which a term actually has been used by others
marketing a similar service or product." Zatarains, 698 F2d at 793 (citing Vision Center, 596 F.2d
at 117). CPA is the only manufacturer to have ever used the term "SOB" both from 1995 when
Karnik wrote the first research paper on the NOVA SOE and from 1999 when CPA introduced "SOB"
into the marketplace. After approximately fifteen years of exclusive use, Canalta tried to label its
flow conditioner the "Contour SOF," and CPA took action to protect its rights. Now RJ Machine is
attempting to use the "SOE" mark, and again CPA is enforcing its trademark rights.
10
The Court notes competitors like RI Machine are free to make a flow conditioner modeled after the NOVA
50E, to advertise their flow conditioner is just like the NOVA 50E, to advertise their flow conditioner's solidity as 50%,
and to advertise the NOVA research explaining the significance of"E." Competitors, however, do not need to call their
flow conditioner "50E" in order to convey any of that information. In fact, Canalta, which sells a flow conditioner based
on the NOVA 50E but calls it the "Contour KS," put together promotional documents that explain in detail the history
and meaning of the NOVA 50E and the Laws Patent. See P1. 's Trial Ex. 63 at 4. Canalta's materials even acknowledge
CPA's role in generating "broad acceptance" of the NOVA 50E design and helping it "become a veritable industry
standard for isolating flow meters of several types from upstream piping disturbances." Id. Finally, Canalta explains
that given the success of the NOVA 50E design and the expiration of the Laws Patent, it "decided to bring the NOVA50E design into our lineup of OEM flow measure products under the Contour Flow Conditioning Solutions Imprint."
Id. RJ Machine is free to take similar action.
In sum, RJ Machine has failed to rebut the presumption of validity of "50E" by establishing
it as a descriptive mark."
3.
Alternatively, "50E" has secondary meaning
Even if "50E" were a descriptive mark, CPA has shown secondary meaning. "Secondary
meaning occurs when, in the minds of the public, the primary significance of a mark is to identify
the source of the product rather than the product itself." Nola Spice Designs,
Enters., Inc.,
L.L. C.
v.
Haydel
783 F.3d 527, 537 (5th Cir. 2015) (citingAmazing Spaces, 608 F.3d at 247) (internal
quotation marks and citation omitted)). "In other words, 'the mark must denote to the consumer a
single thing coming from a single source to support a finding of secondary meaning." Id. (quoting
Zatarains, 698 F.2d at 795 (internal quotation marks and citation omitted)). CPA bears the burden
of establishing secondary meaning, and the burden "is substantial and requires a high degree of
proof"
Id. at 543-44 (quoting Test Masters Educ.
Sen's.,
Inc. v. Singh, 428 F.3d 559, 567(5th Cir.
2005)). The determination of secondary meaning is "primarily an empirical inquiry," informed by
the following factors:
(1) the length and manner of use of the mark or trade dress, (2) volume of sales,
(3) amount and manner of advertising, (4) nature of use of the mark or trade dress in
newspapers and magazines, (5) consumer-survey evidence, (6) direct consumer
testimony, and (7) the defendant's intent in copying the trade dress [or mark].
Id. (quoting Amazing Spaces, 608 F.3d at 247) (internal quotation marks and citation omitted)).
' The
disposition of this lawsuit calls for the Court to determine whether RJ Machine has met its burden to
show the registered marks at issue are not legally protectable. In analyzing the issues, the Court has simply described
what the marks are not (i.e., generic or descriptive), as determining where on the distinctiveness spectrum the marks
actually fall is not necessary to resolve this case. Nevertheless, the Court notes that ifsuch determination were necessary,
the record supports a finding that the marks are some combination of suggestive and arbitrary, the salient point being
they fall into the "inherently distinctive" category of marks.
-29-
Applying these factors to the present case, CPA has exclusively used the marks since 1999.
While there is no direct evidence of CPA's volume of sales, Dale Sawchuk testified CPA annually
spends between $400,000 and $600,000 on marketing, which is a significant portion of CPA's
annual revenues, indicating annual sales in the millions of dollars. Relatedly, CPA has spent
millions of dollars on advertising over the last fifteen years and done so through a variety of
channels, including direct communications through mail, email, phone, and personal meetings;
attendance at trade shows, courses, and seminars; promotional brochures; presenting papers at
industry conferences; and a website.
Regarding the fourth and fifth factors, there is no evidence. As for direct consumer
testimony, there is little evidence as the Court excluded the industry witnesses due to RJ Machine's
failure to timely disclose them. CPA's expert, Stephen Stark, who has been involved in the flow
conditioner industry since 1977, frequently consulted companies on flow conditioner issues, and
published many articles on flow measurement, testified that he recognizes "50E" as a brand
associated with CPA and that "50E" has not been used generically to describe the flow conditioner
itself.
Finally, RJ Machine's intent in using the "50E" mark appears to reflect a desire to take
advantage of customer specifications requiring a "50E" or its equivalent.
This is potentially
problematic because the evidence suggests the RJ Machine flow conditioner is not identical to the
CPA
50E.
For instance, RJ Machine's flow conditioner designer testified he compared the RJ
Machine product to the CPA 50E but did not copy it. Considering customers have only encountered
"50E" as a
CPA product, customers who recognize the "50E" and seek to purchase it for its
association with CPA may not be getting the flow conditioner they thought they were getting if RJ
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Machine can also brand its flow conditioner as a "50E." Furthermore, "[t]he need to use a term
because it is generic or highly descriptive should be distinguished from the desire to use it because
it is attractive." Union Nat. Bank, 909 F.2d at 848 n.22.
In the alternative, the Court concludes CPA has satisfied its burden to show "50E" has
acquired secondary meaning in the flow conditioner marketplace.
C.
Fraud on the PTO
Regardless of the distinctiveness of CPA's marks, RJ Machine contends the marks should
be cancelled because they were obtained fraudulently. CPA registered the "CPA 50E" mark in 2005
and the "50E" mark in 2011. While the "CPA 50E" has obtained incontestable status, RJ Machine
can still challenge such a mark on the ground of fraudulent procurement. "To seek cancellation, a
plaintiff must prove (1) a false representation, (2) regarding a material fact, (3) the registrant's
knowledge or belief that the representation is false, (4) the intent to induce reliance on the
misrepresentation, (5) reasonable reliance, and (6) damages proximately resulting from the reliance."
BurnscraftMfg. Corp.
v.
Nat '1 Constr. Rentals, Inc., No. H- 13-2769,2014 WL 1386300, at *4 (S.D.
Tex. Apr. 9,2014) (Rosenthal, J.) (citing Robi v. Five Platters, Inc., 918 F.2d 1439, 1444 (9th Cir.
1990)). "To succeed on a claim of fraudulent registration, the challenging party must prove by clear
and convincing evidence that the applicant made false statements with the intent to deceive the
licensing authorities." Meineke Disc. Muffler
v.
Jaynes, 999 F.2d 120, 126 (5th Cir. 1993). A
plaintiffbears a heavy burden to prove fraud. Burnscraft, 2014 WL 1386300 at *4 (citing Robi, 918
F.2d at 1439; Dallas Cowboys Football Club, Ltd.
v. Am.
Team Props., Inc., 616 F. Supp. 2d 622,
644 (N.D. Tex. 2009)). "Because the trademark application oath is phrased in terms of a subjective
belief, it is extremely difficult to prove fraud so long as the signer has an honestly held, good faith
-31-
belief that it is the senior right holder." Id. (quoting Hana Fin., Inc.
v.
Hana Bank, 500 F. Supp.
2d 1228, 1235 (C.D. Cal. 2007)).
According to RJ Machine, Blame Sawchuk made a false declaration in support of CPA's
2009 application for the "50E" mark. Notably, RJ Machine has not provided any affidavit from the
2005 "CPA 50E" application or provided any evidence of a statement by CPA, false or otherwise,
in connection with the 2005 application. For that reason alone, the challenge to the "CPA 50E" mark
fails. Regardless, even if Blame Sawchuk made a similar declaration in support of the "CPA 50E"
mark as he did with the "50E" mark, the fraud claim has no merit for reasons discussed below.
Blame Sawchuk made the following pertinent representations to the PTO in the 2009
application: he swore he believed that (1) CPA was the owner of the "50E" trademark sought to be
registered, (2) the mark was in use in commerce, (3) CPA was entitled to use the mark in commerce,
and (4) to the best of his knowledge and belief, no other company had the right to use the mark in
commerce. None of these statements are false. CPA was the first to use "50E" as a mark in
commerce, and as of the application dates, no other company had even tried to use the "50E" mark
for a flow conditioner. RJ Machine argues the statements in the affidavit were false because NOVA
and/or Statoil actually owned the technology underlying CPA's 50E, and CPA only obtained a
license to that technology. See Pl.'s Trial Br. [#126] at 6. According to RJ Machine, CPA "falsely
claimed that it owned as a trademark the name of that technology, the 'SUE." Id. RJ Machine's
argument is wrong and built on faulty premises that fail to appreciate the differences between the
rights CPA acquired through the NOVA Permission Letter and the Statoil/CPA License Agreement
as compared to trademark rights in the "50E" mark.
Pursuant to the NOVA Permission Letter, CPA simply obtained the right to manufacture and
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sell the flow conditioner developed by NOVA. NOVA explicitly conditioned its permission on CPA
agreeing not to name its product "the NOVA Flow Conditioner, or after NOVA in any other way,"
but NOVA said nothing about CPA's use of "50E." Under the Statoil/CPA License Agreement,
CPA obtained the right to use the flow conditioner design disclosed by the Laws Patent. CPA,
however, did not obtain any rights to the underlying TECHNOLOGY, defined as "any and all
technical information related to the K-Lab Laws Flow Conditioners as claimed in the PATENTS
[i.e., the Laws Patent] and as described in TECHNICAL INFORMATION [i.e., the K-Lab Design
Manual]." Notably absent from either of these agreements is any mention of trademark rights. In
fact, as of the time of execution of these agreements, CPA had yet even to brand its flow conditioner
the "CPA 50E" and use the mark in commerce. Similarly, neither NOVA nor Statoil owned any
trademark rights in "50E" as neither ever manufactured or sold a flow conditioner, much less a flow
conditioner labeled with the "50E" mark. As such, neither party could convey or withhold any
trademark rights in "50E" at all.
Blame Sawchuk' s representations to the PTO regarding CPA' s ownership of the "50E" mark
were accurate, and RJ Machine fails to establish even the first elementa false
statementof its
fraudulent misrepresentations claim. Even ifBlaine Sawchuk' s statements were somehow false, the
Court notes RJ Machine fails to present evidence on any of the other
elements.12
In sum, RJ
For example, there is no evidence of materiality as RJ Machine offers no more than the conclusory assertion
that the PTO would not have registered the marks if not for Blame Sawchuk's allegedly false statements in his
declaration. Additionally, there is no evidence Blame Sawchuk made the supposedly false statements knowing they were
false or with the intent to induce reliance on those misrepresentations. Finally, RJ Machine presented no evidence of
damages resulting from the PTO's reliance.
12
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Machine's fraudulent misrepresentation claims are baseless.'3
D.
Quality Control
One final argument asserted by RJ Machine is that CPA fails to adequately control the quality
of its products, and as a result, the marks "50E" and "CPA 50E" are generic.
See
Pl.'s
Proposed
Findings of Fact and Conclusions of Law [#114] at 9-10. The contention is lacking both legally and
factually. First, RJ Machine cites no legal authority linking quality control to the validity of an
unlicensed trademark. To the extent RJ Machine cites any legal authority, it is irrelevant to the
current circumstances.14
Second, RJ Machine failed to develop its quality control theory with evidence at trial. The
only witness RJ Machine even questioned regarding quality control was Dale Sawchuk who
explained briefly some of the quality control procedures that do exist at CPA. Blame Sawchuk also
provided a short bit of testimony explaining how upon arrival from one of CPA's four third-party
manufacturers, the flow conditioners are quarantined and inspected against the original drawings to
ensure consistent quality and how CPA maintains hard copy records of their inspection sheets. The
13As a corollary to its fraudulent misrepresentation claim, RJ Machine also contends CPA fraudulently omitted
material information when it did not disclose to the PTO the NOVA 50E origins of the CPA 50E in the form of for
example, the 1995 Karnik Paper. See P1. 's Proposed Findings of Fact and Conclusions of Law [#114] at 8. RJ Machine
fails to provide any legal authority for its fraudulent omission theory or for the idea that CPA needed to disclose the CPA
50E's technical background as part of its trademark application. Trademark law concerns the use ofmarks in commerce;
the NOVA 50E was an internal research project that never entered the flow of commerce. Indeed, in the NOVA
Permission Letter, NOVA expressed how happy it was to grant CPA permission to make and sell a flow conditioner
based on the NOVA 50E and its appreciation for the work CPA was doing to establish the NOVA-developed flow
conditioner in the commercial industry.
CPA has effectively analyzed and distinguished the authorities and cases cited by RJ Machine. See Def.'s
Trial Br. on Irrelevance of Quality Control [#124] at 1 11.1 (identifring authorities cited by RJ Machine in P1. 's Proposed
Findings of Fact and Conclusions of Law [#114] at 9-10 and explaining why they all stand for the proposition that
quality control is irrelevant absent a license or assignment in gross). CPA has also persuasively explained how quality
control is generally the right of the trademark holder and only becomes relevant if(l) the trademark holder assigns the
mark "in gross" or (2) conveys a "naked license" by licensing use ofthe markbut failing to exercise even minimal control
over the license. See id. at 2-4. Since CPA has done neither with respect to its marks, quality control is immaterial.
14
Seeid.
at4.
-34-
Sawehuks' testimony alone established in the record at least a minimum level of quality control. See
Ky.
Fried Chicken Corp.
v.
Diversfled Packaging Corp., 549 F.2d 368, 387 (5th Cir. 1977)
(explaining that even in the situation where a trademark holder licenses its mark, "[r]etention of a
trademark requires only minimal quality control, for in this context we do not sit to assess the quality
of products sold on the open market"). Outside of this limited testimony, there is no evidence in the
record even discussing quality control, and RJ Machine did not even raise the issue in closing
argument.
Conclusion
CPA has registered trademarks in the word marks "CPA SUE" and "SUE." CPA is the only
company to have ever used these marks in commerce to describe a flow conditioner and has done
so for the last fifteen years while building a successful company from the ground up and establishing
a strong reputation with customers in the flow conditioner industry. RJ Machine carries the burden
to rebut the presumptions of validity that attach to these marks with registration, and RJ Machine
has failed to show that "CPA 50E" is generic or that "SUE" is either generic or descriptive.
Moreover, RJ Machine's arguments regarding fraud on the PTO and quality control have no support.
Therefore, the Court finds RJ Machine is not entitled to any of the declarations and relief it
seeks pursuant to its declaratory judgment action. See Compi. [#1] at
9i 1.
denies RJ Machine's request that the Court, pursuant to 15 U.S.C.
1119, cancel the "SUE" mark
§
In particular, the Court
and order the PTO to enter a disclaimer of "SUE" in the mark "CPA SUE." See Pl.'s Proposed
Findings of Fact and Conclusions of Law [#114] at
1U.
RJ Machine can model its flow conditioner
after the NOVA SUE, it can manufacture a flow conditioner that imitates the CPA SUE, and it can
-35-
advertise its flow conditioner's technical characteristics and NOVA 50E origins. RJ Machine,
however, cannot call its flow conditioner a "50E."
Accordingly,
IT IS ORDERED that Plaintiff RJ Machine Company, Inc. is not entitled to any of
the declarations or relief requested in its Complaint [#1].
SIGNED this the
/day of July 2015.
SAM SPARKS
UNITED STATES DISTRICT JUDGE
579 ffcl2jtw.frm
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