IP Law Daily, TRADEMARK—3d Cir.: $1.26 million judgment for distributor of NanoBone affirmed, (Jun 6, 2024)

By Martin A. Steinberg, J.D.

There was sufficient evidence for the jury to conclude that the manufacturer wrongfully terminated the distribution agreement.

The Third Circuit affirmed a judgment for breach of contract in favor of the distributor of an implantable synthetic bone-grafting product called NanoBone. Plaintiff Artoss, Inc., sued the manufacturer, Artoss GmbH, for breach of contract after it refused to ship new NanoBone products to Plaintiff without advance payment and for raising its prices. Defendant counterclaimed for breach of contract and trademark infringement. The jury awarded Plaintiff $1,260,821. The appellate court refused to reverse because it was not unreasonable for the jury to conclude that Defendant wrongfully terminated the Distribution Agreement. The court also rejected Defendant’s claim of trademark infringement because (1) Plaintiff only used the trademark for promoting NanoBone products, and (2) the sole trademark at issue was the word “NanoBone,” without any stylization, while Plaintiff’s trademarks were stylized variations (Artoss, Inc. v. Artoss Gmbh, No. 23-1185 (3d Cir. June 4, 2024)).

Defendant is a German medical device company, and Plaintiff was its North American distributor of an implantable synthetic bone-grafting product called NanoBone. The Distribution Agreement provided that all trademarks associated with NanoBone products belonged exclusively to Defendant and that it was allowed to terminate the agreement if it reasonably determined that Plaintiff negligently or intentionally acted in a manner which adversely affected Defendant’s trademark rights. The Distribution Agreement also stated that Defendant was not permitted to increase its prices except upon mutual agreement, and it was entitled to payment for products it supplied to Plaintiff only after those products were sold.

In June 2020, Plaintiff sued Defendant for breach of the Distribution Agreement after Defendant refused to ship new products to Plaintiff without advance payment. Nevertheless, Plaintiff conditionally pre-paid for inventory pending resolution of its lawsuit. A few months later, Defendant unilaterally raised prices on all NanoBone products. Finally, Defendant terminated the Distribution Agreement in April 2021, alleging that Plaintiff had registered certain trademarks on material associated with NanoBone products and attempted to rebrand Defendant’s products. Plaintiff filed an amended complaint based on Defendant’s price increases and its termination of the agreement.

Prior to trial, Defendant objected to instructing the jury on nominative fair use by arguing that even if Plaintiff had timely pleaded this affirmative defense to Defendant’s trademark infringement counterclaims, it was legally inapplicable to the facts of the case. The trial court overruled this objection and instructed the jury accordingly.

Jury verdict. The jury found that: (1) Defendant breached the Distribution Agreement and acted wrongfully when it terminated the Agreement; and (2) Plaintiff did not breach the Agreement or violate any of Defendant’s trademark rights. Following the damages phase of the trial, the jury awarded $1,260,821 to Plaintiff. The district court denied Defendant’s renewed motion for judgment as a matter of law as well as its motion to amend the judgment and transfer ownership of NanoBone-related trademark registrations and applications from Plaintiff to Defendant.

Trademark infringement. Defendant’s sole trademark at issue was the word “NanoBone,” consisting of standard characters without claim to any particular font, style, size, or color. There was substantial evidence at trial demonstrating that Plaintiff never attempted to register “NanoBone,” never challenged the ownership or validity of the trademark, nor deprived Defendant of its right to use or exercise control over it. Rather, Plaintiff used the word only to promote and sell NanoBone products. So it was reasonable for the jury to conclude that Plaintiff never adversely affected Defendant’s trademark rights. Because this was the only applicable basis for Defendant to terminate the Distribution Agreement, its arguments on appeal that Plaintiff violated other provisions of the Distribution Agreement were ineffective.

The court also rejected Defendant’s argument that Plaintiff created and released an unauthorized stylization of the NanoBone mark and sought to obtain protection in its own name for elements of that stylization, because Defendant’s trademark encompasses only the word itself. Thus, the logos Plaintiff created incorporating the original stylized NanoBone mark or generic scientific terms like “nanobiology,” “ossification,” and “osteogenesis” were distinct from the NanoBone trademark.

Defendant asserted that Plaintiff violated its trademark rights by claiming ownership of the word “NanoBone” on both its website’s Terms of Use page and in its brand manual. Evidence at trial, however, showed that no members of the general public saw either the webpage or the manual. Accordingly, it was reasonable for the jury to conclude that these actions by Plaintiff did not adversely affect the NanoBone trademark.

Nominative fair use. Defendant failed to show that the district court abused its discretion by instructing the jury on nominative fair use. Affirmative defenses may be raised at any time, even after trial, so long as the opposing party suffered no prejudice. Plaintiff did not waive or forfeit its nominative fair use defense since it unequivocally raised this defense in its pre-trial motion, and Defendant failed to establish prejudice. Instead, Defendant only offered a broad reference to “the nuance and complexity” of a nominative fair use defense. Defendant’s contention that the nominative fair use defense did not apply was primarily a challenge to the jury’s application of the facts to the law, and it offered no compelling basis upon which to discard the relevant factual findings.

First-in-first-out evidence. The court rejected GmbH’s argument that the trial court erred by excluding evidence on Plaintiff’s disregard for first-in-first-out practices. Defendant asserted that this evidence establishing a good faith basis for its refusal to accept new purchase orders without prepayment. The court refused to consider this argument because any error would have been harmless. The district court had permitted Defendant to present substantial evidence concerning Plaintiff’s inventory practices and the resulting financial consequences. Yet, Defendant failed to explain how the excluded evidence was critical for Defendant to defend against Plaintiff’s claims for breach of contract, or why Plaintiff’s specific failure to follow first-in-first-out practices constituted a central issue.

Transfer of trademarks. Finally, the court rejected Defendant’s argument that the district court erred in refusing to transfer ownership of the registered trademarks relating to NanoBone that Plaintiff had filed with the Patent and Trademark Office. This argument failed for the same reasons the trial court did not err in denying judgment as a matter of law. Because the jury reasonably found that Plaintiff did not infringe Defendant’s NanoBone trademark rights when it sought to trademark unrelated logos and slogans, the relief sought by GmbH would have directly conflicted with the jury’s verdict.

The Case is No. 23-1185.

Judge: Hardiman, T.

Attorneys: Gerald H. Fornwald (Winthrop & Weinstine P.A.) for Artoss Inc. Jason R. Bartlett (Maschoff Brennan PLLC) for Artoss GmbH.

Companies: Artoss Inc.; Artoss GmbH

Cases: Trademark DelawareNews NewJerseyNews PennsylvaniaNews