IP Law Daily, TRADEMARK—W.D. Va.: German company’s Lanham Act claims can proceed in infringement case, (Apr 5, 2023)

By Jonathan Anderson

The manufacturer has sufficiently alleged likelihood of confusion to support plausible claims of trademark infringement and unfair competition.

The federal district court in Charlottesville, Virginia, has declined to dismiss Lanham Act claims brought by a German manufacturing company against its U.S. distributor. Analyzing nine factors, the court found that plaintiff has sufficiently alleged likelihood of confusion to support plausible claims of trademark infringement and unfair competition. Specifically, the court noted the high degree of similarity between plaintiff’s and defendant’s marks, identical use of product information on the parties’ respective websites, and ample evidence of defendant’s intent to induce confusion (Spheretex GmbH v. Carbon-Core Corp., March 31, 2023, Moon, N.).

Background. Plaintiff, Spheretex GmbH, is a German company that describes itself as “a leading manufacturer of laminable core products” used in various industries, including “construction, automobiles, marine vessels and watercraft, pools and spas, piping, and medical equipment.” In 2014, Spheretex and defendant, Carbon-Core Corp., entered into a distribution agreement and Carbon-Core became the exclusive distributor of Spheretex products in the U.S. and Canada, including plaintiff’s Sphere.core product line. Plaintiff owns common law trademark rights in and registrations with the U.S. PTO for the marks SPHERETEX and SPHERECORE.

In 2017, plaintiff and it its then CEO parted ways. Plaintiff asserted that it believed that the former CEO misappropriated its trade secrets, “including product formulas and manufacturing processes for key product lines, among others, Plaintiff’s signature fiberglass-based products.” Plaintiff alleged that the former CEO started two new companies, the ESGE companies in Germany, which are engaged in the manufacture of competing products. Plaintiff alleged that defendant distributer began importing parts, including some from the ESGE companies, in conjunction with plaintiff’s former CEO, to begin to manufacture its own competing products under the brand name SphereCel. Plaintiff also alleged that defendant applied for a U.S. trademark for SphereCel in connection with a product that is identical to Sphere.core.

In 2020, plaintiff’s clients allegedly began reporting that they had begun purchasing competing products directly from defendant. Additionally, plaintiff noted that it believed defendant was using plaintiff’s packaging and attempting to pass off its product as plaintiff’s.

Plaintiff filed suit alleging breach of contract, trade secret misappropriation, and trademark infringement and unfair competition in violation of the Lanham Act. Defendant moved to dismiss the Lanham Act claims after the court declined to dismiss the suit on jurisdictional grounds.

Likelihood of confusion. The only Lanham Act element at issue was whether the opposing party used the mark in a manner likely to confuse customers. To determine whether a likelihood of confusion exists, the court considered nine factors as articulated in Variety Stores, Inc. v. Wal-Mart Stores, Inc., 888 F.3d 651, 660 (4th Cir. 2018).

Strength of plaintiff’s mark. At this stage, the court found that plaintiff has sufficiently alleged the strength of the plaintiff’s marks, although arguments about the most appropriate classification of the marks could be more developed. This factor thus weighed somewhat, though not decisively, in plaintiff’s favor.

Similarity of the marks. There is a high degree of similarity between plaintiff’s and defendant’s marks, especially the dominant portions of the marks, which strongly weighed in plaintiff’s favor.

Similarity of the goods. The parties agreed that this factor has been adequately pled, thus supporting a likelihood of confusion.

Similarity of the facilities used. Plaintiff did not argue this factor and the complaint included no information about channels of trade contemplated by the trademark application, so this factor did not weigh for or against a likelihood of confusion.

Similarity of the advertising used. The court found that defendant’s alleged use of identical product information and language on its website as compared to plaintiff made it more than plausible that this factor supports a likelihood of confusion. Plaintiff alleged that defendant used plaintiff’s registered marks on defendant’s product webpages for its SphereCel products; that defendant’s webpages for its SphereCel products included verbatim copies of the product webpages for comparable plaintiff products, and that defendant’s webpages used plaintiff’s registered marks in its own descriptions. Plaintiff further alleged that defendant’s use of identical product details was intended to create customer confusion among an overlapping customer base.

Defendant’s intent. Plaintiff more than sufficiently alleged that defendant intentionally used plaintiff’s challenged marks to attempt to induce confusion by buyers, including the allegation that defendant used the same fifteen-digit product number as plaintiff’s product number for comparable products, which the court said is “highly probative of intent to deceive.” Plaintiff also alleged that its customer received plaintiff’s product through defendant but using packaging associated with defendant. These allegations make a strong case that defendant intentionally sought to deceive the public, which weighed heavily in plaintiff’s favor.

Actual confusion. The court found that this factor weighed somewhat in plaintiff’s favor, but not to such a degree as it might have otherwise with additional allegations. Plaintiff did not present survey evidence of actual confusion. However, the court did reference allegations of anecdotal evidence of actual confusion, such as the allegation that plaintiff’s customers felt compelled to tell plaintiff that defendant had delivered plaintiff’s product using defendant’s packaging. This factual allegation, the court said, lends credence to some proof of actual confusion, although actual confusion is not necessary to establish likelihood of confusion.

Quality of defendant’s product. Plaintiff did not address the quality of defendant’s product, so this factor did not affect the court’s analysis of likelihood of confusion.

Consumer sophistication. The court found this factor weighed in defendant’s favor, but not decisively so. Although there is a wide-ranging set of industries and potential buyers for plaintiff’s products, the court said it cannot conclude that all, or even most, potential buyers are sophisticated entities that could perceive a difference in the products and marks.

The Case is No. 3:20-cv-00053-NKM-JCH.

Attorneys: Knut Woestehoff (Squire Patton Boggs) for Spheretex GmbH. Robert Franklin Powers (McClanahan Powers, PLLC) for Carbon-Core Corp.

Companies: Spheretex GmbH; Carbon-Core Corp.

Cases: Trademark VirginiaNews