Georgia Pacific’s Effort to Control Towel Dispenser Refills Fails in 8th Circuit–Georgia Pacific v. Myers Supply (Guest Blog Post)

Georgia Pacific Consumer Products LP v. Myers Supply, Inc., 2010 WL 3564834 (8th Cir. Sept. 15, 2010)

By guest blogger Mark Bartholomew

After a decision by the Fourth Circuit seemed to open the door for businesses to use contributory trademark law to block the sale of complementary goods, a recent case in the Eighth Circuit adopts what I think is a more reasonable approach. In both cases, the plaintiff and the technology at issue were the same, but the outcomes are completely different.

Plaintiff Georgia Pacific (GP) employs the following strategy to try and prevent competitors from offering cheaper paper towels for the paper towel dispensers it manufactures. It leases its hands-free enMotion brand paper towel dispensers to distributors who in turn lease the dispensers to businesses like restaurants and gas stations. In its leases, GP conditions any use of the dispensers on exclusive use of GP brand paper towels. GP also places a sticker on the dispensers warning any sublessees that only GP-brand replacement towels may be used.

In the Fourth Circuit dispute, GP claimed contributory trademark infringement against a rival paper towel manufacturer, Von Drehle. The Fourth Circuit reversed a grant of summary judgment in Von Drehle’s favor. To the extent Von Drehle knowingly created its towels for use in the enMotion machines and supplied those towels to distributors knowing how they were to be used, Von Drehle could be liable for contributory trademark infringement. The Fourth Circuit was sympathetic to GP’s claim that its reputation would suffer if it could not control the quality of the toweling used in its dispensers.

GP also tried its luck in the Eighth Circuit, this time suing a distributor of Von Drehle paper towels named Myers Supply. In the district court, Myers won. Although the judge found that Myers knew that its customers were stuffing the Von Drehle towels in enMotion dispensers and continued to supply the towels in the face of this knowledge, he held that GP failed to demonstrate an underlying likelihood of confusion. GP appealed, contending that the district court improperly discounted its survey evidence. The same survey evidence had been offered as evidence of confusion in the Fourth Circuit case.

The Eighth Circuit affirmed the district court. In one sense, the Eighth Circuit’s decision does not represent a complete break from the Fourth Circuit. It was reviewing a district judge’s finding of no likelihood of confusion after a bench trial, a decision entitled to some deference. By contrast, the Fourth Circuit overturned a grant of summary judgment on the issue of contributory infringement and could not be accused of simply interpreting the proffered evidence of confusion in a different way from the trier of fact. But the Eighth Circuit’s decision also offers some hints that, unlike the Fourth Circuit, it might not be willing to allow the controversial and unsettled area of contributory trademark infringement doctrine to ratify GP’s strategy for blocking competitors.

First, the Eighth Circuit spent a lot of time on industry custom. On multiple occasions, the court notes, “it was unobjectionable and common practice to put towels of one brand into a dispenser of a different brand.” GP’s own behavior, apart from its strategy with the enMotion machines, meshed with this industry practice. GP manufactures “universal” paper towel dispensers that can accept towels from other businesses and its products catalog indicates that it provides towels for use in other companies’ universal dispensers. By including these facts, the Eighth Circuit may be suggesting that GP should not be allowed to have it both ways, i.e., freely participating in a robust market for complementary goods while prohibiting any such goods for use in its enMotion machines. The Eighth Circuit even ratified the district court’s decision to credit this evidence of industry custom over survey evidence demonstrating that 23 percent of respondents using enMotion machines thought the brand of the towel inside was the same as the brand of the dispenser. In contrast, the Fourth Circuit largely ignored evidence of industry practice, instead limiting its likelihood of confusion analysis strictly to whether “restroom visitors” could be confused as to the source of the towels found in enMotion dispensers.

Second, GP also claimed tortious interference with contract but the Eighth Circuit dispatched this cause of action quickly. Myers admitted at trial that it knew there was a “99 percent” probability that its customers were buying Von Drehle towels and stuffing them in enMotion dispensers. Nevertheless, the Eighth Circuit decided that just “fill[ing] the orders of its customers” could not make Myers liable for tortious interference. In dissent, Judge Clarence Bean argued that Myers’ conduct could be deemed improper since it knew that its customers were violating their sublease and kept providing the cut-rate towels anyway. (Note how this is largely the same analysis required for a claim of contributory infringement: did the defendant know that its customers were engaging in trademark infringement and did it continue to supply its product after having that knowledge?) Similarly, the Fourth Circuit reversed a grant of summary judgment in favor of von Drehle on the tortious interference issue, disagreeing with the lower court’s view of von Drehle’s behavior as “legitimate competition.” It seems to me that the majority in the Eighth Circuit opinion, given its focus on industry custom, was willing to deem the paper towel stuffing at issue as “legitimate competition.”

Which leads me to a final point. The specific claim here might have been contributory trademark infringement, but the Eighth Circuit’s analysis is really more about unfair competition. Concerned that GP’s lawyers were making an anti-competitive end run around the rest of the industry, the court used industry custom to knock out GP’s infringement and tortious interference claims. I’m not sure that the decision maintains complete fealty to traditional trademark infringement doctrine—it seems to me that survey evidence showing double-digit rates of confusion is probably more probative of confusion than evidence of industry custom. But when confronted with an anti-competitive practice and a body of secondary trademark infringement doctrine providing increasing support for such practices, the court chose to use the discretion built into the likelihood of confusion analysis to find the right result. In this way, I think the decision represents an improvement over the Fourth Circuit’s decision just one month before.

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