Selling Replacement Supplies Could Constitute Contributory Trademark Infringement–Georgia Pacific v. Von Drehle (Guest Blog Post)

by guest blogger Mark Bartholomew

[Eric’s introduction: Mark is a law professor at the University of Buffalo. He has written several articles on secondary copyright and trademark infringement. See his SSRN page. We were swapping emails about this ruling, and he graciously agreed to write a post about it. I’ve appended a brief comment after his.]

Georgia Pacific Consumer Products LP v. Von Drehle Corp., 2010 WL 3155646 (4th Cir. Aug. 10, 2010)

The Fourth Circuit recently held that a maker of paper towels may violate the Lanham Act when it convinced merchants to stuff its paper towels into Georgia Pacific’s branded automatic towel dispensers instead of using towels provided by Georgia Pacific. The case is worth a look as it touches on issues of contributory trademark infringement, post-sale confusion, and antitrust law.

Plaintiff Georgia Pacific (GP) leases hands-free enMotion brand paper towel dispensers to distributors. The distributors then sublease the dispensers to businesses that have a use for them, like stadiums and restaurants. In its leases, GP conditions any use of the dispensers on exclusive use of GP brand paper towels. Unlike other automatic paper towel dispensers, enMotion dispensers are specifically designed to accept only a particular sized towel manufactured by GP.

Von Drehle is also in the paper towel business. In 2004, it developed a new type of toweling specifically for use in GP’s enMotion dispensers. It then instructed its sales staff to go out and convince distributors to resell its cheaper toweling to customers for use in enMotion dispensers. GP sued for contributory trademark infringement under the Lanham Act, along with violations of North Carolina’s unfair competition law and tortious interference with contractual relationships. Von Drehle counterclaimed for violation of the Sherman and Clayton acts.

The district court held in favor of Von Drehle on the trademark infringement and unfair competition claims. It explained that in evaluating likelihood of confusion, it was the mind sets of the business owners who purchase paper towel rolls for their restrooms that matter, not the expectations of restroom visitors. The court rationalized that restroom users don’t have a choice as to what type of paper towel they will receive, and “[n]o evidence exists to indicate that restroom visitors play any meaningful role in deciding which paper towel roll a business owner purchases from a distributor.” It held in GP’s favor on the antitrust claim because it found that GP had not taken coercive actions to enforce its lease agreements.

The Fourth Circuit reversed on the trademark and unfair competition claims. It described “the judicially created doctrine of contributory trademark infringement, derived from the common law of torts” as boiling down to a simple formula enunciated by the Supreme Court in a footnote to its landmark 1984 copyright decision, Sony v. University City Studios:

[A] manufacturer or distributor could be held liable to the owner of a trademark if it intentionally induced a merchant down the chain of distribution to pass off its product as that of the trademark owner’s or if it continued to supply a product which could readily be passed off to a particular merchant whom it knew was mislabeling the product with the trademark owner’s mark.

Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 439 n. 19 (1984).

The Fourth Circuit decided that there could be actionable post-sale confusion here because GP’s survey evidence showed that over 40 percent of the public expected the paper towels they used to match the brand of the enMotion dispenser, and GP’s reputation may be hurt if it could not control the quality of the toweling used in its dispensers. To the extent Von Drehle intentionally created and distributed its towels for use in the enMotion machines and continued to supply its towels to distributors knowing how they were to be used, Von Drehle could be liable for contributory trademark infringement.

What’s interesting to me about this case is not so much the court’s specific analysis of contributory trademark infringement or post-sale confusion. Both of these topics are controversial issues in trademark law and have been dealt with much more thoroughly in other cases. What’s interesting is how the case shows how these controversial doctrines intersect with antitrust law, and the serious threat wide application of these doctrines poses to the competitive goals trademark law is designed to further. GP designed a new device and required any user of that device to purchase its own, more expensive paper towels. Although in decline in recent years, the doctrine of patent misuse prevents patent holders with sufficient market power from suing a licensee for infringement when the licensee uses a patented device in conjunction with certain materials outside of the patent. A copyright misuse defense has been used to defeat an infringement claim when the copyright holder requires a licensing agreement for use of its work that also prohibits use of competing works. Instead of a patent or copyright claim here, GP is using trademark law to compel users of its device to purchase arguably extraneous goods. The big question here is whether this decision allows GP to make an end run around antitrust concerns.

Yet the Fourth Circuit spends no time on the competitive consequences of its decision. Maybe this is understandable—von Drehle did not appeal the district’s courts adverse ruling on its tying claim. Even so, the Fourth Circuit’s decision strikes at the heart of what is and is not fair competition and the policy issues surrounding enMotion’s practices probably deserved further discussion. (A concurrence by Judge Samuel Wilson hinted at this, noting that the antitrust implications of an arrangement like GP’s “will have to play out . . . on another day and, perhaps, on a different stage.”) In his treatise, McCarthy notes that in not a single reported case has a court refused to enforce a trademark because it was used in violation of antitrust law. But if doctrines like contributory trademark infringement liability and post-sale confusion continue to expand and receive widespread acceptance by the courts, the competitive position of individual manufacturers will continue to strengthen and a defense of “trademark misuse” may deserve more attention.

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Eric’s comment:

GP’s distribution scheme for its towel dispensers is, from an IP standpoint, both brilliant and insidious. If you’re a manufacturer looking to control the sale of complementary goods, this case provides a playbook for how to use trademark law to assert control over secondary markets in a way that courts might uphold–despite, as Mark explains, a thick set of antitrust issues. I share Mark’s disappointment that the majority opinion basically was blind to the hugely anti-competitive effects of its ruling. But make no mistake, this opinion will not help improve marketplace competition. If GP succeeds with this litigation, it will have successfully kicked out a competitor out of the replacement supplies marketplace, and I expect many, many other manufacturers will try to follow in GP’s footsteps to do the same.