Bakery’s Apple Pie Design is Functional and Ineligible for Trademark Protection, Third Circuit Affirms

The U.S. Court of Appeals for the Third Circuit recently affirmed a district court’s determination that the key element of a gourmet bakery’s registered pastry design was functional, and therefore ineligible for trademark protection, in Sweet Street Desserts, Inc. v. Chudleigh’s Ltd., Nos. 15-1445 & 15-1548.

In the mid-90’s, Chudleigh’s developed a single-serving apple pie, with a round shape and six overlapping folds of pastry encircling the pie filling. Chudleigh’s registered a trademark for its pie—the “Blossom Design”—and entered into discussions with Applebee’s from 2008-2010 to supply apple pies without reaching a deal. In 2010, Applebee’s asked Sweet Street Desserts, also a dessert manufacturer and restaurant supplier, to develop a single-serve apple pie. Sweet Street Desserts entered into a contract with Applebee’s to supply a “round ‘apple pocket’ that consisted of a unitary, pie-like bottom with an open top covered by six rectangular pieces of dough folded around the filling in a counter-clockwise spiral pattern ….” Sweet Street Desserts entered into discussions with Chudleigh’s to outsource the production of the product, but the parties did not reach an agreement and Sweet Street Desserts produced the dessert itself.

Chudleigh’s complained to Applebee’s that the Sweet Street Dessert’s apple pie infringed on Chudleigh’s “Blossom Design,” and featured the same “six-fold spiral pattern.” Sweet Street Desserts then filed a declaratory action in federal court, seeking a declaration that its product did not infringe on Chudleigh’s Blossom Design.

In its July 21, 2016 Opinion, the Third Circuit affirmed the district court’s grant of summary judgment to Sweet Street Desserts. Quoting the Supreme Court’s decision in TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 32 (2001), the Third Circuit reiterated that “a product feature is functional, and cannot serve as a trademark, if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.” Chudleigh’s Blossom Design was functional because the number of folds in a pie must be proportional to the size and amount of filling in the pastry. Indeed, Chudleigh’s owner testified that during his creation of the Blossom Design, the “single-serving size and round shape of the design were critical to minimizing the cost of the pastry and to filling the need in the restaurant industry to reduce waste and ease serving.” The Blossom Design was functional and the cancellation of Chudleigh’s trademark was affirmed.

Sweet Street stands as a reminder that product designs that are essential to the use of the item or go to the item’s cost or performance are the province of patent protection, not trademark. The decision also reminds businesses of the usefulness of declaratory judgment actions in protecting against allegations of infringement of intellectual property rights.

For more information on the Lanham Act or implications of Sweet Street Desserts, Inc. v. Chudleigh’s Ltd., please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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Federal Circuit Strikes Down Federal Ban on Disparaging Marks as Unconstitutional

In a landmark ruling that departs from decades-old precedent, on December 22, 2015, the U.S. Court of Appeals for the Federal Circuit held that the Lanham Act’s prohibition of “disparaging marks” violates the First Amendment’s guarantee of free speech. In re Simon Shiao Tam, Case No. 2014-1203 (Fed. Cir. Dec. 22, 2015). The decision is sure to be discussed by the Court of Appeals for the Fourth Circuit next year when it decides whether it was lawful for the United States Patent and Trademark Office (USPTO) to cancel registration of the marks owned by the NFL’s Washington Redskins, on the basis that the REDSKINS mark is disparaging to Native Americans.

The decision by the Federal Circuit involved the USPTO’s denial of trademark registration to an “Asian-American dance-rock band,” for their band name, THE SLANTS, a name the band intended to “reclaim” and “take ownership” of Asian stereotypes. Reasoning that the proposed mark was “likely disparaging to ‘persons of Asian descent,’” the USPTO denied federal trademark registration under the disparagement provision found in § 2(a) of the Lanham Act. A panel of three Federal Circuit judges affirmed, citing Circuit precedent that had rejected the constitutional argument on the grounds that the USPTO’s “refusal to register a mark under § 2(a) does not bar the applicant from using the mark, and therefore does not implicate the First Amendment.”

Sitting en banc, a divided Federal Circuit vacated the panel’s holding, overruled its prior precedent, and invalidated the disparagement provision, holding that the restriction cannot survive any of the levels of scrutiny applied to different types of restrictions on private speech. Starting with the premise that § 2(a) is a content and viewpoint-discriminatory regulation of speech, the Federal Circuit rejected the government’s arguments why the provision should not be subjected to strict scrutiny, an exacting standard that the government conceded the provision could not survive.

Citing the Federal Circuit’s prior precedent, the government contended that strict scrutiny does not apply because the Lanham Act does not prohibit expressive speech, but rather regulates commercial speech since the putative registrant is “free to name his band as he wishes and use this name in commerce.” Rebuffing this argument, the Federal Circuit found that federal trademark registration “bestows truly significant and financially valuable benefits upon markholders,” such as the right of exclusive nationwide use and the ability to recover treble damages for willful infringement, the denial of which creates a “serious disincentive to adopt a mark which the government may deem offensive or disparaging,” thus chilling private speech.

If trademark registration constitutes regulation of commercial speech, the Court held, the restriction would then be subjected to intermediate scrutiny, and even under that less exacting standard, the disparagement provision is still unconstitutional because the only interest the government has in prohibiting disparaging trademarks is its “disapproval of the message,” an interest that is not “legitimate” for First Amendment purposes.

Going forward, In re Tam is likely to have an immediate effect on other Circuits’ decisions when faced with similar issues, such as the Fourth Circuit’s future decision in the REDSKINS case. Moreover, the Federal Circuit hinted in a footnote that the decision may affect the other provisions of the Lanham Act that regulate expressive speech, such as the provision that permits the government to deny registration of a mark determined to be “immoral” or “scandalous.” The Government will almost certainly ask the Supreme Court to review the decision, but until the Supreme Court takes up the case, the USPTO will be barred from rejecting marks determined to be “disparaging.”

For more information on the Lanham Act or implications of In re Simon Shiao Tam, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com.

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Supreme Court Reiterates the FAA’s Preemptive Authority

On Monday, the United States Supreme Court in DIRECTV, Inc. v. Imburgia, 577 U.S. ___, No. 14-462, slip op. at 1 (Dec. 14, 2015), doubled down on its previous holdings that the Federal Arbitration Act (“FAA”) preempts state law judicial interpretations that do not place arbitration contracts “on an equal footing with all other contracts.” Imburgia is the Supreme Court’s latest rebuke of state courts that are hostile to arbitration clauses and class-arbitration waivers, and signals to lower courts that they may not utilize state contract law principles to interpret arbitration provisions so as to end-run the mandates of the FAA.

In 2005, the California Court of Appeal held in Discover Bank v. Superior Court that class-arbitration waivers were unenforceable in “consumer contract[s] of adhesion” that “predictably involve[d] small amount of damages” and met certain other criteria (known as the Discover Bank rule). In 2011, the Supreme Court decided AT&T Mobility LLC v. Concepcion, which held that the FAA preempts state law that bars enforcement of arbitration agreements if such agreements do not permit parties to utilize class-action procedures in arbitration or in court, thus invalidating the Discover Bank rule. The Supreme Court found that the Discover Bank rule stood as an “obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA.

Compounding on its holding in Concepcion, the Supreme Court in Imburgia declared that Section 2 of the FAA preempts state law interpretation of a contract’s arbitration provision based on a rule that the state’s courts had applied only in the arbitration context, concluding that such a ruling “does not rest ‘upon such grounds as exist . . . for the revocation of any contract.’”

In Imburgia, Petitioner DIRECTV, Inc. entered into a service agreement with customers containing an arbitration provision governed by the FAA that provided for a class-arbitration waiver reading: “if the ‘law of your state’ makes the waiver of class arbitration unenforceable, then the entire arbitration provision ‘is unenforceable.’” Following a class action brought by Respondents in California state court, DIRECTV moved to compel arbitration, which was denied by the trial court. The California Court of Appeal affirmed, holding that the “law of your state” language in the arbitration provision meant that that the parties had agreed that California’s Discover Bank rule would govern, notwithstanding the holding of Concepcion.

The Supreme Court, by a 6-3 vote, reversed and remanded, finding that because such an interpretation of the arbitration clause was “unique, restricted to that field,” and because “California courts would not interpret contracts other than arbitration contracts the same way,” the interpretation was impermissible as preempted by the FAA. Going forward, the Supreme Court has made explicit that arbitration agreements, and specifically class-arbitration waivers, should be enforced by state courts—even in the face of a state’s former invalidation of such waivers. Imburgia stands as the latest in a series of pro-arbitration rulings under Chief Justice Roberts, and instructs states that its courts may not use novel interpretations of state contract law to intrude on otherwise valid arbitration agreements.

For more information on the FAA or implications of DIRECTV, Inc. v. Imburgia, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com.

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