How Do You Draft a Consent Decree for Trademark Infringement to Account for Unknown Unknowns? The Sixth Circuit Says “The Usual Way” in Recent Ruling

In 1995, Amazon recently sold its first book and eBay was just getting off the ground.  At that point, the idea of e-commerce marketplaces was in its infancy.  It was unlikely that Jeff Bezos contemplated that I might be buying sunglasses, toothpaste, and an outdoor power tool in a single order while writing this blog (but I can, and I may have…).  For drafters of consent decrees in 1995, e-commerce was, in the words of Donald Rumsfeld, an unknown unknown.  A recent opinion in the Sixth Circuit gives guidance on how a 25-year-old consent decree may be interpreted today and provides lessons for trademark owners moving forward.  McKeon Products, Inc., v. Howard S. Leight and Associates, Inc., et al., Case No. 20-2279 (6th Cir. October 8, 2021; Opinion by Judge Nalbandian, joined by Judges Norris and Kethledge).

Relevant Facts of the Case

The case comes on appeal from U.S. District Court for the Eastern District of Michigan at Detroit.  The Appellee moved to enforce a consent decree between the Appellee and Appellant entered into in 1996 as part of a settlement of trademark infringement litigation.  The Appellee sold earplugs under the brand name “MACK’S” and the Appellant sold their earplugs under the name “MAX” and “MAX-LITE.”  The consent decree did not bar the Appellant from selling the earplugs themselves but applied to the sale of earplugs under the “MAX-brand” which was the subject of the trademark infringement suit. 

The two parties agreed that the Appellant would be barred from sales and marketing in the “Retail Market,” under the MAX-brand, but allowed sales in the “Industrial Safety Market and elsewhere.”  The Appellant was also barred from packaging their earplugs in a way that made them appropriate for sale and distribution in the Retail Market.  The Appellant then began selling earplugs, under the brand name subject to the consent decree, on Amazon in 2004.  In 2017, the Appellee discovered the Amazon sales and subsequently moved to enforce the consent decree.  The Appellant raised the defense of laches.  By adopting a Magistrate Judge’s report and recommendation, he district court held that laches was not available and that the online sales violated the consent decree.

The Sixth Circuit addressed three issues: is laches an available defense; if so, does laches bar the motion to enforce the consent decree; and if the Appellee’s motion to enforce was timely, do certain ecommerce sites meet the definition of the “retail market?” 

The Court made short work of the question of whether laches was available.  “[A] motion to enforce a consent decree is an equitable action subject to equitable defenses.  … There is no exception for trademark disputes.”  McKeon Prods. at *7.

Appellant began online sales in 2004, Appellee sought to enforce consent decree in 2018

Applying its own precedent as well as that of other circuits, the Court found that the Appellee’s motion to enforce the consent decree was timely, even with the significant length of time the Appellant had been engaged in online sales.  While the reasoning is slightly more nuanced, the key takeaway from the Court’s reasoning was that the clock on laches begins when the Appellee knew or should have known about Appellant’s sales.  Specifically, the Court noted that “[a]lthough the standard here is constructive notice, [Appellee] has no responsibility to ‘play policeman’ at brick-and-mortar retailers, and it is similarly not responsible for policing every corner of the internet.”  Id. at *8.  Thus, the clock started to run when the Appellee became aware of the Appellant’s online sales in 2017.

The Court held that while laches was an available defense against the motion to enforce, it was not applicable to the present facts because there was no lack of diligence by the Appellee and the court did not find that the Appellant was prejudiced.

E-commerce considered “retail establishments” under the consent decree.

While Amazon was not an option for sellers of earplugs in 1996, the Court determined that Michigan contract law gives undefined terms the plain and ordinary meaning that would be apparent to the reader.  The Court determined the plain and ordinary meaning of “retail establishment” reached Amazon and other e-commerce sites.  The contract included examples of retail establishments, such as Walmart, Target, Meijer, and Walgreens.  The Court concluded that these companies compete with Amazon and other e-commerce sites.

The consent decree included a carveout that allowed the use of the Appellant’s brand name in the industrial safety market or other “non-retail” businesses (e.g., hospitals, hotels, airlines, etc.).  The Court concluded that this carveout did not bar ALL online sales under the Appellant’s brand name.  For example, online sales would be permitted through the websites of industrial supply and industrial safety companies. 

Unanswered Question: How much did packaging matter?

The Court addressed the Appellant’s argument that some manufacturing entities buy supplies on sites like Amazon, ultimately finding it unpersuasive.  “If a business is a ‘retail establishment’ it simply doesn’t matter that some manufacturing entities shop there.”  Id. at *13.

However, I’m left with an unanswered question: what kind of packaging was the Appellant using on Amazon?  In my experience, a company purchasing disposable safety supplies like earplugs would not purchase them in, say, quantities of 10.  Similarly, a retail consumer would likely not purchase earplugs in quantities of 1000.  In other words, I’m curious how the Court would have ruled if the Appellant’s only sales on Amazon were for quantities typical of industrial customers.

Lessons for Practice

There are two IP related lessons to take from this Sixth Circuit opinion.  First, just because something didn’t exist at the time of the contract or consent decree, doesn’t mean that method of sale is not covered by the consent decree.  At least in Michigan, the plain and ordinary meaning will control any undefined term.  Thus, as technology advances, the terms of the consent decree will likely advance with it.  (This is a double-edged sword depending on which side you’re on.)   Second, and as described above, a creative and potentially happy medium for two parties might be to regulate how a product is packaged and sold, as opposed to where the product is sold.

Related Post

Are E-Commerce Sites Liable for Trademark Infringement?  The Sixth Circuit Gives Guidance