Capri Sun GMBH v. Am. Beverage Corp.

414 F.Supp.3d 414

CAPRI SUN GMBH, Plaintiff,

v.AMERICAN BEVERAGE CORP., Defendant.

19 Civ. 1422 (PAE)

United States District Court, S.D. New York.

Signed October 29, 2019

Allison Levine Stillman, Jonathan Webster Thomas, A. John P. Mancini, Mayer Brown LLP, New York, NY, for Plaintiff.

Dawn L. Rudenko, Holland & Knight LLP, Stamford, CT, Joshua Krumholz, Mark T. Goracke, Holland & Knight, LLP, Boston, MA, for Defendant.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

This case raises novel questions regarding the interplay of contract law and the trademark law defense of functionality.

Plaintiff Capri Sun GmbH ("Capri Sun") holds a trademark for its familiar tinfoil pouch design for fruit juice drinks containing water (the "Pouch Trademark"). Less than three years before this lawsuit was commenced, Capri Sun's predecessor in interest, and that of defendant American Beverage Corporation ("ABC"), settled a substantially similar lawsuit involving the Pouch Trademark. Their Settlement and License Agreement included a clause that then barred ABC's predecessor, and today bars ABC, from challenging the trademark's validity (the "No-Challenge Provision"), while giving ABC's predecessor a right to license that design for its own products.

Although ABC has since terminated the license, it remains bound by the No-Challenge Provision. In this lawsuit, Capri Sun claims that ABC, notwithstanding the termination of its license, is selling fruit-juice drinks in pouches that infringe Capri Sun's trademark. Capri Sun brings claims against ABC for breach of the Settlement and License Agreement, for, inter alia , federal trademark infringement pursuant to 15 U.S.C. §§ 1114 and 1125(c), and for federal trade-dress infringement pursuant to 15 U.S.C. § 1125(a).

The issue at hand is whether ABC is precluded contractually from challenging Capri Sun's trademark as invalid. Specifically, as an affirmative defense, ABC asserts that the Pouch Trademark is invalid on the grounds that it is functional in nature, i.e., protectable, at most, under patent law, but not protectable in trademark. The No-Challenge Provision, however, would bar such a challenge. A line of cases beginning with Lear, Inc. v. Adkins , 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), has significantly limited the enforceability of contract and license provisions that explicitly or implicitly preclude challenges to patents, and has occasionally limited the enforceability of provisions that preclude challenges to trademarks. Invoking this line, ABC argues that the No-Challenge provision is void for public policy reasons.

In the instant motion, Capri Sun seeks to preclude that line of defense. It moves: (1) to strike all references to the alleged functionality of the Pouch Trademark from ABC's affirmative defenses, pursuant to Federal Rule of Civil Procedure 12(f)(1) ; and (2) for a protective order that would bar ABC from seeking discovery regarding the trademark's functionality, pursuant to Federal Rule of Civil Procedure 26(c)(1)(D).

For the following reasons, the Court sustains the No-Challenge Provision and therefore grants Capri Sun's motion.

I. Background

A. Factual Background¹

1. The Parties and their Predecessors

Capri Sun is a Gesellschaft mit beschränkter Haftung (limited liability company) organized under the laws of, and headquartered in, Germany. Compl. ¶ 8. On December 17, 2018, the company recorded its change of name from Deutsche SiSi-Werke Betriebs GmbH ("SiSi") to Capri Sun GmbH with the U.S. Patent and Trademark Office (the "PTO"). SUF ¶ 1. Rudolph Wild GmbH & Co. KG (formerly Zick-Zack Rudolf Wild) ("Wild") is the parent and a predecessor-in-interest of Capri Sun. See id. ¶¶ 1–2, 5.

Faribault Foods, Inc. ("Faribault") was the defendant in a prior lawsuit in which SiSi alleged that Faribault was infringing SiSi's rights in and to the Pouch Trademark. Id. ¶¶ 23, 25. As discussed further below, on July 1, 2016, Faribault and SiSi duly executed a Settlement and License Agreement to resolve that lawsuit. Id. ¶ 75. On November 1, 2016, Faribault duly assigned the Settlement and License Agreement to ABC in conjunction with ABC's acquisition of certain of Faribault's beverage business assets. Id. ¶ 82. The assignment to ABC included, inter alia , the obligations of the No-Challenge Provision. Id. ABC is a private corporation with its principal place of business in the State of Pennsylvania. Answer ¶ 9.

2. The Pouch Trademark and the Utility Patent

On July 11, 1985, Wild—Capri Sun's parent and predecessor-in-interest—applied for a registration for a trademark of a "pouch design" for "fruit drinks." SUF ¶ 5. On November 25, 1986, the application was registered on the PTO's principal register as U.S. Trademark Reg. No. 1,418,517 (the "'517 Registration"). Id. ¶¶ 3, 6. Capri Sun still owns the incontestable '517 Registration, which covers the Pouch Trademark for "fruit juice drinks containing water." Id. ¶¶ 3–6, 17–21.

Before registering the Pouch Trademark, Capri Sun had held a utility patent for a similar pouch design ( U.S. Patent No. 3,380,646 ), entitled "Container of Plastic Material and Method of Producing Same." Id. ¶ 52. On April 30, 1985—just a few months before Wild applied for the Pouch Trademark—the prior patent expired. Id. ¶¶ 52, 54.

3. The Prior Lawsuit

On July 24, 2015, Capri Sun (then known as SiSi) commenced a lawsuit against Faribault in the United States District Court for the District of Minnesota, Case No. 0:15 Civ. 3138 (D. Minn.) (the "Minnesota Action"). Id. ¶¶ 23–24; see Dkt. 31-5. SiSi asserted claims against Faribault for: (i) federal trademark infringement under 15 U.S.C. § 1114(a) ; (ii) federal unfair competition under § 1125(a) ; (iii) federal trademark dilution under § 1125(c) ; (iv) trademark infringement under Minnesota statutory law; (v) dilution under Minnesota statutory law; (vi) trademark infringement under Minnesota common law; and (vii) unfair competition under Minnesota common law. SUF ¶¶ 25–26.

On December 8, 2015, the Minnesota Action was transferred to the Hon. Kimba M. Wood in this District, where it was captioned Deutsche SiSi-Werke Betriebs GmbH v. Faribault Foods, Inc. , No. 15 Civ. 9750 (KMW) (S.D.N.Y.) (the "Prior Lawsuit"). Id. ¶ 27; see Dkt. 31-6. SiSi amended the complaint, swapping out its Minnesota state law claims for New York state law claims, while maintaining its principal allegations that Faribault was infringing the Pouch Trademark. SUF ¶¶ 29, 30, 40, 41; see Dkts. 31-7, 31-9.

a) Faribault's Functionality Defense

In the Prior Lawsuit, Faribault challenged the Pouch Trademark's validity on functionality grounds in its Second and Third Affirmative Defenses:

Functionality of SiSi's Purported Trademark

SiSi's claims are barred because the pouch design that is the subject of the SiSi Registration and in which SiSi claims trademark rights is functional and is incapable of legal protection under the Lanham Act, and under New York statutory law and under New York State common law.

SiSi's Purported Trade Dress is Functional and/or Generic

SiSi's claims are barred because the silver edging around the primary design, i.e., the aluminum border of the pouch, which SiSi asserts as an element of its trade dress, is functional and is incapable of legal protection under the Lanham Act, under New York State statutory law and under New York State common law.

SUF ¶¶ 42–45; see Dkt. 31-10 at 27–28. Faribault also challenged the Pouch Trademark's validity on functionality grounds in each of its three Counterclaims. To this end, Faribault alleged that "[t]he pouch design depicted in the ['517 Registration] is a functional design for packaging for pouch beverages," and that "[t]he pouch design depicted in the ['517 Registration] is functional, is not entitled to federal registration, and should be cancelled on that basis." SUF ¶¶ 47, 49.

b) Discovery in the Prior Lawsuit

On January 21, 2016, Judge Wood approved a discovery plan pursuant to which discovery was to begin immediately and be completed no later than May 2, 2016. Prior Lawsuit, ECF No. 24. Throughout the discovery period, Faribault sought extensive discovery, including deposition testimony, on the issue of whether the Pouch Trademark was functional. See SUF ¶¶ 56–59, 62–64, 66.

On January 26, 2016, five days after Judge Wood's discovery order, Faribault served its first set of document production requests on SiSi. Id. ¶ 56. Out of 37 requests, four sought discovery regarding the alleged functionality of the Pouch Trademark:

REQUEST NO. 27: All documents relating to or concerning the cost and/or ease of manufacture of the SiSi Pouch.

REQUEST NO. 28: All documents relating to or concerning the cost and/or ease of manufacture of pouch designs for pouch beverages other than the SiSi Pouch.

REQUEST NO. 29: All documents relating to or concerning benefits of the SiSi Pouch including but not limited to benefits in (i) manufacturing, (ii) storage, (iii) transport, (iv) distribution, and/or (v) product quality or integrity.

REQUEST NO. 30: All documents relating to or concerning any utility patent other than the Utility Patent that relates to, covers, addresses or discloses pouch packaging.

Dkt. 31-13 at 11–12; see SUF ¶ 57.

The same day, Faribault served its first set of requests for admission. SUF ¶ 58. Out of 46 requests, 12 sought admissions on the issue of whether the Pouch Trademark was functional. Id. ¶ 59 (listing Requests for Admission Nos. 29, 30, 36, 37, 38, 39, 40, 41, 42, 43, 44, and 45). For example, Faribault sought functionality-related admissions that: the "Pouch is designed to stand on its own"; the "Pouch is the best design for a stand-up pouch beverage package"; the "Pouch is less expensive [and easier] to manufacture than any other stand-up pouch packaging known to Plaintiff for use in connection with juice"; the "Pouch is designed to withstand high pressures and violent shocks without danger of breaking"; "allowing Plaintiff to enforce its claimed trademark would extend...