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NABISCO, INC. v. PF BRANDS

February 3, 1999

NABISCO, INC. AND NABISCO BRANDS COMPANY, PLAINTIFFS,
v.
PF BRANDS, INC. AND PEPPERIDGE FARM, INC., DEFENDANTS.



The opinion of the court was delivered by: Scheindlin, District Judge.

    OPINION AND ORDER

TABLE OF CONTENTS

   I. Introduction ......................................... 192
  II. History of the Dispute ............................... 193
 III. Factual Background ................................... 194
      A. The Parties ....................................... 194
      B. Product and Market Development .................... 194
         1. Pepperidge Farm ................................ 194
         2. Nabisco ........................................ 195
  IV. Applicable Legal Standard ............................ 196
   V. Initial Threshold for Protectability of Trademarks ... 197
      A. Commercial Use .................................... 197
      B. Non-Functionality ................................. 197
      C. Distinctiveness ................................... 197
         1. Incontestability of Product Configuration Mark . 198
         2. Inherently Distinctive Trade Dress ............. 198
  VI. Pepperidge Farm's Dilution Claim ..................... 200
      A. New York General Business Law § 368-d ............. 200
      B. Federal Trademark Dilution Act of 1995 ............ 201
         1. Ownership of a Famous Mark ..................... 202
         2. Likelihood of Dilution ......................... 205

VII. Pepperidge Farm's Trademark Infringement Claim ....... 210
VIII. Pepperidge Farm's New York State Unfair Competition
        Claim .............................................. 212
  IX. Conclusion ........................................... 212

I. Introduction

By this motion, PF Brands Inc. and Pepperidge Farm, Inc. (collectively "Pepperidge Farm") move for a preliminary injunction pursuant to Rule 65(a) of the Federal Rules of Civil Procedure ("Fed. R.Civ.P.") to prevent the alleged infringement of their registered trademarks for the Goldfish snack cracker product. Pepperidge Farm has registered a number of trademarks in Goldfish: the small, bright-orange puffed cheese crackers that have been molded into the shape of goldfish.*fn1 In addition to a trademark in the Goldfish name, under which products have been sold for thirty-seven years, Pepperidge Farm also owns an incontestable configuration trademark in the fish shape of the Goldfish cracker.*fn2 Pepperidge Farm contends that this configuration has become closely associated in the minds of consumers with Pepperidge Farm and its cracker products and that this association is threatened by a new product of plaintiffs Nabisco, Inc. and Nabisco Brands Company (collectively "Nabisco").

Pepperidge Farm and Nabisco are active competitors in the cheese cracker snack market, with Nabisco's own cheese cracker called "Cheese Nips" — small square cheese crackers — ranking behind Pepperidge Farm's Goldfish. Pepperidge Farm recently learned that Nabisco intended to launch a new product on February 1, 1999 based upon the Nickelodeon Television Network's popular cartoon program titled "CatDog," which is centered around a character who is half-cat and half-dog. Nabisco's new product, also titled "CatDog" and containing the Cheese Nips trademark, is a mix of cheese crackers in three shapes: the CatDog, bones and fish. The dispute in the case centers around how children — the target consumers of Nabisco's product and approximately half the consumers of Pepperidge Farm's product — perceive this fish-shaped cheese cracker.

Pepperidge Farm claims that the CatDog product: (1) threatens to dilute Pepperidge Farm's configuration trademark for use of the goldfish shape for a snack cracker in violation of Section 43(c) of the Lanham Act and the New York State General Business Law anti-dilution statute; and (2) infringes that trademark in violation of Section 43(a) of the Lanham Act and common law unfair competition. Pepperidge Farm argues that Nabisco's use of a goldfish-shaped cheese cracker will dilute Pepperidge Farm's famous mark, allowing Nabisco to unfairly trade upon the good will and renown of the Pepperidge Farm Goldfish. In addition, Pepperidge Farm asserts that CatDog infringes Pepperidge Farm's trademark because it will cause consumers to be confused between Goldfish and CatDog in the post-sale context.*fn3 Relying on evidence that adults and children frequently eat Goldfish from small plastic bags or from a bowl or plate, rather than out of the packaging, Pepperidge Farm argues that the presence of a goldfish-shaped cheese cracker in the CatDog mix will confuse consumers into believing that the product originates with Pepperidge Farm.

Nabisco asserts that it acted in good faith, modeling its product, a promotional tie-in for a television cartoon, after a character and symbols used in the cartoon. While the Court strongly supports Nabisco's right to compete with Pepperidge Farm for market share, that competition must be regulated if Nabisco attempts to compete unfairly. Pepperidge Farm may not use the trademark laws to protect itself from legitimate erosion of its market share, but it may protect itself from competition deemed to be unfair.

After reviewing the legal memoranda and affidavits submitted by the parties and conducting an evidentiary hearing on January 25, 1999, Pepperidge Farm's motion for preliminary injunctive relief is granted for the reasons set forth below.

II. History of the Dispute

Nabisco and Nickelodeon entered into a joint promotion agreement in August 1998 to market a snack product based upon the CatDog show. Nabisco's product development team prepared a variety of designs for three shapes, to be produced as small cheese crackers, and Nickelodeon was involved in choosing the final designs, including the goldfish. See Declaration of Paula Brenner ("Brenner Decl."), Senior Brand Manager for Kids Brands in the Biscuit Division of Nabisco, dated January 20, 1999 at ¶ 11. The final choices were approved by Nabisco's product development group in August and by Nickelodeon in October. Id. at ¶¶ 9, 12.

In November of 1998, Pepperidge Farm learned that Nabisco intended to launch a CatDog product. It was able to view the product for the first time in mid-December.*fn4 See Declaration of Patrick J. Callaghan, Vice President of Marketing for Pepperidge Farm, dated January 12, 1999 ("Callaghan Decl.") at ¶¶ 20, 21. Perceiving what it describes as the "prevalence" of the fish shape in the crackers and the packaging, Pepperidge Farm sent a cease-and-desist letter to Nabisco on December 21, 1998. See Complaint at Ex. 3. Following receipt of this cease-and-desist letter, on January 4, 1999 — five months after Nabisco's product development group approved the use of a goldfish in the CatDog mix and a little less than one month prior to the full-scale launch of the CatDog product — Nabisco filed a complaint against Pepperidge Farm, seeking a declaratory judgment pursuant to 28 U.S.C. § 2201 et seq. declaring that Nabisco's manufacture, advertisement, promotion and sale of "CatDog" cheese crackers did not infringe the Pepperidge Farm Goldfish trademark or trade dress. See Complaint at ¶ 5. Nabisco also seeks a declaration that Pepperidge Farm has no valid trademark rights in the goldfish-shaped product configuration.

On January 12, 1999, Pepperidge Farm answered Nabisco's complaint, alleging federal trademark infringement and dilution counterclaims, as well as injury to business reputation and dilution under New York General Business Law and common law unfair competition. See Answer and Counterclaims ¶¶ 48-67. Pepperidge Farm simultaneously moved by Order to Show Cause for expedited discovery and entry of a Temporary Restraining Order ("TRO") and a preliminary injunction to prevent Nabisco's CatDog product from entering the marketplace as scheduled on February 1, 1999.*fn5 The parties' briefs were received on January 22, 1999, and a preliminary injunction hearing was held on January 25, 1999.

This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1331, 1338 and 2201. Defendant does not contest personal jurisdiction, as it does business within the State of New York. Venue is proper pursuant to 28 U.S.C. § 1391(b).

III. Factual Background

A. The Parties

Pepperidge Farm is a Connecticut corporation with its principal place of business in Connecticut. See Answer at ¶ 31. PF Brands, Inc. is a Delaware Corporation with its principal place of business in Delaware. Id. at ¶ 30. Together, they engage in the development, production, advertisement and sale of crackers, snack mixes, pastries, cookies, and other bakery products. See id. at 34. Founded in 1935, Pepperidge Farm joined the Campbell Soup Company in 1961 and has been producing Goldfish crackers continuously since 1962. See Callaghan Decl. at ¶¶ 4-6, Supplemental Memorandum in Support of Pepperidge Farm's Motion for a Preliminary Injunction at 4. The Goldfish line of products includes original, cheddar cheese, pretzel, pizza, nacho and wheat Goldfish, as well as mixes of Goldfish with pretzels and other snacks. See Supplemental Declaration of Patrick Callaghan, dated January 22, 1999 ("Callaghan Supp. Decl.") at ¶ 14, Ex. 1.

One of Pepperidge Farm's main competitors in the cookie and cracker industry is Nabisco, Inc., a New Jersey corporation with its principal place of business in New Jersey, and Nabisco Brands Company, a Delaware Corporation with its principal place of business in Delaware. See Compl. at ¶¶ 1, 2. When measured by sales volume, Nabisco's cheese cracker product, "Cheese Nips", is the third best-selling brand in the cheese-cracker market behind Pepperidge Farm's Goldfish crackers and Sunshine Biscuit Company's "Cheez-It" cheese snack cracker. See Callaghan Supp. Decl. at ¶ 3, Ex. A at 2. When measured in sales dollars, Pepperidge Farm's Goldfish are the number one ranking cheese snack cracker. Id.

B. Product and Market Development

1. Pepperidge Farm

Pepperidge Farm's sale of Goldfish in the past four years has increased dramatically. In fiscal year 1995, net U.S. sales of Goldfish through regular retail channels (exclusive of export or food service) was over $93 million. By fiscal 1998, net sales had more than doubled to $200 million. In the aggregate, Pepperidge Farm has sold $500 million in Goldfish products in the United States in the past four years. See Pepperidge Farm's Motion for a Preliminary Injunction at ¶ 9.

2. Nabisco

In the spring of 1998, Nabisco was approached by the Nickelodeon Television Network ("Nickelodeon") about the possibility of a joint promotional agreement between the two companies. Nickelodeon sought to promote its newly created "CatDog" cartoon program, which debuted in October, through tie-ins with products, such as Burger King, Jell-O, and Duracell. See "The $20M Truth About CatDog," Brandweek, Vol. XXXX, No. 3, January 18, 1999 at 1, attached to Callaghan Supp. Decl., Ex. J. Nickelodeon presented Nabisco with marketing materials and a short video featuring the cartoon. Without concept-testing the idea or conducting any market research, Nabisco entered into a Joint Promotion Agreement ("JPA") with Nickelodeon on August 3, 1998. See Deposition of Paula Brenner ("Brenner Dep.") at 38. According to Brenner, the Senior Brands Manager for Nabisco's Kids Brands Division, concept-testing of the product could not be performed at the time because the cartoon program had not yet been broadcast. Id.

The JPA grants Nabisco the right to produce cheese crackers in shapes from the CatDog cartoon as an "in and out" product for the promotional period of January 1, 1999 to March 30, 1999. The JPA further provides that Nabisco may not use the CatDog marks after that date, except at point of sale for a 90-day sell-off period. See Declaration of William Blemleck, Director of Product Development for New Business in the Biscuit Division of Nabisco, January 19, 1999 ("Blemleck Decl."), Ex. 5. During the January 25 evidentiary hearing, Nabisco acknowledged that it is currently seeking an extension of the JPA beyond March 30, 1999. See Transcript of Hearing, January 25, 1999 ("Tr.") at 10-11.

Nabisco plans to use the joint promotion to extend its line of Cheese Nips by launching a new product under the trademark "CatDog", targeted at children ages 6-12 (the same target age for the television program). See Brenner Decl. at ¶¶ 9, 14. The program's main character is CatDog, an odd looking creature, half cat and half dog, with a dual personality. The Cat is fastidious and emotionally reserved; the Dog is slovenly and boisterous. Id. at ¶ 10, Ex. 1, 4. According to Nabisco, this duality is symbolically represented in the cartoon by the images of a fish and a bone (their respective eating preferences). The CatDog lives in a house in the shape of a bone and a goldfish.*fn8 The shapes appear on the wallpaper and furniture throughout the house, in Nickelodeon's marketing material and on its web page. See http://www.nick.com. Visitors to Nickelodeon's CatDog website are invited to download the fish/bone pattern "wallpaper" to use as a screen saver on their computers. The cartoon does not, however, contain a fish character.*fn9

The CatDog product is a mix of three shapes: 50% of the cheese crackers are in the shape of the CatDog character; 25% in the shape of a bone; and 25% in the shape of a goldfish. Nabisco maintains that its decision to include a fish-shaped cheese cracker was not motivated by an intent to resemble Pepperidge Farm's Goldfish. In July 1998, Nabisco's product and marketing development personnel first met to discuss the development of CatDog. Mr. Blemleck, Director of Product Development, selected the CatDog, bone and fish shaped crackers for several reasons, including: (1) to heighten the sense of fun that children associate with the CatDog; (2) to bring the duality of the CatDog program to life in the product; and (3) to reduce product breakage during shipment by including smaller, denser pieces of the fish-shaped cracker along with the long, thin CatDog cracker. See Brenner Decl. at ¶¶ 9-10. Ex. 4; Blemlek Decl. at ¶¶ 2-3.*fn10

Nabisco acknowledges that it intended the CatDog form to compete with Sunshine's "Heads and Tails" brand of cheese crackers. Sunshine's product allows children to mix and match crackers in the shapes of the heads and bodies of various animals. See Brenner Decl. at ¶ 6. According to Blemleck, there was only one "passing reference" to Pepperidge Farm Goldfish during all of Nabisco's product development meetings — to the effect that the CatDog fish looked nothing like the Pepperidge Farm Goldfish. See Blemleck Decl. at ¶ 4. Apparently, the only other specific reference to Pepperidge Farm's Goldfish occurred when Ms. Brenner requested the advice of Steve Hartman, Nabisco's Chief Trademark Counsel, as she is required to do for all new products. Id. at ¶ 12.

To date, Nabisco has approximately $3.4 million in inventory of the CatDog product awaiting distribution. See Declaration of James McCormick ("McCormick Decl."), Vice President of Field Sales in the Biscuit Division of Nabisco, at ¶ 6. In addition, Nabisco has already developed television and print advertising, including full-page advertisements and free-standing inserts and coupons for Sunday newspapers. Id. at ¶ 7.

IV. Applicable Legal Standard

To obtain a preliminary injunction, the moving party must show: (1) likelihood of irreparable harm should the injunction be denied; and (2) either (a) likely success on the merits, or (b) sufficiently serious questions going to the merits and a balance of hardships tipping decidedly in its favor. See Jackson Dairy, Inc. v. H.P. Hood & Sons. Inc., 596 F.2d 70, 72 (2d Cir. 1979) (per curiam). "The award of a preliminary injunction is an extraordinary remedy, and will not be granted except upon a clear showing of probable success and possible irreparable injury." Beech-Nut, Inc. v. Warner-Lambert Co., 480 F.2d 801, 803 (2d Cir. 1973) (emphasis added); Kraft General Foods, Inc. v. Allied Old English, 831 F. Supp. 123, 127 (S.D.N.Y. 1993).

In a trademark dilution case, "[d]ilution is itself an injury which [cannot] be recompensed by money damages." Deere & Co. v. MTD Prods., Inc., 860 F. Supp. 113, 122 (S.D.N.Y.), aff'd, 41 F.3d 39 (2d Cir. 1994) (quoting American Express Co. v. Vibra Approved Lab. Corp., 10 U.S.P.Q.2d 2006, 2013, No. 87 Civ. 8840, 1989 WL 39679 (S.D.N.Y. April 19, 1989)). Dilution has been described as the "gradual whittling away of a firm's distinctive trade-mark or name," Hormel Foods Corp. v. Jim Henson Productions, Inc., 73 F.3d 497, 506 (2d Cir. 1996) (quoting Allied Maintenance Corp. v. Allied Mechanical Trades, Inc., 42 N.Y.2d 538, 399 N.Y.S.2d 628, 369 N.E.2d 1162 (1977)), and once a trademark has become diluted, it has lost the strength it once possessed. A showing of a likelihood of dilution, therefore, will establish irreparable harm under Section 43(c). See Deere, 860 F. Supp. at 122.

Similarly, in a trademark infringement case, where there is a showing "that an appreciable number of ordinarily prudent purchasers are likely to be misled or indeed simply confused, as to the source of the goods in question, the court may find irreparable injury." Tough Traveler, Ltd. v. Outbound Products, 60 F.3d 964, 967 (2d Cir. 1995) (citing cases discussing this standard); see also Standard & Poor's Corp. v. Commodity Exchange, 683 F.2d 704, 708 (2d Cir. 1982) ("In the preliminary injunction context, a showing of likelihood of confusion as to the source or sponsorship establishes the requisite likelihood of success on the merits as well as risk of irreparable harm").

V. Initial Threshold for Protectability of Trademarks

Claims for protection against dilution and infringement both require that the marks be: (1) used in commerce, (2) nonfunctional and (3) distinctive. While all such marks may be protected against infringement, under the Federal Trademark Dilution Act of 1995 only famous and distinctive marks are eligible for protection against dilution.

A. Commercial Use

There is no dispute that both Nabisco's and Pepperidge Farm's products are used in commerce. See 15 U.S.C. § 1125(a), (c).

B. Non-Functionality

To be protected under the Lanham Act, a trademark or trade dress must not be functional. See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 775, 112 S.Ct. 2753, 120 L.Ed.2d 615 (1992). A claimed mark is "functional", and therefore unprotected, if it is "essential to the use or purpose of the article or if it affects the cost or quality of the article." Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982). Nabisco implies that animal-and fish-shaped crackers are `functional' in the sense that they may reduce breakage during shipment and are appealing and fun for children. See Nabisco's Memorandum of Law in Opposition to Motion for Preliminary Injunction ("Pl. Mem. in Opp'n.") at 16, 18. Contrary to this creative argument, however, there is nothing "essential to the use or purpose" of a cheese cracker requiring it to be shaped like a goldfish. In addition, breakage would not affect "the quality of the article" if the snack cracker were a functional square.

C. Distinctiveness


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