The opinion of the court was delivered by: James Orenstein, Magistrate Judge
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Plaintiff Imig, Inc. ("Imig"), a company that sells commercial vacuum cleaners, initiated this case by suing defendant Electrolux Home Care Products, Ltd. ("Electrolux") for interfering with its business relationships with prospective customers. Docket Entry ("DE") 1. Electrolux responded with counterclaims asserting that Imig, together with its distributor, Nationwide Sales & Services, Inc. ("Nationwide") (collectively, "I&N"), copied the protected trade dress of certain of its vacuum cleaners as well as the protected contents of its user manuals and that they also made false claims about the respective vacuum cleaners in their advertisements. DE 5. With the parties' consent pursuant to 28 U.S.C. § 636(c), I resolved their cross-motions for summary judgment by dismissing all of Imig's claims, finding that Electrolux had established I&N's liability for copyright infringement and false advertising, and concluding that the remainder of Electrolux's counterclaims should proceed to trial. Imig, Inc. v. Electrolux Home Care Products, Ltd., 2007 WL 900310 (E.D.N.Y. Mar. 22, 2007). The parties litigated the remaining issues at a bench trial before me and later filed memoranda of law. Having reviewed the parties' evidence and arguments, I now award Electrolux a total of $281,153 on its false advertising and copyright counterclaims but find that it has not established its counterclaim of trade dress infringement.
The claims originally asserted in Imig's complaint -- in which Imig is the plaintiff, Electrolux the defendant, and Nationwide a non-party -- have all been resolved by virtue of my earlier rulings. Accordingly, following the usage adopted at the bench trial, and in recognition of the fact that the only causes of action that remain unresolved are the counterclaims asserted by Electrolux against Imig and Nationwide, I will refer to Electrolux as the "plaintiff" and to Imig and Nationwide as the "defendants." In making my factual findings, I rely on the parties' Stipulated Facts, DE 71 ("SF"); the trial testimony set forth in the Transcript of Trial dated September 10-11, 2007 ("Tr."); the parties' respective exhibits ("PX" for the exhibits with numerical designations submitted by plaintiff Electrolux and "DX" for those with letter designations submitted by defendants I&N); the deposition testimony of certain witnesses submitted by the respective parties (each referred to as "[Witness's Last Name] Dep."); and a post-trial stipulation concerning I&N's sales, costs, and profits, DE 89. I also refer to the Proposed Findings of Fact and Conclusions of Law submitted by each party. See DE 92 ("I&N Prop."); DE 93 ("Electrolux Prop."). I include in this section findings of historical facts about the parties and their conduct. I postpone until the explanation of my conclusions of law certain additional factual findings -- such as the extent to which the Sanitaire trade dress on which Electrolux bases its Lanham Act claim should be considered functional -- that are inextricably intertwined with the legal determinations I am called upon to make.
Plaintiff Electrolux is a Texas limited partnership, and the successor of the Eureka Company. It manufactures cleaning products, including vacuums and replacement parts. In addition to vacuum cleaners bearing the Electrolux brand, the company also designs and manufacturers "private label" vacuums that are sold under the brand names of various third parties. Among the commercial vacuums that Electrolux manufactures and sells under its own brand name are certain models known collectively as the "Sanitaires." Two Sanitaires in particular -- specifically, models 886 and 899 -- are the subjects of this litigation. See SF ¶¶ 1-7, Tr. 39; PX 1-2.*fn1
Defendants Imig and Nationwide are both corporations organized under New York law and co-owned by two brothers -- Mark and Scott Genoa (collectively, the "Genoas") -- who also serve as officers of both companies. Nationwide has distributed vacuums and other cleaning products since 1996. From 1997 through 2005, Nationwide was a distributor for Electrolux. Imig, formed after Nationwide, imports and sells vacuums and replacement parts; in doing so it employs the services of various distributors, including but not limited to Nationwide. As discussed further below, Imig developed -- and with Nationwide's help has advertised and sold -- a line of commercial vacuum cleaners known as the "Perfects" to compete with the Sanitaires. Two Perfects in particular -- specifically model P101 (designed to compete with the Sanitaire 886) and model P102 (designed to compete with the Sanitaire 899) -- are likewise at issue in this litigation. See SF ¶¶ 11-17; Tr. 117; PX 3-4.
At the heart of the trade dress infringement claims before me are the physical characteristics of the parties' respective vacuum cleaners. The evidence demonstrated several similarities between those machines as well as certain differences. Both are upright commercial vacuum cleaners, and both display the words "HEAVY DUTY COMMERCIAL" in white lettering (with similar fonts) in the same position on a hanging bag. The Sanitaires have red bags, while the Perfects have bags that are black (or, in newer models, grey). Likewise, the two brands have base assemblies that appear similar but for coloring: the base assembly on the Sanitaires is red with a chrome hood, into which motor vents are cut, while the assembly on the Perfects is similarly configured but black or grey in color. Both brands have a round knob affixed to a black plate at the front of the base assembly, with lettering on the knob and the plate -- with one brand using the legend "Sanitaire" in white lettering and the other using "PERFECT" in black lettering near a small United States flag. The base assemblies of both machines have similar configurations of knobs for adjusting the height of the vacuum and power switches, and in both the chrome hood is raised and set back a few inches from the front of the machine; however, the hood on the Perfects' base assembly is slightly lower toward the front and has a raised portion in the middle of the rear.
The incidence of physical similarities between the Perfects and the Sanitaires is no accident. The Genoas developed the Perfects for Imig in late 2002, as a result of their concern that their other company, Nationwide, would lose its position as a distributor for Electrolux. After abortive initial discussions with one manufacturer, the Genoas began working to develop their own product with a man located in China named Xu Shihui ("Xu"), who in turn dealt with Chinese manufacturers on their behalf. Rather than draw up design documents on their own, the Genoas simply directed the Chinese manufacturer to refer to the specifications of the Sanitaires. In designing their products, the Genoas specifically intended to create a vacuum the parts of which would be interchangeable with Sanitaire parts -- and with one exception (a "brush roll" that is not interchangeable with the corresponding part of the Sanitaires), they accomplished that goal. The Genoas also incorporated into the Perfects certain elements not found in the Sanitaires that they admired in other vacuum models. See Tr. 126, 141-45, 163-67, 171, 174, 364, 398; SF ¶¶ 26-27; PX 11, 12, 15.
Further bolstering the inference of intentional copying is evidence of the steps the Genoas took to avoid any claim of patent infringement. In 2003, Mark Genoa first met with attorney Len Holtz ("Holtz") to determine if the Perfects would infringe on any Electrolux patents. Holtz later sent a copy of the Owner's Guide for the Sanitaires to a patent research company along with a cover letter in which he wrote of his client's desire "to make a private label vacuum cleaner that is virtually identical in appearance (and perhaps also mechanically identical) to the Eureka vacuum cleaners shown the enclosures." SF ¶ 29. During the next year, Mark Genoa met with Holtz again to discuss possible patent infringement problems with the Perfects. See Tr. 126-28.
The Genoas first sold the Perfects in October 2004. Each of the first 425 such machines was sold with an Owner's Guide that was a copy of the corresponding Owner's Guide for the Sanitaires -- for which Electrolux holds the pertinent copyrights. See SF ¶¶ 14, 33-35; Imig, Inc., 2007 WL 900310, at *15-17 (finding I&N in violation of the Copyright Act of 1974). Electrolux spent approximately $9,000 to develop the copyrighted work for its own use. See Tr. 89-91.
D. I&N's False Advertising
The Genoas ran advertisements for the Perfects for a period of four months beginning on April 29, 2005, that touted the Perfects as having three times as much motor life and 30 percent more strength compared to their "nearest competitors" and that also asserted that the Perfects had a motor strength of 9.5 amperes. PX 27, 39; SF ¶¶ 50-52. The advertisements bore a legend indicating the Perfects had been tested by ETL, a company that performs tests on machinery to determine compliance with the relevant industry standards. SF ¶¶ 56, 58. A later advertisement, that ran in the August issue of the Vacuum & Sewing Dealers Trade Association magazine, explicitly compared the Perfects to the Sanitaires with the same claims of motor strength, amperage, and ETL testing. Tr. 189; PX 43. As I have previously determined, these advertising claims were literally false. See Imig, Inc., 2007 WL 900310, at *13-15 (granting Electrolux's motion for summary judgment to the extent of finding I&N liable for violating the Lanham Act's prohibition against false advertising).
The trial testimony fleshed out the extent to which the advertising was false. The Chinese manufacturer of the Perfects conducted various tests on the vacuums and worked with ETL to determine the machines' specifications. Tr. 189-209. ETL did not test motor life nor did it compare the Perfects' performance to the Sanitaires'. Rather, the Chinese manufacturer conducted some comparison tests. In the only such test that Scott Genoa observed, four Sanitaires were turned on and allowed to run continuously; one failed after 368 hours, and the three others lasted longer, with the longest-lasting Sanitaire motor failing after 510 hours. Scott Genoa claimed that a Perfect vacuum subjected to such testing had lasted 1,050 hours when the test was suspended (although there was no documentation of that claim). He therefore divided 1,050 (the assumed motor life of the Perfect) by 368 (the worst result of the four Sanitaires that were tested), and -- notwithstanding the fact that the quotient resulting from such a patently unreliable method is only 2.85 -- decided to claim that the Perfects have triple the motor life of the Sanitaires. Tr. 347-48, 394-97; SF ¶¶ 76; 77.
The record is less clear with respect to the advertised claim that ETL had tested the Perfects and determined them to have a motor strength of 9.5 amperes, but it nevertheless leads me to conclude that the claim was knowingly false. In September 2004, the Perfects' Chinese manufacturer sent documents to ETL reflecting that the vacuum had a motor strength of only 7.4 amperes. Tr. 206; PX 47-48. In a later letter, dated October 14, 2004, ETL asked Mark Genoa to provide certain "missing" information about the Perfects, explicitly including their amperage. PX 45 at 4; SF ¶ 80. The obvious inference I draw from that correspondence is that as of the date of the letter, ETL had not already determined the Perfects' amperage by performing its own test. See PX 45 at 4. In addition, ETL employee Karim Abu-Hashim ("Abu-Hashim") testified in a deposition that was submitted in evidence that to the extent ETL eventually reported an amperage rating of 9.5, it relied exclusively on information provided by Imig. See e.g. Abu-Hashim Dep. at 111; see also id. at 78, 86. As both Abu-Hashim and his ETL colleague Ashruf Matar explained, ETL sought data from the manufacturer and then performed tests to verify it. Id. at 88; see also Matar Dep. at 132. However, no evidence from ETL suggests that the company ever verified that the Perfect vacuums had a motor strength of 9.5 amperes. See Abu-Hashim Dep. at 89, 110; Matar Dep. at 63-66.
I&N nevertheless contend that the advertised claims about ETL testing were true when made. In support of that proposition they rely on Mark Genoa's testimony about a telephone conversation that he claimed to have had with an ETL employee (whose name he did not offer, and for which no party's counsel asked) some time before October 14, 2004 -- the date of the ETL letter described above. Mark Genoa swore that the employee had orally assured him during this conversation that ETL had tested the Perfect's motor strength and rated it at 9.5 amperes. Tr. 277-78; see also PX 34 ¶ 4 (Declaration of Mark Genoa) ("I decided to place the rating of 9.5 amps on the rate plate for the P 101 and P 102 machines after the rating of 9.5 amps was given to us by ETL as a result of their official evaluation of the P 101 and P 102 machines.").
I did not find Mark Genoa's testimony on this matter to be credible. It is at odds with the clear import of documents created at the time of the events he purported to recall. Moreover, the testimony that ETL would communicate its testing result solely by telephone, or that I&N would rely on such information without seeking to obtain it in writing, strikes me as implausible. Finally, although I did not see Abu-Hashim testify and therefore cannot assess his demeanor, his apparent lack of any bias, combined with my observation of Mark Genoa's demeanor in testifying to his version of the relevant events, suffices to persuade me that the claim about ETL testing that I&N included in its advertising was knowingly false.*fn2
In calculating Electrolux's damages on certain claims as to which I previously found I&N liable, it is necessary to determine I&N's profits and costs. My findings as to those amounts, as set forth below, are based on certain reports that Electrolux submitted in evidence subject to certain adjustments to which the parties have stipulated. See PX 57, 64, 65, 70; DE 89.
1. The First 400 Perfects
The Genoas first sold the Perfects in October 2004. See Tr. 134; SF ¶¶ 14. In its claim for damages, Electrolux seeks the profits associated with only 400 of those first 425 units, all of which were Perfect P101 models, and none of which was sold to Nationwide. Electrolux Prop. at 41, 64-65; PX 30.*fn3 I therefore focus on those first 400 sales in the calculations below.
Although the evidence does not reveal the specific selling price for the first 400 vacuums, it does reveal that Imig's average selling price for the year before September 2005 (which included the first 400 sales in October 2004) was $98.53 per vacuum. Imig's costs during the same period totaled approximately $68.89 per vacuum, consisting of the purchase price of $56.89 per unit,*fn4 operating costs of approximately $10.00 per unit, and tooling costs of approximately $2.00 per unit. PX 64 at Schedule 4, lines 1-4. Multiplying the unit price and costs by 400 produces the following results: total revenues from sales of $39,412, and total costs of $27,556.00, for a total profit (before returns) of $11,856.00. I find the latter amount to be the measure of Imig's profit from its sale of the first 400 Perfects (each of which was sold with an owner's guide that infringed Electrolux's copyright).*fn5 As explained further below in the conclusions of law, however, while that amount measures the profit from the sale of the first 400 vacuums, it does not measure the profit from Imig's inclusion of the misappropriated Owner's Guide with each such sale. The latter profit is equivalent to the money that Electrolux spent producing the manual -- an amount Imig did not have to spend (and thereby reduce its profit on the sales of vacuums) by virtue of its copyright infringement.
2. April 29, 2005 through August 31, 2005
The parties have stipulated to profit calculations that break down I&N's profits for the following discrete periods: October 1, 2004 - September 30, 2005; October 1, 2004 - February 28, 2006; October 1, 2004 - June 30, 2007; and the calendar years of 2004 and 2005. See PX 57, 64, 65, 70. Attached to the First Supplemental Expert Report of Mark Gallagher are the raw sales and cost data for the P101 and P102 models sold between April 29, 2005 and August 31, 2005. See PX 65. Having analyzed the data applying the methods used in those reports, I make the following findings with respect to the defendants' profits during the period in which the false advertisements were published. Nationwide had net sales during the period of $90,242, and net costs of $60,920, resulting in an unadjusted profit of $29,952. During the same period, Imig had net sales of $831,165 and net costs of $560,767, resulting in an unadjusted profit of $270,398. The unadjusted combined profit for the two companies during the period of the false advertisements is thus $300,350. In accord with the parties' agreement, I have adjusted that combined profit by subtracting both companies' overhead expenses and as well as an amount based on Imig's amortization of tooling costs.*fn6 As a result of that calculation, I find that I&N's total profit during the months in which the false advertisements were published was $272,153.
A. Trade Dress Infringement
Section 43(a) of the Lanham Act prohibits the use of "any word, term, name, symbol, or device, or any combination thereof" in a manner that is "likely to cause confusion ... as to the origin, sponsorship, or approval" of goods. 15 U.S.C. § 1125(a). The Lanham Act's regime of protection for trademarks and trade dress serves an insulating function, protecting manufacturers of socially desirable products from the kind of imitation that "capitaliz[es] on a consumer's inability quickly to evaluate the quality of an item offered for sale." Qualitex Co. v. Jacobson Prods. Co., Inc., 514 U.S. 159, 163 (1995). This aim must be balanced against the social benefits that can flow from some forms of imitation -- for example, the sort that operates to prevent an innovator from obtaining a monopoly over features that improve the product for practical reasons -- and thus, such protection should be granted only where it will promote competition. TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 28-29 (2001). Invitations to extend trade dress protection to the specific configuration of a product's features must be viewed with special caution because of the risk presented: protecting ordinary product designs would be tantamount to creating a monopoly in the actual goods. Wal-Mart Stores, Inc. v. Samara Bros., 529 U.S. 205, 213 (2000).
To prevail on a claim of trade dress protection of a product's design, a party must prove first "that the mark is distinctive as to the source of the good," and second "that there is a likelihood of confusion between its good and the defendant's." Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 115 (2d Cir. 2001). To be deemed differentiable from goods produced by other manufacturers, and therefore "distinctive," a product design must be nonfunctional and must contain characteristics that, over time, come "to identify and distinguish the goods -- i.e., to indicate their source[.]" Qualitex Co., 514 U.S. at 163 (internal quotation marks omitted). Functionality is statutorily presumed; a party seeking trade dress protection under the Lanham Act thus bears "the burden of proving that the matter sought to be protected is not functional." 15 U.S.C. § 1123 (a)(3). To do so, the party must show that the elements that purportedly comprise the trade dress are not "essential to the use or purpose of the article" and do not "affect the cost or quality of the article[.]" TrafFix Devices, Inc., 532 U.S. at 32-33 (quoting Qualitex, 514 U.S. at 165); see Inwood Labs., Inc. v. Ives Labes., Inc., 456 U.S. 844, 850 n.10 (1982). Moreover, to the extent that the primary purpose of any feature is aesthetic, the design nonetheless will be deemed functional "if the right to use it exclusively would put competitors at a significant non-reputation-related disadvantage." Yurman, 262 F.3d at 116 (quoting TrafFix Devices, Inc., 532 U.S. at 32-33) (internal quotation marks omitted); see Qualitex, 514 U.S. at 170; Eliya, Inc. v. Kohl's Dept. Stores, 2006 WL 2645196, at *3 (S.D.N.Y. Sept. 13, 2006).
The behavior of other participants in the pertinent market is sometimes instructive; the existence of any alternative product designs is relevant to assessing whether a feature affects cost or quality, although decidedly not relevant after any finding of functionality. See, e.g., Major League Baseball Props., Inc. v. Salvino, Inc., 420 F. Supp. 2d 212, 222 (S.D.N.Y. 2006). Once deemed functional, a product's design is not eligible for trade dress protection and any secondary meaning the design might have acquired is irrelevant. TrafFix Devices, Inc., 532 U.S. at 33. If the court deems a product's design to be nonfunctional, however, its inquiry turns to assessing whether the design possesses "secondary meaning" -- in other words, whether the particular configuration of features has come, over time, to identify the source of the product in the minds of consumers. Qualitex, 514 U.S. at 163 (citing Inwood Labs. Inc., 456 U.S. at 856 n.11).
In addition to establishing the distinctiveness of a product design, a party asserting a trade dress claim under the Lanham Act must also demonstrate that the allegedly infringing product is likely to confuse consumers about its source or identity. Nora Beverages, Inc. v. Perrier Group of America, Inc., 269 F.3d 114, 118-19 (2d Cir. 2001). The claimant's burden in this regard is to demonstrate a "probability" -- not merely a "possibility" -- of confusion. Cadbury Beverages, Inc. v. Cott Corp., 73 F.3d 474, 482 (2d Cir. 1996). Critical to such an analysis are the eight so-called "Polaroid factors." See Polaroid Corp. v. Polaroid Elecs. Corp., 287 F.2d 492, 495 (2d Cir. 1961). Those factors are (1) strength of the plaintiff's trade dress; (2) similarity of the trade dresses; (3) proximity of the products in the marketplace; (4) likelihood that the plaintiff will bridge the gap between the products (enter a market related to that in which the defendant sells its product); (5) evidence of actual confusion; (6) the defendant's bad faith; (7) quality of the defendant's product; and (8) sophistication of the relevant consumer group.
Natural Organics, Inc. v. Nutraceutical Corp., 426 F.3d 576, 578 (2d Cir. 2005) (quoting Playtex Prods., Inc. v. Georgia-Pacific Corp., 390 F.3d 158, 162 (2d Cir. 2004)). The court's task is to weigh these enumerated factors with an eye to the ultimate question: whether, taken as a whole, there is a likelihood of consumer confusion with respect to the protected product and the product charged with unlawful infringement. Nora Beverages, Inc., 269 F.3d at 119.
For the reasons set forth below, I conclude that Electrolux has failed to establish its claim for trade dress infringement with respect to the design of the Sanitaires. Specifically, I find that Electrolux has not proved either that the trade dress it seeks to protect is nonfunctional, that it has acquired secondary meaning, or that the accused Perfects are so similar to the Sanitaires as to create the probability of confusion.
1. Distinctiveness Of The Product Design
At the heart of any trade dress dispute is the specific design that the claimant seeks to protect. I therefore begin my analysis by taking note ...