A watered-down finding of TM infringement: prevailing party gets $0 and no injunction, court tells it to go home

Evoqua Water Technologies LLC v. M.W. Watermark, LLC, No. 16-cv-14,
2018 WL 5784073 (W.D. Mich. Nov. 5, 2018)
Eric Goldman will probably appreciate the court’s takeaway
here: “Plaintiff and Defendants are not only business competitors, but also
stepchildren, in a way, fighting about the original business of a common
corporate ancestor, JWI, Inc. Maybe the original family connections help
explain why the parties appear locked in perpetual and mortal combat over what
seems to outside observers—including most importantly, the jury—to be of
limited economic value. In the Court’s view, both sides would be better served
by ending their litigation and re-focusing their competitive energies in the
Evoqua sued Watermark for trademark infringement, false
advertising, and copyright infringement (the last of which went out on summary
judgment for failure to prove ownership). A jury held that Watermark was liable
for trademark infringement, which caused damages of $0, and that the
infringement was not willful; it also rejected the false advertising claim.
The parties compete in the de-watering business; they sell
equipment such as sludge dryers and filter presses that makes waste easier and
less expensive to manage. They also sell replacement parts for used de-watering
equipment made and sold by themselves or by other companies.
Evoqua claimed that Watermark infringed Evoqua’s J-Mate
trademark by selling sludge dryers named “DryMate” and by using the terms
“J-Mate” and “JMate” on Watermark’s website. Evoqua inherited the J-Mate mark
but its predecessor Siemens decided to “exit” the market for J-Mate sludge
dryers. Evoqua continued this plan and told its sales representatives about it.
As a result, Evoqua did not advertise or sell any J-Mate dryers in 2014 or
Watermark refurbished and sold used J-Mate dryers. Some of
its customers complained that they could no longer purchase a new J-Mate dryer,
so Watermark decided to develop and sell its own new sludge dryer that was
similar to the J-Mate. Since it hadn’t settled on a name, its sales
representatives used different names when pitching the dryer to customers; some
called it a “DryMark,” others called it a “DryMate,” and others simply referred
to it as a sludge dryer. Eventually, they settled on the name DryMate. Watermark
received only six orders for new sludge dryer using that name, and in 2016 it
changed the name to the “M.W. Watermark Continuous Sludge Dryer,” in response
to concerns raised by Evoqua. Only the first dryer shipped to the customer
under the DryMate label; the others shipped under the other name. Watermark
sold that first dryer at a loss.
Watermark also used the terms “J-Mate” and “JMate” on its
website in a few places, such as a blog post comparing the DryMate dryer to the
J-Mate dryer. Another page discussing the DryMate dryer was titled, “Is it time
to replace your sludge dryer?” and tagged with terms including J-Mate and
JMate. Despite the obvious utility to consumers of such references, Watermark
removed all references to J-Mate from its website before trial, in response to Evoqua’s
Watermark also sold replacement parts for Evoqua equipment. That
equipment contains parts that are made by third-party manufacturers, such as a
filter pump made by Haskel. When Watermark acquired replacement parts from the
same third-party manufacturers who supplied the equivalent parts to Evoqua, Watermark
sold those parts as “OEM parts” for Evoqua equipment. Evoqua argued that this
was literally false and its employees expressed their opinions that, in the
de-watering industry, the “OEM” is the manufacturer and seller of the equipment
that uses the component parts, even though anyone can buy the same part
directly from the third-party manufacturer and then resell it, as Watermark did.  Watermark’s witness testified to the contrary,
and Evoqua own website advertised the sale of “OEM parts” for filter presses
made by other entities.
The court declined to disturb the trademark infringement
holding; the evidence allowed a reasonable jury to go either way. The finding
of no willfulness was also reasonable, given that even Evoqua’s own sales reps
thought that Evoqua was abandoning the business and directed customers
interested in a J-Mate sludge dryer to Watermark. Also, Watermark “had reason
to use J-Mate fairly and lawfully. It sold replacement parts for J-Mate dryers,
as well as refurbished J-Mate dryers. It also sold a sludge dryer that was
similar to the J-Mate dryer. The jury could have reasonably concluded that
Watermark intended to use the term J-Mate to fairly describe or compare its own
products and services, rather than to confuse customers.” Likewise, given the
cost and lead time of a sludge dryer purcase, the jury could reasonably have
found that customers were unlikely to be confused.  On the theory that DryMate infringed, the
jury could reasonably have found that this was unintentional because Watermark “decided
on this name through an informal process at a time when they believed Evoqua
was abandoning the dryer business” and avoided any use of the “J-” prefix that
is characteristic of Evoqua’s trademarks. Watermark’s discontinuance of its use
soon after hearing from Evoqua could also support lack of willfulness.
Likewise, it was reasonable to find no damge. There was no
concrete evidence of harm, and the jury wasn’t required to accept self-interested
testimony that Watermark’s actions harmed Evoqua’s business and goodwill. For the
use of DryMate, the jury could reasonably have found that Evoqua wasn’t
entitled to any disgorgement, which was its only damages theory. Evoqua claimed
it was entitled to Watermark’s gross revenue for all six dryers, but it was
reasonable to limit any disgorgement to Watermark’s profits (or lack thereof)
from the sale of the first sludge dryer, because that was the only dryer that
shipped to a customer with a DryMate label. Evoqua argued that it should
prevail on an initial interest confusion theory, but it presented no evidence
of IIC, and the core question is the same anyway, consumer confusion: “A
reasonable jury could conclude that customers ordering a sludge dryer would
take particular care, and would not be misled about its source after receiving
one with Watermark’s label on it.”
The false advertising claim “boiled down to a credibility
contest”; the jury’s choice of Watermark’s testimony was reasonable, especially
given Evoqua’s own uses of “OEM.”
Evoqua asked for the court to multiply the damages award
according to the principles of equity, but three times $0 is still $0, so the
statute does not permit enhancement here, even if equity supported an enhancement,
which it did not.  
What about a permanent injunction? Though the court quoted
old precedent that irreparable injury “ordinarily follows when a likelihood of
confusion or possible risk to reputation appears” from trademark infringement,
Watermark stopped using the term DryMate in 2016 and removed pages on its
website referring to J-Mate. The two-year gap in any questionable conduct
diminished the risk of future harm and obviated the need for an injunction to
remedy past harm. Evoqua argued that Watermark was a repeat offender; the Watermark
did enter into a settlement agreement and consent judgment with a predecessor
in 2003, in which it agreed not to use marks containing a “J-” prefix. But that
wasn’t the result of a court ruling; here too Watermark stopped the complained-of
conduct when Evoqua complained. Thus, the court saw no need for an injunction.
The balance of hardships also disfavored an injunction,
insofar as Evoqua sought to impose stringent restrictions on Watermark’s use of
Evoqua’s trademarks, even where such use would not be confusing because it
fairly describes products sold by Watermark, including replacement parts for
the J-Mate dryer and refurbished J-Mate dryers. Likewise, “[t]he public would
not be served by a judicial order hindering Watermark’s ability to fairly
compete with Evoqua in the marketplace.”
Watermark couldn’t get its fees for the copyright claim.
Although Evoqua failed to prove ownership of the copyrights, “its litigating
position was not objectively unreasonable.” It acquired some IP from the
previous owner of its business, even though it couldn’t show that it acquired
the particular assets necessary to bring its copyright claim, a question
resolved only after the court asked for further briefing. Nor was Evoqua’s motive
“wholly improper.” “By its own admission, Watermark obtained many materials
from former Siemens/Evoqua employees, and possessed a trove of manuals for
Evoqua products that Watermark copied, rebranded, and sold to its own
customers.” Even if Evoqua was in part seeking to squash a smaller competitor,
it wasn’t unreasonable to view this particular conduct as a concern: “Even if
Watermark is a mosquito to an Evoqua elephant, the elephant is entitled to swat
the mosquito when it tries to bite.”
Nor could Watermark get its fees on the false advertising
claim; the parties “simply disagreed about the definition of a term that could
mean different things in different contexts,” and Evoqua survived summary
judgment on the issue. Both sides presented only self-interested witnesses, not
objective expert testimony or evidence. Evoqua couldn’t provide evidence of
damages, but those aren’t always easy to prove, and so it wasn’t unreasonable
to pursue injunctive relief even without concrete evidence of monetary harm.
Nor did Evoqua’s asserted anti-competitive purpose justify a
fee shift.  Though Evoqua arguably made
overbroad discovery requests, there wasn’t evidence that this meaningfully
increased Watermark’s burden; it simply objected and didn’t comply. “There was
definitely some evidence at trial suggesting that Evoqua thought that
litigation was warranted simply because Evoqua could absorb the costs more
easily than Watermark. But even if true, this does not detract from the good
faith basis Evoqua had to pursue its claims.”

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