CSL Silicones, Inc. v. Midsun Group Inc.

          MEMORANDUM AND ORDER

          CHARLES S. HAIGHT, JR. SENIOR UNITED STATES DISTRICT JUDGE

         According to the Court's prior Omnibus Ruling on Summary Judgment Motions ("SJ Ruling"), CSL Silicones, Inc. ("CSL") asked that the Court find that "Midsun's infringement is intentional and willful." CSL Silicones, Inc. v. Midsun Grp. Inc., 301 F.Supp.3d 328, 362 (D. Conn. 2018). Such a finding, it is said, "would affect the measure of damages and fees that CSL would be entitled to, if it prevailed in this litigation." Id. The Ruling said that since questions of fact existed as to, inter alia, "whether Midsun acted in good faith in its adoption of the 570 and 579 marks, summary judgment on the issue of willful infringement" is not appropriate. Id.

         Next, CSL sought summary judgment on Midsun's affirmative defenses. CSL argued that "Midsun cannot prevail on its defenses of laches, acquiescence or equitable estoppel due to Midsun's intentional infringement, or 'unclean hands,' and because Midsun cannot establish the necessary elements of each defense." Id. at 363 (emphasis added).

         These two propositions are stated in the disjunctive. The first proposition is that of unclean hands. As to that issue, the Court said in the Ruling: "As an initial matter, the Court addresses CSL's contention that Midsun's 'unclean hands' bars invocation of its equitable defenses." Id. at 363. The Ruling then observed that "the Court has already determined that material questions of fact exist as to whether Midsun intentionally infringed on CSL's marks," so that "whether Midsun may maintain its equitable defenses, in the light of its potentially dirty hands, is a question to be resolved another day." Id. at 364. The Court cited a case from the Southern District of New York, which held that "because a material issue of fact exists as to whether intentional infringement occurred, Defendant may not prevail on its equitable defenses in summary judgment, because it may not be permitted to raise them at all." Id. (quoting Emmpresa Cubana Del Tavaco v. Culbro Corp., 213 F.Supp.2d 247, 273 (S.D.N.Y. 2002)).

         Which gives rise to this question: Who decides whether Midsun committed the sort of intentional infringement which prevents it from raising an equitable defense like laches? The Court has held that this question cannot be answered summarily; it must be tried; but who will try it? The Court, as an equitable question, or a jury, as a legal question?

         If this particular issue is for the jury, that is presumably because the sixth Polaroid factor inquires into an allegedly infringing defendant's "good faith," where "the only relevant intent is intent to confuse" purchasers as to the source of the product. Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492 (2d Cir. 1961), cert. denied, 368 U.S. 820 (1961). The SJ Ruling concluded that "[i]t cannot be said that Midsun's first use of the marks under the distribution agreements, in connection with CSL's product, was done in bad faith." 301 F.Supp.3d at 360. In Polaroid parlance, a defendant adopts a plaintiff's trademark in "good faith" or "bad faith"; there is no moral middle ground. Thus the Second Circuit said in Arrow Fastener Co. v. Stanley Works, 59 F.2d 384, 397 (2d Cir. 1995): "Prior knowledge of a senior user's trade mark does not necessarily give rise to an inference of bad faith and may be consistent with good faith."

         At this point in its quoted analysis, the SJ Ruling says: "CSL may not prevail on summary judgment on Midsun's equitable defenses, based on the unclean hands doctrine. However, CSL asserts other, independent grounds for summary judgment on Midsun's defenses. The Court will address each defense in turn." 301 F.Supp.3d at 364. The first defense the Court discussed is laches.

         Laches is an equitable defense whose necessary elements are by now well established. Laches "bars a plaintiff's equitable claim where he is guilty of unreasonable and inexcusable delay that has resulted in prejudice to the defendant." Ivani Contracting Corp. v. City of New York, 103 F.3d 257, 259 (2d Cir. 1997) (quotation marks and citation omitted). The SJ Ruling cites Second Circuit authority for this proposition: "To prove a laches defense, a defendant must show that '[1] that plaintiff had knowledge of defendant's use of its marks, [2] that plaintiff inexcusably delayed in taking action with respect thereto, and [3] that defendant will be prejudiced by permitting plaintiff inequitably to assert its rights at this time.'"301 F.Supp.3d at 364 (quoting Vaad L'Hafotzas Sichos, Inc. v. Kehot Publ'n Soc'y, a div. of Merkos L'Inyonei Chinuch, Inc., 697 Fed.Appx. 63, 64 (2d Cir. 2017)).

         On the question of a plaintiff's delay in taking action, Lanham Act trademark infringement cases like this one look to analogous state limitations statutes. In Federal Treasury Enterprise Sojuzplodoimport v. Spirits International B.V., 809 F.3d 737 (2d Cir. 2016), the Second Circuit said in an opinion by Judge Jacobs: "Laches is an equitable defense. Because the Lanham Act does not prescribe a statute of limitations, federal courts often look to the most appropriate or most analogous state statute of limitation to determine when the presumption of laches applies to Lanham Act claims." Id. at 745-46 (citation and internal quotation marks omitted), cert. denied, 137 S.Ct. 160 (2016).

         In Second Circuit laches jurisprudence, the concept of a "presumption of laches" keyed into an analogous state limitations statute had its genesis in Judge Friendly's seminal opinion in Larios v. Victory Carriers, Inc., 316 F.2d 63 (2d Cir. 1963), an admiralty case, where Judge Friendly said that "in deciding whether maritime claims are barred by laches, courts of admiralty will use local limitation statutes as a rule-of-thumb," which "seems to put it right"; he then delivered this much-cited formula: "When the suit has been brought after the expiration of the state limitation period, a court applying maritime law asks why the case should be allowed to proceed; when the suit, although perhaps long delayed, has nevertheless been brought within the state limitation period, the court asks why it should not be." Id. at 66. That formula remains the touchstone in admiralty cases; Larios was cited and its formula quoted in Leopard Marine & Trading, Ltd. v. Easy Street Ltd., No. 16-1356-CV, ___F.3d ___, 2018 WL 3400524 at *14 (2d Cir. July 13, 2018) (fuel supplier's in rem action against vessel to enforce maritime lien barred by laches where plaintiff's unreasonable delay prejudiced defendant shipowner). In Federal Treasury Enterprise, the Second Circuit applied the formula in a Lanham Act case; Judge Jacobs' opinion phrased it thus:

If the most closely analogous state statute of limitations has not run, the presumption of laches does not attach and the defendant bears the burden of proving the defense. But once the analogous state statute of limitations has run, the burden shifts to the plaintiff to show why laches should not apply.

809 F.3d at 746 (internal citations omitted).

         In the SJ Ruling in this case, I applied that formula to Midsun's laches defense, and concluded that "[t]o determine which party has the burden of proof, the Court looks to Connecticut's three-year statute of limitations for fraud." 301 F.Supp.3d at 365. That conclusion places the burden of proof on the issue of laches upon CSL, for these reasons:

CSL filed its complaint on December 17, 2014, thus the relevant date for the purposes of laches is December 17, 2011. It is undisputed that CSL was aware of Midsun's allegedly infringing conduct by 2000, when CSL wrote to Midsun to complain of Midsun's use of the marks in connection with Midsun's own product. It therefore follows that the presumption of laches applies ...