Sixth Circuit Rules District Court Didn’t Provide Sufficient Justification in Failing to Apply Safe-Distance Rule in Jeep Trade Dress Case

2018 Mahindra UTV/Utility ROXOR LIMITED EDITION

On September 19, the U.S. Court of Appeals for the Sixth Circuit issued a decision in Mahindra & Mahindra Ltd. v. FCA US, LLC vacating the Eastern District of Michigan’s denial of permanent injunction against a redesigned version of an off-road vehicle manufactured by Mahindra. The Sixth Circuit, in an opinion authored by Senior Circuit Judge Helene E. White, found that the district court abused its discretion in failing to apply the “safe-distance rule” in determining whether to enjoin Mahindra, which had marketed an earlier version of the vehicle that was found to infringe trade dress protections on Jeep off-road vehicles.

Eastern Michigan Declines Safe-Distance Rule Following Noninfringement Finding at USITC

The present appeal stems from an action for declaratory judgment filed by Mahindra in August 2018 seeking a declaration that its 2018-2019 ROXOR vehicle did not infringe the Jeep trade dress. Mahindra’s complaint was filed after FCA had already begun Section 337 proceedings at the U.S. International Trade Commission (USITC), which determined in August 2019 that the 2018-2019 ROXOR infringed upon the Jeep trade dress in violation of 15 U.S.C. § 1125(a).

After Mahindra released a redesigned post-2020 ROXOR vehicle, the company petitioned the USITC for a modification proceeding to determine infringement issues relevant to the post-2020 ROXOR design. The USITC ultimately determined that the post-2020 ROXOR vehicle did not infringe on the Jeep trade dress and that the administrative law judge (ALJ) deciding the case properly declined to apply the safe-distance rule, “a principle recited in federal court cases related to crafting injunctive relief.” The safe-distance rule addresses lingering confusion caused by known IP infringers by requiring them to secure new trade dress that is not only noninfringing but also so far removed from the infringed trade dress that the public is put on notice that the two products are not related.

Back in the Eastern District of Michigan, FCA filed a motion for permanent injunction against the post-2020 ROXOR design, expressly asking for application of the safe-distance rule. The district court acknowledged that FCA was not precluded from seeking application of the rule as the USITC proceedings did not reach a final decision on the merits as to whether the post-2020 ROXOR design stays a safe distance from the Jeep trade dress. However, the Eastern Michigan court declined to apply the rule in its own injunction determination based on both the USITC’s noninfringement determination as well as the procedural posture of the ruling, which was issued before the Federal Circuit ultimately affirmed the USITC’s noninfringement ruling on the post-2020 ROXOR vehicle design.

Safe-Distance Rule Addresses Lingering Confusion, Goodwill Acquired Through Fraud

In tracing the development of the safe-distance rule, the Sixth Circuit mentioned two useful purposes that the rule serves in trademark and trade dress law: it works against an infringer’s ability to preserve consumer goodwill acquired through fraud; and it relieves a reviewing court of the need to retry an entire range of issues related to each small variation a defendant has made to an enjoined mark. The Sixth Circuit cited to its 1912 decision in Coca Cola Co. v. Gay Ola Co. as a seminal case within the circuit for the safe-distance rule. In that decision, the Sixth Circuit found that Gay Ola’s use of several protected Coca Cola trade dress elements, including the use of identical branding script and red barrel packaging, led to the conclusion that Gay Ola’s “underlying intent is to perpetrate a fraud on the consumer.” The Sixth Circuit then cited several other decisions within the circuit applying the safe-distance rule to redesigns of products previously enjoined due to infringement issues in tow ropes, domain names and energy drinks.

While Mahindra argued to the Sixth Circuit that the district court performed the analysis required by the safe-distance rule prior to denying FCA’s motion for preliminary injunction, the Sixth Circuit found that the district court’s ruling came to no conclusion as to whether the rule was satisfied. The Sixth Circuit agreed with Mahindra that the district court’s application of the safe-distance rule is discretionary. “Nevertheless, our precedents do not establish that a court’s discretion regarding the safe-distance rule is limitless,” the Sixth Circuit’s opinion reads. In Innovation Ventures, LLC v. N2G Distributing, Inc. (2014), the Sixth Circuit had described the safe-distance rule as a “specialized application of the courts’ traditional equitable power to craft permanent injunctions tailored to the needs of each case.” The appellate court determined that such language required a district court to justify its decision whether or not to apply the safe-distance rule.

Eastern Michigan’s Reasons for Declining Rule Application Provide Insufficient Justification

The Sixth Circuit went on to determine that neither of the Eastern Michigan district court’s stated reasons for denying application of the safe-distance rule provided sufficient justification. To the extent that the district court relied on the USITC’s noninfringement determination regarding Mahindra’s post-2020 ROXOR vehicle, the Sixth Circuit noted that this wasn’t the proper standard for determining permissible conduct under the safe-distance rule.

“By definition, the safe-distance rule prevents known infringers from engaging in conduct that might be permissible for non-infringers… Because a court can enjoin even a non-infringing product under the safe-distance rule, the simple fact that a known infringer’s redesigned product is non-infringing does not support the conclusion that the safe-distance rule should not apply to the redesigned product.”

Mahindra had argued that the district court reached its conclusion based on the USITC’s factual findings on likelihood of confusion rather than the agency’s legal conclusion of noninfringement. Still, reliance on those factual findings did not suffice to decline application of the safe-distance rule for the Sixth Circuit. For example, a finding that the post-2020 ROXOR was not substantially similar to the Jeep trade dress did not obviate the need to inquire into whether the redesign was sufficiently far away in character from the infringed trade dress. Similarly, the Sixth Circuit found the district court’s determination of an average purchaser’s knowledge when looking at the post-2020 ROXOR “straight on” was irrelevant to the safe-distance rule inquiry.

Finally, the Sixth Circuit found nothing in the procedural posture of the instant appeal that counseled the district court against application of the safe-distance rule. While application of the rule has been especially helpful in contempt proceedings where a reviewing court is gauging a defendant’s compliance with an injunction, the Sixth Circuit has not expressly limited the rule to those proceedings. The appellate court alscited approvingly to several decisions in other circuit courts applying the safe-distance rule following an infringement finding to determine the proper scope of initial injunctions on redesigns.

In its remand order, the Sixth Circuit noted that the Eastern Michigan district court could still take the USITC’s factual findings into account, but ordered the lower court to address factors relevant to the safe-distance rule, including whether there is any lingering confusion remaining from Mahindra’s 2018-2019 ROXOR vehicle, as well as whether Mahindra’s original infringement was abusive or in bad faith. If the district court decides to apply the safe-distance rule under that new analysis, the Sixth Circuit also ordered it to address the separate question of whether the post-2020 ROXOR vehicle design stays a safe distance away from the unique characteristics of the Jeep trade dress.