Tallamook Country Smoker, Inc. v. Tallamook County Creamery Association

The Tillamook County Creamery Association, the maker of
the Tillamook brand of cheese for nearly a hundred years, has
a beef with a company called Tillamook Country Smoker, a
purveyor of smoked meats and jerky. In 1976, Tillamook
Country Smoker began selling its meat products under its
name. The cheese people had actual knowledge of Tillamook
Country Smoker's activities, but never said a word. Not only that, the cheese folks even sold Tillamook Country Smoker's
products in its own gift shop and in its mail-order catalog.

Twenty-five years later, when Tillamook Country Smoker
began selling its meat snacks in supermarkets, the cheese people
for the first time claimed trademark infringement and
sought to enjoin the meat people from making any further use
of the Tillamook Country Smoker name. The cheese people
explain their quarter-century delay in taking action against
Tillamook Country Smoker by contending that they are victims
of "progressive encroachment." The district court ruled
that the cheese people are barred by laches. We agree.

I. Background

The Tillamook County Creamery Association
("Creamery") is a 150-member dairy cooperative in the city
of Tillamook in Tillamook County, Oregon. The association
has a major presence in the area. On its official website, Tillamook
County describes itself as "The Land of Cheese, Trees
and Ocean Breeze." See Tillamook County, Oregon, at
http://www.co.tillamook.or.us (last visited Sept. 25, 2006).

Creamery markets its products nationally through retail
grocery and club stores, with annual revenues topping $250
million. Its primary product is cheese, and is second only to
Kraft in the sale of certain cheeses. Besides selling in retail
stores, Creamery also maintains a mail-order catalog and a
factory store along Highway 101 in Tillamook.

Creamery began using the "Tillamook" mark for its cheese
and butter products as early at 1918. It registered the "Tillamook"
mark with the U.S. Patent and Trademark Office
("PTO") in 1921 and 1950.

In 1975, a member of the Creamery Association, Crawford
Smith, approached Creamery's General Manager Beale Dixon
about his desire to start a processed meat company. Smith informed Dixon of his wish to operate the business under the
mark "Tillamook Country Smoker." Dixon did not object "so
long as Mr. Smith did not build a cheese factory." Tillamook
Country Smoker ("Smoker"), also based in Tillamook
County, was thus born. Today, it employs about 250 workers
and grosses $41 million annually.

Smoker began operations in 1976, employing a number of
label designs. Two prominent designs featured a "burning
ham" and a ribbon. All labels, however, featured the words
"Tillamook Country Smoker." On some of its labels the word
"Tillamook" was the same font size as "Country Smoker." On
several others, the word "Tillamook" was larger than "Country
Smoker." Creamery never objected.

Smoker's original product line was marketed to deli counters.
After 10 months, Smoker began distributing jerky and
smoked beef chunks primarily to convenience stores and
mom-and-pop groceries, although some of Smoker's products
ended up in supermarkets as early as 1984. Not only did
Creamery refrain from objecting to Smoker's use of the word
"Tillamook," it actively encouraged the use by selling Smoker's
products in its own store and mail-order catalog.

In 1985, after approximately 10 years in business, Smoker
applied for registration of the mark "Tillamook Country
Smoker." Smoker notified Creamery of this application, but
Creamery said nothing. The PTO refused the application
because the mark was "confusingly similar" with Creamery's,
and the two companies were selling complementary products
in similar channels of trade. Nevertheless, Smoker continued
to use the mark after the PTO's rejection - all without complaint
from Creamery.

In 1995, Smoker filed a new trademark application seeking
to register a combined word and design mark consisting of the
words "Tillamook Country Smoker" fronting its "ribbon"
design. Creamery did not object, and the PTO approved this application in 1997. The parties refer to this label as Smoker's
"ribbon design" mark, the registration of which Creamery
seeks to cancel in this litigation.

Creamery and Smoker's symbiotic relationship continued
during this period. Creamery's catalog often described its
products and Smoker's with little distinction between the
companies. For example, in its 1997-1998 catalog, Creamery
referred to Smoker's "Jerky in a Jar" as "our one pound jars
of Old Style Beef Jerky" (emphasis added). Similar cheese
and meat combinations were also offered in Creamery's factory
store and website. During this period, Smoker employees
would regularly deliver its products to Creamery. Creamery
would then deliver Smoker's products to customers.

In the mid-1990s, Smoker sought to increase its direct sales
to grocery stores. Believing that its brand image was unsuited
for grocery chains, Smoker hired a label designer and brand
consultant. In a report dated November 12, 1996, the consultant
informed Smoker that it lacked brand identity with its
customers due in large part to the generic look of Smoker's
past labels, and Smoker's inconsistent label designs. In
response, Smoker re-branded most of its products with the
"circle T" design. The word "Tillamook" appeared in block
lettering above the small phrase "Country Smoker." Below or
to the side of "Tillamook Country Smoker" appeared a large
"T" with a circle around it.

Smoker's direct sales to grocery stores and club warehouses
grew significantly in the following years. In 1997,
sales to such entities were less than $170,000. By 2002,
Smoker's sales had increased to over $7 million.

Smoker submitted two trademark applications during this
period. First, on September 21, 1999 - and despite the
PTO's prior denial in 1985 - Smoker applied for registration
of the "Tillamook Country Smoker" word mark. The PTO
approved the application, but before the final registration was issued, Creamery lodged its opposition. In 2002, Creamery
sought to cancel Smoker's 1997 registration of its ribbondesign.
Second, on April 10, 2000, Smoker applied for registration
of the word mark "Tillamook Jerky." The PTO denied
the application, ruling that the "Tillamook" wording was
"highly similar" with Creamery's registered mark.

In 1998, Creamery began recording instances of brand confusion
between its products and Smoker's. Several grocery
chains wrongly displayed Smoker's products under the
Creamery "Tillamook" mark or the Creamery logo. Another
chain mistakenly sent invoices for Smoker products to Creamery.
Consumers also contacted Creamery about Smoker products,
including a group of teachers who worried about the
resemblance between Smoker's "jerky chew" product and
chewing tobacco. Between 1997 and 1999, Creamery noted
four confusion contacts. In 2000, the number of confusion
contacts rose to 40 instances, 96 in 2001, and 106 in 2002.

In September 2000, twenty-five years after Tillamook
Country Smoker began business and started selling under that
name, Creamery wrote a cease-and-desist letter to Smoker,
objecting to Smoker's use of the word "Tillamook." In
response, Smoker brought this suit in the District of Oregon
seeking the following declaratory judgments: (i) Smoker is
the owner of the trademark "Tillamook Country Smoker" and
the mark does not infringe on Creamery's "Tillamook" mark;
(ii) Smoker's registration of the ribbon-design mark is valid;
and (iii) Smoker is entitled to issuance of a trademark registration
for the word mark "Tillamook Country Smoker."

Creamery asserted various counterclaims for trademark
infringement, dilution, and unfair competition. It sought an
injunction preventing Smoker from using the name "Tillamook"
or any other mark which is likely to cause confusion.
Additionally, Creamery sought an order declaring that Smoker's
use of the "Tillamook Country Smoker" mark, the "Tillamook Jerky" mark, and the "TillamookJerky.com" domain
name infringed on Creamery's trademark.

The parties filed cross-motions for summary judgment. The
district court granted partial summary judgment to Smoker on
the use of the "Tillamook Country Smoker" mark, finding that
Creamery's objections were barred by laches. Tillamook
Country Smoker, Inc. v. Tillamook County Creamery Ass'n
("Tillamook I"), 311 F. Supp. 2d 1023, 1040 (D. Or. 2004).
The court granted partial summary judgment to Creamery,
finding that Smoker's use of the "Tillamook Jerky" mark was
infringing. Id. at 1044-45.

In a second opinion, the court granted Smoker's motion for
summary judgment regarding the registration of the "Tillamook
Country Smoker" mark, holding that Smoker's use of
the marks would not cause a likelihood of confusion. Tillamook
Country Smoker, Inc. v. Tillamook County Creamery
Ass'n ("Tillamook II"), 333 F. Supp. 2d 975, 983-85 (D. Or.
2004).

* * *

[1] In its counterclaim, Creamery sought prospective equitable
relief - an injunction against Smoker's continued use
of the "Tillamook" mark - on a theory of trademark
infringement. An infringement claim under the Trademark
Act of 1946 ("Lanham Act"), 15 U.S.C. § 1114(1), requires
the trademark owner to demonstrate "that the alleged infringer's
use of the mark is likely to cause confusion, or to cause
mistake, or to deceive consumers." Reno Air Racing Ass'n v.
McCord, 452 F.3d 1126, 1134 (9th Cir. 2006) (citation and
internal quotation marks omitted). Smoker has raised the
defense of laches, which can defeat an otherwise valid claim
under the Lanham Act. See Jarrow Formulas, Inc. v. Nutrition
Now, Inc., 304 F.3d 829, 835 (9th Cir. 2002).

[2] The limitations period for laches starts "from the time
the plaintiff knew or should have known about its potential
cause of action." Id. at 838; see also ProFitness Physical
Therapy Center v. Pro-Fit Orthopedic and Sports Physical
Therapy P.C., 314 F.3d 62, 70 (2d Cir. 2002) ("[A] plaintiff
should not be obligated to sue until its right to protection has
ripened such that plaintiff knew or should have known . . .
that [it] had a provable infringement claim against defendant.");
Sara Lee Corp. v. Kayser-Roth Corp., 81 F.3d 455,
462 (4th Cir. 1996) (holding that the trademark owner need
not sue "until the likelihood of confusion looms large") (citation
and internal quotation marks omitted).

[3] In analogizing a laches claim where an injunction is
sought, courts first determine when the statute of limitations
period expired for "the most closely analogous action under
state law." Jarrow Formulas, 304 F.3d at 836. If the plaintiff
filed within that period, there is a strong presumption against
laches. If the plaintiff filed outside that period, the presumption
is reversed. See id. at 838. The district court identified
two possible limitations periods under Oregon law - two
years or ten years. 311 F. Supp. 2d. at 1031. Neither party
contests this ruling, nor is it disputed that Smoker began using
the "Tillamook Country Smoker" mark in 1976 and that
Creamery did not file suit until 2002.

[4] The district court then must balance the following six
factors to determine whether the trademark owner's delay in
filing suit was unreasonable and, therefore, barred: "(1)
strength and value of the trademark rights asserted; (2) plaintiff's
diligence in enforcing mark; (3) harm to senior user if relief is denied; (4) good faith ignorance by junior user; (5)
competition between senior and junior users; and (6) extent of
harm suffered by the junior user because of senior user's
delay." E-Systems, Inc. v. Monitek, Inc., 720 F.2d 604, 607
(9th Cir. 1983). The party asserting laches must demonstrate
that it has "suffered prejudice as a result of the plaintiff's
unreasonable delay in filing suit." Jarrow Formulas, 304 F.3d
at 835. Creamery does not challenge this finding of the district
court.

On appeal, Creamery advances three arguments for why
laches should not bar its claims: first, the starting point of the
laches period should be 1998, when Smoker began its direct
sales to grocery stores, and not Smoker's origination in 1976;
second, the district court improperly analyzed the second ESystems
factor (diligence) when it rejected Creamery's assertions
of progressive encroachment; and third, Smoker's
alleged bad faith disentitles it to the defense of laches.

* * *

Click the case caption above for the full text of this opinion.

AFFIRMED.