Fourth Circuit Rejects Post-Trial Preclusion Ruling in Paper Towel “Stuffing” Saga
The U.S. Court of Appeals for the Fourth Circuit has now weighed in on the latest turn of events a long-standing dispute between Georgia Pacific Consumer Products and Von Drehle Corp. holding that the district court erred in granting judgment as a matter of law (JMOL) based on Von Drehle’s previously rejected claim preclusion and issue preclusion defenses. Georgia Pacific Consumer Products, LP v. Von Drehle Corporation, Case No. 12-1444 (4th Cir., Mar. 14, 2013) (Keenan, J.).
Plaintiff Georgia Pacific designs and manufacturers paper products and dispensers. In 2002, Georgia Pacific introduced its “enMotion” brand automated touchless paper towel dispenser, designed to use GP’s proprietary, “fabric-like” paper toweling. The dispensers bear marks “enMotion,” “Georgia-Pacific” and a stylized “GP.” Georgia Pacific leases the enMotion dispensers to distributors who sublease them to end users such as hotels and restaurants. The leases and subleases expressly provide that only enMotion brand paper toweling may be used in the dispensers.
In 2004, Van Drehle began selling lower-quality paper towels designed for use in Georgia Pacific’s enMotion dispenser. Georgia Pacific brought several suits for contributory trademark infringement against Van Drehle and Van Drehle’s distributors based on the “stuffing” of the enMotion dispenser. In September 2010, the 4th Circuit vacated the district court’s grant of summary judgment for holding that it was possible that restroom users could confuse inferior paper towels with, Georgia Pacific’s product and remanded the case back to the district court (IP Update, Vol. 13, No. 9). Less than one month later, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court’s holding of non-infringement for Myers Supply, one of Van Drehle’s distributors, after a bench trial (IP Update, Vol. 13, No. 10).
On remand from the 4th Circuit case, for the first time Van Drehle raised the defenses of claim preclusion and issue preclusion in a motion to amend its answer. The district court initially denied Van Drehle’s request to amend its pleadings and its request for reconsideration, finding that the request was untimely and prejudicial to Georgia Pacific. After Van Drehle’s initial request, the U.S. District Court for the Northern District of Ohio found for another distributor, Four-U-Packaging, Inc., based on a preclusion defense arising from the Myers decision. Van Drehle again filed a motion to amend its answer and a motion for summary judgment based on those defenses. Without a ruling from the court on those motions, the case proceeded to trial and the jury found in favor of Georgia Pacific.
After trial, Van Drehle renewed its request for judgment as a matter of law (JMOL) based on its preclusion defenses and filed an additional motion seeking again to supplement its answer. This time, in a reversal of its previous orders, the district court allowed Van Drehle to assert its preclusion defenses and entered JMOL in Van Drehle’s favor. The district court explained its reversal by Van Drehle’s reliance on the subsequent Four-U ruling. Alternatively, the court stated that it would consider the preclusion defenses sua sponte. Georgia Pacific appealed.
The 4th Circuit categorically rejected the district court’s finding, holding that it acted in an arbitrary manner and thus abused its discretion. The Four-U decision, the 4th Circuit reasoned, did not independently address the merits of Georgia Pacific’s claims, but rather was decided on the preclusion defense based on Myers. Therefore, the Four-U decision could not revive Van Drehle’s untimely preclusion defense that was substantively based on Myers. Rather, according to the 4th Circuit, Van Drehle waived its preclusion defense based on Myers by waiting 480 days after the district court decision in that case to raise the defense. Van Drehle’s delay caused Georgia Pacific to spend considerable time and money litigating the case through appeal and remand and by allowing Van Drehle to assert its untimely defense after trial prejudiced Georgia Pacific. The 4th Circuit also rejected the district court’s alternative consideration of the preclusion defenses sua sponte, holding that no special circumstances exist that would justify this issue being raised, sua sponte, after prior rejection of it.