The Fourth Circuit federal appeals court vacated a trial court’s holding, finding that the defendant had waived its preclusion defenses by failing to raise them in a timely manner and that the trial court erred in considering the preclusion defenses sua sponte. Georgia Pacific Consumer Products, LP v. von Drehle Corporation, Case No. 12-1444 (4th Cir. March 14, 2013) (available here). Georgia Pacific sued von Drehle for trademark infringement. The trial court granted summary judgment in favor of von Drehle. On appeal, the Fourth Circuit reversed and remanded the case for a jury determination of whether von Drehle was liable for contributory trademark infringement. More than three months later, Von Drehle moved to amend its answer to include affirmative defenses based on an alleged preclusive effect of a judgment for one of von Drehle’s distributors that was entered by a federal district court a few weeks before the trial court granted summary judgment (“the Myers case”). More than 480 days passed between the Myers case and von Drehle’s initial attempt to raise the preclusion defenses. The trial court denied von Drehle’s request to amend, and the jury found in favor of Georgia Pacific. The trial court vacated the jury’s verdict and found in favor of von Drehle, relying on the preclusion defenses that it had earlier rejected, holding that von Drehle had timely brought another federal district court decision regarding one of its distributors to the trial court’s attention (“the Four-U case”). Georgia Pacific appealed. The Fourth Circuit reversed and remanded, finding that the trial court erred in vacating the jury verdict because (1) von Drehle waived the preclusion defenses by not raising them in a timely manner; and (2) the trial court should not have considered the preclusion defenses sua sponte after originally rejecting von Drehle’s motion for summary judgment.
Georgia Pacific manufactures paper towels and dispensers. In the early 2000s, Georgia Pacific began marketing a “touchless” dispenser under the “enMotion” name. Georgia Pacific also created paper towels with a fabric-like feel to go with the touchless dispenser. The leases for the dispensers between Georgia Pacific, its distributors, and the customers stated that only the new fabric-like paper towels would be used in the dispensers. Von Drehle, a smaller competitor of Georgia Pacific, developed paper towels for use in the enMotion dispensers and marketed the towels as a cheaper alternative. Georgia Pacific sued von Drehle and included a claim for contributory trademark infringement. Georgia Pacific also sued several of von Drehle’s competitors in different federal district courts for contributory trademark infringement.
Georgia Pacific argued that “von Drehle waived the preclusion defenses by failing to assert them in a timely manner, and that the district court abused its discretion by considering those defenses.” Georgia Pacific, Slip Op. P. 11. Preclusion defenses are affirmative defenses that must be raised in a timely manner. “Even when a preclusion defense is not available at the outset of a case, a party may waive such a defense arising during the course of litigation by waiting too long to assert the defense after it becomes available.” Georgia Pacific, Slip Op. P. 11. The Fourth Circuit agreed, finding that von Drehle allowed three significant time periods to pass before attempting to raise the preclusion defenses for the first time: (1) the 22 day period between the Myer case decision and the trial court’s summary judgment; (2) the 12 month period that the Fourth Circuit retained jurisdiction over the case in the initial appeal; and (3) the 3 month period between the Fourth Circuit’s initial appeal opinion vacating the trail court’s judgment and von Drehle’s motion to amend its answer.
The trial court initially found that von Drehle’s request was untimely. “Despite this ruling, after the jury’s verdict, the district court repudiated these earlier findings by granting judgment in von Drehle’s favor based on the same Myers-based preclusion defenses that the court previously had barred.” Georgia Pacific, Slip Op. P. 13. The trial court’s reasoning was that von Drehle had timely alerted the court to the Four-U case. The Fourth Circuit concluded that the trial court acted arbitrarily and abused its discretion in relying on the Four-U case to “revive” the preclusion defenses that were based on the Myers case. The Four-U case did not address Georgia Pacific’ evidence relating to the likelihood of confusion standard, and therefore had no preclusive effect independent of the Myers case. The Fourth Circuit did not determine the precise point at which von Drehle waived the preclusion defenses because “it is readily apparent that those defenses were no longer available to von Drehle when it first raised them more than 480 days after the Myers judgment was issued.” Georgia Pacific, Slip Op. Pp. 14-15.
The Fourth Circuit then found that the trial court erred in considering the preclusion defenses sua sponte. “A court may raise sua sponte an affirmative defense based on preclusion only in ‘special circumstances.’” Georgia Pacific, Slip Op. P. 15. Special circumstances include “when a court is on notice that it has previously decided the issue presented in another case
and, by raising the issue on its own motion in a different case, thereby may avoid unnecessary judicial waste.” Id. However, these circumstances were not present in this case, and von Drehle did not identify any other special circumstances warranting a sua sponte decision. The Fourth Circuit vacated the trial court’s judgment and remanded it with special instructions for the trial court to reinstate the jury verdict in favor of Georgia Pacific.