De Novo or Abuse of Discretion? Trademarks, The Unclean Hands Defense, and Summary Judgment Review
April 1 2021
The Ninth Circuit recently considered an issue of first impression: What standard of review does an appellate court apply when reviewing a district court’s grant of summary judgment in a trademark infringement case on the equitable basis of the unclean hands doctrine. The Ninth Circuit faced this issue in the case titled: Metal Jeans, Inc. v. Metal Sport, Inc. (decided Feb. 16, 2021).
In the Metal Jeans case, Gary Topolewski owned Metal Jeans and was the former owner of Topolewski America, Inc. (“TA”). He had been selling “METAL” branded clothing since the early 1990s, primarily through hard rock music magazines. He gradually expanded his offerings to a variety of markets, including motorcyclists, skaters, lumberjacks and “headbangers.”
In 1999, he registered the “METAL” mark on TA’s behalf for use on various clothing items, including jeans, shirts and boots. Six years later, Topolewski told the USPTO that TA had continuously used the METAL mark on these various items since 1999. This was apparently untrue and in a separate 2008 proceeding, the PTO concluded that this was a false statement, at least as to boots, and cancelled TA’s registration of the METAL mark. Topolewski almost immediately reapplied for the mark, this time through Metal Jeans, which obtained the “METAL” registration in 2013.
Metal Sport was started by a retired Finish power lifter and specializes in power lifting apparel, gear and accessories. The owner created a stylized “METAL” mark that he registered in August 2016 and used for power lifting apparel and gear that he marketed. He apparently drew and began using the stylized “METAL” mark sometime around 1997.
Metal Jeans sued Metal Sport for trademark infringement in 2015 claiming that the use of its stylized “METAL” mark created a likelihood of consumer confusion between the two marks. Both parties moved for summary judgment and the district court granted Metal Sport’s motion on the basis of the affirmative defense of unclean hands. Metal Jeans timely appealed to the Ninth Circuit.
The Ninth Circuit began by recognizing that normally a grant of summary judgment by a district court in a trademark infringement claim is reviewed “de novo with all reasonable inferences drawn in favor of the non-moving party.” The Ninth Circuit also recognized that grants of equitable relief, on the other hand, are generally reviewed under an abuse of discretion standard. The doctrine of unclean hands is based in equity and is a form of equitable relief. The Ninth Circuit noted that it had decided two prior cases involving summary judgment on the issue of unclean hands but neither decision addressed the specific standard of review that would apply.
The Ninth Circuit continued by noting that a number of cases had recognized the general principle that other equitable doctrines such as acquiescence and/or laches should be analyzed under an abuse of discretion standard. The Ninth Circuit reasoned that it was “a modest and obvious step to extend these previous holdings to the present situation,” i.e., to the application of the unclean hands doctrine. The Ninth Circuit concluded that “the appropriate standard of review of a district court’s determination to grant summary judgment on the affirmative defense of unclean hands is abuse of discretion.” The Ninth Circuit noted, however, that other aspects relating to the granting of summary judgment would continue to be reviewed under a de novo standard, such as “whether the district court inappropriately resolved any disputed material facts in reaching its decision.”
In a separate unpublished memorandum that it issued simultaneous with the opinion discussed above, the Ninth Circuit concluded that the district court had erred in granting summary judgment on the basis of unclean hands. In that memorandum, the Ninth Circuit recognized that, “to constitute unclean hands, a defendant must show (1) that the plaintiff’s conduct is inequitable and … (2) relates [directly] to the subject matter of its claims.’” The Ninth Circuit next reviewed the six examples of the alleged misconduct that the district court relied upon in finding that unclean hands should apply. These included: (1) Metal Jeans’ various accounts of how it acquired the mark; (2) Metal Jeans’ representation that it had owned the “METAL” mark at the time TA had in fact owned it; (3) Topolewski had apparently advised the PTO that Metal Jeans was a “premium denim lifestyle clothing brand,” which may not have been accurate; (4) Metal Jeans apparently sourced some of its products from China despite having a “American made, American worn” slogan; (5) Topolewski testified inconsistently as to how he had assigned the goodwill and trademarks between TA and Metal Jeans; and (6) Topolewski’s apparent false statement to the PTO that had led to the cancellation of the mark in 2008.
The Ninth Circuit continued by holding that the district court had improperly resolved several disputes of material fact as to the first five examples in the movant’s favor as opposed to the non-moving party. Furthermore, the Ninth Circuit held that five of the six examples did not “necessarily relate directly to the trademark claim Metal Jeans asserts in this case;” did not appear to cause any harm; and did not evidence any malintent by Metal Jeans. The Ninth Circuit noted that although a jury could later find that each of these examples did evidence unclean hands (as the district court found in ruling on summary judgment), the Ninth Circuit ruled that it was equally likely that the jury could reach other reasonable conclusions. Thus, the Ninth Circuit held that the district could had erred in grating summary judgment on the basis of unclean hands.
Parties litigating trademark claims need to remember in moving for summary judgment and subsequent appeals, which standard of review the appellate court may apply as to certain issues, especially as to equitable defenses.