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Second Circuit: Statements made in settlement discussions admissible to prove estoppel
March 05, 2008

In a decision yesterday, the Second Circuit affirmed a jury's findings in a trademark infringement case between Polo Ralph Lauren and the U.S. Polo Association. The jury found that one of the USPA's four marks was likely to cause confusion. The two parties had been involved in a previous lawsuit in the early 1980s, and the USPA's former logo was found to have infringed Polo's trademark rights.The court held that it was not erroneous for the district court to permit evidence of statements made during settlement negotiations that one of the logos was not "offensive" to Polo, as it was necessary for the USPA's claim of estoppel. Further, the court held that it was not erroneous for the district court to refuse to give a jury instruction that the USPA, because it was previously found to have infringed, was required to stay a "safe distance" away from Polo's mark. Such an instruction would have confused the jury regarding the applicable legal standard.More detail of PRL USA Holdings, Inc. v. U.S. Polo Ass'n, Inc. after the jump.Plaintiff Polo Ralph Lauren (PRL) designs, markets, and distributes apparel, home furnishings, fragrances, and accessories under the name Ralph Lauren. Since 1972, it has frequently employed as a trademark a mounted polo player with a mallet raised.

Defendant United States Polo Association (USPA), founded in 1980, is the governing body for the sport of polo in the United States. USPA licenses the right to produce clothing bearing its trademarks to Jordache, a manufacturer of clothing.PRL and the USPA have been in periodic conflict since the 1980s, when the USPA first entered the retail clothing business. In 1984 PRL obtained a judgment enjoining the USPA from the use of certain marks that infringed PRL's trademarks. The judgment made clear, however, that the USPA remained free to "conduct a retail licensing program utilizing . . . a mounted polo player or equestrian or equine symbol which is distinctive from the [Ralph Lauren] polo player symbol . . . ."In 1996, the parties were engaged in settlement discussions regarding various marks. During those discussions, PRL made statements indicating that it would not object to one version of logo showing a pair of mounted polo players (a "double horseman" mark). Eventually, the situation deteriorated, and in March 2000, PRL sued the USPA, Jordache, and related defendants alleging that four USPA "double horseman" logos infringed the Ralph Lauren logo.A jury found the logo referenced in the 1996 correspondence infringed Ralph Lauren's mark, but that the other three did not, and the court entered judgment accordingly. PRL appealed on three grounds: (1) allowing the defendants to present evidence of the 1996 statement made as a part of settlement discussions, allegedly in violation of Rule 408; (2) failing to give the jury an instruction that the defendants, as past infringers, were required to maintain a "safe distance" from PRL's mark; and (3) excluding a document (the "Ralph Rip-Off" document), that arguably showed intent to infringe.Rule 408 At trial, the defendants offered the testimony of a former USPA employee, and some corroborating evidence, that during the course of settlement discussions, PRL gave the USPA consent to use a version of the double horsemen mark and implied that it was not "offensive" to PRL. PRL objected both before and during trial to all such evidence, citing Federal Rule of Evidence 408. The district court ruled that the evidence was admissible to prove the defendants' assertion that PRL was estopped to claim infringement after it led the defendants to believe no claim of infringement would be brought, and the defendants spent millions in developing the marks in reliance on that assurance. PRL argued that the defendants' true purpose in offering this evidence was to suggest to the jury that if PRL did not object to the USPA's use of the logo, it must have been because PRL did not believe the mark was confusingly similar to its own.
The court held that while Rule 408 generally prohibits introduction of evidence of statements made during settlement negotiations to prove or disprove a party's claim for a relief, the only way USPA could prove estoppel was by offering that evidence. The court noted that in some instances a defendant could employ a claim of estoppel pretextually and abusively as a ploy to suggest impermissible inferences derived from settlement discussions, but this was not such a case. PRL also asserted that the literal language of the Rule prohibited introduction of the evidence. The court also rejected this argument, stating that if it accepted PRL's reading of the Rule, all evidence relating to settlement negotiations at trial would presumptively be prohibited, as in a sense, it would all seek either to "prove liability for or invalidity of [a] claim or its amount," and the exceptions to the Rule would be meaningless. PRL also argued that it suffered "spillover" prejudice resulting from the jury's impermissible use of the evidence to support the inference that PRL did not believe USPA's marks would be likely to cause confusion, and that they in fact were not likely to cause confusion. The court held that the district court did not abuse its discretion, and that any "spillover" prejudice to PRL from this evidence was insufficient to require retrial, noting that the agreement would have allowed USPA to use only one of the mark in contention and the jury found that mark to be infringing.The "safe distance" instructionPRL's second argument was that the district court erred in refusing to instruct the jury that, as a previously adjudicated infringer, the USPA was required to keep a safe distance from PRL's mark. The court noted that the "safe distance" doctrine was quite valuable in fashioning injunctions, or in situations of bad faith, but found no authority that such an instruction must (or should) be given in a civil infringement action alleging a new infringement by one previously adjudicated to have infringed the plaintiff's mark. The court held that insertion of the concept of "safe distance" would change the standard of liability of trademark infringement from likelihood of confusion, thereby confusing the jury.Exclusion of the "Ralph Rip-Off" documentFinally, PRL contended that the district court erred in refusing to admit a document it calls the "Ralph Rip-Off." The document was created by Michael Nowack, who worked in advertising and was occasionally retained by defendant Jordache. The document stated that "Everyone knows we're ripping off Ralph. Including us." PRL contended the document was attributable to Jordache because it was made by Jordache's agent within the scope of the agency and was relevant because it showed bad faith intent of Jordache to free-ride on PRL's marks. The district court excluded the document as inadmissible hearsay and under Rule 403, on the basis that its probative value was substantially outweighed by the likelihood of unfair prejudice to the defendants.

The Federal Circuit agreed, finding no abuse of discretion in the holding that Nowack was not Jordache's authorized representative on the issue of the creation of the double horsemen marks. His state of mind was not attributable to Jordache.To read the full decision in PRL USA Holdings, Inc. v. U.S. Polo Ass'n, Inc., click here.

Vegas Trademark Attorney provides this report on the case. The Trademark Blog offers this post regarding the Rule 408 issue.

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