July 2, 2020 - This Week at the Ninth

This Week at The Ninth: The FDCPA and Trade Dress

The big news at the Ninth Circuit this week was the Court’s pair of decisions holding that the federal government could not use Department of Defense funds to construct the border wall. Here at This Week, we focus on two other decisions that may have slipped under the radar. In the first, the Court held that the Federal Debt Collection Practices Act (FDCPA) does not apply to parties that seek only to enforce their security interests in foreclosure proceedings. In the second, the Court addressed a variety of trademark issues, with the panel dividing on the question whether a chair design prominently featured in the TV show Mad Men was “famous” as a matter of trademark law. 

BARNES v. ROUTH CRABTREE OLSON PCC
The Court holds that mere enforcement of a security interest in property does not trigger the prohibitions on unfair debt-collection practices set forth in the FDCPA.

Panel: Judges Bybee, VanDyke, and Chhabria (N.D. Cal.), with Judge Chhabria writing the opinion.

Key Highlight: The FDCPA’s “applicability turns not on the foreclosure forum but on whether the foreclosure plaintiff seeks to recover any debt beyond the proceeds from the sale of the foreclosed property.”

Background: After Fannie Mae attempted to foreclose the deed of trust on appellant Timothy Barnes’s home in Oregon state court, Barnes sued Fannie Mae and others involved in the foreclosure proceeding for allegedly violating the FDCPA. The district court dismissed Barnes’s complaint on the ground that none of the defendants had engaged in debt collection. The Ninth Circuit initially affirmed but, on Barnes’s petition for rehearing, ordered supplemental briefing on the effect (if any) of the Supreme Court’s intervening decision in Obduskey v. McCarthy & Holthus LLP, 139 S. Ct. 1029 (2019), which held that a business engaged in no more than security-interest enforcement in nonjudicial foreclosure proceedings is not a “debtor collector” for most purposes under the FDCPA.

Result: The Court affirmed, holding that Barnes failed to plead any conduct by defendants that constituted debt collection. The Court explained that most of the FDCPA’s prohibitions, including the ones that Barnes’s complaint invoked, apply only to debt collectors. And a debt collector, the Court continued, is someone whose principal “business is collecting . . . money owed by a consumer to a third party,” not someone who seeks only to enforce a security interest. The Court rejected Barnes’s argument that one who initiates a judicial (as opposed to nonjudicial) foreclosure proceeding is always attempting to collect a debt. Instead, the Court held, the plaintiff must identify something beyond the mere enforcement of a security interest to establish that the defendants are acting as debt collectors, such as filing a foreclosure action in a forum where deficiency judgments are available. Because Barnes’s complaint alleged only that defendants initiated a judicial foreclosure proceeding in Oregon state court, and because Oregon law prohibits deficiency judgments when a creditor forecloses, the complaint did not plead that the defendants engaged in debt collection.

BLUMENTHAL DISTRIBUTING, INC. v. HERMAN MILLER, INC.
The Court upholds a jury’s verdict finding that a chair’s design was not exempt from trade dress protection as purely functional, holds that the Ninth Circuit model jury instruction on functionality misstates the law, and concludes that the reasonably well-known design was nevertheless insufficiently “famous” to qualify for protection against dilution. 

Panel: Judges Hurwitz, Friedland, and Korman (E.D.N.Y), with Judge Korman writing the majority opinion and Judge Friedland dissenting in part.

Key Highlight: “We recognize that the district court appears to have derived the Functionality Instruction from Ninth Circuit Model Civil Jury Instruction 15.12. But because that instruction does not accurately track our functionality caselaw, . . . its use was error and we must reverse.”

Background: Plaintiff Herman Miller (“HM”) sells the popular “Eames” and “Aeron” chairs. Accusing defendant Blumenthal of having sold knockoff versions, HM brought suit, advancing a number trade dress theories. A jury found in HM’s favor with respect to the Eames chair, awarding over $6 million in damages (roughly $3 million of which were attributable to HM’s dilution claim), but found that it had no protectable trade dress in the Aeron chair.

Result: The Ninth Circuit reversed in part. The Court began by explaining that for a product design to be protected as a matter of trademark (as opposed to patent) law, the design must be “nonfunctional.” In its appeal, Blumenthal argued that the Eames chairs were functional, and thus unprotected, as a matter of law because they include some functional elements. The Court quickly rejected that argument, explaining that Blumenthal’s proposed rule would “wipe out trademark protection for all, or at least virtually all, consumer products’ overall appearances,” as nearly every product’s appearance is determined in part by some element that serves a utilitarian function. Rather, the Court explained, “a product’s overall appearance is necessarily functional if everything about it is functional, not merely if anything about it is functional.” The Court further concluded that the Blumenthal could not meet that test simply by showing that each of the individual components of the Eames chair was functional. Instead, Blumenthal had to demonstrate that “there was no evidence of any non-utilitarian design choices”—a showing they could not meet given evidence that “the chairs were designed largely to be distinctive and/or beautiful, even at some expense to their ‘utilitarian advantage.’”

Turning to HM’s cross appeal, the Court agreed that the district court’s jury instruction on functionality—which had stated that “if the feature is the part of the actual benefit that consumers wish to purchase when they buy the product, the feature is functional”—had oversimplified, and thus misstated, the relevant inquiry. Acknowledging that this language was derived from the Ninth Circuit model jury instructions, the Court nevertheless held the instruction was erroneous. And because Blumenthal had done nothing to rebut the presumption of prejudice that arose from this error, the Court reversed the jury’s verdict for Blumenthal on the Aeron chair.

Finally, the Court addressed—and accepted—Blumenthal’s arguments that HM’s dilution claim failed because there was insufficient evidence that the Eames trade dress was “famous.” To qualify for protection against dilution, a “trademark must be widely recognized by the general consuming public of the United States.” The Court concluded that HM’s evidence that the Eames chairs met that standard—which included roughly $550,000 spent per year in advertising, the chairs’ appearance in “obscure publications,” approximately 875,000 social media followers, and numerous appearance in the TV show Mad Men—was insufficient. 

Judge Friedland dissented on this last point, as she believed the evidence supported the jury’s finding that the Eames trade dress was "famous." As she explained: “Even if too few Eames chairs were sold for them to be present in most households or offices, and even if there was too little advertising for it to reach the average consumer, HM’s evidence nevertheless allowed the jury to conclude that many individual chairs reached a wide audience and were recognized on account of their distinctive design.”