Select Comfort Corporation v. John Baxter

Rule of Law:

A theory of initial-interest confusion may apply for trademark infringement in the Eighth Circuit where consumer sophistication is a question of fact, and literal falsity alone does not create a presumption of materiality in false advertising claims.

Facts:

• Select Comfort Corporation and Select Comfort SC Corporation own and market well-known adjustable air mattress brands, including 'SLEEP NUMBER,' 'WHAT’S YOUR SLEEP NUMBER,' 'SELECT COMFORT,' and 'COMFORTAIRE,' through company-owned stores, online, and over the phone.
• Dires, LLC, along with its principals John Baxter, Scott Stenzel, and Craig Miller, operates an online retail business ('personalcomfortbed.com') selling lower-priced adjustable air beds, utilizing internet advertising and a call-center-based sales model.
• Defendant Craig Miller worked as a consultant for Select Comfort from 2006 to 2011, and defendants Baxter and Stenzel previously worked for Comfortaire (later acquired by Select Comfort SC Corporation), where they developed advertising and sales techniques.
• Plaintiffs alleged that Defendants used words and phrases identical or confusingly similar to Plaintiffs' trademarks in various online advertising formats, including website URLs (e.g., personalcomfortbed.com/vSleepNumber), paid search terms, embedded links, and general text/graphic advertisements.
• Plaintiffs also alleged that Defendants' call center employees either failed to dispel consumer confusion or actively made statements causing further source confusion, and that Defendants made false representations about their own and Plaintiffs' products.
• Evidence presented included Defendants' use of Plaintiffs' actual trademarks as paid search terms and in web advertising (e.g., 'Sleep 55% Off Number Beds'), survey evidence of actual consumer confusion, and transcripts of call-center interactions showing customers believing they were calling Plaintiffs.
• Defendants' principals were documented describing confusion between the brands as a 'good thing' and indicating their advertisements were 'working' in response to reports of confusion.

Procedural Posture:

• Select Comfort Corporation and Select Comfort SC Corporation (Plaintiffs) sued Dires, LLC, John Baxter, Digi Craft Agency, LLC, Direct Commerce, LLC, Scott Stenzel, and Craig Miller (Defendants) in the United States District Court for the District of Minnesota.
• Plaintiffs asserted federal trademark infringement, trademark dilution, federal unfair competition and false advertising claims, and a state law deceptive trade practices claim.
• Defendants filed a declaratory judgment counterclaim, arguing Plaintiffs had no trademark rights in 'NUMBER BED' (generic or merely descriptive without secondary meaning) and that the registered mark 'SLEEP NUMBER' had become generic.
• Both parties moved for summary judgment on various claims.
• The district court denied summary judgment on whether 'SLEEP NUMBER' had become generic and whether 'NUMBER BED' had acquired secondary meaning.
• The district court granted summary judgment, ruling as a matter of law that initial-interest confusion could not apply because retail purchasers of mattresses were sophisticated consumers, therefore requiring Plaintiffs to show a likelihood of confusion at the time of purchase for trademark infringement claims.
• The district court denied Plaintiffs’ motion for summary judgment regarding a false advertising claim based on an admitted literal falsity, finding the statements equivocal and presenting a factual question.
• The case proceeded to a jury trial on the trademark infringement, trademark dilution, unfair competition, and false advertising claims.
• Consistent with its summary judgment ruling, the district court instructed the jury that a likelihood of confusion must exist at the time of purchase to support a trademark infringement claim.
• Over Defendants’ objection, the district court instructed the jury on false advertising using an instruction that allowed a presumption of materiality if a statement was literally false.
• The jury rejected the trademark infringement claims, found Plaintiffs held no trademark rights in 'NUMBER BED,' and found 'SLEEP NUMBER' famous but not diluted.
• The jury found for Plaintiffs on seven false advertising claims, awarding approximately $160,000, and for Defendants on the remaining eight.
• The district court denied several post-trial motions.
• Both Plaintiffs and Defendants filed appeals to the United States Court of Appeals for the Eighth Circuit (Select Comfort Corporation as Plaintiffs-Appellants in No. 19-1077, Defendants as Defendants-Appellees; Select Comfort Corporation as Plaintiffs-Appellees, Dires, LLC, Scott Stenzel, Craig Miller as Defendants-Appellants in No. 19-1113; John Baxter as Defendant-Appellant in No. 19-1178).