Betterbox Communications Ltd v. Bb Technologies, Inc. Black Box Corporation

ROSENN, Circuit Judge,

dissenting.

I believe the District Court committed reversible error in admitting the testimony of Betterbox’s sole expert witness, John D. Schulte, and in refusing to grant relief from the judgment based on newly discovered evidence. I, therefore, respectfully dissent.

I.

A brief statement of the background of this declaratory judgment action may provide perspective. Black Box Corporation *333(Black Box) is a corporation organized under Delaware law with its principal place of business in Pittsburgh, Pennsylvania. It has been in the business of selling computer-related products and services throughout the United States and in foreign countries, primarily through its catalogs. Since commencement of its operations in 1976, it has utilized the Black Box name and its Black Box design in marketing its products, catalogs, vehicles and marketing materials. Between 1978 and 1985, the United States Patent and Trademark Office (USPTO) issued it registrations for the Black Box name and box design. As of the end of the fiscal year 2000, it posted $500 million in revenues.

Betterbox Communications, Ltd. (Bet-terbox) is a corporation organized under the laws of the United Kingdom with its principal place of business in Keynes, England. Founded in 1988 by Horacio Baioes, a former Black Box manager, the company obtained a trademark registration for the mark “Betterbox” in the United Kingdom. In 1995, Betterbox decided to enter the American market and applied for trademark registration with the USPTO based on its intended use of the Betterbox name and box design in the United States. Bet-terbox and Black Box sell competing products in the same channels of trade, marketing them through the use of catalogs. Sensing that Black Box would oppose its entry into the American market, Betterbox organized a corporation known as Performance Communications, Inc. This corporation, also with headquarters in Pittsburgh, Pennsylvania, sells the same products as the parties to this litigation.

Black Box objected to Betterbox’s application, complaining that the Betterbox name and box design infringed on Black Box’s trademarks and demanded of Bet-terbox that it refrain from the use of the Betterbox name and box design. Better-box filed this action for a declaratory judgment, which is now on appeal.

II.

Prior to trial, Black Box moved to exclude the testimony of John Schulte, Bet-terbox’s expert, pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). The District Court denied Black Box’s motion to exclude Schulte’s testimony, finding him qualified to testify as an expert on the issue of whether there was a likelihood that customers would be confused by the Black Box and Betterbox names and box designs and that his opinion was sufficiently rehable to meet Dau-bert standards. The majority concludes that the District Court did not abuse its discretion in admitting Schulte’s testimony primarily because of his practical experience “in the field of direct marketing and mail-order catalogs,” and in the marketing and use of logos and their use as advertising. (Maj. op. at 328).

The undisputed issue before the District Court was whether there was a likelihood of confusion for customers in the same market served by these potential competitors using the Black Box and Betterbox names and box designs in the same channels of trade and advertising through the same media.

Infringement of a federally registered trademark is determined by the test of whether the use of the mark is “likely to cause confusion, or to cause mistake, or to deceive.” J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, § 23.1 (4th ed.2001) (internal quotations omitted).

The likelihood of confusion analysis requires the evaluation of a number of factors, ten of which were considered by this court in Scott Paper Co. v. Scott’s Liquid *334Gold, Inc., 589 F.2d 1225, 1229 (3d Cir.1978), and reaffirmed in A & H Sportswear, Inc. v. Victoria’s Secret Stores, Inc., 237 F.3d 198, 215 (3d Cir.2000). See also Ford Motor Co. v. Summit Motor Products, Inc., 930 F.2d 277, 293 (3d Cir.1991). Among the factors considered in the analysis are the degree of similarity between the owner’s mark and the alleged infringing mark, the strength of the owner’s mark, the price of the goods and other factors indicative of the care and attention expected of consumers when making the purchase, the defendant’s intent in adopting the mark, and the extent to which the targets of the parties’ sales efforts are the same. Ford Motor, 930 F.2d at 293. The most important of these factors is the degree of similarity between the two names. See id. Moreover, “[i]t is well-established that likelihood of confusion should be determined by viewing the two marks from the perspective of an ordinary consumer of the goods or services.” Id. (internal quotations omitted).

Schulte, Betterbox’s witness, was not qualified to testify as an expert in this case. He did not describe whether or how he considered any of the above factors. He could not articulate the methodology he used to arrive at his conclusions, every one of which was predicated upon his personal, unsupported, subjective belief. His testimony on cross-examination strikingly illuminates his lack of expertise on the issue of consumer likelihood of confusion. He testified:

Q: Have you done any test mailings to determine the target market for either Black Box or Betterbox?
A: No, I have not conducted any mailings for them.
Q: But you haven’t done any investigation to determine who Black Box’s customers are, have you?
A: Other than examining the products in them catalog, no.
Q: So you don’t even know who their customers are specifically?
A: If I was to name them — I couldn’t name their customers. I could name the type of customers they are.
Q: And you would name the type of customers based solely on the fact that you’ve looked at the products in the catalog, correct?
A: Well, I have to use my common sense.
Q: Well, is there any other basis for your statement that you know who the customers are?
A: Besides what they are selling?
Q: Yes.
A: No.
Q: Are you an expert in trademark infringement?
A: No, I’m not.
Q: Are you an expert in determining likelihood of confusion?
A: I would say I’m not an expert in that, no.

Although the District Court held that Schulte’s methodology exhibited a sufficient “degree of rigor,” neither the Court nor Schulte explained what that methodology entailed. His cross-examination plainly shows that he had no methodology. Therefore, closer scrutiny than is customarily afforded under abuse of discretion review is appropriate here. United States v. Mathis, 264 F.3d 321, 338 (3d Cir.2001) (“We find it difficult to accord the customary degree of deference to the District Court’s discretion ... because the District Court explained its ruling with little more than a series of conclusions.”).

*335Although the standard for qualifying an expert witness is generally liberal, we pragmatically have recognized that the standard has some limits. To qualify as an expert, “Rule 702 requires the witness to have ‘specialized knowledge’ regarding the area of testimony.” Waldorf v. Shuta, 142 F.3d 601, 625 (3d Cir.1998). Although we have applied Rule 702 liberally, we have not permitted every proffered witness to qualify as an expert. Id.

The issue before the jury did not concern catalog marketing or even more specifically catalog marketing of electronic communications and computer connectivity products. The specific question before the court and jury concerned trademark infringement and, in the words of Better-box’s counsel, “the issue of likelihood of consumer confusion.” Furthermore, as counsel for Betterbox observed in their motion in limine argument to exclude Black Box’s expert: “Market analysts exploring the question of consumer confusion in a specific market commonly conduct consumer confusion surveys. Even when they do not conduct a full scale survey, they define and research the demographics of consumers in the relevant market.” Schulte admits he did not conduct any surveys. He acknowledged that “I’m not an expert” in determining the likelihood of confusion. His testimony was precisely the type of “subjective belief or unsupported speculation” disapproved by Daubert. 509 U.S. at 590, 113 S.Ct. 2786. The District Court abused its discretion in allowing it.

In Aloe Coal Co. v. Clark Equipment Co., 816 F.2d 110, 114 (3d Cir.1987), we held that a District Court abused its discretion in allowing a tractor sales representative to testify as an expert regarding the cause of a tractor fire. Although we have not regarded academic training as a prerequisite for qualifying an expert witness, in order to qualify as an expert, he or she must possess skill or knowledge greater than the average layman. Id. at 114. A pediatrician is not an expert in orthopedics merely because both are doctors in medicine; a pulmonologist cannot claim to be an expert as a pharmacologist and a toxicologist as well as a physician. See Diaz v. Johnson Matthey, Inc., 893 F.Supp. 358, 373 (D.N.J.1995).

In Waldorf, we cited several Third Circuit district court cases in which witnesses were disqualified from providing expert testimony. 142 F.3d at 625-26. Although academic training is not essential, and practical experience may qualify a person as an expert witness, an expert in this case must have “specialized knowledge” in the area of likelihood of confusion in trademarks. Schulte acknowledges he had none. At the Daubert hearing, he testified that his experience was limited to the catalog marketing industry and his expertise was in knowing how people shop in catalogs. As for experience in the computer industry, he owned a company that for four years sold computers and computer components. Schulte, however, points to nothing in that experience that provided him with expertise in determining the likelihood of consumer confusion in the purchase of similarly named computer products that are similarly marketed.

The majority concludes that even if the court erred in admitting Schulte’s testimony, the error was harmless because Bet-terbox did not rely heavily on that testimony. It reasoned that, in addition, “the simplicity of Schulte’s methodology diminished the likelihood that it unduly swayed the members of the jury.” However, Schulte’s methodology not only was not simple, but, as he concedes, there was no methodology. Furthermore, whether Bet-terbox relied heavily on his testimony is speculative, as is the conclusion that his *336lack of methodology likely did not influence the jury. We have no way of calibrating the degree of jury reliance on Schulte’s testimony. The weight afforded Schulte’s testimony can be calculated only by the jurors, not by the judges. As Bet-terbox’s only expert witness on an esoteric question regarding the likelihood of consumer confusion in trademark infringement, Schulte’s testimony was crucial. Therefore, allowing an unqualified witness to testify as an expert in this case cannot be dismissed as harmless error.

Nor is the “harmless error” rationale fortified by the majority’s observation that Black Box’s expert’s qualifications and methodology were nearly indistinguishable from Schulte’s. If that were true, and there is no evidence that it is, it only compounds the error, because the jury then would have been beset by two unqualified witnesses portrayed as experts. The District Court’s original error in permitting Schulte to'testify as an expert is not dissipated by allowing an allegedly unqualified expert to testify for Black Box. Moreover, the burden of proof was on Better-box, who brought the suit, and the District Court erred in the standard it first set for qualifying ■ Betterbox’s expert witness. The error was not harmless.1

III.

I also believe the District Court erred in not granting Black Box’s motion for relief from the judgment under Federal Rule of Civil Procedure (F.R.C.P.) 60(b) on the basis of newly discovered evidence. A major. pillar of Betterbox’s case to the jury consisted of proof of the certification of registration by the USPTO of the Better-box and design mark. However, Black Box was not informed until a few days before trial that Betterbox intended to add the Certificate of Registration to its exhibit list. Black Box promptly filed a motion in limine to exclude it on the ground that it had been inadvertently issued. The motion was denied because Black Box could not prove the cancellation of the Certificate of Registration. Equally, if not more important, it could not prove that the certificate had been issued erroneously.

Betterbox presented the certificate to the jury during the trial and focused on it during its opening and closing arguments to the jury. Counsel for Betterbox specifically argued in his summation that in analyzing the likelihood of confusion, he wanted the jury to consider “that the United States Government has given its opinion on this issue. As I showed you yesterday, the United States of America has issued a certificate of registration.” Horacio Bai-oes testified that the Certificate of Registration issued to Betterbox in 1999 by the United States Patent Office “authorized me to use my logo and trademark wherever it was registered.”

Counsel for Betterbox further informed the jury that the Certificate of Registration says “that the application ... for the trademark ... was examined and deter*337mined to be in compliance with the requirements of the law and with the regulations prescribed by the director of the United States Patent and Trademark Office.” He further reminded the jury of the Court’s instructions concerning “a presumption arising from ... Betterbox’s mark, and here is Betterbox’s registered trademark from Washington, D.C. So that’s another indicator ... you have the United States Government as well issuing a certificate of registration.”

The Trial Court instructed the jury that it should consider the registration of the trademark “in determining whether Bet-terbox has a protectable trademark right in the Betterbox and design mark.” It further informed the jury: “Because Bet-terbox’s trademark has been registered, there is a presumption that Betterbox has a protectable trademark right and that [Betterbox] ... is entitled to use the Bet-terbox and design mark exclusively on its data communications products.”

The prejudicial effect on the jury of the ' instructions and the foregoing argument to the jury is demonstrated by one of the first questions from the jury. The jury inquired whether “the trademark depicted in the U.S. certificate of registration [is] the trademark that Betterbox will use [in] the shaded box on the catalog?” Black Box asserts that the jury’s question demonstrates that it accepted Betterbox’s closing argument to reach the erroneous conclusion that the United States Patent Office had already declared that the Black Box and Betterbox marks were not confusingly similar “and that Betterbox was authorized by the Trademark Office to use the design shown in the ... registration.”

Betterbox’s argument, the instructions to the jury, and Baioes’s testimony were boldly predicated upon a valid trademark registration by the United States Patent Office of Betterbox’s name and logo design. However, there was no valid trademark registration. On December 8, 2000, more than ten days after the verdict, the USPTO officially acknowledged that the registration to Betterbox had been issued erroneously. The series of mistakes that led to the improvident issuance of the registration are described by the majority in its third footnote and in the Order vacating the judgment authorizing the registration. Thus, Betterbox had no right whatsoever in the name and logo at the time of trial or since. It was not entitled to any presumptive protectable trademark right; it was not “entitled to use the Betterbox and design mark exclusively on its ... products.”

Under Rule 60(b), a court may relieve a party from a final judgment because of newly discovered evidence that could not have been discovered in time to move for a new trial under Rule 59(b). The Rule requires that the evidence be discovered after trial and the failure to learn of it must not have been caused by a lack of diligence. Stridiron v. Stridiron, 698 F.2d 204, 207 (3d Cir.1983). The evidence must be material to the issues involved, not merely cumulative, and of such a nature that it probably would change the outcome of the litigation. Id. The majority rejects the Certificate of Cancellation as newly discovered evidence “because the fact of cancellation was not in existence at the time of trial.” (Maj. op. at 332).

The requirement that the newly discovered evidence be in existence at the time of trial does not mandate that “the fact of cancellation” exist at the time of trial. A critical issue at the trial was whether Bet-terbox possessed a valid Certificate of Registration from the USPTO. The newly discovered evidence relating to this fact is the USPTO Order of December 8, 2000, vacating its default judgment. The actual *338notice of cancellation, although not in existence at the time of trial, was simply ministerial. Thus, “the crucial question should not be when the evidence was created, but whether the evidence was of facts that were in existence at the time of trial. Evidence should meet the newly-discovered evidence test even if it did not come into existence until after the trial, so long as the evidence is of facts that were in existence at the time of trial.” 12 James Wm. Moore et al., Moore’s Federal Practice § 60.42[3][a] (3d ed.2000); accord Nat'l Anti-Hunger Coalition v. Executive Comm. Etc., 711 F.2d 1071, 1075 n. 3 (D.C.Cir.1983).

However, Black Box maintained at trial that this Certificate of Registration was inadvertently issued on the basis of an erroneous default judgment entered by the USPTO. Counsel for Black Box informed the Court that the USPTO could not provide any information concerning the status of the Betterbox registration because it could not locate the file.

The majority asserts that Black Box did not exercise due diligence in attempting to obtain evidence of the USPTO decision and thus it “did not attempt to depose or subpoena anyone from the [US]PTO.” On the contrary, Betterbox belatedly listed the Certificate of Registration as an exhibit in this case, several days before trial. Counsel for Black Box promptly communicated with the USPTO to ascertain the status of Betterbox’s application for registration, only to learn that the file was missing and, therefore, no information was available. The majority states that Black Box, because it did not attempt to depose or subpoena someone in the USPTO, did not exercise due diligence. The majority acknowledges, however, that it “suspect[s] ... the [USJPTO would have refused” to comply with any such requests—in other words, that such attempts by Black Box would have been futile. Due diligence does not require exercises in futility, but only efforts reasonably calculated to bring about the desired result. Cf. Aron v. United States, 291 F.3d 708, 712 (11th Cir.2002) (“Due diligence ... does not require a prisoner to undertake repeated exercises in futility or to exhaust every imaginable option, but rather to make reasonable efforts.”); United States v. Blanco, 861 F.2d 773, 778 (2d Cir.1988) (“Due diligence does not require the government to pursue goals that are futile.”). Therefore, under the circumstances, Black Box acted with due diligence in contacting the USPTO and attempting to acquire information regarding an internal decision that had not yet been made official.

Rule 60(b) is intended to preserve “the delicate balance between the sanctity of final judgment ... and the incessant command of a court’s conscience that justice be done in light of all the facts.” Rosebud Sioux Tribe v. A & P Steel, Inc., 733 F.2d 509, 515 (8th Cir.1984) (internal quotations omitted) (alteration in original); accord Coltec Indus., Inc. v. Hobgood, 280 F.3d 262, 271 (3d Cir.2002) (Rule 60(b)’s general purpose is to reach proper balance between finality of litigation and justice). In Rosebud, the Court of Appeals reversed the District Court’s denial of Rule 60(b) relief. The District Court found that the newly discovered evidence—grand jury testimony—did not exist at the time of trial. 733 F.2d at 516. The appellate court found that at trial, the evidence of the witness’s involvement in the alleged conspiracy was circumstantial. Id. The Court held that testimony taken after the entry of judgment revealing that perjurious deposition testimony was read into the record amounted to newly discovered evidence because the perjury existed at the time of trial. Id. at 516-517; accord Kettenbach v. Demoulas, 901 F.Supp. 486 (D.Mass.1995) (after exhaustive review of Rule 60(b) decisions on newly discovered evidence, court held post-judgment record*339ing of descriptions of events occurring before judgment is newly discovered evidence).

In this case, the trial court did not exercise discretion in deciding whether to grant Rule 60(b) relief. See Chilson v. Metro. Transit Auth., 796 F.2d 69, 70 (5th Cir.1986). Instead, it held that Black Box was not eligible for relief under the Rule because it had not presented newly discovered evidence. Chilson involved an internal audit made by the defendant Transit Authority that strongly supported the movant’s case that he had been wrongfully discharged by the Authority. The District Court held that the internal audit did not exist at trial and was thus not newly discovered evidence. Id. The Court of Appeals reversed, holding that the District Court erred as a matter of law by ruling that the proffered evidence of the internal audit and what it showed was not newly discovered evidence. Id. The Court reasoned that because the misconduct documented by the audit predated the verdict in favor of the defendant, the audit was newly discovered evidence. Id. The misconduct at issue was in existence at the time of the original trial and the audit was deemed newly discovered evidence because it consisted of facts in existence at the time of the trial of which the movant was excusably ignorant.

Throughout the trial, Black Box consistently maintained that the Certificate of Registration had been issued inadvertently. On November 7, 2000, it moved in limine to exclude the Certificate of Registration, but it could not supply the necessary proof because the USPTO could not locate the file opposing the grant of the certificate until early in December 2000, after the trial in this case had ended. The USPTO stated in its December 8, 2000, Order:

For reasons unknown to the Board, the original July 7, 1999, and August 26, 1999, papers [Black Box responses to the USPTO Rule to Show Cause Order] have never been associated with the file. (Due to problems at the Patent and Trademark Office warehouse, the Board was unable to obtain the file of Opposition [ ] until early December 2000.)

On November 14, 2000, Black Box informed the court that the United States Patent Office still could not locate the file and, under the circumstances, it would not provide a statement on the status of the litigation. Until the Board located Black Box’s opposition file, it could not vacate the erroneous judgment granting the Certificate of Registration. Therefore, on December 8, 2000, it ordered that “the Board’s August 20, 1999, order entering judgment is hereby vacated.” It simultaneously directed that the file be “forwarded to the Office of the Commission for Trademarks for cancellation ... and restoration to pending application status.” The cancellation of the certificate at this point was simply ministerial, the judgment granting the registration having been vacated.

This is a classic case calling for Rule 60(b) relief from the judgment on the ground of newly discovered evidence. It was discovered after trial and Black Box consistently endeavored to uncover it before and during the trial. The evidence that Betterbox had no valid Certificate of Registration was highly material and of a nature that it probably would change the outcome of the litigation. Granting the relief would be in the interest of fairness and justice.

Accordingly, I would reverse the judgment of the District Court and remand the case for a new trial.

. I concur with the majority’s conclusion that the admission of Betterbox’s evidence of its existing foreign trademark registrations was not error because this ruling is premised on the evidence’s relevance in rebutting Black Box’s contention that Betterbox, by entering the United States market, intended to trade on Black Box’s goodwill. In ordinary trademark litigation, however, evidence of foreign registrations is irrelevant. See, e.g., Fuji Photo Film Co. v. Shinohara Shoji Kabushiki Kai-sha, 754 F.2d 591, 599-600 (5th Cir.1985) (holding general principles of trademark law compelled conclusion that admission into evidence of foreign trademark practices was error); Double J of Broward Inc. v. Skalony Sportswear GmbH, 21 U.S.P.Q.2d 1609, 1612 (1991) ("Information concerning applicant's foreign activities, including foreign trademark applications and/or registrations, as not relevant to' the issues in an opposition proceeding.”).