Seveth Circuit Upholds Cracker Barrel Injunction

Consumer Confusion

CBOCS appealed and the Seventh Circuit Court of Appeals upheld the preliminary injunction. Kraft Foods Group Brands LLC v. Cracker Barrel Old Country Store, Inc., ___ F.3d ___ (7th Cir. 2013). The Seventh Circuit emphasized the fact that goods with confusingly similar trade names would be sold through the same distribution channel ' grocery stores ' and would be advertised together in media such as store circulars. Kraft showed that, in the short time the CBOCS hams were sold, an online ad by a coupon firm provided a link for both Cracker Barrel ham and Cracker Barrel cheese.

The Seventh Circuit also noted that the products are inexpensive, so consumers were unlikely to carefully scrutinize the labels. Moreover, because grocery shoppers are likely to be familiar with Kraft's Cracker Barrel product, any grocery product with that name might be attributed to Kraft. The court concluded that Kraft could be badly hurt by such confusion because inconsistent quality makes consumers less likely to pay a higher price in exchange for a particular brand. If consumers' quality expectations were not met by CBOCS' products and they blamed Kraft, Kraft's sales of Cracker Barrel cheeses would be likely to decline.

Although the court recognized that CBOCS wanted to expand its market to offer grocery shoppers the same products sold in its restaurants, it also observed that CBOCS had significant alternative channels of trade, such as its online marketing and its “country stores” adjoining its restaurants. After weighing and balancing the harm to Kraft if consumers were confused against the harm to CBOCS from being barred from competing with Kraft in grocery stores, the Seventh Circuit determined that Kraft was likely to be harmed more than CBOCS, and that harm was irreparable.

Kraft had a strong likelihood of prevailing at trial, the costs to Kraft from denial of the preliminary injunction were greater than the costs to CBOCS from the injunction, and the costs to Kraft in lost goodwill could not be fully recouped in a final judgment. Where the likelihood of confusion is substantial and the risk to Kraft of loss of goodwill is obvious, irreparable harm is especially likely. Since CBOCS' grocery sales were halted early in the process, it could not provide the district court with any basis for concluding that CBOCS would have heavy losses because of the preliminary injunction. The Seventh Circuit therefore affirmed the preliminary injunction.

Consumer Surveys Possibly Biased

The court also took the opportunity to comment “for future reference” on the consumer survey Kraft presented and to provide a lengthy philosophical discussion of surveys in trademark cases. The court noted that consumer surveys by party-hired expert witnesses are prone to bias, where the wide choice of survey designs, the sample selection and size, the presentation of the allegedly confusing products to consumers, and the phrasing of the questions are all intended to return the surveyor's desired responses. Consumers participating in surveys are not encountering, comparing, and reacting to the marks in a normal environment. Results contrary to the interest of the surveying party may be suppressed and experts are likely to be biased in favor of the party that hired and paid them.

In this case, the expert obtained a representative sample of 300 American consumers of whole-ham products, e-mailed them photographs of the CBOCS ham, and asked them whether the company that made the ham also makes other products and, if so, what products. About 25% of the respondents said “cheese.” The Seventh Circuit observed that it was difficult to know what to make of that result, because the consumers may have assumed that a company with a logo that does not identify a particular food makes other products. Then they guess what those could be, and come up with cheese. But since Kraft was worried that people would think the ham was made by Kraft, not that the cheese was made by CBOCS, the court found the relevance of the survey to be obscure. Also, the court found it difficult to compare consumer's reactions to e-mailed photographs to their reactions to products they are trying to decide about buying in a grocery. The “radically different” contexts and the higher stakes when parting with actual money might influence the responses.

The Seventh Circuit proposed using statistical date to determine the effect of the accused logo as an attractive alternative to a survey. For example, the court suggested that an expert witness could analyze whether the accused infringer obtained a “lift” (greater sales) by selling its goods in close physical proximity to trademark owner's goods. The greater the lift (and therefore confusion), the court reasoned, the greater the likelihood that the consumer would blame the trademark owner for a bad experience with the accused infringer's goods. The court noted that in this case, it was not possible to conduct such a study because the preliminary injunction kept the CBOCS hams from grocery shelves, so CBOCS' sales data was not available. In addition, the court observed that such a study might not be sufficiently reliable to be a basis for refusing to grant a preliminary injunction.

The court also speculated that expert testimony about the buying habits and psychology of consumers of inexpensive food products might be illuminating. However, the lack of a framework for understanding the conditions that affect a consumer's attention or any empirical studies of consumer behavior has resulted in some judges characterizing the ordinary consumer as “ignorant ' unthinking and ' credulous,” or “hasty, heedless and easily deceived,” while other judges find that consumers exercise a “normal measure of the layman's common sense and judgment.”

Although expressing doubts about the probative significance of Kraft's survey, the Seventh Circuit concluded that the similarity of the logos, products, channels of distribution, and the availability to CBOCS of alternatives to grocery stores, provided adequate support for the preliminary injunction.

This decision, authored by former Chief Judge Posner, illustrates his theoretical bent. Although his discussion of surveys is dicta, it may reappear in future cases where survey evidence is more important than in this case.

Judith L Grubner is a Partner in the Chicago office of Arnstein & Lehr LLP. She can be reached at [email protected].

Kraft Foods is well known for its packaged cheeses sold in grocery stores, including its more than 50-year-old Cracker Barrel line. Kraft only uses its Cracker Barrel trademark for cheese.

Over 16,000 grocery and other retail stores carry Kraft's Cracker Barrel cheeses. Kraft has co-existed for 44 years with the well-known chain of low-price restaurants known as Cracker Barrel Old Country Stores (CBOCS). CBOCS, with over 620 restaurants, many along major highways, sells packaged food products such as ham, delicatessen meats, bacon, sausages, jerky, meat glazes, baking mixes, coating mixes, oatmeal, grits and gravies in its restaurants, small adjoining “country stores,” by mail order and online.

When CBOCS decided to introduce its non-cheese products into grocery stores (starting with packaged spiral ham) under a logo with “Cracker Barrel” appearing more prominently than “Old Country Store,” Kraft sued for trademark infringement and sought a preliminary injunction. The parties conducted extensive discovery and presented expert evidence (including consumer surveys), as well as live witnesses. Kraft argued that many consumers would be confused by the similar logos and, believing that the CBOCS products came from Kraft, would blame Kraft if they were dissatisfied with CBOCS' products. The U.S. District Court for the Northern District of Illinois granted Kraft a preliminary injunction, halting sale of the CBOCS ham in grocery stores until the conclusion of the case.

Consumer Confusion

CBOCS appealed and the Seventh Circuit Court of Appeals upheld the preliminary injunction. Kraft Foods Group Brands LLC v. Cracker Barrel Old Country Store, Inc., ___ F.3d ___ (7th Cir. 2013). The Seventh Circuit emphasized the fact that goods with confusingly similar trade names would be sold through the same distribution channel ' grocery stores ' and would be advertised together in media such as store circulars. Kraft showed that, in the short time the CBOCS hams were sold, an online ad by a coupon firm provided a link for both Cracker Barrel ham and Cracker Barrel cheese.

The Seventh Circuit also noted that the products are inexpensive, so consumers were unlikely to carefully scrutinize the labels. Moreover, because grocery shoppers are likely to be familiar with Kraft's Cracker Barrel product, any grocery product with that name might be attributed to Kraft. The court concluded that Kraft could be badly hurt by such confusion because inconsistent quality makes consumers less likely to pay a higher price in exchange for a particular brand. If consumers' quality expectations were not met by CBOCS' products and they blamed Kraft, Kraft's sales of Cracker Barrel cheeses would be likely to decline.

Although the court recognized that CBOCS wanted to expand its market to offer grocery shoppers the same products sold in its restaurants, it also observed that CBOCS had significant alternative channels of trade, such as its online marketing and its “country stores” adjoining its restaurants. After weighing and balancing the harm to Kraft if consumers were confused against the harm to CBOCS from being barred from competing with Kraft in grocery stores, the Seventh Circuit determined that Kraft was likely to be harmed more than CBOCS, and that harm was irreparable.

Kraft had a strong likelihood of prevailing at trial, the costs to Kraft from denial of the preliminary injunction were greater than the costs to CBOCS from the injunction, and the costs to Kraft in lost goodwill could not be fully recouped in a final judgment. Where the likelihood of confusion is substantial and the risk to Kraft of loss of goodwill is obvious, irreparable harm is especially likely. Since CBOCS' grocery sales were halted early in the process, it could not provide the district court with any basis for concluding that CBOCS would have heavy losses because of the preliminary injunction. The Seventh Circuit therefore affirmed the preliminary injunction.

Consumer Surveys Possibly Biased

The court also took the opportunity to comment “for future reference” on the consumer survey Kraft presented and to provide a lengthy philosophical discussion of surveys in trademark cases. The court noted that consumer surveys by party-hired expert witnesses are prone to bias, where the wide choice of survey designs, the sample selection and size, the presentation of the allegedly confusing products to consumers, and the phrasing of the questions are all intended to return the surveyor's desired responses. Consumers participating in surveys are not encountering, comparing, and reacting to the marks in a normal environment. Results contrary to the interest of the surveying party may be suppressed and experts are likely to be biased in favor of the party that hired and paid them.

In this case, the expert obtained a representative sample of 300 American consumers of whole-ham products, e-mailed them photographs of the CBOCS ham, and asked them whether the company that made the ham also makes other products and, if so, what products. About 25% of the respondents said “cheese.” The Seventh Circuit observed that it was difficult to know what to make of that result, because the consumers may have assumed that a company with a logo that does not identify a particular food makes other products. Then they guess what those could be, and come up with cheese. But since Kraft was worried that people would think the ham was made by Kraft, not that the cheese was made by CBOCS, the court found the relevance of the survey to be obscure. Also, the court found it difficult to compare consumer's reactions to e-mailed photographs to their reactions to products they are trying to decide about buying in a grocery. The “radically different” contexts and the higher stakes when parting with actual money might influence the responses.

The Seventh Circuit proposed using statistical date to determine the effect of the accused logo as an attractive alternative to a survey. For example, the court suggested that an expert witness could analyze whether the accused infringer obtained a “lift” (greater sales) by selling its goods in close physical proximity to trademark owner's goods. The greater the lift (and therefore confusion), the court reasoned, the greater the likelihood that the consumer would blame the trademark owner for a bad experience with the accused infringer's goods. The court noted that in this case, it was not possible to conduct such a study because the preliminary injunction kept the CBOCS hams from grocery shelves, so CBOCS' sales data was not available. In addition, the court observed that such a study might not be sufficiently reliable to be a basis for refusing to grant a preliminary injunction.

The court also speculated that expert testimony about the buying habits and psychology of consumers of inexpensive food products might be illuminating. However, the lack of a framework for understanding the conditions that affect a consumer's attention or any empirical studies of consumer behavior has resulted in some judges characterizing the ordinary consumer as “ignorant ' unthinking and ' credulous,” or “hasty, heedless and easily deceived,” while other judges find that consumers exercise a “normal measure of the layman's common sense and judgment.”

Although expressing doubts about the probative significance of Kraft's survey, the Seventh Circuit concluded that the similarity of the logos, products, channels of distribution, and the availability to CBOCS of alternatives to grocery stores, provided adequate support for the preliminary injunction.

This decision, authored by former Chief Judge Posner, illustrates his theoretical bent. Although his discussion of surveys is dicta, it may reappear in future cases where survey evidence is more important than in this case.

Judith L Grubner is a Partner in the Chicago office of Arnstein & Lehr LLP. She can be reached at [email protected].