Streamline Production Systems, Inc. (SPSI) was established in 1993 by Michael Renick in Beaumont, Texas. SPSI initially began as an oilfield services company. In 1997, SPSI began custom fabricating pressure vessels, and today, it produces a range of custom fabricated natural gas processing equipment, such as gas separators, heat exchangers, re-boilers, and pressure vessels, and sells that equipment to customers nationwide, in addition to continuing to provide oilfield services and repair.
Later on, Renick founded three other companies that all use “Streamline” in their names and share staff with and operate in the same region as SPSI but do not manufacture custom fabricated natural gas processing equipment. SPSI’s 2013 sales exceeded $27 million. According to Renick, his company has been successful over the years because it is “well-known in the oil field.”
Streamline Manufacturing, Inc. (SMI) was founded in 2009 in Houston by Luis Morales and Bob Tulio. SMI also fabricates natural gas processing equipment, including pressure vessels, boilers, heat exchangers, skids, and separators, and sells them to customers nationwide. But unlike SPSI, it does not do any oil field servicing or repair work.
Initially, all of SMI’s business came from customers with whom Morales and Tulio had preexisting relationships through their prior work at RCH Industries, and those customers have continued to comprise the majority of SMI’s business. Some of these customers are equipment resellers who sell SMI’s equipment to end-market users. Relying on this customer base, SMI reached over $1 million in sales in its first full year of business, and between 2009 and 2014, it had over $20 million in total sales.
In February 2013, Renick submitted an application to the United States Patent and Trademark Office (PTO) for trademark registration of the mark “Streamline Production Systems,” and the PTO issued the trademark for this phrase on October 29, 2013. On November 26, 2013, SPSI sent a cease and desist letter to SMI, demanding that SMI “immediately cease and desist the use, display, and distribution of any materials bearing the phrase STREAMLINE MANUFACTURING.” SMI’s counsel responded in a letter on January 14, 2014, disclaiming any infringement of SPSI’s trademark. In March 2014, Renick signed an agreement with SPSI assigning his “entire right, title and interest in and to” his trademark in “Streamline Production Systems” to SPSI.
On May 9, 2014, SPSI filed suit against SMI, alleging, in relevant part, infringement of its trademark under the Lanham Act and Texas common law and seeking damages as well as injunctive relief. In its answer, SMI denied all claims. Nevertheless, SMI ultimately stipulated to a preliminary injunction on August 28, 2014. Pursuant to the injunction, SMI agreed to, within 120 days, change its name and discontinue all use of “Streamline Manufacturing” on its marketing and communications materials, and within 30 days, discontinue its use of the domain name “streamlinetx.com.” SMI eventually changed its name to Strongfab Solutions, Inc.
SPSI’s suit proceeded to a five-day jury trial on the issues of trademark infringement and damages, commencing on November 16, 2015. The jury returned its verdict on November 23, 2015. The jury further found that this infringement was the proximate cause of damages to SPSI. However, the jury found that SPSI failed to prove it was entitled to any profit that SMI had earned that was “directly attributable” to its infringing use of the trademarks and that SMI had earned “zero” profit through its infringing use of the trademarks. Nevertheless, the jury awarded SPSI $230,000 as a “reasonable royalty” for SMI’s use of the trademark, another $230,000 for unjust enrichment to SMI through its infringing use, and a final $230,000 as exemplary damages, for a total damages award of $690,000.
The only evidence of intent to confuse identified by SPSI is SMI’s conduct after learning about SPSI’s existence and SMI’s failure to change its name until SPSI filed suit. SPSI did not allege that SMI had bad faith in choosing its name, and the evidence was that, when choosing the name, SMI’s principals were entirely unaware of SPSI’s name, length of time in business, degree of success, customers, and even its mere existence; nor did they know Renick.
Further, SPSI’s trademark was not registered at the time SMI chose its name in 2009. The evidence indicated that SMI did not learn of SPSI’s existence until 2011, and even then it did not know any details about SPSI’s business, its location, its customers, or its degree of success. The only testimony on intent at trial was from SPSI’s principals who merely stated that they had a “feeling” and a “belief” that SMI’s use of the mark was intentional but admitted they could not point to any objective evidence of this intent.
The majority rule amongst jurisdictions is that a defendant’s continued use of a mark even after it receives a cease and desist letter cannot be construed as evidence of intent to confuse. This is because “a party may have considered that plaintiff’s contention was without a legally supportable basis and made a rational business decision to continue use until a court stated otherwise.”
Not all confusion counts: evidence of actual confusion must show “more than a fleeting mix-up of names”; rather it must show that “the confusion was caused by the trademarks employed and it swayed consumer purchases.” SMI argued that the “innocuous and isolated” events that SPSI offered as proof of actual confusion are insufficient to establish that a significant number of people were likely to be confused.
SPSI’s examples of actual confusion satisfy the requirement that the confusion result from the mark, rather than a “fleeting mix-up of names” or some other source. Two of the instances of confusion were directly attributable to SMI’s use of a plate on its equipment that included the word “Streamline,” thus demonstrating that the mark, rather than some other source, caused the confusion. SPSI’s evidence of actual confusion is not entitled to any less weight by virtue of its source. This digit of confusion thus weighs in favor of finding a likelihood of confusion.
The appeal court vacated the royalty, unjust enrichment, and exemplary damages awards. Otherwise, the judgment of the district court has been affirmed.