Federal Circuit Clarifies Legal Doctrines in Trade Dress and Litigation Privilege: Key Takeaways from Toyo v. Atturo

By: Dan Staren & John Urbanic*

The Federal Circuit recently issued a nonprecedential decision in Toyo Tire Corp. v. Atturo Tire Corp., concerning Toyo’s alleged trade dress in its tires, and Atturo’s counterclaims premised on Toyo’s settlement negotiations from a separate action. The Federal Circuit held that sanctions were warranted against Toyo because during the district court litigation it had improperly shifted the definition of its trade dress, which the Federal Circuit agreed was functional and lacked secondary meaning under 15 U.S.C. § 1125(a). The Federal Circuit also held that an absolute litigation privilege protected Toyo from counterclaims based on Toyo’s settlement negotiations during an International Trade Commission (ITC) action.

In 2014, Toyo sued Atturo in the U.S. District Court for the Northern District of Illinois, alleging that Atturo’s TBMT tire infringed the unregistered trade dress of Toyo’s OPMT tire. Atturo brought counterclaims for tortious interference, unfair competition, and unjust enrichment because of Toyo’s settlement negotiations and agreements reached with other parties during an earlier ITC action. In the settlement agreements, Toyo identified third parties’ tires, including Atturo’s TBMT tire, that it believed infringed Toyo’s intellectual property rights in tire designs, including its OPMT tire. The agreements precluded the settling parties from continuing to sell the allegedly infringing tires.

The district court found that Toyo did not clearly define its trade dress, initially claiming it included 3D elements but arguing during expert discovery that it covered only 2D elements. Because of this inconsistency, the district court excluded Toyo’s expert testimony and sanctioned Toyo. Atturo later moved for summary judgment, and the district court held that Toyo’s design as originally disclosed was functional because it improved tire performance, traction, and debris removal, rendering it invalid and ineligible for protection under 15 U.S.C. § 1125(a)(3). The court also held that Toyo failed to show consumers associate the design with Toyo’s products to establish secondary meaning, a requirement for product-design trade dress under the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Samara Bros., Inc.

The case proceeded to trial solely on Atturo’s counterclaims, where the district court awarded Atturo $10 million in compensatory damages plus $100,000 in punitive damages after finding Toyo liable for tortious interference, unfair competition, and unjust enrichment. Toyo appealed both the district court’s award of sanctions and award under Atturo’s counterclaims, arguing that the doctrine of absolute litigation privilege should have barred those claims.

On appeal, the Federal Circuit affirmed the sanctions award, agreeing that Toyo had improperly shifted its trade dress definition late in the litigation. The Federal Circuit also affirmed the summary judgment order which ruled that Toyo’s trade dress was functional and lacked secondary meaning under 15 U.S.C. § 1125(a). However, the Federal Circuit reversed the district court’s decision on Atturo’s counterclaims because of Illinois’s absolute litigation privilege. The court reasoned that its decision aligned with the Illinois appellate courts’ broader application of the privilege to cover both communications and actions related to litigation. The Federal Circuit further explained that the privilege serves to “encourage free and open communication during judicial proceedings” without the fear of civil liability. Thus, the Federal Circuit reversed the district court’s holding on Atturo’s counterclaims.

This decision highlights the importance of maintaining a consistent position on the scope of trade dress during litigation, as failure to do so could lead to sanctions and weakened claims. Additionally, the decision underscores that a broad application of absolute litigation privilege, as in this case, allows litigants to negotiate freely with limited risk of civil liability later, which could promote open settlement discussions.

*John Urbanic is a Law Clerk in Snell & Wilmer’s Phoenix office and is not admitted to practice law.