No.

12-17640

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

CYBERGUN, S.A. and F.N. HERSTAL, S.A., Plaintiffs/Counterclaim-Defendants/Appellees, v. JAG PRECISION, INC., Defendants/Counterclaimant/Appellant.

Appeal from the United States District Court, District of Nevada The Honorable Kent J. Dawson, Presiding Docket No. 2:12-cv-00074-KJD-GWF

APPELLEES BRIEF
Holland & Hart LLP J. Stephen Peek Gregory S. Gilbert 9555 Hillwood Drive 2nd Floor Las Vegas, NV 89134 (702) 669-4600 Holland & Hart LLP Brett L. Foster Mark A. Miller 222 South Main Street, Suite 2200 Salt Lake City, UT 84101 (801) 799-5800

Attorneys for Appellees CYBERGUN, S.A. and F.N. HERSTAL, S.A.

CORPORATE DISCLOSURE STATEMENT In accordance with Federal Rule of Appellate Procedure 26.1, Appellees Cybergun, S.A. and FN Herstal, S.A. are both publicly held corporations. No parent company exists for either Appellee and no publicly held corporation owns ten percent (10%) or more of the stock of either Appellee. HOLLAND & HART LLP By: /s/ Brett L. Foster Brett L. Foster Mark A. Miller Attorneys for Appellees
CYBERGUN, S.A. and F.N. HERSTAL, S.A.

TABLE OF CONTENTS CORPORATE DISCLOSURE STATEMENT ..........................................................i TABLE OF AUTHORITIES ....................................................................................iv STATEMENT OF JURISDICTION.......................................................................... 1 STATEMENT OF ISSUES PRESENTED FOR APPEAL....................................... 1 STATEMENT OF THE CASE .................................................................................. 2 STATEMENT OF FACTS ........................................................................................ 5 SUMMARY OF ARGUMENT ................................................................................. 6 ARGUMENT ........................................................................................................... 10 I. II. III. Standard of Review........................................................................................ 10 Legal Standards ............................................................................................. 11 The District Court Applied the Appropriate Legal Standard and Did Not Abuse its Discretion in Finding that Cybergun is Likely to Succeed In Showing Nonfunctionality of Trade Dress ................................. 12 A. The District Court Property Stated and Applied the Nonfunctionality Test .......................................................................... 12 1. 2. B. C. The District Court Properly Placed the Burden on Cybergun to Show Nonfunctionality ........................................ 13 The District Court Did Not Improperly Conflate Source Identification with Nonfunctionality ............................ 14

Jag Mischaracterizes the Nonfunctionality Test ................................. 17 Cybergun Presented Conclusive Evidence on the Factual Question of Nonfunctionality .............................................................. 19 1. 2. The Involvement of the U.S. Military In Rifle Design Is Insufficient to Show Functionality........................................ 21 The District Court Did Not Abuse its Discretion in Finding Jags Evidence of Functionality Unpersuasive ........... 22

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IV.

The District Court Did Not Abuse its Discretion in Finding that Cybergun is Likely to Succeed In Showing Distinctiveness......................... 27 A. B. The District Court Property Stated and Applied the Distinctiveness Test ............................................................................. 27 The District Court Did Not Abuse its Discretion by Finding Cyberguns Evidence of Distinctiveness Persuasive .......................... 29

V. VI.

The District Court Did Not Abuse its Discretion in Finding that Cybergun is Likely to Succeed In Showing Likelihood of Confusion ......... 33 The District Court Did Not Abuse its Discretion in its Findings Regarding Irreparable Harm, Balance of Interests, and Effect on the Public Interest ................................................................................................ 35 A. Cybergun Established a Likelihood of Irreparable Harm Absent a Preliminary Injunction ......................................................... 35 1. 2. The Presumption of Irreparable Harm Is Intact in Trade Dress Cases ..................................................................... 36 Even Absent the Presumption, Cybergun Established a Likelihood of Irreparable Harm Absent an Injunction .................................................................................. 37

B. C.

The Balance of Hardships Tips Sharply in Favor of Cybergun ............................................................................................. 41 The Public Interest Favors an Injunction ............................................ 42

CONCLUSION ........................................................................................................ 43 CONDITIONAL REQUEST FOR ORAL ARGUMENT ...................................... 43 CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS, AND TYPE STYLE REQUIREMENTS ........................................................................................ 45 STATEMENT OF RELATED CASES ................................................................... 46

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TABLE OF AUTHORITIES Page(s) FEDERAL CASES AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979) .............................................................................. 33 Anderson v. City of Bessemer City, N.C., 470 U.S. 564 (1985) ............................................................................................ 10 Apple Computer, Inc. v. Formula Int'l Inc., 725 F.2d 521 (9th Cir. 1984) .............................................................................. 39 Applied Information Sciences Corp. v. eBAY, Inc., 511 F.3d 966 (9th Cir. 2007) .............................................................................. 40 Brown Jordan Intern., Inc. v. Mind's Eye Interiors, Inc., 236 F.Supp.2d 1152 (D. Hawaii 2002) .........................................................38, 39 Clicks Billiards, Inc. v. Sixshooters Inc., 251 F.3d 1252 (9th Cir. 2001) ...................................................................... 16, 17 Concrete Machinery Co. v. Classic Lawn Ornaments, Inc., 843 F.2d 600, 612 (1st Cir. 1988), affd, 109 F.3d 1394 (9th Cir. 1997) ................................................................................................................... 42 Disc Golf Assn, Inc. v. Champion Discs, Inc., 158 F.3d 1002 (9th Cir. 1998) .....................................................................passim Dr. Seuss Enterprises, L.P. v. Penguin Books USA, Inc., 924 F.Supp. 1559 (S.D. Cal. 1996)..................................................................... 42 Flexible Lifeline Sys. v. Precision Lift, Inc., 654 F.3d 989 (9th Cir. 2011) .............................................................................. 36 Fuddruckers, Inc. v. Docs B.R. Others, Inc., 826 F.2d 837 (9th Cir. 1987) .............................................................................. 13 Gregorio T. v. Wilson, 59 F.3d 1002 (9th Cir. 1995) .............................................................................. 10 Harris v. Bd. of Supervisors, Los Angeles Cnty., 366 F.3d 754 (9th Cir. 2004) ........................................................................10, 11 iv

Hybritech, Inc. v. Abbott Labs., 849 F.2d 1446 (Fed. Cir. 1988) .......................................................................... 39 Independent Living Ctr. of So. Cal. v. Maxwell-Jolly, 572 F. 3d 644 (9th Cir. 2009) ............................................................................. 36 Intl Jensen, Inc. v. Metrosound U.S.A., Inc., 4 F.3d 819 (9th Cir. 1993) .................................................................................. 18 Internet Specialties West, Inc. v. Milon-Digiorgio Enters., 559 F.3d 985 (9th Cir. 2009) .............................................................................. 43 Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982).................................27, 42 Leatherman Tool Grp., Inc. v. Cooper Indus., Inc., 199 F.3d 1009 (9th Cir. 1999) ...................................................................... 15, 26 Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873 (9th Cir. 2009) ..................................................................36, 37, 41 Miche Bag, LLC v. The Marshall Group, 2010 WL 2539447 (N.D. Ill. 2010) ..............................................................38, 39 Oakland Tribune, Inc. v. Chronicle Publishing Co., 762 F.2d 1374 (9th Cir. 1985) ............................................................................ 41 Qualitex Co. v. Jacobson Prods. Co., Inc., 514 U.S. 159, 115 S.Ct. 1300, 131 L.Ed.2d 248 (1995) ..............................12, 19 RentACenter, Inc. v. Canyon Television and Appliance, 944 F.2d 597 (9th Cir. 1991) .............................................................................. 37 Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142 (Fed. Cir. 2011) .......................................................................... 40 Secalt S.A. v. Wuxi Shenxi Constr. Mach. Co., 668 F.3d 677 (9th Cir. 2012) ....................................................................4, 12, 15 Swatch, S.A. v. SIU Wong Wholesale, 1992 WL 142745 (S.D.N.Y. 1992)..................................................................... 30

TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 121 S.Ct. 1255 (2001)..................................................12, 14, 19, 20 United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) (en banc) ............................................................ 10 Versa Prods. Co. v. Bifold Co. (Mfg.), 50 F.3d 189 (3d Cir. 1995) ...........................................................................33, 34 Vision Sports, Inc. v. Melville Corp., 888 F.2d 609 (9th Cir. 1989) ........................................................................27, 28 Wetzel's Pretzels, LLC v. Johnson, 797 F.Supp.2d 1020 (C.D. Cal. 2011) ................................................................ 37 Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 129 S.Ct. 365 (2008)..................................................................11, 35 FEDERAL STATUTES 15 U.S.C. 1125(a)(3) ............................................................................................. 13 15 U.S.C. 1127 ...................................................................................................... 18 28 U.S.C. 1292(a)(1) ............................................................................................... 1 28 U.S.C. 2111 ...................................................................................................... 40 RULES Circuit Rule 36-3 ...................................................................................................... 33 Fed.R.App.P. 32(a)(5) .............................................................................................. 45 Fed.R.App.P. 32(a)(6) .............................................................................................. 45 Fed.R.App.P. 32(a)(7)(B) ........................................................................................ 45 Fed.R.App.P. 32(a)(7)(B)(iii) .................................................................................. 45 Circuit Rule 28-2.6 ................................................................................................... 46

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APPELLEES BRIEF Plaintiffs-Appellees Cybergun, S.A. (Cybergun) and F.N. Herstal, S.A. (FNH) (unless otherwise indicated, Appellees are jointly referred to as Cybergun) submit this brief in response to the opening brief of DefendantAppellant Jag Precision, Inc. (Jag). STATEMENT OF JURISDICTION Cybergun agrees with Jag that the District Court had jurisdiction over the trademark and trade dress infringement claims underlying the preliminary injunction obtained by Cybergun. Cybergun further agrees that this Court has jurisdiction over the timely-filed appeal under 28 U.S.C. 1292(a)(1). STATEMENT OF ISSUES PRESENTED FOR APPEAL 1. Where the United States District Court for the District of Nevada (the

District Court) employed the appropriate legal standard, did it abuse its discretion in finding that Cybergun is likely to prevail in proving that the trade dress associated with Cyberguns rifle designs (M249, M249 PARA and P90) is nonfunctional? 2. Did the District Court find that the trade dress in Cyberguns rifle

designs was inherently distinctive? If the District Court did err in so finding, was that error harmless?

3.

Where the District Court employed the appropriate legal standard, did

it abuse its discretion in finding that Cybergun is likely to prevail in proving that the trade dress in Cyberguns rifle designs had acquired secondary meaning? 4. Where the District Court employed the appropriate legal standard, did

it abuse its discretion in finding that Cybergun is likely to prevail in proving that there is a likelihood of confusion between Cyberguns rifle designs and the rifles sold by Jag? 5. Where the District Court employed the appropriate legal standard, did

it abuse its discretion in finding that the balance of hardships tipped in the favor of Cybergun? STATEMENT OF THE CASE Cybergun commenced this action before the District Court by filing a Complaint against Jag on January 17, 2012. See Complaint (Supplemental Excerpts of the Record (SER) 282-366). The Complaint sought redress under the Lanham Act, Copyright Act, Patent Act, and related state law claims in connection with Jags knockoffs of one of Cyberguns rifle designs, embodied in a firearm known as the SCAR. (SER 286-295). Upon filing the Complaint, Cybergun also filed a Motion for Temporary Restraining Order asking the District Court to restrain the further advertising, offering for sale, and sale of Jags SCAR knockoffs. (SER 541-573); see also Supporting Declaration of John Steele (SER

367-540), Plaintiffs Reply in Support of Motion (SER 265-279); Supplemental Declaration of John Steele (SER 79-264). The District Court granted the Temporary Restraining Order and set a schedule for briefing and a hearing on whether a preliminary injunction should issue. (SER 280-281). On February 1, 2012, the District Court held a hearing and indicated it would grant a preliminary injunction. See Transcript (SER 3-78). Later, the District Court granted a broad preliminary injunction on Jags SCAR knockoffs (the First Preliminary Injunction), requiring Jag to cease all infringing sales, cease all infringing advertisements, and instruct their customers to do the same. (SER 1-2). The First Preliminary Injunction stands Jag failed to appeal that order and the time in which to appeal expired long ago. In connection with filing and serving the Complaint and seeking a preliminary injunction to cover the SCAR knockoffs, Cybergun became aware of three additional proprietary rifle designs being unlawfully advertised and sold by Jag. These newly-discovered knockoffs of Cyberguns rifle designs, embodied in rifles known as the M249, M249 PARA, and P90, were added to the pleadings via Cyberguns Amended Complaint, filed February 10, 2012. (ER 927-1049). The M249, M249 PARA, and P90 knockoffs became the subject a second Motion for Preliminary Injunction, filed by Cybergun on February 28, 2012. (ER 1109-1136).

Cybergun argued in their moving papers that Jags M249, M249 PARA, and P90 knockoffs infringed their trade dress rights under the Lanham Act. Namely, Cybergun argued that the trade dress in Cyberguns rifle designs was not functional, that the trade dress was either inherently distinctive or had acquired secondary meaning, and that a likelihood of confusion existed between Cyberguns rifles and the knockoffs sold by Jag. (ER 1122-1131). Further, Cybergun argued that all factors relevant to the requested injunction weighed in their favor. (ER 1131-1135). In factual support of these legal arguments, Cybergun submitted the Third Declaration of John Steele, a Cybergun executive with knowledge of the rifle designs and how the rifles are recognized, marketed, and sold. (ER 1056-1108). Briefing on the Second Motion for Preliminary Injunction concluded with Cybergun filing a Reply Brief. (ER 68-89). In reply to the factual aspects of the arguments made by Jag, Cybergun submitted the Declaration of Patrick Bosschaerts, a representative of Appellee FNH with knowledge of the development, ownership, and marketing of the rifles at issue. (ER 64-67). Upon being ordered by the District Court, Cybergun submitted supplemental briefing in view of this Courts recent decision on the subject of functionality in Secalt S.A. v. Wuxi Shenxi Constr. Mach. Co., 668 F.3d 677 (9th Cir. 2012). (ER 29). Cybergun also submitted the Fourth Declaration of John Steele to further address the functionality issues raised in Secalt. (ER 22-28). Mr. Steele testified that various

aspects of the rifle designs in question were not functional, and indeed are merely ornamental embellishments to the rifles themselves. (ER 22). The District Court, just as it had earlier with the First Preliminary Injunction, granted Cyberguns Motion and issued broad injunctive relief. (ER 1, 3). On October 29, 2012, the District Court made factual and legal findings that Cybergun is likely to succeed on their claims of trade dress infringement and that, applying the relevant test, a preliminary injunction should issue. (ER 3-14). Jag filed a Notice of Appeal on November 9, 2012, indicating that it was appealing the District Courts Order Granting the (Second) Preliminary Injunction. (ER 15). STATEMENT OF FACTS Appellee FNH has developed and sold a series of firearms throughout its long history. FNH designed the rifles at issue in this Appeal, the M249, M249 PARA, and P90 guns, over twenty years ago and has manufactured and sold them ever since. (ER 1057-1059) at 4, 5, 10. Like the design of the SCAR, the design of FNHs M249, M249 PARA, and P90 rifles employ various ornamental features, as well as an overall ornamental appearance, that distinguish them from other rifles made by other manufacturers, and serve to identify their source as FNH. (ER 1057-1059) at 5, 10. Over the many years of promotion and sales, the M249, M249 PARA, and P90 rifles have become commercially successful, critically acclaimed, and even famous. (ER 1058-1060) at 7-9, 12-14.

Appellee Cybergun sought out, and now enjoys, a license from Appellee FNH which calls for the exclusive right to manufacture, distribute, advertise and sell air soft guns, air rifles and paintball rifles cloaked with the proprietary M249, M249 PARA, and P90 designs anywhere in the world, including in the United States. (SER 370) at 9, (SER 424-448); (ER 1060) at 15. Pursuant to the same license agreement covering the SCAR, Appellee Cyberguns M249, M249 PARA, and P90 products sold under the license are approved by FNH, ensuring that the quality for which FNH is known is present in all licensed products. (SER 432.) Appellee Cybergun enjoys success in the air soft rifle market selling its authorized replicas of the M249, M249 PARA, and P90 rifles as an air soft rifle under the FNH trademarks. (ER 1061) at 20-21, 24. Jag has included various air soft rifles in its sales lineup that are an exact copy of Cyberguns licensed M249, M249 PARA, and P90 rifles. The specific products that infringe Cyberguns rights, and form the subject of this Appeal, include the ECHO1 USA M249 MKII, the ECHO1 USA M249 PARA, and the ECHO1 USA E90. (ER 1062-63); (SER 214-219); (SER 257-262); (ER 1082-87). SUMMARY OF ARGUMENT The District Court properly determined that Cybergun is likely to succeed on their trade dress infringement claims against Jags knockoffs of the M249, M249 PARA, and P90.

The trade dress infringement inquiry is highly factual. The three elements of Cyberguns claims whether the rifle configurations are nonfunctional, whether the configurations are distinctive, and whether there is a likelihood of confusion due to Jags acts are all questions of fact. Factual findings are given great deference on appeal. A decision to overturn a preliminary injunction would involve this Court finding that, with regard to its factual findings, the District Court committed clear error. During the preliminary injunction proceedings, Cybergun set forth a multitude of evidence on each of the three elements of their claims. Almost all of the evidence was unrebutted. For instance, Cybergun identified several aspects of the relevant rifle designs that are merely ornamental. These elements by themselves and in combination with one another, witnesses testified, offer no functional advantage over any other of the host of alternative designs on the market. The District Court weighed Cyberguns facts against the inapposite evidence set forth by Jag and correctly concluded that Cybergun is likely to succeed in proving nonfunctionality of trade dress in the overall configuration of the rifles. Cybergun also made a strong showing that the rifle designs at issue meet the distinctiveness requirement of the trade dress analysis. Beyond testimony and photographic evidence of the distinctiveness of the rifle designs themselves,

Cybergun set forth evidence of sales, advertising, widespread exposure, and notoriety of the rifle designs, showing that the trade dress had acquired distinctiveness. This evidence led the District Court to correctly conclude that Cybergun is likely to succeed in showing distinctiveness of trade dress. Jags arguments that the rifles are not distinctive because they allegedly borrow aspects of other rifle designs properly fell flat before the District Court. Instead, the District Court was swayed by evidence that customers have come to recognize the trade dress, in part through exposure as military-sanctioned weapons and in all variety of widely distributed media, as emanating from a single source. Cybergun easily showed a likelihood of confusion based on Jags acts. Virtually every factor of the likelihood of confusion analysis weighed in Cyberguns favor. Compelling evidence was presented that, due in large part to the widespread exposure in various forms of popular media, Cyberguns trade dress was strong. It is undisputed that Jag copied the trade dress in question and uses the trade dress to sell a competing product in direct competition with Appellee Cyberguns licensed products. Both Jag and Appellee Cybergun market their air soft products in identical fashion. Jag did not set forth competing evidence or argue that the factors of the relevant test cut in Jags favor. Rather, Jag argues on appeal that because it labels its knockoff air soft rifles differently, it somehow escapes the entire likelihood of confusion analysis. Jag has no refuge in its

labeling defense, however. First, not only are the rifles knockoffs and thus, visually undistinguishable, Jag used trademarks identically or confusingly similar to the trademarks Appellee Cybergun licensed from Appellee FNH (M249 MKII, M249 PARA and E90), as well. (ER 1062-63) (SER 214-219) (SER 257-263) (ER 1082-87). Second, Jag makes no factual showing that adding the ECHO 1 prefix to the licensed trademark and the licensed trade dress would avoid a likelihood of confusion. The District Court properly found that Cybergun is likely to succeed on the issue of likelihood of confusion. Beyond the underlying trade dress infringement claims, Cybergun presented evidence that the requested injunction should issue. Cybergun presented evidence regarding the irreparable harm that would run to Cybergun from the continued sale of products likely to cause confusion in the marketplace. This included the harm to Cyberguns reputation, market position, price erosion and customer relationships, resulting from the marketing and sale of a seemingly identical, yet less expensive and lower quality, product by Jag. Taking the irreparable harm to Cybergun and considering that the rifles in question only form a portion of Jags product offerings, the District Court properly found that the balance of hardships tipped in favor of Cybergun. The District Court properly relied on established legal precedent to decide the issues of irreparable harm and to balance the hardships, as well as to determine that the public interest favors a preliminary injunction where a

trade dress plaintiff has shown a likelihood of confusion. Jag presents no compelling precedent otherwise. The District Courts carefully considered ruling on the preliminary injunction regarding knockoffs of the M249, M249 PARA, and P90 rifles should be upheld. ARGUMENT I. STANDARD OF REVIEW Preliminary injunction decisions are reviewed under an abuse of discretion standard. Harris v. Bd. of Supervisors, Los Angeles Cnty., 366 F.3d 754, 760 (9th Cir. 2004). Questions of law are reviewed de novo, but once it is determined that the correct legal standard was applied, the Court must then determine whether the trial courts application of the correct legal standard was (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record. United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc) (quoting Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 577 (1985)). This Court has characterized the type of review given to a district courts decision to grant or deny preliminary injunctive relief as limited and deferential. Harris, 366 F.3d at 760. Indeed, in the preliminary injunction context, this Court do[es] not review the underlying merits of the case. Gregorio T. v. Wilson, 59

10

F.3d 1002, 1004 (9th Cir. 1995). Rather, the inquiry is at an end once the Court determines that the district court employed the appropriate legal standards which govern the issuance of a preliminary injunction, and ... correctly apprehended the law with respect to the underlying issues in litigation. Harris, 366 F.3d at 760 (internal citation and quotation marks omitted). II. LEGAL STANDARDS The elements a trade dress plaintiff must establish are: (1) that its claimed dress is nonfunctional; (2) that its claimed dress serves a source-identifying role either because it is inherently distinctive or has acquired secondary meaning; and (3) that the defendant's product or service creates a likelihood of consumer confusion. See Disc Golf Assn, Inc. v. Champion Discs, Inc., 158 F.3d 1002, 1005 (9th Cir. 1998). A party seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest. Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 21, 129 S.Ct. 365, 374 (2008).

11

III.

THE DISTRICT COURT APPLIED THE APPROPRIATE LEGAL STANDARD AND DID NOT ABUSE ITS DISCRETION IN FINDING THAT CYBERGUN IS LIKELY TO SUCCEED IN SHOWING NONFUNCTIONALITY OF TRADE DRESS A. The District Court Property Stated and Applied the Nonfunctionality Test

A product feature is functional and cannot serve as a trademark if the product feature is essential to the use or purpose of the article or if it affects the cost or quality of the article, that is, if exclusive use of the feature would put competitors at a significant, non-reputation-related disadvantage. Qualitex Co. v. Jacobson Prods. Co., Inc., 514 U.S. 159, 165, 115 S.Ct. 1300, 131 L.Ed.2d 248 (1995). A trade dress plaintiff can meet its burden to show nonfunctionality by showing that the trade dress in question is merely an ornamental, incidental, or arbitrary aspect of the device. TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 30, 121 S.Ct. 1255, 1260 (2001). In addition, this Court has further explained that the trade dress in a product feature, or the overall product configuration itself, must be non-de jure functional, meaning that the trade dress is not in its particular shape because it works better that way. See Secalt, 668 F.3d at 683-684. Secalt also applied the test set out in Disc Golf, 158 F.3d at 1006, as illuminating the functionality analysis. There, the Court articulated the following factors to be used in making the functionality determination: (1) whether the design yields a utilitarian advantage, (2) whether alternative designs

12

are available, (3) whether advertising touts the utilitarian advantages of the design, and (4) whether the particular design results from a comparatively simple or inexpensive method of manufacture. Id. Functionality of trade dress is a question of fact. Fuddruckers, Inc. v. Docs B.R. Others, Inc., 826 F.2d 837, 843 (9th Cir. 1987). Cybergun has the burden to show that the trade dress is not functional. See 15 U.S.C. 1125(a)(3). There can be no genuine dispute that the District Court employed the appropriate legal standard in granting the preliminary injunction. (ER 6-8). Jag argues that the District Court abused its discretion in applying the law to the facts (purported legal errors) in two manners. First, Jag asserts that the district court essentially places the burden on JAG to show functionality. Appellants Opening Brief (DktEntry 12-1) (Op. Br.) at 17. Second, it argues that the District Court improperly equated source identification with functionality. Op. Br. at 22. Jag is incorrect on both counts. 1. The District Court Properly Placed the Burden on Cybergun to Show Nonfunctionality

In support of its argument that the District Court improperly placed the burden on Jag rather than Cybergun, Jag points to a single statement from the District Courts Order: the design yields no particular advantage to the firearm. Defendant has failed to identify any specific advantage in either the manufacture or use of the product based on its design. (ER 9). This statement was nothing more 13

than confirmation that Cybergun met its burden, and furthermore that Jag failed to present credible rebuttal evidence. The District Court discussed the statutoryimposed burden placed on Cybergun. (ER 8). The District Court discussed case law, cited from TrafFix above, concerning Cyberguns burden to show nonfunctionality. (ER 8). The District Court stated in its Order that Cybergun met the very burden in question on two separate occasions. (ER 9, 10) (Thus, Plaintiffs have met their burden in demonstrating the overall product configuration is nonfunctional.) The fact that Jag failed to bring forth any persuasive evidence to counter Cyberguns evidence of nonfunctionality, as pointed out by the District Court, was properly taken into account in weighing the evidence. However, the District Courts mere act of pointing out the absence of countervailing evidence does not equate to an improper shift of the burden, especially in view of the District Courts statements regarding Cyberguns satisfaction of their burden. Jags argument of an improper shifting of the burden of (non)functionality fails. 2. The District Court Did Not Improperly Conflate Source Identification with Nonfunctionality

Jag also asserts that the District Court purportedly equated source identification with functionality. To support its argument, Jag quotes the District Courts lone statement that Plaintiffs have successfully met their burden in establishing that the overall product configuration serves a non-functional purpose, 14

i.e., it identifies upon sight the firearm in question as a specific weapon made by a specific manufacturer. (ER 9). Jag sets forth this statement as if it were the only thing that the District Court had to say about nonfunctionality. Jag is incorrect. The District Court discussed the functionality requirement at length in its Order, citing case law establishing that Cybergun can meet the relevant burden by showing that the asserted trade dress is merely an ornamental, incidental, or arbitrary aspect of the device in question. (ER 8). The District Court then gave an example of how the asserted trade dress serves a nonfunctional purpose: it identifies upon sight the firearm in question. (ER 9). The District Court distinguished the rifle designs at issue here from the product designs at issue in previous cases Leatherman Tool Grp., Inc. v. Cooper Indus., Inc., 199 F.3d 1009 (9th Cir. 1999) and Secalt. In those cases, de jure functionality for the trade dress in question, as well as the failure of the trade dress plaintiffs to identify anything about the configurations that existed for any nonfunctional purpose, precluded the relief sought by trade dress plaintiffs. (ER 9); Secalt, 668 F.3d at 684; Leatherman, 199 F.3d at 1013. From there, the District Court stated: Just like the products in Secalt and Leatherman, the firearms at issue in this action have an exterior appearance. However, though they function as firearms, they are uniquely identifiable by their appearance. They perform the functions necessary, but the appearance sets them apart from each other and other firearms, unlike the industrial traction hoist in Secalt and the folding tool in Leatherman. 15

The District Courts discussion above makes it clear that its finding of nonfunctionality is not based solely on the notion that the trade dress serves as a source identifier. Rather, the District Courts finding of nonfunctionality is also1 based on the factual finding that the trade dress in question is a unique, recognizable ornamental aspect of the device. The District Courts discussion of the four-factor test set forth in Disc Golf to determine functionality of trade dress only strengthens this conclusion. In conducting that analysis, the Court explicitly states its factual finding that the designs yield no particular utilitarian advantage. (ER 10). Elsewhere in its Order, the District Court goes to great lengths to note the distinctive, ornamental nature of the asserted trade dress. For instance, the Court states that the manner in which the rifles are marketed provides further evidence of the commercial and ornamental distinctiveness of the trade dress. (ER 4, 5). The District Court also separately notes the very unique and distinctive design employed by the rifles in question. (ER 4, 5) The District Courts decision regarding nonfunctionality is not as onedimensional as Jag wants this Court to believe. Rather, when given the proper

Even the cases Jag cites acknowledge that there may be an overlap of evidence in exploring the functionality and source identification inquiries. See Clicks Billiards, Inc. v. Sixshooters Inc., 251 F.3d 1252, 1260 (9th Cir. 2001) (cited at Op. Br. at 22). 16

context, it is clear that the Court did not equate source identification with functionality. Assuming arguendo the Court made an error by relying in part on the source identifying aspect of Cyberguns trade dress to find nonfunctionality of that trade dress, it was harmless in view of the other bases on which the Court properly found nonfunctionality. The District Court properly stated, and then applied, the test for nonfunctionality. B. Jag Mischaracterizes the Nonfunctionality Test

Jag cites much of the legal authority regarding nonfunctionality in its Brief, but then ignores it. Instead, Jag argues that [p]laintiffs have not presented any evidence that shows that there is a single proprietary feature about their product configurations that is purely ornamental and has nothing to do whatsoever with a particular function for the firearm and/or airsoft rifle at issue. Op. Br. at 16. This statement is unsupported in Jags Brief it has no citation to the record and no citation to any case law or statute. This is because Jags statement is not the correct legal standard and is factually inaccurate. Jags statement of the law that Cybergun must show that the asserted trade dress has nothing to do whatsoever with any function runs counter to established trade dress law. The law allows products that have some functional properties, as all products do, but nonetheless enjoy trade dress protection for the particular elements that meet the test for nonfunctional trade dress. See Clicks

17

Billiards, 251 F.3d at 1259 (The fact that individual elements of the trade dress may be functional does not necessarily mean that the trade dress as a whole is functional); see also Intl Jensen, Inc. v. Metrosound U.S.A., Inc., 4 F.3d 819, 823 (9th Cir. 1993) (The inquiry is not directed at whether the individual elements are functional but whether the whole collection of elements taken together are functional.). Jag is off base in its attempt to convince this Court otherwise. There is also no authority for Jags suggestion that to own trade dress or trademarks, a plaintiff needs to have developed by itself in proprietary fashion the trade dress or trademarks in question. Op. Br. at 16. Rather, the Lanham Act is clear that trade dress and trademark rights inure to a party based on that partys use in commerce. See 15 U.S.C. 1127 (trademark rights are acquired only through the bona fide use of a mark in the ordinary course of trade, and not [use] made merely to reserve a mark.). The original source of the asserted trade dress does not figure in that analysis.2 Jags overreaching statement of the law sheds negative light on the merits of its appeal, and should be rejected by the Court.

Even assuming arguendo that certain elements of the overall trade dress of the rifles at issue were inspired by earlier rifle models, Jag cannot dispute that the overall designs of the rifles at issue here were original at the time the rifles were originally developed, and that Jag copied them due to the popularity of the design, not due to some competitively necessary function. 18

C.

Cybergun Presented Conclusive Evidence on the Factual Question of Nonfunctionality

Jag acknowledges in its Brief that functionality is a question of fact and asserts that the District Court abused its discretion in making the (factual) finding that the asserted trade dress is not functional. Op. Br. at 16. Jag asks this Court, in the context of a limited and deferential preliminary injunction review, to find clear error in the District Courts finding. However, substantial evidence of record supports the District Courts conclusion. Cybergun submitted evidence on every point relative to the functionality inquiry. Witnesses submitted declarations that the rifles at issue employ very unique and inherently distinctive designs, both in certain specific aspects of the designs as well as the overall designs themselves. (ER 1057-1059) at 5, 7-8, 10, 12-13; see TrafFix, 532 U.S. at 34 (noting that product design aspects such as arbitrary curves in the legs or an ornamental pattern painted on the springs may be capable of trade dress protection). The District Court considered unrebutted testimony that the various design features of the guns, in combination, distinguish them from other rifles offered by Cyberguns competitors. (ER 65) at 4. Cybergun further established that the overall designs of these rifles are not essential for the guns operation. (ER 65) at 4; see Qualitex, 514 U.S. at 165. Indeed, there are an infinite number of ways to design various features such as the sights, the stock, the trigger guard, and the grips of mini machine guns such as the 19

M249 and M249 PARA or compact assault rifles such as the P90. (ER 65) at 5. Many rifles, available on the market today, look entirely different from FNHs M249, M249 PARA, and P90 guns, but are nonetheless considered to perform the same function. (ER 65) at 5; see Disc Golf, 158 F.3d at 1008 (noting the relevance of commercially feasible alternatives). Appellee Cybergun has no preference in the shape of the rifles from a functional standpoint and the particular designs at issue do not cause the air soft rifles to work better or give any utilitarian advantage over any other alternative. (ER 22-28) at 2-26; see Disc Golf, 158 F.3d at 1006-1008 (noting that lack of utilitarian advantage cuts in favor of nonfunctionality). The designs of the asserted trade dress are ornamental embellishments which serve to distinguish Cyberguns products from other rifles. (ER 22-23) at 2; see TrafFix, 532 U.S. at 30 (noting that a trade dress plaintiff meets its burden by showing that the asserted feature is merely an ornamental, incidental, or arbitrary aspect of the device). Cybergun also submitted evidence that, in the context of air soft guns, no advertising touts any functional advantage associated with the particular shape of the air soft rifles at issue. (ER 25-26, 28) at 9, 17, and 26; see Disc Golf, 158 F.3d at 1009 (noting that lack of mention of utilitarian advantage cuts in favor of nonfunctionality). Moreover, the manufacture of the air soft versions of the rifles at issue is relatively complex and expensive compared to other air soft products,

20

due to their ornamental nature. (ER 25-26, 28) at 10, 16, and 25; see Disc Golf, 158 F.3d at 1009 (noting that the relative complexity and expense of products bearing the asserted trade dress cuts in favor of nonfunctionality). Cybergun submitted relevant evidence on every point in the functionality analysis. Beyond the specifically enumerated features of the trade dress, Cybergun also submitted evidence that the particular arrangements of countless features of the air soft rifles at issue - i.e., the overall configurations - are not functional because, inter alia, they do not follow the shape of the mechanisms that cause the rifles to fire air soft pellets. (ER 24-28) at 8, 15, and 19. It is undisputed that the District Courts discretionary conclusion of nonfunctionality is supported by substantial evidence. 1. The Involvement of the U.S. Military In Rifle Design Is Insufficient to Show Functionality

Jag provided purported support for its position that is either irrelevant or not credible. First, Jag relied on the opinion testimony of its expert Howard Kent that the product configuration of the rifles at issue was fully dictated by function because they were developed in conjunction with the requirements of the U.S. Military. (ER 400, 403). This statement, lacking any foundation, is dubious on its face. Jag does not explain what the Militarys requirements were, or whether such requirements dictate the exact shape of the rifle. Jag also does not explain,

21

because it cannot, why there was any need for design3 where design is fully dictated by function. If there were no room for ornamental style in firearm design, as Jag contends, surely the Military would simply tell its manufacturers what the design should be. But that is not the case. Jags theory that military involvement equates to functionality is laid to rest by the sworn testimony of a representative of Appellee FNH, who submitted declaratory evidence that the military did not dictate the shape, dimensions, or features of the rifles at issue in this litigation. Rather, the military allows for variation in design, as evidenced by the wide range of firearms that it purchases. (ER 65) at 6. Jags position that the design of the rifles is fully dictated by the Military was properly set aside by the District Court. Moreover, Jags presentation of suspect expert opinion testimony does not suggest an abuse of discretion by the District Court, but a proper discretionary decision where there is substantial evidence to support it. 2. The District Court Did Not Abuse its Discretion in Finding Jags Evidence of Functionality Unpersuasive

The other evidence Jag argues in favor of functionality is also flawed. In its Appeal Brief, Jag cites the opinion testimony of its expert Howard Kent for the proposition that [t]he airsoft models that align with the military weapons also Jags opinion expert states that, in the case the M249, the rifles resulted from a design competition, further laying waste to the suggestion that the rifle design is limited to functional elements. (ER 400). 22
3

have features that perform necessary tasks in the same way that the necessary features of the actual military guns perform specific tasks. Op. Br. at 8. But Mr. Kents description of the purported function in the air soft rifles does not focus on any detail of the asserted trade dress. Rather, Mr. Kent lists certain components of the air soft rifles and then states they are functional in conclusory fashion. (ER 404-405, 406-407). Mr. Kent says nothing about any functional advantage achieved by use of the particular design at issue in an air soft rifle. (ER 404-405, 406-407). Mr. Kent does not point to any advertising that touts the utilitarian advantages of the purportedly functional design, nor does he identify the alternative air soft rifles that provide the same function, nor does Mr. Kent suggest that the particular design resulted in a simple or inexpensive method of manufacture. See Disc Golf, 158 F.3d at 1006. Jags attempt to show that the air soft rifles are functional under the relevant test runs directly counter to the evidence submitted by Cybergun, who provided the declaration of John Steele of Cybergun: Air soft guns contain different, and much simpler, mechanisms for firing than do military guns. The design of Cyberguns guns is considered arbitrary and fanciful in part because it is in no way necessary from a functional standpoint to employ the particular designs that we do. There are multitudes of designs for air soft guns in the market today, and limitless options for gun design are available. Cybergun relies heavily on ornamental appearance in our marketing of air soft guns.

23

(ER 22-23) at 2. The District Court did not abuse its discretion in finding this evidence persuasive. Jag also asserts as fact that, within the air soft rifle industry, [t]here is a wealth of different models all of which serve different functions and appeal to varied preferences or customers. Op. Br. at 8. This statement has no support other than a list of the many other air soft rifles on the market. (ER 143). Jag does not explain what these different functions are, or why those different designs might have customer appeal. Jags broad, unsupported statement does not demonstrate functionality. In opposition to the preliminary injunction, Jag relied on a series of statements from its witnesses concerning functions that are performed by the rifles. For instance, with respect to the purported function of the asserted trade dress in the M249, Jag submitted the declaration testimony of its President, David En, who testified that there is nothing unique about the pistol grip having lateral grooves, and that the grooves on the grip enable the gun to be more securely gripped in the hand. (ER 139). Similarly, Mr. En testified that the contoured carrying handle enable[s] the handle to be gripped in a stronger and more secure manner. (ER 138). These type of naked and conclusory statements run throughout Mr. Ens declaration and Jags Brief. Jag fails to acknowledge that every grip and handle enables a rifle to be gripped and carried or that there are an infinite number of

24

ways a manufacturer could design them to achieve this functional end. Jags opinion expert, Mr. Kent, also focused his discussion on purported functions of the various components of the guns, not on the specific design of those components. (ER 401-403, 404-405, 407-409). Mr. Kent did not opine on whether any particular feature is configured so that it will work better that way. Jags witnesses failed to set forth any meaningful evidence on any utilitarian advantage presented by the asserted trade dress. Jags practice is to have its witnesses conceptualize the rifle design features on the most general level possible in order to be able to assign a function to them, and then argue that such a function makes the design legally functional. Jags evidence fails for the very reason that it is too general. Jags evidence does not explain why or how Cyberguns rifle designs all of which were copied down to the most minute detail provide any functional advantage or result in superior performance as compared to the many other competing rifle designs that look different, but fulfill the same functions. Jag simply has no explanation, for example in the context of the M249, why it was preferable from a functional standpoint for Jag to employ the identical number of grooves in the precise shape and size on the exact pistol grip employed by Cybergun. With respect to the asserted trade dress in the overall product configurations at issue, Jags witnesses say almost nothing at all. (ER 404) (only opining, without

25

any foundation or subsequent explanation, that the overall configurations of the M249 are dictated by the length of the bullets that are used and the caliber of the bullets that are used). They say nothing about the overall product configuration being arranged (exactly as it is in Cyberguns guns) to provide any sort of superior performance.4 Beyond this notable lack of relevant evidence, Jag presents no evidence on the other Disc Golf factors, only unsupported conjecture such as none of the other designs [on the market] offer exactly the same functional advantages and features, as the product configurations at issue and there is no doubt that the historic records of marketing and advertising of the firearms will reveal that the utilitarian advantages were dominantly featured in those. Op. Br. at 23, 24. In is discretion, the District Court rejected Jags arguments and evidence concerning functionality because they fail to recognize what is apparent by looking at the rifles themselves that they have aesthetic features that are merely ornamental. Why did Jag copy the designs? Because consumers want the look of these famous FNH designs, not due to functional performance. For this reason,

Jag argues in its Brief that the overall product configuration results in superior performance, but its declarants do not. See Leatherman, 199 F.3d at 1013 (carefully noting that only where the whole is nothing more that the assemblage of functional parts, and where even the arrangement and combination of the parts is designed to result in superior performance, can functionality be attributed to the overall configuration.) (emphases added). 26

weighing all the evidence (or lack thereof, in Jags case) in view of the proper legal tests, the District Court properly exercised its discretion in finding that Plaintiffs have met their burden in demonstrating the overall product configuration is nonfunctional. (ER 10). Substantial evidence supports the District Courts factual finding. The District Court committed no clear error in finding that Cybergun is likely to succeed in showing nonfunctionality. IV. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION IN FINDING THAT CYBERGUN IS LIKELY TO SUCCEED IN SHOWING DISTINCTIVENESS A. The District Court Property Stated and Applied the Distinctiveness Test

A trade dress has acquired distinctiveness or secondary meaning when in the minds of the public, the primary significance of a product feature ... is to identify the source of the product rather than the product itself. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 851 n. 11, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982). Secondary meaning can be established by direct consumer testimony or survey evidence that actual purchasers associate the design with the source, the length and manner of advertising, the amount of sales and number of customers, the length, manner and exclusive use of the particular trade dress, and proof of intentional copying of the trade dress by the defendant. Vision Sports, Inc. v. Melville Corp., 888 F.2d 609, 615 (9th Cir. 1989). Whether a particular trade dress

27

has acquired secondary meaning is a question of fact, reviewed under the clearly erroneous standard. Id. at 614. Jag argues that the District Court made a finding that the asserted trade dress is inherently distinctive. Op. Br. at 24-25. Nothing in the District Courts Order suggests that it reached a formal finding that the configurations of the rifles were inherently distinctive. On the contrary, the District Courts passing comments on distinctiveness were set forth in the Background section of the Order. (ER 3).5 Even in its legal analysis under the heading Inherently Distinctive or Acquired Secondary Meaning, (ER 11), the District Court performed its discretionary factual analysis of all of the pertinent factors and properly determined that the rifle designs in question have acquired secondary meaning. There is no analysis or discussion of inherent distinctiveness under this heading. Apart from the title, the word inherently does not appear in this entire section of the Order. More importantly, the basis of the District Courts discretionary finding that the rifle designs at issue have acquired secondary meaning is dispositive of the

Cybergun believes that when the District Court used the term inherently distinctive it meant to say that the rifle designs at issue had acquired secondary meaning and used the two phrases synonymously. See, e.g., the heading Inherently Distinctive or Acquired Secondary Meaning, (ER 11), where the District Court discusses only the secondary meaning factors. 28

distinctiveness issue.6 This Court should reject Jags invitation to take this unnecessary and distracting detour. The District Court did not abuse its discretion in finding that the asserted trade dress was distinctive because the rifle designs had acquired secondary meaning. B. The District Court Did Not Abuse its Discretion by Finding Cyberguns Evidence of Distinctiveness Persuasive

Jag asks this Court, in its limited and deferential review of factual findings in the preliminary injunction context, to find clear error in the District Courts finding that Cybergun is likely to succeed in showing secondary meaning. There is ample evidence of record that supports the conclusion of the District Court. Cybergun submitted evidence on the following points relative to the secondary meaning inquiry. First, the rifles at issue have enjoyed immense sales and advertising over decades in the marketplace (ER 1056-1057, 1060-1062) at 2, 16, 19-22. Second, air soft rifle dealers market Jags knockoff rifles as M249 Style or P90 Style rifles. (ER 1058-1059) at 8, 13; (ER 1070-1075). Third, the rifles have been featured in various well known, top selling video games and movies, and have been exposed to millions upon millions of people. (ER 10581060) at 9, 14. Fourth, the trade dress of the rifles forms the basis of an
6

Even assuming arguendo that the District Court reached a finding that the rifle designs in question are inherently distinctive which runs contrary to the law, such a determination would nonetheless constitute harmless error due to the District Courts finding that they have acquired secondary meaning. 29

exclusive license between Appellee FNH and Appellee Cybergun. (ER 1060) at 15; (SER 424-448). Fifth, and perhaps most compelling, is the undisputed fact of copying (down to the most minute detail) done by Jag. (ER 1063) at 27-29. Lastly, the design of the guns, including by virtue of association with the U.S. Military, has resulted in fame and renown. (ER 1058-1059) at 8, 13. The District Court reasonably relied on Cyberguns evidence to reach the conclusion7 that Cybergun is likely to succeed in showing secondary meaning of the asserted trade dress: Here, Plaintiffs have shown that weapons in question are highly associated with the United States Military, a licensed user. Furthermore, Plaintiffs have gone farther in showing that the firearms in question are featured in popular video games which clearly identify FN Herstal as the manufacturer of the weapons. (ER 11). The District Court also noted Jags failure to respond to Cyberguns evidence in any meaningful way. (ER 11) (Defendant has not addressed the other evidence of secondary meaning such as sales, decades-long presence in the market, the license, or the presence of the rifles in the media). Lastly, the District Court reasonably relied on Jags undisputed copying of the firearm designs at issue to further support its finding of acquired secondary meaning. (ER 11-12) (citing Swatch, S.A. v. SIU Wong Wholesale, 1992 WL 142745, *6 (S.D.N.Y. 1992)).
7

Jags assertion that the District Court relied only on the media exposure of Cyberguns rifles to determine secondary meaning is simply not true. See Op. Br. at 26, (ER 11). 30

Against the substantial weight of evidence cited and relied upon by the District Court, Jag nits at only two points. Jag first tries to discount the evidence of the rifles being featured in video games because those rifles werent the only guns featured. Op. Br. at 26. Jag first indulges in exaggeration by claiming there are hundreds of other guns on the video games. However, the evidence to which Jag cites, an exhibit to its Answer and Counterclaims in the District Court, reveals that each game features many fewer guns than Jag claims. The exposure to Cyberguns rifles via video games is extremely valuable to Cybergun. (ER 1058-1060) at 9, 14. The fact that other guns also appear in the games does not change the fact that millions of consumers are exposed to the rifle designs in question by virtue of the video games. (SER 370-371) at 11; (ER 1060-1061) at 16. Indeed, the presence of several other different-looking but similarly-functioning rifles further supports Cyberguns case of non-functionality, addressed earlier. Jag also points to its purported evidence showing that knockoff rifles have been sold for the past decade. But, surely Jag does not suggest it did not copy these renowned or famous FNH rifle designs. In addition, Jags evidence on this point is a series of printouts, some of which are printed in a foreign language, others of which appear to be printed from an internet website caching service. To the extent any dates can be discerned from Jags printouts at all, the printouts

31

possibly show that certain advertisements for earlier knockoffs were available on the internet sometime around 2006. (ER 197-398). It is not clear if any of these sites were accessed by anyone in the United States, and Jag cites no evidence regarding an actual sale of these earlier knockoffs in the United States, despite its claim to have created the air soft market. Cybergun, on the other hand, submitted evidence that it was not aware of these earlier knockoffs and that the air soft market only recently became viable for a license to FNHs valuable trade dress, suggesting that any presence of the earlier knockoffs was, at best, minimal. (ER 66). In its Brief, Jag cites no legal authority for its proposition that the presence of other infringers (of which Cybergun was unaware), if Jag were suddenly able to establish such facts, defeats secondary meaning. Not surprisingly, the District Court, after weighing Jags scant evidence against Cyberguns compelling evidence of secondary meaning, concluded that Cybergun is likely to succeed in showing distinctiveness of the asserted trade dress. (ER 12) (Thus, Plaintiffs have met their burden in demonstrating secondary meaning.). Substantial evidence supports the Courts factual finding. The District Court did not abuse its discretion in finding that Cybergun is likely to succeed in proving secondary meaning.

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V.

THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION IN FINDING THAT CYBERGUN IS LIKELY TO SUCCEED IN SHOWING LIKELIHOOD OF CONFUSION The eight-factor Sleekcraft test is used in the Ninth Circuit to analyze the

likelihood of confusion question in all trademark infringement cases. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979). The eight factors include: (1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) defendant's intent in selecting the mark; (8) likelihood of expansion of the product lines. Id. at 348-49. Jag does not allege any legal error in the District Courts statement of the law or application of the likelihood of confusion analysis. Rather, Jag only argues that the circumstance of its labeling its knockoff products with Echo 1 precludes the possibility of consumer confusion. Op. Br. at 26. Jag has no legal or factual basis for its argument. The cases8 that Jag cites are instructive. In Versa Prods. Co. v. Bifold Co. (Mfg.), 50 F.3d 189, 203 (3d Cir. 1995), the Third Circuit overturned a finding of likelihood of confusion in the context of a bench trial. The Third Circuit applied the factors of the likelihood of confusion test, and found that many of them weighed in favor of the trade dress defendant. For instance, the labeling on the The other case cited by Jag is a non-precedential opinion that adds nothing to the analysis. See Circuit Rule 36-3. 33
8

accused products was characterized as extensive and identifiable upon a quick glance, a fact that cut against a likelihood of confusion. Id. at 213. The marketing and ordering process for the accused products performed sight unseen by highly trained engineers following technical specifications nullified any likelihood of confusion. Id. Here, Jag has submitted no evidence that its labeling is extensive and a visual inspection of its rifles shows just the opposite. (ER 1087). Not only has Jag knocked off the famous FNH rifles at issue in this case (to the minutest detail), its addition of the ECHO 1 prefix ignores the fact that Jag also uses the licensed trademarks in selling its infringing air soft rifles that Cybergun uses, i.e., M249 MKII, M249 PARA and E90.9 Furthermore, Jag makes no showing on any other factor of the likelihood of confusion analysis, a fact acknowledged by the District Court and effectively conceded in Jags Brief. (ER 13) (The Court finds that no factors favor a finding that no likelihood of confusion exists.); Op. Br. at 27. Indeed, other than its weak labeling argument, Jag has nothing to say on this issue. Cybergun enjoys strong trade dress protection. (ER 13) (many consumers recognize the firearms by their design). Jags knockoff rifles are identical in The similarities in Jags E90 and Cyberguns licensed P90 trademarks are self-evident. Jags E90 is clearly likely to cause confusion and indeed designed to do so. 34
9

every material respect to Cyberguns trade dress. (ER 13) (the similarity of the trade dress or trademark is almost identical). They are the same products, sold through the same trade channels, to the same type of consumers. (ER 13) (the marketing channels for the firearms are almost identical). Jag admittedly copied the rifle designs for the purpose of imitating Cyberguns trade dress. (ER 13) (Defendants intent in copying the firearms is admitted). Substantial evidence exists on the likelihood of confusion analysis, even at this early stage of this case. There simply are no facts in Jags favor with regard to the fact-intensive likelihood of confusion analysis, leading the District Court to rightfully conclude that Cybergun easily established a likelihood of confusion. (ER 12). The District Courts well supported factual finding that Cybergun is likely to succeed in showing likelihood of confusion was not an abuse of discretion. VI. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION IN ITS FINDINGS REGARDING IRREPARABLE HARM, BALANCE OF INTERESTS, AND EFFECT ON THE PUBLIC INTEREST A. Cybergun Established a Likelihood of Irreparable Harm Absent a Preliminary Injunction

During the preliminary injunction proceedings, Cybergun made the requisite showing they are likely to suffer irreparable harm should the preliminary injunction not issue. Winter, 555 U.S. at 21, 129 S.Ct. at 374. Factual findings regarding irreparable harm are not disturbed on appeal absent clear error.

35

Independent Living Ctr. of So. Cal. v. Maxwell-Jolly, 572 F. 3d 644, 658 (9th Cir. 2009). The District Court, viewing the evidence before it during preliminary injunction proceedings, did not abuse its discretion in finding that Cybergun is likely to suffer irreparable harm. 1. The Presumption of Irreparable Harm Is Intact in Trade Dress Cases

Jag argues that the presumption of irreparable harm is not allowed. Op. Br. at 27. In support of its statement, Jag cites Flexible Lifeline Sys. v. Precision Lift, Inc., 654 F.3d 989, 999-1000 (9th Cir. 2011). But Flexible Lifeline is a case involving whether the presumption of irreparable harm survives in a copyright infringement case. The ruling is explicitly limited to copyright infringement cases. Id. at 998. This Court has ruled that in trademark and trade dress cases, a presumption of irreparable harm can be reasonably presumed from a showing of likelihood of success on the merits. Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 877 (9th Cir. 2009). Notably, the Marlyn decision came out after eBay. Therefore, the presumption is intact in cases involving trademarks and trade dress. The very nature of trademark rights suggests that the presumption is appropriate upon a showing of likelihood of confusion. Where trademark holders obtain, and then rightfully enjoy, the goodwill associated with their marks and 36

trade dress, such goodwill will categorically be jeopardized by an unlawful infringer who benefits from the confusion in the marketplace resulting from the infringement. See Wetzel's Pretzels, LLC v. Johnson, 797 F.Supp.2d 1020, 1028 (C.D. Cal. 2011) (unless Plaintiff is allowed to protect its marks, its ability to control its reputation and goodwill associated with the marks will be significantly reduced). Damage to reputation stemming from likelihood of confusion necessarily results in irreparable harm. See RentACenter, Inc. v. Canyon Television and Appliance, 944 F.2d 597, 603 (9th Cir. 1991) ([I]ntangible injuries, such as damage to ... goodwill, qualify as irreparable harm.). The District Court did not err in concluding that it is proper to presume that Cybergun will suffer irreparable harm based on its strong showing of likelihood of confusion. 2. Even Absent the Presumption, Cybergun Established a Likelihood of Irreparable Harm Absent an Injunction

The District Court did not rely solely on the presumption in this case, however. Although it cited Marlyn, it states in the Order: In addition to finding that Plaintiffs are likely to succeed on the merits, the Court finds that Plaintiffs will be irreparably harmed by Defendants infringement on Plaintiffs trade dress and trademark. (ER 13) (emphasis added). The District Court therefore reasonably relied on the evidence of irreparable harm submitted by Cybergun, which satisfied the irreparable harm factor even absent the presumption.

37

Cyberguns evidence of irreparable harm was extensive. First, Appellee Cybergun invested heavily to acquire the exclusive rights to sell and to manufacture the proprietary rifle designs. Cybergun would suffer irreparable harm if Jag were allowed to continue selling its knockoff products without any substantial investment and without paying license fees. (SER 374-376) at 26, 29; (ER 1064-1066) at 32, 35; see also Miche Bag, LLC v. The Marshall Group, 2010 WL 2539447 at *8 (N.D. Ill. 2010) (granting preliminary injunction, finding irreparable harm due to infringers lower prices which resulted in lost sales). Beyond the harm to its investment, Cybergun would be irreparably harmed by virtue of tarnishment of its image by Jags inferior products. FNH is a world leader in the development, production and sale of firearm products. As part of its trademark license, Cybergun is required to follow FNHs rigid quality control standards. Jag is not subject to those requirements and, thus, while it has developed and sells a product that looks exactly like Cyberguns and uses Cyberguns trademarks, it is not built to the same quality standard, but is a cheap imitation. Such a result irreparably harms Cybergun specifically in the air soft, air rifle and paintball market segments. (SER 374-375) at 27-28; (ER 1065) at 33; see also Brown Jordan Intern., Inc. v. Mind's Eye Interiors, Inc., 236 F.Supp.2d 1152, 1157 (D. Hawaii 2002) (granting temporary restraining order based on trade dress: Plaintiffs confront the additional risk of damage to their

38

reputation if the goods sold by [defendant] are of lesser quality); see also Apple Computer, Inc. v. Formula Int'l Inc., 725 F.2d 521, 526 (9th Cir. 1984) (finding irreparable injury where district court could reasonably have concluded that continuing infringement would result in loss of control over Apples reputation and loss of good will). By selling the infringing products, Jag stands to gain market share to which it is not entitled. Once Jag has market share, Cybergun cannot regain it, resulting in further irreparable harm. (SER 376) at 30; (ER 1065-1077) at 34, 36; see also Miche Bag, 2010 WL 2539447 at *8 (finding irreparable harm due to loss of market share in trade dress case, citing Hybritech, Inc. v. Abbott Labs., 849 F.2d 1446, 1456 (Fed. Cir. 1988)). If Jag is able to obtain a customer by virtue of its sale of a knockoff product, it is able to enjoy the additional sales of other products and accessories, sales that Appellee Cybergun would otherwise enjoy. These sales are not quantifiable. Irreparable harm would result in terms of losing customers and customer contacts and losing the opportunity for future sales of other related products and accessories. (SER 377-378) at 33; (ER 1067) at 37; see also Brown Jordan, 236 F.Supp.2d at 1157 (considering economic hardships in granting temporary restraining order).

39

Furthermore, even in contexts where a presumption of irreparable harm no longer applies, such as patent cases, the nature of the property right remains a relevant factor in evaluating irreparable harm and injunctive relief. See Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1149 (Fed. Cir. 2011) ([E]ven though a successful patent infringement plaintiff can no longer rely on presumptions or other short-cuts to support a request for a permanent injunction, it does not follow that courts should entirely ignore the fundamental nature of patents as property rights granting the owner the right to exclude.). Like patent rights, trademark rights are exclusive in nature. See Applied Information Sciences Corp. v. eBAY, Inc., 511 F.3d 966, 970 (9th Cir. 2007) (a trademark grants the owner the exclusive right to use the mark on the goods and services[.]). Thus, the nature of Cyberguns exclusive rights further supports finding irreparable harm here. In view of the evidence set forth above, unchallenged by Jag in its Brief, Cybergun has conclusively shown, and the District Court reasonably found, that irreparable harm would result even absent a presumption of irreparable harm. See 28 U.S.C. 2111 (appeal courts shall give judgment after an examination of the record without regard to errors or defects which do not affect the substantial rights of the parties.). Applying the deferential standard due here, the District Court did not abuse its discretion in finding that Cybergun is likely to succeed in showing irreparable harm.

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B.

The Balance of Hardships Tips Sharply in Favor of Cybergun

Irreparable harm influences the balancing of hardships. Marlyn, 571 F.3d at 877. In order to obtain preliminary injunctive relief, the plaintiff must also demonstrate that the injury to it, if the injunction does not issue, outweighs the injury to the defendants if it does. Cybergun will suffer the irreparable harm set forth in its moving papers, and reiterated above, if Jag is allowed to continue their acts of infringement. Jags naked claim of hardship, however, properly fell flat before the District Court. Pointing again to the purported existence of early knockoffs of the rifles at issue, Jag tries to shoehorn its laches defense into the balance of the hardships analysis. Op. Br. at 28. Jag cites Oakland Tribune, Inc. v. Chronicle Publishing Co., 762 F.2d 1374, 1377 (9th Cir. 1985) to argue that delay in seeking redress cuts against irreparable harm. Op. Br. at 28. But laches, if it even figures in the analysis, is not at play here by Jags own admission, a party must lack diligence before laches can be asserted against it. There has been no showing of a lack of diligence on the part of Cybergun, and Jag doesnt cite to a single piece of evidence that would prove otherwise. Rather, representatives of both FNH and Cybergun testified that they were not aware of these purported earlier infringers or early knockoffs sold by Jag. (ER 66) at 8; (SER 87-88) at 28. That testimony stands unrebutted. There has been no lack of diligence.

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Jag claims hardship in the purported fact that the preliminary injunction bar[s] JAG from conducting its established business. Op. Br. at 28. Jags claim is not supported by the facts here. Jags claim is belied by its failure to challenge the District Courts grant of the First Preliminary Injunction, similar in scope to the preliminary injunction at issue in this Appeal, for knockoffs of Cyberguns SCAR rifle. Jag is still in business and sells a host of non-infringing air soft rifles. At best, Jag can claim that the preliminary injunction at issue here causes it to lose profits associated with the manufacture and promotion of a portion of its product offerings. This, however, is no hardship at all, as the District Court properly recognized. (ER 13). Where the only hardship that the defendant will suffer is lost profits from an activity which has been shown likely to be infringing, such an argument in defense merits little equitable consideration. Dr. Seuss Enterprises, L.P. v. Penguin Books USA, Inc., 924 F.Supp. 1559, 1574 (S.D. Cal. 1996), (quoting Concrete Machinery Co. v. Classic Lawn Ornaments, Inc., 843 F.2d 600, 612 (1st Cir. 1988)), aff'd, 109 F.3d 1394 (9th Cir. 1997). As a result, the balance of hardships tips sharply in favor of Cybergun. The District Courts discretionary finding, to which this Court applies a deferential review, should not be disturbed. C. The Public Interest Favors an Injunction

The public is entitled to a clear understanding of the source of a product and to distinguish goods among competitors. Inwood Labs, 456 U.S. at 854 n. 14

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(citing legislative history of the Lanham Act). The goal of trademark and trade dress protection, avoiding confusion to consumers, is itself a public interest that is often demonstrated by likelihood of success. Internet Specialties West, Inc. v. Milon-Digiorgio Enters., 559 F.3d 985, 993 (9th Cir. 2009). The District Court cannot be said to have committed any error, and certainly no clear error, in finding that the public interest favors the entry of a preliminary injunction. CONCLUSION Jags challenges to the District Courts preliminary injunction are not persuasive. The District Court recited and applied the correct legal standards. It properly exercised its broad discretion to preliminarily enjoin Jags infringement. This Courts review should end there. For the reasons stated above, this Court should affirm the District Courts Preliminary Injunction. CONDITIONAL REQUEST FOR ORAL ARGUMENT Based on the content of Jags Opening Brief and the present Brief, oral argument is not needed in this Appeal. The District Court properly stated the applicable law in preliminary injunction Order. The success of Jags Appeal thus hinges solely on issues of fact in the context of a motion for preliminary injunction, a matter left to the broad discretion of the District Court. Cybergun presented substantial evidence on the factual issues before the District Court during the preliminary injunction proceedings, as reiterated in this Brief. As a result of the

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deferential review to be applied and the substantial evidence supporting the preliminary injunction Order, this Courts decisional process would not be significantly aided by oral argument. However, in the unlikely event that the Court is inclined to revisit the District Courts factual findings or wishes to address Jags attempt to assign legal error to the District Courts preliminary injunction Order, Cybergun respectfully requests oral argument. Respectfully submitted this 15th day of February, 2013. HOLLAND & HART LLP By: /s/ Brett L. Foster Brett L. Foster Mark A. Miller Attorneys for Appellees
CYBERGUN, S.A. and F.N. HERSTAL, S.A.

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CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS, AND TYPE STYLE REQUIREMENTS I certify that the attached brief complies with the type-volume limitation of Fed.R.App.P. 32(a)(7)(B) because it contains 9,986 words, excluding the parts of the brief exempted by Fed.R.App.P. 32(a)(7)(B)(iii). I further certify that the attached brief complies with the typeface requirements of Fed.R.App.P. 32(a)(5) and the type style requirements of Fed.R.App.P. 32(a)(6) because it was prepared in a proportionally spaced typeface using Microsoft Word 2007, in 14 point font size, using style Times New Roman. DATED this 15th day of February, 2013. HOLLAND & HART LLP By: /s/ Brett L. Foster Brett L. Foster Mark A. Miller Attorneys for Appellees
CYBERGUN, S.A. and F.N. HERSTAL, S.A.

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STATEMENT OF RELATED CASES Pursuant to Ninth Circuit Rule 28-2.6, there are no known related cases pending before the Ninth Circuit. DATED this 15th day of February, 2013. HOLLAND & HART LLP By: /s/ Brett L. Foster Brett L. Foster Mark A. Miller Attorneys for Appellees
CYBERGUN, S.A. and F.N. HERSTAL, S.A.

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CERTIFICATE OF SERVICE I hereby certify that I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on February 15, 2013. I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system.

/s/ Tracilyn Hales for HOLLAND & HART LLP

5949834_3

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