Trek Bicycle can’t sue Trek Winery in Wisconsin

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If high-end bicycle manufacturer Trek wants to pursue a claim for trademark infringement against tiny Trek Winery in California, they will have to find a forum outside of Wisconsin to do it.

On Mar. 2, U.S. District Court Judge Barbara B. Crabb held that the winery has insufficient contacts with Wisconsin to permit the exercise of personal jurisdiction, even though it has made three sales to consumers in the state.

Judge Crabb concluded, “Plaintiff cannot seriously argue that three isolated sales show that defendants have made such purposeful availment of the benefits of Wisconsin’s laws that they could reasonably anticipate being haled into court in this state.”

Will Pecau, the attorney for Trek Winery, praised the holding, although he said he was not pleased that the parties had to litigate to reach “a pre-ordained result.”

Trek Bicycle Corporation, which does business out of Waterloo, has been in business since at least 1976. Since 1999, it has sold energy drinks under the TREK trademark. Trek also has a trademark for a bicycle tour in California wine country.

Trek Winery, LLC, has its sole place of business in California and has been in operation since 2007. They have a passive website and a Facebook page, but no Wisconsin retailers or distributors to distribute their wine.

On two occasions in 2008, Trek Winery sent shipments to Wisconsin, to the aunt of Trek Winery’s owner. In 2009, they shipped two cases of wine to an employee of Trek Bicycles.

Later, Trek Winery discovered it could not legally sell wine in Wisconsin, and rather than comply with state regulations, stopped selling there.

However, Trek Winery is a participant in a wine program called the California Waterfowl Association, which would enable it to ship to Wisconsin if the buyer purchased through that program.

In 2009, Trek Bicycle filed suit over alleged federal and state trademark violations.

Although subject matter jurisdiction was present, Judge Crabb held that personal jurisdiction was lacking.

Without addressing Wisconsin’s long-arm jurisdiction statute, sec. 801.05, the court held that the requirements of the due process clause were not met.

When a defendant’s contacts with a state are continuous, systematic, and general, a court may exercise jurisdiction in any suit against the defendant. (International Medical Group, Inc., v. AAA, Inc., 312 F.3d 833 (7th Cir. 2002).)

Where that is not the case, as here, jurisdiction is proper only if three requirements are met: (1) defendant has purposefully established minimum contacts with the forum state; (2) the cause of action arises out of or relates to those contacts; and (3) the exercise of jurisdiction is constitutionally reasonable. (RAR, Inc., v. Turner Diesel, Ltd., 107 F.3d 1272 (7th Cir. 1997).)

The court found that the three shipments to Wisconsin were insufficient to meet the first requirement, noting that one of the shipments was initiated by an employee of the plaintiff.

The court also found that the second requirement was not met. The crux of the complaint, the court found, was potential confusion of the products in California, where Trek offers bicycling tours and sells its energy drink.

But, Judge Crabb concluded, “The sales to [the owner’s] aunt and [Trek Bicycling’s] representative could not possibly have resulted in consumer confusion over the source of the wine.”

Accordingly, the court dismissed the case without prejudice.

Attorney Robert B. Burns, Jr., general counsel for Trek Bicycle, said he has not yet decided whether to appeal or file suit in California, but noted that “Trek takes protection of our brand very seriously.”

Analysis

The ultimate holding in the case may be correct, but for different reasons.

In its consideration of the first of the three requirements for the exercise of specific personal jurisdiction, the court writes, “Plaintiff cannot seriously argue that three isolated sales show that defendants have made such purposeful availment of the benefits of Wisconsin’s laws that they could reasonably anticipate being haled into court in this state.”

Suppose, however, that the State of Wisconsin had brought suit, based on shipping wine on three occasions in violation of state law.

It could not reasonably be contended that the state could not hale an out-of-state winery into its courts for the illegal wine shipments to that state.

Admittedly, that hypothetical is different from the facts in the present case, in that the state’s cause of action would relate directly to the wine shipments. Here, on the other hand, the plaintiff is attempting to exercise jurisdiction in Wisconsin based on the likelihood of trademark confusion in California.

The distinction would certainly be relevant to whether the second requirement is met – whether the cause of action arises out of or relates to the defendant’s contacts with Wisconsin.

But the court’s conclusion regarding the first requirement – that Trek Winery has not purposefully established minimum contacts with Wisconsin – is untenable.

Pecau, Trek Winery’s attorney, admitted as much in an interview. He offered a hypothetical in which the product was defective and acknowledged that the fact that only three sales were made in Wisconsin would not be a constitutional bar to a tort claim deriving from the defective product.

Nevertheless, the court’s decision might be correct, even if the due process clause presented no barriers to personal jurisdiction, because of peculiarities in how Wisconsin courts interpret the long-arm jurisdiction statute, sec. 801.05.

At one time, the statute was interpreted to confer jurisdiction to the limits allowed by due process. (Stevens v. White Motor Corp., 77 Wis.2d 64, 252 N.W.2d 88, 93 (1977).)

However, without any basis in due process jurisprudence, the Wisconsin Court of Appeals has limited the scope of Wisconsin’s jurisdiction. In Sub-Zero Freezer Co., Inc. v. R.J. Clarkson Co., Inc., 159 Wis.2d 230, 464 N.W.2d 52 (Ct.App.1990), the court held that for jurisdiction to be present under sec. 801.05(1)(d), the defendant must have substantial activities within Wisconsin “at the time the action was commenced.”

The court recently reaffirmed that interpretation of the statute in FL Hunts, LLC, v. Wheeler, 2010 WI App 10.

Under the reasoning in Sub-Zero and FL Hunts, Wisconsin courts might have no jurisdiction over Trek Winery because it appears that, by the time suit was filed on Oct. 1, 2009, the winery had realized it could not ship directly to Wisconsin, and thus, no longer had “substantial activities” here.

Pecau said he was aware of the Court of Appeals’ opinions, but focused on the due process argument for simplicity’s sake, “because we thought the issue on the due process clause was so clear.”