Opinion
Cause No. IP99-1195-C-H/S
March 26, 2003
ENTRY GRANTING NEW TRIAL AND ADDRESSING OTHER PENDING MOTIONS
This trademark and unfair competition case is now before the court on defendant's motion for a new trial and a number of related motions. As explained below, the court grants defendant's motion for a new trial. Newly discovered evidence, which plaintiff should have produced before trial, shows that defendant is entitled to a new trial on all issues. The court also grants plaintiff's motions to amend the complaint and to add a new defendant. Several other related motions are also resolved by this entry.
I. Background
In October 1998, defendant mySimon, Inc. launched a new comparison shopping service on the internet. The service used the internet address www.mysimon.com and featured a cartoon character called "Simon." Internet users can use the mySimon site to search on-line retail sites for the best prices for a variety of products. After making a selection, the users can then advance quickly to the virtual "cash registers" of their preferred retailers.
Plaintiff Simon Property Group, L.P. ("SPG") is the largest owner and operator of retail shopping malls in the United States. SPG was founded by brothers Herb and Mel Simon. In August 1999, nearly a year after the launch of mySimon, SPG filed this trademark and unfair competition action asserting that mySimon infringed SPG's "Simon" trademarks that were used in the retail shopping mall business. On October 22, 1999, the court denied SPG's motion for a temporary restraining order. The case was tried to a jury on the merits in August 2000. The jury found in favor of plaintiff SPG on nearly all issues.
In deciding post-verdict motions, the court denied most of mySimon's requests to set aside all or portions of the verdict. The court also stated its intention to issue a permanent injunction in favor of SPG, but to stay the effect of the injunction pending appeal on the condition that mySimon make royalty payments to an escrow account. See Simon Property Group, L.P. v. mySimon, Inc., 2001 WL 66408, *1 (S.D.Ind. 2001). However, the court also ordered a new trial on the issue of corrective advertising damages unless SPG accepted a remittitur reducing corrective advertising damages to a nominal amount. See id.
SPG declined to accept the remittitur. That decision set the stage for the current motions. The parties began preparations for a new trial on that issue, including additional discovery. In the course of that discovery, information was turned over to defendant mySimon regarding a consulting project that McKinsey Company carried out for SPG's top management in the spring and summer of 2000. The project addressed possible strategies for SPG to extend its brick-and-mortar shopping mall business to provide retail shopping services on the internet.
The reports from McKinsey to SPG's top management addressed matters central to the trademark law issue of secondary meaning, such as whether consumers were aware of SPG as the owner and operator of their local shopping malls. The documents were also relevant to whether defendant mySimon's comparison shopping service on the internet competed in any sense with plaintiff SPG's business of brick-and-mortar shopping malls, and to the likelihood that internet users encountering defendant's mySimon website, name, or advertising would confuse them with SPG. The documents also show that SPG's senior management was making decisions in the summer of 2000 that appear to contradict the positions SPG took at trial before the jury in August 2000.
One month after these McKinsey documents were produced, mySimon filed its Rule 59 motion for a new trial on the basis of newly discovered evidence. That motion extends far beyond the issue of corrective advertising. It calls into question the justice and fairness of the original verdict in favor of SPG, especially on the critical threshold issue of secondary meaning.
II. MySimon's Motion for a New Trial
A. The Standard for a New
Trial Based on Newly Discovered Evidence Federal Rule of Civil Procedure 59(a) provides that a district court may grant a new trial after a jury trial "for any of the reasons for which new trials have heretofore been granted in actions at law in the courts of the United States."
One of those reasons is a party's discovery of new evidence that it could not present at trial. Because of the strong interest in the finality of trials, the grant of a new trial on the ground of newly discovered evidence requires proof of the following five elements:
(1) The evidence was discovered following trial;
(2) The moving party used due diligence to discover the new evidence;
(3) The new evidence is not merely cumulative or impeaching;
(4) The new evidence is material; and
(5) A new trial with the new evidence would probably produce a different result.
See Jones v. Lincoln Electric Co., 188 F.3d 709, 732 (7th Cir. 1999), citing In re Chicago, Milwaukee, St. Paul Pacific R.R. Co., 78 F.3d 285, 293-94 (7th Cir. 1996). If any one of these elements is not satisfied, the motion for a new trial must fail. See In re Wildman, 859 F.2d 553, 558 (7th Cir. 1988).
The cases cited in the text all dealt with motions for new trials under Federal Rule of Civil Procedure 60(b)(2), but the standards are the same under both rules. Peacock v. Bd. of School Comm'rs of Indianapolis, 721 F.2d 210, 213 (7th Cir. 1983). Also, the Seventh Circuit has sometimes stated the test in the form of eight elements, but there is no substantial difference between the tests. See Mumford v. Bowen, 814 F.2d 328, 330 (7th Cir. 1986).
Whether new evidence is sufficient to warrant a new trial is a decision committed to the district court's discretion, which should be exercised in light of all the evidence at trial, including the trial judge's observations of witness demeanor and juror reaction to those witnesses. "[T]he fundamental purpose of the [new trial] motion is to prevent the judgment from becoming a vehicle of injustice." Mumford v. Bowen, 814 F.2d 338, 331 (7th Cir. 1986), citing United States v. Walus, 616 F.2d 283, 288 (7th Cir. 1980). In some cases, the moving party's showing may be so powerful that a district court abuses its discretion by denying a new trial. See Estate of Kraus v. C.I.R., 875 F.2d 597, 603 (7th Cir. 1989) (finding that denial of new trial was abuse of discretion and ordering new trial).
To apply this standard, the court summarizes below the trial evidence on secondary meaning and on the likelihood of confusion, including the extent of competition between SPG and mySimon. The court then reviews the substance of the new evidence. Finally, the court applies the new trial standard.
B. Trial Evidence on Secondary Meaning and Likelihood of Confusion
Personal names like "Simon" are not inherently distinctive. They are protected as trademarks "only if, through usage, they have acquired distinctiveness and secondary meaning." Pirone v. MacMillan, Inc., 894 F.2d 579, 583 (2d Cir. 1990), quoting Abraham Zion Corp. v. Lebow, 761 F.2d 93, 104 (2d Cir. 1985); accord, Scott Paper Co. v. Scott's Liquid Gold, Inc., 589 F.2d 1225, 1231 (3d Cir. 1978); 2 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 13.2 (4th ed. 2000). A trademark has secondary meaning when, "in the minds of the public, the primary significance of [a mark] is to identify the source of the product rather than the product itself." Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 211 (2000), quoting Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 851 n. 11 (1982); Pirone, 894 F.2d at 583 ("Marks acquire secondary meaning when the name and the business have become synonymous in the mind of the public, submerging the primary meaning of the term in favor of its meaning as a word identifying that business.") (internal quotations omitted).
SPG was required to prove that its "Simon" marks had such secondary meaning when mySimon began using its Simon character and mySimon website in October 1998. E.g., Scott Paper Co., 589 F.2d at 1231 ("plaintiff must prove by a preponderance of the evidence that his mark possessed secondary meaning at the time the defendant commenced his use of the mark"). The evidence at trial indicated the basic challenge of consumer ignorance and apathy that SPG faced: mall owners may be well known to retailers, but most retail customers neither know nor care who owns and operates their local shopping malls. They care instead about the convenience of the mall and the assortment of stores and merchandise that are collected there.
In the Entry on Parties' Post-Verdict Motions, the court reviewed in detail the evidence regarding secondary meaning, competition, and likelihood of confusion. 2001 WL 66408 at *4-11. On the issue of secondary meaning, SPG presented no survey evidence tending to show secondary meaning among consumers as of October 1998. Before trial, the court ruled that SPG's proposed survey methods would not produce sufficiently probative evidence to be admissible. Simon Property Group, L.P. v. mySimon, Inc., 104 F. Supp.2d 1033 (S.D.Ind. 2000). The court found that SPG's proposed survey methods were "plainly built upon significant distortions of the reality of the marketplace and persistent refusals to use basic controls to identify legally relevant confusion," and that the proposed surveys amounted to "nothing more than meaningless word association and memory tests." 104 F. Supp.2d at 1035 n. 2. SPG did not pursue the matter further by actually completing and offering such a survey into evidence.
Instead, SPG presented anecdotal evidence from several witnesses to the effect that the name "Simon" was well known and that they associated the name with SPG as a mall developer and/or mall management company. Virtually all of these "consumers," however, had worked for SPG as bankers, investment bankers, lawyers, or advertising agents, or had similar special interests in SPG itself and in the real estate or retail shopping industries. Because the relevant market here is among retail shoppers, the court found that this direct evidence of secondary meaning was "so slight as to amount to almost nothing." 2001 WL 66408 at *6.
Defendant mySimon, on the other side, presented substantial direct evidence against secondary meaning. This evidence included survey results conducted by the coincidentally named Dr. Itamar Simonson, which showed essentially no awareness of SPG's Simon marks among mall shoppers and internet users, let alone any risk in 1998 that consumers (other than SPG's investment bankers and the like) would believe that mySimon was associated with SPG.
The direct evidence against secondary meaning also included evidence from SPG's "branding" campaign, which began in 1999, months after mySimon had launched its business using the mySimon name and Simon character. In the SPG branding campaign, SPG began to feature the "Simon" name more prominently in its malls and advertising in an attempt to increase consumer awareness of SPG's established role as a leader in shopping center management.
The defendant's evidence demonstrated that SPG's branding campaign was the first substantial effort by any business to establish national brand identification and loyalty for a particular set of malls, as opposed to particular retail stores and products. SPG's own documents and studies related to the branding campaign showed that consumer awareness of SPG's "Simon" marks was essentially nonexistent before the 1999 branding campaign.
For example, SPG's 1998 annual report stated that "shoppers do not have the proper awareness of the added value that a Simon-managed shopping center can deliver. Our aim is to make shoppers cognizant of this added value and aware of who is delivering it to them." Trial Ex. 18 at 20. Similarly, SPG's 1999 annual report included the initial results of the branding campaign: "In 1997, benchmark research indicated that only 3% of the shoppers surveyed knew Simon. In 2000, more than half of all mall shoppers surveyed recognized the Simon name and nearly 2/3 of Simon mall shoppers recognized and understood the Simon brand." Trial Ex. 9400 at 4. The three percent figure thus came from the legally relevant time, before mySimon's launch in 1998 and before SPG's national branding campaign in 1999.
SPG's advertising agency prepared material that described the Simon branding campaign as an effort to create a "new category for malls and mall management." Trial Ex. 2501 at 2. The promotional material stated: "Our recognition just prior to the campaign was almost nonexistent," and: "By 1999, we had spent forty years building a strong profile within the retail real estate industry, yet the more than 100 million shoppers who paid us over 2 billion visits last year simply didn't know who operated their shopping centers." Trial Ex. 2501 at 2, 11.
The Seventh Circuit has found that a secondary meaning survey showing 50 percent recognition "is regarded as clearly sufficient to establish secondary meaning, [but] a figure in the thirties can only be considered marginal." Spraying Systems Co. v. Delavan, Inc., 975 F.2d 387, 394 (7th Cir. 1992). Even though results in the 30 percent range would not establish secondary meaning as a matter of law, such evidence "is still probative of the issue of secondary meaning, and the factfinder should weigh that fact with all of the other evidence to determine if secondary meaning exists." Thomas Betts Corp. v. Panduit Corp., 138 F.3d 277, 295 (7th Cir. 1998).
SPG's lawyers and witnesses had to explain away all this evidence. They argued that the advertising agency was merely "puffing" to exaggerate the success of its own branding campaign, and they argued that the three percent figure from the "benchmark research" was actually from small focus groups, not from a statistically reliable national sample. SPG then relied on circumstantial evidence of secondary meaning. This evidence included evidence of the amount and manner of SPG's advertising of the "Simon" marks, SPG's sales volume, the length and manner of SPG's use of the Simon marks, evidence of intentional copying by the defendant, and evidence of actual confusion among consumers.
Of course, direct evidence of the actual effects of long use and advertising of a mark would ordinarily be deemed more probative of secondary meaning than the circumstantial evidence of the use and advertising themselves. See Spraying Systems Co., 975 F.2d at 393, quoting DuPont Cellophane Co. v. Waxed Prods. Co., 85 F.2d 75, 81 (2d Cir. 1936) (A. Hand, J.) ("It, therefore, makes no difference what efforts or money the DuPont Company expended in order to persuade the public that `cellophane' means an article of DuPont manufacture.
So far as it did not succeed in actually converting the world to its gospel it can have no relief.").
The court reviewed this circumstantial evidence in detail in denying mySimon's motion for judgment as a matter of law and its original motion for a new trial on the subject. The court found that, at least unless and until brighter lines were drawn in this area of the law, SPG had presented legally sufficient evidence to support a finding of secondary meaning.
The court based its original decision to deny a new trial, however, on the assumption that mySimon had received a fair trial with a full opportunity to present the relevant evidence to the jury. 2001 WL 66408 at *12. Even with that assumption, the weight of the evidence at trial was strong enough that the denial of a new trial was a close question. As the Seventh Circuit said in dismissing SPG's interlocutory appeal of the court's decision not to issue an immediate permanent injunction after the verdict: "SPG won a verdict despite presenting relatively weak evidence that its `Simon' name had attained secondary meaning or that consumers were likely to confuse SPG with mySimon." Simon Property Group v. mySimon, Inc., 282 F.3d 986, 988 (7th Cir. 2002).
Once SPG established secondary meaning, it had to show that mySimon's use of the mySimon website and "Simon" character would likely cause confusion among consumers. Likelihood of confusion would be present if mySimon's use of the "Simon" name were likely to cause a significant number of reasonably prudent consumers in the relevant market to believe that mySimon and its services are related to or sponsored by SPG. The test for likelihood of confusion is another multi-factor balancing test without bright lines or clear quantitative standards. Pursuant to Seventh Circuit decisions, the court instructed the jury to consider the following factors:
(1) The degree of similarity between the plaintiff's trademarks and the defendant's trademarks in appearance, sound, and suggestion;
(2) The similarity of the products or services for which the two companies' marks are used;
(3) The area and manner of concurrent use, including the distribution and marketing channels used for plaintiff's and defendant's products and services;
(4) The degree of care likely to be exercised by consumers;
(5) The strength of the trademark "Simon" as used by Simon Property Group;
(6) Evidence of actual confusion; and (7) The intent of mySimon in adopting the name of the company, its internet domain name, and its animated "Simon" character.
Jury Inst. No. 27; see also Meridian Mutual Ins. v. Meridian Ins. Group, Inc., 128 F.3d 1111, 1115 (7th Cir. 1997). None of these factors considered alone is dispositive of the issue, and the proper weight to be given to each factor varies from case to case. Id. Nonetheless, the similarity of the marks, evidence of actual confusion, and the intent of the defendant are often the most important indicators. Barbecue Marx, Inc. v. 551 Ogden, Inc., 235 F.3d 1041, 1044 (7th Cir. 2000), citing Eli Lilly Co. v. Natural Answers, Inc., 233 F.3d 456, 461-62 (7th Cir. 2000).
In denying mySimon's original motion for a new trial on the likelihood of confusion, the court reviewed the evidence on these factors in some detail. 2001 WL 66408 at *13-16. Especially significant in light of the newly discovered evidence was the factor regarding the similarity of the products or services for which the two companies' marks were used. A trademark protects the owner against competing use not only upon the products or services to which she has applied it but also upon such other articles as might naturally or reasonably be supposed to come from her. See Helene Curtis Industries, Inc. v. Church Dwight Co. Inc., 560 F.2d 1325, 1331 (7th Cir. 1977); see also Sands, Taylor Wood Co. v. Quaker Oats Co., 978 F.2d 947, 958 (7th Cir. 1992) (discussing scope of senior user's trademark rights for use of its marks on products "closely related" to its own). Cases applying the doctrine of "natural expansion" typically involve questions of expanding a company's product line. See, e.g., Eli Lilly Co. v. Natural Answers, Inc., 233 F.3d at 463 (because drugs and herbal supplements perform somewhat similar functions and because the market in herbal supplements was an area of natural expansion for a pharmaceutical company, the similarity between plaintiff's drug and defendant's herbal supplement supported a finding of a likelihood of confusion).
Thus, a central issue at trial was the so-called "convergence" between internet businesses and brick-and-mortar businesses. SPG argued that its real shopping malls competed directly with mySimon's internet comparative shopping service, and that mySimon's service in any event lay in the line of natural expansion for SPG's brick-and-mortar mall business.
Whether internet-based comparison shopping is an area of "natural expansion" for SPG or is a business that competes directly with SPG is a question of degree. The evidence on the issue was hotly disputed. SPG presented evidence tending to show that further expansion of its internet presence, so as to provide a variety of interactive shopping services, was both desirable and inevitable. The jury found in favor of SPG on this question, and ultimately in favor of SPG on the larger question of likelihood of confusion. The jury's verdict in favor of SPG on the state law claim for unfair competition required a finding of direct competition between SPG and mySimon.
In denying mySimon's motion for a new trial on likelihood of confusion, the court again assumed that mySimon had had a fair opportunity to present its evidence and arguments on the issue. And again, even then the court viewed the denial of a new trial as a close question.
C. The Substance of the New Evidence
The new evidence directly relates to whether SPG's "Simon" marks have acquired distinctiveness, meaning that the name can be protected as a trademark, and whether SPG and mySimon are competitors. The new evidence consists of more than 30 documents and new testimony arising from McKinsey's consulting project for SPG from March 2000 through August 2000, when the trial took place. The McKinsey project examined SPG's strategic options for dealing with the internet's effects on retail shopping. McKinsey reviewed SPG's past branding efforts, its current internet activities, and a number of strategic alternatives for future internet-related activities. The McKinsey consultants had access to the highest levels of SPG — its board, CEO, and senior managers. The documents in question consist largely of prints of both draft and final "powerpoint" presentations, with extensive repetition among the documents.
At this point, the court has not had the benefit of a full adversarial and evidentiary presentation of the new evidence. The court's comments about the evidence should not be deemed final findings of fact on the issues for trial. Still, while SPG has made a few efforts to downplay the significance of the new evidence, it has not yet come forward with evidence tending to undermine the apparent facial meaning of the documents. Nor has SPG denied that its board and senior managers received the documents and accepted the views and recommendations.
SPG has suggested in its briefs that the problems and limitations identified by McKinsey resulted from mySimon's use of the Simon name and character. SPG's explanation is a strategy that might be available at the new trial, though it is not clear how much evidence might support that explanation. In reviewing the McKinsey documents, the court did not see any contemporaneous references blaming mySimon's activities and the litigation for SPG's difficulties.
In summary, the McKinsey documents directly undermine SPG's case on the issues of secondary meaning, likelihood of confusion, and competition between SPG and mySimon. The McKinsey documents show that SPG's board and senior management and consultants viewed SPG's relationships to consumers and internet in much the way that mySimon argued them to the jury, and contrary to SPG's presentation at trial. The evidence takes on even more power from indications that SPG made strategic business decisions on the basis of these views.
1. Secondary Meaning
On the issue of secondary meaning, the McKinsey evidence all stems from 2000 — at least a year and a half after mySimon launched its business, which is the relevant time for gauging secondary meaning in this case. The McKinsey evidence also assessed the Simon brand after SPG had conducted its novel branding campaign in 1999. Even then, as late as the summer of 2000, McKinsey and SPG management concluded:
• that SPG still was not perceived as a consumer organization. Def. Ex. 23 at 23-5 ("We are not perceived as a consumer organization.").
• that SPG's ideas for internet initiatives needed "a strong brand which is expensive and time consuming to build," and that SPG still did not have such a brand with consumers in 2000. Def. Ex. 3 at 3-19 ("Simon brand must be strong enough to attract consumers to ShopSimon vs. other e-commerce sites."); Def. Ex. 4 at 4-16, "Business Requirements for Success" ("Develop a brand plan"); Def. Ex. 23 at 23-9 "Challenges to Aggregating Consumers Has Implications For Consumer Strategy" ("Attracting consumers requires a strong brand which is expensive and time consuming to build"); Def. Ex. 25 at 25-8 (same). Cf. Def. Ex. 3 at 3-17 ("Simon must establish brand equity"), 3-18 (Brand equity key factor for establishing Simon "in the minds of customers"), 3-38 ("Simon brand"is future asset).
• that SPG's efforts to build its Simon brand through the "MallPerks" program had not been successful and should be delayed at the very least. Def. Ex. 28 at 28-16, "Perspectives on Current Initiatives" ("Delay major efforts to promote Simon brand"), 28-41 ("Past consumers initiatives have not been successful (e.g., Mall VIP card, MallPerks) . . . Consumer initiatives currently fragmented with lack of coordination between groups"), 28-42 (describing necessary actions in 6-12 months including "Launch SmartShopper membership clubs" with result being "SmartShopper club and brand established").
• that SPG's own efforts to promote its name to consumers were confusing to consumers. Def. Ex. 23 at 23-9 ("Simon's customers are currently confused and overwhelmed by multiple messages from in-mall initiatives"); Def. Ex. 30 at 30-15 ("Consumers are confused by multiple messages in-mall (e.g., mistake Fast Frog booth as info. desk — Lante study)").
• that SPG should cut its investments in trying to build a "Simon" mall brand, and that SPG should focus instead on building local mall brands and a new consumer brand such as SPG's "SmartShopper" concept without using the "Simon" name. Def. Ex. 14 at 14-35 (discussing vision for "Simon mall-based loyalty program co-branded with an on-line partner"); Def. Ex. 26 at 26-12, "Action Plan" ("convert MallPerks into non-points based membership and customer relationship program . . . invest to build local mall brands and new consumer brands"); Def. Ex. 28 at 28-15, 16 ("Delay major efforts to promote Simon brand; Invest to build local mall brands and consumer brand (e.g., SmartShopper)").
• because SPG did not have a sufficiently strong consumer brand in 2000, it should not invest significant resources to build a consumer brand on [its] own but should instead consider partnering with companies that already had strong brands. Def. Ex. 25 at 25-14, "Preliminary Hypotheses Recommendations" ("Do not invest significant resources to build a consumer brand on our own; Instead, partner with companies that already have strong brands"); Def. Ex. 26 at 26-12, "Action Plan" ("Branding: develop partnerships with leading consumer brands"); Def. Ex. 28 at 28-16 ("Partner with well-known consumer brands").
• that SPG should maintain ShopSimon as an informational web site and not invest in transactional capabilities. Def. Ex. 23 at 23-14.
There is no suggestion in the documents that this supposed confusion resulted from anything that mySimon had done.
McKinsey came to these gloomy conclusions about the Simon brand in 2000, after SPG's 1999 branding campaign and well after mySimon launched its business in 1998. Moreover, when asked whether the 1999 branding campaign had been successful, the SPG manager responsible for branding in 2000 called the 1999 campaign "the first step in a process of building a brand." Sheinman Dep. (9/25/01) at 48. He also stated: "And I think based on the results, we had a fairly good level of awareness," and he explained that it is a long term process to develop a brand that has real equity. Id. Again, even that "first step" was taken after mySimon had already launched its business, and thus after the time when SPG was required to show that it had already established secondary meaning for the "Simon" name. This evidence is also significant because SPG's early branding efforts, including the "MallPerks" program, comprised a large portion of SPG's secondary meaning case at trial.
2. Likelihood of Confusion
On the issue of competition between SPG and mySimon, the McKinsey documents showed that SPG's proposed "e-commerce" strategies still required — in addition to a brand presence it did not yet have — internet technology, "e-commerce" experience, and suitable content. Def Ex. 3 at 3-11, 3-20, 3-21. In other words, even in 2000, SPG did not have any of the key resources it needed to establish a significant internet retail shopping presence.
One document indicates that comparison shopping — exactly the service provided by mySimon — was "difficult" in the mall environment. Def. Ex. 20 at 20-9. In fact, in statements that are critical to the issue of competition with mySimon, the McKinsey evidence indicates that a website that offered retail sales as well as other services was not viable for SPG and would compete and/or conflict with SPG's own retail tenants. See Phipps Dep. at 101-03 (an SPG "transaction mall web site" would "put them in conflict with their retail clients and it was economically not viable"); see also Def. Ex 22 at 22-21 (SPG website should be only informational).
The McKinsey documents also indicate that SPG's internet presence in June 2000 was only "informational." In other words, SPG's internet site did not allow interaction, let alone retail transactions. Def. Ex. 22 at 22-21; see Def. Ex. 6 at 6-12 to 6-14. By comparison, mySimon's website has always been highly interactive, allowing an internet user to search and compare the offerings of many retail sites on the internet. Then, when the user is ready to make a purchase, the user can "click" straight to a vendor's virtual "cash register" for immediate purchase.
D. Applying the New Trial Standard
Against this background, the court turns to application of the standard for granting new trials based on newly discovered evidence. Again, mySimon must show that it discovered the evidence following trial, that it used due diligence to discover the new evidence, that the new evidence is not merely cumulative or impeaching, that the new evidence is material, and that a new trial with the new evidence would probably produce a different result. E.g., Jones v. Lincoln Electric Co., 188 F.3d 709, 732 (7th Cir. 1999).
1. Discovered Following Trial
MySimon filed with its motion a notebook containing 32 exhibits. The record shows clearly that none of those documents were produced to mySimon before the trial in this case. Thirty of the documents are dated from February 18, 2000 through August 11, 2000, the start of the trial. Two are not dated.
MySimon first obtained those documents in November 2001, after mySimon had begun efforts to obtain them from McKinsey through formal non-party discovery mechanisms. MySimon has satisfied the first element of the standard for obtaining a new trial.
2. Due Diligence by Defendant mySimon
At the very outset of the case, mySimon served discovery requests that plainly covered the McKinsey project in general and the newly discovered documents. For example, mySimon's second set of interrogatories requested information and documents about SPG's plans to offer services that were described in Melanie Alshab's testimony under seal from the TRO hearing. See Def. Br. Ex. D. at 6-7, 9, 11. Alshab had testified in detail about SPG's then-current plans to develop and offer specific internet-based services for mall shoppers. Pl. Res. Ex. J. at 125-26. The McKinsey documents discuss these same plans and services. Def. Ex. 9 at 9-ii; Def. Ex. 14 at 14-4. Of course, the McKinsey project occurred and its documents were created after service of those discovery requests, but SPG's duty to supplement its discovery responses under Rule 26(e)(2) covered the highly relevant McKinsey project and the newly discovered documents. See Fed.R.Civ.P. 26(e)(2) ("A party is under a duty to seasonably amend a prior response . . . if the party learns that the response is in some material respect incomplete or incorrect and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing.").
SPG contends that mySimon failed to exercise due diligence because SPG in fact produced one McKinsey document on July 20, 2000, one month before trial. The document was part of a supplemental production of some 700 pages of documents. The 62-page powerpoint presentation is entitled "Assessing Simon's Options for Growth." Its title page refers to a "Senior management meeting" on May 4, 2000. See Pl. Res. Ex. F.
SPG argues in effect that reading the May 4th report should have alerted mySimon's lawyers to the existence and scope of the McKinsey project and to the likely existence of a substantial body of additional evidence. SPG argues that mySimon's failure to pursue the additional evidence before trial shows a failure to exercise due diligence. In SPG's view, mySimon's lawyers made a tactical decision not to pursue the matter before trial.
The court is not convinced. SPG's argument amounts to a transparent effort to blame the victim of deceptive discovery practices. The argument also leaves several important questions unanswered. For instance, although SPG and its lawyers were at least sufficiently alert to the relevance of the McKinsey project to produce the May 4th document, SPG has offered no reasonable explanation for its decision to produce only that document and none of the 32 other McKinsey documents.
SPG has asserted that the May 4th document covers all subjects that mySimon has identified in its motion for a new trial. SPG's response on this point amounts to a theory of virtual production: that because it produced the May 4th document, it should be treated as if it had produced all similar or related documents. This is not an acceptable approach to discovery obligations under the Federal Rules of Civil Procedure. Even if it were acceptable, the content of the May 4th document is not equivalent to the other 32 McKinsey documents. The May 4th document is a relatively early document from "Phase I" of the McKinsey project. Though it does include content that foreshadows much of the later documents, it does not show the more detailed findings, recommendations, and decisions on these subjects from July and August 2000 that were flatly inconsistent with SPG's case at trial. See Pl. Res. Ex. F. at 19-20 (May 4th document stating that "Simon does not have a strong enough brand to cost effectively attract customers on-line," and recommending at page 19 that SPG "decelerate investments for the on-line transactional shopping site"). In the court's view, the new documents — in terms of both their content and their sheer volume — have a much more powerful effect and are more difficult to avoid or explain away than the single May 4th document might have been.
SPG has also not addressed mySimon's substantial showing that a number of SPG discovery responses and witnesses failed to identify the McKinsey relationship. SPG discovery responses identified seven other business consultants whose projects were less relevant than the McKinsey project. But the approach to the McKinsey project was different. After SPG had agreed to have McKinsey do its project, SPG's Karen Corsaro sent an e-mail to 24 SPG managers telling them that fact. Sheinman Dep. (2/6/02) 10-11. Eleven of those 24 were deposed before trial.
For example, James Giuliano had been present at the McKinsey presentation to the SPG board on May 10, 2000, and he had been interviewed by the McKinsey team. Mr. Giuliano testified in a deposition on June 23, 2000:
Q So was iXL one of a number of outside consultants you were considering utilizing in conjunction with your e-commerce strategy?
A Yes, I had Melanie [Alshab] — or we. I shouldn't say I, but we talked to iXL, we talked to Diamond obviously, and we looked at firms like the big five, like Arthur Anderson [sic] and Ernst Young, and there may have been others on the list. IXL was the only firm that actually came in to facilitate one of these sessions, and of course the Diamond engagement. We never brought in any of these other firms.
Giuliano Dep. at 107 (emphasis added). Perhaps Mr. Giuliano simply had a lapse of memory when he volunteered this answer, but this answer certainly reflects a failure to be candid and accurate. McKinsey was certainly a consultant that SPG not only considered using but actually used in developing its e-commerce strategy.
With the benefit of hindsight, SPG argues that its production of the May 4th document could have enabled mySimon's lawyers to realize that the single document was just the tip of a very large evidentiary iceberg. Perhaps mySimon's lawyers might have realized the extent of SPG's deception, but the new trial standard requires only due diligence, not perfection. And, coming from SPG and its lawyers — who recognized the importance of the McKinsey documents and failed to produce them — the argument that mySimon's lawyers should have realized the extent of the concealment leaves an awfully sour taste in the mouth.
The timing of the disclosure of the May 4th document further undermines SPG's argument on due diligence. The document was produced just a month before trial, and several months after mySimon was entitled to have known of McKinsey's role in studying SPG's internet strategies. SPG is arguing, in essence, that mySimon's lawyers should have immediately recognized that SPG and its witnesses and lawyers had been concealing for several months this large evidentiary iceberg, and should have focused their attention on what would necessarily have resulted in an effort to postpone the trial while mySimon pursued information that SPG should have begun producing much earlier. Any lawyer who has prepared a big case for trial can recognize that the law should not demand so much of the victims of such deception in discovery.
Also, when SPG produced the lone May 4th McKinsey document, it did so with a batch of documents from a different consulting firm, Diamond Technology Partners, one whose work had been the subject of extensive discovery. Even after depositions of the SPG inside and outside attorneys who were involved, it remains a mystery how the one "stray" McKinsey document, and only that McKinsey document, came to be produced.
SPG further argues that it was entitled to produce only the single May 4th document because it raised objections to what it termed "mySimon's overbroad requests." See Pl. Res. to Def. Supp. Br. at 18. SPG asserts that it "properly objected to the overbreadth and other improper aspects of mySimon's requests, and that it responded to the extent it believed those requests were reasonable." Id. This argument is also unpersuasive.
The evidence submitted by SPG shows that SPG objected only to mySimon's third set of interrogatories. Pl. Res. at 4 (stating that Interrogatories Nos. 9 and 15 of mySimon's third set of interrogatories and Requests for Production are "grossly overbroad"); Pl. Res. Ex. E. ("Simon's answer to MySimon's Third Set of Interrogatories and Requests for Production of Documents to Plaintiff"). Contrary to SPG's assertion at page 4 of its supplemental brief (Docket No. 441), however, the McKinsey documents and McKinsey's relationship with SPG were within the scope of both mySimon's second and third set of interrogatories. See Def. Br. Ex. D. at 5-6, 9, 11 and Ex. E. at 8, 10-11, 17. The record does not reflect objections to the second set, and at least the relevant interrogatories were not unreasonably broad. Thus, SPG's objections to the third set of interrogatories did not entitle SPG to limit its supplementation of responses to mySimon's second set of interrogatories. The fact that SPG then produced the May 4th document, which SPG asserts discloses the full extent of its relationship with McKinsey, further undermines SPG's reliance on its objections to justify its failure to produce all the other highly relevant McKinsey documents.
In sum, then, the court finds that mySimon and its attorneys used due diligence in seeking discovery of the McKinsey documents and the substance of the McKinsey project. MySimon has satisfied the second element of its required showing to obtain a new trial.
3. The Newly Discovered Evidence is Material, is Not Merely Cumulative or Impeaching, and is Likely to Produce a Different Result
The last three elements of the test for a new trial are that the new evidence must be material, must not be merely cumulative or impeaching, and must be likely to produce a different result. E.g., Jones v. Lincoln Electric Co., 188 F.3d at 732. The newly discovered evidence in this case meets all of these criteria. Because the three elements all focus on the content and legal significance of the new evidence, the court considers the three together.
The newly discovered evidence is material because it goes to the merits of issues at the core of this case. Secondary meaning is a threshold issue for all of SPG's claims. Likelihood of confusion is a critical element of the central trademark claim. The extent of competition between mySimon's comparative shopping service on the internet and SPG's bricks-and-mortar malls is critical to likelihood of confusion and the state law claim for unfair competition.
The newly discovered evidence lends strong support to mySimon's challenge on secondary meaning. Even after SPG's new "branding" campaign in 1999, the McKinsey consultants found that SPG did not have the kind of brand awareness needed for SPG to launch a successful internet venture with the "Simon" name. Instead, SPG's initiatives prior to that point had been confusing to customers and needed to be largely abandoned, in favor of a partnership with another company that already had a strong brand presence on the internet. The McKinsey consultants went so far as to recommend that SPG cut back on its effort to build a "Simon" brand for malls and focus instead on building local mall brands.
The newly discovered evidence also lends strong support to mySimon's contention that mySimon and SPG operate in different markets that do not compete with or threaten one another. Apart from lacking a recognizable brand name, SPG did not have the technical capacity, the "e-commerce" experience, or the content it needed to establish a significant presence on the internet. Even as late as 2000, its website was merely informational, allowing for little interaction and certainly not for shopping on the internet.
Even if SPG had had such capacities, the McKinsey consultants recognized what mySimon has been arguing from the beginning of this case — that SPG could not attempt to replicate the comparative shopping functions of the mySimon site without undermining its central business model and its business relationships with its retail mall tenants. The evidence thus supports mySimon's position on the absence of a likelihood of confusion and on the lack of direct competition between the two parties.
The newly discovered evidence is not merely cumulative or impeaching. While the evidence certainly contradicts positions taken by SPG's lawyers and management during the trial, it also lends great support to mySimon's substantive positions on the issues of secondary meaning, likelihood of confusion, and direct competition.
SPG argues that the McKinsey evidence is merely cumulative because of the evidence that mySimon offered at trial to support its position on secondary meaning, likelihood of confusion, and direct competition. The court disagrees. The balance of evidence at trial was, at best, close on these issues. As the Seventh Circuit wrote: "Despite the relative strength of mySimon's evidence and the relative weakness of SPG's, SPG's lawyer must have done a whale of a selling job" as the jury awarded $26.8 million in damages to SPG. Simon Property Group, L.P. v. mySimon, Inc., 282 F.3d 986, 989 (7th Cir. 2002). This court agrees with that assessment of the weight of the evidence.
SPG's lawyers and witnesses had to work hard at trial to blunt the effect of substantial evidence from mySimon, such as Dr. Simonson's survey evidence and the internal evidence from SPG and its advertising agency about the need for and effects of the 1999 branding campaign. Persuasive lawyers and facile witnesses managed to accomplish that feat for SPG. Against this background, this new evidence would not have been cumulative. The Seventh Circuit has taught:
"Evidence is `cumulative' when it adds very little to the probative force of the other evidence in the case, so that if it were admitted its contribution to the determination of truth would be outweighed by its contribution to the length of the trial, with all the potential for confusion, as well as prejudice to other litigants, who must wait longer for their trial, that a long trial creates."
United States v. Gardner, 211 F.3d 1049, 1055 (7th Cir. 2000) (government's additional expert testimony was not cumulative where it addressed issues raised in cross-examination of other government experts), quoting United States v. Williams, 81 F.3d 1434, 1443 (7th Cir. 1996). In other words, evidence is "cumulative" when it "goes to prove what has already been established by other evidence." Smith v. Secretary of New Mexico Dep't of Corrections, 50 F.3d 801, 829 (10th Cir. 1995) (ordering habeas relief based on violations of Brady v. Maryland), citing Black's Law Dictionary 343 (5th ed. 1979); see also Goodwin v. MTD Products, Inc., 252 F.3d 600, 609-10 (7th Cir. 2000) (video of lawnmower being assembled was cumulative because lawnmower was in plain view of the jury and assembly of the wing nut at issue could be readily demonstrated).
Evidence is not cumulative when it may significantly alter the balance of the probative evidence on an issue. "We have previously recognized that independent corroboration of the defense's theory of the case by a neutral and disinterested witness is not cumulative of testimony by interested witnesses, and can undermine confidence in a verdict." Boss v. Pierce, 263 F.3d 734, 745 (7th Cir. 2001) (granting habeas relief), citing Washington v. Smith, 219 F.3d 620, 634 (7th Cir. 2000), and Montgomery v. Petersen, 846 F.2d 407, 415 (7th Cir. 1988). The new evidence in this case presents precisely such an example of independent corroboration of a party's theory of the case.
SPG's theories required it to explain away a lot of bad evidence from its own files and witnesses on these issues. It managed to persuade the jury in the August 2000 trial, but the court would not predict that SPG could repeat that accomplishment before jurors who had a chance to consider the McKinsey evidence. That evidence shows not only the observations of the consultants but also the views of SPG's most senior management. Using the adage that actions speak louder than words, the McKinsey documents indicate that SPG's management made strategic business decisions based on the views expressed in the McKinsey documents. SPG's having based actual business decisions on the information is likely to add substantially to the probative value of that evidence and is likely to be much more difficult to explain away.
While presiding at the trial, the court saw and heard and weighed the same evidence that the jury heard. Based on that experience, after reviewing the newly discovered evidence, the court is persuaded that the newly discovered evidence would probably produce a different result at trial. The jury probably would have recognized the apparent contradictions between SPG's theories in trial and its actual business behavior. Accordingly, defendant mySimon has satisfied all of the elements for obtaining a new trial based on newly discovered evidence. Defendant mySimon's motion is hereby granted as to all issues decided by the jury at trial.
III. Defendant's Motion for Sanctions and Plaintiff's Motion to Strike
Defendant mySimon has also moved for sanctions under Rule 37 of the Federal Rules of Civil Procedure for SPG's failure to produce the McKinsey documents before trial and the failure of its witnesses to acknowledge the existence of the McKinsey project. Plaintiff SPG has moved to strike mySimon's reply (filed July 1, 2002), asserting that mySimon raised new issues in its reply.
SPG's motion to strike is denied. SPG has inappropriately used this motion as another opportunity to argue the merits of this case. MySimon did not seek any new relief or assert new claims in its reply brief. Rather, mySimon simply responded to arguments asserted by SPG.
As for mySimon's motion for sanctions, SPG has offered no satisfactory explanation for its failure to produce the McKinsey documents or the failure of its witnesses to acknowledge the McKinsey project. SPG's senior management and its inside attorneys and trial attorneys were aware of the McKinsey project. At least some of the attorneys recognized its relevance to this case, at least to the point that the May 4th document was produced in the supplemental document production on July 20, 2000. The testimony of those attorneys conflicts as to who knew what, and when, about the McKinsey project and the relevant documents, but those internal disagreements are not relevant to whether SPG and its attorneys, collectively, satisfied SPG's discovery obligations.
SPG's failure to produce the McKinsey documents violated its obligations under Rule 26(e)(2) to supplement its discovery responses, and sanctions are appropriate under Rule 37(c)(1). Because the failures are also causing a new trial to be ordered, and because a decision about specific sanctions may require consideration of issues of bad faith not suitable for decision on a paper record, the court finds that any award of specific sanctions would be premature at this time. Accordingly, the court grants defendant's motion for sanctions and reserves until later (post-trial) proceedings a final decision about what the appropriate sanctions should be.
IV. SPG's Motion to Amend the Complaint
The court hereby grants SPG's motion to amend the complaint to complain about actions of mySimon taken after the original trial in this case. Because the court is granting mySimon's motion for a new trial, the otherwise powerful arguments against a post-trial expansion of the complaint evaporate. The new trial should cover the full scope of the parties' dispute.
V. SPG's Motion to Add Defendants
The court also hereby grants SPG's motion to amend the complaint to add CNET, Inc. as a defendant. CNET is mySimon's parent corporation. In granting this motion, the court notes mySimon's arguments against piercing the corporate veil. In light of the need for a new trial, however, those arguments are better addressed in terms of the merits rather than in opposition to amendment of the pleadings. See Fed.R.Civ.P. 15. SPG's motion to withdraw its motion to add another defendant is hereby granted. SPG shall file one complete amended complaint no later than May 15, 2003.
VI. Motions Relating to Corrective Advertising Damages
After SPG declined to accept a remittitur on the corrective advertising damages, the court had expected that those damages would be the last issue to be addressed in the district court. As explained above, things have not turned out that way. The grant of a new trial on secondary meaning and likelihood of confusion undermines the jury's verdict on all issues. Accordingly, the court discharges the order to SPG to show cause why the court should not grant summary judgment on the issue of corrective advertising damages, and denies as moot SPG's motion to supplement its response and its motion to file updated expert witness reports.
So ordered.