Awarding Profits in Trademark Infringement Cases Made Easier

The 3rd Circuit and the Nikedecision have adopted these factors, and they appear to be the wave of the future. The details of how these factors are to be applied in the individual cases have yet to be worked out. For example, what does a “case of palming off” mean, separate and apart from willful infringement? At common law, “palming off” or “passing off,” meant simply selling one’s goods as the goods of another; the tort had a strong basis in the law of fraud and deceit. [FOOTNOTE 14]Suppose an infringer sells counterfeit goods believing them in good faith to be real — as indeed certain defendants in the Nikecase claimed to have acted. Is that “palming off,” albeit in good faith?

Counterfeiting cases — reminiscent of palming-off cases — seem to be a species of trademark infringement most ripe for an award for profits. By their very nature, counterfeits are meant to imitate the real goods, and someone who sells counterfeits is clearly trading on the trademark owner’s reputation. If the counterfeits are comparably priced to the original model, then there has likely been a diversion of sales, although quantities are often difficult to quantify. (To use one real-life example: a famous-brand handbag retails for $600; defendant is a discount chain who unknowingly obtained high-quality counterfeits of that brand from a jobber and sold them for $400. The discounter sold at least 300 counterfeits before being caught. Given the high price, it is not hard to see that the brand owner has suffered some loss of sales, albeit difficult to precisely quantify.)



SUMMARY JUDGMENT: PROFITS

A related issue is at what procedural stage a court can award profits. Trials are expensive; if a court can determine that there will be a profits award without a trial, it makes trademark enforcement that much more cost-effective.

The Nikecourt declined to grant profits on summary judgment, reasoning:

[T]he Court holds that although willfulness is not a prerequisite to the recovery of profits for infringement and counterfeiting, it continues to function as an equitable consideration under the Fifth Circuit’s multifactor test. Thus, the Court will be unable to determine whether or not Plaintiffs may recover the SahayaDefendants’ profits until a jury resolves the factual issue of whether or not the SahayaDefendants’ infringement was willful. Plaintiffs’ motion for summary judgment as to these Defendants’ profits is therefore denied. [FOOTNOTE 15]

Generally speaking, a party’s state of mind is not resolvable on summary judgment because, absent a blatant admission, a willfulness case will usually be inferential and based on ambiguous evidence. [FOOTNOTE 16]It is therefore understandable that a finding of willfulness will rarely occur on summary judgment.

It is not clear, however, why this ineluctably means that an award of profits cannot be made on summary judgment. True, willfulness is one equitable factor to be considered. But, suppose “viewing the record in the light most favorable to the non-moving party” it is assumed that the defendants did not act willfully. Other factors may still weigh heavily in favor of awarding profits. For example, in a high-end counterfeiting case (i.e., one where the counterfeits are good quality and sold for a price substantially that of the usual retail price) it would seem that all factors but willfulness favor an accounting of profits.

An analogy can be drawn to determinations of likelihood of confusion in ordinary trademark cases. Likelihood of confusion is generally determined on consideration of a multifactor test; the leading 2nd Circuit case — Polaroid Corp. v. Polaroid Elecs. Corp. [FOOTNOTE 17]– uses eight nonexhaustive factors. One factor is the defendant’s bad faith, which, as noted, often is not amenable to summary judgment. Yet courts often do find likelihood of confusion on summary judgment, even though the evidence must be reviewed in the “light most favorable to the non-moving party.” Even if some factors, because of the summary judgment standard, do not favor one side, the other factors may be enough to carry the day.

A good illustration is the 2nd Circuit’s opinion in Patsy’s Brand, Inc. v. I.O.B. Realty. [FOOTNOTE 18]There, the 2nd Circuit upheld a summary judgment finding of trademark infringement. Notably, it held that in reviewing two of the Polaroidfactors — including the bad faith factor — the district court had improperly failed to view the evidence in the light most favorable to the defendant. The 2nd Circuit held that while the “bad faith” evidence might permit an inference of bad faith, it did not compel one; accordingly that particular Polaroidfactor did not weigh in favor of finding likelihood of confusion. [FOOTNOTE 19]Nevertheless, the 2nd Circuit held that the “aggregate assessment” of the Polaroidfactors was correct mainly because several other Polaroidfactors strongly favored a finding of a likelihood of confusion. [FOOTNOTE 20]In other words, while the summary judgment standard can often tilt things in the nonmoving party’s favor on certain factors, other factors — where the issues may be more concrete or the evidence more objective — may still carry the day for the plaintiff.

The same should be the case for determining whether it is “equitable” to award an accounting of profits. Probably in most cases, willfulness will not be found on summary judgment. That said, even assuming that the infringer acted in good faith, there may be a powerful equitable claim to the infringer’s profits based on other factors.

Finally, another issue, which we hope to deal with in a future article, is whether courts should treat “willfulness” as a black-or-white proposition, or whether they should recognize shades of gray such as negligent or grossly negligent conduct. The latter, if shown, might affect a court’s determination that an award of profits is equitable. [FOOTNOTE 21]

For now, it is enough to note that the courts seem to be dispensing with the per se willfulness requirement. The next step is for courts to seriously consider awarding profits on summary judgment — which, despite the tilted evidentiary standard, can, in appropriate cases, still result in a moving plaintiff prevailing on a multi-factor issue.

David A. Kalow and Milton Springut are partners at Kalow & Springut. Tal Benschar, an associate at the firm, assisted in the preparation of this article.

:::::FOOTNOTES:::::

FN1See Gucci America, Inc. v. Daffy’s, Inc.354 F3d 228 (3d Cir. 2003). The authors were counsel in the Guccicase.

FN2No. 00 Civ. 8179 (KMW), 2005 WL 1654859 (SDNY July 13, 2005).

FN3986 F2d 1532 (2d Cir. 1992).

FN4875 F2d 584, 588-89 (7th Cir. 1989).

FN5P.L. 106-43 (1999).

FN6P.L. 106-113 (1999).

FN7P.L.107-273 (2002).

FN8 Quick Techs. v. Sage Group PLC, 313 F3d 338, 347-49 (5th Cir. 2003).

FN9399 F3d 168, 171-74 (3d Cir. 2005), overruling Securacomm Consulting, Inc. v. Securacomm, Inc., 166 F3d 182, 190 (3d Cir. 1999).

FN10 Nike, 2005 WL 1654859, at *10 n. 9, rejecting MasterCard Int’l Inc. v. First Nat’l Bank of Omaha, 2004 WL 326708 (SDNY 2004).

FN11Id.

FN12See Stolte, Keith M., “Remedying Judicial Limitations on Trademark Remedies,” 87 Trademark Rep. 271, 275 n.25 (May 1997), suggesting such a reading.

FN13 Quick Technologies, Inc. v. Sage Group PLC, 313 F3d 338, 349 (5th Cir. 2003), citing Pebble Beach Co. v. Tour 18 Ltd., 155 F3d 526, 554 (5th Cir. 1998).

FN14See 1 McCarthy on Trademarks and Unfair Competition, �5:2.

FN15 Nikeat *11.

FN16See Gelb v. Board of Elections, 224 F3d 149, 157 (2d Cir. 2000) (Summary judgment is generally inappropriate where questions of intent and state of mind are implicated”).

FN17287 F2d 492,495 (2d Cir.), cert. denied 368 US 820 (1961).

FN18317 F3d 209 (2d Cir. 2003).

FN19Id. at 218-19.

FN20Id.

FN21See Gucci America, Inc. v. Daffy’s, Inc., 354 F3d at 244-45. (Rosenn, J., dissenting) (Arguing that defendant discount chain’s sloppy authentication practice “seriously weakens [its] claim of innocence” and “favors [the trademark owner's] claim for relief.”)