By Teague I. Donahey
In trademark cases, the primary remedial focus is typically an injunction: the trademark owner seeks to prevent the defendant from continuing to use the trademark that has been infringed so that consumer confusion is alleviated and the parties are returned to the commercial status quo ante. Monetary remedies usually play second fiddle. This article will explore the monetary damages provision contained in the federal trademark laws (the Lanham Act), 15 U.S.C. § 1117(a), which includes numerous ambiguities and has been subject to multiple interpretations.
The ambiguous and poorly-conceived nature of this monetary damages provision has recently taken on greater notoriety given the current 6-6 split among the federal circuits regarding its interpretation, a split that led the Supreme Court in June 2019 to grant a petition for writ of certiorari—an unusual event in the trademark world.[i] Although the Supreme Court will be resolving the relatively narrow question of whether willful infringement is a prerequisite for awarding profits under § 1117(a), there are many other aspects of this provision that remain open to interpretation.
When [trademark infringement] shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, . . . subject to the principles of equity, to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. . . . In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstances shall constitute compensation and not a penalty . . . .[ii]15 U.S.C. § 1117(a)
Several aspects of this statute are significant. First, the provision states that a plaintiff “shall” be entitled to recover both its damages and the defendant’s profits. Second, unhelpfully, the statute does not explain in any detail what “profits” are awardable. Third, the monetary recovery amount is left for the court to determine “subject to the principles of equity,” damages may be further enhanced by the court, and recovery under a disgorgement of profits theory may be further modified upward or downward in the court’s “discretion.” Fourth, regardless of the rationale under which a monetary award is calculated, any such award must be “compensation” and cannot be a “penalty.” What does all of this mean?
Splits Among the Circuits Make Consistent Interpretations Difficult
The short answer is that it is difficult for the parties in any particular case to know for sure. For starters, there is some ambiguity concerning who has the authority to make decisions in trademark cases concerning monetary remedies, and in what context. Section 1117(a) states that “[t]he court shall assess . . . profits and damages or cause the same to be assessed under its direction” and that all monetary recovery shall be had “subject to the principles of equity,” which is traditionally the province of the courts.[iii] But it is unclear how this provision squares with the Supreme Court’s holding that a trademark owner has a Seventh Amendment right to a jury trial with respect to a claim for damages.[iv]
Similarly, in Fifty-Six Hope Road Music, Ltd. v. A.V.E.L.A., Inc., the Ninth Circuit squarely held that a claim for disgorgement of profits is always an equitable remedy that is within the discretion of the trial court, and it affirmed the trial court’s calculation of profits over the plaintiff’s objection that the issue should have been tried to a jury.[v] But some courts outside the Ninth Circuit have taken the opposite approach.[vi] In one recent case, for example, the Northern District of Illinois opined that a claim for profits served as a proxy for damages and, as such, the plaintiff had a right to a jury trial on the issue.[vii]
Courts Retain Broad Discretion Over Monetary Damages Awards
Although § 1117(a) states that profits and damages “shall” be awarded, courts have generally cited the “subject to the principles of equity” language in holding that monetary recovery is not automatically permitted to a trademark owner.[viii] Thus, a trademark owner contemplating an infringement lawsuit cannot be guaranteed it will obtain any monetary recovery, even if liability and damages can be proven.
To the extent some amount of monetary remedy is ultimately available under “the principles of equity,” the trial court has “extremely wide discretion” to make adjustments to both damages and profits.[ix] For instance, by its terms, § 1117(a) gives the courts discretion to enter judgment on the issue of disgorgement of profits for any sum that the court deems “just” without any further limitation, “according to the circumstances of the case.”[x]
Likewise, damages can be adjusted by the court to any sum above the amount of “actual damages,” not to exceed three times that amount.[xi] In the patent law context, where courts are similarly permitted by statute to treble damages awards,[xii] the Supreme Court has characterized such treble damages as providing a “punitive” remedy where bad-faith or willful infringers are involved.[xiii] But under § 1117(a), any enhanced damages must be “compensation and not a penalty.” [xiv] If there is a Seventh Amendment right to a jury trial on the issue of actual damages, if the jury’s damages award is intended to provide full compensation, and if enhanced damages are supposed to be compensatory only, it raises the question of when judicially-enhanced damages would be justified in a trademark case.
Different Courts, Different Standards
Given such ambiguities and unanswered questions, it is not surprising that courts adjudicating trademark cases have been forced to go beyond the plain language of § 1117 and develop subsidiary rules in an effort to provide additional guidance. But different courts around the country have crafted different rules, adding yet another layer of uncertainty.
For example, although the statute states unambiguously that both damages and profits are simultaneously available to the trademark owner, courts have held that, particularly where the parties are in direct competition, an award of both damages under a lost profits theory and a separate disgorgement of profits could result in impermissible double recovery.[xv]
Courts also have held that a plaintiff is only entitled to profits that are “attributable” to the trademark infringement.[xvi] But this, of course, begs the corollary question: what kinds of profits are “attributable” to infringement and what are not? Are all profits from every infringing sale “attributable” to infringement? The lack of clarity leaves room for Defendants to argue, for example, that some consumers made purchases of infringing products for reasons unrelated to trademark issues,[xvii] or that profits should be otherwise apportioned.[xviii]
Furthermore, in the Ninth Circuit, courts have held that profits should not be awarded under any circumstances unless there has been a finding of willful trademark infringement.[xix] That view is not shared by courts in at least the Third, Fourth, and Fifth Circuits, which have taken the position that willfulness is a factor to be considered in the equitable analysis, but is not necessarily dispositive.[xx]
In Banjo Buddies, Inc. v. Renosky, for example, the Third Circuit held that a disgorgement of profits depends on numerous factors, including not only the defendant’s intent in infringing, but also whether sales were actually diverted, whether other remedies were adequate, whether the plaintiff unduly delayed in asserting its rights, the public interest in making infringement unprofitable, and whether the defendant’s conduct constituted “palming off.”[xxi] Based on an application of these factors, the court affirmed the trial court’s award of profits even assuming that the infringement had not been willful.[xxii]
On the other hand, some courts in the Second Circuit have held that a showing of actual consumer confusion—as opposed to a mere likelihood of confusion, which is the legal standard for trademark infringement[xxiii]—is a prerequisite for an award of profits.[xxiv] In Information Superhighway, Inc. v. Talk America, Inc., for example, the Southern District of New York dismissed the plaintiff’s entire claim for monetary relief because no actual consumer confusion had been shown.[xxv]
The Ninth Circuit, however, has rejected that approach.[xxvi] In fact, the Ninth Circuit has gone so far as to suggest that an award of profits may be available to a trademark owner under an unjust enrichment theory, and that therefore the trademark owner need not even establish that the parties were in competition and that there were lost or diverted sales (a primary quantum of actual damages) before the defendant’s profits can be awarded.[xxvii]
Clarity Is Needed From Congress or the Supreme Court
Plainly, the genesis of all of this disagreement and confusion is the Lanham Act itself. Section 1117(a) is a statutory provision sorely in need of direction from the Supreme Court and—ultimately—clarification and amendment by Congress. Unfortunately, it is not often that Congress has the time or interest to consider the trademark laws in any depth, and the Supreme Court is an infrequent arbiter of trademark disputes. Intellectual property practitioners can only hope that will change. Fortunately, the Supreme Court’s grant of certiorari in the Romag Fasteners case provides an opportunity for the Court to consider the statutes and weigh in.[xxviii] At least some clarity may soon be forthcoming.
Teague I. Donahey is an intellectual property attorney in the Boise office of Holland & Hart LLP. He has practiced for over 20 years in both California and Idaho, with a focus on intellectual property litigation before federal trial and appellate courts, as well as the U.S. International Trade Commission and the U.S. Patent and Trademark Office.
[i] See, e.g., Romag Fasteners, Inc, v. Fossil Inc., Docket No. 18-1233, Petition for Writ of Certiorari at 2–3 (filed Mar. 22, 2019).
[ii] 15 U.S.C. § 1117(a).
[iii] Id. (emphasis added).
[iv] Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477 (1962).
[v] Fifty-Six Hope Rd. Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d 1059, 1074–76 (9th Cir. 2015).
[vi] See, e.g., Black & Decker Corp. v. Positec USA Inc., 118 F. Supp. 3d 1056, 1060–69 (N.D. Ill. 2015) (denying motion to strike request for jury trial on disgorgement of profits as to trademark-related claims).
[vii] See id.
[viii] See, e.g., Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F.2d 117, 120 (9th Cir. 1968) (“The equitable limitation upon the granting of monetary awards under the Lanham Act, 15 U.S.C. § 1117, would seem to make it clear that such a remedy should not be granted as a matter of right.”).
[ix] Friend v. H. A. Friend & Co., 416 F.2d 526, 533 (9th Cir. 1969); see also, e.g., Playboy Enters., Inc. v. Baccarat Clothing Co., 692 F.2d 1272, 1276 (9th Cir. 1982) (upholding trial court’s refusal to increase damages award).
[x] 15 U.S.C. § 1117(a).
[xii] See 35 U.S.C. § 284.
[xiii] See Halo Elecs., Inc. v. Pulse Elecs., Inc., __ U.S. __, 136 S. Ct. 1923, 1930 (2016).
[xiv] 15 U.S.C. § 1117(a).
[xv] Experience Hendrix L.L.C. v. Hendrixlicensing.com Ltd, 762 F.3d 829, 841 n.9 (9th Cir. 2014) (citing Nintendo of Amer., Inc. v. Dragon Pacific Int’l, 40 F.3d 1007, 1010 (9th Cir. 1994)).
[xvi] Maier, 390 F.2d at 124 (quoting Mishawka Rubber & Woolen Mfg. Co. v. S.S. Kresge, 316 U.S. 203, 206 (1941)); see also Manual of Model Civil Jury Instr. § 15.29 (9th Cir. 2019) (“[T]he plaintiff is entitled to any profits earned by the defendant that are attributable to the infringement.”).
[xvii] See Maier, 390 F.2d at 124 (quoting Mishawka)
[xviii] See, e.g., Marketquest Grp., Inc. v. BIC Corp., No. 11-cv-618-BAS (JLB), 2018 U.S. Dist. LEXIS 62357, at *13 (S.D. Cal. Apr. 12, 2018).
[xix] E.g., Stone Creek, Inc. v. Omnia Italian Design, Inc., 875 F.3d 426, 442 (9th Cir. 2017).
[xx] See, e.g., Banjo Buddies, Inc. v. Renosky, 399 F.3d 168, 174–75 (3d Cir. 2005); Synergistic Int’l, LLC v. Korman, 470 F.3d 162, 175 n.13 (4th Cir. 2006); Quick Techs., Inc. v. Sage Group PLC, 313 F.3d 338, 348 (5th Cir. 2002). Such decisions have focused on a 1999 amendment to § 1117 in which Congress made the provision applicable to “willful” violations of 15 U.S.C. § 1125(c)—the federal trademark dilution provision—but did not simultaneously modify the statute to expressly require “willful” trademark infringement.
[xxi] Banjo Buddies, 399 F.3d at 175.
[xxii] See id. at 175–76.
[xxiii] See, e.g., AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348–49 (9th Cir. 1979).
[xxiv] See Information Superhighway, Inc. v. Talk Amer., Inc., 395 F. Supp. 2d 44, 55 (S.D.N.Y. 2005) (citing, e.g., G.H. Mumm Champagne v. Eastern Wine Corp., 142 F.2d 499, 501 (2d Cir. 1944)).
[xxv] Information Superhighway, 395 F. Supp. 2d at 55.
[xxvi] See Gracie v. Gracie, 217 F.3d 1060, 1068 (9th Cir. 2000).
[xxvii] See Maier, 390 F.2d at 121–22.
[xxviii] Romag Fasteners Inc. v. Fossil Inc., Docket No. 18-1233.