Can Trademark Damages of Profits be Trebled?

The Fourth Circuit Court of Appeals held that when plaintiff seeks only defendant’s profits, the district court can increase the award only when, and to the extent, it deems the award to be inadequate to compensate plaintiff for defendant’s profits.  Treble damages, which are punitive, are not authorized by §1117(a) for a recovery based on profits.  Only when actual damages sustained by plaintiff are sought, can the court enter judgment for any sum above the amount found as actual damages, not exceeding three times such amount.  This sum shall constitute compensation, not a penalty. Georgia-Pacific Consumer Products, LP v. von Drehle Corporation, NO. 13-2003 (4th Cir. 2015) (Available Here).  The Court considered the appropriate relief that may be granted under the Lanham Act, 15 U.S.C. §§ 1051-1141, specifically § 1116 (authorizing injunctive relief) and § 1117 (authorizing monetary relief).  

    Georgia-Pacific Consumer Products, LP (herein “G-P”) owns the trademark “enMotion” in respect of a paper-towel dispenser that dispenses paper towels when a motion sensor is triggered.  Von Drehle Corporation (herein “Drehle”) designed a less expensive paper towel that is sold specifically for use in G-P’s enMotion dispenser.    G-P filed three actions against Drehle alleging contributory infringement, specifically, that Drehle knowningly and intentionally made the paper towels solely for use in the G-P enMotion dispensers and that stuffing the enMotion dispenser with Drehle towels was likely to cause confusion and deceive the end user customers.  The jury in one action agreed and awarded G-P $791,431, which was all of Drehle’s profits.  The district court entered a permanent, nationwide injunction from prohibiting Drehle from infringing G-P’s trademark rights.  The court also found Drehle’s conduct willful and intentional and (1) trebled the jury award to $2,374,293, (2) awarded attorneys fees of $2,225,782, (3) awarded it prejudgment interest of $204,450 and (4) awarded costs of $82,758.

    The decisions in the parallel actions had been issued by the time of the trial in the Eastern District of North Carolina.  In the first parallel action in the Western District of Arkansas against a distributor, the district court had ruled against G-P, finding no likelihood of confusion, which the Eighth Circuit affirmed.  In the second parallel action in the Northern District of Ohio against another distributor, the district court again ruled against G-P, finding the Arkansas judgment precluded G-P from relitigating its trademark infringement claim, which the Sixth Circuit affirmed.

    Following trial in the Eastern District of North Carolina, Drehle renewed its motion for judgement as a matter of law based on claim and issue preclusion and the district court granted it, vacating the jury verdict and entering judgment for Drehle.  On appeal, the Fourth Circuit reversed, concluding that Drehle had waived its preclusion defense and the district court abused its discretion by allowing Drehle to assert its preclusion defenses 16 months after the substantive basis for those defenses was known to Drehle. On remand, the jury found for G-P and found Drehle’s infringement willful and intentional and awarded a total of $4,887,281.  Drehle now appeals challenging the geographic scope of the injunction and the monetary awards.    

    The Fourth Circuit Court of Appeals held that the injunction must be narrowed to cover only the geographical area of the Fourth Circuit.  As to the monetary awards, the Fourth Circuit (a) reversed the treble damages and instructed the district court to reinstate the jury award of $791,431, (b) vacate the award of attorneys fees and remand for application of appropriate standard and (c) reverse the award of prejudgment interest.

    The Fourth Circuit determined that equity requires that injunctions be carefully tailored, especially where questions of inter-circuit comity are involved.  As a matter of comity, the injunction is not enforceable within the Eighth and Sixth Circuits.  Because a forum court should be free to resolve which district to follow, comity requires that the injunction cannot extend to the remaining circuits.  Accordingly, the Fourth Circuit limited the  injunction to the States in the circuit.

    In trebling damages, the district court improperly relied on counterfeit case law under §1117(b) when in fact damages for infringement are under §1117(a).  The Court noted that §1117 provides vastly different legal standards, based on the egregiousness of the offense, for determining when a district court can modify an award- distinguishing an award for knowingly and intentionally using a counterfeit mark from an award for using a noncounterfeit mark.  Here G-P requested a recovery of only Drehle’s profits.  When limited to profits, the district court can increase the award only when and to the extent it deems the award to be inadequate to compensate the plaintiff for the defendant’s profits.  Treble damages, which are punitive, are not authorized by §1117(a) for a recovery based on profits.  Only when actual damages sustained by the plaintiff are sought, can the court enter judgment for any sum above the amount found as actual damages, not exceeding three times such amount.  This sum shall constitute compensation, not a penalty.

    As for attorneys’ fees, the court based its willful and intentional finding on the fact Drehle specifically designed the paper towels for use in the enMotion dispenser.  However that does not qualify as “exceptional” entitling the award of attorneys’ fees. Drehle reasonably believed that its conduct was lawful.  Moreover, the Octane Fitness standard should apply.  Accordingly, the Fourth Circuit concluded that a district court may find a case ‘exceptional’ and therefore award attorney fees to the prevailing party under §1117(a) when it determines that (1) there is an unusual discrepancy in the merits of the positions taken by the parties, based on the non-prevailing party’s position as either frivolous or objectively unreasonable; (2) the non-prevailing party has litigated the case in an unreasonable manner; or (3) there is otherwise the need in particular circumstances to advance considerations of compensation and deference. 

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