presentation to: presented on: © 2014 kirkland & ellis llp. all rights reserved. presented by:...

Presentation to:

Presented on:

© 2014 Kirkland & Ellis LLP. All rights reserved.

Presented by:

American Bar Association29th Annual IP Law Spring

ConferenceArlington, VA

April 3, 2014

Dale Cendali

212-446-4846

[email protected]

Introduction

Three Proposed Resolutions (“PRs”) have been put forward by the ABA Intellectual Property Law Section Trademark Litigation Committee.

Proposals seek to amend to the Lanham Act to: Eliminate prerequisites to recovery of profits and damages under

Section 35 Enumerate “Exceptional Cases” warranting the award of attorney’s fees Codify the presumption that infringement leads to irreparable harm in the

context of injunctive relief

We have been asked to articulate the countervailing arguments.

Disclaimer: the views presented today are not necessarily those of Kirkland & Ellis LLP or of our clients.

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PR 208-1: Q: SHOULD WILLFULNESS BE A PREREQUISITE TO AN AWARD OF PROFITS?

A: YES

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PR 208-1: Willfulness as a Prerequisite to Profits

The willfulness requirement is “necessary to avoid the conceivably draconian impact that a profits remedy might have in some cases,” where a profit award would “overcompensate for a plaintiff's actual injury and create a windfall judgment at the defendant's expense.” George Basch Co., Inc. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir. 1992)

Basch is the leading case setting forth a willfulness requirement. Plaintiff metal polish maker claimed that

defendant, a former distributor, infringed its trade dress when it sold competing “Ever-Brite” polish.

Jury found no willfulness, but awarded $200,000 as defendant’s profits.

Second Circuit reversed, holding that willfulness was required.

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George Basch explained that the Second Circuit has allowed a profit award in three situations, all of which supported the willfulness requirement: 1. Where necessary as a deterrent:

Willfulness “expressly defines” this rationale (i.e., there is no deterrent effect in the absence of bad faith). 968 F.2d at 1537.

2. If the plaintiff sustained actual damages: A plaintiff can recover defendant’s profits as a proxy unless the defendant can

show that they did not derive from the infringement. Id. at 1539. Some courts have required a showing of fraud or palming off (i.e., willfulness)

in order to recover profits as a proxy. See id.

3. If the defendant was unjustly enriched: Originates in the equitable concept of constructive trust, traditionally “invoked

to defeat those gains accrued by wrongdoers.” Basch, 968 F.2d at 1538. See also Western Diversified Servs., Inc. v. Hyundai Motor Am., Inc., 427 F.3d

1269, 1272 (10th Cir. 2005) (holding that trademarks are a form of property).

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Abandoning the requirement is particularly problematic in a reverse confusion situation where a common law mark, which defendant may not have known about, is in issue.

In such cases, an entity with modest sales (and thus modest, if any, actual damages) may obtain substantial compensation in the form of a larger and more successful defendant’s profits without any justification based on culpability. See SecuraComm Consulting Inc. v. Securacom Inc., 166 F.3d 182, 188

(3d Cir. 1999) (reversing award of profits in part because it would be inequitable to impute knowledge of smaller senior user to company when executive with knowledge of the mark had been terminated before defendant bridged the gap).

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1999 Lanham Act Amendment Amendment added language limiting recovery of profits for dilution to “a

willful violation under section 1125(c).”

Some courts have reasoned that by adding this requirement in the context of willfulness, Congress intended to abrogate it in infringement cases. E.g., Quick Techs., Inc. v. Sage Group PLC, 313 F.3d 338 (5th Cir. 2002)

(rejecting the willfulness requirement, holding that jury verdict requiring willfulness was error).

Other courts reason that Congress did not amend the language governing infringement, thus it demonstrated no intent to change the existing rule. E.g., Malletier v. Dooney & Bourke, Inc., 500 F. Supp. 2d 276 (S.D.N.Y.

2007) (granting partial summary judgment imposing willfulness requirement in trade dress suit).

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1999 Lanham Act Amendment (continued)

In Malletier v. Dooney & Bourke, Inc., Judge Shira Scheindlin examined whether the amendment had “effectively overruled” Basch. Plaintiff argued that the addition of an express willfulness requirement in

the dilution context reflected an implied congressional intent to eliminate the same in the infringement context.

Judge Scheindlin rejected this statutory argument. She reasoned that because Congress had not changed the language that

governed infringement, it had intended to incorporate the extant common law interpretation of that language.

500 F. Supp. 2d 276, 281–2 (S.D.N.Y. 2007)

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PR 208-1: Q: SHOULD ACTUAL CONFUSION BE A PREREQUISITE TO COMPENSATORY DAMAGES?

A: YES

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PR 208-1: Actual Confusion as a Prerequisite to Damages

In general, the proper remedy for a finding of a likelihood of confusion is an injunction to prevent confusion. Excell Consumer Prods. Ltd. v. Smart Candle LLC, No. 11-7220, 2013

WL 4828581, at *25 (S.D.N.Y. Sept. 10, 2013) Former distributor of plaintiff’s electronic candles used the mark. Court granted injunction but denied damages in the absence of confusion.

Damage awards compensate for pecuniary harm, e.g., lost sales and corrective advertising. If there is no harm due to actual consumer confusion, then there is nothing to compensate. See, e.g., Int’l Star Class Yacht Racing Ass'n v. Tommy Hilfiger U.S.A.,

Inc., 80 F.3d 749, 754 (2d Cir. 1996) (affirming denial of damages). Tommy Hilfiger used sailing

association’s design mark on clothing. Evidence of actual confusion was

de minimis.

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Courts also accept circumstantial evidence of actual confusion. Zelinski v. Columbia 300, Inc., 335 F.3d 633, 639 (7th Cir. 2003)

(“Columbia sold [bowling] balls labeled Pin Breaker in Pin Breaker boxes. . . . The jury is entitled to use its common sense to reason that purchasers . . . were deceived.”) (emphasis added).

Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1241 (10th Cir. 2006) (holding that where plaintiffs’ marks were used to direct consumers to competing web sites, “[d]oubtless some consumers purchased those competitors' products”) (emphasis added).

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Where willfulness is shown, some courts presume actual confusion.

The rationale is that a defendant’s deliberate efforts to confuse or deceive presumably were successful. E.g., Mr. Water Heater Enterprises, Inc. v. 1-800-Hot Water Heater, LLC,

648 F. Supp. 2d 576, 590 (S.D.N.Y. 2009) (denying summary judgment on damages due to questions of fact as to bad faith use of similar mark for plumbing services).

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PR 208-2: Q: SHOULD THE DEFINITION OF “EXCEPTIONAL CASES” WARRANTING FEE AWARDS INCLUDE “OVERLY AGGRESSIVE LITIGATION?”

A: NO

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PR 208-2: Enumeration of Exceptional Cases

To include “overly aggressive litigation” within the scope of “exceptional cases” will chill meritorious claims and defenses.

Attorneys have an ethical duty to zealously represent clients.

“Overly aggressive” is in the eye of the beholder . . .

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The Supreme Court recently questioned the usefulness of new fee award standards in the patent context. See Octane Fitness v. Icon Health & Fitness, No. 12-1184 (argued Feb. 26, 2014)

(concerning the Fed. Circuit’s rigid two-part test for fee shifting under the analogous provision of the Patent Act).

Amicus AIPLA argued for discretion on the part of district judges: “[G]reater flexibility . . . will help deter overly aggressive litigation tactics . . . .”

2013 WL 6492301, at *31 (Dec. 9, 2013) (emphasis added). On the other hand, a “flexible test gives the intellectual property bar sufficient

room to make creative, zealous arguments on behalf of their clients.” Id.

Justices (especially Kennedy) seemed concerned that mandating a standard would not provide sufficient guidance to district courts: “[T]his is a search for adjectives.” “Is there a difference between ‘meritlessness’ and ‘objectively baseless’?” “I’m not quite sure what words we’re going to give to the district court.”

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Existing law already provides sanctions for litigation misconduct and frivolous pleading in appropriate cases. See Motown Productions, Inc. v. Cacomm, Inc., 849 F.2d 781 (2d Cir.

1988) (stating in dicta that fee awards under Section 35 may be levied directly against counsel, but denying fees in the absence of frivolous pleading).

Cf. Patsy's Brand, Inc. v. I.O.B. Realty, Inc., 317 F.3d 209 (2d Cir. 2003) (affirming fee award where defendant proffered falsified documents).

E.g., Contractual Obligation Prods., LLC v. AMC Networks, Inc., 546 F. Supp. 2d 120, 129–30 (S.D.N.Y. 2008) (granting fees to defendant television network where plaintiff’s trademark claims were foreclosed by clear Supreme Court precedent).

Cf. National Ass'n of Prof'l Baseball Leagues, Inc. v. Very Minor Leagues, Inc., 223 F.3d 1143, 1148 (10th Cir. 2000) (affirming denial of fees where sports league’s common law trademark claims against PTO registrant were not unfounded or intended to harass).

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PR 208-3: Q: SHOULD THE LANHAM ACT PROVIDE FOR A PRESUMPTION OF IRREPARABLE HARM AFTER EBAY?

A: NOwww.kirkland.com 17

PR 208-3: Injunctive Relief after eBay

As the Supreme Court held in eBay, “the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and . . . such discretion must be exercised consistent with traditional principles of equity,” which require a case-by-case analysis of irreparable harm. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).

Courts have not limited eBay to patent cases. See Salinger v. Colting, 607 F.3d 68, 78 (2d Cir. 2010) (applying eBay to a

copyright case in light of the Supreme Court’s reliance on non-patent cases in reaching its decision in eBay).

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Common justifications for the presumption do not explain the usefulness of a Lanham Act amendment to codify it in light of eBay. Proponents of the presumption argue that irreparable harm can be presumed in

trademark cases because undoing reputational harm is like trying to “unring a bell.” McCarthy § 30.47.

See also Ty, Inc. v. Jones Grp., Inc., 237 F.3d 891, 903 (7th Cir. 2001) (affirming grant of injunction against “Beanie Racers” knockoff toys because plaintiff otherwise would lose control of its hard-earned reputation).

The Proposed Resolution does not explain how codification of the presumption will ensure that deserving trademark owners get injunctive relief.

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The Lanham Act should preserve the flexibility of district courts to determine whether irreparable harm is likely, or has occurred.

Where injunctions are warranted, courts following eBay have granted them: See Nike, Inc. v. Lydner, No. 607-CV-1654, 2008 WL 4426633, at *5–6 (M.D.

Fla. Sept. 25, 2008) (enjoining sale of counterfeit sporting goods without relying on the presumption).

Auburn Univ. v. Moody, No. 08-796, 2008 WL 4877542, at *8 (M.D. Ala. Nov. 4, 2008) (finding threat of irreparable harm where plaintiff would lose control of its reputation as a result of defendant’s unlicensed sales of university logo products).

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Presentation to:

Presented on:

© 2014 Kirkland & Ellis LLP. All rights reserved.

Presented by:

American Bar Association29th Annual IP Law Spring

ConferenceArlington, VA

April 3, 2014

Dale Cendali

212-446-4846

[email protected]

presentation to: presented on: © 2014 kirkland & ellis llp. all rights reserved. presented by:...

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