Opinion
NO. 98-2949, SECTION "A"(3).
August 27, 2000.
ORDERS AND REASONS
Before the Court are the below listed Motions in Limine filed pursuant to the pre-trial conference in this matter regarding various issues which will figure prominently in the trial of this matter and the Court's rulings with respect thereto, followed by a discussion serially addressing the Court's reasons for its rulings along with various and sundry caveats with respect to each such ruling:
I. Defendants' Motion in Limine Regarding Damage Issues:
(A) Whether "gross negligence" is sufficient to support a finding of "willfull" trademark infringement? "Gross negligence" is not sufficient to support a finding of "willful infringement", however, conduct which evidences "deliberate indifference" to the trademark owner's rights in the mark akin to "willful infringement" is sufficient to support such a finding.
(B) Whether it is the province of the jury or the Court to determine the following types of damages prescribed by the Lanham Act:
(1) Damages for "Willful" Trademark Infringement? It is the province of the jury under the direction of this Court to determine such damages.
(2) Whether the case warrants an award of attorneys fees? It is the province of the Court upon finding "exceptional circumstances" warranting such an award.
(C) Whether damages for willful infringement is limited to an award of defendant infringers' profits, or may the jury be informed of other factors, and make royalty-based award based upon the number and cost of producing the infringing mailers under the facts of this particular case? Lanham Act damages are compensatory in nature, may be imposed as a deterrent, and depending on the facts of the particular case, the trier of fact may make a "royalty-based" award and may be informed of other factors bearing on value of the mark, the willful infringer's profits, value of the plaintiff trademark owner's loss of good will, etc. However, in this particular case there is no basis in fact for assessing any damage award for willful infringement on the basis of a royalty.
(D) Is the 1996 Texas judgment or the 1997 Settlement Agreement res judicata so as to prevent plaintiff Touch of Class from claiming damages based on an area larger than Louisiana and Texas? The parties agree that the Texas judgment is res judicata as to the protectability of the plaintiff's mark and the issue of the likelihood of confusion, which likelihood of confusion was found only in the two-state area.
(E) Whether plaintiff Touch of Class may recover damages for negligence under Louisiana law? Yes, with several important caveats.
(F) Whether the measure of damages under the Louisiana Unfair Trade Practices Act is limited to actual lost profits? Damages under LUPTA and article 2315 are compensatory in nature but do not appear to be limited to the lost profits only within the state of Louisiana.
II. DEFENDANT OTC's MOTION IN LIMINE REGARDING THE DOMAIN ISSUE is granted and no references may be made to the fact that OTC registered the domain names at issue.
III.PLAINTIFF'S MOTION IN LIMINE REGARDING PROOF OF DEDUCTIONS FROM GROSS REVENUES, etc.
BACKGROUND
Plaintiff's claims in the captioned case are based on an allegedly infringing mailer issued in December of 1997. It is not disputed that an injunction issued as a result of a prior Lanham Act lawsuit against the defendants, OTC and J.C. Penney in the state of Texas (i.e., "A Touch of Class Jewelry Co., Inc. v. J.C. Penney Co.," No. 90-1333P (N.D. Tex., April 16, 1996)). It is further uncontroverted that pursuant to that litigation in Texas, plaintiff Touch of Class was found to have trademark rights in the mark "Touch of Class" with respect to jewelry, at least sufficient to warrant issuance of a permanent injunction against the defendants, OTC and J.C. Penney, enjoining their use of the mark or name "Touch of Class" in connection with the sale of jewelry in the two-state area of Louisiana and Texas.Also, the parties do not dispute that pursuant to a Settlement and Release arising also from the Texas litigation, that plaintiff Touch of Class granted the defendant OTC a non-exclusive, unrestricted, paid-up perpetual license to use the mark "Touch of Class" in all states except in Texas and Louisiana. [OTC Exhibit "A" at para. 3]
See, January 30, 1997 Settlement Agreement and Release (Defendants' Exhibit 3).
The defendant J.C. Penney Company admittedly utilized the plaintiff's mark in an advertisement distributed nationwide in connection with the sale of jewelry products in direct contravention of the 1996 Texas court judgment enjoining such activity in the two-state area of Texas and Louisiana. J.C. Penney submits its use of the mark was through mistake and inadvertence. Defendant J.C. Penney's motion for summary judgment was denied early on in these proceedings.
Thereafter, plaintiff Touch of Class added the defendant OTCvia Supplemental and Amending Petition alleging its complicity and/or involvement in the decision to release the infringing 1997 J.C. Penney Christmas mailer and that it is jointly liable along with J.C. Penney Company for contributory infringement.
The facts admit that issuance of the infringing activity did occur on the heels of the 1997 Settlement Agreement and not long after issuance of the 1996 Texas court's judgment which enjoined both of the defendants in this case, OTC and J.C. Penney Company, from using the "Touch of Class" mark in connection with jewelry sales in Texas and Louisiana.
According to the defendant OTC, the sum and substance of the evidence is that OTC had no knowledge of J.C. Penney's decision to use the "Touch of Class" mark in its Ornaments brochure. OTC's position has remained unchanged throughout, to wit: (1) its participation was limited to a decision to pay for a part of the Ornament's brochure on a co-op basis; (2) it provided J.C. Penney Company with a proposed layout of the jewelry to be advertised in the brochure; (3) it provided the merchandise based upon the orders received; (4) there was no complicity on its part with any alleged infringing activities allegedly perpetrated by its co-defendant.; (5) OTC had no input in J.C. Penney's decision to use the "Touch of Class Collection" mark in the Ornament's brochure; (6) OTC had no knowledge of such use by J.C. Penney until it received a copy along with the November 24, 1997 invoice from J.C. Penney; (7) as soon as OTC saw that the brochure utilized the "Touch of Class" mark, it notified J.C. Penney, which company in turn notified Texas court, Judge Solis, which court entered the final judgment enjoining J.C. Penney's and OTC's use of the mark in Louisiana and Texas; (8) OTC was not involved in any decision to continue to send out the mailer; and (9) the merchandise sold to J.C. Penney's by OTC did not include any box, label, hang tag or any other use of the mark or name "Touch of Class" or "Touch of Class Collection" and/or any other variation of those terms.
Both defendants take the position that this instance of infringement was not willful and that based on the evidence that will be adduced at trial, a worst case scenario is that its conduct will be characterized as "grossly negligent." Defense counsel submits that "gross negligence" is not sufficient to support a finding of "willful infringement" under the Lanham Act. Counsel for defendants essentially argues its view of the evidence — that is, the representatives of the defendant companies did not turn a blind eye to the situation with which it was presented at the eleventh hour, but instead the defendant companies took immediate affirmative action as soon as they became aware of the admittedly infringing December 1997 mailer, albeit not soon enough, to stop its issuance nationwide.
In the past few days the Court has been visited (i.e., copied) with a barrage of correspondence to and from counsel for the litigants noting and/or indicating that the evidence adduced at trial may demonstrate that representatives of the defendant companies became aware of the infringing mailer in mid to late November 1997 and in any event prior to the November 25, 1997 letter notifying the Texas court, Judge Soils, which correspondence stated that the offending mailer "has been sent out", and that "this mailing is a result of inadvertence and oversight," when in fact, except for a few early deliveries on November 30, 1997, the lionshare of the 5 million mailers were not delivered until first few days of December of 1997. It is the plaintiff's contention that the evidence will demonstrate that the defendant contracted with a Harte Hanks for delivery of the mailers, and it could have stopped the mailing, but no one even made an attempt to do so. Most recently, the defendant JC Penney has to adjust its theory of defense to the plaintiff's allegations of willful infringement. Its position throughout the pre-trial proceedings was that J.C. Penney did not know of the infringing mailer until it was too late to stop the delivery. On August 23, 2000, the Court was informed that defendant's present position is that the employees of JC Penney who learned in November, 1997 that the mailer infringed the Touch of Class trademark did not know or suspect, in November, 1997, that the mailing to Louisiana and Texas customers could be stopped. Should the jury swallow the defense now posed "hook, line and sinker", the question for jury determination is whether an "Oops, there it is" type of response, accompanied no effort to determine if the mailing could be stopped, is tantamount to deliberate indifference akin to willful infringement.
Plaintiff's counsel position is that with respect to OTC and its complicity with J.C. Penney, the evidence will demonstrate that in October of 1996, OTC put the mark in commerce with full knowledge that the mailer would be distributed nationwide and without restriction. According to plaintiff, the import of the evidence adduced at trial will demonstrate that both OTC and J.C. Penney viewed the allegedly offending mailer sometime prior to late November 1997 and in time to take steps to prevent its issuance nationwide, that issuance of the infringing Christmas mailer nationwide was a cooperative endeavor, albeit spearheaded by J.C. Penney's marketing department, that J.C. Penney Company and OTC had a duty to ensure that their marketing efforts did not infringe the plaintiff's protected "touch of class" mark at least in Texas and Louisiana, as well as nationwide, and that although both were well aware of the infringing mailer in time to stop its issuance, both companies failed to take any steps to do so.
ANALYSIS
I. DEFENDANTS' MOTION IN LIMINE ON DAMAGE ISSUES.
A. Gross negligence is not sufficient to support a finding of "willful infringement" under the Lanham Act.
Perhaps, the better question under the facts and circumstances of this particular case is whether the conduct of the defendants in this case can be characterized as deliberate indifference of the plaintiff trademark owner's rights akin/tantamount to "willful infringement" within the meaning of the Lanham Act. Nevertheless, the question posed is whether "gross negligence" is sufficient to support a finding of willful infringement, which finding is a necessary prerequisite to an award of the infringer's profits under the Lanham Act.
As noted at the outset, the defendant J.C. Penney has admitted unintentional or perhaps even careless trademark infringement, and has taken the position the evidence adduced at trial will show that, at worst, its conduct can be characterized as nothing more than "gross negligence", which is insufficient to support a finding of "willful infringement" under the Lanham Act.
Insofar as the prosecution of the plaintiff's Lanham Act claim is concerned, it appears from plaintiff's counsel would welcome a ruling lessening the burden of proof. However, the "gross negligence" mark is below the lowest ebb on the sliding scale showing conduct tantamount to "willful infringement" under the Act.
However, this Court understanding of what the plaintiff intends to prove at trial on the merits is much more than simple carelessness, oversight, inadvertence or even "gross negligence" on the respective defendant companies' parts. As the Court discerns from the evidence discussed thus far, having heard prior motions and conducted a number of conferences involving discovery, inter alia, gross negligence would be a gross mischaracterization of the tenor of the plaintiff's allegations regarding the defendants infringing conduct.
The defendants' conduct which is the subject of plaintiff's allegations, and apparently the conduct that the plaintiff's counsel intends to prove at trial smacks of deliberate indifference at the very least, and intentional/willful deceit and bad faith at its worst. According to the submissions to date, it is apparent to the Court that what the plaintiff intends to prove at trial is that both J.C. Penney and OTC took a calculated business risk, turned a blind eye to the admittedly infringing mailer, allowed its issuance to customers nationwide, the thinking being that infringement would be less costly than stopping the infringing mailer's issuance. Whether the evidence admits those conclusions and whether innocence or arrogance played any part in what occurred are jury determinations and go to the issue of "willful infringement."
This type of conduct complained of, if proven by direct and/or circumstantial evidence through inference, can hardly be characterized as carelessness or "gross negligence." It is more in the nature of calculated bad faith type conduct — that is, the brand of conduct that warrants both disgorgement of the infringer's profits and/or treble damages under the Lanham Act. The Court further observes that such conduct if proven by clear and convincing evidence at trial is also sufficiently exceptional and/or egregious to warrant an award of attorneys' fees under the Act.
Turning to the applicable law, counsel for the defendant companies aptly cite the Fifth Circuit case of Rolex Watch USA. Inc. v. Meece, 158 F.3d 816, 823-24 (5th Cir. 1998), for the proposition that in order to recover an infringer's profits, the plaintiff must prove "willful deception," "bad faith," or "deliberate intent to deceive." Defense counsel's position is that these phrases connote actual knowledge of wrongdoing. Counsel submits that at least in the Fifth Circuit, actual knowledge is the sine qua non for an award of infringer's profits in a trademark infringement case.
Remedies for violation of the Lanham Act are provided in Section 15 U.S.C. § 1116 (injunctive relief) and § 1117 (profits, damages, costs, attorneys' fees) and § 1118 (destruction of infringing articles). At issue here is § 1117, which provides, in pertinent part, that the successful plaintiff is entitled,
Quite obviously, injunctive relief will not suffice in this particular case. The precise instance of alleged intentional trademark infringement which is the subject of the captioned litigation occurred in the face of the Texas court's injunction which followed a full decade of acrimonious trademark infringement litigation involving the very same trademark, and precisely the same parties, in the same capacity. Understandably, this time the plaintiff has opted to seek what is apparently perceived as possibly a more effective remedy — that is, damages in form of the infringer's profits, inter alia.
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. . . . If the court shall find that the amount of 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. The court in exceptional cases may award reasonable attorney fees to the prevailing party. Id. [emphasis added].
In the Rolex Watch case, the Fifth Circuit reiterated the following non-exclusive list of factors as appropriate considerations in determining whether an award of profits under § 1117(a) is appropriate:
(1) whether the defendant had the intent to confuse or deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off.
Rolex Watch, 158 F.3d 816, 823 (5th Cir. 1998) (citing,Pebble Beach, 155 F.3d at 554).
In Seatrax, Inc. v. Sonbeck International, Inc., 200 F.3d 358 (5th Cir. 2000), the Fifth Circuit revisited the issue of what circumstances warrant an accounting for profits, noting that the plaintiff is entitled to only those profits attributable to the unlawful use of its trademark. Id., at 369 (citing, Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 544 (5th Cir. 1998)). In the Seatrax case, the Fifth Circuit observed: "[W]e have not expressly held that a finding of willfulness is required to trigger § 1117 damages, . . . nor does our independent research reveal any cases from this circuit where an accounting of profits has been awarded without a finding of wilfulness. Id., at 372 n. 9.
In George Basch Co. v. Blue Coral, 968 F.2d 1532 (2nd Cir.),cert. denied, 113 S.Ct. 510 (1992), the Second Circuit addressed the question of whether willfulness or intentional misconduct is a necessary element to merit an accounting of the defendant's profits under the theories of unjust enrichment, deterrence, or when the plaintiff sustains damages. The Basch court concluded that a finding of willful deceptiveness is necessary in order to warrant an accounting for profits. The court went on to note that while such a finding is necessary, it may not be sufficient. The Basch court enumerated five factors which may be additionally considered in awarding profits, to wit: (1) the degree of certainty that the defendant benefitted from the unlawful conduct; (2) the availability adequacy of other remedies; (3) the role of the particular defendant in effectuating the infringement; (4) the plaintiff's laches; (5) the plaintiff's unclean hands. 968 F.2d at 1540.
In Securacomm Consulting Inc. v. Securacom, 166 F.3d 182 (3rd Cir. 1999), a trademark infringement case out of the Third Circuit, the issue was whether the trial court erred when it awarded the infringer's profits as damages, then trebled that award, and also assessed attorneys' fees. The court noted that central to those awards was the district court's finding that the defendant corporation had willfully infringed the plaintiff's mark. Because the appellate court concluded that the evidence did not support a finding of willful infringement, the judgment was reversed and the case was remanded.
The Securacom court observed:
Knowing or willful infringement consists of more than the accidental encroachment on another's rights. It involves an intent to infringe or a deliberate disregard of the mark holder's rights. The Second Circuit has aptly described willful infringement as involving `an aura of indifference to plaintiff's rights' or a `deliberate and unnecessar[y] duplicating [of a] plaintiff's mark . . . in a way that was calculated to appropriate or otherwise benefit from the good will the plaintiff had nurtured.'Id., at 187 (citing, W.E. Bassett Co. v. Revlon, Inc., 435 F.2d 656, 662 (2nd Cir. 1979); Rolex Watch, 158 F.3d 816, 823 (5th Cir. 1998; and Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400 (9th Cir.), cert. denied, 114 S.Ct. 64 (1993)).
The most relevant part of the Securacom case, in terms of the issues presented in the case at bar, is the Third Circuit's discussion of the different types of conduct which may or may not support a finding of "willful infringement." First, considering particular conduct which is not sufficient to support a finding of willful infringement, the court held: (1) it was error and inequitable to impute knowledge of a fired employee to the new management of the infringing company in the absence of any evidence that such knowledge was passed on to new management notwithstanding the law that knowledge of a corporate officer is generally imputed to the corporation; and (2) where there was no evidence that the infringing company's attorneys advised a trademark search, it is unreasonable to find willful ignorance akin to willful infringement on the basis of the company's failure to conduct such a search.
The Securacomm court found the plaintiff's argument regarding imputed knowledge inconsistent with the principles of equity. The court explained that looking to those principles, courts have held that a finding of willfulness or bad faith is important to a determination of whether to award profits, enhanced damages and attorney's fees under the Lanham Act. 166 F.3d at 188.
Id. at 189.
As to conduct which is sufficient to support an award of an infringer's profits, the Securacomm court observed the distinction between (1) conduct which evidences carelessness with respect to another's rights in a mark, and (2) conduct which evidences deliberate indifference with respect to another's rights in a mark or a calculated attempt to benefit from another's goodwill. See also, W.E. Bassett Co. v. Revlon Inc., 435 F.2d 656, 662 (2nd Cir. 1970) (affirming a finding of willfulness based on evidence that the defendant tried to buy out the trademark holder prior to the infringement).
See, Securacomm, 166 F.3d at 188-89 (recognizing a brand of willful ignorance akin to willful infringement); ISCYRA v. Tommy Hilfiger, 80 F.3d 749, 753 (2nd Cir. 1996) (holding that an alleged infringer's failure to conduct a full trademark search after its attorneys advised that such a search was warranted may evidence willful ignorance akin to willful infringement where the infringer was aware when it adopted the mark that it was copying "authentic details" from the plaintiff's design); and Takecare Corporation v. Takecare of Oklahoma, 889 F.2d 955 (10th Cir. 1989) (holding continued use of a mark after notice of infringement constitutes willful conduct).
The Court here notes that actual knowledge that the defendant company was infringing need not be proven directly, but it may be inferred from the defendant's conduct. See, Knitwaves Inc. v. Lollytogs Ltd., 71 F.3d 996, 1010 (2nd Cir. 1995). In the context of this case, however, Knitwaves adds little since the defendant J.C. Penney as of August 23, 2000 admitted actual knowledge of the infringing conduct, now defending its position on the basis that the company personnel who were aware of the infringing Christmas mailer did not know that they could stop its issuance.
Previously, this Court described the defendants' "take" on the evidence in the case, and it is drastically different from that of the plaintiff. Essentially, the plaintiff's position, previously noted at p. 10, is that direct evidence, circumstantial evidence, along with reasonable inferences from the aforesaid evidence, will support a finding of at least deliberate indifference akin to willful infringement.
The Fifth Circuit case law is in line with other circuit law to the effect that carelessness and/or gross negligence will not support a finding of willfulness. However, conduct demonstratingdeliberate indifference/willful blindness of a plaintiff's rights in its trademark akin to willful infringement may well support an award of the infringer's profits under the Lanham Act.
B(1). An Award of Infringer's Profits is a Jury Determination to be made Under the Direction of this Court.
Now the Court will focus specifically on the parties' dispute as to whether the issue of an accounting for infringer's profits is an issue for the Court or the jury to determine. The purpose of a Lanham Act award of the willful infringer's profits under Section 1117(a) differs from the purpose served by Section 1117(c), which provides an alternative legal remedy in the case where actual damages proves problematic, etc. A Lanham Act plaintiff's additional recovery of the willful infringer's profits over and above the plaintiff's actual damages under 1117(a), much like the trebling of damages pursuant to Section 1117(b) largely serves deterrent purposes and protects consumers and the trademark owner's goodwill alike. That is most apparently why such awards are dependent on findings of willful deceptiveness, intentional counterfeiting, and what can be characterized as quasi-criminal states of mind. Dating back to the Seventh Amendment of the Constitution of the United States, this type of determination has historically been the province of the jury.
Even where there have been findings of willful deceptiveness or intentional counterfeiting, section 1117 provides that the Court may still exercise its discretion to deny recovery beyond actual damages, either in the case of an award of defendants' profits pursuant to 1117(a), or in the case of trebling the entire recovery by finding "extenuating circumstances" under § 1117(b). Of course, this does not alter the conclusion that willful deceptiveness or "willful infringement" are for the jury to decide.
See, George Basch Co. v. Blue Coral, 968 F.2d 1532, 1540 (2nd Cir.), cert. denied, 113 S.Ct. 510 (1992).
As to the determination of the amount of an award of infringer's profits, § 1117(a) simply provides that "[the Court shall assess profits and damages or cause same to be assessed under its direction." [emphasis added]. Clearly, this authorizes a district court, in the exercise of its discretion, to have the jury make the assessment of the amount of such profits under the Court's direction — that is, the same jury which determines whether there is "willful infringement."
In the instant case, which at this moment does not appear to involve any unusual complexities, the Court will leave this determination to the jury. Needless to say, the Court will be informed of the jury's determination as to "willful infringement" and any corresponding award of infringer's profits.
B(2) The Assessment of Attorneys' Fees under the Lanham Act if any, shall be made by the Court Alone.
Attorney's fees under § 1117 may be awarded by the Court only in "exceptional cases." The exceptional case is one in which the defendant's trademark infringement can be characterized as malicious, fraudulent, deliberate, willful. Seatrax, 200 F.3d at 373. The law of the Fifth Circuit is to the effect that an award of attorneys' fees requires a showing of a high degree of culpability. Rolex Watch, 158 F.3d at 824. Both counsel for the defendants and counsel for the plaintiff agree that only the trial judge can appropriately make an award of attorneys' fees pursuant to the Lanham Act.
A determination of attorneys' fees by nature and by statute is reserved to the trial judge. Section 1117(a) provides, in part: "The court in exceptional cases may award reasonable attorney fees to the prevailing party." Id . An exceptional case almost invariably involves "a situation where the infringer is either hurting the protected mark holder financially or has it within his power by his wrongful conduct to do so."
Texas Pig Stands v. Hard Rick Cafe Intern., 951 F.2d 684, 697 n. 23 (5th Cir. 1992).
The district court should decide whether a case is exceptional by examining all of the facts and circumstances. The prevailing party must demonstrate the exceptional nature of the case by clear and convincing evidence before the Court should decide whether to make an award. CBC Holdings, Inc. v. Wright Late, Inc., 979 F.2d 60, 65 (5th Cir. 1992); Machinery Corp. of Am v. Gullfiber AB, 774 F.2d 467, 472-73 (Fed. Cir. 1985).
C. Under the facts of this particular case, damages for willful infringement may not be based upon royalty for each brochure or the cost of producing such brochures. There is no basis in fact for such a royalty-based award in this case. There is no evidence that Touch of Class ever negotiated a royalty rate with respect to the use of its mark or name. However, the cost of the license issued to OTC may be considered in connection with any award for willful infringement since such evidence bears directly on the value of the plaintiff's mark.
Now the Court discusses its determination that a royalty-based damage award is an inappropriate under the precise facts and circumstances of this case. The Court agrees with plaintiff's counsel's assertion that generally, as to damages for lost good will, such damages may be measured either the by cost of corrective advertising (even if not undertaken), or the value of a "reasonable royalty."
See, e.g., Adray v. Adry-Mart, Inc. 76 F.3d 984, 988-89 (9th Cir. 1995); Big O Tire Dealers, 561 F.2d at 1374-75.
See, Sands, Taylor Wood v. Quaker Oats Co., 34 F.3d 1340, 1350-51 (7th Cir. 1994); A H Sportswear Co., Inc. v. Victoria Secret Stores, Inc., 967 F. Supp. 1457, 1479-81 (E.D. Pa. 1997).
Determining a reasonable royalty would prove difficult under the facts of this case, since plaintiff has only licensed it mark once and has never negotiate a royalty in connection with use of its mark.
The Court recognizes that in Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc., 318 F. Supp. 1116 (S.D.N.Y. 1970),modified and aff'd., 446 F.2d 295 (2nd Cir. 1971), cert. denied, 404 U.S. 870 (1971), the district court provided the following criteria for determining a reasonable royalty, to wit: (1) the royalty rates received in prior licenses by the licensor; (2) prior rates paid by the licensee; (3) the licensor's licensing policies; (4) the nature and scope of the infringer's infringing use; (5) the special value of the mark to the infringer; (6) the profitability of the infringer's use; (7) the lack of viable alternatives; (8) the opinion of expert witnesses; and (9) the amount the licensor and licensee would have agreed upon in voluntary negotiations. Id., at 1120. These factors have been accepted and utilized by a number of courts. However, considerations of these factors prove difficult if not impossible here where there has been no prior negotiations which culminated determination of a royalty in connection with the use of the mark or name Touch of Class.
Stickle v. Heublein, Inc., 716 F.2d 1550, 1553 (Fed. Cir. 1983); Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 517 F.2d 1152 (2nd Cir. 1978); Ellipse Corp. v. Ford Motor Co., 461 F. Supp. 1354, 1379 (N.D. Ill. 1978), aff'd, 614 F.2d 775 (7th Cir. 1979), cert. denied, 446 U.S. 939 (1980).
One court observed that:
"the determination of a reasonable royalty remains a legal fiction, `created in an effort to compensate when profits are not provable, a "reasonable royalty" device conjures up a "willing" licensor and licensee, who like ghosts of Christmas Past are dimly seen as "negotiating" a "license." There is, of course, no actual willingness on either side, and no license to do anything, the infringer being normally enjoined . . . from further [use of the plaintiff's trademark.'" See, Sands, Taylor Wood Co. v. The Quaker Oats Co., 1993 WL 204092 (N.D. Ill. decided June 8, 1993) (citing, Panduit Corp., 517 F.2d at 1159)).
The plaintiff in this case, Touch of Class, has in fact licensed its trademark to OTC for use in all states except Texas and Louisiana. It did so, once and only once, and then, with significant limitations on its use, for a one-time $450,000.00 fee. Such evidence may be considered in connection with any determination of damages for willful infringement, where as here the ascertainment of profits or the value of loss of good will may prove a difficult endeavor.
In reaching its conclusion regarding the inappropriateness of any royalty-based award in this case, the Court has not ignored the Fifth Circuit's precedent in Taco Cabana International, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1126 (5th Cir. 1991) holding that a successful Lanham Act plaintiff's recovery may include "the economic benefits they normally would have received by licensing." Id. (citing, Professional Hockey Ass'n v. Dallas Cap Emblem Mfg., Inc., 597 F.2d 71, 75 (5th Cir. 1979) for the proposition that plaintiff's failure to quantify damages from diverted sales did not preclude recovery for deprivation of economic benefits that would have accrued from licensing). In both the Taco Cabana and the Professional Hockey cases, supra, the Fifth Circuit rejected the notion that only diverted sales provide a proper measure of damages. However, the fact remains that the plaintiff in this case has never reaped any economic benefits in the form of a royalty in connection with licensing the use of its mark.
This Court will revisit the issue of the proper measure of damages under the particular facts and circumstances of this case as they play out at trial during the charge conference, which will be held at the close of all of the evidence.
D. It appears to the Court that "the parties have agreed that the Texas judgment is res judicata with regard to the protectability of plaintiff's trademark as well as the likelihood of and actual confusion caused by the defendants' infringing use"
See, Plaintiff's Motion in Limine regarding proof of economic damages at p. 7.
Either the Texas court's judgment is or it is not res judicata. Despite plaintiff's counsel's protestations in its opposition to the defendants' Motion in Limine on Damages, plaintiff's counsel asserts in plaintiff's own Motion in Limine that the Texas court's judgment is res judicata as to both the likelihood of confusion and the protectability of its mark. The Court notes that the Texas court's judgment only protects infringement in a two-state area, Texas and Louisiana. The Court further notes that in the context of the 1997 Settlement plaintiff licensed its mark to OTC for a fee, restricting that use to states other than Texas and Louisiana. The Court also notes that the jury in the Texas litigation determined that plaintiff was not the first user of its registered mark in any state other than the states of Texas and Louisiana.
The Court is of the opinion that as to the determination of market area as of the time of the instant infringement, whether the Texas Judgment or the 1997 Settlement Agreement has any res judicata effect with respect to limiting the damage assessment in this case to a two-state area, is really of no moment.
Since the entry of the Texas Court's injunctive decree, J.C.Penney ceased using the mark at issue, having used it only once when the Week 45 Mailer was distributed. Similarly, OTC use of mark nationwide ceased, except within the confines of the limited license granted by plaintiff pursuant to the Settlement Agreement. These facts, standing alone, do not entitle the plaintiff Touch of Class to an award of infringers' profits based upon the area larger than the two-state area of Texas and Louisiana.
The jury's assessment of Lanham Act damages will occur under the direction of this Court. In no circumstances will the Court permit an award tantamount to punitive damages stand in this Lanham Act case.
Each Lanham Act case must be considered separately, on its own facts, and any award must be made in light of the equities involved. Plaintiff has suggested that damages may be based upon estimates of cost of corrective advertising or estimated loss of good will damages. However, in order to recover infringers' profits nationwide, the plaintiff must first present evidence of a the likelihood of confusion nationwide — that is, if the Texas court's judgment on that issue is not considered res judicata. Also, nationwide disgorgement of profits necessarily contemplates proof of nationwide loss of goodwill, nationwide damage to reputation, and the need for corrective advertising nationwide. Apparently, plaintiff's evidence along those lines in the Texas case proved unconvincing.
The compensation theory of awarding profits usually involves some direct competition between the parties. As the Court appreciates the evidence which will be adduced at trial, at the time of the instant infringement there was no competition between the plaintiff and the defendants nationwide (i.e., plaintiff's sales nationwide were de minimis, OTC was a licensed user of the mark in all states except Texas and Louisiana, and J.C. Penneys had ceased all use of the subject mark). The 1996 Texas Court's injunction and the 1997 Settlement Agreement, similarly admit that conclusion. Also, the infringement which is the subject of this case occurred less than a year after execution of the 1997 Settlement Agreement.
The Court recognizes that an award of an infringers' profits under the deterrence theory is not compensatory in nature, and rather seeks to protect the public at large by promoting the secondary effect of deterring public fraud regarding the source and quality of consumer goods. See, George Basch, 968 F.2d at 1539. However, even utilizing the deterrence theory, an award of the infringer's nationwide profits in a case where there is no likelihood of confusion demonstrated beyond a two-state area, would be tantamount to an award of punitive damages. The Court cannot refrain from the observation that infringement involves OTC jewelry products and OTC was a licensed user of the mark and name, Touch of Class, in all states except Texas and Louisiana. Beyond the two-state area of Texas and Louisiana, in this particular case there was little possibility of public fraud regarding the source and quality of the consumer goods, since OTC was a licensed user. The deterrence theory has its limits under the particular facts of this case.
It is not disputed that punitive damages are not available under federal trademark law. 15 U.S.C. § 1117(a) (monetary awards constitute "just compensation and not a penalty"). This Court recognizes that the plaintiff Touch of Class has a registered trademark and is entitled to protection nationwide.
Notwithstanding the plaintiff's nationwide rights in the mark, and that such rights deserve protection, damages pursuant to the Lanham Act must be compensatory in nature and not punitive. The jury should receive direction from this Court which will permit the assessment, if any is made under the Lanham Act for any infringers' profits, of a compensatory and not a punitive award.
Any assessment of compensatory damages must be grounded in a reasonable estimate of the damages based upon relevant data. The Court agrees with counsel for the plaintiff that the wrongdoer, if it is determined that there is any willful wrongdoer in this case, should not be allowed to insulate itself from liability under the shroud of uncertainty as to damages where the uncertainty is caused by the infringer's bad faith acts. On the other hand, compensatory damages must be calculated to make the plaintiff whole, should not be based upon conjecture and speculation, and also should not be based on methodologies which insult the intelligence.
The Court will make every effort to ensure that a Lanham Act award, if one is made, rests upon an adequate foundation. In this vein, counsel for the parties could be of great assistance by steering clear of inappropriate methodologies for calculating damages, which would include avoiding the suggestion of inappropriate deductions from infringers' gross profits.
E. La.Civ. Code Art. 2315 has a sufficiently broad stroke to encompass plaintiff's trademark infringement claim.
As this Court understands the ingredients of an offense or quasi-offense under Article 2315, they are: damages springing from some right personal to the individual or relating to his property or the violation of some duty imposed by law. Generally, the injuries from which tort damages emanate are injuries to the person, property, or reputation, resulting from deceit, slander and libel, false imprisonment, seduction, trespass, conversion, infringement of patents and trademarks, damage by animals, or nuisance — i.e., these constitute negligence offenses.Burney's Heirs v. Ludeling, 16 So. 507, 514, (La. 1894).
However, the Court notes that in this particular case, breach of the Texas court's injunctive decree may not form the basis of any Louisiana negligence action pursuant to article 2315 because the Texas court has exclusive jurisdiction as to the enforcement of the dictates of that injunctive decree. Also, the settlement agreement may not form the basis of any negligence action because there is no tort liability for breach of contract, rather article 2315 refers only to a breach of duty imposed by law.
It was mentioned at the pre-trial conference that plaintiff has not pled breach of contract and intends to make no such claim at trial on the merits. Also, in the event that the plaintiff desires to press his Article 2315 claim in connection with any violation of the Texas court's injunctive decree, even at this late date, the Court will not hesitate to transfer the matter to the Northern District of Texas. Any prosecution of the Article 2315 claim should be mindful of the aforementioned limitations.
F. Plaintiff admits that damages assessed in favor of a plaintiff corporation under the Louisiana Unfair Trade Practices Act (LUPTA) and/or Article 2315 for negligent infringement cannot include any award for mental damages such as pain, suffering, mental and emotional anguish.
However, counsel for plaintiff takes issue with defense counsel's argument that damages under LUPTA and Louisiana tort law are limited to loss of sales in Louisiana only. The Court discerns no law limiting recovery of damages to loss of sales in Louisiana only. However, the remedy provided under Louisiana tort law is compensatory damages — damages that make the plaintiff whole or as it was prior to the allegedly offending conduct. Any damages sought in connection with article 2315 must be compensatory in nature and not punitive.
II. Defendant OTC's Motion in Limine on the Registration of various Domain Names is GRANTED.
Defendant OTC seeks an order from this Court excluding all reference to OTC's registration of the domain names "touchofclassjewelry.com", "touchofclassjewelry.net", and "touchofclassjewelry.org" for the reasons that: (1) its registration of the aforesaid domain names is irrelevant to any issue in this case; (2) the registration did not occur in Texas or Louisiana; (3) OTC has a license to use the plaintiff's mark in all other states; (4) Touch of Class is bound by the 1997 Settlement Agreement not to bring any claims against OTC relative to the use of the mark in any states other than Texas and Louisiana; (5) registration of the domain names does not constitute "use in commerce"; and (6) balancing the factors, the potential for unfair prejudice greatly outweighs the probative value since such evidence has no probative value as to any issue in the case. The Court is persuaded by defense counsel's argument.
Counsel for plaintiff argues that registration of the domain names may be relevant for the purpose of impeaching OTC's witnesses' testimony regarding "use" of the mark since issuance of the injunction. The Court disagrees with counsel for plaintiff. Registration of the domain names does not constitute use. Therefore, the fact of registration which is not "use", is not properly impeachment, and is wholly irrelevant.
Also, the potential for unfair prejudice and confusion in this instance is heightened by the utter absence of any probative value of the evidence of domain name registration. Counsel for plaintiff shall not make any reference to or attempt to elicit testimony regarding defendant's registration of the aforesaid domain names.
III. Plaintiff's Motion in Limine Regarding Proof of defendant's deductions from gross profits.
As to defendants' exhibits numbered 71 and 78, defense counsel indicates that the documents are simply listed for demonstrative purposes only and may not be offered as exhibits. These documents most apparently are not business records kept in the ordinary course of business and rather, appear to be demonstrative aids developed for the purpose of litigation. Presently, there is no foundation for admitting what appears to be demonstrative litigation aids into evidence.
J.C. Penney and OTC will be permitted the opportunity to present the testimony of its employees regarding deductible "overhead" costs and such testimony should similarly address the direct relationship between these "overhead" costs and the jewelry sold under the infringing mark.
The Court agrees with defense counsel's contention, that subtracting costs from the proceeds of a sale does not necessarily require expert opinion testimony. According to defense counsel, both Michael Erwin (Penney's witness) and Michael Pasqual (OTC's witness) will testify only as to the facts concerning the costs incurred in generating the sales of merchandise at issue in this lawsuit.
As to mitigation of damages, as long as the plaintiff intends to pursue the article 2315 claim for tort damages and to suggest that significant injuries were felt long after the issuance of the offending mailer, then defendants are entitled to take advantage of the defense under Louisiana law, failure to mitigate damages.
As to Exhibits numbered 72 through 74 (Internet Yellow Pages), the plaintiff's motion is sustained and the evidence will not be admissible at trial. The Court has ruled in favor of the defendant OTC with respect to precluding any reference to its registration of certain domain names. Also, the Court has recognized the parties agreement as to the Texas court's judgment (i.e., its res judicata effect as to both the protectability of the plaintiff's trademark and its likelihood of confusion). The Internet yellow pages are thus, not relevant to any issue in the case.
Plaintiff's objection as to Defendants' Exhibit No. 75 is moot based on defense counsel representation that defense counsel does not intend to offer this document as evidence in the case.
As to Defense Exhibit No. 81 (i.e., the sales brochures), the plaintiff's objection is overruled. The main issue in this case is whether the infringement at issue was willful. J.C. Penney submits that sales brochures are probative of what it intends to prove — (i.e., that the infringement was not intentional and was rather the result of oversight).
In summary, counsel for the parties shall conduct their prosecution of and/or defense against the claims which are the subject of the captioned matter consistent with this Court's rulings set forth hereinabove.
IT IS SO ORDERED.
New Orleans, Louisiana, this 27th day of August, 2000.