Opinion
Civil Action No. 95-3794 (NHP)
August 16, 1999
Mark J. Ingber, Esq., WATERS McPHERSON McNEILL, Secaucus, N.J., Attorney for Plaintiff.
James P. Flynn, Esq., EPSTEIN BECKER GREEN Newark, N.J., Attorneys for Defendants.
LETTER OPINION ORIGINAL ON FILE WITH CLERK OF THE COURT
Dear Counsel:
This matter comes before the Court on the parties' supplemental submissions addressing the issues of attorneys fees and final remedies. These issues were previously resolved by the Court in a September 25, 1998 Letter Opinion, which was filed shortly after the jury's verdict but well before the July 30, 1999 Opinion and Order on Post-Trial Motions. Today's decision and the accompanying order will supercede the September 25, 1998 Letter Opinion to the extent that they are inconsistent.
Because the facts of this case are fully set out in this Court's July 30, 1999 Opinion, they are not restated here. See Marshak v. Treadwell, ___ F. Supp.2d ___, 1999 WL 561984 (D.N.J. July 30, 1999).
DISCUSSION
I. Molding the Judgment to Reflect Marshak's Infringement
Although this Court's July 30, 1999 Order on Post-Trial Motions did not enter a judgment of trademark infringement against Marshak, the necessity of such a judgment follows from the jury's verdict and this Court's Opinion on J.N.O.V.
At common law and under the Lanham Act, trademark infringement requires proof that: "(1) the mark is valid and legally protectable; (2) the mark is owned by the plaintiff; and (3) the defendant's use of the mark to identify goods or services is likely to create confusion concerning the origins of the goods or services." Fisons Horticulture, Inc. v. Vigoro Industries, Inc., 30 F.3d 466, 472 (3d Cir. 1994).
In this case, there has been no dispute that the name "The Drifters" is legally protectable. First, both parties agree, as they must, that the name "The Drifters" is associated in the public mind with the group of singers who in the 1950s and 1960s recorded such songs as "Under the Boardwalk" and "On Broadway." In addition, notwithstanding the cancellation of Marshak's federal registration, the Drifters mark has repeatedly been found to have acquired a secondary meaning in the music industry. See, e.g., Marshak v. Green, 505 F. Supp. 1054 (S.D.N.Y. 1981).
The second element of infringement — Treadwell's ownership of the mark — was established by this Court's July 30, 1999 Opinion on post-trial motions, which held that Treadwell and her predecessors have owned the mark continuously since 1954.
The third element has also been proven. First, the jury expressly answered "Yes" to the fourth question on the Verdict Sheet, which asked:
Having determined that Mr. Marshak's registered mark should be canceled, do you nonetheless find that plaintiff Larry Marshak has proven by a preponderance of the evidence that he owns a valid trademark in the name Drifters by virtue of his use of such mark in commerce in this country in the period since 1976?
(Emphasis supplied). In addition, Marshak plainly testified that his Drifters have performed continuously since the early 1970s, and that they continue to perform. See Trial Transcript (hereinafter "Trans.") at 90-98. Marshak's continued use of the mark is also stipulated in the Pretrial Order.
Similarly, with respect to the likelihood of confusion, there can be no dispute that Marshak's use of the Drifters mark is confusing to the public: Marshak's group performs under the name "The Drifters" and sings the same hit songs that were recorded and made famous by the original Drifters in the fifties and sixties. There is surely a likelihood of confusion because the public is misled to believe that Marshak's singers and the famous Drifters records originate from the same source. As this Court stated in the July 30, 1999 Opinion, Marshak has never had any connection with the original Drifters. Treadwell's Drifters, Inc., on the other hand, is the direct successor to The Drifters, Inc., which was formed by George Treadwell in 1954.
Although the jury never reached the question of whether Marshak has been infringing, the record contains conclusive proof of the elements of infringement. In light of the jury's response to Question Four on the Verdict Sheet, and this Court's July 30, 1999 Opinion, and the uncontroverted evidence presented at trial, Marshak's infringement is patent. The material facts are not disputed, and, therefore, another trial would be unnecessary. The Court will mold the judgment to reflect Marshak's infringement of Treadwell's trademark rights.
II. Injunctive Relief
Any further use of the Drifters mark by Marshak would injure Treadwell and Treadwell's Drifters, Inc. in a way that could not adequately be compensated by money damages. This Court will therefore enter an order permanently enjoining Marshak from using the Drifters name. See 15 U.S.C. § 1116.
The Court rejects Marshak's invocation of the doctrine of laches for several reasons. First, Marshak has unclean hands: As this Court stated in the July 30, 1999 Opinion, Marshak and his assignors "knowingly and unabashedly took possession of a valuable trademark to which they had no colorable claim and then sought to register that mark with the [Patent and Trademark Office]." 1999 WL 561984, *9. The record contains overwhelming evidence of Marshak's deliberate fraud, which is reflected in the jury's verdict.
Second, although Marshak's infringement began as early as 1970, it has continued for nearly thirty years. At trial, Marshak admitted that he promoted, on average, between 200 and 240 Drifters performances a year during each of the previous six years. See Trans. at 722-23. Indeed, Marshak's infringement continues to this day. See August 4, 1999 Letter of Mark J. Ingber (responding to Treadwell's August 2, 1999 "cease and desist" demand), attached as Exhibit C to the August 5, 1999 Supplemental Post-Trial Brief of James P. Flynn.
Third, a denial of injunctive relief would be injurious to the public, which surely would be confused and misled if this Court were to permit both Marshak and Treadwell to use the Drifters mark simultaneously. This is particularly true where, as here, both Marshak and Treadwell wish to promote live performances of the hit songs that made the group famous.
Finally, a denial of injunctive relief would be fundamentally unfair because Marshak has no rights in the Drifters mark. Although the Court is mindful of the substantial resources Marshak has expended in promoting his business and the Drifters mark, his entire Drifters operation was born in a pernicious fraud. It may be harsh to enjoin Marshak from continuing in the business that he has cultivated during the past three decades, but it is nonetheless fair. This Court will not permit Marshak to retain that which he acquired by a deliberate fraud.
III. Monetary Relief
In a case where the defendant engaged in fraud or infringement, a district court may award an accounting of profits for three purposes: (1) as a rough measure of the plaintiff's damages; (2) to prevent the defendant's unjust enrichment; and (3) to deter the defendant from engaging in similar conduct in the future. See George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1537-38 (2d Cir.), cert. denied, 506 U.S. 991 (1992); Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145, 149 (4th Cir. 1987); see also 5 McCarthy on Trademarks and Unfair Competition, § 30:59.
In this case, an accounting might be awarded as a measure of Treadwell's damages pursuant to 15 U.S.C. § 1120, which provides that "any person who shall procure registration . . . of a mark by false or fraudulent declaration or representation, oral or in writing, or by any false means, shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof." The Court declines to invoke § 1120, however, because the jury was not asked to determine whether Treadwell should recover such damages, and Treadwell did not press the issue.
Similarly, the Court will not award compensatory damages flowing from Marshak's infringement because the parties did not argue, and the jury did not find, that there was either direct competition or actual confusion. See International Star Class Yacht Racing Ass'n v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749 (2d Cir. 1996); see also McCarthy on Trademarks §§ 30:73-74.
Moreover, it is not clear that Marshak's infringement, as distinguished from his fraudulently obtained trademark registration, induced Treadwell to refrain from promoting live Drifters performances in the United States.
Notwithstanding the unavailability of damages, however, an accounting is clearly warranted in this case to prevent Marshak's unjust enrichment. First, Marshak directly profited by his fraudulently obtained trademark registration and his infringement. Second, he acted with the requisite state of mind.
Treadwell's counterclaim, asserted in September of 1997 in response to Marshak's Amended Complaint, specifically requested that this Court declare a constructive trust and order an accounting.
Courts have used a variety of terms to describe the intent required for an accounting based upon unjust enrichment, including bad faith, deliberate, knowing, willful and fraudulent. See, e.g., AFL-CIO v. Marshall, 671 F.2d 636 (D.C. Cir. 1979), aff'd in part and vacated in part, 452 U.S. 490 (1981) (bad faith or willful infringement); W.E. Bassett Co. v. Revlon, Inc., 435 F.2d 656, 664 (2d Cir. 1970) (deliberate and fraudulent); see also McCarthy on Trademarks § 30:62. In this Circuit, an award of profits requires "[k]nowing or willful infringement[, which] involves an intent to infringe or a deliberate disregard of a mark holder's rights." Securacomm Consulting, Inc. v. Securacom Inc., 166 F.3d 182, 187 (3d Cir. 1999) (citing W.E. Bassett, 435 F.2d at 662).
An accounting of profits is warranted in this case because: (1) Marshak's infringement was willful, knowing and deliberate; (2) Marshak's infringement, as well as his fraudulent trademark application and renewal, manifest his deliberate disregard for Treadwell's rights; and (3) Marshak committed an outright fraud.
The period of accounting should be co-extensive with the period of infringing or fraudulent conduct. See W.E. Bassett, supra, 435 F.2d at 664 (2d Cir. 1970); Wolfe v. National Lead Co., 272 F.2d 867, 871 (9th Cir. 1959); see also McCarthy on Trademarks § 30:70. In this case, Marshak's willful and deliberate infringement began when he first started promoting Drifters concerts in 1970; his fraud dates from the filing of his federal trademark application in 1976. See footnote 1, supra. The Court will therefore order Marshak to account to Treadwell for the profits he earned in each year, beginning with the first act of infringement in 1970 and ending with the first day of trial testimony in this case. See Coca-Cola Co. v. Dixi-Cola Laboratories, Inc., 155 F.2d 59, 63 (4th Cir.), cert. denied, 329 U.S. 773 (1946). Marshak will bear the burden of proving any deductions or allowances.
The Court will deny Treadwell's application for an appointment of a special master pursuant to Rule 53 because the accounting will not be complicated or exceptional. See Apex Fountain Sales, Inc. v. Kleinfeld , 818 F.2d 1089, 1096 (3d Cir. 1987).
A full accounting covering some twenty-nine years may seem harsh, but as this Court stated above, it is fair and equitable in this case. Such relief is also necessary to completely disgorge Marshak of his fraudulently obtained profits and, in this Court's judgment, to deter him from engaging in similar conduct in the future.
IV. Attorneys Fees
The Lanham Act permits the award of attorneys fees to a "prevailing party" in an "exceptional case." 15 U.S.C. § 1117(a). The Third Circuit has held that "a district court must make a finding of culpable conduct on the part of the losing party, such as bad faith, fraud, malice, or knowing infringement, before a case qualifies as `exceptional'" within the meaning of section 1117(a). Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2d 44, 47 (3d Cir. 1991); see also S.Rep. No. 1400, 93d Cong., 2d Sess. 2 (1974), reprinted in 1974 U.S.C.C.A.N. 7132, 7133. A "plaintiff `prevails' when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff." D.R. v. East Brunswick Bd. of Educ., 109 F.3d 896, 902 (3d Cir. 1997) (quoting Farrar v. Hobby, 506 U.S. 103, 112 (1992)).
In light of the jury's verdict of fraud and this Court's post-verdict rulings, there can be no doubt that Treadwell is a prevailing party in an exceptional case. The Court will therefore order Marshak to pay reasonable attorneys fees incurred by Treadwell in this action, as well as the consolidated action that was transferred here from the Eastern District of New York. See Marshak v. Treadwell, Civ. No. 94-2297, 1995 WL 428639 (E.D.N Y 1995). The Court declines, however, to award fees incurred in the course of proceedings before the Trademark Trial and Appeal Board.
V. Corrective Advertising Costs
The Court will not, at this time, order Marshak to reimburse Treadwell for such corrective advertising costs that she may incur. Treadwell may renew this request in an application for supplemental relief when the accounting is complete.
V. Stay Pending Appeal
Following the jury's verdict, this Court stayed enforcement of the judgment canceling Marshak's federal trademark registration, such judgment having been based upon the jury's verdict of fraudulent procurement of a federal trademark registration. Marshak seeks a continuation of that stay pending appeal.
The factors regulating the issuance of a stay pending appeal are: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits of the appeal; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. See Hilton v. Braunskill, 481 U.S. 770, 776 (1987).
With regard to this Court's order that Marshak's federal trademark Registration No. 1,081,338 be canceled, Marshak has failed to show any likelihood of success on the merits of his appeal. This case was tried before a jury and the jury found that Marshak's federal registration had been obtained by fraud. After reviewing the jury's verdict on post-trial motions, this Court has held that the finding of fraud was supported — indeed required — by the evidence presented at trial. See 1999 WL 561984, *4-*9.
The Court also declines to issue a stay with respect to injunctive and monetary relief. As this Court stated above, Treadwell's common law rights in the Drifters mark date to 1954; Marshak has no rights in the mark. It would be unfair to Treadwell, and confusing to the public, if Marshak were permitted to continue using the Drifters mark. For these reasons, any previously-granted stay will now be dissolved, and no stay pending appeal shall issue.
An appropriate order accompanies this Letter Opinion.