Opinion
Cause No. IP 01-0480-C-B/S.
September 24, 2004
ENTRY DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT
This is a federal trademark infringement and unfair competition case brought under the Lanham Act, 15 U.S.C. § 1114 and § 1125. Each party asserts infringement claims and seeks an injunction barring the other party from using the confusingly similar mark. Plaintiff, in addition, seeks monetary relief under the Lanham Act should it prevail on the liability issues, whereas Defendant limits its claim to injunctive relief. Defendant, by this motion for partial summary judgment, seeks a ruling dismissing Plaintiff's claim for infringer's profits and exclusively limiting Plaintiff's remedies to injunctive relief if Defendant is found liable of trademark infringement. For the reasons given below, we DENY Defendant's motion for partial summary judgment on the issue of damages.
Factual Background
PartiesPlaintiff, ISP.NET.LLC d/b/a IQuest Internet ("IQuest"), is an Indiana company providing ISP (internet services provider) services primarily in Indiana, Illinois and Ohio. Pl.'s Trial Br. at 2-3. Plaintiff owns U.S. Trademark Registration No. 2,080,534 for the service mark IQUEST for "providing access to a global computer network of networks featuring a wide range of information for general users." The application for the service mark was filed on February 17, 1995. Pl.'s Resp. to Def.'s Mot. for Partial Summ. J., Undisputed Material Facts No. 20, 22-23.
Defendant, Qwest Communications International Inc. ("Qwest"), is a Delaware corporation which offers nationwide telecommunications services, including dial-up and dedicated Internet access, digital subscriber lines (DSL), wireless, long distance and local phone service and web hosting. Def.'s Trial Br. at 1. As of April 9, 1996, Defendant owns U.S. Trademark Registration No. 1,966,694 for the service mark QWEST for providing "telecommunications services, namely the electronic transmission of voice, data, and messages." Id. at 2. Defendant asserts the mark "Qwest" has been in continuous use in association with telecommunications services since well before 1996.
Much of the corporate history of both companies is immaterial to our consideration of this partial motion for summary judgment so we shall sidestep a comprehensive account of that history in this entry. However, the following undisputed facts pertain to the issue of damages.
The parties admit that as of 1995, the "two companies were total strangers to each other." Def's Br., Undisputed Fact ¶ 4. Qwest first located the IQuest mark in a Thomson Thomson trademark search it completed December 10, 1997. Qwest consulted an outside intellectual property law firm on December 17, 1997 "regarding IQuest Internet for the purpose of providing legal advice." Its own intellectual property lawyers provided further advice "regarding IQuest Internet" on April 24, 1998. The IQUEST mark was identified once again in a later trademark search, completed January 10, 2000, shortly before Qwest merged with U.S. West. Pl.'s Resp. Undisputed Material Facts ¶¶ 45-47; Def.'s Reply at 2-3.
At about this same time, Qwest sent cease-and-desist letters to a variety of companies whose name included "quest," such as "Net Quest," "InterQuest," and "Tel Quest," and in some cases, filed lawsuits to enforce its trademark rights. Pl.'s Resp. Undisputed Material Facts ¶¶ 48-49. While IQuest asserts it neither received a cease-and-desist letter nor was sued, Qwest submits evidence to demonstrate that Qwest had filed an opposition proceeding before the Trademark Trial and Appeal Board ("TTAB") in April 2000, the purpose of which was to challenge the pending federal registration of the IQuest trademark. Def.'s Reply at 4; Gall. Decl. Ex. A.
Synopsis of the Claims
IQuest claims the mark QWEST, owned by the defendant, is confusingly similar to the IQUEST mark. IQuest claims it has priority with respect to the contested mark and seeks a permanent injunction and infringer's profits under 15 U.S.C. §§ 1116 and 1117(a). Compl. Qwest has counterclaimed, asserting that it has priority with respect to the contested mark, and seeks an injunction against IQuest's continued use of the IQUEST mark.
The Lanham Act imposes liability upon any person who shall, without the consent of the registrant:
use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.15 U.S.C. § 1114(1).
Further:
[a]ny person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which —
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.15 U.S.C. § 1125.
Although we do not address the liability issues here, a brief summary of the substantive legal claims shows that IQuest claims it has "priority" over Qwest's trademark rights in what both agree is a confusingly similar mark, and that Qwest's continued use of the mark is an infringement. IQuest claims the alleged infringement, if proven, entitles it to not only an injunction barring Qwest from using the mark in overlapping geographic areas, but also monetary relief in the form of "infringer's profits" of up to $70 million.
Section 1117(a) provides for monetary relief in the form of remitted profits, damages and costs, and reasonable attorney fees:
When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and 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 profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed. 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. The court in exceptional cases may award reasonable attorney fees to the prevailing party.15 U.S.C. § 1117.
Qwest counterclaims under the same provisions of the Lanham Act but limits the relief it seeks to an injunction, costs and attorney fees. Second Am. Answer and Countercl.
In this litigation, damages have been bifurcated from liability issues. The instant motion addresses the availability of profits calculated on the basis of a reasonable royalty rate as an element of money damages. Defendant contends that if found liable, not only does injunctive relief adequately resolve the controversy but, without proof of Defendant's bad faith or willful infringement, the Court may not award infringer's profits to Plaintiff. Moreover, an award of Qwest's profits from sales allegedly attributable to trademark infringement would lack an evidentiary basis and thus constitute a windfall recovery explicitly foreclosed by the statute which prohibits such penalties. 15 U.S.C. § 1117(a).
Legal Analysis
Standard of Review
Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Summary judgment is not to be used to resolve evidentiary conflicts, but merely to identify their presence or absence. Nor is it a substitute for a trial on the merits. Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). Before it can properly be granted, therefore, the court must have a very high degree of confidence that any disagreement over the facts is spurious. Door Systems, Inc. v. Pro-Line Door Systems, Inc. 83 F.3d 169, 172 (7th Cir. 1996).
In reviewing a motion for summary judgment, we draw all reasonable inferences from the evidence in a light most favorable to the nonmoving party, in this case IQuest. If genuine doubts remain, and a reasonable fact-finder could find for the party opposing the motion, summary judgment is inappropriate. Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1294 (7th Cir. 1992); Wolf v. City of Fitchburg, 870 F.2d 1327, 1330 (7th Cir. 1989).
Lanham Act Remedies for Trademark Infringement
In addition to the traditional remedy in Section 1116(a) of enjoining an infringer from using another's trademark, the Lanham Act authorizes the following additional remedies for trademark infringement and unfair competition in Section 1117: (1) disgorging the defendant's profits; (2) an award for the actual damages sustained by the owner of a mark; (3) the cost of bringing the infringement action and (4), in exceptional cases, an award of attorney's fees. These remedies are subject to two limitations: (1) infringer's profits, actual damages, costs and attorney's fees are "subject to the principles of equity"; and (2) in the case of either actual damages or infringer's profits, such an award must constitute compensation and not a penalty. 15 U.S.C. § 1117(a). In this motion for summary judgment, we are concerned only with the Section 1117 remedies.
Many of the Lanham Act's provisions have required courts to engage in a substantial amount of statutory interpretation, and Section 1117 is no exception. First, this provision does not explicitly define the "principles of equity" to which a court must subject a monetary award. Second, the accounting-of-profits remedy has proven to be controversial, with the circuits split over whether to condition the remedy upon a finding of bad faith or of willful infringement. The "bad faith requirement," significantly, is not a limitation imposed by the literal text of the statute. The Seventh Circuit's Interpretation of Lanham Act Remedies
For a discussion of trademark law inconsistencies, see Jerome Gilson Anne Gilson LaLonde, The Lanham Act: Time for a Face-Lift? 92 Tradmark Rep. 1013 (2002).
At first blush it seems a straightforward task to infer what Congress meant by the reference to "equitable principles" in § 19 of the Lanham Act, 15 U.S.C. § 1069, allowing the "equitable principles of laches, estoppel, and acquiescence" to be applied in all inter partes proceedings; in practice it often is not so simple.
Section 1117(b), on the other hand, explicitly requires proof of willfulness for imposing treble damages for the use of a counterfeit mark. See 15 U.S.C. § 1117(b).
Our first task, then, is to ascertain the applicable law in the Seventh Circuit so that we may apply it. Defendant insists that the Lanham Act, as interpreted by the Seventh Circuit, requires a finding of bad faith or willful infringing conduct in order for a court to award an accounting of a defendant's profits. Our analysis of the applicable caselaw prompts us to disagree with Defendant's contention.
The cases referenced here are cited in Keith Stolte, Remedying Judicial Limitations on Trademark Remedies, 87 Trademark Rep. 271, 300 n. 9 (1997). The Seventh Circuit holdings vary significantly from those in the Second Circuit on the issue of the willfulness requirement. See e.g., Roulo v. Russ Berrie Co. Inc., 886 F2d 931, 941 (7th Cir. 1989), cert denied, 493 US 1075 (1990) (holding that there is no express requirement that an infringer willfully infringed plaintiff's trademark to justify an award of profits); Louis Vuitton, S.A. v. Lee, 875 F2d 584, 589 (7th Cir. 1989) (holding that a plaintiff is entitled to an award of profits from an "innocent" infringer); Burger King Corp. v. Mason, 855 F2d 779, 781 (11th Cir. 1988) (stating that an accounting of profits could be justified on the basis of unfair enrichment even against a defendant who did not act in bad faith). But see, in favor of bad faith or willfulness as a precondition to a monetary award,International Star Class Yacht Racing Assn. v. Tommy Hilfiger, 80 F3d 749 (2nd Cir. 1996) (holding that a plaintiff must show actual consumer confusion in order to recover damages and that in order to obtain an accounting of defendant's profits, plaintiff must establish that defendant acted in bad faith); George Basch Co., Inc. v. Blue Coral, Inc., 968 F2d 1532, 1540 (2nd Cir. 1992) (holding that a plaintiff has the burden of showing that a defendant willfully infringed his trademark before a court can grant an accounting of profits); Wynn Oil Co. v. American Way Service Corp., 943 F2d 595, 605-06 (6th Cir. 1991) (holding that where plaintiff proves willful infringement, the Lanham Act compels an accounting of profits, but refraining to indicate whether a showing of willful infringement is necessary to a recovery of profits.
The Seventh Circuit view considers willfulness or bad faith as a factor in deciding whether to award damages or profits, but it does not require such as a condition precedent to an award of damages based on disgorgement of profits. We acknowledge that this approach contrasts sharply with the bright-line approach of the Second Circuit, which makes bad faith the sine qua non of such an award of damages.
A comprehensive discussion of the issue is found in Danielle Conway-Jones, Remedying Trademark Infringement: The Role of Bad Faith in Awarding an Accounting of Defendant's Profits, 42 Santa Clara L.Rev. 863 (2002).
In reaching this conclusion, we credit in particular the holding in Louis Vuitton SA v. Lee, a case of trademark infringement and counterfeit goods, in which the Seventh Circuit not only reversed a judgment in favor of the defendant but remanded the case for a new trial on damages based on the following analysis:
"The other provision under which the plaintiffs sought monetary relief in this case, 15 U.S.C. § 1117(a) (plain § 1117 before the 1984 amendments), not only makes the trebling of damages or profits discretionary and the award of attorney's fees exceptional, but also makes the award of relief under it `subject to the principles of equity.' It was on this ground that the district judge refused to award damages under 1117(a). But the principles of equity referred to in section 1117(a) do not in our view justify withholding all monetary relief from the victim of a trademark infringement merely because the infringement was innocent. As between the "innocent" infringer who seeks to get off scot-free, and the innocent infringed who has neither engaged in any inequitable conduct nor sought treble damages or treble profits (or indeed any part of the defendant's profits that is attributable to the defendant's superior efficiency rather than to the plaintiff's trademark), the stronger equity is with the innocent infringed."Louis Vuitton S.A. v. Lee, 875 F.2d 584, 588-589 (7th Cir. 1989).
We do not ignore the fact that the Court in Louis Vuitton S.A. cited considerable evidence of bad faith and willfulness on the part of the defendant in its opinion allowing damages. Even so, the Seventh Circuit made clear that a party prevailing on the liability issue is not barred from monetary recovery in a case in which bad faith/willfulness evidence may be lacking.
Qwest contends here that if IQuest fails to prove actual damages, it is precluded from recovering money damages. Again, we find no authority for such a bright-line rule in the Seventh Circuit. In an opinion that followed on the heels of the ruling in Louis Vuitton S.A., our Court of Appeals responded in Roulo v. Russ Berrie to the defendant's argument that the district court should have directed a verdict in its favor against the recovery of profits under the Lanham Act because the plaintiff had failed to demonstrate any actual damages, confusion, competition between the parties or wilfulness on the part of the defendant; the Seventh Circuit rejected that approach, as follows:
"The Lanham Act specifically provides for the awarding of profits in the discretion of the judge subject only to principles of equity. As stated by this Court, `[t]he trial court's primary function is to make violations of the Lanham Act unprofitable to the infringing party.' Otis Clapp Son, Inc. v. Filmore Vitamin Co., 754 F.2d 738, 744 (7th Cir. 1985). Other than general equitable considerations, there is no express requirement that the parties be in direct competition or that the infringer wilfully infringe the trade dress to justify an award of profits."Roulo v. Russ Berrie Co. Inc., 886 F.2d 931 (7th Cir. 1989).
The following year, in another trademark case, this one involving "reverse passing off" of high tech printing equipment, the Seventh Circuit answered the question regarding the appropriate evidentiary standard for a claim for damages (legal relief) as opposed to claims for "equitable relief such as a request for defendant's profits on an unjust enrichment theory."Web Printing Controls Co., Inc. v. Oxy-Dry Corp. 906 F.2d 1202, 1205-1206 (7th Cir. 1990). Citing Roulo, the Court explained, "[W]here plaintiff seeks an award of damages, plaintiff must show that defendant's infringement caused those losses. Here, however, an award of profits was appropriate under either a deterrence or unjust enrichment theory even if plaintiff's actual sustained losses may have been less."
Both parties rely on Sands, Taylor Wood Company v. Quaker Oats Co., 978 F.2d 947 (7th Cir. 1992) ("Sands I") and 34 F.3d 1340 (7th Cir. 1994) ("Sands II"). Plaintiff cites it in support of an award of damages even in the absence of a bad faith showing. Defendant cites it for the proposition that "without findings of bad faith or fraud, there is no basis for an award of infringer's profits whether based on theories of compensation, deterrence or unjust enrichment." Def.'s Brief at 10. We do not share Defendant's view that these opinions support this reasoning.
In "Sands I", the district court had awarded judgment in the plaintiff's favor on the claimed infringement of its mark for an isotonic soft drink and awarded ten percent (10%) of the infringer's profits in the amount of approximately $24 million. The basic remedy of a recovery of profits was upheld against the defendant's argument that the plaintiff had made no showing of willful infringement, but the Seventh Circuit reversed and remanded the case to allow the lower court to recalculate the award. On remand, the district court awarded damages based on a hypothetical royalty rate. On appeal, the Seventh Circuit in "Sands II" held that: (1) the hypothetical royalties rate on which damages were based was reasonable, and (2) the district court's findings supporting an enhancement of damages did not sufficiently specify the basis for such an award.
In recalculating the award of damages, the district court was instructed to apply the following principles: (1) the court may not simply award the plaintiff a percentage of the defendant's profits; (2) the court should use a reasonable royalty as a baseline or starting point for determining the appropriate award; (3) in determining the appropriate award, the court may take into account the possible need for deterrence, which may involve consideration of the amount of the defendant's profits. Sands I, 978 F.2d at 963.
In "Sands I", the court addressed the defendant's argument that an accounting of profits relies on a finding of willfulness, by referencing its earlier decision in Roulo and as we have cited it earlier in this entry.
On the basis of our review of the Seventh Circuit precedent, which takes willfulness into consideration when deciding whether monetary relief in the form of an accounting of profits is appropriate but does not condition an award upon such a finding, we conclude that Qwest is not entitled to summary judgment in its favor, given that the effect of such a ruling would preclude a monetary recovery in the event the plaintiff prevails on the liability issue.
In defending against Defendant's motion for partial summary judgment, to the extent that Plaintiff has adduced evidence to show bad faith and willfulness on Defendant's part (which evidence Defendant of course rebuts), we decline the parties' invitation at this stage of the proceedings to resolve the evidentiary and legal disputes regarding these issues. Summary judgment is not the means of resolving evidentiary conflicts. The very fact of an evidentiary conflict, in any event, provides an additional basis on which we deny Defendant's motion.
The evidence focuses on the two events which occurred in 1997 (a trademark search by Qwest in which IQuest's trademark was identified; Qwest's consultation with intellectual property lawyers regarding IQuest) and three events in 2000 (another trademark search, Qwest's filing of infringement lawsuits against other companies, and Qwest's challenge of IQuest's trademark before the Trademark Trial and Appeal Board).
Finally, Qwest advances two additional arguments to obtain a ruling in its favor in the event we were to conclude that monetary recovery is permitted without a finding of bad faith. First, we should exercise our discretion to disallow a monetary recovery because injunctive relief is plainly adequate. Second, IQuest's claim for "infringer's profits" of up to $70 million constitutes a penalty or windfall, which is prohibited by the statute.
The first argument asks the Court to dodge Seventh Circuit precedent which allows monetary recovery if the circumstances warrant such an award; this we decline to do. Regarding the second argument, if the defendant prevails at trial on the liability issue, the plaintiff's claim for profits is mooted. If the plaintiff prevails at trial on the liability issue, one additional consideration constrains us from ruling on damages at this time: the statute allows the court to adjust an award based on profits, if it finds the award to be "either inadequate or excessive" and to "enter judgment for such sum as the court shall find to be just." The statute instructs that "[s]uch sum in either of the above circumstances shall constitute compensation and not a penalty." In light of these considerations, we are unable to hold in Qwest's favor, as a matter of law.
Conclusion
Accordingly, we DENY Qwest's motion for partial summary judgment, finding that Seventh Circuit precedent does not require a finding of bad faith or willful infringement as a condition precedent to a monetary recovery for trademark infringement. Furthermore, we DENY Qwest's motion on the alternate grounds advanced by Defendant, to wit, that injunctive relief is adequate as a matter of law and of fact here and that any monetary recovery would constitute a penalty or windfall which is barred by the statute.
It is so ORDERED