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Wolff & Samson PC
Counsellors At Law Intellectual Property To prove trademark infringement, the trademark owner
need not demonstrate that the infringer intentionally copied the trademark. However, evidence of an infringer's wrongful intent is relevant in two contexts. First, intent is one of 10 factors considered in the liability analysis. Second, evidence of intent has a significant impact on the type of damages that may be recovered. To prove liability in a trademark infringement action under Section 32 of the Lanham Act, 15 U.S.C. 1114, a plaintiff must establish three elements: (1) ownership of the trademark; (2) that the mark is valid and legally protectable; and (3) that the defendant's use of the mark to identify goods or services is likely to create confusion concerning the origin of the goods or services. S&R Corp. v. Jiffy Lube Int'l, 968 F.2d 371,375 (3d Cir. 1992). The third element, commonly referenced as "likelihood of confusion," often is the central dispute in an infringement action. Most federal courts use a lO-factor test to determine likelihood of confusion. The Third Circuit adopted this 10 factor test in Scott Paper Co. v. Scott's Liquid Gold, Inc., 589 F.2d 1225,1229 (3d Cir. 1978), articulating the factors as follows: 1. The degree of similarity between the owner's and the alleged infringing mark; 2. The strength of the owner's mark; 3. The price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase; 4. The length of time the defendant has used the mark with evidence of actual confusion; 5. The intent of the defendant in adopting the mark; 6. The evidence of actual confusion; 7. Whether the goods, though not in competition, are marketed through the same channels of trade and advertised through the same media; 8. The extent to which the targets of the parties' sales efforts are the same; 9. The relationship of the goods in the minds of the public because of the similarity of function; and 10. Other facts suggesting that the consuming public might expect the plaintiff to manufacture a product in the defendant's market. Id.at 1229. No one factor or consideration is conclusive; rather, the likelihood of confusion exists if the factors are present in sufficient number or intensity. However, a number of courts have held that a presumption of the likelihood of confusion arises when intent to cause consumer confusion is demonstrated. E.g., Playboy Enterprises Inc. v. Chuckleberry Publishing, Inc., 511 F. Supp. 486 (S.D.N.Y. 1981), cited in G.D. Searle & Co. v. Hudson Pharm. Corp., 715 F.2d 837, 840 (3d Cir. 1983). Thus, in Resource Developers, Inc. v. Statue of Liberty-Ellis Island Foundation, 926 F.2d 134 (2d Cir. 1991), the Second Circuit concluded: "Once it is shown that a defendant deliberately engaged in a deceptive commercial practice, we agree that a powerful inference may be drawn that the defendant has succeeded in confusing the public. Therefore, upon a proper showing of such deliberate conduct, the burden shifts to the defendant to demonstrate the absence of consumer confusion." The Third Circuit has not adopted such a presumption, but has stated that evidence of intent to confuse is highly probative of the likelihood of confusion. American Home Products Corp. v. Barr Laboratories, 834 F.2d 368, 371 (3d Cir. 1987); accord Versa Products Co. v. Biofold Co., 50 F.3d 189,205 (3d Cir. 1995). In addition, at least one federal judge of the District of New Jersey has evidenced a willingness to presume the likelihood of confusion upon a showing of intent National Football League Properties, Inc. v. New Jersey Giants, Inc., 637 F.Supp. 507 (intentional adoption of closely similar mark manifests an intent to confuse and a presumption that there is a likelihood of confusion, shifting to defendant the burden to prove that confusion is not likely). Federal courts have not consistently formulated a definition of "intent." See, 3 McCarthy on Trademarks ("McCarthy") sec. 23:113, at 23-215-16. Simply stated, the relevant intent is an intent to confuse the public as to the source of the goods or services. However, the Third Circuit has admonished that the intent inquiry differs depending on whether the case involves "forward" or "reverse" confusion. The usual trademark infringement case involves "forward" confusion. The common "forward" confusion scenario involves a small company copying a larger company's well known trademark, hoping to trade in on the larger company's good will and established reputation. The relevant intent inquiry in a "forward" confusion case is whether the defendant adopted a trademark with the intent of promoting confusion and appropriating the prior user's good will. See Fisons Horticulture, Inc. v. Vigoro Industry,30 F.3d 466,479-80 (3d Cir. 1994). A twist on that common scenario has been dubbed "reverse" confusion, which was expressly recognized by the Third Circuit in Fisons Horticulture, Inc. v. Vigoro Industry, supra, 30 F.3d 466. Reverse confusion occurs when the alleged infringer is larger, more powerful, and has access to greater resources than the trademark owner; for example, the infringer may be a multi-national corporation, while the trademark owner is a small, local business. The large corporation saturates the market with a trademark that infringes the mark of the local business, causing the public to assume that the trademark belongs to the large corporation, or that the local business is somehow connected to the large corporation. The Third Circuit explained the rationale for imposing liability in the reverse-confusion situation as follows: "Were reverse confusion not a sufficient basis to obtain Lanham Act protection, a larger company could with impunity infringe the senior mark of a smaller one." Id. ,at 475. (For a detailed discussion of the doctrine of reverse confusion, see H. Schwartz and C. Dreeman, "Survival of the Small Fry," July 21,1997, New Jersey Law Journal, S-4). In a reverse-confusion case, the relevant intent inquiry is whether the infringer, "while it may have acted innocently, was careless in not conducting a thorough name search for [] uses of the name." Id. at 480. Since the Third Circuit's adoption of the reverse- confusion doctrine, a number of district courts have addressed cases involving reverse confusion, applying this new intent inquiry. E.g., Securacomm Consulting, Inc. v. Securacom Inc., 984 F. Supp. 286, 300-01 (D.N.J. 1997) (finding that defendant did act in bad faith where it failed to conduct a search prior to adopting the infringing mark); Lucent Information Management, Inc. v. Lucent Technologies, Inc., 986 F. Supp. 253, 261 (D. Del. 1997) (finding that defendant did not proceed in bad faith where it conducted a trademark search and relied on the advice of experienced trademark counsel in determining that it could proceed to use the mark in issue). Whether the case involves forward or reverse confusion, direct evidence of intent is almost never available. McCarthy, sec. 23:113, at 23-216. Thus, in addition to evidence of actual copying (if such evidence exists), courts consider circumstantial evidence, such as (1) whether the alleged infringer conducted an adequate trademark search; (2) whether the alleged infringer followed through with its investigation when it found there were companies using names similar to the one it wants to adopt; and (3) whether the alleged infringer relied on the advice of counsel. See Fisons, 30 F.3d at 480; see also Sands, Taylor & Wood v. Quaker Oats Co., 1990 U.S. Dist. LEXIS 17342 (N.D. Ill. 1990) aff'd in part, rev'd in part, 978 F.2d 947 (7th Cir. 1992), cert. denied, 507 U.S. 1042 (1993). The Third Circuit has advised that in examining these factors, courts should ask: "Did [defendant] consider the likelihood of confusion with other companies' marks and products (as opposed to considering the likelihood that someone would contest its new mark)? Did it attempt to contact companies using a similar mark, such as [plaintiff]? Was [defendant] careless in its evaluation of the likelihood of confusion?" Id. A defendant may not rely on the fact of its consultation with counsel as part of a defense of good faith in a trademark infringement action unless it also discloses the content of the attorney's advice and/or work product. See Dorr-Oliver Inc. v. Fluid-Quip, Inc., 834 F. Supp. 1008, 1012 (N.D. III. 1993) ("defendants are precluded from relying on undisclosed advice of counsel as part of their good faith argument"); see also Rhone-Poulenc Rorer Inc. v. Aetna Cas. & Sur. Ins., 32 F.3d 851,863 (3d Cir. 1994) (by putting the advice or work product of counsel in issue, defendant waives the privilege). In Cuisinarts, Inc. v. Robot-Coupe Int'L Corp., 580 F. Supp. 634 (S.D. N.Y. 1984), the Southern District of New York explained that for an alleged infringer to assert a defense to willfulness based on the advice of counsel, he must be prepared to disclose attorney-client correspondence relevant to the trademark investigation, and must show that he made an accurate and complete disclosure to counsel of all relevant information, and that he acted in accordance with counsel's advice. Id. at 638. The Second Circuit recently addressed the factors relevant to a good faith defense in International Star Class Yacht Racing Assoc. v. Tommy Hilfiger U.S.A., Inc., 1998 U.S. App. LEXIS 10642 (May 29,1998), a case with a tortured procedural history in which the Second Circuit and the Southern District of New York have been at loggerheads with respect to whether defendant's infringement was willful. Plaintiff, the International Star Class Yacht Racing Association ("ISCYRA"), claimed infringement of its common law trademark, "Star Class," by Hilfiger. ISCYRA is an organization created to govern and promote sport racing of a class of boats known as "Star Class" yachts. ISCYRA also uses the "Star Class" mark on clothing, hats, pins, and decals. Id. at *3. In 1994, ISCYRA learned that Hilfiger, a well known clothing designer, was using the words "Star Class" on garments in its "classic nautical sportswear" line. Promotional materials for the line touted the clothing as having "authentic details taken from the sport of competitive sailing." Id. Prior to using the mark, Hilfiger had requested a trademark screening search for the words, "Star Class." In requesting the search from its attorneys, "Hilfiger did not specify its intended use of the words, nor did it reveal that it had taken the term from the sport of competitive sailing." Id. at *4. As a result, the scope of the search was for registered federal trademarks, focusing on marks in the clothing classification. Hilfiger's attorney reported the results of the search, stating that he had found no competing marks, and advising: "At this point, we would not necessarily rule out your use and registration of this mark, subject to our usual disclaimers regarding the need to first obtain and review a full trademark search." Id. at *4-5. Hilfiger did not conduct a "full trademark search" until after it was sued by ISCYRA. The district court granted ISCYRA a permanent injunction, but denied its request for money damages and attorneys' fees, finding that it had not shown actual damages and Hilfiger had not adopted the mark in bad faith. Id. at *5. On appeal, the Second Circuit affirmed in part, and reversed in part, specifically ruling that the district court erred in its consideration of whether Hilfiger's infringement was willful. Id. This decision was reported at 80 F.3d 749 (2d Cir. 1996). The circuit court found that the district court failed to consider the following evidence in its intent analysis: (1) Hilfiger's failure to follow its attorney's advice to conduct a full trademark search; and (2) Hilfiger's continued sale of the "Star Class" collection after suit was filed. 80 F.3d at 754. On remand, the district court again concluded that Hilfiger had not acted in bad faith. The court examined the disclaimer contained in the attorney's letter in light of the court's "understanding of prevailing industry practice in trademark searches. To establish industry custom, the district court took judicial notice of facts and testimony in Corsearch v. Thomson & Thomson, 792 F. Supp. 305 (S.D.N.Y. 1992), an antitrust case that the district court had tried in 1991 concerning trademark search firms." 1998 U.S. App. LEXIS 10642 at *6; see also 959 F. Supp. 623 (S.D. N.Y. 1997) for the district court's opinion; and 1997 U.S. Dist. LEXIS 7684 (June 3, 1997) for the district court's decision denying plaintiffs motion for reconsideration and denying defendant's motion to amend. Concluding that the industry custom was to perform only "rule-out" searches before using contemplated marks, and to reserve more comprehensive searches for marks that were being considered seriously for trademark registration, the district court: interpreted [the attorney's] disclaimer as boilerplate cautionary language, referring to the need to conduct a full search only if Hilfiger intended to register the term "Star Class" and use it as a stand-alone trademark. As Hilfiger claimed to use the term "Star Class" only as decoration and not as a stand-alone trademark, the court concluded that "there was no reason for Hilfiger to order its law firm to undertake a full search," and that its failure to do so was not inconsistent with its attorney's advice. 1998 U.S. App. LEXIS 10642 at *7-8. In addition, the district court found that the continued use of the "Star Class" mark after litigation was commenced was consistent with Hilfiger's counsel's advice that ISCYRA's unregistered mark was weak and, therefore, entitled to limited protection. Id. at *8; 959 F. Supp. at 628-29. On appeal, the Second Circuit again reversed, finding that the district court's reliance on its judicial notice of facts and testimony from a prior case was in error. Id. at *10. The Court explained: [P]revailing trademark search practices may well have changed or developed in the intervening years between the Corsearch trial and the events at issue in this case. ISCYRA cites to at least one article on the subject, published in 1994, stating that the "usual" practice for trademark counsel is to conduct a full search once a mark passes its initial screening. Since the industry practice is subject to dispute, ISCYRA is entitled to "have its day in court," and, through time-honored methods, test the accuracy of [Hilfiger's] submissions and introduce evidence of its own. Id. at *13-14 (citations omitted). The conclusion from the Hilfiger cases should be that smaller companies which are trademark owners, in reverse-confusion cases, are entitled to the same protection as larger companies which own trademarks, in forward-confusion cases. Each is entitled to conduct their business without having their rights infringed by anyone; cursory trademark searches which ignore the rights of trademark owners will not justify a defense of good-faith reliance on counsel. Reliance on the "usual" practice in trademark searches may not pass judicial scrutiny if the "usual" practice does not protect trademark owners. The availability of certain types of relief to a plaintiff depend on a showing of bad intent Specifically, proof of defendant's willful infringement may entitle plaintiff to an accounting of defendant's profits, attorneys' fees, and treble damages. Profits: Plaintiff may recover defendant's profits in a trademark infringement case in anyone of three situations. "Under the modern view of accounting of profits, a trademark infringer's profits will be awarded if defendant is unjustly enriched, or if the plaintiff sustains damage, or if an accounting is necessary to deter a willful infringer from doing so again." McCarthy sec. 30:64 at 30-109. This modern view has been adopted by district courts in the Third Circuit. Thus in Birthright v. Birthright, Inc., 827 F. Supp. 1114 (D. N.J. 1993), Judge Stanley Brotman held: "A trademark violation may give rise to the relief of an accounting for profits in three situations: '[1] if the "defendant is unjustly enriched, [2] if the plaintiff sustained damage from the infringement, or [3] if an accounting is necessary to deter a willful infringer from doing so again."'" Id. at 1143 (emphasis added). See also Resorts Int'L, Inc. v. Greate Bay Hotel and Casino, 830 F. Supp. 826, 839 (D.N.J. 1992) (observing that the "remedy of profits flows... from its proof of the defendant's unjust enrichment or the need for deterrence"); Cyanamid Co. v. Sterling Drug, Inc., 649 F. Supp. 784 (D.N.J. 1986) (stating that plaintiffs claim for defendant profits was based on an "unjust enrichment" theory). The rationale underlying the modern view was succinctly articulated by the Second Circuit as follows: "Taking this view, the justification for an accounting is found in the principles of unjust enrichment traditionally applicable where property is used for profit without the owner's permission, and if the view is carried to its logical conclusion, an accounting should be awarded automatically in most cases." Monsanto Chemical Co. v. Perfect Fit Products, Mfg., 349 F.2d 389 (2d Cir. 1965), cert. denied, 383 U.S. 942 (1966) (emphasis added). Consequently, a defendant's profits may be awarded even where there is no evidence of actual damage to plaintiff. It is quite possible a plaintiff seeking unjust enrichment from a defendant may not have been damaged at all by the defendant's wrongful actions. In a trademark infringement action, for example, a plaintiff may actually have benefited from a defendant's advertising or promotion of a product similar to plaintiffs product because of increased consumer demand for the product In such a case, the plaintiff may not have suffered any damages; yet the law still entitles him to recover the defendant's wrongful profits. Cyanamid, 649 F. Supp. at 789. See also Resorts Int'L, Inc. v. Greate Bay Hotel and Casino, 830 F. Supp. at 839 n.14 (Judge John Gerry observed that "Courts in the Third Circuit have repeatedly awarded profits to plaintiffs even where there has been no proof of actual damages or direct confusion"). Of the three reasons for recovering profits, a finding of willful infringement is the most frequently cited. Enhanced Damages: "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" 15 U.S.C. 1117(a). The Lanham Act expressly states that such an award may be granted only as "compensation and not a penalty." rd. This instruction presents an anomaly, essentially permitting a "remedial" increase of proven damages. In practice, courts that have awarded enhanced damages generally have based the award on a finding of knowing and willful infringement. McCarthy, sec. 30:91 at 30-148 (4th ed. 1996). See, e.g., Taco Cabana Int'l, Inc. v. Two Pesos, 932 F.2d 1113, 1127 (5th Cir. 1991), cert. granted in part, 502 U.S. 1071, mot. granted, mot. denied, 503 U.S. 957, affd, 505 U.S. 763, reh'g denied, 505 U.S. 1244 (1992) (evidence of willful infringement justified trial court's award of enhanced damages; court stated "[b]ecause I have found that defendant acted intentionally to infringe on plaintiffs trademark, I will double the actual damages"). In addition, attorneys' fees may be awarded in exceptional cases. 15 U.S.C. 1117(a). Generally, willful infringement will be a reason to label a case as exceptional. Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2d 44, 47 (3d Cir. 1991). This article is reprinted with permission from the July 20, 1998 issue of the New Jersey Law Journal. @1998 ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved. © |