Bishop v. Equinox Int. Corp. ( 1998 )

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
SEP 4 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
JAMES S. BISHOP, d/b/a Essence of
Life,
Plaintiff - Appellant and Cross-
Appellee,
No. 97-5161
v.
& 97-5167
EQUINOX INTERNATIONAL
CORP., a Nevada corporation,
Defendant - Appellee and
Cross-Appellant.
Appeal from the United States District Court
for the Northern District of Oklahoma
(D.C. No. 96-CV-6-E)
William S. Dorman, Dorman & Gilbert, P.A., Tulsa, Oklahoma, for the Plaintiff -
Appellant.
Mack J. Morgan, III (D. Kent Meyers with him on the brief), Crowe & Dunlevy,
P.C., Oklahoma City, Oklahoma, for the Defendant - Appellee.
Before BALDOCK , BRORBY and LUCERO , Circuit Judges.
LUCERO , Circuit Judge.
This appeal arises out of a trademark infringement and unfair competition
action filed by James S. Bishop against Equinox International Corporation
(“Equinox”), alleging a violation of section 43(a) of the Lanham Act, 15 U.S.C. §
1125(a). We consider for this Circuit whether an accounting of profits pursuant
to 15 U.S.C. § 1117(a) requires proof of actual damages.
Following a bench trial, the district court concluded that a likelihood of
confusion existed and enjoined Equinox from the use of Bishop’s “Essence of
Life” trademark. In addition, the district court determined that the circumstances
of the case were exceptional, and awarded attorney fees to Bishop. Both parties
are dissatisfied with the result. Bishop contends that he is entitled to an
accounting of profits. Equinox, in contrast, asserts that Bishop abandoned his
trademark and, alternatively, that the attorney fee award was an abuse of
discretion. Because we conclude that an accounting of profits pursuant to §
1117(a) does not require a showing of actual damages, we reverse and remand.
I
James Bishop sells a product described as “a mineral electrolyte solution in
both liquid and capsule form” under the name “Essence of Life.” Appellant’s
App. at 37 (Dist. Ct. Findings of Fact, ¶ 5). 1
In 1988, Bishop registered this name
1
Apparently, this product is intended “for use in humans, plants and
animals.” Appellant’s App. at 38 (Dist. Ct. Findings of Fact, ¶ 8).
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with the United States Patent and Trademark Office (“PTO”). He subsequently
filed an Affidavit of Continuing Use with that office pursuant to 15 U.S.C. §
1058(a).
In 1995, Bishop discovered that Equinox was marketing a dietary
supplement under the name “Equinox Master Formula Essence of Life Liquid
Mineral Complex.” He informed Equinox that it was infringing on his trademark
and requested that it cease and desist from further infringement. In response,
Equinox’s attorney informed Bishop that it had “decided to replace the phrase
‘Essence of Life’ on its Equinox Master Formulas product.” Appellant’s App. at
61.
Equinox, however, continued its use of the mark. Bishop filed suit seeking
injunctive relief, damages, an accounting of profits, and attorney fees. The
district court granted Bishop’s application for a permanent injunction against use
of its “Essence of Life” mark by Equinox, but, finding no actual damages, denied
his request for monetary relief. The trial court also concluded that Equinox’s
refusal to honor its cease and desist commitment justified an award of attorney
fees.
II
As an initial matter, we must determine whether, as Equinox claims, the
district court erred in concluding that Bishop had not abandoned his trademark.
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See 15 U.S.C. § 1115(b)(2) (stating that abandonment is a defense to trademark
infringement action). Equinox does not challenge the district court’s application
of the law; rather, it contends that the court’s findings of fact on this issue were
clearly erroneous. We affirm the district court unless such findings are “without
factual support in the record, or, although there is evidence to support [them], we
are left after a review of the entire record with a definite and firm conviction that
a mistake has been committed.” In re Hamilton Creek Metro. Dist. , 143 F.3d
1381, 1384 (10th Cir. 1998); see also Friedman v. Sealy, Inc. , 274 F.2d 255, 257
(10th Cir. 1959) (applying clear error review to district court’s determination of
non-abandonment).
According to Equinox, the evidence at trial established that Bishop had not
used his mark from “mid-1990 or 1991 until 1996.” Appellee’s Br. at 27; see 15
U.S.C. § 1127 (“Nonuse for 3 consecutive years shall be prima facie evidence of
abandonment.”). This is contrary to the district court’s finding that, although
Bishop’s was a “small-scale . . . modest operation,” the evidence of use precluded
a determination of abandonment. Appellant’s App. at 41 (Dist. Ct. Findings of
Fact, ¶ 22).
On our review of the record, we note that the testimony and written report
of Equinox’s expert witness establish that, during the period in question, Bishop
sold for human consumption an average of 98 bottles of his product per year. See
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III Appellee’s App. at 79; I id. at 120. Moreover, Equinox concedes that “Bishop
never ceased sale of his product.” Appellee’s Br. at 28. We conclude that the
district court’s abandonment determination was not clearly erroneous.
III
We turn to Bishop’s claim that the district court erred when it determined
that he was not entitled to an accounting of Equinox’s profits. Monetary recovery
for a violation of trademark rights is governed by 15 U.S.C. § 1117. Bishop
argues that, pursuant to § 1117(a), he is entitled to the profits earned by Equinox
from the infringement of his mark and that the trial court’s statement of the
applicable law is erroneous. 2
The district court concluded, “Plaintiff has not
2
Section 1117(a) states:
When a violation of any right of the registrant of a mark registered in
the Patent and Trademark Office, or a violation under section
1125(a) 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
(continued...)
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established entitlement to any actual damage[s] and is therefore not entitled to any
portion of Defendant’s profits.” Appellant’s App. at 44 (Dist. Ct. Conclusions of
Law, ¶ 10). We agree that this is an erroneous statement of law.
An accounting of profits is not automatically granted upon a showing of
infringement. See Champion Spark Plug Co. v. Sanders , 331 U.S. 125, 131
(1947). Rather, the propriety of such relief is determined by equitable
considerations. See id. ; 15 U.S.C. § 1117(a) (entitlement to defendant’s profits is
“subject to the principles of equity”). Consequently, “the district court has wide
discretion to fashion an appropriate remedy.” BASF Corp. v. Old World Trading
Co. , 41 F.3d 1081, 1092 (7th Cir. 1994); see also 15 U.S.C. § 1117(a) (“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.”). Absent an abuse of that discretion, we will not overturn the remedy
imposed by the district court. See id.
2
(...continued)
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(a).
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Contrary to the rule applied by the district court, “[t]he unavailability of
actual damages as a remedy . . . does not preclude [plaintiff] from recovering an
accounting of [defendant’s] profits.” International Star Class Yacht Racing Ass’n
v. Tommy Hilfiger, U.S.A., Inc. , 80 F.3d 749, 753 (2d Cir. 1996). There are two
widely recognized rationales for awarding profits to a plaintiff who cannot
demonstrate that he or she has suffered damages as a consequence of the
infringement: preventing unjust enrichment and deterring willful infringement.
A number of courts recognize that a trademark is a protected property right.
See Maltina Corp. v. Cawy Bottling Co. , 613 F.2d 582, 585 (5th Cir. 1980); Maier
Brewing Co. v. Fleischman Distilling Corp. , 390 F.2d 117, 121 (9th Cir. 1968).
The infringer’s use of the markholder’s property to make a profit results in unjust
enrichment that may properly be remedied through an award of profits, “even if
the defendant and plaintiff are not in direct competition.” Maltina Corp. , 613
F.2d at 585. But see George Basch Co. v. Blue Coral, Inc. , 968 F.2d 1532, 1537-
38 (2d Cir. 1992) (analyzing theory of unjust enrichment and concluding that
award of profits under this theory requires proof of actual consumer confusion or
willfully deceptive infringement). This theory of unjust enrichment has long been
the rule in this Circuit. In Blue Bell Co. v. Frontier Refining Co. , 213 F.2d 354
(10th Cir. 1954), we stated:
Out of the welter of confusion occasioned by the judicial effort to
fashion a remedy which would satisfy both legal and equitable
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concepts of appropriate relief for patent and trade-mark
infringements, the courts have now settled on the theory that a trade-
mark infringer is liable as a trustee for profits accruing from his
illegal acts, even through the owner of the mark was not doing
business in the consuming market where the infringement occurred.
213 F.2d at 362-63.
Additionally, several of our sister circuits have recognized that an award of
profits may be proper, absent a showing of actual damage, as a deterrent to willful
infringement. See, e.g. , George Basch Co. , 968 F.2d at 1539-40 (requiring proof
of willfully deceptive infringement); Burger King Corp. v. Mason , 855 F.2d 779,
781 (11th Cir. 1988) (requiring proof of deliberate infringement); Playboy
Enters., Inc. v. Baccarat Clothing Co. , 692 F.2d 1272, 1274-75 (9th Cir. 1982)
(requiring proof of deliberate infringement).
Notwithstanding the existence of these theories of recovery, we recognize
that a finding of actual damage remains an important factor in determining
whether an award of profits is appropriate. See George Basch Co. , 968 F.2d at
1539, 1541; Texas Pig Stands, Inc. v. Hard Rock Cafe Int’l, Inc. , 951 F.2d 684,
695 (5th Cir. 1992). More importantly, we are mindful that an award of profits
requires a showing that defendant’s actions were willful or in bad faith. See
Tommy Hilfiger , 80 F.3d at 753; ALPO Petfoods, Inc. v. Ralston Purina Co. , 913
F.2d 958, 968 (D.C. Cir. 1990); Bandag, Inc. v. Al Bolser’s Tire Stores, Inc. , 750
F.2d 903, 921 (Fed. Cir. 1984); see also Restatement (Third) of Unfair
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Competition § 37(1)(a) (1995) (premising award of profits on showing that “the
actor engaged in the conduct with the intention of causing confusion or
deception”). Requiring a showing of willfulness before profits are awarded is an
appropriate limitation in light of the equitable considerations underlying the
monetary recovery provisions of the Lanham Act. As the court in George Basch
Co. stated:
While damages directly measure the plaintiff’s loss, defendant’s
profits measure the defendant’s gain. Thus, an accounting may
overcompensate for a plaintiff’s actual injury and create a windfall
judgment at the defendant’s expense.
968 F.2d at 1540; see also ALPO Petfoods, Inc. , 913 F.2d at 969 (concluding that
“deterrence is too weak and too easily invoked a justification for the severe and
often cumbersome remedy of a profits award,” and therefore “deterrence alone
cannot justify such an award”).
The trial court’s conclusion that absent a showing of actual damages an
award of profits was unavailable is necessarily an abuse of discretion. See
Frontier Refining Inc. v. Gorman-Rupp Co. , 136 F.3d 695, 704 (10th Cir. 1998)
(noting that a conclusion that is faulty as a matter of law constitutes an abuse of
discretion). We must therefore inquire whether application of the correct
standard would have led to a similar result. The findings of fact recite that
Equinox may have acted with the degree of willfulness necessary for an award of
profits. The lower court concluded: “Defendant’s failure to honor its attorneys’
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cease and desist commitment constituted a trademark infringement which was
deliberate or willful.” Appellant’s App. at 40 (Dist. Ct. Findings of Fact, ¶ 19).
It also implied that Equinox’s actions may have been motivated by “the economic
weakness of the Plaintiff.” Id. at 41 (Dist. Ct. Findings of Fact, ¶ 20); cf. Tommy
Hilfiger , 80 F.3d at 754 (concluding that defendant’s continued use of trademark
“betting on the fact that [plaintiff] would not prevail in its suit” amounted to bad
faith); Stuart v. Collins , 489 F. Supp. 827, 831-32 (S.D.N.Y. 1980) (finding that
defendant willfully infringed by continuing to use mark after plaintiff’s demand
that it cease, giving “short shrift to plaintiff’s claim out of arrogance and
confidence that he would not mount any significant legal attack”).
Given these factual findings, none of which we find clearly erroneous on
the record before us, we cannot say with any certainty that the district court,
applying the correct legal standard, would impose an identical award. We are
therefore required to remand to the district court for a determination of whether
an award of profits is appropriate under the circumstances of this case. 3
IV
We are also asked by Equinox to reverse the district court’s award of
attorney fees. Our review is for abuse of discretion. See Harris v. Champion , 15
3
In remanding, we express no opinion as to what, if any, award of profits
might be appropriate. We note only that the award of monetary relief pursuant to
15 U.S.C. § 1117 is subject to equitable considerations.
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F.3d 1538, 1573 (10th Cir.1994). “Underlying factual findings will only be upset
when clearly erroneous. However, a district court's statutory interpretation or
legal analysis which provides the basis for the fee award is reviewable de novo.”
Id. (quoting Homeward Bound, Inc. v. Hissom Memorial Ctr. , 963 F.2d 1352,
1355 (10th Cir. 1992).
The Lanham Act provides that “[t]he court in exceptional cases may award
reasonable attorney fees to the prevailing party.” 15 U.S.C. § 1117(a). This court
has interpreted an “exceptional case” as “one in which the trademark infringement
can be characterized as ‘malicious,’ fraudulent,’ ‘deliberate,’ or ‘willful.’” VIP
Foods, Inc. v. Vulcan Pet, Inc. , 675 F.2d 1106, 1107 (10th Cir. 1982) (quoting S.
Rep. No. 93-1400 (1974), reprinted in 1974 U.S.C.C.A.N. 7132, 7133). Although
an absence of actual damages is a factor in determining whether a case is
exceptional, see id. at 1107, such absence does not preclude a fee award, see Post
Office v. Portec, Inc. , 913 F.2d 802, 812 (10th Cir. 1990), vacated on other
grounds , 499 U.S. 915 (1991).
The district court found Equinox’s infringement of Bishop’s mark to be
“deliberate or willful.” Appellant’s App. at 40 (Dist. Ct. Findings of Fact, ¶ 19).
This conclusion was based on Equinox’s failure to cease and desist from use of
the “Essence of Life” mark despite its written commitment to do so. The court
found that Equinox’s decision to continue using the mark was not based on a
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reasonable belief that Bishop had abandoned the mark, but was instead premised
on the relative economic weakness of Bishop’s operation. After reviewing the
record, we are not left with “a definite and firm conviction that a mistake has
been committed.” In re Hamilton Creek Metro. Dist. , 143 F.3d at 1384. We
accordingly decline to reverse the attorney fee award.
V
We do not readily reverse and remand a district court’s award of monetary
relief for trademark infringement. We recognize that trial courts are granted wide
discretion in fashioning an equitable remedy pursuant to 15 U.S.C. § 1117. In
this case, however, we are concerned that the district court may have erroneously
limited its discretion by applying an improper legal standard. We therefore
REVERSE the denial of an award of profits and REMAND so that the district
court, consistent with this opinion, may fashion a remedy that “will satisfy the
equities of the case.” Champion Spark Plug , 331 U.S. at 131. We AFFIRM the
district court’s determination that Bishop did not abandon his trademark, as well
as the award of attorney fees.
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