Stone Creek, Inc. v. Omnia Italian Design, Inc. , 862 F.3d 1131 ( 2017 )


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  •                 FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    STONE CREEK, INC., an Arizona           No. 15-17418
    corporation,
    Plaintiff-Appellant,       D.C. No
    2:13-cv-00688-
    v.                          DLR
    OMNIA ITALIAN DESIGN, INC., a
    California corporation,
    Defendant-Appellee.
    STONE CREEK, INC., an Arizona           No. 16-15304
    corporation,
    Plaintiff,      D.C. No.
    2:13-cv-00688-
    and                          DLR
    ADAM SMITH; COREY ESCHWEILER;
    JOSHUA LLOYD BENSON; MARK                 OPINION
    DOUGLAS CHESTER,
    Appellants,
    v.
    OMNIA ITALIAN DESIGN, INC., a
    California corporation,
    Defendant-Appellee.
    2          STONE CREEK V. OMNIA ITALIAN DESIGN
    Appeal from the United States District Court
    for the District of Arizona
    Douglas L. Rayes, District Judge, Presiding
    Argued and Submitted April 6, 2017
    Pasadena, California
    Filed July 11, 2017
    Before: M. Margaret McKeown and Consuelo M.
    Callahan, Circuit Judges, and Gordon J. Quist, * District
    Judge.
    Opinion by Judge McKeown
    *
    The Honorable Gordon J. Quist, United States District Judge for
    the Western District of Michigan, sitting by designation.
    STONE CREEK V. OMNIA ITALIAN DESIGN                       3
    SUMMARY **
    Trademark
    The panel affirmed in part and reversed in part the
    district court’s judgment, after a bench trial, in favor of the
    defendant in a trademark infringement action under the
    Lanham Act.
    Defendant Omnia Italian Design, Inc., copied and began
    selling the same goods branded with the mark of its (now ex)
    business partner, retail furniture company Stone Creek, Inc.
    Reversing in part, the panel held that Omnia’s use of
    Stone Creek’s mark was likely to cause confusion. The
    panel rejected Omnia’s invocation of the common law
    defense, known as the Tea Rose-Rectanus doctrine, that
    protects the use of a mark in a remote geographic area when
    the use is in good faith. Agreeing with the Seventh and
    Eighth Circuits, the panel held that Omnia’s knowledge of
    Stone Creek’s prior use defeated any claim of good faith.
    Accordingly, Omnia was liable for infringement of the Stone
    Creek mark.
    Agreeing with the Federal Circuit, the panel confirmed
    that a 1999 amendment to the trademark statutes did not
    sweep away precedent requiring that a plaintiff prove
    willfulness to justify an award of the defendant’s profits.
    The panel remanded for a determination of whether Stone
    Creek had the requisite intent.
    **
    This summary constitutes no part of the opinion of the court. It
    has been prepared by court staff for the convenience of the reader.
    4        STONE CREEK V. OMNIA ITALIAN DESIGN
    The panel affirmed in part and reversed in part the
    district court’s imposition of sanctions under 
    28 U.S.C. § 1927
    .
    COUNSEL
    Joshua L. Benson (argued) and Adam D. Smith, Glen Lerner
    Injury Attorneys, Las Vegas, Nevada, for Plaintiff-
    Appellants.
    Daniel C. DeCarlo (argued), Brittany H. Bartold, Daniel R.
    Lewis, and Jeffry A. Miller, Lewis Brisbois Bisgaard &
    Smith LLP, Los Angeles, California, for Defendant-
    Appellee.
    OPINION
    McKEOWN, Circuit Judge:
    This appeal, set in the high-stakes world of furniture
    sales, runs the gamut of trademark infringement issues. The
    facts are somewhat unusual: the alleged infringer, leather
    furniture manufacturer Omnia Italian Design, Inc.
    (“Omnia”), admits that it blatantly copied and began selling
    the same goods branded with the mark of its (now ex)
    business partner, retail furniture company Stone Creek, Inc.
    (“Stone Creek”).
    The first question we confront is whether Omnia’s use of
    Stone Creek’s mark was likely to cause confusion. Placing
    an identical mark on identical goods creates a strong
    likelihood of confusion, especially when the mark is
    fanciful. Because Stone Creek also sells in overlapping
    marketing channels and the law dictates that other factors
    STONE CREEK V. OMNIA ITALIAN DESIGN                5
    heighten the likelihood that consumers will be confused as
    to the origin of the furniture, we reverse the district court’s
    contrary determination.
    We also reject Omnia’s invocation of a common-law
    defense—known as the Tea Rose–Rectanus doctrine—that
    protects use of a mark in a remote geographic area when the
    use is in good faith. Omnia’s knowledge of Stone Creek’s
    prior use defeats any claim of good faith. Finally, we
    confirm that a 1999 amendment to the trademark statutes
    does not sweep away our precedent requiring that a plaintiff
    prove willfulness to justify an award of the defendant’s
    profits. A remand is necessary to determine whether Stone
    Creek can make that showing here.
    Background
    Stone Creek, which manufactures furniture and sells
    directly to customers, has five showrooms in the Phoenix,
    Arizona area. Around 1990, Stone Creek adopted and began
    using the STONE CREEK mark:
    In 1992, Stone Creek obtained state trademark
    protection. Twenty years later, in 2012, Stone Creek
    federally registered its mark. As described in the federal
    registration, the STONE CREEK mark is a red oval circling
    the words “Stone Creek” for various types of furniture.
    6        STONE CREEK V. OMNIA ITALIAN DESIGN
    In 2003, Stone Creek met representatives of Omnia—a
    manufacturer of leather furniture—at a California trade
    show. Dazzled by Omnia’s pitch, Stone Creek agreed to buy
    Omnia’s furniture. The two companies entered into an
    agreement under which Omnia manufactured leather
    furniture branded with the STONE CREEK mark. The
    business relationship stayed strong through 2012, but in
    2013, Stone Creek discovered that Omnia had been using the
    STONE CREEK mark on competing furniture.
    Omnia’s unauthorized use began in 2008 when Omnia
    was trying to woo a big client. For many years before that,
    Omnia had worked with retailer Bon-Ton Stores, Inc. (“Bon-
    Ton”), but Bon-Ton became a “significant” customer in
    2008. Bon-Ton signed on for Omnia to supply Bon-Ton’s
    leather furniture. However, Bon-Ton did not want to sell
    under the Omnia name; instead, Bon-Ton preferred a label
    that sounded “American.” Although Omnia offered multiple
    options, Bon-Ton opted for STONE CREEK. According to
    Omnia, part of the allure of selecting the STONE CREEK
    mark was that marketing materials and a logo were already
    prepared.
    Omnia copied the logo directly from Stone Creek’s
    materials. Omnia’s team used old documents with Stone
    Creek’s logo to digitally recreate the identical logo because
    they could not achieve sharp resolution by scanning. Then
    Omnia plastered the mark onto a host of items, including
    binders, leather samples, and color boards for display in
    Bon-Ton stores. Most relevant here, Omnia designed
    warranty cards with the STONE CREEK mark, and, from
    2008 to 2013, sold leather furniture to Bon-Ton branded with
    the STONE CREEK mark. Near the end of this period,
    Stone Creek—still unaware of Omnia’s misdoings—
    obtained its federal trademark registration.
    STONE CREEK V. OMNIA ITALIAN DESIGN                       7
    The STONE CREEK–labeled furniture produced by
    Omnia was shipped to Bon-Ton and sold to customers at
    Bon-Ton’s various furniture galleries in the Midwest. 1
    Omnia’s products reached purchasers living within
    200 miles of a Bon-Ton gallery, including portions of
    Illinois, Indiana, Iowa, Michigan, Ohio, Pennsylvania, and
    Wisconsin. The claimed infringing sales all occurred within
    that area.
    Stone Creek caught a whiff of what Omnia was doing by
    2013. Multiple customers contacted Stone Creek to ask
    about product options and store locations in the Midwest.
    Another customer called about a warranty issue with a
    leather sofa purchased at a Bon-Ton store in Chicago. The
    warranty card contained the STONE CREEK mark, which
    led the customer to Stone Creek’s website. At that point,
    Stone Creek’s president discovered that the mark was being
    used on furniture sold on Bon-Ton’s website, and Stone
    Creek asked Omnia if it was selling products with the
    STONE CREEK mark to other companies.
    To its credit, Omnia was candid. In an email from the
    Vice President of Sales, Omnia unequivocally admitted to
    selling furniture under the STONE CREEK mark. In a move
    not recommended when litigation is certainly impending, the
    email observed: “In this day of internet shopping and
    surfing, it is unfortunate and probably a nuisance for you that
    your stores are receiving inquiries regarding these products
    due to the similar name.”
    1
    We refer to the Midwest for ease of reference. The relevant states
    covered are Illinois, Michigan, Ohio, Pennsylvania, and Wisconsin.
    8          STONE CREEK V. OMNIA ITALIAN DESIGN
    Stone Creek filed suit in the District of Arizona, alleging
    federal and common-law trademark infringement and unfair
    competition. After a bench trial, the district court held that
    Omnia did not infringe Stone Creek’s trademark because
    there was no likelihood of confusion. 2 The court also ruled
    at summary judgment that disgorgement of Omnia’s profits
    required a showing of willful infringement, but that
    determination was never made because Omnia was not
    found to infringe. During the course of the case, the court
    sanctioned Stone Creek’s attorneys on two occasions for
    filings related to Omnia’s profits and damages.
    Analysis
    I. Likelihood of Confusion
    Under the Lanham Act, infringement lies for both
    registered and unregistered trademarks when the alleged
    infringer’s use “is likely to cause confusion, or to cause
    mistake, or to deceive.”           
    15 U.S.C. §§ 1114
    (1)(a),
    1125(a)(1)(A). The touchstone for trademark infringement
    is likelihood of confusion, which asks whether a “reasonably
    prudent” marketplace consumer is “likely to be confused as
    to the origin of the good or service bearing one of the marks.”
    Rearden LLC v. Rearden Commerce, Inc., 
    683 F.3d 1190
    ,
    1214 (9th Cir. 2012) (citation omitted). Although we review
    the district court’s findings and determination of no
    likelihood of confusion for clear error, we address legal error
    de novo. See Gilman v. Brown, 
    814 F.3d 1007
    , 1017 (9th
    Cir. 2016) (“Because the district court applied the wrong
    standard, it committed legal error, and the resulting factual
    findings are clearly erroneous.”), cert. denied sub nom.
    2
    Earlier in the case, the district court rejected Omnia’s Tea Rose–
    Rectanus defense based on Omnia’s lack of good faith.
    STONE CREEK V. OMNIA ITALIAN DESIGN                9
    Madden v. Brown, 
    137 S. Ct. 650
     (2017); Reno Air Racing
    Ass’n, Inc. v. McCord, 
    452 F.3d 1126
    , 1135 (9th Cir. 2006);
    see also Dorr-Oliver, Inc. v. Fluid-Quip, Inc., 
    94 F.3d 376
    ,
    380 (7th Cir. 1996) (noting that courts “review the district
    court’s statement of the law de novo for legal error” in
    likelihood of confusion cases).
    The district court properly cited the well-established
    factors (the Sleekcraft factors) that guide the likelihood of
    confusion inquiry. See AMF Inc. v. Sleekcraft Boats,
    
    599 F.2d 341
    , 348–49 (9th Cir. 1979), abrogated on other
    grounds by Mattel, Inc. v. Walking Mountain Prods.,
    
    353 F.3d 792
     (9th Cir. 2003). In conducting the analysis,
    courts do not merely count beans or tally points. See
    Dreamwerks Prod. Grp., Inc. v. SKG Studio, 
    142 F.3d 1127
    ,
    1129 (9th Cir. 1998). Not all factors are created equal, and
    their relative weight varies based on the context of a
    particular case. See Network Automation, Inc. v. Advanced
    Sys. Concepts, Inc., 
    638 F.3d 1137
    , 1145 (9th Cir. 2011).
    Two particularly probative factors are the similarity of
    the marks and the proximity of the goods. See Lindy Pen
    Co. v. Bic Pen Corp., 
    796 F.2d 254
    , 256–57 (9th Cir. 1986).
    Other potentially relevant factors include the strength of the
    protected mark, evidence of actual confusion, the use of a
    common marketing channel, the defendant’s intent in
    selecting the allegedly infringing mark, the type of goods
    and the degree of consumer care, and the likelihood of
    product expansion. Sleekcraft, 
    599 F.2d at
    348–49. After
    examining the district court’s consideration of the factors in
    this case, we conclude that the court legally erred in framing
    many of the Sleekcraft factors, leading us to reverse the
    finding of no likelihood of confusion. The indistinguishable
    marks and goods, coupled with a fanciful mark, evidence of
    10        STONE CREEK V. OMNIA ITALIAN DESIGN
    actual confusion, convergent marketing channels, and
    blatant copying, tell the real story.
    A. Similarity of the Marks and Proximity of the Goods
    The parties do not dispute—nor could they—the district
    court’s finding that the factors examining similarity of the
    marks and the proximity of the goods favor Stone Creek.
    But simply acknowledging the identity of the marks and
    goods understates the importance of these factors and our
    precedent’s conclusion that identical marks paired with
    identical goods can be case-dispositive: “In light of the
    virtual identity of marks, if they were used with identical
    products or services likelihood of confusion would follow as
    a matter of course.” Brookfield Commc’ns, Inc. v. W. Coast
    Entm’t Corp., 
    174 F.3d 1036
    , 1056 (9th Cir. 1999);
    Opticians Ass’n of Am. v. Indep. Opticians of Am., 
    920 F.2d 187
    , 195 (3d Cir. 1990) (“[L]ikelihood of confusion is
    inevitable, when, as in this case, the identical mark is used
    concurrently by unrelated entities.”). The case for confusion
    based on identical marks and identical goods could hardly be
    stronger than here.
    Omnia’s mark is an exact replica of Stone Creek’s logo
    that Omnia copied from materials given to Omnia by Stone
    Creek. And the goods on which the marks appeared are
    identical: not only do Stone Creek and Bon-Ton sell leather
    furniture, but they both sell leather furniture that is
    manufactured by Omnia. As McCarthy, a leading trademark
    scholar, has observed, cases involving identical marks on
    competitive goods are rare and “hardly ever find their way
    into the appellate reports” because liability is “open and
    shut.” 4 J. Thomas McCarthy, McCarthy on Trademarks and
    Unfair Competition § 23:20 (4th ed. 2017); Wynn Oil Co. v.
    Thomas, 
    839 F.2d 1183
    , 1190–91 (6th Cir. 1988). We
    STONE CREEK V. OMNIA ITALIAN DESIGN                     11
    examine the remaining factors to determine whether they
    displace the powerful case of likelihood of confusion.
    B. Strength of the Protected Mark
    The strength of the mark is a key factor with two
    components: the mark’s recognition in the market (i.e., its
    commercial strength) and the mark’s inherent
    distinctiveness (i.e., its conceptual strength). See Lahoti v.
    Vericheck, Inc., 
    636 F.3d 501
    , 508 (9th Cir. 2011). The
    district court analyzed only half of the equation when it said
    that “[t]he STONE CREEK mark is strong in Arizona, but it
    is not recognized in the [Midwest] for its relationship to
    Stone Creek.” 3 As we explain below, this crabbed view of
    commercial strength is misplaced. But the court’s omission
    of the inherent distinctiveness of the mark is even more
    significant because, on the spectrum of conceptual strength,
    Stone Creek’s mark falls at the high end as a fanciful or
    arbitrary mark. See Entrepreneur Media, Inc. v. Smith,
    
    279 F.3d 1135
    , 1141 (9th Cir. 2002). Its mark is not a
    suggestive or descriptive mark that is less likely to act as a
    unique identifier of the source in a consumer’s mind. 
    Id.
     at
    1141–42. The district court committed legal error in not
    adducing and evaluating this aspect of the strength factor.
    See 
    id. at 1141
     (describing the importance of the strength
    factor in determining the scope of trademark protection).
    3
    To reach its conclusion, the court relied on survey evidence
    indicating limited awareness of the Stone Creek brand in the Midwest.
    Because we ultimately conclude that Stone Creek has established a
    likelihood of confusion, we need not reach Stone Creek’s challenges to
    the admission of Omnia’s expert and surveys.
    12        STONE CREEK V. OMNIA ITALIAN DESIGN
    C. Evidence of Actual Confusion
    Given the other factors favoring likelihood of confusion,
    it is not surprising that Stone Creek has put forward several
    instances of actual confusion. Such evidence is not
    necessary for a finding of likelihood of confusion, but it
    bears on the inquiry and is particularly potent. See
    Sleekcraft, 
    599 F.2d at
    352–53.           The district court
    disregarded Stone Creek’s evidence because the court
    focused on whether there was “actual confusion by any
    consumer in the [Midwest] who purchased Omnia furniture
    believing it was manufactured or sold by Stone Creek.” This
    approach misapprehends the breadth of likelihood of
    confusion, which can exist even when consumers are not
    “confused as to the source of a product they actually
    purchase.” Brookfield Commc’ns, 
    174 F.3d at 1057
    .
    When we widen the lens to embrace the full scope of
    qualifying actual confusion evidence, we credit the examples
    of customers seeking to purchase furniture or having already
    purchased Bon-Ton furniture who misdirected their queries
    to Stone Creek. Cf. Nutri/Sys., Inc. v. Con-Stan Indus., Inc.,
    
    809 F.2d 601
    , 606 (9th Cir. 1987). These consumers did not
    ask whether Stone Creek and Bon-Ton are affiliated; they
    were actually confused as to the source. See Cohn v.
    Petsmart, Inc., 
    281 F.3d 837
    , 842 n.7 (9th Cir. 2002) (per
    curiam). The customers requested information about
    product options and store locations—issues likely to affect
    their buying habits and their view of the company associated
    with the mark. See Rearden LLC, 683 F.3d at 1214
    (characterizing trademark infringement as concerned with
    consumers’ purchasing decisions). They also contacted
    Stone Creek about warranty problems with Omnia furniture
    from Bon-Ton. These occasions of actual confusion cannot
    be dismissed out of hand but must be considered in context
    STONE CREEK V. OMNIA ITALIAN DESIGN               13
    and in light of the other evidence of likelihood of confusion.
    See 4 McCarthy, supra, § 23:14; see also Streamline Prod.
    Sys., Inc. v. Streamline Mfg., Inc., 
    851 F.3d 440
    , 457 (5th
    Cir. 2017) (“[C]ourts may not ignore competent evidence of
    actual confusion.” (citation omitted)); Daddy’s Junky Music
    Stores, Inc. v. Big Daddy’s Family Music Ctr., 
    109 F.3d 275
    ,
    284 (6th Cir. 1997) (explaining that one instance of actual
    confusion “favors plaintiff at least to some extent”).
    D. Convergence of Marketing Channels
    The district court’s consideration of overlapping
    marketing channels rested on the faulty legal assumption that
    geographic separation automatically means no intersection
    in marketing channels. This misconception led the court to
    unduly weigh this factor against Stone Creek. Even when
    parties “operate in different geographical areas,” they may
    still “provide [goods] in convergent marketing channels.”
    Park ’N Fly, Inc. v. Dollar Park & Fly, Inc., 
    782 F.2d 1508
    ,
    1509 (9th Cir. 1986). This principle is highlighted here
    because Stone Creek uses its website as a substantial channel
    to market its furniture beyond its physical stores in Arizona.
    The parties tacitly agree that the analysis of marketing
    channels should look to Bon-Ton’s sales to customers rather
    than Omnia’s sales to Bon-Ton. Thus, we focus on Stone
    Creek and Bon-Ton. Both are retail furniture stores, and
    their products are identical pieces of leather furniture
    manufactured by Omnia.          Selling similar, let alone
    interchangeable, products suggests that Stone Creek and
    Bon-Ton share the same general class of customers. See
    Pom Wonderful LLC v. Hubbard, 
    775 F.3d 1118
    , 1130 (9th
    Cir. 2014).
    That Stone Creek does most of its business in the
    Phoenix area does not foreclose overlapping marketing
    14        STONE CREEK V. OMNIA ITALIAN DESIGN
    channels with Omnia. The district court found that Stone
    Creek      placed    its     mark     on      its  website,
    stonecreekfurniture.com, as early as 2000 and optimized
    search engine searches so that its website appears early in
    Internet search results. During the period of alleged
    infringement, Stone Creek also advertised in a nationwide
    magazine with readership in the Midwest. Since its
    inception, Stone Creek has made more than $200,000,000 in
    sales; $610,384 of those sales occurred in the Midwest.
    The district court’s factual findings confirm that Stone
    Creek’s print and online advertising reached the Midwest.
    Stone Creek’s marketing traction in the Midwest is
    buttressed by the finding that Stone Creek had customers and
    made sales in that region at the same time that Bon-Ton was
    selling the STONE CREEK–labeled furniture sourced from
    Omnia. To be sure, those sales represent a small fraction of
    Stone Creek’s total sales, but, in light of the particular facts
    of this case, the small volume of the overall sales does not
    undercut Stone Creek’s distribution of furniture in the
    Midwest.
    What appears to have led the district court astray in
    analyzing the marketing channels factor (and permeates
    much of the court’s discussion of other factors) is a myopic
    focus on the considerable distance between Stone Creek’s
    physical showrooms in Arizona and Bon-Ton’s in the
    Midwest. As the court explained, Stone Creek follows the
    retail furniture business model, where sales are generally
    limited to customers living within a drivable distance from
    the brick-and-mortar stores. But the territorial separation is
    not so well-delineated or physically defined: Stone Creek
    and Bon-Ton were simultaneously advertising and selling
    under the STONE CREEK mark in the Midwest. Thus, the
    likelihood of confusion is not so diminished that Stone
    STONE CREEK V. OMNIA ITALIAN DESIGN                        15
    Creek’s nationwide right to enforce its mark in the alleged
    infringer’s area has not yet ripened into a remedy. See
    Mister Donut of Am., Inc. v. Mr. Donut, Inc., 
    418 F.2d 838
    ,
    844 (9th Cir. 1969) (finding that likelihood of confusion was
    not precluded because the parties were “no longer confined
    to separate and distinct market areas”).
    E. Intent in Selecting the Allegedly Infringing Mark
    Omnia’s reason for adopting the STONE CREEK mark
    also plays a critical role: when the alleged infringer intended
    to deceive customers, we infer that its conscious attempt to
    confuse did in fact result in confusion. Playboy Enters., Inc.
    v. Netscape Commc’ns Corp., 
    354 F.3d 1020
    , 1028 (9th Cir.
    2004). Recognizing the difficulty of collecting evidence of
    a party’s motive, we have held that choosing a designation
    with knowledge that it is another’s trademark permits a
    presumption of intent to deceive. Hokto Kinoko Co. v.
    Concord Farms, Inc., 
    738 F.3d 1085
    , 1096 (9th Cir. 2013).
    The district court found that “Omnia adopted and used
    the STONE CREEK mark with full knowledge of Stone
    Creek’s senior use,” an explicit finding establishing the
    factual predicate to apply the presumption. 4 Yet the court
    nowhere assesses or acknowledges the presumption, and that
    error colored its analysis and conclusion. Omnia’s bare
    assertion that the mark was picked for its “American” sound
    does not counteract the intent to deceive, especially when
    4
    We see no reason to modify the applicability of the presumption
    simply because Stone Creek had not yet federally registered its mark at
    the time that Omnia adopted the mark. Omnia’s understanding of the
    scope of Stone Creek’s rights is relevant to rebutting the presumption,
    but it does not undercut the rationale for applying the presumption in the
    first place.
    16         STONE CREEK V. OMNIA ITALIAN DESIGN
    Omnia had endless options for suitably “American”-
    sounding names to offer to Bon-Ton. This rationale is no
    more convincing than if a contemporary marketeer decided
    to appropriate the long-standing Häagen-Dazs mark
    believing that a foreign-sounding name would appeal to
    customers. 5 And Omnia’s replication of the mark from
    Stone Creek’s materials and unauthorized use on identical
    furniture contribute to an intentional appropriation. See Au-
    Tomotive Gold, Inc. v. Volkswagen of Am., Inc., 
    457 F.3d 1062
    , 1076 (9th Cir. 2006).
    Additionally, conjectural statements by Omnia’s
    president about the scope of Stone Creek’s business do not
    amount to a “good faith belief that there [would be] no
    conflict between the marks as used on [Omnia’s] goods.”
    4 McCarthy, supra, § 23:115. Although the president
    “understood” that Stone Creek sold in Phoenix, he never
    researched where or how the furniture was sold. Nor did
    Omnia ask or investigate where Stone Creek’s customers
    were located before using the mark. Omnia has not unseated
    the presumption, and its deceptive intent is “entitled to great
    weight” in the ultimate determination of likelihood of
    confusion. Kendall-Jackson Winery, Ltd. v. E. & J. Gallo
    Winery, 
    150 F.3d 1042
    , 1048 (9th Cir. 1998) (citation
    omitted).
    5
    The irony, of course, is that the creators, who started the business
    in New York, invented the fanciful mark because they thought there
    would be cache in the foreignness of the mark. As it turned out, they
    were prescient about market identification because customers thought
    the ice cream came from Scandinavia. See Alison Spiegel, Häagen-Dazs
    Doesn’t Come From Where You Think It Comes From, HuffPost (May
    13, 2015, 7:00 AM), http://www.huffingtonpost.com/2015/05/13/haage
    n-dazs-comes-from_n_7266208.html.
    STONE CREEK V. OMNIA ITALIAN DESIGN                17
    F. Degree of Consumer Care and Likelihood of Product
    Expansion
    The remaining two factors—the degree of consumer care
    based on the type of goods and the likelihood of product
    expansion—do not support either party; at best, they weakly
    support Omnia. As the district court found, since furniture
    is an expensive good, likelihood of confusion is diminished
    because we justifiably expect that consumers will make
    purchases with more research and closer scrutiny. Multi
    Time Mach., Inc. v. Amazon.com, Inc., 
    804 F.3d 930
    , 937
    (9th Cir. 2015), cert. denied, 
    136 S. Ct. 1231
     (2016). But
    this factor is less instructive in cases like this one where the
    marks and goods are identical for the simple reason that even
    the trained eye will not be able to discern any difference.
    McGregor-Doniger Inc. v. Drizzle Inc., 
    599 F.2d 1126
    , 1137
    (2d Cir. 1979), superseded on other grounds as recognized
    by Cross Commerce Media, Inc. v. Collective, Inc., 
    841 F.3d 155
     (2d Cir. 2016); 4 McCarthy, supra, § 23.96. Similarly,
    while the district court did not clearly err in finding that
    Stone Creek has not demonstrated non-speculative plans to
    expand, that fact has minimal legal significance because
    Stone Creek established an overlap in goods and marketing
    channels. See Playboy Enters., 
    354 F.3d at 1029
    .
    G. Conclusion
    We reverse the district court’s finding of no likelihood
    of confusion because it is based on faulty legal foundations.
    We credit the court’s factual findings, but its circumscribed
    view of the legal landscape left the court with an incomplete
    picture. The slam-dunk evidence of a conceptually strong
    mark together with the use of identical marks on identical
    goods is difficult to surmount. Viewing the facts through the
    correct legal lens, there is no substantial argument that the
    other factors and evidence overcome the robust case that
    18        STONE CREEK V. OMNIA ITALIAN DESIGN
    Omnia’s use of the STONE CREEK mark is likely to cause
    confusion.
    II. The Tea Rose–Rectanus Doctrine
    Our determination of a likelihood of confusion with
    respect to the STONE CREEK mark does not end the
    infringement analysis. Omnia asserts that its use of Stone
    Creek’s mark is protected under the Tea Rose–Rectanus
    doctrine and argues that we may affirm the district court’s
    judgment of no liability on this alternative basis. The district
    court rejected this defense, and so do we.
    The Tea Rose–Rectanus doctrine has its roots in the
    common law: it is named for a pair of Supreme Court cases,
    Hanover Star Milling Co. v. Metcalf, 
    240 U.S. 403
     (1916)
    (“Tea Rose”), and United Drug Co. v. Theodore Rectanus
    Co., 
    248 U.S. 90
     (1918). The central proposition underlying
    the two cases is that common-law trademark rights extend
    only to the territory where a mark is known and recognized,
    so a later user may sometimes acquire rights in pockets
    geographically remote from the first user’s territory. The
    question we address is whether Omnia acquired common-
    law rights in the Midwest under the Tea Rose–Rectanus
    doctrine.
    Omnia’s common-law rights, if they exist, are not wiped
    out merely because Stone Creek later filed a federal
    registration. Although federal registration presumptively
    entitles the senior user to nationwide protection, 
    15 U.S.C. § 1057
    (b), the Lanham Act preserves legal and equitable
    defenses that could have been asserted prior to registration,
    
    id.
     § 1115(a). Under this rule, already-established common-
    law rights are carved out of the registrant’s scope of
    protection. Id. § 1115(b)(5); Johnny Blastoff, Inc. v. L.A.
    Rams Football Co., 
    188 F.3d 427
    , 435 (7th Cir. 1999). In
    STONE CREEK V. OMNIA ITALIAN DESIGN                19
    other words, the geographic scope of a senior user’s rights in
    a registered trademark looks like Swiss cheese: it stretches
    throughout the United States with holes cut out where others
    acquired common-law rights prior to the registration.
    5 McCarthy, supra, § 26:31. Because Omnia began using
    the mark in 2008, well before Stone Creek’s federal
    registration in 2012, the Tea Rose–Rectanus defense is
    available to Omnia if it is applicable.
    To take advantage of the Tea Rose–Rectanus doctrine,
    the junior user must establish good faith use in a
    geographically remote area. See Rectanus, 
    248 U.S. at 100
    ;
    cf. Grupo Gigante SA De CV v. Dallo & Co., 
    391 F.3d 1088
    ,
    1096 & n.26 (9th Cir. 2004). Like the district court, we limit
    our discussion to the question of good faith because it is
    dispositive.
    The varying descriptions of good faith in the leading
    Supreme Court cases have spawned a circuit split, and our
    circuit has not yet weighed in. See Grupo Gigante, 
    391 F.3d at
    1096 n.26. On one side, some circuits have held that the
    junior user’s knowledge of the senior user’s prior use of the
    mark destroys good faith. See, e.g., Nat’l Ass’n for
    Healthcare Commc’ns, Inc. v. Cent. Ark. Area Agency on
    Aging, Inc., 
    257 F.3d 732
    , 735 (8th Cir. 2001); Money Store
    v. Harriscorp Fin., Inc., 
    689 F.2d 666
    , 674–75 (7th Cir.
    1982). In contrast, other circuits have held that knowledge
    is a factor informing good faith, but the “focus is on whether
    the [junior] user had the intent to benefit from the reputation
    or goodwill of the [senior] user.” GTE Corp. v. Williams,
    
    904 F.2d 536
    , 541 (10th Cir. 1990); see C.P. Interests, Inc.
    v. Cal. Pools, Inc., 
    238 F.3d 690
    , 700 (5th Cir. 2001). We
    conclude that the better view is that there is no good faith if
    the junior user had knowledge of the senior user’s prior use.
    20       STONE CREEK V. OMNIA ITALIAN DESIGN
    Looking back to the origins of the Tea Rose–Rectanus
    doctrine informs why knowledge defeats a claim of good
    faith use. In Tea Rose, the senior user began selling “Tea
    Rose” flour in approximately 1872; many years later, the
    junior user began selling “Tea Rose” flour without any
    knowledge of the senior user’s prior use. 
    240 U.S. at
    407–
    08. At the time that the trademark infringement action was
    filed, the senior user had made sales in Massachusetts, Ohio,
    and Pennsylvania, while the junior user’s sales had reached
    Mississippi, Alabama, Georgia, and Florida. 
    Id.
     at 408–10.
    Rectanus arose on similar facts: the senior user began selling
    “Rex” drugs around 1877 and operated in New England,
    while the junior user began selling “Rex” drugs around 1883
    and operated in Kentucky, with neither party being aware of
    the other’s use of the “Rex” mark for more than twenty
    years. 
    248 U.S. at
    94–96. In both cases, the Supreme Court
    held that the senior user could not enjoin the junior user’s
    use of the same mark because the junior user adopted the
    mark in good faith and had developed a local reputation in
    an area where the mark was not recognized as designating
    the senior user. See 
    id.
     at 103–04; Tea Rose, 
    240 U.S. at
    415–16.
    When describing good faith, the Supreme Court
    emphasized that the junior user had no awareness of the
    senior user’s use of the mark. The Court in Tea Rose states
    that the junior user “adopted and used [the trademark] in
    good faith without knowledge or notice that the name ‘Tea
    Rose’ had been adopted or used . . . by anybody else.”
    
    240 U.S. at 410
    . The Court also refers to the situation as one
    where the two parties “independently” employ the same
    mark. 
    Id. at 415
    . And the Court’s reasoning concentrates on
    knowledge:
    STONE CREEK V. OMNIA ITALIAN DESIGN               21
    Under the circumstances that are here
    presented, to permit the [senior user] to use
    the mark in Alabama, to the exclusion of the
    [junior user], would take the trade and good
    will of the latter company—built up at much
    expense and without notice of the former’s
    rights—and confer it upon the former, to the
    complete perversion of the proper theory of
    trademark rights.
    
    Id. at 420
     (emphasis added).
    The same focus on notice emerges in Rectanus, which
    grants protection for an “innocent” junior user who has “hit
    upon” the same mark and avers that the parties acted “in
    perfect good faith; neither side having any knowledge or
    notice of what was being done by the other.” 
    248 U.S. at 96, 103
    . The Court also relies on a case that says that the
    defendants there acted in good faith because they “believ[ed]
    [their] use to be original with them.” Richter v. Anchor
    Remedy Co, 
    52 F. 455
    , 455 (C.C.W.D. Pa. 1892), aff’d sub
    nom. Richter v. Reynolds, 
    59 F. 577
     (3d Cir. 1893). Seventy
    years later, Justice Brennan stressed that application of the
    Tea Rose–Rectanus doctrine requires an absence of
    knowledge. See K Mart Corp. v. Cartier, Inc., 
    486 U.S. 281
    ,
    314 n.8 (1988) (Brennan, J., concurring in part and
    dissenting in part) (“[A] firm can develop a trademark that is
    identical to a trademark already in use in a geographically
    distinct and remote area if the firm is unaware of the
    identity.”).
    The Seventh and Eighth Circuits and the Trademark
    Trial and Appeal Board (“TTAB”) agree with this reading.
    The Seventh Circuit put it explicitly: “A good faith junior
    user is one who begins using a mark with no knowledge that
    22       STONE CREEK V. OMNIA ITALIAN DESIGN
    someone else is already using it.” Money Store, 
    689 F.2d at 674
    . The court went on to analyze whether the junior user
    in that case had constructive or actual knowledge of the
    senior user’s use. 
    Id. at 675
    . The Eighth Circuit follows the
    same approach, parroting the language from Tea Rose and
    Rectanus. See Nat’l Ass’n for Healthcare Commc’ns,
    
    257 F.3d at 735
     (“adopted the [mark] in good faith, without
    knowledge of [the] prior use”). And the TTAB, the
    administrative board charged with deciding certain
    trademark disputes and appeals, similarly holds that
    “appropriat[ing] a mark with knowledge that it is actually
    being used by another” means “that use is not believed to be
    a good faith use.” Woman’s World Shops Inc. v. Lane Bryant
    Inc., 
    5 U.S.P.Q.2d 1985
    , 1988 (T.T.A.B. 1988).
    The courts that have ruled the other way have latched on
    to one line in the Tea Rose case which reads:
    [W]here two parties independently are
    employing the same mark upon goods of the
    same class, but in separate markets wholly
    remote the one from the other, the question of
    prior appropriation is legally insignificant;
    unless, at least, it appear that the second
    adopter has selected the mark with some
    design inimical to the interests of the [senior]
    user, such as to take the benefit of the
    reputation of his goods, to forestall the
    extension of his trade, or the like.
    
    240 U.S. at 415
     (emphasis added). But this brief reference
    to “design inimical” does not override the central focus on
    knowledge; it is not without significance that “design
    inimical” does not appear anywhere else in the opinion. The
    Court in Rectanus repeats the “design inimical” language as
    STONE CREEK V. OMNIA ITALIAN DESIGN                23
    a direct quote of the language from the Tea Rose case and
    mentions offhand that the junior user did not have a “sinister
    purpose.” 
    248 U.S. at 101
    . More salient are the various
    points in the leading opinions that draw a close connection
    between “good faith” and “knowledge” or “notice.” See,
    e.g., 
    id. at 96
     (“in perfect good faith; neither side having any
    knowledge or notice of what was being done by the other”);
    
    id. at 103
     (“in good faith, and without notice of any prior use
    by others, selected and used the ‘Rex’ mark”); Tea Rose,
    
    240 U.S. at 410
     (“trademark was adopted and used [by the
    junior user] in good faith without knowledge or notice that
    the name ‘Tea Rose’ had been adopted or used by the [senior
    user]”); 
    id. at 419
     (“in good faith and without notice of the
    [senior user’s] mark”).
    Tying good faith to knowledge makes sense in light of
    the policy underlying the doctrinal framework. As the
    Supreme Court explained, the Tea Rose–Rectanus doctrine
    operates to protect a junior user who unwittingly adopted the
    same mark and invested time and resources into building a
    business with that mark. Rectanus, 
    248 U.S. at 103
    ; Tea
    Rose, 
    240 U.S. at 419
    . A junior user like Omnia who has
    affirmative knowledge of the senior user’s mark has not
    serendipitously chosen the same mark and independently
    built up its own brand. Instead, a user like Omnia knows that
    its actions come directly at the expense of the senior user,
    potentially blocking the senior user from entering into the
    new market. Viewed in this light, the junior user has acted
    in bad faith, which “serve[s] as evidence that the [senior]
    user’s mark, at least in reputation, has extended to the new
    area.” Developments in the Law Trade-Marks and Unfair
    Competition, 
    68 Harv. L. Rev. 814
    , 859 (1955); 5 McCarthy,
    supra, § 26:12.
    24        STONE CREEK V. OMNIA ITALIAN DESIGN
    The knowledge standard also better comports with the
    Lanham Act. The statutory section preserving the Tea Rose–
    Rectanus defense for junior users acting pre-registration
    requires that the junior user’s mark “was adopted without
    knowledge of the registrant’s prior use.” 
    15 U.S.C. § 1115
    (b)(5) (emphasis added). More broadly, one major
    change effected by the Lanham Act is that securing federal
    registration affords nationwide rights regardless of where the
    registrant has used the mark, a result accomplished by a
    provision that puts would-be users on constructive notice.
    See 
    id.
     §§ 1057(b), 1072; 5 McCarthy, supra, § 26:32. In
    other words, the Lanham Act displaces the Tea Rose–
    Rectanus defense by charging later users with knowledge of
    a mark listed on the federal register. If constructive notice is
    sufficient to defeat good faith, it follows that actual notice
    should be enough too.
    Once knowledge is accepted as a determinative factor in
    deciding good faith, the Tea Rose–Rectanus doctrine has no
    applicability here. The district court found that “[Omnia]
    was a non-innocent remote user” who “acquired no common
    law trademark rights in the [Midwest].” That conclusion
    flows from the parties’ agreement that Omnia adopted Stone
    Creek’s mark with knowledge of Stone Creek’s previous
    use. The Tea Rose–Rectanus doctrine provides no shelter to
    Omnia for infringement of Stone Creek’s mark.
    III.   Willfulness and Disgorgement of Profits
    Under the remedies provision of the Lanham Act, a court
    may award (1) the defendant’s profits, (2) the damages
    sustained by the plaintiff, and (3) the costs of the action.
    
    15 U.S.C. § 1117
    (a). At issue here is the applicable standard
    to award disgorgement of profits. In an effort to shape its
    trial strategy, Stone Creek filed a motion for summary
    judgment asking the district court to rule that willfulness is
    STONE CREEK V. OMNIA ITALIAN DESIGN                25
    not required for such an award. The court denied the motion
    and sanctioned Stone Creek for filing it.
    Because we conclude that Omnia infringed Stone
    Creek’s mark, we address the standard for awarding
    disgorgement of profits as it will be front and center on
    remand. Historically, we have imposed a willfulness
    requirement with respect to disgorgement of profits. Now
    we must decide what effect, if any, a 1999 amendment to the
    Lanham Act’s remedies provision has on our precedent
    regarding awarding of profits. We agree with the district
    court that the 1999 amendment has not changed the state of
    the law on disgorgement and that willfulness is still required.
    The evolution of the remedies provision—including the
    ever-persisting circuit split—is key to understanding the
    impact of the 1999 amendment, so we recount the history
    and the current state of affairs. Before 1999, the trademark
    remedies provision—§ 1117(a)—stated:
    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.
    
    15 U.S.C. § 1117
    (a) (1996). The spirited debate among the
    circuits has been reserved for how the phrase “subject to the
    principles of equity” applies to an award of the defendant’s
    profits.
    26       STONE CREEK V. OMNIA ITALIAN DESIGN
    Our circuit fell in line with the camp that requires a
    showing of willfulness. We held that an award of the
    defendant’s profits “is not automatic and must be granted in
    light of equitable considerations”; equity dictates that the
    plaintiff must show that the defendant’s infringing acts were
    accompanied by some form of intent. Lindy Pen Co. v. Bic
    Pen Corp., 
    982 F.2d 1400
    , 1405–06 (9th Cir. 1993),
    abrogated on other grounds by SunEarth, Inc. v. Sun Earth
    Solar Power Co., 
    839 F.3d 1179
     (9th Cir. 2016) (per
    curiam). At that time, the Third Circuit was in accord that
    “a plaintiff must prove that an infringer acted willfully
    before the infringer’s profits are recoverable.” SecuraComm
    Consulting Inc. v. Securacom Inc., 
    166 F.3d 182
    , 190 (3d
    Cir. 1999), superseded by statute as stated in Banjo Buddies,
    Inc. v. Renosky, 
    399 F.3d 168
     (3d Cir. 2005). Other circuits
    agreed. See, e.g., George Basch Co. v. Blue Coral, Inc.,
    
    968 F.2d 1532
    , 1540 (2d Cir. 1992); ALPO Petfoods, Inc. v.
    Ralston Purina Co., 
    913 F.2d 958
    , 968 (D.C. Cir. 1990). In
    the other camp were circuits who viewed willfulness as one
    factor in the overall determination of whether an award of
    profits is appropriate. See, e.g., Pebble Beach Co. v. Tour
    18 I Ltd., 
    155 F.3d 526
    , 554–55 (5th Cir. 1998), abrogated
    on other grounds by TrafFix Devices, Inc. v. Marketing
    Displays, Inc., 
    532 U.S. 23
     (2001); Roulo v. Russ Berrie &
    Co., 
    886 F.2d 931
    , 941 (7th Cir. 1989). These decisions all
    predate the 1999 amendment.
    The amendment became necessary after Congress made
    a substantive change to the Lanham Act in 1996. That year,
    Congress added § 1125(c), which created a federal cause of
    action for trademark dilution. See H.R. Rep. No. 104-374,
    at 2 (1995), as reprinted in 1996 U.S.C.C.A.N. 1029, 1029.
    The provision expressly allowed holders of famous
    trademarks to enjoin uses that diluted the distinctive quality
    of their marks. See 
    15 U.S.C. § 1125
    (c) (1996). Section
    STONE CREEK V. OMNIA ITALIAN DESIGN              27
    1125(c) also purported to provide monetary relief under the
    remedies provision, § 1117(a), when dilution was “willfully
    intended.” But Congress failed to make the requisite cross-
    reference in § 1117(a) to harmonize that section with the
    amendment and soon discovered the missing link between
    the two statutory provisions.
    That statutory mismatch spurred the 1999 amendment.
    Congress revised the remedies section, § 1117(a), to include
    reference to a “willful violation under section 1125(c).” The
    amendment thus made clear that a plaintiff with a dilution
    claim could recover money damages. The current version of
    § 1117(a) reads:
    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.
    
    15 U.S.C. § 1117
    (a) (emphasis added). To put it in plain
    English, if there is
    [1] a violation of the rights in a registered
    mark, an unregistered mark (§ 1125(a)), or a
    mark used as a domain name (§ 1125(d)), or
    28       STONE CREEK V. OMNIA ITALIAN DESIGN
    [2] a willful violation under the dilution
    statute (§ 1125(c)),
    then, “subject to the principles of equity,” the plaintiff is
    entitled to relief. Critically, Congress did not modify the
    “subject to the principles of equity” language.
    The contrast in language between clause [1], which does
    not reference willfulness, and newly inserted clause [2],
    which does, has caused ripples through the circuit courts,
    which remain divided on the role of willfulness in awarding
    profits. The Federal Circuit, interpreting Second Circuit
    jurisprudence, held that “nothing in the 1999 amendment . . .
    allows us to depart from . . . precedent requiring willfulness
    for the recovery of profits in infringement cases.” Romag
    Fasteners, Inc. v. Fossil, Inc., 
    817 F.3d 782
    , 791 (Fed. Cir.
    2016), cert. granted, judgment vacated, 
    137 S. Ct. 1373
    (2017), opinion reinstated in relevant part, 
    2017 WL 1906904
     (Fed. Cir. May 3, 2017) (per curiam). Other
    circuits have adhered to or adopted the rule that willfulness
    is one piece of the puzzle. See Synergistic Int’l, LLC v.
    Korman, 
    470 F.3d 162
    , 175 & n.13 (4th Cir. 2006); Quick
    Techs., Inc. v. Sage Grp. PLC, 
    313 F.3d 338
    , 347–49 (5th
    Cir. 2002). The Third Circuit switched sides, concluding
    that the 1999 amendment upended its precedent requiring
    willfulness. Banjo Buddies, 
    399 F.3d at 175
    .
    We have not yet addressed this question. See Fifty-Six
    Hope Rd. Music, Ltd. v. A.V.E.L.A., Inc., 
    778 F.3d 1059
    ,
    1073–74 (9th Cir.) (omitting substantive analysis of the
    effect of the 1999 amendment but finding sufficient evidence
    of willfulness), cert. denied, 
    136 S. Ct. 410
     (2015). We now
    decide that the 1999 amendment does not change the
    foundation of Ninth Circuit precedent—willfulness remains
    a prerequisite for awarding a defendant’s profits.
    STONE CREEK V. OMNIA ITALIAN DESIGN                         29
    Our conclusion is consistent with the Federal Circuit’s
    analysis. See Romag Fasteners, 817 F.3d at 791. We agree
    with its approach to start with the history of the amendment
    and thoroughly examine the context in which the amendment
    came to be. See id. at 785–91. Several circuits have ruled
    the other way without looking at the backstory of the
    remedies provision. See Synergistic Int’l, 
    470 F.3d at
    175 &
    n.13; Banjo Buddies, 
    399 F.3d at
    173–75; Quick Techs.,
    313 F.3d at 346–49. That history is illuminating and reveals
    why the 1999 amendment does not upend our prior
    interpretation of the remaining language in § 1117(a).
    The history of enactment convincingly shows that the
    1999 amendment was intended only to correct a conspicuous
    drafting error in the 1996 version of the remedies provision.
    The legislative history bolsters the view that Congress’s sole
    purpose was to correct the mistaken omission of willful
    violations of the dilution statute, § 1125(c), from the
    remedies provision, § 1117(a). H.R. Rep. No. 106-250, at 4
    (1999) (“[The amendment] seeks to clarify that . . . Congress
    did intend to allow for . . . damages against a defendant found
    to have wilfully [sic] intended to engage in commercial
    activity that would cause dilution of a famous mark.”). 6
    6
    In 1999, Congress also passed legislation directed at preventing
    cyberpiracy related to trademarks and domain names. 
    15 U.S.C. § 1125
    (d). This subsection of the statute—often referred to as the
    cybersquatting provision—provides further evidence that Congress did
    not intend a wholesale revision of the remedies provision. In particular,
    while the remedies provision was amended to list violations of the
    cybersquatting provision (§ 1125(d)) and willful violations of the
    dilution provision (§ 1125(c)), the former requires “bad faith intent” for
    all forms of relief, whereas the latter requires “willfull[] inten[t]” only
    for monetary relief. Compare 
    15 U.S.C. § 1125
    (d)(1)(A)(i), with 
    id.
    § 1125(c)(1), (c)(5)(B).
    30       STONE CREEK V. OMNIA ITALIAN DESIGN
    Equally important is what Congress changed. Congress
    created a new predicate—namely, a willful violation of
    § 1025(c)—that permits monetary recovery. But it did not
    touch the other language in § 1117(a), which has
    consistently provided for an award of defendant’s profits
    under the “principles of equity.” Our holding in Lindy
    Pen—that a plaintiff can secure the defendant’s profits only
    after establishing willfulness—is based entirely on an
    interpretation of that unaltered language. 
    982 F.2d at
    1405–
    06.
    Thus, it would be a mistake to draw a negative
    implication from the unrelated and later-introduced
    language that the amendment somehow negated our circuit’s
    well-settled willfulness requirement. See Russello v. United
    States, 
    464 U.S. 16
    , 23 (1983); Antonin Scalia & Bryan A.
    Garner, Reading Law: The Interpretation of Legal Texts 331
    (2012) (“A clear, authoritative judicial holding on the
    meaning of a particular provision should not be cast in doubt
    and subjected to challenge whenever a related though not
    utterly inconsistent provision is adopted in the same statute
    . . . .”). As McCarthy has explained, it would be improper to
    “leverage[] this statutory change beyond its intended scope
    in order to adjust the equities in ordinary infringement
    cases.” 5 McCarthy, supra, § 30:62. This conclusion has
    added force because we see no indication that the legislature
    meant to take sides in the entrenched circuit split on
    willfulness. See Jama v. Immigration & Customs Enf’t,
    
    543 U.S. 335
    , 349 (2005) (rejecting congressional
    ratification where there was no “judicial consensus so broad
    and unquestioned that we must presume Congress knew of
    and endorsed it”).
    For these reasons, the district court properly ruled that
    Stone Creek must show intentional or willful infringement
    STONE CREEK V. OMNIA ITALIAN DESIGN                31
    before disgorgement of Omnia’s profits could be awarded.
    Because the court denied summary judgment based on a
    triable issue of fact about whether Omnia infringed, the court
    had no need to reach the question of willfulness. We note
    that many of the factual findings that the court has already
    made—including those on Omnia’s intent in selecting and
    using the STONE CREEK mark—may be relevant to
    willfulness. See 4 McCarthy, supra, § 23:112. However, we
    decline Stone Creek’s invitation to rule that Omnia’s
    infringement was willful as a matter of law and instead
    remand for the district court to make this determination.
    IV.    Sanctions Orders
    The district court, relying on 
    28 U.S.C. § 1927
    , twice
    sanctioned Stone Creek’s attorneys. Section 1927 permits
    sanctions against an attorney who “multiplies the
    proceedings in any case unreasonably and vexatiously” and
    tailors the amount awarded to the costs and fees “reasonably
    incurred because of such conduct.” Without more, reckless,
    but nonfrivolous, filings may not be sanctioned. B.K.B. v.
    Maui Police Dep’t, 
    276 F.3d 1091
    , 1107 (9th Cir. 2002).
    The district court’s first sanctions order runs afoul of that
    rule, but the second order falls well within the court’s
    discretion. See Pac. Harbor Capital, Inc. v. Carnival Air
    Lines, Inc., 
    210 F.3d 1112
    , 1117 (9th Cir. 2000) (reviewing
    for abuse of discretion).
    The court sanctioned Stone Creek’s attorneys for filing a
    summary judgment motion on willfulness, reasoning that
    summary judgment was not an appropriate vehicle for Stone
    Creek to request a legal ruling that willfulness is not required
    for a disgorgement of profits. The court stated that it could
    not rule on willfulness until it had ruled on infringement and
    held that Stone Creek’s arguments were frivolous on the
    merits because Fifty-Six Hope forecloses Stone Creek’s
    32       STONE CREEK V. OMNIA ITALIAN DESIGN
    argument that, after the 1999 amendment, a showing of
    willfulness is not necessary for disgorgement.
    On the latter point, the district court was incorrect as a
    matter of law. Fifty-Six Hope does not address the effect of
    the 1999 amendment on the continuing vitality of the
    willfulness requirement. 778 F.3d at 1073–74. Although the
    1999 amendment is referenced in a citation, there is no
    analysis or determination about the import of the
    amendment. Id. at 1073. Instead, the court in Fifty-Six Hope
    took willfulness as a given and did not need to go further
    because willfulness was adequately established as a factual
    matter. Id. at 1074. Importantly, at the time that Stone Creek
    filed its motion, the interplay between the amendment and
    the prior version of the statute remained an open question.
    This point is underscored in the Ninth Circuit’s Model Jury
    Instructions: “The Ninth Circuit has not addressed . . .
    whether willfulness remained a prerequisite to disgorgement
    of a defendant’s profits as a result of the Trademark
    Amendments Act of 1999.” Manual of Model Civil Jury
    Instructions for the Ninth Circuit 15.29 cmt. (2017).
    Although we ultimately disagree with Stone Creek on the
    merits of this issue, its arguments were not frivolous. The
    unsettled nature of the question in our circuit provided Stone
    Creek with a legitimate basis to ask the district court for a
    legal ruling—namely, to determine whether to present
    evidence of willfulness and Omnia’s profits, in addition to
    Stone Creek’s damages, at trial. The unresolved legal issue,
    combined with the fact that another circuit had accepted the
    argument that the 1999 amendment did away with the
    willfulness requirement, see Banjo Buddies, 
    399 F.3d at 175
    ,
    legitimizes Stone Creek’s arguments. See W. Sys., Inc. v.
    Ulloa, 
    958 F.2d 864
    , 873–74 (9th Cir. 1992). We reverse
    the sanctions order related to the willfulness issue.
    STONE CREEK V. OMNIA ITALIAN DESIGN               33
    On the other hand, the court’s second sanctions order
    reflects a discretionary judgment adequately grounded in the
    law and record. The court sanctioned Stone Creek for not
    earlier dropping its actual damages claim when it intended
    to pursue only Omnia’s profits. As the court described,
    Stone Creek had no evidence to support an actual damages
    claim and, with the knowledge that “its actual damages claim
    was meritless,” Stone Creek failed to withdraw the claim and
    opposed Omnia’s motion to strike the claim.
    It is true that actual damages and defendant’s profits are
    two distinct and well-recognized remedies available to the
    plaintiff. 
    15 U.S.C. § 1117
    (a)(1)–(2); 5 McCarthy, supra,
    § 30:57. The district court’s order does not offend that
    principle. The court did not question Stone Creek’s right to
    pursue actual damages as an appropriate avenue of recovery;
    instead, the court determined that Stone Creek had not
    actually done so.
    As the district court explained, while Stone Creek’s
    expert finally determined that proving actual damages would
    be “too difficult,” Stone Creek never provided any analysis
    from its expert on actual damages or identified what
    information it was seeking during discovery to shed light on
    the issue. Stone Creek’s expert acknowledged in his
    deposition that he had not been asked to perform a damages
    analysis or calculation. With the actual damages claim still
    on the table, Omnia was forced to expend time and resources
    defending against the claim by, for example, taking
    depositions and having its expert prepare a report. When
    confronted with Omnia’s motion to strike the actual damages
    claim before trial, Stone Creek opposed that effort even
    though it could point to no evidence to support the claim.
    The district court acted within its discretion in concluding
    that Stone Creek’s attorneys “unreasonably and vexatiously”
    34        STONE CREEK V. OMNIA ITALIAN DESIGN
    “multiplie[d] the proceedings” and awarding Omnia the
    resulting attorneys’ fees.
    Conclusion
    We reverse the district court’s finding that there is no
    likelihood of confusion and reject the application of the Tea
    Rose–Rectanus defense. Thus, we hold that Omnia is liable
    for infringement of the STONE CREEK mark. We affirm
    the district court’s conclusion that willfulness remains a
    necessary condition for a disgorgement of profits but remand
    for a determination on whether Omnia had the requisite
    intent. Finally, we reverse the district court’s sanctions order
    with respect to Stone Creek’s summary judgment on
    willfulness but uphold the sanctions order with respect to
    Stone Creek’s continued assertion of the actual damages
    claim.
    AFFIRMED IN PART, REVERSED IN PART, AND
    REMANDED.
    Costs on appeal shall be awarded to Stone Creek, Inc.
    

Document Info

Docket Number: 15-17418, 16-15304

Citation Numbers: 862 F.3d 1131, 2017 WL 2951672

Judges: McKeown, Callahan, Quist

Filed Date: 7/11/2017

Precedential Status: Precedential

Modified Date: 11/5/2024

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