4 Pillar Dynasty LLC v. New York & Co., Inc. , 933 F.3d 202 ( 2019 )

17‐2398 (L)
4 Pillar Dynasty LLC v. New York & Co., Inc.
In the
United States Court of Appeals
For the Second Circuit
______________
August Term, 2018
(Argued: August 28, 2018 Decided: August 8, 2019)
Docket Nos. 17‐2398 (L), 17‐2399 (XAP)
______________
4 PILLAR DYNASTY LLC, REFLEX PERFORMANCE RESOURCES INC.,
Plaintiffs‐Appellees–Cross‐Appellants,
–v.–
NEW YORK & COMPANY, INC., NEW YORK & COMPANY STORES, INC.,
Defendants‐Appellants–Cross‐Appellees.
______________
B e f o r e:
LYNCH, CARNEY, AND DRONEY, Circuit Judges.
______________
Defendants‐Appellants–Cross‐Appellees New York & Company, Inc., and New
York & Company Stores, Inc. (“Defendants”) appeal from a judgment of the United
States District Court for the Southern District of New York (Rakoff, J.) awarding
Plaintiffs‐Appellees–Cross‐Appellants 4 Pillar Dynasty LLC and Reflex Performance
Resources Inc. (“Plaintiffs”) the gross profits earned by Defendants from sales of yoga
clothing and activewear that infringed Plaintiffs’ “Velocity” trademark. Plaintiffs, in
turn, cross‐appeal from the District Court’s decision, after post‐trial briefing, to amend
the judgment by removing the trebled portion of the profits award.
We discern no clear error in the District Court’s determination that Defendants’
infringement was willful and in its award to Plaintiffs of the gross profits derived by
Defendants from their infringement. We rule further that the court did not err by
amending the judgment to remove the trebled portion of the profits award. We also
take the opportunity to clarify that, under our precedent in George Basch Co. v. Blue
Coral, Inc., 968 F.2d 1532 (2d Cir. 1992), a plaintiff prosecuting a trademark infringement
claim need not in every case demonstrate actual consumer confusion to be entitled to an
award of an infringer’s profits.
We vacate, however, the District Court’s award of attorney’s fees and
prejudgment interest to Plaintiffs and its determination that this was an “exceptional”
case under the Lanham Act. While this appeal was pending, we held that the standard
for determining an “exceptional” case under the Patent Act, see Octane Fitness, LLC v.
ICON Health & Fitness, Inc., 572 U.S. 545 (2014), applies also to cases brought under the
Lanham Act, see Sleepy’s LLC v. Select Comfort Wholesale Corp., 909 F.3d 519 (2d Cir.
2018). Because the District Court was not in a position to apply this holding when it
ruled on this issue, we remand the case to the District Court to allow it to apply the
Octane Fitness standard in the first instance.
AFFIRMED in part and VACATED and REMANDED in part.
______________
DAVID H. BERNSTEIN (Jared I. Kagan, on the brief), Debevoise
& Plimpton, LLP, for Defendants‐Appellants–Cross‐
Appellees.
AARON J. SOLOMON (Darren Oved, Michael Kwon, on the
brief), Oved & Oved LLP, New York, NY, for Plaintiffs‐
Appellees–Cross‐Appellants.
______________
CARNEY, Circuit Judge:
In this trademark infringement case brought under the Lanham Act, 15 U.S.C.
§ 1111 et seq., Defendants‐Appellants–Cross‐Appellees New York & Company, Inc., and
2
New York & Company Stores, Inc. (collectively, “Defendants” or “NY & C”) appeal
from a judgment of the U.S. District Court for the Southern District of New York
(Rakoff, J.), entered after a jury trial, awarding Plaintiffs‐Appellees–Cross‐Appellants
4 Pillar Dynasty LLC and Reflex Performance Resources Inc. (collectively, “Plaintiffs”)
an amount equal to Defendants’ gross profits from sales of yoga clothing and
activewear that infringed Plaintiffs’ “Velocity” trademark.
On appeal, Defendants contend primarily that the District Court erred in
substantially denying their post‐trial motions. They argue that (1) the evidence adduced
at trial was insufficient to show that Defendants acted willfully in their infringing
actions, a prerequisite for an award of disgorgement of profits; and that (2) to obtain
such an award, Plaintiffs were required and yet failed to demonstrate actual consumer
confusion. Defendants further contend that the District Court abused its discretion by
concluding that this was an “exceptional” case under certain provisions of the Lanham
Act, see 15 U.S.C. § 1117(a), and awarding Plaintiffs attorney’s fees and prejudgment
interest on the disgorgement award. For their part, on their cross‐appeal, Plaintiffs
argue that the District Court abused its discretion by amending the first‐entered
judgment to eliminate the trebled portions of its profits award.
We conclude that the District Court did not clearly err in determining that the
Defendants’ infringing acts were willful, as well as when it amended the initially‐
entered judgment to remove the trebled portion of the profits award. We further reject
Defendants’ argument that Plaintiffs were required to demonstrate actual consumer
confusion as a prerequisite to a profits award, and clarify that, under the Lanham Act, a
district court may award to a plaintiff trademark holder the profits made by a willful
infringer, without requiring that the plaintiff demonstrate actual consumer confusion.
3
See George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532 (2d Cir. 1992). We therefore affirm
the District Court’s judgment in these respects.
We vacate, however, the District Court’s award of attorney’s fees and
prejudgment interest to Plaintiffs and its determination that this was an “exceptional”
case under the Lanham Act. While this appeal was pending, we held that the standard
for determining an “exceptional” case under the Patent Act, see Octane Fitness, LLC v.
ICON Health & Fitness, Inc., 572 U.S. 545 (2014), applies also to cases brought under the
Lanham Act, see Sleepy’s LLC v. Select Comfort Wholesale Corp., 909 F.3d 519 (2d Cir.
2018). Because the District Court applied a prior standard, under which a finding of
willfulness determined the right to attorneys’ fees absent mitigating circumstances, and
was not in a position to apply our holding concerning Octane Fitness, we remand the
cause to the District Court to allow it to apply the more flexible Octane Fitness standard
in the first instance.
BACKGROUND1
Reflex Performance Resources Inc. (“Reflex”), a company owned by Behrooz
Hedvat and his two brothers, designs and sells women’s activewear under the
registered trademark “Velocity.” Reflex’s offerings include a line of leggings, capris,
sports bras, tank tops, and hooded sweatshirts. Acting through the related entity 4 Pillar
Dynasty LLC (“4 Pillar”),2 Hedvat applied to register the Velocity trademark with the
1 The following statement of facts is taken from the testimony presented at the four‐day jury
trial.
2Like Reflex, 4 Pillar is an entity wholly owned by Hedvat and his two brothers. It was created
to hold several trademarks, including the Velocity mark at issue here. After securing the
4
U.S. Patent and Trademark Office (“USPTO”) in 2012. In 2014, the USPTO approved
the trademark for use in “clothing and performance wear.”
Reflex does not operate any brick‐and‐mortar stores—rather, it sells its clothing
wholesale to retailers such as TJ Maxx, Marshalls, Ross, and Foot Locker, and to
customers online, through its own website and third‐party sites such as Amazon. Reflex
maintains a Manhattan showroom, where prospective wholesale buyers can view a
“look book” and examine samples of Reflex’s products.
NY & C is a specialty women’s apparel retailer operating hundreds of retail
stores across the United States. It sells branded clothing both through its stores and its
website. In 2016, Reflex and 4 Pillar sued NY & C for trademark infringement, alleging
that an NY & C product line of women’s activewear that it labelled “NY & C Velocity”
infringed the “Velocity” trademark controlled by 4 Pillar and licensed to Reflex.
The case went to a trial by jury.3 Plaintiffs called Hedvat as their sole witness. He
testified that, at some point in 2015, a potential customer came to his office and asked
him if he had licensed the “Velocity” mark to NY & C. Hedvat replied that he had not.
He told the jury that he was “extremely surprised” by the question, and that it
prompted him to visit NY & C’s website. App’x 250.
Velocity mark, 4 Pillar licensed it exclusively to Reflex. 4 Pillar does not design or produce the
apparel at issue in this case—that is done solely by Reflex.
3 The jury was charged with deciding only whether Defendants had infringed Plaintiffs’
trademark; as an advisory matter, it was also asked to render a non‐binding verdict on the
question of willfulness. See Fed. R. Civ. P. 39(c)(1) (permitting court to “try any issue with an
advisory jury” if it is not triable as of right by a jury or on consent of the parties). Remaining
questions of remedies that required additional fact‐finding, including on the issue of
willfulness, were determined by the district judge.
5
There, Hedvat discovered the “NY & C Velocity” product line and formed the
belief that the line infringed his companies’ Velocity trademark. In his view, Defendants
were selling the “exact” same type of products as his company; marketing them to the
same demographic groups at a similar price; and unlawfully using the Velocity
trademark to do so. App’x 253. Hedvat testified that, acting through counsel, he
demanded that NY & C cease and desist from selling these products under the “NY & C
Velocity” name and they had not done so.4
Hedvat conceded that Reflex’s sales of Velocity products actually increased
between 2014 and 2016, including during the period after which he discovered NY &
C’s allegedly infringing use. He further explained that, while other companies also had
made arguably infringing use of the name, he was dealing with any possible
infringement “one by one” and considered NY & C to be particularly important because
it was “the big fish.” App’x 275.
After Hedvat concluded his testimony, the parties stipulated on the record that
Defendants’ gross profits from the sale of products bearing the NY & C Velocity
trademark were $1,864,337.29. Plaintiffs then rested their case, and Defendants
unsuccessfully moved for judgment as a matter of law. App’x 444. In an unexpected
development following the court’s denial of their motion, Defendants rested their case
without presenting any evidence or testimony, and the case went to the jury.
4On cross‐examination, Hedvat could not remember whether his attorneys sent NY & C a pre‐
suit cease‐and‐desist letter, or merely filed this case. It is uncontested, however, that NY & C
continued to sell the allegedly infringing products after the lawsuit was filed and they had been
duly served.
6
This turn of events would have surprised observers because, in his opening
statement, Defendants’ counsel focused heavily on the expected testimony of two
witnesses who would appear for NY & C: Christine Munley, NY & C’s head of
merchandising, and Yelena Monzina, the company’s creative director. Counsel
previewed that Munley would testify to never having heard of Reflex’s “Velocity”
branded apparel despite her extensive expertise in the market. For her part, Monzina
would testify that, before the “NY & C Velocity” product line was released, she
conducted a search that turned up Plaintiffs’ Velocity trademark, as well as many other
uses of the word “Velocity” in the apparel world. She would aver, however, that she
saw no chance of consumer confusion between NY & C’s and Reflex’s product lines.
During closing arguments, Defendants’ counsel offered the jury no explanation for the
failure to call these—or any other—witnesses.5
The jury found that NY & C had infringed Reflex’s trademark. At the District
Court’s request, it also rendered an “advisory verdict” that NY & C’s infringement was
willful. App’x 522. In open court after these verdicts were rendered, the District Court
announced its adoption of the willfulness verdict and advised that it would issue a
written opinion setting forth its findings of fact and conclusions of law shortly. The
court also informed the parties, without stating its reasoning, that it would direct that
judgment be entered for three times the amount of the gross profits stipulated as related
to the NY & C Velocity product line, which, as noted above, were over $1.8 million.
5Because, based on the representations in Defendants’ opening, Plaintiffs had expected to cross‐
examine Monzina, the District Court offered their counsel an opportunity to read some of
Monzina’s deposition testimony into the record before the case went to the jury. They elected
not to do so.
7
Accordingly, the court entered judgment against NY & C in the amount of
$5,593,011.87.
Upon Defendants’ timely request, the District Court stayed execution of the
judgment pending post‐trial motion practice. Defendants then moved for judgment as a
matter of law under Fed. R. Civ. P. 50(b) and to amend or alter the judgment under Fed.
R. Civ. P. 59(e). They urged that: (1) there was no legal basis for an award of
Defendants’ profits because Plaintiffs had not introduced evidence of either willful
infringement or actual consumer confusion; and (2) the Lanham Act did not authorize
an award that trebled Defendants’ related profits. Plaintiffs, in turn, moved for an
additional award of attorney’s fees and prejudgment interest.
Not long after, the District Court issued an “Opinion, Order, and Amended
Judgment” setting forth both its decision on the parties’ post‐trial motions and its
findings of fact and conclusions of law concerning the willfulness issue. 4 Pillar Dynasty
LLC v. New York & Co., Inc., 257 F. Supp. 3d 611 (S.D.N.Y. 2017). The court denied
Defendants’ Rule 50(b) motion, holding that the record contained sufficient
circumstantial evidence of willful infringement to support its award and that Second
Circuit precedent did not require a showing of actual consumer confusion as a predicate
for an award to a trademark holder of an infringer’s profits. The court reconsidered its
previous decision as to the trebling of the profits award, however, and reduced the sum
awarded Plaintiffs from over $5.5 million to the stipulated gross profits sum of
approximately $1.8 million. Finally, the court granted Plaintiffs’ motion for attorney’s
fees and prejudgment interest. In a “Memorandum Order and Final Amended
Judgment” issued approximately a month later, it awarded Plaintiffs $365,862.75 in
8
attorney’s fees and $110,950.91 in prejudgment interest. 4 Pillar Dynasty LLC v. New York
& Co., Inc., No. 16‐CV‐2823 (JSR), 2017 WL 3738442, at *1 (S.D.N.Y. Aug. 9, 2017).
Defendants timely appealed, and Plaintiffs timely cross‐appealed from the
court’s decision to strike the trebled portion of the profits award.
DISCUSSION
I. Evidence of Willful Infringement
To support an award of Defendants’ profits to Plaintiffs, the District Court first
had to find that their infringement of Plaintiffs’ trademark was willful. See George Basch
Co., 968 F.2d at 1540 (“[A] plaintiff must prove that an infringer acted with willful
deception before the infringer’s profits are recoverable by way of an accounting.”).
Defendants urge that the District Court erred in concluding that Plaintiffs presented
sufficient evidence of willfulness. 6
6 Plaintiffs contend (and the District Court concluded) that Defendants waived this argument
because they failed to raise it as a ground for their Rule 50(a) motion for judgment as a matter of
law, which Defendants filed after Plaintiffs concluded their case‐in‐chief. Defendants styled
their later post‐trial motion as one under Rule 50(b), but it is axiomatic that Rule 50(b) applies
“only in cases tried to a jury that has the power to return a binding verdict”; it does not apply to
“cases tried without a jury or to those tried to the court with an advisory jury.” Wright & Miller, 9B
Fed. Prac. & Proc. § 2523 (3d ed. 2018) (emphasis added). Defendants’ putative Rule 50(b)
motion did not challenge the jury’s binding verdict that they had infringed Plaintiffs’ mark;
instead, in it, they objected to the District Court’s independent decision to accept the jury’s
advisory finding on willfulness. See DeFelice v. Am. Int’l Life Assurance Co. of N.Y., 112 F.3d 61, 65
(2d Cir. 1997) (noting that a trial court may consult with an advisory jury “so long as the court
retains the ultimate responsibility for findings of fact and conclusions”); Mallory v. Citizens Utils.
Co., 342 F.2d 796, 797 (2d Cir. 1965) (“When an advisory jury is used, the review on appeal is
from the court’s judgment as though no jury had been present.” (internal quotation marks
omitted)). Accordingly, although Defendants’ Rule 50(b) motion was improperly made, it has
no bearing on our review of the District Court’s findings of fact and conclusions of law, and we
do not treat the argument as waived.
9
We review for clear error a district court’s determination of willfulness. Bambu
Sales, Inc. v. Ozak Trading Inc., 58 F.3d 849, 854 (2d Cir. 1995). A finding of fact is clearly
erroneous when “the reviewing court on the entire evidence is left with the definite and
firm conviction that a mistake has been committed.” In re Lehman Bros. Holdings Inc., 855
F.3d 459, 469 (2d Cir. 2017).
The factors that support a finding of willfulness in a Lanham Act case mirror
those that apply in suits brought under the Copyright Act, 17 U.S.C. § 504(c): a plaintiff
must show “(1) that the defendant was actually aware of the infringing activity, or (2)
that the defendant’s actions were the result of reckless disregard . . . or willful
blindness.” Island Software & Comput. Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 263 (2d
Cir. 2005) (internal quotation marks omitted); see also Fendi Adele, S.R.L. v. Ashley Reed
Trading, Inc., 507 F. App’x 26, 31 (2d Cir. 2013) (applying Copyright Act definition to
Lanham Act claim) (summary order).
At trial, Plaintiffs presented no direct evidence of Defendants’ state of mind in
using the “NY & C Velocity” brand. In finding willfulness, the District Court, rather,
relied on (1) Defendants’ failure to stop selling the infringing goods after the action was
filed; (2) Defendants’ failure to call the witnesses who they had previously represented
would testify regarding the company’s decision to use the NY & C Velocity name; and
(3) its determination that Defendants’ “use of the word ‘Velocity’ on their products was,
on its face, a blatant infringement.” 4 Pillar Dynasty LLC, 257 F. Supp. 3d at 620–22.
Defendants contend that, even when considered in combination, these factors are
insufficient as a matter of law to support a finding of knowing or reckless infringement.
They argue more particularly that their decision not to cease selling the infringing
product after litigation began cannot support an inference of willful infringement, and
10
that their decision not to call their identified witnesses was simply a strategic one, made
only because, in their view, Plaintiffs had failed to meet their affirmative burden of
proving willfulness.
Defendants’ argument has some force. A defendant might decline to halt sales of
a challenged product in a manner consistent with non‐willful infringement, if careful
due diligence in response to an infringement claim leads it to believe reasonably that it
has not infringed. Even so, while the record evidence of willfulness here may be sparse,
we cannot conclude that the District Court’s finding—which was aligned with the
unanimous determination of an advisory jury and rendered after witnessing the trial—
was clearly erroneous.
The cases that Defendants rely on to support their challenge are readily
distinguishable. For instance, in Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d
947 (7th Cir. 1992), the defendants presented evidence that their use continued only
after both in‐house and outside counsel conducted due diligence and concluded that
the use was non‐infringing. Id. at 962; cf. Dessert Beauty, Inc. v. Fox, 568 F. Supp. 2d 416,
427–28 (S.D.N.Y. 2008) (no bad faith where defendants consistently asserted a fair use
defense and the “differences between the products and their marks [were] manifest”),
aff’d, 329 F. App’x 333 (2d Cir. 2009). Here, in contrast, the District Court reasonably
found the similarities between Defendants’ products and the “Velocity” trademark to
be “blatant.” Defendants provided no evidence to explain or justify their failure to cease
selling the infringing sportswear once they received actual notice of Plaintiffs’
allegations. Indeed, Defendants’ argument at trial focused not on their own good faith
entitlement to use the “NY & C Velocity” name, but on the purported weakness of
Plaintiffs’ mark and on attacking Hedvat’s credibility and business practices.
11
Furthermore, although Defendants may have had no affirmative obligation to
present evidence of good faith to avoid a finding of willfulness, the District Court
permissibly drew an adverse inference from Defendants’ failure to call the witnesses
whom they themselves had highlighted as the centerpiece of the defense case.
Defendants volunteered to the court and jury alike that their witnesses’ testimony
would establish, among other things, the subjective good faith of their creative director
in selecting the “NY & C Velocity” name, and her diligence in first engaging in a
“personal vetting process,” and then ordering a third‐party trademark search report.
App’x 200–05. In light of its reasonable determination as to the “blatant” nature of
Defendants’ infringement, we can hardly say that the District Court clearly erred in
drawing from the absence of these witnesses from trial the inference that their
testimony would have been “less than credible.” 4 Pillar Dynasty LLC, 257 F. Supp. 3d at
622; see also United States v. Torres, 845 F.2d 1165, 1169 (2d Cir. 1988) (trial court may use
its discretion to give a missing witness instruction when “a party has it peculiarly
within his power to produce witnesses whose testimony would elucidate the
transaction,” yet fails to call those witnesses).7
To be sure, the District Court was not required to make such an inference.
Defendants make a colorable argument that they simply made a strategic decision to
7Although, so far as we have found, we have never held expressly that, in a bench trial, a
district court may draw an adverse inference from a missing witness, we see no reason to think
that it may not do in its role as factfinder what it may instruct a jury it is authorized to do in the
same role. See Chevron Corp. v. Donziger, 974 F. Supp. 2d 362, 700 (S.D.N.Y. 2014) (“Such an
inference is equally permissible in bench trials.”), aff’d, 833 F.3d 74 (2d Cir. 2016). Consistent
with our standard of review for findings of fact in bench trials, however, we review a district
court’s decision to draw (or refrain from drawing) such an inference for clear error, not abuse of
discretion. See Adelson v. Hananel, 652 F.3d 75, 87 (1st Cir. 2011).
12
rest their case and rely on the inadequacy of Plaintiffs’ evidence, and that no adverse
inference can reasonably be drawn from that decision. On review for clear error,
however, “[w]here there are two permissible views of the evidence, the factfinder’s
choice between them cannot be clearly erroneous.” Lehman Bros., 855 F.3d at 469. Here,
the import of Defendants’ trial conduct is reasonably susceptible to several
interpretations, including the District Court’s, and therefore we sustain it.
Considering the totality of the factors identified by the District Court as the basis
for its decision, we will not disturb its determination that Defendants willfully infringed
Plaintiffs’ trademark.8
II. Actual Consumer Confusion and the District Court’s Profits Award
8We further reject Plaintiffs’ argument that the Lanham Act’s 1999 amendment—which
expressly required willfulness to make out a claim for trademark dilution in violation of 15
U.S.C. § 1125(c)—somehow implicitly superseded the requirement that a plaintiff prove willful
infringement to support a recovery of an infringer’s profits. In the two decades since the
amendment, we have consistently adhered to the willfulness requirement as set forth in George
Basch. See, e.g., Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 261–62 (2d Cir. 2014). We are
bound by the decision of prior panels “until such time as they are overruled either by an en
banc panel of our Court or by the Supreme Court.” United States v. Wilkerson, 361 F.3d 717, 732
(2d Cir. 2004).
Moreover, as recounted by the court in Romag Fasteners, Inc. v. Fossil, Inc., 817 F.3d 782, 789–90
(Fed. Cir. 2016), it is implausible that Congress sought to make any change in the law of
trademark infringement, as opposed to trademark dilution, through its 1999 amendment. The
statutory language tying a district court’s award of an infringer’s profits to its application of
“principles of equity” was not changed by the amendment, and it is this language that we
explored and defined in George Basch.
13
Defendants next contend that our case law demands that a Lanham Act plaintiff
seeking an award of an infringer’s profits prove actual consumer confusion.9 This
argument is foreclosed by our seminal decision in George Basch Co. v. Blue Coral, Inc., 968
F.2d 1532 (2d Cir. 1992), in which we addressed the underpinnings of profits awards
under the statute. Defendants point to some seemingly contrary statements in an earlier
case, G.H. Mumm Champagne v. E. Wine Corp., 142 F.2d 499, 501 (1944) (Hand, J.). To
dispel any doubts as to this question, we write to clarify that, in our Circuit, a plaintiff
need not establish actual consumer confusion to recover lost profits under the Lanham
Act.
In George Basch, we identified “three categorically distinct rationales” for
awarding a successful Lanham Act plaintiff an accounting for the defendant’s profits:
(1) to avoid unjust enrichment; (2) as a proxy for plaintiff’s actual damages; and (3) to
deter infringement. 968 F.2d at 1537. As to the unjust enrichment rationale, we drew an
analogy to the law of constructive trust and declared that “a defendant becomes
accountable for its profits when the plaintiff can show that, were it not for defendant’s
infringement, the defendant’s sales would otherwise have gone to the plaintiff.” Id. at
1538. We explained that this showing was indistinguishable from “the element of
consumer confusion required to justify a damage award” under the Act. Id. We further
observed that an infringer’s profits may be awarded as a “rough proxy measure of
9 Defendants’ arguments on this score are likely waived because at trial they failed to request a
jury instruction or special verdict on “actual confusion.” This failure precluded the District
Court from ruling on whether actual confusion is required to sustain an award of a trademark
infringer’s profits under the Lanham Act before it submitted the case to the jury. Nevertheless,
because the District Court expressed its view on the merits of these arguments in its opinion, see
4 Pillar Dynasty LLC, 257 F. Supp. 3d at 619 n.2, we exercise our discretion to address them here
in affirming the District Court’s judgment.
14
plaintiff’s damages[,] . . . shift[ing] the burden of proving economic injury off the
innocent party, and plac[ing] the hardship of disproving economic gain onto the
infringer.” Id. at 1539. This rationale too, we acknowledged, requires a plaintiff to
“show consumer confusion resulting from the infringement.” Id.
In contrast, our discussion of the third rationale—deterrence—included no
mention of actual consumer confusion. Instead, we declared that “a court may award a
defendant’s profits solely upon a finding that the defendant fraudulently used the
plaintiff’s mark.” Id. “By awarding the profits of a bad faith infringer to the rightful
owner of a mark,” we reasoned, “we promote the secondary effect of deterring public
fraud regarding the source and quality of consumer goods and services.” Id.
Although our discussion there of the deterrence rationale was somewhat terse,
other portions of the George Basch opinion strongly suggest our understanding that a
court may award a Lanham Act plaintiff an infringing defendant’s profits upon a
finding of bad faith, without additional proof of actual consumer confusion. For
example, we “underscore[d] that in the absence of . . . a showing [of willfulness], a
plaintiff is not foreclosed from receiving monetary relief”—in the form of the plaintiff’s
proved damages, not the defendant’s profits—if he can present “proof of actual
consumer confusion.” Id. at 1540. This conditional statement would make little sense if
actual confusion were also an essential precondition for the award of a defendant’s
profits on a deterrence rationale. In addition, we observed that a plaintiff that failed to
demonstrate either actual confusion or willfulness would be precluded from asserting
“both unjust enrichment and deterrence as available grounds for relief.” Id (commenting
on Burndy Corp. v. Teledyne Indus., Inc., 748 F.2d 767, 773 (2d Cir. 1984)). This remark,
15
too, suggests that we considered willfulness to suffice for an award of profits under the
deterrence rationale.
Our language in George Basch may not have been ideally clear and unequivocal in
this respect, it is true. Our subsequent rulings applying that language, however, leave
little doubt on the question: we have repeatedly affirmed since George Basch that a
demonstration of actual confusion is not a prerequisite to a profits award. See Merck
Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 261 (2d Cir. 2014) (“Our precedent permits a
district court to award a defendant’s full profits based solely on deterrence.”); Intʹl Star
Class Yacht Racing Assʹn v. Tommy Hilfiger U.S.A., Inc., 146 F.3d 66, 72 (2d Cir. 1998)
(“We have held that an accounting for profits is available, even if a plaintiff cannot
show actual injury or consumer confusion.”); Intʹl Star Class Yacht Racing Assʹn v.
Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 753 (2d Cir. 1996) (while “[p]roof of actual
confusion is ordinarily required for recovery of damages for pecuniary loss,” plaintiff
was entitled to recover because “[i]n order to recover an accounting of an infringer’s
profits, a plaintiff must prove that the infringer acted in bad faith”).10
Indeed, the rule expressed in George Basch and confirmed in our later decisions
makes good sense. Whether a Lanham Act plaintiff can demonstrate actual consumer
confusion, to be sure, is an important factor in determining whether infringement
10 This rule is also consistent with that followed by our sister circuits. See, e.g., Masters v. UHS of
Delaware, Inc., 631 F.3d 464, 473–74 (8th Cir. 2011) (“Where the jury disgorges profits to remedy
a willful infringement that was likely to cause confusion, to cause mistake, or to deceive as to
the relationship between the parties’ services, equity does not require adherence to the putative
judge‐made rule requiring actual confusion.”); Gracie v. Gracie, 217 F.3d 1060, 1068 (9th Cir.
2000) (“While actual confusion may be relevant as evidence of the likelihood of confusion (which
is required for an award of profits . . .)[,] a showing of actual confusion is not necessary to
obtain a recovery of profits.”).
16
occurred in the first place. See Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d
Cir. 1961) (Friendly, J.) (listing factors, including actual confusion, to be considered in
assessing whether the Lanham Act’s “likelihood of confusion” test for infringement is
met). The deterrence rationale for disgorgement of profits, however, focuses on the
culpability of the willful infringer, and the presence or absence of actual consumer
confusion may not always bear a logical connection to an infringer’s good or bad faith.
Moreover, we have long recognized that actual consumer confusion “in fact is very
difficult to demonstrate,” W.E. Bassett Co. v. Revlon, Inc., 435 F.2d 656, 662 (2d Cir. 1970),
and deserving plaintiffs may find it challenging and costly to make such a showing
even in cases of blatant and intentional infringement. Tethering the power of district
courts to require a defendant’s disgorgement of profits to a plaintiff’s showing of actual
consumer confusion would hamper courts’ ability to deter willful misconduct, contrary
to the purposes of the Lanham Act. See id. at 664 (observing that “[i]t is essential to deter
companies from willfully infringing a competitor’s mark” and that disgorgement of
profits is “the only way the courts can fashion a strong enough deterrent”).
Resisting both these considerations and the repeated and more recent
expressions of our Circuit’s law, Defendants return again to the statement of Judge
Learned Hand in G.H. Mumm in 1944: “It is of course true that to recover damages or
profits, whether for infringement of a trade‐mark or for unfair competition, it is
necessary to show that buyers, who wished to buy the plaintiff’s goods, have been
actually misled into buying the defendant’s.” 142 F.2d at 501 (emphasis added). For
several reasons, this passing remark does not compel a different result here. First, G.H.
Mumm was decided two years before the 1946 passage of the Lanham Act, and therefore
is of uncertain use in interpreting the statutory language codified at 15 U.S.C. § 1117(a).
Second, Judge Hand’s statement was dictum—no award of profits was at issue in G.H.
17
Mumm. Rather, the Court’s holding was that proof of actual confusion was not required
to justify injunctive relief. Id. at 501.
One might object that requiring that a trademark infringement plaintiff prove
only willfulness on top of infringement to support recovery of an infringer’s profits
under the deterrence rationale hollows out the unjust enrichment and proxy‐for‐
damages rationales described in George Basch, which require a showing of both
willfulness and actual confusion for a profits award. This concern, however, is
adequately addressed by our Court’s observation in George Basch that, while “a finding
of willful deceptiveness is necessary in order to warrant an accounting for profits . . . it
may not be sufficient.” 968 F.2d at 1540. Otherwise stated: whatever the rationale
adopted, a district court must still balance equitable factors in assessing the propriety of
a profits award. These include, but are not limited to: (1) the degree of certainty that the
defendant benefited from the unlawful conduct; (2) the availability and adequacy of
other remedies; (3) the role of a particular defendant in effectuating the infringement;
(4) any delay by plaintiff; and (5) plaintiff’s clean (or unclean) hands. Id. Thus, when
relying on the deterrence rationale to support an award of an infringer’s profits in the
absence of any evidence of actual confusion, district courts should attend closely to the
need to fashion a remedy that may sufficiently deter willful misconduct without giving
plaintiffs a lottery‐level windfall. Indeed, the Lanham Act calls for just such a
determination: “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.” 15
U.S.C. § 1117(a). Even when a plaintiff sustains its burden of proving willfulness, courts
should consider not only whether an enhanced profits award is appropriate, but also
18
whether the disgorgement of all profits attributable to the infringing product is
necessary to achieve the desired deterrent effect.
In this case, the District Court addressed the equitable factors identified in George
Basch and concluded that an award of Defendants’ gross profits to Plaintiffs was
justified. We review a district court’s choice of remedy under the Lanham Act for abuse
of discretion only. Tommy Hilfiger, U.S.A., 80 F.3d at 752. In this case, where the
evidence of willful conduct was less than overwhelming, where Plaintiffs introduced no
evidence of actual consumer confusion, and where Plaintiffs’ gross sales actually
increased during the years that Defendants marketed infringing products, the District
Court could have concluded in its discretion that an award of something less than full
profits would have an adequate deterrent effect on these Defendants and future
infringers.11 Nevertheless, applying the deferential abuse‐of‐discretion standard of
review that governs such rulings, we conclude that the District Court acted within the
permissible bounds of its discretion by not doing so here.
III. Attorney’s Fees and Prejudgment Interest
The District Court also awarded Plaintiffs their attorney’s fees, relying on the
Lanham Act provision that allows such an award to a prevailing party in “exceptional
cases.” 15 U.S.C. § 1117(a). It further required Defendants to pay Plaintiffs prejudgment
11In a puzzling development, as noted above, Defendants’ trial counsel stipulated only to the
amount of Defendants’ gross profits, rather than the generally lower net profit figure. Generally
speaking, an award of an infringer’s profits under the Lanham Act can be expected to refer to
net profits, but the infringer bears the burden “to prove any deductions for its costs from the
gross revenues attributable to its [infringement].” Manhattan Indus., Inc. v. Sweater Bee by Banff,
Ltd., 885 F.2d 1, 7 (2d Cir. 1989). Accordingly, the District Court might have considered whether,
even when Defendants’ counsel apparently faltered on this score, the deterrence rationale
necessitated an award greater than Defendants’ net profits.
19
interest, an award that is “within the discretion of the trial court and is [also] normally
reserved for ‘exceptional’ cases.” Am. Honda Motor Co. v. Two Wheel Corp., 918 F.2d 1060,
1064 (2d Cir. 1990).
In making these awards in 2017, the District Court cited our then‐current
Lanham Act precedent for the proposition that “[t]he finding of willfulness determines
the right to attorney’s fees.” Bambu Sales, Inc., 58 F.3d at 854; see also Patsy’s Brand, Inc. v.
I.O.B. Realty, Inc., 317 F.3d 209, 221 (2d Cir. 2003) (“exceptional cases” include “instances
of fraud or bad faith or willful infringement” (citations omitted)). In 2014, however, the
Supreme Court interpreted an identical attorney’s fee provision found in the Patent Act,
35 U.S.C. § 285. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014). In
Octane Fitness, without tying the determination expressly to a finding of willfulness, the
Court defined such a case as “one that stands out from others with respect to the
substantive strength of a party’s litigating position (considering both the governing law
and the facts of the case) or the unreasonable manner in which the case was litigated.”
Id. at 554. The Court called for district courts to be given wide latitude as they engage in
a “case‐by‐case exercise of their discretion, considering the totality of the
circumstances.” Id. In that “case‐by‐case exercise,” courts may consider factors
including “frivolousness, motivation, objective unreasonableness (both in the factual
and legal components of the case) and the need in particular circumstances to advance
considerations of compensation and deterrence.” Id. at 554 n.6 (citing Fogerty v. Fantasy,
Inc., 510 U.S. 517, 534 n.19 (1994)).
During the pendency of this appeal, we ruled that Octane Fitness’s flexible
definition of the “exceptional case” applies to the attorney’s fees provision in the
Lanham Act, which mirrors the Patent Act’s text in this regard. Sleepy’s LLC v. Select
20
Comfort Wholesale Corp., 909 F.3d 519, 530–31 (2d Cir. 2018). Defendants now urge us to
apply that standard and conclude that “[t]here is nothing special, extraordinary, or
unusual about the case, nor was the litigation pursued in an ‘unreasonable manner,’”
App’t Br. 35. They seek a decision made under the Octane Fitness standard that the
District Court abused its discretion in awarding attorney’s fees and prejudgment
interest to Plaintiffs here. Plaintiffs respond that any remand would be futile because
the Octane Fitness standard lowers the threshold for awarding attorney’s fees and that,
in any event, an award of attorney’s fees is warranted under the Octane Fitness standard
both because of the substantive strength of their case and the unreasonable manner in
which Defendants comported themselves during the litigation. Appellees’ Br. 52–55.
We decline to make this determination on appeal. Although Plaintiffs are indeed
correct that Octane Fitness provides district courts with broad discretion to award
attorney’s fees, it still demands that courts engage in a “case‐by‐case exercise of their
discretion, considering the totality of the circumstances” in determining whether the
case is “one that stands out from others,” so as to warrant an award of fees. 572 U.S. at
554. This exercise differs appreciably from prior practice. Thus, the District Court
observed that, under pre‐Octane Fitness law, it was unclear “whether the default
outcome in a case of willful infringement is to award fees unless there are mitigating
factors, or to require aggravating factors in order to justify a fee award.” 4 Pillar Dynasty
LLC, 257 F. Supp. 3d at 626. It then appeared to adopt the former approach, awarding
fees after Defendants failed to “point to any of the mitigating factors present in the cases
that they cite in which courts have declined to award fees.” Id. Because Octane Fitness
establishes no presumption—rebuttable or otherwise—that cases involving willful
infringement are necessarily “exceptional,” we remand to the District Court to allow it
to apply the approach articulated in Octane Fitness in the first instance, expressing no
21
view here as to whether the record may support a finding that this case is “exceptional”
under this standard.
As to an award of prejudgment interest, our case law draws no distinctions
between the showing required to support such an award and that required to justify an
award of attorney’s fees. See Am. Honda Motor Co., 918 F.2d at 1064. Accordingly, we
also vacate the District Court’s award of prejudgment interest. On remand, the District
Court may, in its discretion, award Plaintiffs prejudgment interest if it determines that
the case is “exceptional” under the Octane Fitness standard.12
IV. Plaintiffs’ Cross‐Appeal
On cross‐appeal, Plaintiffs argue that the District Court abused its discretion by
granting in part Defendants’ motion to alter the judgment under Fed. R. Civ. P. 59(e)
and removing the trebled portions of its profits award. We review the District Court’s
decision to amend a judgment for abuse of discretion. Baker v. Dorfman, 239 F.3d 415,
427 (2d Cir. 2000).
Under Rule 59(e), “district courts may alter or amend judgment to correct a clear
error of law or prevent manifest injustice.” Munafo v. Metro. Transp. Auth., 381 F.3d 99,
105 (2d Cir. 2004) (internal quotation marks omitted). A Rule 59(e) motion “may not be
used to relitigate old matters, or to raise arguments or present evidence that could have
12In exercising its discretion on this issue, the District Court may, of course, also consider other
factors generally relevant to awards of prejudgment interest, such as “(i) the need to fully
compensate the wronged party for actual damages suffered, (ii) considerations of fairness and
the relative equities of the award, (iii) the remedial purpose of the statute involved, and/or (iv)
such other general principles as are deemed relevant by the court.” Wickham Contracting Co. v.
Local Union No. 3, 955 F.2d 831, 834 (2d Cir. 1992).
22
been raised prior to the entry of judgment.” Exxon Shipping Co. v. Baker, 554 U.S. 471, 485
n.5 (2008).
Plaintiffs contend that the District Court erred in granting Defendants’ motion
because Defendants failed to “point to controlling decisions or data that the court
overlooked.” Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995). We disagree.
After accepting the jury’s advisory verdict on willfulness, the District Court forthwith
awarded treble profits without any further elaboration. App’x 522–23. While a motion
for reconsideration under Fed. R. Civ. P. 59(e) does not properly serve as an occasion to
repeat already‐defeated arguments, in deciding such a motion a district court still may
reconsider a hastily‐made earlier ruling if, upon revisiting the non‐prevailing party’s
arguments, the court concludes that it erred.
Because, on Defendants’ motion, the District Court in the end correctly applied
the standard set forth in 15 U.S.C. § 1117(a), we review its award of profits and
elimination of the trebled portion for abuse of discretion only. For substantially the
same reasons stated by the District Court in its decision on the issue, 4 Pillar Dynasty
LLC, 257 F. Supp. 3d at 625–27, we agree that Plaintiffs have failed to demonstrate an
entitlement to an enhanced profits award. The District Court permissibly exercised its
discretion in concluding as much. We therefore affirm the District Court’s decision to
amend its judgment accordingly.
CONCLUSION
The judgment of the District Court is AFFIRMED in part and VACATED and
REMANDED in part.
23