Damages for Trademark Claims Under Damages for Trademark Claims Under The Lanham Act: Lessons Learned FromThe Lanham Act: Lessons Learned From

Sands Taylor & Wood v. The Quaker Oats Co.Sands Taylor & Wood v. The Quaker Oats Co.

and and Trovan, Ltd. v. Pfizer, Inc.Trovan, Ltd. v. Pfizer, Inc.

Susan Somers NealNeal & McDevitt®

Presentation HighlightsPresentation Highlights

Overview of damages under The Lanham Act

Sands Taylor & Wood v. The Quaker Oats Co.

Trovan, Ltd. v. Pfizer, Inc.Lessons Learned

Overview of damages under Overview of damages under The Lanham Act, 15 U.S.C. The Lanham Act, 15 U.S.C.

§1117§1117Four bases for recovery

– Defendant’s profits– Plaintiff’s damages– Costs– Attorney’s fees

Only in exceptional cases

Treble damages Only if willful/intentional

Sands Taylor & Wood v. The Sands Taylor & Wood v. The Quaker Oats Co. (Sands I)Quaker Oats Co. (Sands I)

Decided December 18, 1990 by U.S. District Court Judge Prentice Marshall

THIRST-AID registered mark vs. GATORADE IS THIRST-AID advertising slogan.

The court held that there was a likelihood of confusion.

Plaintiff was awarded nearly $25 million plus pre-judgment interest, attorney’s fees and costs.

Sands ISands I

Rationale for award of defendant’s profits – Make Infringement Unprofitable– Prevent Unjust Enrichment– Deter Future Infringing Conduct– But Avoid Awarding a Windfall to

Plaintiff

Sands ISands I

Types of Monetary Relief– Plaintiff's Actual Damages– Corrective Advertising– Reasonable Royalties– Attorney’s Fees– Prejudgment interest and costs

Sands Taylor & Wood v. The Sands Taylor & Wood v. The Quaker Oats Co. (Sands II)Quaker Oats Co. (Sands II)

Decided July 9, 1991 by U.S. District Court Judge Prentice Marshall

The court addressed the terms of the injunction, the calculation of costs, attorney's fees prejudgment interest and defendant's post-trial profits.

Sands IISands II

Defendant’s profits throughout period of infringement (over $31 million)

Prejudgment interest (over $10 million)

Plaintiff's attorneys’ fees and expenses (over $600,000)

Defendant’s costs (over $30,000)

Sands Taylor & Wood v. The Sands Taylor & Wood v. The Quaker Oats Co. (Sands III)Quaker Oats Co. (Sands III)

Decided on September 2, 1992 by the U.S. Court of Appeals, Seventh Circuit.

Circuit Judge Cudahy wrote the opinion of the court with Circuit Judge Ripple concurring and Circuit Judge Fairchild dissenting in part.

The court reversed the district court’s award of defendant's profits and remanded for a recalculation of damages.

Sands IIISands III

Reversed of award of defendant's profits and remanded for redetermination of damages

Affirmed award of attorneys’ fees and expenses

Affirmed Finding of Bad Faith

Sands IIISands III

The Three Bears– Judge Cudahy: $24 million is a

windfall to Sands (too hot)– Judge Ripple: reasonable royalty may

not be enough to act as deterrence (too cold)

– Judge Fairchild (dissent): exercise of discretion should be affirmed (just right)

Sands Taylor & Wood v. The Sands Taylor & Wood v. The Quaker Oats Co. (Sands IV)Quaker Oats Co. (Sands IV)

Decided on June 7, 1993 by U.S. District Court Judge Prentice Marshall

The case was on remand from the Seventh Circuit

The court used a “reasonable royalty rate” to calculate damages and awarded plaintiff over $26 million in damages and pre-judgment interest

Sands IVSands IV

Calculation of reasonable royalty rate– Rate previously paid by licensee– Licensor’s policies– Nature and scope of licensee’s use– Special value to infringer– Profitability of infringing use– Lack of viable alternatives– Opinions of experts– Amount parties would have agreed upon voluntarily– Rate previously received by licensor

Sands Taylor & Wood v. The Sands Taylor & Wood v. The Quaker Oats Co. (Sands V)Quaker Oats Co. (Sands V)

Decided on September 13, 1994 by the U.S. Court of Appeals, Seventh Circuit.

Circuit Judge Cudahy wrote the opinion of the court with Circuit Judge Fairchild concurring.

The court affirmed the base royalty rate but reversed the doubling of the base rate and remanded to the district court for further explanation of the basis for the doubling.

Sands VSands V

Seventh Circuit affirms the base royalty rate but reverses enhancement (doubling)

Remand for further explanation of the enhancement (doubling)

Sands Taylor & Wood v. The Sands Taylor & Wood v. The Quaker Oats Co. (Sands VI)Quaker Oats Co. (Sands VI)

Decided on April 11, 1995 by U.S. Court Judge Prentice Marshall

The court further explained its basis for doubling of the base royalty rate and re-entered judgment on remand for the amount reversed by the Seventh Circuit.

Sands VISands VI

“The enhancement is not a penalty. It reflects the inadequacy of the base royalty award in light of the "circumstances of the case," the extraordinary profits defendant realized as a consequence of its deliberate infringement. As now Chief Judge Posner observed in Gorenstein, the treble damage provision of the Lanham Act is ‘properly invoked when, as in this case, the infringement is deliberate.’ 874 F.2d at 436. Furthermore, I assure the court of appeals that I did not "double-count" the factors which I used to determine the base royalty. I can say no more.”

Trovan, Ltd. v. Pfizer, Inc.Trovan, Ltd. v. Pfizer, Inc. TROVAN for transponders

used in animal identification and TROVAN for antibiotic preparations

Jury awarded $5 million in compensatory damages, $3 million in reasonable royalties and $135 million in punitive damages

The court denied an award of profits

Numerous post-trial motions

TrovanTrovan

Punitive Damages– California common law requires proof of

competition and no punitive damages under the Lanham Act.

– In any event, the amount is excessive.– The court finds that $1,500,000 (3 times the

value of the mark) is the most that could be awarded.

TrovanTrovan

Actual Damages1. Injury to reputation or goodwill

Must be direct evidence Cannot be inferred Analogy to defamation

Held: Sufficient showing to warrant award of damages

TrovanTrovan

Actual Damages2. Corrective Advertising

Evidence on this issue was stricken

TrovanTrovan

Actual Damages3. Damage Award Excessive

“There is something basically unseemly and grossly uneconomical in an award to a small company of an amount of money several times its net worth to use to resuscitate an infringed trademark”

Held: Only direct evidence of value was $500,000 – the most the jury could have awarded. Court remits $500,000. If plaintiffs refuse to accept this amount, new trial granted.

TrovanTrovan

Reasonable Royalties– The Ninth Circuit does not

recognize this as measure of damages where there is no evidence that a party intended the license the trademark (unlike Sands v. Quaker).

TrovanTrovan

The Issue of Willfulness– The Ninth Circuit has not addressed

“bad faith” in the context of reverse confusion.

– The Sands decision is in direct conflict with Trovan

– Held: Vacates jury finding of bad faith; alternatively, grants new trial. No bad faith, no punitive damages.

TrovanTrovan

New Trial Ordered– Misconduct of plaintiff’s

attorneys permeated the trial to such an extent that the Court is convinced the jury was influenced by passion and prejudice in reaching its verdict.

Lessons LearnedLessons Learned

Bad Faith/Willfulness RequiredReasonable Royalties May Not Be

AvailableBe Prepared with Specific Proof of

Damage

andDon’t make the judge angry….