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Damages for Trademark Claims Under
The Lanham Act: Lessons Learned From
Sands Taylor & Wood v. The Quaker Oats Co.
       and Trovan, Ltd. v. Pfizer, Inc.

         Susan Somers Neal
          Neal & McDevitt®
Presentation 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
The Lanham Act, 15 U.S.C. §1117
 Four   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
 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 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 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
 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 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
 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 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 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
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 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
 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 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
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 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 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
Trovan
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.
Trovan
Actual     Damages
 1. Injury to reputation or goodwill
    Must be direct evidence
    Cannot be inferred

    Analogy to defamation



      Held: Sufficient showing to warrant award
       of damages
Trovan
Actual     Damages
 2. Corrective Advertising
      Evidence on this issue was stricken
Trovan
   Actual Damages
    3. 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.
Trovan
   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).
Trovan
   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.
Trovan
   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 Learned
 Bad  Faith/Willfulness Required
 Reasonable Royalties May Not Be
  Available
 Be Prepared with Specific Proof of
  Damage

             and
 Don’t make the judge angry….

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Lanham act (1)

  • 1. Damages for Trademark Claims Under The Lanham Act: Lessons Learned From Sands Taylor & Wood v. The Quaker Oats Co. and Trovan, Ltd. v. Pfizer, Inc. Susan Somers Neal Neal & McDevitt®
  • 2. Presentation Highlights  Overview of damages under The Lanham Act  Sands Taylor & Wood v. The Quaker Oats Co.  Trovan, Ltd. v. Pfizer, Inc.  Lessons Learned
  • 3. Overview of damages under The Lanham Act, 15 U.S.C. §1117  Four bases for recovery – Defendant’s profits – Plaintiff’s damages – Costs – Attorney’s fees  Only in exceptional cases  Treble damages  Only if willful/intentional
  • 4. Sands Taylor & Wood v. The 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.
  • 5. Sands 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
  • 6. Sands I  Types of Monetary Relief – Plaintiff's Actual Damages – Corrective Advertising – Reasonable Royalties – Attorney’s Fees – Prejudgment interest and costs
  • 7. Sands Taylor & Wood v. The 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.
  • 8. Sands 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)
  • 9. Sands Taylor & Wood v. The 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.
  • 10. Sands 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
  • 11. Sands 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)
  • 12. Sands Taylor & Wood v. The 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
  • 13. Sands 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
  • 14. Sands Taylor & Wood v. The 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.
  • 15. Sands V  Seventh Circuit affirms the base royalty rate but reverses enhancement (doubling)  Remand for further explanation of the enhancement (doubling)
  • 16. Sands Taylor & Wood v. The 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.
  • 17. Sands 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.”
  • 18. 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
  • 19. Trovan 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.
  • 20. Trovan Actual Damages 1. Injury to reputation or goodwill  Must be direct evidence  Cannot be inferred  Analogy to defamation  Held: Sufficient showing to warrant award of damages
  • 21. Trovan Actual Damages 2. Corrective Advertising  Evidence on this issue was stricken
  • 22. Trovan  Actual Damages 3. 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.
  • 23. Trovan  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).
  • 24. Trovan  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.
  • 25. Trovan  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.
  • 26. Lessons Learned  Bad Faith/Willfulness Required  Reasonable Royalties May Not Be Available  Be Prepared with Specific Proof of Damage and  Don’t make the judge angry….