devoted to intellectual property litigation & …

NOVEMBER/DECEMBER 2010

VOLUME 16 NUMBER 6

DEVOTED TO INTELLECTUAL

PROPERTYLITIGATION &

ENFORCEMENT

Edited by the Law Firm of Grimes & BattersbyLitigator

NOVEMBER/DECEMBER 2010 I P L i t i g a t o r 2

Monetary Recovery in Trademark Litigation R. Charles Henn, Jr., Sabina A. Vayner, and Katharine M. Sullivan

R. Charles Henn, Jr. is a partner, and Sabina A. Vayner and Katharine M. Sullivan are associates,

in the Intellectual Property Department at Kilpatrick Stockton LLP.

High profile verdicts, escalating pressure on enforce-ment budgets, and the ability to use past victories as credible leverage in future settlement negotiations are merely three of the reasons for the increasing spotlight on monetary recovery in trademark cases. Unfortu-nately, despite their importance, the various kinds of monetary recovery available to a prevailing party under the Lanham Act often are complex to quantify properly, as harm resulting from infringement by a competitor in an active marketplace often is difficult to ascertain with reasonable certainty. To prevent infringement without repercussions, courts have adapted the remedies pro-vided by the Lanham Act in a variety of ways to allow reasonable calculation of recovery. Among the remedies available in trademark cases are recovery of lost profits, disgorgement of the infringing party’s profits, calcula-tion of a reasonable royalty, loss of business value, and the costs of corrective advertising. Of these, the award of lost profits is most prevalent in trademark litigation. 1

Lost Profits In general, lost profits are awarded as a way to prevent

the unjust enrichment that would otherwise result from trademark infringement, thus reducing the economic incentive to engage in infringing behavior. Lost profits are calculated in one of two ways: (1) as a measure of lost sales; or (2) as a calculation of price erosion. Of the two, measurement of lost sales is by far the more com-mon method.

Lost Sales Lost sales generally measure the damages sustained by

a plaintiff, but calculation of those damages is not an easy process. In practical terms, suppose the total market size for a particular product is $100 million, and a plain-tiff ’s products, which bear the trademark at issue in a

later litigation, represent 20 percent of that market share prior to the infringing activity. If sales of the plaintiff ’s products are later found to represent only a 15 percent market share post-infringement, then the plaintiff ’s lost sales would be calculated at 5 percent of $100 million, or $5 million.

Similarly, as a next step, if the plaintiff typically enjoys a 20 percent profit margin, the ultimate finding of dam-ages in the infringement action would be $1 million (20 percent of the $5 million previously calculated). Although this math is quite easy in theory, calculating each step—from the total market size, to a particular plaintiff ’s market share within that market for the specific products bearing the infringed mark, to the reduction in this market share—are quite difficult to quantify, even with retention of an expert witness. Even after perform-ing this calculation, controlling for other market factors also is extremely complex. For example, factors such as a deteriorating economy, changes in raw material costs, or the entrance of new market participants, must be taken into consideration when determining the percentage of a plaintiff ’s decline in market share attributable only to a defendant’s infringing actions.

Moreover, the recovery of a plaintiff ’s lost sales can vary greatly depending on the trademark or trade dress at issue in the litigation. For example, if the infringed mark involves a company’s core brand identity, its pri-mary trademark, or corporate name or logo, the measure of lost sales can be vastly greater than if the same type of infringement involves a company’s sub-brands or sec-ondary trademarks, which are used far less often and far less prominently.

Regardless of the importance of a mark to a particular company and the difficulties of precise calculation, as a legal matter, most circuits require evidence of actual con-fusion or intentional deception before granting the recov-ery of a plaintiff ’s lost sales. In International Star Class Yacht Racing Association v. Tommy Hilfiger, U.S.A., Inc. , 2 for example, the plaintiffs claimed that Tommy Hilfiger had used their trademark on clothing in his 1994 Spring Collection. Despite evidence that Hilfiger had failed to conduct a full trademark search, and that he had pos-sibly copied the plaintiffs’ mark, the plaintiffs could not demonstrate any actual confusion or any pecuniary loss.

3 I P L i t i g a t o r NOVEMBER/DECEMBER 2010

As a result, the court declined to award actual damages. 3 In contrast, in Getty Petroleum Corp. v. Island Transpor-tation Corp. , 4 the Second Circuit affirmed an award of actual damages when the defendant’s conduct in selling non-Getty gasoline from a Getty-branded gas station was intentional, even though customers were unaware they had been duped. 5

Interestingly, in the well-known trade dress infringe-ment case of Taco Cabana International, Inc. v. Two Pesos, Inc. , 6 the Fifth Circuit explicitly stated that actual confusion was not required for an award of monetary damages, instead finding it sufficient that the infringer had foreclosed a possible market to the plain-tiff ’s expansion. Like the Taco Cabana court, other decisions also support the view that surrogate evidence can be acceptable in lieu of actual confusion. Acknowl-edging the difficulty of proving actual confusion, the Seventh Circuit accepted survey evidence as sufficient in James Burrough Ltd. v. Sign of the Beefeater, Inc. , 7 holding that a consumer survey on confusion between Beefeater Gin and a sign for a restaurant using the word “Beefeater” could not only provide a substitute for actual confusion, but also that the defendant’s rebuttal survey provided even more evidence of actual confusion. 8

Evidence of actual confusion, intentional deception, or a judicially-accepted proxy is therefore key to obtain-ing an award of lost sales. As a practical matter, efforts to communicate with the plaintiff ’s sales force early in litigation are important. One effective method to gather the necessary evidence may be to create a form on which salespeople can record any reported instances of actual confusion in order to get the date, customer name, source of confusion, and any other pertinent information that later can be used to support an award of lost sales.

Price Erosion An alternate, and much less common, method of calcu-

lation to determine lost profits is price erosion. Price ero-sion stems from the competitive presence of infringing products in the marketplace, and the theory underlying price erosion assumes that the existence of the infringing products, which often are sold at a lower price point, leads to greater competition in the marketplace, thus forcing the plaintiff to lower its own prices simply to maintain its market share. While price erosion is widely accepted as a method of calculating damages in patent infringement cases, it often is mentioned as merely an example of the irreparable harm that may result if an injunction does not issue in the context of trademark actions. 9

Testimony from the plaintiff ’s sales or marketing wit-nesses, price lists evidencing pre- and post-infringement prices, and historic prices from trade journals or past

invoices are among the types of evidence considered in quantifying price erosion. For example, in BASF Corp. v. Old World Trading Co., Inc. , 10 the court refused to award damages based on price erosion after considering evi-dence from BASF’s former customers stating that they switched suppliers because of BASF’s high prices, not the trademark infringement, and considering evidence of BASF’s own salespeople’s price adjustment requests showing that most of BASF’s price competition came from competitors other than the defendants.

Other methods of quantifying price erosion may include calculating the decrease in the number of units sold by the plaintiff, the increase in the plaintiff ’s production or marketing costs, changes in the plaintiff ’s market share, reduction in market size overall, and the cost of not being the first to market.

Proof of causation is critical to each of these approaches, as it is necessary to control for non-infringement sources of each of the above changes. Evidence of a plaintiff ’s prices alone is not enough to succeed in recovery on the basis of price erosion; explanations of long- and short-term pricing trends, variations in cost, and the defendant’s pricing and cost models frequently are neces-sary to prevail.

Reasonable Royalty As another alternative measure of a plaintiff ’s dam-

ages, some circuits permit the calculation of a reasonable royalty. As with the recovery of lost sales, evidence of actual confusion or intent to deceive may be required to obtain a monetary award. In one example of recov-ery based on calculation of a reasonable royalty, the district court in Sands, Taylor & Wood v. Quaker Oats Co. , 11 originally held that a reasonable royalty was not an available measure of damages because the parties had never engaged in actual negotiations that could serve as the basis for calculating the royalty. The Seventh Circuit reversed this holding, however, and remanded to the district court, which then considered what a hypothetical negotiation for a license between the parties might have yielded. In the end, the court settled on a base award of almost $10.5 million—computed based on a reasonable royalty rate of 1 percent of sales of infringing products for the first year and 0.5 percent thereafter. 12

Agreeing with the reasoning of the Sands, Taylor & Wood decision, the district court in adidas America, Inc. v. Payless Shoesource, Inc. , 13 upheld the jury’s award of actual damages in the form of a 7.78 percent royalty (totaling $30.6 million), applying a reasonable royalty calculation in the context of a trademark infringement action. The district court found the jury’s award to be reasonable, despite the fact that the amount of the jury’s reasonable royalty award would have resulted in a loss to


Payless at the then-current price point, and despite the fact that adidas conceded that it would not have licensed the trademarks at issue to Payless.

Judicial enhancement of a reasonable royalty award also is possible as a way to ensure that the infringer bears any burden of uncertainty in calculation. Doing so allows courts to deter infringers such that royalty payments do not become the cost of doing business as an infringer. 14

The typical elements evaluated in calculating a reason-able royalty damages award, as established by the patent case of Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc. 15 include:

• The royalty rates received in prior licenses by the licensor;

• Prior rates paid by the licensee; • The licensor’s licensing policies; • The nature and scope of the infringer’s infringing

use; • The special value of the mark to the infringer; • The profitability of the infringer’s use; • The lack of viable alternatives; • The opinion of expert witnesses; and • The amount that the licensor and licensee would

have agreed upon in voluntary negotiations.

Since the Southern District of New York’s above enu-meration in the Georgia-Pacific decision, these elements have been accepted and applied in the trademark context as well, although not always. 16 For example, in the adidas case, the Georgia-Pacific factors were not specifically enumerated, though factors such as the royalty rates received in prior licenses by the licensor, prior rates paid by the licensee, and the licensor’s licensing policies were considered as part of the evaluation. 17 Another consid-eration in measuring the appropriate royalty rate is the evaluation of analogous license agreements, including those of third parties, as well as agreements to which either the plaintiff or the defendant were a party.

Applying the concept of reasonable royalty calculation, as an example, suppose that annual sales of Brand X widgets were $100,000 per year, and the industry average royalty rate for branded widgets was 15 percent. Under these circumstances, the estimated annual royalty income for Brand X Widgets would be calculated as 15 percent of $100,000, or a total of $15,000 per year. Thus, if a defendant’s trademark infringement continued for five years, the damages, calculated based on a reasonable royalty, would total $75,000.

Clearly, then, establishing the average royalty rate in a given industry is an important part of determining the appropriate reasonable royalty for damages calcula-tion. Determining the average royalty rate is rarely an

easy task, however. Even within the same industry, the royalty rates charged by competitor entities may be wide ranging, often making the average royalty rate a perhaps inaccurate metric against which a particular company’s royalty rate is to be evaluated. For example, within the sporting goods industry, if Nike were to establish a 6 percent royalty rate, Wilson were to establish a 3 to 6 percent rate range depending on the licensee, the adidas rate were to range from 7 to 15 percent, and Mizuno were to apply a range of 5 to 9 percent, the range of royalty rates would vary from a meager 3 percent to a whopping 15 percent. Not only does this wide range impact the analysis of whether a particular plaintiff ’s royalty rate is “reasonable,” but also shows the vast differences that would result in recovery of damages based on reasonable royalty calculation from company to company.

As a result of the uncertainties and variations discussed above, the reasonable royalty damages award is not without critics, as some commentators view it as a very unreliable and inaccurate measure of recovery. One com-mentator has noted, for example, that in order to avoid speculative awards, evidence of prior dealings between the parties may be necessary for such recovery. 18

Corrective Advertising The remedy of corrective advertising is allowed rarely

in trademark cases. In some instances, however, courts have awarded plaintiffs the cost of advertising efforts they have already made to correct the effects of a defen-dant’s infringement, and in others have awarded the costs associated with prospective corrective advertising. As expected, in the cases addressing prospective awards, cal-culating an appropriate amount can be very complicated. For example, in Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co. , 19 the Tenth Circuit rejected the district court’s opinion affirming a jury verdict of $2.8 million, calculated using a “dollar-for-dollar” measure based on the amount the infringer spent advertising the mark. 20 Instead, the court adopted the 25 percent ratio used by the FTC and reduced the award to $700,000. 21

Likewise, the evidence necessary to establish retrospec-tive damages in the form of corrective advertising varies. According to the Sixth Circuit, a plaintiff is not required to show that false advertising created actual confusion or damage in the marketplace to recover for the cost of cor-rective advertising. Rather, the plaintiff must first prevail under the Lanham Act and then show that there was a likelihood of confusion or damage to sales, profits, or goodwill, that the plaintiff ’s “damage control” expenses were caused by the violation, and that the plaintiff ’s expenses were reasonable under the circumstances and proportionate to the damage that was likely to occur. 22 As another example, in the Seventh Circuit:


[t]o justify damages to pay for corrective advertis-ing, a plaintiff must show that the confusion caused by the defendant’s mark injured the plaintiff and that ‘repair’ of the old trademark, rather than adoption of a new one, is the least expensive way to proceed. 23

Consequently, in the event a plaintiff seeks recovery of damages in the form of corrective advertising, the evidence necessary to prevail will be highly fact-specific and may vary dramatically depending on the jurisdiction in which the case is brought.

Practically, corrective advertising damages only make sense in cases of extensive advertising involving the infringing mark. Thus, whether a plaintiff will seek damages in the form of corrective advertising should be determined early in a case, as discovery targeted at drilled-down advertising expenditures will be of great value at the damages stage.

Loss of Business Valuation Although loss of business value has yet to be applied in

calculating damages in a trademark infringement action, it is used as an alternate (rather than supplementary) measure of damages in breach of contract cases. This method of calculating damages focuses on the change in worth of a business caused by the breach of contract. 24 In a context closer to that of trademark infringement, the “loss of business value” calculation has been applied in at least one trade secret case. 25

As with price erosion, proving causation is key to recovery—a plaintiff must show that trademark infringe-ment, and not any other factors, led to the loss of busi-ness value. There is some concern of double recovery in the trademark infringement context, however, for any loss of business value based on a loss of future profits.

At this time, it remains to be seen whether loss of busi-ness value could serve as a practical method of calculat-ing damages resulting from trademark infringement.

Disgorgement of Profits In addition to “damages,” the Lanham Act explicitly

authorizes a court to award a “defendant’s profits.” As the court in Venture Tape Corp. v. McGills Glass Ware-house stated:

When a mark owner cannot prove actual damages attributable to the infringer’s misconduct ( e.g ., spe-cific instances of lost sales), its recovery of an equi-table share of the infringer’s profits serves, inter alia , as a “rough measure” of the likely harm that the mark owner incurred because of the infringement,

while also preventing the infringer’s unjust enrich-ment and deterring further infringement. 26

Many circuits require some showing of bad faith intent or willfulness before permitting a plaintiff to recover a defendant’s profits. For example, in adidas , 27 the jury awarded recovery in the form of an accounting of profits after considering evidence showing that Payless specifi-cally intended to create imitations of adidas shoes featur-ing adidas’s Three-Stripe trademark, including evidence of Payless memoranda referring to the infringing shoes as “adidas shoes.” 28 Likewise, in Tamko Roofing Products, Inc. v. Ideal Roofing Co., Ltd. , 29 the showing of willful-ness included use of the mark at issue at two trade shows and on the defendant’s Web site after a magistrate court had issued a preliminary injunction barring the defen-dant’s use of the mark until the lawsuit was resolved. As another example, the court in W.E. Bassett Co. v. Revlon, Inc. , 30 considered it important that the defendants used a mark confusingly similar to the plaintiff ’s mark after a failed attempt to buy the plaintiff ’s business, and also after the US Patent and Trademark Office refused to register the mark. 31

There currently exists somewhat of a circuit split on the requirement of bad faith or willfulness, however. The Third, Fifth, Seventh, and Eleventh Circuits do not mandate a showing of willfulness to recover profits, though it is still an important factor for con-sideration. In Banjo Buddies, Inc. v. Renosky , 32 for example, the Third Circuit found that an amendment to the Lanham Act warranted overruling prior case law on willfulness as a prerequisite to an accounting of profits, as the 1999 amendment replaced the language “or a violation under Section 43(a)” with “a violation under Section 43(a), or a willful violation under Sec-tion 43(c).” 33 Some cases decided prior to the amend-ment also held that willfulness was not a prerequisite. In Pebble Beach Co. v. Tour 18 Ltd. , 34 the Fifth Circuit used lack of willfulness as one factor in refusing an award of the defendant’s profits; other factors included diverted sales, palming off, and adequacy of other types of relief. 35

Moreover, and in contrast to lost sales, actual confu-sion often is not required to recover the defendant’s profits. In Wynn Oil Co. v. American Way Service Corp ., 36 for example, the Sixth Circuit cited both to the Supreme Court and the Seventh Circuit in holding that actual con-fusion was not required for an award of the defendant’s profits. According to the Wynn Oil court, the Supreme Court held in Mishawaka Rubber & Woolen Manufactur-ing Co. v. S.S. Kresge Co. , 37 that a plaintiff was entitled to recover profits even though “there was no evidence that particular purchasers were actually deceived into believing that the [goods] sold by the [infringer] were


manufactured by the [mark’s owner].” The Seventh Cir-cuit has gone even further:

The Lanham Act specifically provides for the awarding of profits in the discretion of the judge subject only to principles of equity . . . “The trial court’s primary function is to make violations of the Lanham Act unprofitable to the infringing party.” Other than general equitable considerations, there is no express requirement that the parties be in direct competition or that the infringer willfully infringe the trade dress to justify an award of prof-its. Profits are awarded under different rationales including unjust enrichment, deterrence, and com-pensation. 38

In calculating the defendant’s profits, the plaintiff bears the burden of proving the defendant’s revenues, after which the defendant bears the burden of proving its costs and other deductions. In Mishawaka Rubber , 39 the Supreme Court held that the defendant had the burden of proving that the infringement did not result in added value to his sales. If the defendant failed to prove this, the full profits should go to the plaintiff. While the Court recognized that this might occasionally result in a wind-fall to the plaintiff, it nevertheless held that this outcome is preferable to a windfall in favor of a wrongdoer. As a further example, the court in Wesco Manufacturing, Inc. v. Tropical Attractions 40 held that the defendant’s tax return was sufficient proof of infringing sales, shifting the bur-den to the defendant, who was in the best position to prove deductions and determine exact sales and profits data. In theory, these calculations would be incredibly simple: Subtract the infringer’s direct costs from its sales, and the result would be the infringer’s net profit and the plaintiff ’s damages. This calculation, however, assumes full discovery and disclosure on the part of the infringer, which is never forthcoming.

The defendant also bears the burden of apportioning the percentage of its profits attributable to sales result-ing from its infringement, when such apportionment is appropriate, because trademark law includes a “general presumption that an infringer’s sales of goods bearing the infringing mark were due to the selling power of the mark and not any other cause.” 41

Apportionment may be allowed when a defendant’s sales are due in discernable part to some cause other than the infringement at issue. For example, in Holiday Inns, Inc. v. Airport Holiday Corp. , 42 apportionment was per-mitted when the infringer improperly continued to use a HOLIDAY INN sign for four years after termination as a franchisee. The court calculated that, because the infringer’s motel business was 70 percent weekly trade and only 30 percent transient trade, only 30 percent of

the profits were attributable to the act of infringement. In contrast, apportionment is not permitted when the infringing actions are “intermingled” with or “cannot be readily separated” from the non-infringing actions, such as in Gibson Guitar Corp. v. Paul Reed Smith Guitars, LP. 43 In that case, the court held testimony by the defen-dant’s damages expert to be insufficiently reliable to be admissible, because the elements of plaintiff ’s mark and trade dress were so intermingled with the defendant’s product that the entire product constituted the offending product. As an additional consideration, some courts have refused to permit any apportionment by a defen-dant who intentionally copied a plaintiff ’s trademark, based on the rationale that “equity requires” an award of all profits to deter such a defendant’s future conduct. 44

One of the most common issues in calculating a dis-gorgement of profits involves the defendant’s deduction of costs, as costs that would have been incurred even without the sale of the prohibited products ( i.e ., fixed costs) typically are not deductible. 45 Despite this general-ization, however, the court in W.E. Bassett Co. 46 allowed the defendant to deduct its overhead costs, most of its operating expenses, and its federal income taxes on sales of the infringing items from its net sales, though did not allow deduction of overlabeling expenses required to remove the infringing mark from existing product, as the defendant was required to bear the cost of correcting its own wrongdoing. Notably, in at least one case, the willful nature of the defendant’s infringement caused the court to award gross income realized from sales that yielded no profit. 47

Sufficiency and specificity of the evidence also are issues in this calculation. In Maltina Corporation , 48 the defendant submitted two pages of evidence purporting to show items such as “cost of goods sold,” “sales com-missions,” “legal fees,” and “telephone and telegraph.” Affirming a district court’s finding that the defendant had failed to carry its burden of proving permissible deductions, the Maltina court observed:

[The defendant] . . . assert[ed] that it did have “spe-cific and detailed figures and corroborating sales slips, invoices and the like to support” its claims of expenses attributable [to sales of the infringing product]. [The defendant] failed, however, to submit any of this corroboration to the district court. 49

In seeking monetary recovery in the form of a dis-gorgement of the defendant’s profits, counsel for the plaintiff should keep the allocation of burdens in mind. Consequently, disclosing a damages expert by the expert disclosure deadline often is advantageous, as is saving the profits expert for rebuttal testimony at trial. Another helpful strategy can be to give a jury several alternative


approaches: If the jury believes that the plaintiff has proven one measure of damages, then instruct the jury to award those; if not, offer the jury alternative mon-etary recovery measures from which it can choose. A careful jury instruction on double recovery is necessary, however, to prevent a jury verdict from being over-turned.

It should be noted that awards for a plaintiff ’s lost profits or other damages and those accounting for a defendant’s profits are not mutually exclusive:

The standard method both allows the plaintiff to recover any damages it suffered on account of the infringement and also requires the defendant to dis-gorge any profits it gained from the infringement. In this manner the plaintiff is assured compensa-tion for its losses and the defendant is also deprived of any benefit it unjustly reaped. 50

Courts also have allowed awards of a plaintiff ’s dam-ages in addition to other, non-trademark remedies. In Ramada Inns, Inc. v. Gadsden Motel Co ., 51 for example, lost franchise fees and the cost of setting up a new

franchise were used as elements to calculate damages both under the liquidated damages provision of the breached franchise contract and the plaintiff ’s damages for trademark infringement, with the court stating:

[w]ere we to hold that trademark infringement damages could not be recovered if the franchisor received like damages in a separate action for breach of the franchise agreement, we would provide an incentive for some infringers to “hold over.”

Conclusion Although complex, trademark remedies serve the impor-

tant function of deterring infringers from repeat behavior and compensating plaintiffs for injuries that often are difficult to quantify. Consequently, courts have addressed these difficulties through varied methods of recovery adapted to the fact-specific inquiries before the court. While each case presents a separate set of facts that could influence the ultimate recovery of damages, if any, the above discussion presents a general framework from which to begin the analysis—the earlier in a case, the better.

1. Although beyond the scope of this article, other considerations also should be evaluated when litigating the issue of monetary recovery in trademark cases, including the possibility of trebling the monetary award based on the circumstances of the case, the recovery of enhanced and statutory damages for counterfeiting, the recovery of attorney fees, and the possibility of com-bining several damages remedies.

2. International Star Class Yacht Racing Association v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749 (2d Cir. 1996).

3. Id. at 753. 4. Getty Petroleum Corp. v. Island Trans. Corp., 878 F.2d 650 (2d Cir. 1989). 5. See also Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683 (6th

Cir. 2000) (“When courts have held that actual confusion must be dem-onstrated before monetary damages are recoverable, they have referred to plaintiffs who were seeking damages that would have been suffered in the marketplace, i.e. , lost sales, lost profits, or loss of goodwill.”); Boosey & Hawkes Music Publishers, Ltd. v. Walt Disney Co., 145 F.3d 481 (2d Cir. 1998) (Case law “is well settled that in order for a Lanham Act plaintiff to receive an award of damages the plaintiff must prove either actual consumer confusion or deception resulting from the violation . . . or that the defen-dant’s actions were intentionally deceptive thus giving rise to a rebuttable presumption of consumer confusion.” (emphasis in original)); Web Printing Controls Co. v. Oxy-Dry Corp., 906 F.2d 1202 (7th Cir. 1990); Brunswick Corp. v. Spinit Reel Co . , 832 F.2d 513 (10th Cir. 1987).

6. Taco Cabana Int’l, Inc. v. Two Pesos, Inc., 932 F.2d 1113 (5th Cir. 1991), aff’d , 505 U.S. 763 (1992).

7. James Burrough Ltd. v. Sign of the Beefeater, Inc., 572 F.2d 574 (7th Cir. 1978).

8. See also Brunswick Corp., 832 F.2d at 522–523 (actual consumer confusion may be shown by direct evidence, a diversion of sales or direct testimony from the public, or by circumstantial evidence such as consumer surveys); Schutt Mfg. Co. v. Riddell, Inc . , 673 F.2d 202 (7th Cir. 1982) (customer reli-ance can be proven by, among other things, survey evidence).

9. See, e.g. , SoftMan Prods. Co. v. Adobe Sys., Inc., 171 F. Supp. 2d 1075 (C.D. Cal 2001).

10. BASF Corp. v. Old World Trading Co., Inc., 41 F.3d 1081 (7th Cir. 1994). 11. Sands, Taylor & Wood v. Quaker Oats Co., 34 F.3d 1340 (7th Cir. 1994), cor-

rected, substituted op. , 44 F.3d 579 (7th Cir. 1995). 12. See also Bandag, Inc. v. Al Bolser’s Tire Stores, Inc., 750 F.2d 903 (Fed.

Cir. 1984) (royalty measure of damages inappropriate when infringer did not use everything for which true franchisee pays; reasonable royalty nor-mally appropriate only when it bears a “rational relationship to the rights appropriated”); Boston Prof’l Hockey Ass’n v. Dallas Cap & Emblem Mfg., Inc., 597 F.2d 71 (5th Cir. 1979) (damages measured by license fees plaintiff

would have received; calculating fee based on defendant’s prior offer to pay $15,000 for three year non-exclusive license); Nat’l Bank of Commerce v. Shaklee Corp., 503 F. Supp. 533 (W.D. Tex. 1980) ($75,000 for author’s endorsement); adidas America, Inc. v. Payless Shoesource, Inc., No. CV 01-1655-KI, 2008 WL 4279812, at *11 (D. Or. Sept. 12, 2008) (reasonable royalty award of more than $30 million).

13. adidas America , No. CV 01-1655-KI, 2008 WL 4279812 (D. Or. Sept. 12, 2008).

14. Sands, Taylor & Wood , 34 F.3d at 1351. 15. Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc., 318 F. Supp.

1116 (S.D.N.Y. 1970), modified and aff’d , 446 F.2d 295 (2d Cir. 1971). 16. See, e.g. , Coryn Group II, LLC v. O.C. Seacrets, Inc., Civil No. WDQ-08-

2764, 2010 WL 1375301, at *8 n.27 (D. Md. Mar. 30, 2010) (“The Georgia-Pacific factors were originally used in patent and trade secret cases, but have been applied, with variations, in trademark and unfair competition cases.”); A & L Labs., Inc. v. Bou-Matic, LLC, No. Civ. 02-4862, 2004 WL 1745865, at *2 (D. Minn. Aug. 2, 2004) (“Generally, reasonable royalties are awarded as a measure of damages for infringement of a patent or trademark.”); A Touch of Class Jewelry Co. v. J.C. Penney Co., No. Civ. A. 98-2949, 2000 WL 1224804, at *8 (E.D. La. Aug. 28, 2000); Sands, Taylor & Wood Co. v. Quaker Oats Co., No. 93-2687, 1993 WL 204092, at *4 (N.D. Ill. June 8, 1993) (“The royalty formula should attempt to measure the value to the infringer gained by the use of the particular mark.”), aff’d in part, rev’d in part , Sands, Taylor & Wood v. Quaker Oats Co., 34 F.3d 1340 (7th Cir. 1994), corrected, substituted op. , 44 F.3d 579 (7th Cir. 1995).

17. adidas America, Inc., 2008 WL 4279812 at *12. 18. See, e.g. , Dennis S. Corgill, “Measuring the Gains of Trademark Infringe-

ment,” 65 Fordham L. Rev. 1909, 1912 n.9 (1997). 19. Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 408 F. Supp. 1219

(D. Colo. 1976), modified , 561 F.2d 1365 (10th Cir. 1977). 20. Id. at 1376. 21. Id. at 1376–1377. See also Adray v. Adry-Mart, Inc., 76 F.3d 984 (9th Cir.

1995) (“[Corrective advertising] costs may be difficult to determine precisely and present a danger of overcompensation if they exceed the value of the mark; however, the burden of any uncertainty in the amount of damages should be borne by the wrongdoer.”); W. Des Moines State Bank v. Hawkeye Bancorp., 722 F.2d 411 (8th Cir. 1983) (following decision in Big O Tire , com-puting corrective advertising award based on defendant’s advertising); Aetna Health Care Sys., Inc. v. Health Care Choice, Inc., 231 U.S.P.Q. 614 (N.D. Okla. 1986) (awarding 25 percent of $50,000 amount spent by infringer on advertising); Durbin Brass Works, Inc. v. Schuler, 532 F. Supp. 41 (E.D. Mo. 1982) (awarding $10,000 in corrective advertising).

22. SeeBalance Dynamics Corp ., 204 F.3d at 692–693.


23. Zazu Designs v. L’Oreal S.A., 979 F.2d 499 (7th Cir. 1992). See also Zelinski v. Columbia 300, Inc., 335 F.3d 633 (7th Cir. 2003).

24. See C. A. May Marine Supply Co. v. Brunswick Corp., 649 F.2d 1049, 1053 (5th Cir. 1981); see also Am. Anodco, Inc. v. Reynolds Metals Co., 743 F.2d 417, 424 (6th Cir. 1984) (“When the loss of profits and loss of value are intertwined, as they are here, and the loss of value is based on loss of future profits, to allow both would be to permit a double recovery.”).

25. See CardioVention, Inc. v. Medtronic, Inc., 483 F. Supp. 2d 830 (D. Minn. 2007).

26. Venture Tape Corp. v. McGills Glass Warehouse, 540 F.3d 56, 63 (1st Cir. 2008).

27. adidas America , No. CV 01-1655-KI, 2008 WL 4279812 (D. Or. Sept. 12, 2008). 28. Id. at *10. 29. Tamko Roofing Prods., Inc. v. Ideal Roofing Co., Ltd., 282 F.3d 23 (1st Cir.

2002). 30. W.E. Bassett Co. v. Revlon, Inc., 435 F.2d 656 (2d Cir. 1970). 31. Numerous other cases support this view. See, e.g. , W. Diversified Servs.,

Inc. v. Hyundai Motor Am., Inc., 427 F.3d 1269 (10th Cir. 2005) (recovery of profits requires showing that defendant’s actions are willful); Bishop v. Equinox Int’l Corp., 154 F.3d 1220 (10th Cir. 1998) (accounting of profits requires evidence that “defendant’s actions were willful or in bad faith”); Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400 (9th Cir. 1993) (refusal to award profits appropriate where plaintiff ’s “trademark was weak and [defen-dant’s] infringement was unintentional”); George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532 (2d Cir. 1992) (no award where jury found infringer’s acts were not “done wantonly and maliciously and in reckless disregard of [plaintiff ’s] rights”); ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958 (D.C. Cir. 1990) (“[A]n award based on a defendant’s profits requires proof that the defendant acted willfully or in bad faith.”); Nalpac, Ltd. v. Corning Glass Works, 784 F.2d 752 (6th Cir. 1986) (knowing use is not bad faith when accompanied by belief that no likelihood of confusion existed); Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F.2d 117 (9th Cir. 1968) (“[D]eliberate and willful.”).

32. Banjo Buddies, Inc. v. Renosky, 399 F.3d 168 (3d Cir. 2005). 33. Id. at 174. See also Synergistic Int’l, LLC v. Korman, 470 F.3d 162 (4th Cir.

2006) (“[W]e agree that willfulness is not an essential prerequisite for a [sic] damages award, but that it remains a highly pertinent factor.”).

34. Pebble Beach Co. v. Tour 18 Ltd., 155 F.3d 526 (5th Cir. 1998). 35. See also Ruolo v. Russ Berrie & Co., Inc., 886 F.2d 931 (7th Cir. 1989);

Burger King Corp. v. Mason, 855 F.2d 779 (11th Cir. 1988) (“Nor is an award of profits based on either unjust enrichment or deterrence dependent on a higher showing of culpability on the part of defendant, who is purposely using the trademark.”).

36. Wynn Oil Co. v. American Way Serv. Corp., 943 F.2d 595 (6th Cir. 1991). 37. Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203

(1942).

38. Roulo , 886 F.2d at 941. See also Gracie v. Gracie, 217 F.3d 1060 (9th Cir. 2000) (“[A] showing of actual confusion is not necessary to obtain a recovery of profits.”); Web Printing Controls Co. , 906 F.2d at 1205; Burger King Corp ., 855 F.2d at 781 (no demonstration of actual damages required: “An account-ing for profits has been determined by this Court to further the congressional purpose by making infringement unprofitable and is justified because it deprives the defendant of unjust enrichment and provides a deterrent to similar activity in the future.”).

39. Mishawaka Rubber , 316 U.S. at 206-07. 40. Wesco Mfg., Inc. v. Tropical Attractions, 833 F.2d 1484 (11th Cir. 1987). 41. Trouble v. Wet Seal, Inc., 179 F. Supp. 2d 291, 304 (S.D.N.Y. 2001); see

alsoMishawaka , 316 U.S. at 207 (“In the absence of his proving the contrary, it promotes honesty and comports with experience to assume that the wrong-doer who makes profits from the sales of goods bearing a mark belonging to another was enabled to do so because he was drawing on the good will generated by that mark.”).

42. Holiday Inns, Inc. v. Airport Holiday Corp., 493 F. Supp. 1025 (N.D. Tex. 1980), aff’d , 683 F.2d 931 (5th Cir. 1982).

43. Gibson Guitar Corp. v. Paul Reed Smith Guitars, LP, 325 F. Supp. 2d 841, 848–849 (M.D. Tenn. 2004), rev’d on other grounds , 423 F.3d 539 (6th Cir. 2005). Seealso Nintendo of Am., Inc. v. Dragon Pacific Int’l, 40 F.3d 1007, 1012 (9th Cir. 1994) (concluding that lower court’s failure to apportion dam-ages was not an abuse of discretion because the “infringing and noninfring-ing elements” could not be “readily separated”).

44. See , e.g. , Truck Equip. Serv. Co. v. Fruehauf Corp., 536 F.2d 1210, 1222–1223 (8th Cir. 1976) cert. denied , 429 U.S. 861 (1976) (remanding case and instructing lower court to award all of infringer’s profits, noting, “‘[i]t is essential to deter companies from willfully infringing a competitor’s mark, and the only way the courts can fashion a strong enough deterrent is to see to it that a company found guilty of willful infringement shall lose all its profits from its use of the infringing mark’”) ( quoting W.E. Bassett Co ., 435 F.2d at 664).

45. See, e.g. , Roulo , 886 F.2d at 941; Maltina Corp. v. Cawy Bottling Co., 613 F.2d 582 (5th Cir. 1980).

46. W.E. Bassett Co ., 435 F.2d at 665. 47. Polo Fashions, Inc. v. Dick Bruhn, Inc., 793 F.2d 1132 (9th Cir. 1986). 48. Maltina Corp ., 613 F.2d at 586. 49. Id. ; see also Venture Tape Corp. , 540 F.3d 56; Banjo Buddies, Inc. , 399 F.3d

at 176 (rejecting claimed deductions that were “sorely lacking in detail, lumping costs into six broad categories with no explanation of what spe-cific expenses those categories represented.”); Duro Co. v. Duro Co., 56 F.2d 313, 315 (3d Cir. 1932) (disallowing attempted deduction of “general” expenses).

50. Meter, Inc. v. Grinnell Corp., 13 F.3d 1145, 1157 (7th Cir. 1994) (citing Web Printing Controls Co. , 906 F.2d at 1205).

51. Ramada Inns, Inc. v. Gadsden Motel Co., 804 F.2d 1562 (11th Cir. 1986).

Reprinted from IP Litigator November/December 2010, Volume 16, Number 6, pages 1-7, with permission from Aspen Publishers, Inc., Wolters Kluwer Law & Business, New York, NY,

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