2019 is shaping up to be a pretty unfriendly year for trademark infringement plaintiffs. A pending Supreme Court decision and case involving insurance for advertising injury could make trademark infringement costs prohibitive for millions of small businesses leaving them without a realistic avenue for recourse when their trademarks are being infringed. When small businesses cannot receive assistance with the cost of litigation, then defendants are incentivized to make branding decisions based on their perceptions of a plaintiff’s ability to pay for litigation. In the end, a market filled with more confusingly similar marks may exist, which ultimately harms consumers.
The First Circuit Court of Appeals recently decided a case involving insurance coverage for advertising injury. Small businesses pay for policies that include this type of coverage, but these policies generally make an exception for trademark infringement. Meaning if the advertising injury involves a trademark infringement claim, then the insurance is not obligated to cover the claim.
The argument over this advertising injury clause always centers around whether the infringing trademark plead in the complaint also functions as an “advertising idea” or “slogan.” If this dual functionality exists, then Courts have been more receptive to find that coverage exists. Unfortunately, the First Circuit Court of Appeals recently slammed the door on there ever being coverage for an infringing trademark that also functions as an “advertising idea.” The Court held that even if a trademark can qualify as an advertising idea, the exclusion nevertheless avoids coverage for a resulting infringement claim. Consequently, there will never be coverage for a trademark infringement claim in the First Circuit because plaintiffs do not bring claims for “advertising idea infringement” they bring claims for “trademark infringement.”
Additionally, the Supreme Court will decide whether a plaintiff must prove intent before being allowed to recover the defendant’s profits from its infringing act. Assuming the Supreme Court decide this issue in favor of requiring evidence of bad faith intent, the small market there is for contingent trademark infringement cases or third-party financing for trademark infringement litigation will dry up. The reason lawyers take contingent fee cases or there is third-party litigation is the possibility for a plaintiff to recover a large monetary damage award. Sometimes these fee arrangements result in frivolous litigation, but frivolous litigation is the minority of cases.
Where are small businesses to go if insurance coverage is more difficult or impossible to obtain and no attorney will take the plaintiff’s case on a contingency? The Trademark Trial and Appeal Board is not an option because the TTAB does not have the authority to issue injunctions. Small businesses will have to turn to legal aid clinics, but there are not enough of them to adequately service the number of small businesses in the U.S. The legal system needs a small business favorable option for markets to function fairly.
About a month ago we talked about the trademark infringement loss Walmart suffered over its use of the BACKYARD GRILL mark. We reported that in the first case, Walmart was ordered to pay Variety Stores $32.5M. Walmart successfully appealed this decision and the case was retried before a jury. The jury found in favor of Variety Stores and the case entered the second phase where the jury would decide how much Walmart is obligated to pay Variety Stores.
The jury has spoken and has ordered Walmart to pay Variety Stores $95.5M. This is a little less than three times the $32.5M a judge ordered Walmart to pay Variety Stores in 2016. This is one of the larger damage awards involving trademark infringement, but million dollar and multimillion dollar damage awards are not uncommon in trademark infringement cases.
On August 22, 2018, DatabaseUSA.com, L.L.C. was ordered to pay Infogroup, Inc. $4M for the trademark infringement claim and $43.6M for the unfair competition claim. On July 31, 2017, iShow.com was ordered to pay Lennar Corp. $5.5M for its trademark infringement. On October 5, 2016, Costco Wholesale Corporation was ordered to pay Tiffany and Company $15.8M for trademark infringement.
Walmart made the decision to adopt a mark with known words and that shared the dominant term BACKYARD with another trademark owner. From a trademark searching perspective, marks comprised of known words generally exist to a certain degree in a crowded field. If you layer in international markets on top of it, the probability of finding a mark that is 100% in the clear in every jurisdiction is extremely low. When a trademark owner decides to adopt a mark with known words, the owner needs to accept some amount of risk and work to put himself and herself in the best defensible position should an issue arise.
The phrase “trademark infringement” is nothing anyone wants to hear because it is often followed by the phrase “trademark infringement damages.” In other words, how much are you going to have to pay.
A big problem with any litigation including trademark infringement cases is how damages are calculated and what damages are available is generally a misunderstood concept. And when two parties have drastically different views on their respective potential liabilities, a big roadblock to settlement is created and a final court decision is often necessary to decide the issue. Parties do themselves so much good by early in a case honestly assessing their trademark infringement damages exposure. Only then can you make intelligent and sensible moves in settlement negotiations to resolve a dispute.
Monetary damages under the Trademark Act primarily come in two flavors: (1) actual damages; and (2) an accounting of the defendant’s profits. An award of actual damages is a legal remedy, whereas an accounting of the defendant’s profits is an equitable remedy. Equitable relief is available only when a plaintiff’s legal remedies are inadequate. In other words, is a plaintiff’s actual trademark infringement damages are $200, but the defendant earned $100,000 in profits, then the plaintiff would be entitled to an accounting fo the defendant’s profits because it would be inequitable to allow the defendant to retain $100,000 in profits at a $200 expense to the plaintiff. But it is important to note that a plaintiff cannot recover twice both actual damages and an accounting of profits. Therefore, the cap in our example would be $100,000 to the plaintiff.
Because an accounting of profits is an equitable remedy, it is not automatic. In some cases, if an injunction forbidding future infringing acts satisfies the equities in the case, then an accounting of profits will be denied. Although a denial of profits under these circumstances has occurred, it is in the minority of cases.
If the case warrants because of the intentional nature of the defendant’s actions, the disparity in the merits between the parties in the case, or the manner in which one party conducts its self in the litigation, any monetary damage award may be increased by 3 times and an award of attorneys’ fees may be made as well.