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15.26 Trademark Damages—Defendant’s Profits

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15.26 TRADEMARK DAMAGES—DEFENDANT’S PROFITS (15 U.S.C. § 1117(a))

In addition to actual damages, the plaintiff is entitled to any profits earned by the defendant that are attributable to the infringement, which the plaintiff proves by a preponderance of the evidence. You may not, however, include in any award of profits any amount that you took into account in determining actual damages.

Profit is determined by deducting all expenses from gross revenue.

Gross revenue is all of defendant’s receipts from using the trademark in the sale of a [product]. The plaintiff has the burden of proving a defendant’s gross revenue by a preponderance of the evidence.

Expenses are all [operating] [overhead] and production costs incurred in producing the gross revenue. The defendant has the burden of proving the expenses [and the portion of the profit attributable to factors other than use of the infringed trademark] by a preponderance of the evidence.

Unless you find that a portion of the profit from the sale of the [specify goods] using the trademark is attributable to factors other than use of the trademark, you shall find that the total profit is attributable to the infringement.

Comment

"[D]isgorgement of profits is a traditional trademark remedy," Jerry’s Famous Deli, Inc. v. Papanicolaou, 383 F.3d 998, 100405 (9th Cir.2004) (enforcement of trademark injunction case, but describing remedy as "akin to an award of the infringer’s profits under trademark law" and noting "Under established law, once gross profits related to the infringement are established, [infringer] has the burden of documenting any legitimate offsets").

"Recovery of both plaintiff’s lost profits and disgorgement of defendant’s profits is generally considered a double recovery under the Lanham Act." Nintendo of America, Inc. v. Dragon Pacific Int’l, 40 F.3d 1007, 1010 (9th Cir.1994).

Regarding establishing and calculating defendant’s profits, see Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1405-1408 (9th Cir.1993) ("The intent of the infringer is relevant evidence on the issue of awarding profits and damages and the amount;" determining that in order to establish damages under the lost profits method, plaintiff must make prima facie showing of reasonably forecast profits.); Louis Vuitton S.A. v. Spencer Handbags Corp., 765 F.2d 966, 973 (2d Cir.1985) (defendant’s own statements as to profits provided sufficient basis for calculation of defendant’s profits under 15 U.S.C. § 1117(a)). See also American Honda Motor Co. v. Two Wheel Corp., 918 F.2d 1060, 1063 (2d Cir.1990) (plaintiff entitled to amount of gross sales unless defendant adequately proves amount of costs to be deducted from it); Polo Fashions, Inc. v. Dick Bruhn, Inc., 793 F.2d 1132, 1135 (9th Cir.1986) (court awarded receipts from sales pursuant to 15 U.S.C. § 1117(a)); 5 J. Thomas McCarthy, Trademarks and Unfair Competition § 30.65 (4th ed. 2001) (discussing computation of defendant’s profits from infringing sales).

Plaintiff has the burden of proof as to damages. See Rolex Watch, U.S.A., Inc., v. Michel Co., 179 F.3d 704, 712 (9th Cir.1999) (plaintiff carries burden to show with "reasonable certainty" the defendant’s gross sales from the infringing activity); Lindy Pen Co., 982 F.2d at 1405-1408; Nintendo of America, 40 F.3d at 1012 (where infringing and noninfringing elements of a work cannot be readily separated, all of a defendant’s profits should be awarded to the plaintiff).

"[T]he trial court has wide discretion to increase or reduce the amount of profits recoverable by the plaintiff ‘[i]f the court shall find that the amount of recovery based on profits is either inadequate or excessive . . . according to the circumstances of the case.’" Texas Pig Stands, Inc. v. Hard Rock Café Int’l, 951 F.2d 684, 694 (5th Cir.1992)) (quoting 15 U.S.C. § 1117(a)).

The Ninth Circuit has not addressed, and other circuits are divided on, whether willfulness remained a prerequisite to disgorgement of a defendant’s profits as a result of the Trademark Amendments Act of 1999, Pub. L. 106-43, § 3(b), 113 Stat. 218, 219 (codified in relevant part at 15 U.S.C. § 1117). However, even prior to the 1999 Amendments, the Ninth Circuit suggested that wilfulness was not always a requirement for the award of profits. See Adray v. Adry-Mart, Inc., 76 F.3d 984, 988 (9th Cir.1995) ("An instruction that willful infringement is a prerequisite to an award of defendant’s profits may be an error in some circumstances ([such] as when plaintiff seeks the defendant’s profits as a measure of [plaintiff’s] own damage [citation omitted])").

The defendant may also raise a defense that the purchasers bought goods bearing the infringing mark for reasons other than the appeal of the mark, and that the infringement had no cash value in sales made by the defendant. Id. If such a defense is raised, an appropriate instruction should be drafted.

An award of speculative damages is inappropriate. See McClaran v. Plastic Industries, Inc., 97 F.3d 347, 36162 (9th Cir.1996) (jury finding of lost profits based upon theory that designer would have entered market but for the infringement was too speculative where no one had made a profit on the designed products).

Approved 7/2008