40-year delay smacks down monetary damages, but not permanent injunction

In Abraham v Alpha Chi Omega (Case 12-10525, December 6 2012), assessing a delay of more than 40 years by college fraternal organisations (the Greek organisations) in enforcing their trademarks against an unauthorised user, the US Court of Appeals for the Fifth Circuit has agreed with the district court that the delay of four decades barred the recovery of monetary damages based on laches, but not the grant of permanent injunctive relief.

Paddle Tramps Manufacturing is the country’s largest manufacturer of decorative fraternity and sorority paddles. In addition to offering custom paddles decorated with the name and insignia of a particular fraternity or sorority, Paddle Tramps sells 'paddle kits' that buyers may design and assemble to their taste. Since its founding in 1961, Paddle Tramps has always sold products bearing the names of fraternities and sororities, and has always used the name of fraternities and sororities to advertise its products. In 1997 Paddle Tramps established a website advertising its products, which displayed fraternity and sorority names and Paddle Tramps’ products that reproduced fraternity and sorority crests. In 2001 products first became available for purchase on the website.

In 1990, almost 30 years after Paddle Tramps and had begun using the names of fraternities and sororities on is products and in advertising its products, the Greek organisations first contacted Paddle Tramps about licensing. Paddle Tramps did not respond. Over the next 17 years, various Greek organisations or their marketing agents contacted Paddle Tramps with invitations to join their licensing programs, cease and desist letters, and threats to sue for trademark infringement. Paddle Tramps either ignored the letters or responded by stating that it refused to enter into a licence agreement.

In December 2007, more than 45 years after Paddle Tramps started using the names of fraternities and sororities on its products and in advertising, 32 Greek organisations sued Paddle Tramps for trademark infringement and unfair competition. After the court dismissed the suit for improper venue, Paddle Tramps brought a declaratory judgment action that it was not infringing on the marks of the Greek organisations. The Greek organisations counterclaimed for federal and state trademark infringement, unfair competition and related claims, seeking monetary and injunctive relief.

In the ensuing summary judgment motions practice, the district court found that Paddle Tramps had infringed the Greek organisations’ trademarks. A jury then determined that Paddle Tramps had proved its laches defence and had proved its acquiescence defence with respect to one Greek organisation. The jury also found that the Greek organisations did not prove their counter-defence of unclean hands, which, if proven, would have barred Paddle Tramps’ affirmative defences. Thereafter, the district court determined that laches barred the Greek organisations’ recovery of monetary damages but did not bar entry of a permanent injunction, thus permanently enjoining Paddle Tramps from some future uses of the Greek organisations’ marks. Paddle Tramps appealed.

Paddle Tramps argued that injunctive relief is unavailable where a trademark owner’s laches is long, unreasonable and inexcusable. The Greek organisations countered that the injunction was not sufficiently comprehensive. The Greek organisations also argued that Paddle Tramps should have been barred from asserting the defence of laches because of unclean hands, citing Paddle Tramps efforts to capitalise on the fraternities’ and sororities’ goodwill in bad faith.

In upholding the injunction, the Fifth Circuit explained that, ordinarily, a finding of laches alone will not bar injunctive relief, although it typically will foreclose recovery of an accounting or damages. This is because courts construe a trademark owner’s unreasonable delay to imply consent to the infringer’s conduct, “which amounts to nothing more than a revocable licence”, which may be revoked once the trademark owner objects to the infringement. For laches to defeat claims for injunctive relief, the Fifth Circuit explained, the trademark owner must have conducted itself in a way that induced the reliance of defendant, or if an injunction would result in “substantial prejudice” to defendant. The Fifth Circuit noted that Paddle Tramps was enjoined from selling all infringing products except one - the particular product that it contended “drove” the sales of its non-infringing products. The result was that Paddle Tramps was barred from selling products that, combined, make up less than 3% of its total sales, yet was allowed to continue selling the one product that Paddle Tramps contended would cause it substantial prejudice if enjoined. Therefore, the court explained, the injunction was reasonable.

Regarding unclean hands, the Fifth Circuit explained that the Greek organisations confused the elements of a trademark infringement claim with the greater showing necessary to prove unclean hands. Beyond showing that a defendant intended to capitalise on another’s marks, unclean hands requires a plaintiff to prove the defendant’s bad-faith intent to benefit from or capitalise on the trademark owner’s goodwill by confusing or deceiving buyers. Further, the court noted that Paddle Tramps had in fact provided evidence indicating a lack of bad faith. Notably, Paddle Tramps helped create the market for fraternity and sorority paddles decades before the Greek organisations had licensing programs. Further, Paddle Tramp’s products are virtually the same today as when the company started, and Paddle Tramps had never passed itself off as being sponsored or endorsed by the Greek organisations.

Rita Weeks, McDermott Will & Emery LLP, Washington DC