Damages, not profits, may be trebled

In Earl E Thompson v Henry T Haynes (Case 01-1392), the US Court of Appeals for the Federal Circuit has held that the US District Court for the Northern District of Oklahoma was wrong to have added the plaintiff's damages and the defendant's profits and then trebled the amount, as the Lanham Act on trademark, trade dress and other unfair competition issues authorizes the trebling of damages only.

Thompson distributed fluid conducting swivels manufactured by Haynes's company Fluid Controls. Following a royalty-related dispute, Thompson started producing his own swivels, which he sold to some of his former customers without informing them of the substitution.

The district court found that Thompson's sale constituted a wilful violation of the Lanham Act, the Oklahoma Deceptive Trade Practices Act and the common law pertaining to unfair competition, and awarded Haynes over $2 million.

The appellate court affirmed the district court's finding of wilful infringement, but reversed the method of computing the monetary award. The district court added Haynes's actual damages and lost profits, and then awarded him treble the total amount. The appellate court, relying on Section 35(a) of the Lanham Act, reasoned that although the statute provides that damages may be enhanced up to three times the amount proved, for profits, "the court is constrained to award the amount proved, subject only to an adjustment, up or down, where the recovery otherwise would be unjust."

The appellate court therefore remanded the case to the district court to recalculate the monetary award.

John C Nishi, Wilson Sonsini Goodrich & Rosati, Palo Alto