Federal Circuit punctures trademark damages award

The US Court of Appeals for the Federal Circuit has considered the award of both patent and trademark infringement damages in Aero Products International Inc v Intex Recreation Corp, when the damages awarded at first instance arose from the sale of the same infringing products.

In the Aero Case, Aero Products International Inc sued Intex Recreation Corp, Quality Trading Inc and Wal-Mart Stores Inc in the Northern District of Illinois for infringement of Aero's patent covering inflatable mattresses and its federally registered ONE TOUCH mark covering inflatable mattresses. Following a jury trial, the district court held in favour of Aero on both the patent infringement and the trademark infringement claims, awarding patent damages to Aero in the amount of $2.9 million, which was doubled based on a finding of wilful infringement, and trademark damages in the amount of $1 million. The defendants appealed, alleging, among other things, that the damages awarded amounted to a double recovery.

Defendant Intex sold the air mattresses that were found to infringe Aero's patent and trademark through Quality Trading's website and through Wal-Mart's stores. While all parties agreed that patent and trademark infringements constituted separate wrongful acts, they agreed that the same mattresses were alleged to have infringed the Aero patent and trademark. Based on this fact, the defendants argued that Aero had reaped a double recovery by an award of both patent and trademark damages from the sale of the very same mattresses. In response, Aero argued to the contrary. The patent infringement damages constituted a reasonable royalty for the patent infringement, while the trademark damages constituted Intex's profits on the mattresses it sold under the infringing ONE TOUCH mark, representing entirely different types of damages, not a double recovery.

To begin its analysis, the US Court of Appeals for the Federal Circuit determined that its law, not the law of one of the other circuits, applied, since the question of double recovery of damages raises a unique question under patent law. Next, the court recognized that it is a well-established principle that the double recovery of damages is impermissible. In this case, the court held that the only infringing use of Aero's ONE TOUCH mark was on the very same mattresses which formed the basis for Aero's patent infringement claim. Accordingly, the court concluded that "the damages flowed from the same operative facts: sales of the infringing Intex mattresses". Since the patent royalty awarded compensated Aero with a reasonable royalty for the sale of the infringing mattresses, the trademark infringement damages must be vacated. The court refused to apply, as Aero requested, the holding of Nintendo of America Inc v Dragon Pacific International 40 F3d 1007 (9th Cir 1994), where the Ninth Circuit allowed the plaintiff to recover statutory damages for copyright infringement and lost profits for trademark infringement arising from the same device. The court stated that the Nintendo decision ignored the Federal Circuit's established rule that even when damages are claimed based upon separate statutes or causes of action, where the claims arise from the same set of operative facts, there can be but one recovery.

In effect, the Federal Circuit's holding in Aero eliminated the recovery of any damages for the infringing use of the ONE TOUCH mark. In a lawsuit alleging patent and trademark infringement claims, damages cannot be awarded for both types of infringements if the goods on which the infringement took place are one and the same.

Rochelle D Alpert, Morgan Lewis, San Francisco