Fourth Circuit cleans up trademark damage mess

United States of America

In Georgia-Pacific Consumer Prods LP v von Drehle Corp (Case No 13-2003, March 30 2015) (Niemeyer J) (Shedd J concurring in part and dissenting in part), in one of three parallel actions for trademark infringement involving competing paper towel manufacturers, the US Court of Appeals for the Fourth Circuit has examined the appropriate remedies that may be granted under the Lanham Act with respect to injunctive and monetary relief under §§ 1116 and 1117 of the act, and sent the matter back to the district court to consider the implications of the Supreme Court decision in Octane Fitness

Georgia-Pacific, a leading paper products company, owns a trademark for ENMOTION for use in connection with touchless paper towel dispensers and related goods. Georgia-Pacific’s paper towel dispensers are different in size from competing products, and, under the company’s leases (and subleases through distributors), Georgia-Pacific requires that only certain paper towels manufactured by Georgia-Pacific are to be used in the enMotion dispensers. 

In 2005, when competitor von Drehle made a less expensive paper towel specifically for use in the enMotion dispensers, Georgia-Pacific sent a cease-and-desist letter to von Drehle and then filed several complaints against both von Drehle and its distributors for trademark infringement, claiming that “stuffing” its dispensers with von Drehle towels was likely to cause confusion and to deceive end-user customers.

By the time of trial, the US Court of Appeals for the Eighth Circuit had issued a ruling in one of the parallel infringement actions filed against a von Drehle distributor, affirming an Arkansas district court ruling that found no trademark infringement. Following the Eighth Circuit’s ruling, the US Court of Appeals for the Sixth Circuit, in the second parallel infringement action against a different von Drehle distributor, ruled against Georgia-Pacific, stating that the Arkansas judgment precluded Georgia-Pacific from relitigating the trademark infringement claim.  In the dispute now at the Fourth Circuit, however, the court determined that von Drehle had waived its defences of claim and issue preclusion stemming from the earlier decisions in the other circuits, and allowed the infringement action to go forward.

After the jury found that von Drehle infringed Georgia-Pacific’s ENMOTION trademark, the district court issued a permanent, nationwide injunction prohibiting von Drehle from direct or contributory infringement of Georgia-Pacific’s trademark. The jury awarded Georgia-Pacific almost $800,000, based on von Drehle’s paper towel profits dating from the 2005 cease-and-desist letter through 2011. Finding von Drehle’s trademark infringement to be wilful and intentional, the district court also granted treble damages, attorneys’ fees and prejudgment interest, for a total monetary award of a little less than $5 million.

Next, von Drehle appealed the district court award, challenging the geographical scope of the court’s injunction as unduly broad and in conflict with the decisions of other circuits, as well as the monetary awards, arguing that that the district court applied the wrong legal standard with respect to the award of treble damages and attorneys’ fees.

The Fourth Circuit acknowledged that under § 1116(a) of the Lanham Act, a district court has the authority to issue a nationwide injunction. However, in view of the fact that the Sixth and Eighth Circuits found no trademark infringement by von Drehle, the court observed that a nationwide injunction likely would create an “irreconcilable conflict” as to Georgia-Pacific’s trademark rights in those circuits and refused to authorise the enforcement of an injunction in the Sixth and Eighth Circuits. The court further noted that the doctrine of comity requires that it not allow the injunction to extend to other circuits that have not yet considered the trademark dispute between the parties. The court therefore limited the injunction to the states covered by the Fourth Circuit.

As for the treble damage award, the Fourth Circuit determined that the district court improperly conflated §§ 1117(a) and 1117(b) of the Lanham Act, which provide “vastly different legal standards, based on the egregiousness of the offence, for determining when a district court can modify a monetary reward”. Therefore, the Fourth Circuit found that the district court erred in relying on Larsen to award treble damages, because Larsen dealt with a counterfeit trademark under § 1117(b) of the Lanham Act, instead of § 1117(a), which applies generally to trademark infringement cases, noting that § 1117(a) only allows a district court to adjust a jury’s verdict if recovery is either inadequate or excessive and that monetary adjustment under § 1117(a) may not be punitive in nature. Because Georgia-Pacific requested damages consisting only of von Drehle’s profits, the Fourth Circuit noted that the jury’s damages award was not inadequate and an increase in the award was not necessary to compensate Georgia-Pacific.

On the issue of attorneys’ fees under the “exceptional” case doctrine, the Fourth Circuit explained that the Supreme Court’s 2014 decision in Octane Fitness was applicable, because that decision construed a parallel and essentially identical damages provision in the Patent Act. As the district court did not have the benefit of the Octane Fitness decision when considering whether to award attorney fees to Georgia-Pacific, the court remanded the question for further consideration by the district court under the guidance of the Supreme Court’s “exceptional” case factors.

Issuing a partial dissent in connection with the restriction of the nationwide injunction, Judge Shedd argued that the Fourth Circuit had misapplied the discretionary doctrine of comity, and he further stated that an injunction limited to the Fourth Circuit is counter to the fundamental purpose of the Lanham Act, which is to provide nationwide protection of trademarks used in interstate and foreign commerce.

Sarah Bro, McDermott Will & Emery LLP, Orange County

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