Mattel receives augmented accounting of defendant's profits under Section 35

In Super Duper Inc v Mattel Inc (6:05-1700-HFF-WMC, 2009 WL 866461, March 31 2009), the US District Court for the District of South Carolina has increased the amount of damages in favour of Mattel Inc from $400,000 to $999,113.

Under Section 35 of the Lanham Act, a prevailing plaintiff may be entitled to an accounting of the profits enjoyed by the defendant during its infringing conduct. The act also allows equitable adjustments to such an accounting. Although courts rarely employ this authority to increase (as opposed to decrease) the accounting of an infringing defendant’s profits, the court chose to do so in the present case.

In June 2005 Super Duper Inc, a children’s literature publisher, sought a declaratory judgment that 15 of its trademarks incorporating the word 'say' for certain children's educational board games did not infringe Mattel’s SEE ‘N SAY trademark and variations of it for pull toys. Super Duper filed its suit after Mattel opposed several applications by Super Duper to register its SAY marks with the US Patent and Trademark Office.

Finding in Mattel’s favour on its counterclaims for infringement, the jury determined that Mattel was entitled to recover $400,000 in Super Duper’s profits. Dissatisfied with this amount, Mattel filed a motion to amend the judgment by increasing the awardable profits found by the jury.

Concluding that testimony by Mattel’s expert witness was more credible than that of his Super Duper counterpart, the court granted Mattel’s motion and increased the jury’s accounting of profits from $400,000 to $999,113, plus a 1.88% interest rate. The court reasoned that the jury’s award was not “sufficient to adequately compensate” Mattel and did not deter Super Duper “from future misconduct”. In reviewing the record “in the peace and quiet of chambers”, the court was persuaded that although Mattel had proved Super Duper’s gross sales, Super Duper had failed to prove the elements of costs and deductions that it claimed to offset those sales. Many of the deductions that Super Duper sought to subtract from its revenues were unsupported by any business records. The court also took into account record evidence and testimony of Super Duper’s intent and deception, as well as its “apparent proclivity in generously borrowing, without permission or payment, the ideas of others”.

The court also determined that the jury had erroneously allocated Super Duper’s profits among its infringing marks. Under these circumstances, the court found that “[the] profits awarded to [Mattel] by the jury were inadequate and should be increased”.

Finally, the court held that as the prevailing party - and because the court found this to be an exceptional case under Section 35 of the act - Mattel was entitled to an award of reasonable attorneys’ fees in the amount of $2,643,844.

Jonathan D Goins and Theodore H Davis Jr, Kilpatrick Stockton LLP, Atlanta