Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca1-07-01186/USCOURTS-ca1-07-01186-0/pdf.json

Parties Involved:
Don Gallagher
Appellant
McGills Glass Warehouse
Appellant
Venture Tape Corp.
Appellee

Document Text:

United States Court of Appeals

For the First Circuit

No. 07-1186

VENTURE TAPE CORPORATION,

Plaintiff, Appellee,

v.

MCGILLS GLASS WAREHOUSE; DON GALLAGHER,

Defendants, Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Morris E. Lasker, U.S. District Judge]

Before

 Lynch, Chief Judge, 

Torruella and Lipez, Circuit Judges.

Christopher J. Cunio, with whom Jaimie A. McKean and Cooley

Manion Jones LLP were on brief, for appellee.

Chloris DeBrauwere for appellants.

August 28, 2008

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LIPEZ, Circuit Judge. McGills Glass Warehouse

("McGills"), an internet-based retailer of stained-glass supplies,

and its owner Donald Gallagher, appeal from a district court

judgment finding them liable for infringement of the registered

trademarks "Venture Tape" and "Venture Foil," and awarding the

marks' owner, Venture Tape Corporation ("Venture"), an equitable

share of McGills’ profits, as well as costs and attorney’s fees.

We affirm.

I.

In 1990, Venture, a manufacturer of specialty adhesive

tapes and foils used in the stained-glass industry, procured two

federal trademark registrations (Nos. 1,579,001 and 1,583,644) for

products called “Venture Tape” and “Venture Foil,” respectively.

Over the next fifteen years, Venture expended hundreds of thousands

of dollars to promote the two marks in both print and internet

advertising. Consequently, its products gained considerable

popularity, prestige, and good will in the world-wide stained glass

market.

Through its internet website, McGills also sells adhesive

tapes and foils which directly compete with “Venture Tape” and

“Venture Foil.” Beginning in 2000, and without obtaining Venture's

permission or paying it any compensation, McGills' owner Donald

Gallagher intentionally “embedded” the Venture marks in the McGills

website, both by including the marks in the website’s metatags - a

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Lanham Act § 32 provides, in pertinent part: 1

Any person who shall, without the consent of the

registrant - use in commerce any reproduction,

counterfeit, copy, or colorable imitation of a registered

mark in connection with the sale, offering for sale,

distribution, or advertising of any goods or services on

or in connection with which such use is likely to cause

confusion, or to cause mistake, or to deceive - shall be

liable in a civil action by the registrant for the

remedies hereinafter provided.

15 U.S.C. § 1114(1). 

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component of a webpage's programming that contains descriptive

information about the webpage which is typically not observed when

the webpage is displayed in a web browser - and in white lettering

on a white background screen, similarly invisible to persons

viewing the webpage. Gallagher, fully aware that the McGills

website did not sell these two Venture products, admittedly took

these actions because he had heard that Venture's marks would

attract people using internet search engines to the McGills

website.

Because the marks were hidden from view, Venture did not

discover McGills' unauthorized use of its marks until 2003. It

then promptly filed suit against McGills and Gallagher in federal

district court, alleging federal trademark infringement, Lanham Act

§ 32, 15 U.S.C. § 1114(1) (Count 1), unfair competition, id. § 1

43(a), 15 U.S.C. § 1125(a) (Count 2), false designation of origin,

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Lanham Act § 43(a) provides, in pertinent part: 2

Any person who . . . uses in commerce any word, term,

name, symbol, or device, or any combination thereof, or

any false designation of origin, false or misleading

description of fact, or false or misleading

representation of fact, which - is likely to cause

confusion, or to cause mistake, or to deceive as to the

affiliation, connection, or association of such person

with another person, or as to the origin, sponsorship, or

approval of his or her goods, services, or commercial

activities by another person - . . . shall be liable in

a civil action by any person who believes that he or she

is or is likely to be damaged by such act.

15 U.S.C. § 1125(a).

The state statute, since repealed, provided in pertinent 3

part: 

Likelihood of injury to business reputation or of

dilution of the distinctive quality of a mark registered

under this chapter, or a mark valid at common law, or a

trade name valid at common law, shall be a ground for

injunctive relief notwithstanding the absence of

competition between the parties or the absence of

confusion as to the source of goods or services. 

Mass. Gen. Laws Ann. ch. 110B, § 12 (repealed 2006).

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id. (Count 3), and trademark dilution, Mass. Gen. Laws. Ann. ch. 2

110B, § 12 (Count 4). After conducting lengthy discovery, the 3

parties filed cross-motions for summary judgment on all four counts

of the complaint. The district court conducted a motion hearing,

granted summary judgment for Venture on all counts, and requested

that Venture submit a motion itemizing any damages, costs, and

attorney's fees attributable to McGills' trademark infringement,

all of which are potentially recoverable under the Lanham Act. See

Lanham Act § 35, 15 U.S.C. § 1117(a).

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The Lanham Act and the state trademark dilution statute 4

impose comparable standards of liability, see Mass. Gen. Laws Ann.

ch. 110B, § 12 ("likelihood of injury to business reputation"). On

appeal, McGills does not address the grant of summary judgment to

Venture on Count 4, the state trademark dilution claim. Hence we

do not address it either. 

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Although Venture adduced evidence that McGills generated

almost $1.9 million in gross sales during the period of its

infringement from 2000-2003, Venture eventually requested only

$230,339.17, the amount that it estimated to be McGills' net

profits. Citing McGills' willful infringement and alleging McGills

engaged in obstructionist discovery tactics, Venture sought

$188,583.06 in attorney's fees and $7,564.75 in costs. After a

hearing on Venture's motion, the district court granted Venture's

requested recovery. McGills and Gallagher now appeal from the

district court's grant of summary judgment to Venture on Lanham Act

liability, and from the district court's award of profits and

attorney's fees.

II.

A. Lanham Act Liability

McGills first contends that the district court

improvidently granted summary judgment for Venture on appellees'

liability under the Lanham Act. Summary judgment is appropriate 4

"if the pleadings, the discovery and disclosure materials on file,

and any affidavits show that there is no genuine issue as to any

material fact and that the movant is entitled to judgment as a

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Venture's registration of the two marks, when coupled with 5

its continuous use of them from 1990 to 1995, is incontestible

evidence of Venture's exclusive right to use the marks. See

Volkswagenwerk Aktiengesellschaft v. Wheeler, 814 F.2d 812, 820

(1st Cir. 1987). Further, McGills concedes that, without Venture's

permission, Gallagher embedded the marks verbatim on the McGills

website. 

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matter of law." Fed. R. Civ. P. 56(c); see also Boston Athletic

Ass'n v. Sullivan, 867 F.2d 22, 24 (1st Cir. 1989). We review the

district court's grant of summary judgment de novo. Colt Def. LLC

v. Bushmaster Firearms, Inc., 486 F.3d 701, 705 (1st Cir. 2007).

"The purpose of a trademark is to identify and

distinguish the goods of one party from those of another. To the

purchasing public, a trademark 'signi[fies] that all goods bearing

the trademark' originated from the same source and that 'all goods

bearing the trademark are of an equal level of quality.'" Id.

(quoting 1 J. Thomas McCarthy, McCarthy on Trademarks and Unfair

Competition § 3:2 (4th ed. 2007)) (internal citation omitted). To

establish trademark infringement under the Lanham Act, Venture was

required to prove that: (1) it owns and uses the "Venture Tape" and

"Venture Foil" marks; (2) McGills used the same or similar marks

without Venture's permission; and (3) McGills' use of the Venture

marks likely confused internet consumers, thereby causing Venture

harm (e.g., lost sales). See Star Fin. Servs., Inc. v. AASTAR

Mortgage Corp., 89 F.3d 5, 9 (1st Cir. 1996); 15 U.S.C. § 1125(a).

The parties agree that no genuine factual dispute exists concerning

the first two elements of proof.5

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Venture's unfair competition claim (Count 2) and false 6

designation claim (Count 3) are subject to the same legal standard

-- namely, "likelihood of confusion" -- as its Count 1 infringement

claim. See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 780

(1992).

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Our focus then becomes the "likelihood of confusion"

among internet consumers. This inquiry requires us to assess eight

criteria: (1) the similarity of Venture's and McGills' marks; (2)

the similarity of their goods; (3) the relationship between their

channels of trade (e.g., internet-based commerce); (4) the

relationship between their advertising; (5) the classes of their

prospective purchasers; (6) any evidence of actual confusion of

internet consumers; (7) McGills' subjective intent in using

Venture's marks; and (8) the overall strength of Venture's marks.

Boston Duck Tours, LP v. Super Duck Tours, LLC, 531 F.3d 1, 10 n.6

(1st Cir. 2008) (citing Pignons S.A. de Mecanique de Precision v.

Polaroid Corp., 657 F.2d 482, 487 (1st Cir. 1981)) [hereinafter

"Pignons factors" or "Pignons analysis"]. No single criterion is 6

necessarily dispositive in this circumstantial inquiry. Borinquen

Biscuit Corp. v. M.V. Trading Corp., 443 F.3d 112, 120 (1st Cir.

2006).

By the conduct of its case below, McGills effectively

admitted seven of the eight elements of the Pignons analysis. The

record contains numerous admissions that metatags and invisible

background text on McGills' website incorporated Venture's exact

marks. In his deposition, Gallagher admitted that the parties are

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The bulk of the other arguments raised by McGills on appeal 7

were not raised below, and are therefore waived for purposes of

appeal. Accordingly, we need not address them here. They include

assertions that: (1) the district court’s Pignons analysis depended

on Venture’s deliberately misleading record citations, by which

Venture falsely implied that Gallagher had admitted "every" aspect

of Lanham Act liability; (2) Venture misled the district court with

respect to the Pignons "channel of trade" factor by misrepresenting

that McGills and Venture both used their websites to "sell" their

respective products; (3) Venture's Exhibit E, which purported to

show that McGills' use of the marks had led consumers looking for

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direct competitors in the stained glass industry and that both

companies use websites to promote and market their products.

Gallagher even admitted that he intentionally used Venture Tape's

marks on McGills' website for the express purpose of attracting

customers to McGills' website and that he chose "Venture Tape"

because of its strong reputation in the stained glass industry.

These admissions illustrate the similarity (indeed, identity) of

the marks used, the similarity of the goods, the close relationship

between the channels of trade and advertising, and the similarity

in the classes of prospective purchasers. They also support the

conclusions that McGills acted with a subjective intent to trade on

Venture's reputation and that Venture's mark is strong.

Accordingly, only the sixth factor – evidence of actual consumer

confusion – is potentially in dispute.

On appeal, McGills argues that Gallagher had no way of

knowing whether or not his use of the Venture marks on the McGills

website had been successful, i.e., whether the marks actually lured

any internet consumer to the website. Thus, the company contends 7

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Venture products to McGills' website, was misleading because the

exhibit discloses that McGills paid Yahoo! for a priority position

on search lists; and (4) Venture is barred from recovery under the

equitable defenses of laches or unclean hands. 

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that summary judgment in Venture's favor was improper because there

was no evidence of actual confusion. However, McGills' various

protestations below and on appeal that there is no direct evidence

of actual consumer confusion, even if accepted as true, are

ultimately beside the point.

Although Venture might have attempted to adduce evidence

of actual consumer confusion (e.g., internet user market surveys)

in support of a favorable Pignons determination, the absence of

such proof is not dispositive of the Pignons analysis. "[A]

trademark holder's burden is to show likelihood of confusion, not

actual confusion. While evidence of actual confusion is 'often

deemed the best evidence of possible future confusion, proof of

actual confusion is not essential to finding likelihood of

confusion.'" Borinquen Biscuit, 443 F.3d at 120 (citations

omitted); see also Brookfield Commc'ns, Inc. v. W. Coast Entm’t

Corp., 174 F.3d 1036, 1050 (9th Cir. 1999) ("[D]ifficulties in

gathering evidence of actual confusion make its absence generally

unnoteworthy."); cf. Societe Des Produits Nestle, S.A. v. Casa

Helvetia, Inc., 982 F.2d 633, 640 (1st Cir. 1992) ("[T]he district

court erred in suggesting that proof of actual harm to Nestle's

goodwill was a prerequisite to finding a Lanham Trade-Mark Act

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Lanham Act § 35(a) provides: 8

When a violation of any right of the registrant of

a mark registered in the Patent and Trademark Office, a

violation under section 1125(a) or (d) of this title, or

a willful violation under section 1125(c) of this title,

shall have been established in any civil action arising

under this chapter, the plaintiff shall be entitled,

subject to the provisions of sections 1111 and 1114 of

this title, and subject to the principles of equity, to

recover (1) defendant's profits, (2) any damages

sustained by the plaintiff, and (3) the costs of the

action. The court shall assess such profits and damages

or cause the same to be assessed under its direction. In

assessing profits the plaintiff shall be required to

prove defendant's sales only; defendant must prove all

elements of cost or deduction claimed. In assessing

damages the court may enter judgment, according to the

circumstances of the case, for any sum above the amount

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violation [because] [t]he Lanham Act contains no such proof-ofinjury requirement.").

McGills' admissions regarding the other seven Pignons

factors, particularly Gallagher's admission that his purpose in

using the Venture marks was to lure customers to his site, permit

us to conclude that no genuine dispute exists regarding the

likelihood of confusion. As a result, Venture was entitled to

summary judgment on the liability issue. 

B. Award of Profits under the Lanham Act

Because Venture established its entitlement to summary

judgment on Lanham Act liability, it was potentially entitled –

subject to applicable principles of equity – to recover, inter

alia, McGills’ profits during the period that McGills infringed the

Venture marks. Lanham Act § 35(a), 15 U.S.C. § 1117(a). McGills 8

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found as actual damages, not exceeding three times such

amount. If the court shall find that the amount of the

recovery based on profits is either inadequate or

excessive the court may in its discretion enter judgment

for such sum as the court shall find to be just,

according to the circumstances of the case. Such sum in

either of the above circumstances shall constitute

compensation and not a penalty. The court in exceptional

cases may award reasonable attorney fees to the

prevailing party.

15 U.S.C. § 1117(a). 

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argues on appeal that the district court erred in awarding Venture

$230,339.17, McGills' net profits for the three-and-a-half-year

period of infringement, pursuant to section 1117(a). We review de

novo the legal standard by which the award was calculated and

review for clear error the factual findings supporting the award.

Tamko Roofing Prods., Inc. v. Ideal Roofing Co., 282 F.3d 23, 35

(1st Cir. 2002).

McGills first contends that, because it filed a timely

demand for a jury trial in its answer and never stipulated to the

withdrawal of that demand, the district court violated its Seventh

Amendment rights when it determined the amount of McGills’ profits,

rather than submitting the question for jury resolution. However,

the right to a jury trial can be waived. CoxCom, Inc. v. Chaffee,

Nos. 07-2030, 07-2031, ___ F.3d ___, 2008 WL 2954968, at *7 (1st

Cir. Aug. 4, 2008). "[A] party's participation in a bench trial

without objection constitutes a waiver of a jury trial right."

Id.; see also United States v. 1966 Beechcraft Aircraft Model King

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On appeal, McGills also argues that the district court erred 9

in awarding profits based on an infringement period of three-and-ahalf years. McGills claims that there was no evidence other than

"guesses and approximations" regarding the length of time the

infringing marks had been embedded in McGills' website. McGills

has waived this argument by failing to raise it below.

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Air, 777 F.2d 947, 951 (4th Cir. 1985) (jury right waived where

parties "fully and vigorously participated in the bench trial,

making no mention of their early jury demand"). Here, McGills'

counsel appeared at the remedies hearing and made a variety of

arguments challenging Venture's request. Counsel never objected

that the remedies issue should be tried by a jury rather than

determined by the judge. This acquiescence represents a waiver of

McGills' prior jury demand. See CoxCom, 2008 WL 2954968, at *7

(holding that appellants' "active participation both leading up to

and during the bench trial," coupled with a failure to

"specifically object to the lack of a jury," constituted waiver).

McGills raises two substantive objections to the award of

profits. First, the company challenges the district court's 9

finding that the infringement here was "willful," asserting that

such a finding is a prerequisite to an award of profits under the

Lanham Act. We have previously declined to reach the question of

whether "willfulness" is required as a foundation for such an

award, see Tamko Roofing Prods., 282 F.3d at 36, and we need not

decide the issue here. Even assuming that "willfulness" is

required, McGills has not demonstrated that the district court's

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finding of "willfulness" was clearly erroneous. McGills asserts

that Gallagher's admittedly intentional use of the Venture marks to

lure customers to his site was not "willful" because Gallagher was

unaware that such use of the marks was illegal. However, the

district court specifically noted that McGills had programed its

website so that Venture's marks were displayed in the same color as

the webpage background, concealing them from view. We can find no

clear error in the district court's conclusion that such

intentional concealment provides strong circumstantial evidence of

"willfulness."

Second, McGills attacks the award by claiming that it

overstates the actual harm to Venture. McGills first complains

that Venture did not even attempt to show actual harm, and suggests

that this failure means that there was no actual harm. Our case

law does not support that inference. When a mark owner cannot

prove actual damages attributable to the infringer's misconduct

(e.g., specific instances of lost sales), its recovery of an

equitable share of the infringer’s profits serves, inter alia, as

a "rough measure" of the likely harm that the mark owner incurred

because of the infringement, while also preventing the infringer's

unjust enrichment and deterring further infringement. Tamko

Roofing Prods., 282 F.3d at 36. The district court explicitly

concluded that the profits award here was "sufficiently substantial

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to serve these purposes without being unduly large or burdensome."

We find no fault with this conclusion.

McGills' alternative theory is that the award of profits

is overstated because the "only possible enrichment" to McGills

from the use of the Venture marks would have arisen from its sales

of foils and tapes. McGills argues, without marshaling any

competent evidence, that its sales of those products amounted to

less than one percent of its total sales. McGills complains that

Venture should have known this and provided more detailed

breakdowns to the court. McGills asserts that Venture "copied over

5000 records," but "carefully chose to show none of it to the

Court."

This argument entirely misplaces the burden of proof for

a profit award under the Lanham Act. We have held that "once the

plaintiff has shown direct competition and infringement, the

statute places the burden on the infringer to show the limits of

the direct competition." Tamko Roofing Prods., 282 F.3d at 37.

This allocation of burdens arises from the language of the Lanham

Act itself: "In assessing profits the plaintiff shall be required

to prove defendant's sales only; defendant must prove all elements

of cost or deduction claimed." 15 U.S.C. § 1117(a). Here, Venture

met its burden by introducing tax returns showing Venture's gross

sales over the relevant time period. McGills then had the burden

of producing evidentiary documentation that some of those sales

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were unrelated to and unaided by McGills' illicit use of Venture's

marks. The company produced no such evidence. As a result, there

was no clear error in the district court's determination that

$230,339.17 represented an equitable share of McGills' $1.9 million

in gross sales during the three-and-a-half year infringement

period.

C. Attorney's Fee Award

Finally, McGills challenges the district court's award of

$188,583.06 in attorney's fees. The Lanham Act permits the court

to award reasonable attorney's fees to the prevailing party in

"exceptional cases." 15 U.S.C. § 1117(a). We review such awards

for abuse of discretion. Tamko Roofing Prods., 282 F.3d at 30.

The district court has discretion to consider an infringement case

"exceptional" if, after reviewing the totality of the

circumstances, it finds that the infringer's actions were

"malicious, fraudulent, deliberate, or willful." Id. at 31

(internal quotation marks omitted). As we noted above, the

district court did not err in concluding that McGills' infringement

was "willful." Accordingly, it did not abuse its discretion in

determining that this is an "exceptional case" where an award of

attorney's fees is appropriate.

Affirmed.

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