FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

THE STATE OF IDAHO POTATO 

COMMISSION, No. 04-35229

Plaintiff-Appellee, D.C. No.  v. CV 98-0088 DOC

G&T TERMINAL PACKAGING, INC.,

Defendant-Appellant. 

THE STATE OF IDAHO POTATO 

COMMISSION, No. 04-35238

Plaintiff-Appellant, D.C. No.  v. CV 98-0088 DOC

G&T TERMINAL PACKAGING, INC., OPINION

Defendant-Appellee. 

Appeals from the United States District Court

for the District of Idaho

David O. Carter, District Judge, Presiding

Argued and Submitted

July 13, 2005—Seattle, Washington

Filed October 7, 2005

Before: A. Wallace Tashima, Richard A. Paez, and

Consuelo M. Callahan, Circuit Judges.

Opinion by Judge Tashima

13917
COUNSEL

Michael S. Gilmore, Deputy Attorney General (Idaho), Boise,

Idaho, for the plaintiff-appellant and cross-appellee. 

Richard C. Boardman, Perkins Coie LLP, Boise, Idaho, for

the defendant-appellee and cross-appellant. 

OPINION

TASHIMA, Circuit Judge: 

In its appeal, the Idaho Potato Commission (“IPC”) challenges the district court’s ruling that a no-challenge provision

in its certification mark licensing agreement with G&T Terminal Packaging (“G&T”) is unenforceable. G&T appeals

several damages awards to IPC for breach of contract and violation of the Lanham Act, as well as an award of attorney’s

fees and costs. We have jurisdiction over these appeals pursuant to 28 U.S.C. § 1291.

Agreeing with the Second Circuit in Idaho Potato Commission v. M&M Produce Farms & Sales, 335 F.3d 130 (2d Cir.

IDAHO POTATO COMMISSION v. G&T TERMINAL 13921
2003) (M&M III), cert. denied, 541 U.S. 1027 (2004), we

hold that the no-challenge provision in IPC’s licensing agreement is unenforceable. We also affirm the district court’s $1

and $100,000 damages awards to IPC. We reverse, however,

the $50,000 contract damages award to IPC, and vacate the

award of attorney’s fees and costs to IPC and remand those

matters to the district court for reconsideration in light of our

limited reversal. 

FACTS AND PROCEDURAL BACKGROUND

IPC is a statutorily-created agency of the State of Idaho

formed for the purpose of promoting Idaho potatoes. See

Hapco Farms, Inc. v. Idaho Potato Comm’n, 238 F.3d 468

(2d Cir. 2001). IPC finances its promotional work in part by

licensing several certification marks for Idaho potatoes

including “Idaho” and “Grown in Idaho.” G&T is a wholesale

distributor of potatoes. Beginning in 1968, G&T entered into

a series of licenses with IPC to use IPC’s certification marks.

The most recent of these licenses expired on September 1,

1998. This license contained provisions in which G&T recognized the validity of IPC’s marks and agreed not to challenge

IPC’s rights in the marks while the license was in effect or

after its expiration. 

In February 1998, IPC filed this action in the United States

District Court for the District of Idaho against G&T. IPC

alleged that G&T had breached its licensing agreement and

infringed IPC’s certification marks by, inter alia, failing to

keep adequate records and using unlicensed potato repackers.

In July 1998, G&T filed a complaint in intervention in three

consolidated cases involving IPC and potato wholesalers in

the United States District Court for the Southern District of

New York. G&T’s complaint in intervention alleged that

IPC’s certification marks were unenforceable and subject to

cancellation under the Lanham Act. The New York district

court stayed further proceedings in IPC’s Idaho case against

G&T pending resolution of the issues raised in G&T’s com13922 IDAHO POTATO COMMISSION v. G&T TERMINAL
plaint. The New York court eventually dismissed G&T’s

claims, concluding that the Eleventh Amendment shielded

IPC from suit.1 M&M II, 95 F. Supp. 2d at 156. 

After dismissal of G&T’s New York action, this Idaho case

was reactivated in March 2001. IPC added a breach of contract claim based on G&T’s New York complaint, alleging

that G&T had violated the no-challenge clause in its license

and seeking to recover IPC’s costs in defending the suit. The

Idaho district court granted partial summary judgment for

IPC, concluding that G&T had breached the licensing agreement as a matter of law. It denied summary judgment on the

issue of damages, however, determining that an issue of fact

remained as to the amount IPC spent defending against

G&T’s claims. In April 2003, the remaining issues in the case

proceeded to trial. 

On July 11, 2003, after trial but before the district court

rendered judgment, the Second Circuit issued a decision holding the no-challenge provision of IPC’s license agreement

unenforceable. M&M III, 335 F.3d at 139. Based on M&M

III, G&T moved for reconsideration of the district court’s ruling that G&T’s New York complaint breached the nochallenge provision of its licensing agreement. The district

court granted G&T’s motion, and elected to follow M&M III.

It thus vacated its previous grant of summary judgment to IPC

on that issue. 

In October 2003, the district court awarded IPC: (1) $1 as

a result of G&T’s violation of an IPC rule requiring that Idaho

1The New York district court had earlier held that the no-challenge

clause in G&T’s license estopped it from challenging the validity of IPC’s

federal marks. Idaho Potato Comm’n v. M&M Produce Farm & Sales, 35

F. Supp. 2d 313, 323 (S.D.N.Y. 1999) (M&M I). The court in effect

vacated this ruling by holding that the Eleventh Amendment precluded

G&T’s suit. Idaho Potato Comm’n v. M&M Produce Farm & Sales, 95

F. Supp. 2d 150, 156 (S.D.N.Y. 2000) (M&M II), aff’d sub nom. Hapco

Farms, Inc. v. Idaho Potato Comm’n, 238 F.3d 468 (2d Cir. 2001). 

IDAHO POTATO COMMISSION v. G&T TERMINAL 13923
potato packaging identify the variety of potatoes contained

therein; (2) $50,000 as a result of G&T’s failure to preserve

all of its records of sales and purchases of Idaho potatoes in

violation of its licensing agreement; (3) statutory damages of

$100,000 for G&T’s violation of the Lanham Act by purchasing bags with IPC’s certification mark on them and using

them to package potatoes after G&T’s license to use the mark

had expired; and (4) IPC’s costs. IPC later requested an award

of attorney’s fees pursuant to the license agreement and G&T

made a motion to amend the court’s findings and conclusions

and to alter or amend the judgment. The court denied G&T’s

motion and awarded IPC 40 percent of its requested attorney’s fees. 

ANALYSIS

IPC challenges the district court’s ruling that the nochallenge provision in its licensing agreement is unenforceable. G&T contests the propriety of each of the court’s damages awards and its award of IPC’s attorney’s fees and costs.

I. IPC’s No-Challenge Provision

IPC asks us to disagree with M&M III and hold the nochallenge provision in its licensing agreement enforceable.

G&T argues that issue preclusion bars IPC from litigating the

issue in this court and that, in the event we reach the merits

of the dispute, we should adopt the Second Circuit’s

approach.

A. Issue Preclusion

G&T relies on the doctrine of issue preclusion, or collateral

estoppel, to argue that M&M III bars IPC from relitigating the

issue of whether the no-challenge provision is enforceable.2

2As G&T points out, although a defendant generally must plead issue

preclusion as an affirmative defense in the district court, the Second Cir13924 IDAHO POTATO COMMISSION v. G&T TERMINAL
Issue preclusion can apply only if: (1) M&M III gave IPC a

full and fair opportunity to litigate the issue; (2) the issue was

actually litigated in M&M III; (3) IPC lost on the issue as a

result of a final judgment in M&M III; and (4) IPC was a

party or in privity with a party in M&M III. United States

Internal Revenue Serv. v. Palmer (In re Palmer), 207 F.3d

566, 568 (9th Cir. 2000). The parties appear to agree that

these elements are met.

[1] Nonetheless, IPC argues that because it is a state agency

it is not subject to issue preclusion on issues of law. In United

States v. Mendoza, 464 U.S. 154, 162 (1984), the Supreme

Court held that nonmutual offensive collateral estoppel3 did

not apply against the federal government so as to preclude

relitigation of the issues in that case. Despite the Supreme

Court’s previous approval of the use of nonmutual offensive

collateral estoppel by private litigants, Mendoza recognized

cuit issued its M&M III decision after the Idaho district court had granted

IPC summary judgment on its breach of contract claim. It was only on

later reconsideration in light of M&M III that the district court held the nochallenge provision unenforceable. G&T thus could not have raised issue

preclusion as an affirmative defense. It is therefore permissible for G&T

to raise the issue on appeal. Chew v. Gates, 27 F.3d 1432, 1437 n.2 (9th

Cir. 1994). 

3Nonmutual collateral estoppel refers to use of collateral estoppel by a

nonparty to a previous action to preclude a party to that action from relitigating a previously determined issue in a subsequent lawsuit against the

nonparty. Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S.

313, 320-30 (1971). “Offensive” use of nonmutual collateral estoppel

occurs when a plaintiff seeks to prevent a defendant from relitigating an

issue that the defendant previously litigated unsuccessfully against a different party. Mendoza, 464 U.S. at 159 n.4. “Defensive” use of nonmutual

collateral estoppel involves a defendant attempting to preclude a plaintiff

from relitigating an issue that the plaintiff previously litigated unsuccessfully against a different party. Id. Defendant G&T invokes nonmutual

defensive collateral estoppel in an attempt to prevent Plaintiff IPC from

relitigating the issue of the validity of its no-challenge license provision

because in M&M III the Second Circuit determined that IPC could not

enforce an identical license provision against a former licensee. See 335

F.3d at 139. 

IDAHO POTATO COMMISSION v. G&T TERMINAL 13925
that the government differs from private litigants in the geographic breadth of its litigation and in the nature of the issues

it pursues. Id. at 159-60 (“Government litigation frequently

involves legal questions of substantial public importance;

indeed, because the proscriptions of the United States Constitution are so generally directed at governmental action, many

constitutional questions can arise only in the context of litigation to which the government is a party.”). It noted that:

A rule allowing nonmutual collateral estoppel

against the government in such cases would substantially thwart the development of important questions

of law by freezing the first final decision rendered on

a particular legal issue. Allowing only one final

adjudication would deprive this Court of the benefit

it receives from permitting several courts of appeals

to explore a difficult question before this Court

grants certiorari. Indeed, if nonmutual estoppel were

routinely applied against the government, this Court

would have to revise its practice of waiting for a

conflict to develop before granting the government’s

petitions for certiorari. 

Id. at 160 (citations omitted). 

[2] Mendoza’s rationale applies with equal force to G&T’s

attempt to assert nonmutual defensive collateral estoppel

against IPC (a state agency). See Coeur D’Alene Tribe of

Idaho v. Hammond, 384 F.3d 674, 689-90 (9th Cir. 2004)

(relying on Mendoza’s reasoning to conclude, under Idaho

state law preclusion principles, that nonmutual offensive collateral estoppel did not preclude a state agency from relitigating a legal issue that had previously been determined against

the agency by a state court); Hercules Carriers, Inc. v. Claimant State of Fla., 768 F.2d 1558, 1578-79 (11th Cir. 1985)

(applying Mendoza to hold that nonmutual defensive collateral estoppel did not operate against a state government). We

therefore hold that issue preclusion does not prevent IPC from

13926 IDAHO POTATO COMMISSION v. G&T TERMINAL
challenging the district court’s determination that the nochallenge clause of IPC’s licensing agreement is unenforceable. Because G&T cannot collaterally estop IPC from relitigating the issue, we go on to assess the validity of IPC’s nochallenge provision.

B. M&M III

[3] In M&M III, the Second Circuit held that M&M Produce Farm & Sales (“M&M”) could challenge the validity of

IPC’s certification mark for Idaho potatoes in spite of a nochallenge provision in a licensing agreement between the two.

335 F.3d at 139. M&M’s former licensing agreement contained a provision, like the one in G&T’s license, in which

M&M recognized the validity of IPC’s certification marks

and promised not to challenge the marks during the license

term or after its expiration. See id. at 134. M&M sought to

challenge the validity of the certification marks nonetheless,

arguing that the no-challenge provision was unenforceable

because it violated the public policy underlying the Lanham

Act. Id. The Second Circuit applied the balancing test articulated by the Supreme Court in Lear, Inc. v. Adkins, 395 U.S.

653 (1969), to determine that the provision should not be

enforced. See M&M III, 335 F.3d at 135-37. 

Lear involved a dispute between a patent holder and a

licensee who sought to challenge the validity of the patent

based upon which it had agreed to pay royalties. 395 U.S. at

655-56. The Court held that licensee estoppel did not preclude

the licensee’s challenge, overruling a previous decision holding that a licensee operating under a license agreement generally could not simultaneously challenge the validity of the

underlying patent. Id. at 670-71; see also Automatic Radio

Mfg. Co. v. Hazeltine Research, Inc., 339 U.S. 827, 836

(1950). The Court reasoned that:

Surely the equities of the licensor do not weigh very

heavily when they are balanced against the important

IDAHO POTATO COMMISSION v. G&T TERMINAL 13927
public interest in permitting full and free competition

in the use of ideas which are in reality a part of the

public domain. Licensees may often be the only individuals with enough economic incentive to challenge

the patentability of an inventor’s discovery. If they

are muzzled, the public may continually be required

to pay tribute to would-be monopolists without need

or justification. We think it plain that the technical

requirements of contract doctrine must give way

before the demands of the public interest in the typical situation involving the negotiation of a license

after a patent has issued. 

Lear, 395 U.S. at 670-71. The Court also refused to enforce

a provision of the parties’ license agreement that would have

required the licensee to pay royalties until a court held the

patent invalid. Id. at 671-74. It noted that:

The parties’ contract, however, is no more controlling on this issue than is the State’s doctrine of

estoppel, which is also rooted in contract principles.

The decisive question is whether overriding federal

policies would be significantly frustrated if licensees

could be required to pay royalties during the time

they are challenging patent validity in the courts. 

Id. at 673. The Lear court thus balanced the policies underlying state contract law against those animating federal patent

law in placing limits on the parties’ contractual obligations. 

In M&M III, the Second Circuit noted that courts had frequently applied the Lear balancing test to trademark licensing

contracts. 335 F.3d at 136. It went on to observe that courts

have generally precluded licensee challenges to trademarks

after weighing the public interest in trademarks against contract principles. Id. (citing MWS Wire Indus., Inc. v. Cal. Fine

Wire Co., 797 F.2d 799, 803 (9th Cir. 1986), and Beer Nuts,

Inc. v. King Nut Co., 477 F.2d 326, 329 (6th Cir. 1973)). It

13928 IDAHO POTATO COMMISSION v. G&T TERMINAL
concluded that the trademark cases were not controlling in the

certification mark context, however, because the two types of

marks serve different public interests. Id. at 138. 

Trademarks protect the public from confusion by accurately indicating the source of a product. They preserve a producer’s good will “in order that the purchasing public may not

be enticed into buying A’s product when it wants B’s product.” Id. (quoting T & T Mfg. Co. v. A. T. Cross Co., 587 F.2d

533, 538 (1st Cir. 1978)). Trademark owners have a monopoly over their marks, which they can license as they see fit as

long as such licensing does not cause public confusion. Id. A

certification mark, on the other hand, is a mark used by someone other than its owner to signify that a product or service

has a certain characteristic. 3 McCarthy on Trademarks and

Unfair Competition § 19:91 (4th ed. 2005) (“McCarthy”). The

certification mark owner is required to license the mark to

anyone who meets the certification criteria. M&M III, 335

F.3d at 138 (citing McCarthy § 19:96). 

The M&M III court observed that the distinction between

certification marks and trademarks reflects different underlying public interests. While certification marks resemble trademarks in that they attempt to prevent consumer confusion by

communicating information regarding a product’s characteristics, certification marks also have another purpose. Id. M&M

III reasoned that certification marks protect “a further public

interest in free and open competition among producers and

distributors of the certified product.” Id. This is achieved by

protecting certification mark licensees from the certification

mark owner’s influence in an attempt to ensure the broadest

possible competition in the market for certified goods. Id. (citing 15 U.S.C. § 1064(5), which allows cancellation of a certification mark when the owner: produces or markets goods to

which the mark is applied; permits use of the mark for purposes other than to certify; or discriminately refuses to certify

one who maintains the standards the mark signifies). The

court viewed this public interest as “akin to the public interest

IDAHO POTATO COMMISSION v. G&T TERMINAL 13929
in the ‘full and free use of ideas in the public domain’

embodied in the patent laws.” Id. at 138-39 (quoting Lear,

395 U.S. at 674). 

[4] The Second Circuit held that IPC could not enforce the

no-challenge provision against M&M because the public

injury that would result outweighed the general interest in

enforcing written contracts. Id. at 139. In reaching this conclusion, the court first observed that the provision restricted

licensees in a way unrelated to controlling the quality of the

certified product. Id. This restriction inured to the benefit of

IPC in contravention of its duty not to interfere with a free

market for Idaho potatoes. Id. Next, the court noted that parties having at some point entered into an IPC licensing agreement might be the only ones with sufficient economic

incentive to challenge any of IPC’s conduct that arguably

compromised its neutrality as a certification mark holder. Id.

Finally, the court looked to the public interest underlying the

merits of M&M’s challenges. Id. It reasoned that M&M’s

specific allegations regarding violations of IPC’s duties as a

mark holder implicated the public interest in creating a free

market for Idaho potatoes unaffected by IPC’s potentially

conflicting economic interests. Id.

IPC makes three primary contentions in arguing that we

should disapprove the district court’s reliance on M&M III.

First, it argues that the policy underlying certification marks

mirrors that of trademarks and that M&M III therefore erred

in treating certification marks differently. Next, it contends

that M&M III improperly imported into its analysis patent law

principles inconsistent with the policies underlying the Lanham Act. Finally, IPC points out that a large number of certification mark holders share its concerns regarding M&M III’s

holding. 

C. Certification Marks Versus Trademarks

IPC argues that the only certification mark policy reflected

in the Lanham Act is that underlying trademarks — the avoid13930 IDAHO POTATO COMMISSION v. G&T TERMINAL
ance of public confusion. In its view, M&M III should have

therefore enforced the no-challenge provision as courts have

done in the trademark context. 

Certification marks, however, differ from trademarks in a

number of significant ways. See McCarthy § 19:91 (“A certification mark is a special creature created for a purpose

uniquely different from that of an ordinary trademark or service mark.”). Certification marks are subject to cancellation if

the owner produces or markets goods on which the mark

appears, permits use of the mark for purposes other than to

certify, or discriminately refuses to certify the goods of one

who meets the standards the mark denotes. 15 U.S.C.

§ 1064(5). The mark holder’s duty to license all who qualify

makes certification “a form of limited compulsory licensing.”

McCarthy § 19:96. 

[5] The Lanham Act makes clear that certification marks

serve other public interests in addition to the prevention of

public confusion. Its certification mark cancellation provisions illustrate the legislative intent to protect “a further public interest in free and open competition among producers and

distributors of the certified product.” M&M III, 335 F.3d at

138. By requiring certification mark holders to license all

individuals who meet the certification criteria, the Lanham

Act ensures that the market will include as many participants

as can produce conforming goods. By preventing mark holders from becoming market participants, it removes incentives

for mark holders to engage in anti-competitive conduct. The

Lanham Act’s cancellation provisions thus appear designed to

promote free competition in the market for certified products.4

We therefore agree with M&M III’s assessment of the policy

concerns underlying the Lanham Act’s certification mark

regime. 

4

IPC offers no persuasive argument to the contrary, simply asserting

that the Lanham Act’s restrictions on certification mark holders serve an

anti-confusion purpose but failing to explain why they cannot also encourage free competition. 

IDAHO POTATO COMMISSION v. G&T TERMINAL 13931
[6] We also find persuasive M&M III’s conclusions regarding the relative weight of the pertinent public interests. In

M&M III, as in this case, IPC sought to enforce a nochallenge provision against a former licensee. Allowing it to

do so would enable it to prevent anyone who had ever held

an IPC license from challenging its conduct as a certification

mark owner. This would likely leave IPC’s conduct

unchecked by precluding challenges by the only individuals

with enough economic incentive to bring them.5See M&M

III, 335 F.3d at 139 (“[P]arties that have entered into a

licensee relationship with the IPC may often be the only individuals with enough economic incentive to challenge the

IPC’s licensing scheme, and thus the only individuals with

enough economic incentive to force the IPC to conform to the

law.” (citing Lear, 395 U.S. at 670)). As M&M III concluded,

the public interest in ensuring free competition in the market

for certified goods outweighs IPC’s interest in enforcing a

contractual provision that would prevent all current and former licensees from challenging its conduct as a certification

mark holder. 

D. M&M III’s Use of Patent Law Principles

IPC devotes much of its argument to asserting that M&M

III improperly weighed the public interest underlying patents

instead of one underlying certification marks. While M&M III

analogized the public interest underlying certification marks

to that underlying patents, it went on to analyze certification

5

IPC mentions in passing that the Federal Trade Commission is empowered to challenge the validity of certification marks. See 15 U.S.C. § 1064.

It offers no further analysis, however, and one is left to wonder what

resources, if any, the FTC devotes to policing the behavior of certification

mark holders. A search of Westlaw’s “ALLFEDS” database returns 8

cases containing the terms “certification mark” and “Federal Trade Commission.” None of the 8 cases involves an FTC challenge to a certification

mark. Similarly, none of the 33 Trademark Trial and Appeal Board decisions containing the term “certification mark” involves challenges by the

FTC. 

13932 IDAHO POTATO COMMISSION v. G&T TERMINAL
mark policies rooted in the Lanham Act’s certification mark

provisions. See 335 F.3d at 138-39. We thus reject IPC’s contention that M&M III improperly considered the patent law

policy goals articulated in Lear instead of those underlying

certification mark law. 

IPC also contends that M&M III should not have applied

the Lear balancing test at all. It acknowledges, however, that

other courts have balanced the public interests in trademark

cases involving no-challenge clauses. See M&M III, 335 F.3d

at 136 (citing MWS Wire Indus., 797 F.2d at 803; VISA Int’l

Serv. Assn. v. Bankcard Holders of Am., 784 F.2d 1472, 1473

(9th Cir. 1986); T & T Mfg., 587 F.2d at 538; Beer Nuts, 477

F.2d at 329). Because IPC offers no persuasive reason for

why it is improper to use Lear balancing in Lanham Act

cases, we adopt M&M III’s approach. 

E. M&M III’s Potential Adverse Effects for 

Certification Mark Holders

Finally, IPC summarizes the arguments of 20 certification

mark holders who filed a joint amici curiae brief in support

of IPC’s petition for a writ of certiorari in M&M III. The

amici’s arguments restate many of IPC’s concerns, with

emphasis placed on the increased cost of enforcement M&M

III will cause for non-profit and governmental certification

mark holders. While it may be true that infringement actions

will now cost more because licensees and former licensees

will often challenge the validity of the mark in question, the

amici’s arguments fail to address or give any weight to the

countervailing public policy concern. Allowing certification

mark holders to preclude challenges by all individuals who

hold or have held a license would remove what appears to be

the principal mechanism for ensuring that mark holders abide

by their statutory duties. 

[7] We agree with the district court that M&M III appropriately balanced the relevant public policies in holding noIDAHO POTATO COMMISSION v. G&T TERMINAL 13933
challenge provisions in certification mark licenses unenforceable. Accordingly, we conclude that the district court did not

err in declining to enforce the no-challenge provision against

G&T.

II. Damages, Attorney’s Fees, and Costs

The district court initially awarded IPC: $1 in nominal

damages because G&T had violated its license by failing to

comply with IPC’s variety labeling rule; $50,000 as a result

of G&T’s breach of its license by failing to preserve all of its

records of Idaho potato sales and purchases; statutory damages of $100,000 for G&T’s violation of the Lanham Act by

purchasing and using bags with IPC’s certification mark on

them after G&T’s license to use the mark had expired; and

IPC’s costs. It later went on to deny G&T’s motion for reconsideration and to award IPC 40 percent of the amount of attorney’s fees it requested. 

G&T challenges all of these awards. First, it argues that the

$1 award constitutes an improper civil penalty under Idaho

Code § 22-1213. It goes on to contest the $50,000 award as

unsupported by the record. It then challenges the $100,000

award as based on an erroneous conclusion that IPC was entitled to statutory damages. Finally, it contends that the district

court improperly awarded IPC attorney’s fees and costs.

G&T appeals from the district court’s Findings of Fact and

Conclusions of Law and from its denial of G&T’s Federal

Rule of Civil Procedure 52(b) and 59(e) motion to amend the

court’s findings and conclusions and to alter or amend the

judgment. We review for abuse of discretion the denial of

G&T’s motion. See Smith v. Pac. Props. & Dev. Corp., 358

F.3d 1097, 1100 (9th Cir. 2004). We review the district

court’s findings of fact for clear error and its conclusions of

law de novo. Watkins v. Ameripride Servs., 375 F.3d 821, 824

(9th Cir. 2004). 

13934 IDAHO POTATO COMMISSION v. G&T TERMINAL
A. Nominal Damages Award for IPC Rule Violation

As part of its licensing agreement with IPC, G&T agreed

to comply with IPC’s rules in general and specifically with its

variety labeling rule. The district court found that G&T failed

to comply with the variety labeling rule. It went on to hold

that G&T’s violations were minor and that IPC should therefore recover $1 from G&T. G&T does not dispute that it violated its license by failing to include variety labeling on its

packaging.

G&T argues, however, that the district court erred by

imposing a $1 civil penalty as a result of the variety labeling

violations. This award, it contends, contravenes Idaho Code

§ 22-1213, which creates civil penalties for violating IPC

rules or licensing agreements. In G&T’s view, because § 22-

1213 requires IPC to provide notice and opportunity for a

hearing before IPC assesses civil penalties, it also requires

IPC to exhaust its administrative remedies by giving such

notice and opportunity before seeking to recover in court for

rule violations. See Idaho Code § 22-1213(3). 

[8] As a preliminary matter, § 22-1213 does not by its

terms require IPC to exhaust administrative remedies before

filing suit. Section 22-1213(1) provides that IPC or its duly

authorized agent may assess civil penalties of not more than

$1,000 for each offense against any person who violates an

IPC rule or licensing agreement. Section 22-1213(3) states

that no civil penalty may be assessed unless the person

charged was given notice and opportunity for a hearing and

that IPC may enforce in district court penalties it is unable to

collect administratively. Subsection (3) goes on to state that

“[n]othing contained in this section shall be deemed to preclude the commission from pursuing any other civil or criminal remedies available to it as provided by law.” 

[9] The pertinent question is whether § 22-1213 authorizes

a court, as opposed to IPC, to impose the civil penalties. As

IDAHO POTATO COMMISSION v. G&T TERMINAL 13935
G&T points out, the statute specifically provides for IPC to

assess civil penalties but makes no mention of a court doing

so. See Idaho Code § 22-1213(1), (3). Section 22-1213 thus

does not explicitly empower a court to impose the civil penalties it creates. IPC points to no pertinent authority suggesting

that it implicitly does so, and we have found none. We therefore conclude that if civil penalties are to be assessed under

§ 22-1213, IPC must assess them in administrative proceedings and then enforce them in district court if necessary. The

$1 award by the district court therefore cannot be a § 22-1213

civil penalty. 

[10] The $1 award can, however, constitute nominal damages for breach of contract. Despite the fact that IPC sought

civil penalties under § 22-1213, the district court did not indicate reliance on § 22-1213 in imposing the $1 damages

award. We thus conclude that the award can be viewed as

nominal damages and we affirm the award on that basis.6

B. Damages Award for Failing to Preserve Records

The district court awarded IPC $50,000 for G&T’s breach

of its license by failing to preserve all of its records of Idaho

potato sales and purchases. The court found the breach to be

relatively serious because of IPC’s resulting discovery problems and the attendant discovery disputes involving the court.

It did not explain how or why it chose the $50,000 figure.

6G&T also argues that the $1 award is improper because IPC waived its

right to require G&T to comply with its variety labeling rule. G&T points

to an October 1997 letter that IPC wrote to G&T warning it against unlicensed use of IPC marks and against using unlicensed repackers and container manufacturers. In G&T’s view, by failing to mention that G&T was

also required to follow other IPC rules as provided in its license, IPC

waived the right to enforce the variety labeling rule against G&T. As IPC

points out, G&T offers no authority for the proposition that warning a person about certain legal requirements under a license waives other legal

requirements. G&T’s waiver argument therefore fails. 

13936 IDAHO POTATO COMMISSION v. G&T TERMINAL
G&T argues that the lack of record evidence of damage to

IPC resulting from the breach renders the $50,000 an

improper contract damages award. It also argues that the

award is improper as beyond the scope of the relief sought by

IPC. IPC counters that we can uphold the $50,000 award as

a discovery sanction or as a civil penalty under Idaho Code

§ 22-1213, implicitly conceding the lack of support for a contract damages award. It goes on correctly to point out that the

district court may award relief not prayed for under Federal

Rule of Civil Procedure 54(c). Finally, it argues that we

should remand to the district court for further explanation of

the $50,000 award in the event that we decide not to affirm

the award. 

1. Discovery Sanction

IPC first argues that we can uphold the $50,000 award as

a discovery sanction based on G&T’s violation of its ongoing

duty to preserve evidence. See Fujitsu Ltd. v. Fed. Express

Corp., 247 F.3d 423, 436 (2d Cir. 2001) (observing that a district judge has discretion to impose an appropriate sanction

when he or she has determined that a party on notice of its

obligation to preserve evidence intentionally destroyed it).

While G&T stipulated that it failed to preserve some of its

records of sales and purchases of Idaho potatoes, the district

court’s factual findings contain no indication that G&T intentionally destroyed records with knowledge that those records

were relevant to this litigation. Cf. United States v. Kitsap

Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002) (holding

that defendants did not engage in spoliation of evidence when

records were intentionally destroyed in accordance with a

document retention policy and state regulations before litigation commenced). Our review of the record does not reveal

any evidence supporting the conclusion that G&T intentionally destroyed evidence and IPC points to none. The record is

thus insufficient to allow us to affirm the award as a discovery

sanction.

IDAHO POTATO COMMISSION v. G&T TERMINAL 13937
2. Civil Penalty

IPC also argues that we can affirm the award as a civil penalty under Idaho Code § 22-1213. As discussed above, § 22-

1213 does not authorize a court to impose the civil penalties

it creates. We therefore cannot affirm the award as a § 22-

1213 civil penalty. 

[11] Because our review of the record reveals no basis upon

which the district court could properly have imposed a damages award of $50,000, we decline IPC’s invitation to remand

the award for further explanation. Accordingly, we reverse the

$50,000 damage award.

C. Statutory Damages Award for Violation of the 

Lanham Act

[12] The district court concluded that G&T violated the

Lanham Act by purchasing bags bearing IPC’s certification

mark and using them to package potatoes after G&T’s license

to use the mark had expired. It went on to award IPC

$100,000 in statutory damages under 15 U.S.C. § 1117(c).

Section 1117(c) allows a plaintiff to opt for statutory damages

in cases involving the use of a counterfeit mark. 15 U.S.C.

§ 1117(c). G&T contends that statutory damages were

improper in this case, thus raising the question of whether its

use of IPC’s mark constituted counterfeiting or mere infringement. The district court’s determination that G&T’s unauthorized use amounted to counterfeiting is a legal conclusion

subject to de novo review. Humetrix, Inc. v. Gemplus S.C.A.,

268 F.3d 910, 921 (9th Cir. 2001). 

In order to invoke § 1117’s special civil monetary remedies

against counterfeiting, IPC must establish that: (1) G&T

intentionally used a counterfeit mark in commerce; (2) knowing the mark was counterfeit; (3) in connection with the sale,

offering for sale, or distribution of goods; and (4) its use was

likely to confuse or deceive. See McCarthy § 25:15 (citing 15

13938 IDAHO POTATO COMMISSION v. G&T TERMINAL
U.S.C. §§ 1114(1)(a), 1117(b)). In this context, the mark used

by G&T was counterfeit if: (1) it was a non-genuine mark

identical to IPC’s mark; (2) IPC’s mark was registered on the

Principal Register for use on the same goods to which G&T

applied the mark; (3) IPC’s mark was in use; and (4) G&T

was not authorized to use IPC’s mark on potatoes. See id. (citing 15 U.S.C. §§ 1116(d)(1)(B), 1127). 

G&T acknowledges that it was using IPC’s registered mark

on packages of potatoes without a license to do so. The issue

of whether its behavior constituted counterfeiting therefore

turns on whether its use of IPC’s certification mark was likely

to cause confusion. 

G&T contends that its unlicensed use of IPC’s mark was

not likely to cause confusion because the potatoes it packaged

were genuine Idaho potatoes. It points out that courts have

held that the unauthorized sale of genuine goods does not constitute trademark infringement because it does not cause consumer confusion. See, e.g., NEC Elec. v. CAL Cir. Abco, 810

F.2d 1506, 1509 (9th Cir. 1987) (“[T]rademark law is

designed to prevent sellers from confusing or deceiving consumers about the origin or make of a product, which confusion ordinarily does not exist when a genuine article bearing

a true mark is sold.”). However, many cases have found a

likelihood of confusion when a trademark owner was prevented from exercising quality control over the merchandise

bearing its mark. See, e.g., Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107-08 (4th Cir. 1991); El Greco

Leather Prods. Co., Inc. v. Shoe World, Inc., 806 F.2d 392,

395 (2d Cir. 1986) (“One of the most valuable and important

protections afforded by the Lanham Act is the right to control

the quality of the goods manufactured and sold under the

holder’s trademark.”). In addition, many courts have held that

an ex-licensee’s continued use of a trademark is enough to

establish likelihood of confusion. See U.S. Structures, Inc. v.

J.P. Structures, Inc., 130 F.3d 1185, 1190-92 (6th Cir. 1997)

(holding that “proof of continued, unauthorized use of an

IDAHO POTATO COMMISSION v. G&T TERMINAL 13939
original trademark by one whose license to use the trademark

had been terminated is sufficient to establish ‘likelihood of

confusion,’ ” noting that many courts have reached this conclusion, and affirming a treble damages award under 15

U.S.C. § 1117(a), which allows a court to assess treble damages in cases of mere infringement); see also Burger King

Corp. v. Mason, 710 F.2d 1480, 1492 (11th Cir. 1983) (“The

unauthorized use of a trademark which has the effect of misleading the public to believe that the user is sponsored or

approved by the registrant can constitute infringement.”). But

see U.S. Structures, 130 F.3d at 1192 (holding that exfranchisee’s unauthorized use of franchisor’s trademark did

not constitute counterfeiting for purposes of awarding attorney’s fees under 15 U.S.C. § 1117(b)). 

In the certification mark context, the mark holder’s ability

to institute quality controls seems vital if a mark is to serve

its purpose. By licensing a party to use the “Idaho” mark, IPC

certifies that the party’s potatoes meet the standards the mark

represents. G&T asserts that its potatoes did meet IPC’s quality control standards because G&T procured its potatoes from

licensed distributors. It stipulated, however, that it did not

keep all of the records that it was required to keep under IPC

rules. By depriving IPC of the opportunity to monitor and

control quality, G&T created the potential for consumer confusion. See El Greco, 806 F.2d at 395 (noting that “the actual

quality of the goods is irrelevant; it is the control of quality

that a trademark holder is entitled to maintain”). G&T’s use

of the certification mark implied that its potatoes had been

produced and distributed in accordance with IPC’s quality

control procedures, and the fact that this was not the case was

likely to cause consumer confusion. See Shell Oil, 928 F.2d

at 108 (noting that use of Shell’s mark “implies that the product has been delivered according to all quality control guidelines enforced by the manufacturer” and concluding that the

defendant’s failure to follow those guidelines gave rise to “a

likelihood of customer confusion as to the quality and source

of the bulk oil”). If parties use IPC’s mark without abiding by

13940 IDAHO POTATO COMMISSION v. G&T TERMINAL
IPC’s quality control provisions, as G&T did in this case, the

certification mark may lose its value because goods bearing

the mark do not consistently meet the standards the mark signifies. 

In addition, those making unauthorized use of the mark

gain a market advantage by avoiding the expense of record

keeping and following IPC’s other rules. Because IPC’s function is to police its mark, and not to make a profit from the

goodwill associated with it as trademark owners do, IPC will

have trouble establishing damages when it brings a court

action against an unlicensed user. If its only remedy is injunctive relief, as G&T contends should be the case, then there is

very little incentive for potato packers and distributors to

obtain a license. Thus, the qualities that distinguish a certification mark from a trademark weigh in favor of making

§ 1117’s statutory penalties available in cases like this one,

where an ex-licensee intentionally makes unauthorized use of

a certification mark. 

[13] Because G&T’s unlicensed use of IPC’s certification

mark was likely to cause confusion and to undermine the

effectiveness of IPC’s certification mark licensing regime, we

hold that G&T’s use constituted counterfeiting. Accordingly,

we affirm the district court’s award of statutory damages.

D. Attorney’s Fees

The district court awarded IPC attorney’s fees of

$66,897.60, 40 percent of the requested amount, under the

licensing agreement. Idaho law permits attorney’s fees awards

pursuant to contract provisions. Idaho R. Civ. P. 54(e)(1). We

review for abuse of discretion an award of attorney’s fees

under state law. Vess v. Ciba-Geigy Corp. USA, 317 F.3d

1097, 1102 (9th Cir. 2003). The license agreement provides

that IPC is entitled to recover its attorney’s fees and costs in

any action “to enforce the terms of this agreement, to prosecute a violation of this agreement or Licensor’s statutes or

IDAHO POTATO COMMISSION v. G&T TERMINAL 13941
rules, to enjoin Licensee from an infringement of the marks

or to recover damages for breach of such agreement or for

such infringement. . . .”

7

G&T argues that IPC’s suit was driven by allegations withdrawn at trial regarding G&T misbranding potatoes (that is,

selling non-Idaho potatoes in packages identifying them as

Idaho potatoes). It contends that these allegations were based

on a faulty accounting assessment, absent which IPC would

have renewed G&T’s license. It asserts that an attorney’s fees

award is inequitable under these circumstances.8 IPC counters

that G&T’s failure to keep adequate records and its use of an

unlicensed repacker gave IPC independent grounds to bring

suit and to refuse to renew G&T’s license. It also points out

that “self-help” use of a mark is not an appropriate remedy for

one improperly deprived of its use. See McCarthy § 25:31. 

In its finding as to the amount of the award, the district

court stated: 

However, as alluded to earlier, the Court finds that

it would be inequitable to award Plaintiff all attorney’s fees incurred in this action. Plaintiff was successful on a number of claims, but it was also

unsuccessful in a number of others. From the information before the Court, it appears that the unsuccessful claims were in many ways the more costly

claims in terms of attorney time. After a review of

the fee request documents and consideration of the

conduct in and outcome of the case, the Court finds

7Although not expressly so stated in the license agreement, presumably,

IPC is entitled to recover its attorney’s fees only if it prevails in the action.

This implicit condition is not contested on this appeal. 

8G&T also argues without citation that the attorney’s fee provision of

the licensing agreement places an unreasonable restriction on the use of

certification marks in contravention of IPC’s duty not to discriminate in

licensing its mark. It fails to explain how such a general license contract

provision constitutes a discriminatory refusal to license. 

13942 IDAHO POTATO COMMISSION v. G&T TERMINAL
that an award of 40% of the requested attorney’s fee

amount would be equitable and appropriate. 

[14] As indicated above, we have reversed the damages

award of $50,000 for breach of the license agreement as

unsupported by the record. From the court’s general finding

(and lack of specific allocation), we are unable to tell how

much of the attorney’s fees award was based on the now

reversed $50,000 breach of the license agreement claim. We

therefore vacate the attorney’s fees award and remand to permit the district court to reconsider the amount of that award

in light of these changed circumstances.

E. Costs

The district court awarded IPC its full costs “as it is clearly

the prevailing party in this action.” See Fed. R. Civ. P.

54(d)(1) (“[C]osts other than attorneys’ fees shall be allowed

as of course to the prevailing party.”). We review for abuse

of discretion an award of costs to a prevailing party pursuant

to Rule 54(d). See Save Our Valley v. Sound Transit, 335 F.3d

932, 944 (9th Cir. 2003). Rule 54(d)(1) creates a presumption

in favor of awarding costs to a prevailing party, requiring the

losing party to show why costs should not be awarded. Id. at

944-45. 

[15] G&T contends that IPC should not be considered the

prevailing party because it did not win on all of its claims.

Again, just as with the award of attorney’s fees, we cannot tell

the extent to which our reversal of the breach of contract

claim might affect the district court’s prevailing party calculus. We therefore vacate and remand the award of full costs

to IPC for the district court’s reconsideration. 

CONCLUSION

We affirm the district court’s ruling that the no-challenge

provision in IPC’s licensing agreement is unenforceable. We

IDAHO POTATO COMMISSION v. G&T TERMINAL 13943
also affirm the $1 damages award and the $100,000 statutory

damages award under the Lanham Act. We reverse, however,

the $50,000 award for breach of the license agreement as

unsupported by the record. We also vacate the award of attorney’s fees and costs, and remand those matters to the district

court for its reconsideration in light of this opinion. Each

party shall bear its own costs on appeal. 

AFFIRMED in part, REVERSED in part, VACATED

in part, and REMANDED.

13944 IDAHO POTATO COMMISSION v. G&T TERMINAL