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. e du/thir dc ir c uit_1999/13Filed January 20, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 97-5794

SECURACOMM CONSULTING INC.

v.

SECURACOM INCORPORATED; KUWAM CORPORATION;
WIRT D. WALKER, III,

v.

RONALD S. LIBENGOOD

SECURACOM INCORPORATED

v.

RONALD S. LIBENGOOD; CLIFFORD J. INGBER

SECURACOM INCORPORATED; KUWAM CORPORATION;
WIRT D. WALKER, III, Appellants

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

(D.C. Civil No. 95-cv-05393) (Senior District Judge: Honorable Dickinson R. Debe voise)

Argued on June 26, 1998

Before: GREENBERG, ALITO, and MCKEE, Circuit Judges
,

(Opinion Filed: January 20, 1999)Arthur E. Newbold (ARGUED)

Michael Doluisio Dechert, Price & Rhoads

4000 Bell Atlantic Tower

1717 Arch Street Philadelphia, PA 19103

Attorney for Appellants

Howard N. Aronson (ARGUED)

Robert B. Golden Lackenbach, Siegel, Marzullo, Aronson & Greenspan, P.C.

One Chase Road Scarsdale, New York 10583

Attorneys for Appellees

OPINION OF THE COURT

ALITO, Circuit Judge:

In this trademark infringement case, we are require d to
consider whether the District Court erred when it a warded the plaintiffs a percentage of the profits of the d efendant corporation and then trebled that award and also as sessed attorneys' fees. Central to these awards was the Di strict Court's finding that the defendant corporation had willfully infringed the plaintiff's trademark. Because we con clude that the evidence does not support a finding of wil lful infringement, we reverse and remand for further proceedings.

I.

In 1980, Ronald Libengood lost his job in the Westinghouse corporate security department, and he then began a small company that he called SecuraComm Associates. SecuraComm Associates was a security sy stems consulting firm that consulted with clients, survey ed facilities, designed security systems, managed proj ects, reviewed bids and evaluations, developed training

2programs, and presented security-related workshops. The

firm deliberately refrained from arranging for the purchase and installation of equipment and from providing maintenance and technical support. The firm took th is approach because many clients insisted on the separ ation of consulting from installation and support service s so that the advice given would not be affected by conflicts of interest. Initially, most of SecuraComm Pennsylvani a's business consisted of work for Westinghouse in West ern Pennsylvania, but Libengood subsequently developed other
clients in other areas.

Libengood formed the SecuraComm name from the terms "security" and "communications." When he coined thi s name, he was unaware of any other use of the word. All brochures, letters, and correspondence of his compa ny bore
the name SecuraComm Associates.

After losing Westinghouse as a client in 1992, Libe ngood incorporated his firm as SecuraComm Consulting, Inc

. hereinafter ("SecuraComm Pennsylvania") and continu ed to do business through the corporation. Libengood was and is the president and major shareholder of SecuraComm Pennsylvania. After incorporation, the business exp anded, but SecuraComm Pennsylvania remained a small compan y, with average annual revenues between 1992 and 1996 of slightly more than $250,000 per year. Since its inc eption, SecuraComm Pennsylvania has used the SecuraComm mark with Libengood's permission, and on January 1, 1995, Libengood and SecuraComm Pennsylvania entered into a formal licensing agreement.

In May 1993, Libengood applied for registration of the word "Securacomm" without reference to capitalizati on or stylization. Although the application was abandoned for a time, Libengood reinstated the application and rece ived a registration on May 20, 1997. The registration appl ication indicated a first use on January 1, 1980, and afirs t use in interstate commerce on September 3, 1981.

The predecessor of the defendant corporation, now c alled Securacom Incorporated, was formed by Sebastian Cassetta, and in 1987 this company became affiliate d with the large engineering firm of Burns & Roe. The comp any's

3name was then changed to "Burns & Roe Securacom." I n

that same year, Libengood became aware of Burns & R oe Securacom as the result of a chance event at a conf erence in Washington, D.C., Libengood saw Cassetta throw i nto a fish bowl a business card bearing the name "Burns & Roe Securacom." Libengood then spoke with Cassetta duri ng lunch, and Cassetta told him that he knew about Libengood's firm but that his attorneys had informe d him that the similarity in the companies' names would n ot cause problems. Cassetta said that the use of "Secu racom" preceded by the well known name "Burns & Roe" was n ot likely to cause confusion. He also noted that the t wo companies served different clienteles, since Burns & Roe Securacom engaged in upgrading security at overseas embassies and performed work in the nuclear field. Libengood took no action in response to this encoun ter.

In 1992, Burns & Roe Securacom hired Ronald Thomas as its chief executive officer, and within two days of Thomas's employment, Cassetta was fired. After Cass etta left, the company he had founded became independent of
Burns & Roe when it received a substantial investme nt from entities including KuwAm Corporation, a ventur e capital firm of which defendant Wirt D. Walker, III , is a shareholder and officer. The new, independent compa ny expanded its activities into the full range of secu rity
services.

In October 1992, a certificate of amendment wasfile d in the Delaware Secretary of State's Office, indicatin g that Burns & Roe Securacom had changed its name to Securacom Incorporated (hereinafter "Securacom New Jersey"). In November 1992, Securacom New Jerseyfil ed a trademark application with the Patent and Trademark Office for the term "Securacom, Incorporated" for g oods and/or services consisting of "large-scale security and facility management for businesses and government." This application alleged that the first use was in Novem ber 1992. Securacom New Jersey was denied federal registration because two other companies -- neither of which was SecuraComm Pennsylvania -- had filed applications to register names similar to "Securaco m."

4In January 1993, Libengood learned about Securacom

New Jersey's name change, as well as its expanded business base. After consulting with an attorney, L ibengood mailed Securacom New Jersey a cease and desist lett er. Libengood and Thomas attempted to settle the contro versy. Libengood proposed that Securacom New Jersey either (1) change its name and compensate SecuraComm Pennsylvania for the use of its mark, (2) purchase the Securacom mark from SecuraComm Pennsylvania, or (3) license the name from SecuraComm Pennsylvania. Thes e negotiations continued for approximately one and on e-half years until Libengood set a deadline of the end of 1994.

In November 1994, Libengood asked Thomas to share i n the cost for appraising the Securacom mark. Thomas did not respond, and Libengood then went forward on his own. The appraiser estimated that the value of SecuraCom m Pennsylvania's mark, together with the cost of chan ging its name, was $275,000. Libengood provided this apprais al to Thomas in May 1995.

In June 1995, Libengood informed Thomas that, since he had received no response from Securacom New Jersey, he would institute legal proceedings after 30 days. Af ter some time, Thomas informed Libengood that he would have to deal with Walker, then the chairman of the board of Securacom New Jersey. When Libengood spoke with Walker, Walker became abusive and told Libengood th at if he filed suit Walker would bury him financially and take everything he had.

Libengood filed suit against Securacom New Jersey i n October 1995, alleging (1) service mark infringemen t, in violation of the Lanham Act, 15 U.S.C. S 1125; (2) false designation of origin, false description, and unfai r competition, in violation of the Lanham Act, 15 U.S .C. S 1125; (3) common law infringement and unfair competition; and (4) appropriation of name, good wi ll, and reputation, in violation of N.J.S.A. S 56:4-1, 2. I n November 1995, Securacom New Jersey filed an answer and a th irdparty complaint against Libengood, and in December 1995, Libengood filed a third-party answer, defenses, and thirdparty counterclaims. These counterclaims included t he

5same four causes of action that SecuraComm Pennsylv ania

had asserted, plus a fifth count for libel.

At the same time, Securacom New Jersey's directors signed a document stating that Libengood's suit was meritless. The document specifically stated that Li bengood was attempting to extort a payment of $275,000 from Securacom New Jersey. In November 1995, Walker sign ed a letter directing Securacom New Jersey's attorneys (1) to seek summary judgment and Rule 11 sanctions against Libengood and his attorneys; (2) to file suit again st Libengood and his attorneys for extortion and RICO violations; and (3) to file complaints with various bar associations against Libengood's attorneys for unet hical behavior in filing suit against Securacom New Jerse y. Walker sent a copy of this letter to Libengood and his
attorneys.

Securacom New Jersey's attorneys filed suit against Libengood and his attorney in New Jersey Superior C ourt in April 1996. This suit was removed to federal court and consolidated with Libengood's trademark infringemen t case,
and the District Court dismissed the suit as frivol ous. Securacom New Jersey also filed a service mark infringement suit against SecuraComm Pennsylvania i n the District of Columbia Superior Court, but the Distri ct Court in New Jersey enjoined that action. Finally, the Di strict Court stayed Securacom New Jersey's petition to can cel Libengood's trademark.

In May 1996, SecuraComm Pennsylvania and Libengood amended their complaints to add KuwAm Corporation a nd Walker as defendants. In July 1996, SecuraComm Pennsylvania added a libel count to its complaint. In August 1996, the new defendants filed an amended an swer, counterclaims, and a third-party complaint. In addi tion to alleging various Lanham Act violations against SecuraComm Pennsylvania, the third-party complaint requested cancellation of Libengood's trademark registration if such registration occurred.

In October 1997, this case was tried before the Dis trict Court. At the close of trial, the Court enjoined Se curacom New Jersey's use of the word "Securacom." The Court found

6that confusion was likely because of the slight dif ference

between the companies' businesses, 984 F. Supp. at 298- 301, and the Court noted that this confusion was particularly problematic because it was crucial to SecuraComm Pennsylvania's business that it refrain from providing the integrated services that Securacom Ne w Jersey furnished to its clients. Id. at 295-96. The Court also
found that actual confusion had occurred on occasio n and that the confusion had prejudiced SecuraComm Pennsylvania. Id. at 296. In addition, the Court ex tensively quoted Walker's unfavorable opinions about the civi l justice system. Id. at 291, 293, 293-94, 295.

The District Court declined to enter an amount of compensatory damages because, while it was likely, according to the District Court, that SecuraComm Pennsylvania had suffered damages, the damages "[co uld] [ ]not be measured with reasonable precision." Id. at 303. Then, after finding that an award of Securacom New Jersey's profits was necessary to "deter[ ] . . . t he kind of conduct in which all three defendants . . . engaged ," the District Court awarded the plaintiffs 10% of Secura com New Jersey's gross profits. 984 F. Supp. at 303. Th e Court trebled this amount based on the "egregious circumstances" of the case. Id. Finally, the Court awarded attorneys' fees on the ground that Securacom New Je rsey's conduct showed bad faith, fraud, malice, and knowin g infringement. Id. The defendants appealed.

II.

In this appeal, Securacom New Jersey does not eithe r challenge the District Court's finding of infringem ent or the order of injunctive relief. However, Securacom New Jersey strongly contests the District Court's finding that the infringement was willful. In addition, Securacom Ne w Jersey challenges (a) the District Court's award of profits, which was based in large part on the finding of wil lful infringement, (b) the trebling of the award of prof its, and (c) the award of attorney's fees. Securacom New Jersey also argues that Libengood did not have national tradema rk rights and that, therefore, the figures the Distric t Court used to calculate profits were too large. We agree with

7Securacom New Jersey that the record does not suppo rt a

finding of willful infringement, and we therefore r everse the award of profits, the trebling of the award of prof its, and the order awarding attorneys' fees. We remand the i ssue of the attorneys' fees to the District Court for furth er consideration.

Section 35 of the Lanham Act, 15 U.S.C. S 1117 prov ides:

When a violation of any right of the registr ant of a mark registered in the Patent and Trademark Office, or a violation under section 43(a), shall have been established in any civil action arising unde r this Act, the plaintiff shall be entitled, subject to the provisions of sections 29 and 32 and subject to the pri nciples 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 prof its or cause
the same to be assessed under its direction. In assessing profits the plaintiff shall be req uired to prove defendant's sales only; defendant must prove all
elements of cost of reduction claimed. In as sessing damages the court may enter judgment, accord ing to the circumstances of the case, for any sum a bove the amount found as actual damages, not exceedin g three
times such amount. If the court shall find t hat the amount of recovery based on profits is eithe r inadequate or excessive the court may in its discretion enter judgment for such sum as the court sha ll find to be just, according to the circumstances of t he case.
Such sum in either of the above circumstance s shall constitute compensation and not a penalty. T he court in exceptional cases may award reasonable at torney fees to the prevailing party.

Though the standards for (1) awarding profits; (2) determining whether such an award should be enhance d; and (3) awarding attorneys' fees under the Lanham A ct differ somewhat, the issue of willful infringement is central to each. See ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 968 (D.C. Cir. 1990) ("an award based on defendant's profits requires proof that the defenda nt acted willfully or in bad faith"); 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition S 30.91 at 30- 148

8n.6 (4th Ed. 1996) (willful infringement provides u sual

basis for enhancing profits award) (collecting case s); Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2d 44, 47 (3d Cir. 1991) (showing of bad faith, fraud, malice or willf ulness necessary for award of attorneys' fees).1 Therefor e, we will first address the District Court's finding that Sec uracom New Jersey willfully infringed SecuraComm Pennsylva nia's

mark.

A. Willful Infringement

Knowing or willful infringement consists of more th an the accidental encroachment of another's rights. It inv olves an intent to infringe or a deliberate disregard of a m ark holder's rights. The Second Circuit has aptly descr ibed willful infringement as involving "an aura of indif ference to plaintiff's rights" or a "deliberate[ ] and unneces sar[y] duplicating [of a] plaintiff's mark . . . in a way that was calculated to appropriate or otherwise benefit from the good will the plaintiff had nurtured." W.E. Bassett Co. v. Revlon, Inc., 435 F.2d 656, 662 (2d Cir. 1970) (citation om itted); see also Rolex Watch USA, Inc. v. Meece, 158 F.3d 816, 823 (5th Cir. 1998) ("willful infringement carries a co nnotation of deliberate intent to deceive.") (quoting Lindy P en Co. v. Bic Pen Corp., 982 F.2d 1400, 1405 (9th Cir.), cert . denied, 510 U.S. 815 (1993)). We agree with Securacom New J ersey

___________________________________________________ ______________

1. Willful infringement has a central role in the a vailability of each of
these kinds of relief because of the relevance of e quitable factors in determining their appropriateness on a given set of facts. See 15 U.S.C. S 1117 (1994) (collection of defendant's profits an d award of enhanced damages "subject to principles of equity"); Champio n Spark Plug Co. v. Sanders, 331 U.S. 125, 131 (1947) (denying accounti ng of defendant's profits based on "equities of the case"); BASF Corp . v. Old World Trading Co., Inc., 41 F.3d 1081, 1096 (7th Cir. 1993) (disc ussing availability of enhanced damages under heading "equitable remedies" ); Rolex Watch USA, Inc. v. Meece, 158 F.3d 818, 826 (5th Cir. 199 8) (award of enhanced damages limited by "equitable consideratio ns"); Levi Strauss & Co. v. Shilon, 121 F.3d 1309, 1314 (9th Cir. 1997) (citing to 15 U.S.C. S 1117(b) (court may award attorney fees in"excepti onal cases") and noting that "equitable considerations" limit award of attorney fees).

9that the record in this case cannot support a findi ng of

willful infringement.2

First, we are constrained to conclude that the Dist rict
Court committed clear error when it found that "Wal ker and the company he dominated . . . knowingly infrin ged [SecuraComm Pennsylvania's] mark . . .[f]or years b efore this action was commenced." 984 F. Supp. at 303-04.
There is no direct evidence in the record that Secu racom New Jersey knew about Libengood and his small firm before Libengood's cease and desist letter was sent in 1993. Thomas testified that he first learned about Libeng ood and his company at that time, and no direct evidence to the contrary has been called to our attention. Moreover , there is no circumstantial evidence from which it may rea sonably be inferred that Securacom New Jersey learned about SecuraComm Pennsylvania prior to the cease and desi st letter. It is true that Cassetta knew about Libengo od and his company in 1987, but it is unreasonable under t he circumstances to infer that Cassetta passed on this information to Securacom New Jersey's new managemen t either directly or indirectly.

It is apparent that in 1987 neither Cassetta nor Libengood attached much significance to the similar ities in the companies' names. Cassetta expressed the opinio n that this similarity would not cause problems because hi s company's name included the name of the large firm "Burns & Roe" and because the companies worked in unrelated areas. It is telling that Libengood made no complaint about Cassetta's company for the next six years. Cassetta's attitude and Libengood's inaction strong ly suggest that neither man thought that the matter wa s important. Thus, until at least 1992, Securacom New

___________________________________________________ ______________

2. We review the District Court's finding of willfu l infringement for

clear error. See ISCYRA v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 752 (2d Cir. 1996); Ferrero U.S.A., Inc. v. Ozak Trading, I nc., 952 F.2d 44, 48 (3d Cir. 1991). Under this standard, a finding is"clear ly erroneous when the reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed." Newa rk Branch, NAACP v. City of Bayonne, 134 F.3d 113, 120 (3d Cir. 1997 ). We do not review the evidence de novo, but we do consider whether th ere is enough evidence in the record to support the District Cour t's factual findings.

Id.

10Jersey reasonably believed the use of the Securacom mark did not infringe, and "[i]nfringement is not willfu l if the defendant might have reasonably thought that its pr oposed usage was not barred by the statute." Blockbuster V ideos, Inc. v. City of Tempe, 141 F.3d 1295, 1300 (9th Cir . 1998) (internal quotation omitted).

The similarity in the companies' names became potentially more significant in 1992. At that time, Libengood changed the name of his company from "SecuraComm Associates" to "SecuraComm Consulting Inc." and expanded its client base. There is no evi dence, however, that Cassetta or anyone else at Securacom New Jersey took notice of these changes. Also in 1992," Burns & Roe Securacomm" changed its name to "Securacom In c.," and the company expanded its business into new fiel ds,

but these events occurred after Cassetta left. Cass etta was fired two days after Thomas took over, and there is nothing to suggest that during these final two days Cassett a told Thomas or anyone else who remained with the firm ab out Libengood and his company -- a matter that, as note d, had not previously been regarded as troublesome. Under these circumstances, we see no reasonable basis for infer ring that Cassetta directly or indirectly informed Securacom New Jersey's management about Libengood and his company

.

Relying upon the general principle that the knowled ge of a corporate officer is imputed to the corporation, the plaintiffs argue that Cassetta's knowledge of the e xistence of SecuraComm Pennsylvania should be imputed to Securacom New Jersey and that therefore Securacom N ew Jersey's use of its mark after the critical events of 1992 cannot be regarded as having been done in good fait h. We reject this argument because we find it inconsisten t with the equitable principles that make the question of willfulness important. Whether Securacom New Jersey engaged in willful infringement is significant beca use courts, looking to "the principles of equity," 15 U .S.C. S 1117, have held that a finding of willfulness or bad faith is important in determining whether to award profit s, enhance damages, and award attorney fees. See page 7, supra. Under the circumstances here, plaintiffs' ar gument regarding imputed knowledge is inconsistent with th e

11equitable basis of these doctrines. As we have note d,

neither Cassetta nor Libengood seemed concerned abo ut the similarity between the names of their two compa nies when Cassetta's company was called "Burns & Roe Securacom" and the companies served different clien teles. As of the date of Cassetta's termination, neither o f these factors had changed. The plaintiffs would have us c ombine what Cassetta knew (but, as far as the record shows , never passed on to the new management that fired him) wit h what new management subsequently knew regarding the company's change in name and range of services. The plaintiffs cite no direct supporting authority for this argument, and we find it inequitable under the circumstances present here.

Second, we conclude that Securacom New Jersey's fai lure
to conduct a trademark search is not sufficient to support the finding of willful infringement. In Tommy Hilfi ger, U.S.A., Inc., 80 F.3d 749 (2d Cir. 1996), the Secon d Circuit stated that an alleged infringer's failure to condu ct a full trademark search after its attorneys advise that su ch a search is warranted may evidence willful ignorance akin to willful infringement. But the Second Circuit emphas ized in that case that the infringer's attorneys had specif ically
advised it to conduct a full search and that the in fringer was aware when it adopted the mark that it was copy ing "authentic details" from the plaintiff's design. Id . at 753. In the present case, by contrast, SecuraComm Pennsylva nia did not establish that Securacom New Jersey knew th at it was copying SecuraComm's name. Similarly, there was no evidence that Securacom New Jersey's attorneys had
advised Securacom to conduct a full trademark searc h. In the absence of these key details, it is unreasonabl e to conclude that Securacom New Jersey's failure to con duct a trademark search established willful ignorance akin to willful infringement. Rather, as far as the record reflects, Securacom New Jersey's failure to conduct a search was at most careless. See Fisons Horticulture, Inc. v. Vig oro Indus., Inc., 30 F.3d 466, 480 (3d Cir. 1994); Interpace Co rp. v. Lapp, Inc., 721 F.2d 460, 463 (3d Cir. 1993). And
carelessness is not the same as deliberate indiffer ence with respect to another's rights in a mark or a calculat ed attempt to benefit from another's goodwill. See W.E

.

12Bassett, 435 F.2d at 662. Therefore, Securacom New

Jersey's failure to conduct a trademark search is s ufficient to establish that its infringement was willful or i ntentional.

Third, Securacom New Jersey's failure to stop its u se of the Securacomm mark after receiving Libengood's cea se and desist letter does not demonstrate willful infr ingement. A defendant's refusal to cease using a mark upon de mand is not necessarily indicative of bad faith. Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 962 (7th Cir. 1992), cert. denied, 507 U.S. 1042 (1993). This is particularly true when the trademark at issue is no t registered. Charles Jacquin Et Cie, Inc. v. Destile ria Serralles, Inc., 921 F.2d 467, 472 (3d Cir. 1990). When Libengood sent the cease and desist letter, he did not have a federally registered mark. Libengood instructed Securacom New Jersey to cease using the Securacomm mark in early 1993, only ten days after he firstfil ed to register his mark. The registration was not complet e until May 20, 1997. In addition, since Securacom New Jers ey had already been denied a trademark registration fo r the word "Securacom" because two other companies had attempted to register similar words, Securacom New Jersey had a reasonable ground for believing that SecuraCo mm Pennsylvania would also be unable to obtain federal registration in the name "Securacomm."

In addition to the absence of a federally registere d trademark, Securacom New Jersey had other reasons t o believe that it had a legal right to use Securacom. First, Securacom New Jersey had a reasonable basis for concluding that Libengood did not have nationwide trademark rights in the mark due to the localized n ature of his business. Additionally, Securacom New Jersey ha d a plausible basis for believing that its use of its n ame was not likely to cause confusion. As a result, Securacom N ew Jersey's failure to stop using the Securacomm mark after receiving Libengood's cease and desist letter does not support a finding of willful infringement.

Finally, we agree with SecuraComm Pennsylvania that neither Walker's views regarding the civil justice system nor Securacom New Jersey's litigation tactics support t he finding that Securacom New Jersey willfully infring ed upon

13Libengood's Securacomm mark. See SecuraComm

Pennsylvania's Br. at 21 n. 6. There are other, app ropriate remedies for abusive litigation tactics. Viewing al l of the evidence together, we conclude that the record is insufficient to show that Securacom New Jersey will fully infringed upon SecuraComm Pennsylvania's mark and t hat the District Court's contrary finding was clearly e rroneous.

B. Defendant's Profits3

Securacom New Jersey argues that the District Court abused its discretion when it awarded a portion of Securacom New Jersey's profits to SecuraComm Pennsylvania and then trebled this award.4 The Dis trict

Court concluded that an award of 10% of Securacom N ew Jersey's profits for the years in question was appr opriate to deter a willful infringer such as Securacom New Jer sey from such acts in the future. 984 F. Supp. at 303. The District Court then trebled the damages because of the "egregious circumstances of this case." Id.

Since the evidence does not support a finding that Securacom New Jersey willfully infringed Libengood' s trademark rights, we conclude that the award of pro fits was not appropriate in the present case. The Lanham Act permits courts to award monetary damages to tradema rk owners as compensation where it is equitable to do so regardless of the willfulness of the defendant's

___________________________________________________ ______________

3. When we refer to the District Court's award of p rofits in this case, we refer to its award of the defendant corporation's p rofits, in distinction

to an award of plaintiff's lost profits. The District Court awarded defendant's profits not plaintiff's profits. See 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition S 30. 57 at 30-95 (noting "semantic confusion" in opinions discussing monetar y recovery under S 1117: "the word profits is often used without rev ealing whose profits -- plaintiff's or infringer's -- are being discussed")

.

4. The District Court, at one time, described this award as a "royalty" without engaging in the analysis required to grant such an award. See A&H Sportswear Co. v. Victoria's Secret Stores, Inc ., 967 F. Supp. 1457, 1479 (E.D. Pa. 1997). Both parties agree that the D istrict Court's use of the word "royalty" was likely a shorthand descripti on of Securacom New Jersey's profits. See Securacom New Jersey's Br. at 37; SecuraComm Pennsylvania's Br. at 30 n.10.

14infringement. See 5 J. Thomas McCarthy, McCarthy on

Trademarks and Unfair Competition S 30.75 at 30-128 (4th Ed. 1996) ("Unlike recovery of defendant's profits, attorney fees and treble damages, no wrongful intent or stat e of mind is needed for the recovery of actual damages [ under 15 U.S.C. S 1117(a).]"). In this case, however, the District Court awarded profits to deter defendant's asserted ly egregious misconduct; a plaintiff must prove that a n infringer acted willfully before the infringer's pr ofits are recoverable. George Basch Co. v. Blue Corral, Inc., 968 F.2d 1532, 1537 (2d Cir.), cert. denied, 506 U.S. 991 (1 992); see also, 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition S 30:62, at 30-102 (4th ed. 1996 ).

Once monetary damages have been awarded, the Lanham Act permits courts, under certain circumstances, to enhance the damages. 15 U.S.C. S 1117(a) (1994); se e also 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, S 30:90 at 30-146 (4th Ed. 1996 ) Since the evidence at trial did not support a finding of willful infringement, the award of profits was not warrante d, and trebling the damages was likewise inappropriate. Se e Caesar's World, Inc. v. Venus Lounge, Inc., 520 F.2 d 269, 273 (3d Cir. 1995) (holding that enhanced damages a ward was inappropriate where no evidence of actual damag es was adduced; "[t]hree times zero is zero."). We the refore reverse the award of profits and treble profits.5

C. Attorneys' Fees

Securacom New Jersey contends that the District Cou rt improperly exercised its discretion in awarding att orneys' fees.6 The Lanham Act provides that a court may awa rd reasonable attorneys' fees to the prevailing party when

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5. Securacom New Jersey argues that the District Co urt erred in awarding profits based on its national profits beca use Libengood did not have national trademark rights prior to the federal registration of his mark on May 20, 1997. Because we conclude that prof its were not properly awarded in the present case, we need not r each this issue.

6. The Lanham Act gives the District Court the disc retionary power to award attorneys' fees. 15 U.S.C. S 1117(a) (1994). We review the district court's award of attorneys' fees for abuse of discr etion. Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2d 44, 48 (3d Cir . 1991).

15"exceptional circumstances" exist. 15 U.S.C.S 1117( a). Our

Court has interpreted "exceptional circumstances" t o include culpable conduct on the part of the losing party, such as bad faith, fraud, malice or knowing infring ement. Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2 d 44, 47 (3d Cir. 1991). In this case, the District Court aw arded attorneys' fees to SecuraComm Pennsylvania because Securacom New Jersey exhibited bad faith, fraud, ma lice, and knowing infringement. 984 F. Supp. at 303-04. S ince the District Court's finding of willful infringemen t appears to be a substantial basis for the award of attorney s' fees, we are required to reverse and remand on the issue of whether exceptional circumstances, other than willful infri ngement, exist warranting an attorneys' fees award.

III.

Because the evidence in the record does not support the finding of willful infringement, we reverse the awa rd of profits and attorneys' fees. We remand the issue of attorneys' fees for further consideration.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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