Opinion ID: 3034224
Heading Depth: 2
Heading Rank: 2

Heading: Damages, Attorney’s Fees, and Costs

Text: 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). IDAHO POTATO COMMISSION v. G&T TERMINAL 13935
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 § 221213 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 13936 IDAHO POTATO COMMISSION v. G&T TERMINAL 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
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. 6 G&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. IDAHO POTATO COMMISSION v. G&T TERMINAL 13937 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.
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. 13938 IDAHO POTATO COMMISSION v. G&T TERMINAL
IPC also argues that we can affirm the award as a civil penalty under Idaho Code § 22-1213. As discussed above, § 221213 does not authorize a court to impose the civil penalties it creates. We therefore cannot affirm the award as a § 221213 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.
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 IDAHO POTATO COMMISSION v. G&T TERMINAL 13939 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 13940 IDAHO POTATO COMMISSION v. G&T TERMINAL 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 IDAHO POTATO COMMISSION v. G&T TERMINAL 13941 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.
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 13942 IDAHO POTATO COMMISSION v. G&T TERMINAL 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 7 Although 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. 8 G&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. IDAHO POTATO COMMISSION v. G&T TERMINAL 13943 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.
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.