Court Opinion

ID: 9496640
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:31:28.178821+00
Date Added: 2024-06-11T17:57:41.985623
License: Public Domain

ROSENN, Circuit Judge,
dissenting.
The District Court erred in denying the plaintiff injunctive relief on the ground that Gucci had not sustained irreparable injury. The undisputed infringement of Gucci’s undisputed trademark constituted a prima facie case of irreparable injury as a matter of law. Indeed, this court has held that “trademark infringement amounts to irreparable injury as a matter of law.” S & R Corp. v. Jiffy Lube Int’l, Inc., 968 F.2d 371, 378 (3d Cir.1992). The District Court committed further error in denying Gucci the undisputed profits that Daffy’s realized in the sale of bags under Gucci’s trademark on the ground that Daffy’s did not infringe willfully. The court relied on SecuraComm Consulting, Inc. v. Securacom, Inc., 166 F.3d 182 (3d Cir.1999), which is not a counterfeiting case and is no longer binding precedent in light of subsequent statutory amendments.
*244In considering the trade-mark statute as enacted in 1946, the Senate Committee on Patents reported:
Trade-marks encourage the maintenance of quality by securing to the producer the benefit of the good reputation which excellence creates. To protect trademarks, therefore, is to protect the public from deceit, to foster fair competition, and to secure to the business community the advantages of reputation and good will by preventing their diversion from those who have created them to those who have not.
S.Rep. No. 79-1333, at 1275 (1946).
The District Court ignored the purpose of the trade-mark statute to protect the public from deceit and secure to the business community the advantages of its good name and reputation. It left the purchasers of 588 highly expensive counterfeit bags without any relief or even notice that the bags they were carrying were not genuine. The court’s decision does nothing to discourage trade-mark infringement but rewards a party to the deceit by allowing it to retain all of the profits obtained by the use of the producer’s good name and reputation. Moreover, the court denies the innocent trademark owner an injunction against future infringement and a recall of the spurious goods sold under the producer’s trade-mark and good name. Because the majority affirms that decision, I respectfully dissent.
I.
The majority concludes that Gucci America’s (Gucci’s) request for a recall of the 588 counterfeit handbags sold under the Gucci name shall be denied because the District Court’s findings of the difficulties to be encountered with such a remedy were not clearly erroneous. Such a denial, therefore, adds considerable weight to Gucci’s claim that Daffy’s, the defendant, should be required to disgorge the profits it made in trading on the Gucci name and reputation. This is not an unreasonable request and the least that a court should do to repair the damage to the innocent owner of the trademark.
Daffy’s business specializes in selling popular goods at discount prices. It operates a business which, as characterized by the District Court, involves considerable risk. As the District Court observed in denying Gucci’s motion for an order compelling Daffy’s to recall the counterfeit “Jackie-O” handbags, its business “is clearly not a business for the fainthearted, and Daffy’s buyers are constantly aware that any given batch of branded goods offered to them might be counterfeit. If Daffy’s buyers are “constantly aware” of the risk that the goods they purchase are counterfeit, how much more so must be Daffy’s, the seller. This observation, without more — and there is much more to which I refer below — seriously weakens Daffy’s claims of innocence and favors Gucci’s claims for relief. Daffy’s did not acquire the counterfeit bags directly from Gucci or through the normal chain of distribution. It purchased them without any supporting documentation from a middleman, Sara’s Collections. Therefore, it knew that the nature of its business involved the risk of selling counterfeit or stolen merchandise.
Even though Daffy’s knew of these possibilities, it perfunctorily “attempted to authenticate the bags” by taking one to a clerk at a Gucci outlet store in Secaucus, New Jersey. This was simply a superficial effort to cover itself in the event of a lawsuit. Daffy’s did not take the bag to the store manager or to someone in authority in the Gucci organization who was familiar with the construction of the bag. It satisfied its concern by asking some unknown retail clerk of unknown experi*245ence, of unknown authority, and with unknown familiarity with the intricacies of bag construction, to confirm the authenticity of the bag. It also sent a damaged bag to the Gucci repair center without any specific inquiry as to the authenticity of the bag.
The District Court found that Daffy’s unintentionally sold counterfeit bags. However, as between a sophisticated chain of discount stores in the high risk business of selling products acquired outside the customary chain of retail distribution and without the usual authenticating documentation and an innocent infringed, the District Court rewarded the “unintentional” infringer with all the profits derived from the sale of counterfeit bags under Gucci’s famed good name. The Court has favored and enriched the infringer and left the innocent and innovative creator of a famous product and trademark owner without any remedy whatsoever. Moreover, the court has denied protection against future infringement. Furthermore, it has inverted the objective of the Lanham Act. “Protection of infringers is not a purpose of the Lanham Act. On the contrary, the Act’s objective is the protection of the trademark and the public.” United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134, 142 (3d Cir.1981).
Daffy’s unjustly enriched itself at Gucci’s expense and reputation. During the summer of 2000, Daffy’s sold approximately 588" of the 594 Jackie-0 handbags at prices ranging from $298.99 to $398.99, depending on size. These prices were far higher than the prices of the handbags Daffy’s normally sells. Daffy’s gained $195,000, including stipulated gross profits of $51,064.12. Daffy’s generally sells $40 handbags and has sometimes sold handbags from other Italian designers for $100-$200. Daffy’s acknowledged that the Gucci bags were “in a league of their own,” on a different level from what they normally would sell.
The District Court held that this Court’s precedent in SecuraComm Consulting, Inc. v. Securacom, Inc., 166 F.3d 182 (3d Cir.1999), required a showing of willful infringement in all trademark cases as a prerequisite to an award of profits. (Dist. Ct. op. at A 21.) Securacom held that “a plaintiff must prove that an infringer acted willfully before the infringer’s profits are recoverable.” Securacom, 166 F.3d at 187. Willful infringement involves an intent to infringe or willful infringement of a trademark holder’s rights. Id.
Securacom is no longer binding precedent because it has been superceded by subsequent statutory amendments to the Lanham Act. Willful infringement is not a prerequisite in all trademark cases for an award of profits. There is no longer an absolute willfulness requirement under Section 43(a) of the Lanham Act except for dilution claims. The Trademark Amendment Act of 1999, Pub.L. No. 106-43, 113 Stat. 219 (1999), replaced “or a violation under section 43(a)” with “a violation ... under section 43(a), (c) or (d), or a willful violation under section 43(c).... ” 15 U.S.C. § 1117(a). Under the new standard, I submit that the District Court erred in declining to allow Gucci to recover Daffy’s profits pursuant to 15 U.S.C. § 1117(a). The specific inclusion of the word “willful” prior to “violation” in the same sentence with the word “violation” without any adjective suggests an intentional contrast between the requirements for proving each type of violation. This is the interpretation adopted by the Fifth Circuit Court of Appeals, the only Court of Appeals that has considered this issue since the statute’s amendment. See Quick Techs., Inc. v. Sage Group PLC, 313 F.3d 338, 348-49 (5th Cir.2002) (declining to adopt bright-line willfulness requirement *246and describing pre-1999 cases as of limited utility).1 Even in Securacom, this court recognized that willfulness was not an absolute requisite to an accounting for profits by an infringer. We stated: “The Lan-ham Act permits courts to award monetary damages to trademark owners as compensation where it is equitable to do so regardless of the willfulness of the defendant’s infringement.” 166 F.3d at 190.
An equitable remedy generally does not require willfulness, bad faith, or even wrongdoing. Instead, the question is whether the property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest. Here, Daffy’s concedes that the sales of counterfeit Gucci bags netted $51,064. It cannot be seriously doubted that customers paid a premium for the Gucci name. The Seventh Circuit Court of Appeals has explained that “[a]s between the innocent infringer who seeks to get off scot-free, and the innocent infringed ... the stronger equity is with the innocent infringed.” Louis Vuitton S.A. v. Lee, 875 F.2d 584, 589 (7th Cir.1989). This remedy is particularly appropriate here, where the infringer understood the risks, but made only a feeble and perfunctory effort to ascertain whether the bags were authentic. On balance, the equities favor Gucci.
An accounting of profits may be seen as a rough estimate of Gucci’s lost sales. Congress did not put upon the “despoiled” the often impossible burden of showing that “but for the defendant’s unlawful use of the mark, particular customers would have purchased the plaintiffs goods.” Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 206, 62 S.Ct. 1022, 86 L.Ed. 1381 (1942). An accounting of profits functions as a rough measure of damages, including less tangible damages such as injury to reputation. See Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145, 149 (4th Cir.1987). An award of the infringer’s profits seeks to make the trademark owner whole for losses sustained by the plaintiff as a result of infringer’s use of *247something that did not belong to him. See Mishawaka, 316 U.S. at 206, 62 S.Ct. 1022.
The majority denies disgorgement of profits by the infringer on two untenable grounds. First, the majority views Daffy’s as a victim of the counterfeiting, n. 16, p. 243, given Daffy’s initial inquiry to authenticate the genuineness of the bags. As pointed out above, that inquiry was feeble, superficial, perfunctory, and unsupported by any documentation. Second, the majority places an unreasonable and incredible burden upon the innocent trademark owner to prove that the infringer’s customers purchased these handbags because they were attracted by the Gucci mark.
Although the majority recognizes the concern that Daffy’s will be unjustly enriched unless it disgorges the profits reaped in the sale of Gucci counterfeit bags, it denies disgorgement because “the record does not establish that the infringer was enriched because of the owner’s mark.” The majority, without any supporting authority, places an untenable and virtually impossible burden upon the innocent trademark owner to prove that the purchasers of the bags “were attracted to the handbags because o/the owner’s mark,” as opposed to quality, price and appearance. This burden is very much greater than the burden the District Court rejected in denying Gucci’s motion for recall of the counterfeit bags. The purchasers were Daffy’s customers who had no contact with Gucci. Requiring the innocent trademark victim affirmatively to prove that the purchasers unknown to it “were attracted to the handbags because of the Gucci mark” is an argument that Daffy’s never raised in the District Court or on appeal. Adopting it totally turns trademark law on its head and ipse dixit places an impossible and unreasonable burden on the innocent trademark victim.
II.
Gucci is also entitled to an injunction to protect it from future unintentional infringement by Daffy’s. Although the District Court found that Daffy’s infringement was unintentional, there is still a danger that Daffy’s will harm Gucci in the future through an incident of unintentional infringement.
To determine whether an injunction is appropriate, the District Court considered four factors: (1) whether Gucci had shown actual success on the merits; (2) whether Gucci would be irreparably injured by the denial of injunctive relief; (3) whether granting a permanent injunction would result in even greater harm to Daffy’s; and (4) whether the injunction would be in the public interest. See Gucci V at 13 (citing Shields v. Zuccarini, 254 F.3d 476, 482 (3d Cir.2001)). However, the District Court improperly placed the burden of proof regarding future harm on Gucci rather than on Daffy’s. The District Court denied Gucci’s claim for a permanent injunction because Gucci failed to produce any evidence to support a finding that it would be irreparably injured by the denial of a permanent injunction. Gucci V at 13-14. The District Court failed to recognize that a trademark is a form of property and neither the trademark nor the infringement here are in dispute. To prove irreparable injury, the plaintiff must only make out a prima facie case showing of trademark infringement. S & R Corp. v. Jiffy Lube Int'l, Inc., 968 F.2d 371, 378 (3d Cir.1992)(“[T]rademark infringement amounts to irreparable injury as a matter of law.”); Basic Fun, Inc. v. X-Concepts, LLC, 157 F.Supp.2d 449, 457 (E.D.Pa.2001).
Although the majority acknowledges, as it must, that “trademark infringement amounts to irreparable injury as a matter *248of law,” it jumps to an inexplicable conclusion that Gucci’s failure to argue in the District Court that the “loss of control” over its trademarked goods by the infringement also amounts to a waiver of irreparable harm “for purposes of injunc-tive relief.” This holding incredibly transforms the “control of quality” argument asserted by Gucci in its contention that the District Court committed legal error in failing to order a recall of the counterfeit goods into a general waiver of irreparable harm “for purposes of injunctive relief.” Irreparable harm was and is a basic element of plaintiffs case from its inception. Implying a sub silentio waiver, as the majority does, of the fundamental legal principal that “trademark infringement amounts tO' irreparable injury” is highly unwarranted and imprudent.
Furthermore, even though the “control of quality” argument was not presented to the District Court in Gucci’s motion for recall relief, that failure should not have an adverse effect on its argument in this court, even on the recall issue. The recall issue as a form of relief is, as far as I can ascertain, a matter of first impression in this court. The argument is a legal one, requiring no additional evidence which might prejudice Daffy’s. Barring its consideration under these circumstances is harsh and contrary to the prudential stance that this court took in Ross v. Hotel Employees & Restaurant Employees Int’l Union, 266 F.3d 236, 242-43 (3d Cir.2001). In Ross, the court considered on appeal an argument not raised in the District Court. Writing for the court, Judge McKee reasoned that the appeal raised important implications for labor law and “a question of first impression in this circuit” and the District Court, as in this case, “was afforded the rare advantage of a fully developed record in analyzing the issue.” Id. at 243. The court, accordingly, considered the argument not raised before.
By proving infringement, Gucci proved irreparable injury as á matter of law. Upon proving irreparable injury, the burden shifted to Daffy’s to prove that the injury will not recur in the future. “[I]t is well established that the voluntary discontinuance of challenged activities by a defendant does not necessarily moot a lawsuit.” Lyons P’ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 800 (4th Cir.2001) (internal quotation marks omitted). “That rule is subject to the caveat that an injunction is unnecessary when there is no reasonable expectation that the wrong will be repeated.” Id. (citing United States v. W.T. Grant Co., 345 U.S. 629, 633, 73 S.Ct. 894, 97 L.Ed. 1303 (1953)) (emphasis in original)(internal quotation marks omitted). Daffy’s cannot show that its putative policy against selling infringed goods moots Gucci’s motion for an injunction. To show that an injunction is unnecessary and further proceedings are mooted by Daffy’s plans not to sell any more Gucci products, Daffy’s must meet its “heavy burden” of showing that future infringement is “practically speaking, nearly impossible.” Lyons P’ship, 243 F.3d at 800.
Daffy’s argues that it now has a policy of not buying any Gucci goods. It points out that if it does not buy any Gucci branded goods, it cannot even unintentionally infringe Gucci’s trademark. That is true as long as the policy lasts, but that is of little comfort to Gucci because Daffy’s has the ability to change the policy at any time. Moreover, Gucci argües that Daffy’s does not point to any evidence in the record in support of its -statement that it has adopted a policy never to sell Gucci goods in the future. Even now, Daffy’s has no policies or procedures to authenticate merchandise. In response to our question at oral argument, Daffy’s attorney would not stipulate that Daffy’s will never sell Gucci’s *249products. It merely claimed that its present policy is not to do so. No legal obligation prevents Daffy’s from changing its mind tomorrow and immediately resuming sales of purported Gucci products.
Daffy’s unwillingness to stipulate forebodes the possibility of future infringements, and once an infringement is shown, the trademark owner is not required to prove that the infringer is likely to infringe again. Hard Rock Café Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143, 1151 (7th Cir.1992); Basic Fun, Inc. v. X-Concepts, LLC., 157 F.Supp.2d at 457 (“If the infringers sincerely intended not to infringe, the injunction harms them little; if they do, it gives [the trademark owner] substantial protection of its trademark.”). Once infringement has 'been proven, a “heavy burden” falls on the infringer to demonstrate that there is no possibility of further recurrence of the infringement. Lyons P’ship, 243 F.3d at 800. The unwillingness of Daffy’s to stipulate that in the future it would not sell Gucci bags obviously inspires no confidence in its present policy.
Gucci did not seek an injunction as broad as the District Court actually considered — the prohibition of Daffy’s from ever using the Gucci trademark in the future. Gucci sought to enjoin Daffy’s only from future infringement “through sales of unauthorized goods and false advertising.” It was erroneous as a matter of law for the court to place the burden on Gucci to prove that trademark infringement would continue in the future. Shields v. Zuccarini, 254 F.3d 476, 482 (3d Cir.2001), merely identifies the four factors to be considered by the court in granting an injunction. Once an act of infringement is proven, federal courts do not require the plaintiff to show that the defendant is likely to infringe again in the future. Levi Strauss & Co. v. Shilon, 121 F.3d 1309, 1314 (9th Cir.1997)(any doubt regarding extent of injunctive relief “must be resolved in [the plaintiffs] favor as the innocent producer and against the [defendant]”); Basic Fun, Inc. v. X-Concepts, LLC, 157 F.Supp.2d at 457. Once an infringement is demonstrated, a “heavy burden” shifts to the defendant to prove that there is no possibility of future recurrence of the infringement. Lyons P’ship, 243 F.3d at 800. Daffy’s made no effort, beyond its non-binding policy, to prove that in the future it will not infringe upon Gucci’s trademarks through sales of counterfeits.
For the reasons set forth above, the denial of the injunction constituted reversible error.
III.
Accordingly, I submit that Daffy’s should not be allowed to reap the profits of its infringement and the judgment of the District Court with respect to it should be reversed. I also believe that the judgment of the District Court denying the permanent injunction enjoining future infringements of Gucci’s trademark, as well as attorneys’ fees and costs, should be reversed.

. In a recent study of remedies for trademark infringement reported in "Remedying Trademark Infringement: The Role of Bad Faith in Awarding an Accounting of Defendant's Profits,” author Danielle Conway-Jones notes that the remedies for dilution are distinguishable from the remedies for infringement; only a showing of willfulness under a claim for dilution will entitle the owner of a famous trademark to all of the Lanham Act remedies, including defendant's profits. The express requirement that a mark owner show a willful violation before perfecting his entitlement to Lanham Act remedies for dilution supports the premise that the theories of recovery underlying the remedies for trademark infringement, as opposed to trademark dilution, are not dependent upon the existence of a bad faith requirement. 42 Santa Clara L.Rev. 863 (2002).
Ms. Conway-Jones concludes:
Congress did not intend bad faith to be a requirement for an award of the remedy of an accounting of profits in response to cases of trademark infringement. As demonstrated by a review of the newest substantive additions to the Lanham Act — the FTCA and the ACPA — it is apparent that Congress had several opportunities to consider and include a bad faith requirement before permitting an award of an accounting of an infringer’s profits. With each opportunity, Congress remained silent on this issue. Taking the language surrounding the Lanham Act's remedy provision and reviewing the legislative history of the Trademark Act, the FTCA, and the ACPA, it is evident that the accounting of profits remedy is restricted to bad faith showings only when the cause of action pressed by the trademark owner is dilution or cybers-quatting. Nowhere in the language of the statute or the legislative history is there a requirement to show bad faith in trademark infringement actions before the accounting remedy can be awarded.
Id. at 924-25.