Court Opinion

ID: 3031108
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:45:25.084041+00
Date Added: 2024-06-11T07:37:46.401299
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

WATEC CO., LTD., a Japanese             
corporation,
                   Plaintiff-counter-
                defendant-Appellee,
                 v.
CHIA C. LIU, a resident of                   Nos. 03-55823
California esa Chia L. Liu; WATEC                 03-56079
COMPANY AMERICA, a Nevada
corporation esa Watec America
                                               D.C. No.
                                            CV-00-10893-FMC
Corporation,
               Defendants-counter-             OPINION
              claimants-Appellants,
GENWAC INC., a New York
Corporation,
                Counter-defendant-
                            Appellee.
                                        
        Appeal from the United States District Court
            for the Central District of California
      Florence Marie Cooper, District Judge, Presiding

                 Argued and Submitted
          November 1, 2004—Pasadena, California

                    Filed March 30, 2005

Before: Mary M. Schroeder, Chief Judge, Ronald M. Gould,
         and Richard R. Clifton, Circuit Judges.

                  Opinion by Judge Gould

                             3829
                      WATEC CO. v. LIU                    3833
                         COUNSEL

R. Joseph Trojan, Esq. and Jessica J. Slusser, Esq., Trojan
Law Offices, Beverly Hills, California, for the defendants-
counterclaimants-appellants.

C. “Keila” Nakasaka, Law Offices of Nakasaka, Los Angeles,
California, and Orlando F. Cabanday, Hennelly & Grossfeld
LLP, Pacific Palisades, California, for the plaintiff-
counterdefendant-appellee.

                         OPINION

GOULD, Circuit Judge:

   We must resolve issues arising from this trademark dispute
between the Japanese manufacturer Watec Company Limited
(“Watec Japan”) and its former distributor, Watec Company
America (“Watec America”). Watec America and its presi-
dent, Chia C. Liu, appeal the district court’s denial of their
motion for a new trial claiming that they are entitled to a new
trial because the district court’s denial of their mid-trial
motion for judgment as a matter of law had the effect of an
evidentiary ruling that barred them from presenting their
defense to Watec Japan’s trademark infringement claim.
Watec America and Liu also challenge the sufficiency of the
evidence supporting the jury’s verdict that they breached an
oral distribution agreement with Watec Japan and infringed
on Watec Japan’s trademarks. Additionally, Watec America
and Liu argue that the excessiveness of the jury’s original
trademark infringement damages award demonstrates that the
entire verdict was tainted by passion and prejudice. Finally,
Watec America and Liu contend that the district court erred
in determining that this was an “exceptional” case that war-
ranted an award of attorneys’ fees under the Lanham Act. We
have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm the
3834                  WATEC CO. v. LIU
district court’s denial of Watec America and Liu’s new trial
motion, and affirm the jury verdict and the judgment with
remittitur, but vacate and remand on the issue of attorneys’
fees.

                              I

  Appellee Watec Japan is a Japanese corporation that has
been in the business of manufacturing and selling compact
security cameras since 1987. Watec Japan has always used the
WATEC and WAT marks on its products. From 1988 to
March 1999, Watec Japan used an international distributor,
Nippon Engineering and Trading Company (“Netco”), to
assist its sale of cameras bearing the WATEC and WAT
marks in markets outside of Japan.

   Through early 1990, Watec Japan and Netco sent out thou-
sands of direct mail solicitations and sample cameras bearing
WATEC and WAT marks to potential American customers.
They also attended national trade shows where they displayed
cameras bearing the WATEC and WAT marks. There was
also evidence that American customers and potential custom-
ers placed orders and requested price quotes from Watec
Japan before June 1990.

   According to Watec Japan’s president Shigemi Igarashi,
Watec Japan decided to set up an American distributor in June
1990. Igarashi testified that Watec Japan entered into an oral
agreement with Chia Liu at Netco’s recommendation,
whereby Liu would form and operate Watec America as
Watec Japan’s exclusive distributor in the United States.
Watec Japan’s distributor for Mexico and Latin America
attested to the existence of this oral agreement.

  Watec Japan gave initial capital funding and a credit line,
and supplied cameras to Watec America and Liu. Fifty-one
percent of the shares in Watec America was received by
Watec Japan in exchange for its capital contribution. Igarashi
                      WATEC CO. v. LIU                   3835
also told the jury that one of the terms of the agreement was
that Watec America and Liu would receive a license to use
the WATEC and WAT marks for the purpose of selling
Watec Japan’s cameras.

   During the course of the parties’ relationship, Watec Amer-
ica and Liu held themselves out as representatives of Watec
Japan, and identified Watec Japan as the holder of the
WATEC and WAT trademarks in marketing materials. Watec
America registered the WATEC and WAT marks with the
United States Patent and Trademark Office in 1992 and 1993
respectively, and the marks have since become “incontest-
able” under 15 U.S.C. § 1065.

   In 1995, Liu entered a written agreement with Watec Japan
to purchase all of Watec Japan’s shares in Watec America.
Liu drafted the Stock Purchase Agreement which neither
mentioned the trademarks, nor purported to transfer anything
other than shares in Watec America to Liu.

   In 1998, Watec America and Liu began selling cameras
made by manufacturers other than Watec Japan, but still sold
them under the WATEC and WAT marks. Watec Japan
responded by asserting that these sales of non-Watec Japan
cameras violated the parties’ exclusive distributorship and
licensing agreements. Watec America and Liu refused to heed
Watec Japan’s request that they stop using the WATEC and
WAT marks on non-Watec Japan products. Consequently,
Watec Japan began to phase out sales of its cameras to Watec
America, and formed another company named Genwac to act
as its United States distributor. Finally Watec Japan stopped
supplying cameras to Watec America and Liu in March 2000,
and this litigation commenced when Watec Japan sued Watec
America and Liu in October 2000, inter alia, for breach of
contract and trademark infringement. Watec America and Liu
responded with counterclaims, including one for trademark
infringement.
3836                    WATEC CO. v. LIU
   Thus issue was joined in this commercial battle, and after
discovery and other proceedings the case went to trial before
a jury in February 2003. Pursuant to Federal Rule of Civil
Procedure 50 (“Rule 50”), Watec America and Liu filed a
motion for judgment as a matter of law (“JMOL”) on Watec
Japan’s trademark infringement claim after the close of Watec
Japan’s case-in-chief. The district court reserved ruling on
this JMOL motion, and Watec America and Liu began pre-
senting their defense. Three days into Watec America and
Liu’s defense presentation, however, the district court granted
their motion for JMOL on the trademark infringement claim,
and ruled that the only claim remaining on Watec Japan’s
complaint was the claim for breach of contract. Watec Japan
then made an argument for reinstatement of its trademark
claim, which the court took under consideration, and Watec
America and Liu continued with their defense. Once Watec
America and Liu completed their defense case, they began
presenting their case-in-chief on their trademark infringement
counterclaim. Watec Japan was in the middle of rebutting
Watec America and Liu’s counterclaim when the district court
excused the jury and informed the parties that the court was
reversing its grant of the JMOL motion and would allow
Watec Japan’s trademark infringement claim to go to the jury.
Watec Japan then requested and received a brief continuance
to assess the impact of the decision on its trademark claim.
Watec America and Liu made no such request and did not at
that time assert prejudice to their case arising from the district
court’s reversal of its position on the JMOL motion.

   Subsequently, in a conference held outside of the jury’s
presence, both sides summarized their remaining evidence for
the district court so that the court could estimate the amount
of time needed to conclude the trial. After the parties finished
presenting their evidence to the jury, the district court asked
each side if there was any additional evidence that they
wanted to present to the jury. At this point, Watec America
and Liu decided that they wanted to call one more witness,
which the court permitted them to do. After this additional
                          WATEC CO. v. LIU                          3837
witness concluded his testimony, the district court again asked
Watec America and Liu if they had further evidence to offer.
They responded “no”1 and both sides rested.

   The jury rejected Watec America and Liu’s trademark
claim against Watec Japan, and instead returned a $5.9 mil-
lion verdict in favor of Watec Japan on its breach of contract
and trademark infringement claims against Watec America
and Liu. The jury also found that Watec America’s infringe-
ment was intentional, and therefore that Watec Japan was
entitled to attorneys’ fees. The district court entered judgment
based on the jury verdict.

   After the verdict, Watec America and Liu filed motions for
a new trial, renewed JMOL motions, and a motion to amend
the judgment or for judgment notwithstanding the verdict.
The district court denied the renewed JMOL motions, but
ruled that Watec America and Liu would be entitled to a new
trial on the ground that the $5 million trademark infringement
damages award was excessive as a matter of law unless Watec
Japan agreed to a remittitur of damages. Watec Japan
accepted a remittitur reducing the $5 million trademark
infringement award to $2,156,590, and the district court then
entered an Amended Judgment reflecting the reduced award.
The district court later entered a separate order awarding
Watec Japan $289,612 in attorneys’ fees pursuant to 15
U.S.C. § 1117(a). This timely appeal of the Amended Judg-
ment followed.

                                   II

  We first address Watec America and Liu’s argument relat-
ing to the merits of the district court’s denial of their first
JMOL motion. Watec America and Liu waived their right to
  1
    After Watec America and Liu’s additional witness stepped down the
district court asked if there was any further evidence in surrebuttal, and
Watec America and Liu responded “No, Your Honor.”
3838                        WATEC CO. v. LIU
seek review of this denial by failing properly to argue it as a
specific assignment of error in their opening brief. Fed. R.
App. P. 28(a)(9)(A);2 Laboa v. Calderon, 224 F.3d 972, 980
n.6 (9th Cir. 2000) (“[W]e will not ordinarily consider matters
on appeal that are not specifically and distinctly argued in
appellant’s opening brief.”). The only argument in Watec
America and Liu’s opening brief about the district court’s
decision to deny their first motion for JMOL concerns the
effect of the decision, not its merits; Watec America and Liu
challenge the district court’s reversal of its prior grant of
JMOL solely on the ground that this decision allegedly denied
them the opportunity to present evidence on the claim that
they initially believed they had won as a matter of law.
Accordingly, we decline to reach the merits of the district
court’s first Rule 50 ruling.

                                     III

   We now consider whether the district court erred in deny-
ing Watec America and Liu’s motion for a new trial3 that was
based on their assertion that the district court’s denial of their
first JMOL motion had the effect of an evidentiary ruling that
barred them from presenting their defense to Watec Japan’s
trademark infringement claim.4

  Although Watec America and Liu press this argument
about exclusion of evidence, the record does not permit us to
  2
     Rule 28(a)(9)(A) states that an appellant’s brief must contain: “appel-
lant’s contentions and the reasons for them, with citations to the authori-
ties and parts of the record on which the appellant relies.”
   3
     We review a district court’s ruling on a motion for a new trial for abuse
of discretion. Janes v. Wal-Mart Stores Inc., 279 F.3d 883, 886 (9th Cir.
2002). Evidentiary rulings are similarly reviewed for abuse of discretion,
and an exclusion of evidence should not be reversed absent prejudice. Id.
   4
     Ruling from the bench the district court stated: “it seems to me there
are too many questions for the jury to say [that Watec Japan cannot estab-
lish trademark infringement] as a matter of law . . . . So I think this has
to go to a jury.”
                       WATEC CO. v. LIU                     3839
view the issues in the light they have presented. We are firmly
of the view that in the circumstances of this case, Watec
America and Liu cannot claim evidentiary error on appeal
because they did not offer evidence that the district court
excluded. More generally, it would be odd to think that a
party could claim evidentiary error on appeal if the district
court faced no tender of evidence that required an evidentiary
ruling.

   In Callan v. Great Northern Railway Co., 299 F.2d 908,
911 (9th Cir. 1961), we saw “no merit in appellant’s conten-
tion that the trial court erroneously refused to” admit certain
evidence where the appellant “voluntarily abandoned his offer
of proof” despite the trial judge’s clear indication that “he had
not yet made his mind up on the question of the admissibility
of” the evidence.

   To similar effect is our decision in Swinton v. Potomac
Corp., 270 F.3d 794, 809 (9th Cir. 2001), where we rejected
a challenge to a district court’s alleged “exclusion” of evi-
dence, because the record demonstrated that the evidence
“was never excluded by the court.” Instead, the record in that
case showed that the appellant’s counsel voluntarily aban-
doned all attempts to admit the evidence in the face of objec-
tions by opposing counsel even though the district court
expressly reserved ruling on the objections and told appel-
lant’s counsel to “[g]o ahead” and to “continue with th[e] wit-
ness.” Id.

   [1] As in Callan and Swinton, Watec America and Liu here
cannot challenge the district court’s reversal of its grant of
their first JMOL motion as if it were a ruling excluding their
evidence on trademark infringement. To the contrary the dis-
trict court repeatedly invited Watec America and Liu to alert
the court if they wanted to present more evidence to rebut
Watec Japan’s trademark infringement claim. Watec America
and Liu took advantage of these invitations to present evi-
dence, and then informed the trial court that they had no fur-
3840                        WATEC CO. v. LIU
ther evidence to present. Watec America and Liu “cannot now
complain of the exclusion of evidence when the district court
never actually excluded it.” Id.

   [2] The district court’s reversal of its position on the JMOL
did nothing more than to reinstate Watec Japan’s trademark
infringement claim, after which both sides had the same bur-
dens of proof as at the trial’s start.

                                    IV

   We next address Watec America and Liu’s challenge to the
sufficiency of the evidence supporting the jury’s determina-
tions and special verdict that an oral distributorship agreement
existed between the parties and that Liu was personally liable
on the contract.5

   On the issue whether an oral agreement to distribute cam-
eras existed, the trial boiled down to a contest of credibility
between Watec Japan’s witnesses and Liu, and the jury’s ver-
dict represents a finding of fact that cannot be altered by an
appellate court if sufficient evidence was presented on Watec
Japan’s victorious side. Such a situation is not uncommon in
contract disputes, and similar cases can be found in the prece-
dents.6 The sole question before us on the existence of an oral
contract is whether Watec Japan’s evidence was sufficient to
sustain the jury’s verdict, that is, whether reasonable minds
  5
     A jury’s verdict must be upheld if supported by substantial evidence.
Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002). Substantial evidence
is relevant evidence reasonable minds might accept as adequate to support
the jury’s conclusion, even if it is also possible to draw a contrary conclu-
sion. Three Boys Music Corp. v. Bolton, 212 F.3d 477, 482 (9th Cir.
2000). We will not “weigh the evidence or assess the credibility of wit-
nesses in determining whether substantial evidence exists.” Landes Con-
str. Co., Inc. v. Royal Bank of Can., 833 F.2d 1365, 1371 (9th Cir. 1987).
   6
     See, e.g., Landes Constr. Co., 833 F.2d at 1371 (“As this was a suit on
an oral contract, the trial consisted of little more than a swearing con-
test.”).
                           WATEC CO. v. LIU                           3841
might accept the evidence as adequate for the jury’s conclu-
sion.

   The jury was instructed that to find a contract it needed to
determine that there was evidence of (1) legal capacity to con-
tract; (2) mutual consent; (3) a lawful objective; and (4) suffi-
cient consideration. We now consider the sufficiency of
evidence in light of the applicable law as outlined in the jury
instructions on contract law.7

   With respect to the existence of the distributorship contract,
Watec Japan offered testimony of party witnesses confirming
both the formation of an oral agreement and its material
terms. Igarashi, president of Watec Japan, testified that he
entered into a distributorship agreement with Liu, and out-
lined the agreement’s “key terms.” Igarashi also testified as to
conduct of the parties consistent with the existence of such an
agreement; he testified that Watec Japan provided Watec
America and Liu with initial capital funding and a line of
credit, in addition to supplying them with cameras. Watec
Japan’s distributor for Mexico and Latin America at the trial
told the jury that he had repeatedly heard from Watec Japan
that Watec America and Liu had the same type of exclusive
distributorship as he did, except that their territory covered the
United States and Canada.

   This testimony was corroborated by non-party witnesses
who attested that they had interacted with Watec America in
its capacity as a distributor for Watec Japan. For example, a
former customer of Watec America, testified that “it was [his]
understanding that [Watec America was] the official distribu-
tor” for Watec Japan in the United States, based on Watec
America’s representations. Another Watec America customer
testified that it was his understanding that Watec America was
  7
   Watec America and Liu did not object to the pertinent instructions on
applicable contract law and we have no occasion here to review any issue
other than sufficiency of the evidence on the contract issues as instructed.
3842                    WATEC CO. v. LIU
the sole distributor for Watec Japan in the United States, and
that Watec America’s sales representative had led him to
believe that this was the case. Watec Japan also introduced in
evidence for the jury Watec America’s business cards, adver-
tisements, product brochures, and trade show banners, all of
which identified it “as a Division of Watec Co. Ltd.” and
Watec Japan as the holder of the WATEC and WAT trade-
marks. With respect to Liu’s personal liability on the distribu-
torship contract, Watec Japan offered Igarashi’s testimony
that he had contracted with Liu personally.

   [3] We hold that there is substantial evidence to support the
jury’s findings that an oral agreement existed between the
parties and that Liu entered into the agreement in his personal
capacity. The existence of some contradictory evidence in the
record does not alter our conclusion. Roy v. Volkswagen of
Am., Inc., 896 F.2d 1174, 1179 (9th Cir. 1990) (affirming jury
verdict despite “weighty evidence” to the contrary because
there was also evidence supporting the jury’s verdict and “[i]t
is the function of the jury as the traditional finder of the facts,
and not the Court, to weigh conflicting evidence and infer-
ences, and determine the credibility of witnesses”); Landes
Constr. Co., 833 F.2d at 1371 (affirming jury verdict even
though the record could arguably support different inferences
because the jury’s inference was a “reasonable” one). We
affirm the jury’s verdict on breach of contract.

                                V

   [4] Watec America and Liu also challenge the jury’s ver-
dict on trademark infringement, arguing that they are not lia-
ble to Watec Japan for infringement because Watec Japan did
not make the requisite showing to overcome Watec America’s
incontestable federal trademark rights to the WATEC and
WAT marks. Under 15 U.S.C. § 1065, a federally registered
trademark that is used continuously for five years becomes
“incontestable,” entitling the holder to an exclusive right to
use the mark that can only be defeated on specifically enu-
                          WATEC CO. v. LIU                         3843
merated grounds. Casual Corner Assocs., Inc. v. Casual
Stores of Nev., Inc., 493 F.2d 709, 711-12 (9th Cir. 1974).
One of the statutory exceptions to “incontestability” is set
forth in the introductory clause of § 1065, which provides that
a registration is not incontestable to the extent that it infringes
on another’s valid rights in the mark acquired under state law
by a use continuing from a date prior to the federal registra-
tion of the mark. 15 U.S.C. § 1065;8 Casual Corner, 493 F.2d
at 711.

   In Casual Corner we held that a litigant claiming § 1065
senior rights in a mark must show: (1) that his or her “use of
the mark began before its registration and publication”; and
(2) “that there has been continuing use since that time.” 493
F.2d at 712. Watec America and Liu challenge the jury’s find-
ing that they infringed on Watec Japan’s senior rights in the
WATEC and WAT marks on the grounds that there was
insufficient evidence of prior and continuing use.9

                                   A

   Watec America and Liu urge us to overturn the jury’s
trademark verdict on the basis that there was insufficient evi-
dence of market penetration in any state to support the jury’s
  8
   The precise language of this 15 U.S.C. § 1065 exception reads as fol-
lows:
    [E]xcept to the extent, if any, to which the use of a mark regis-
    tered on the principal register infringes a valid right acquired
    under the law of any State or Territory by use of a mark or trade
    name continuing from a date prior to the date of registration
    under this chapter of such registered mark, the right of the regis-
    trant to use such registered mark in commerce for the goods or
    services on or in connection with which such registered mark has
    been in continuous use for five consecutive years subsequent to
    the date of such registration and is still in use in commerce, shall
    be incontestable . . . .
  9
    We review the jury’s senior rights determination for substantial evi-
dence. See Pavao, 307 F.3d at 918.
3844                        WATEC CO. v. LIU
finding that Watec Japan acquired nationwide rights in the
WATEC and WAT marks under state common law10 before
they were registered by Watec America. The jury was
instructed that:

          A party claiming common law senior rights must
       demonstrate that it has sufficient market penetration
       in a specific locality or localities. Market penetration
       must consider such factors as the total dollar value
       of sales, the proportion or percentage of the
       common-law claimants’ sales of trademarked prod-
       ucts in relation to the market place in the locality in
       question. The actual doing of business rather than
       the mere use of a flyer or advertisement is required
       [f]or the establishment of common-law rights in any
       locality.

          Even if Watec Japan were to show common-law
       senior rights, any such senior rights constitute an
       exception to incontestability only in the proven mar-
       ket locale. Therefore, you must determine, if
       common-law senior rights are found, what market
       locale or locales, if any, Watec Japan has proven it
       penetrated prior to the date of registration.

We now consider the sufficiency of the evidence in light of
the applicable law as outlined in these jury instructions.11 The
dispositive question is whether reasonable minds might accept
  10
      It is undisputed that the only state law rights Watec Japan can assert
in the marks are those arising under state common law; Watec Japan can-
not assert state statutory rights in the marks because it never registered the
marks in any state.
   11
      We express no opinion on whether the jury was properly instructed on
the legal standard for establishing common law senior rights under the
“prior use” element of the Casual Corner test. Because Watec America
and Liu did not object to the district court’s senior rights instruction, we
have no occasion here to review any issue other than the sufficiency of the
evidence on this trademark claim element as instructed.
                      WATEC CO. v. LIU                   3845
the evidence as adequate for the jury’s conclusion. Three Boys
Music Corp., 212 F.3d at 482.

   Watec Japan presented many examples of direct mail
advertisements and brochures that it sent to potential custom-
ers across the United States in 1989, before Watec America
was formed, along with testimony from Watec Japan’s presi-
dent Igarashi that thousands of such letters were sent out at
that time. There was also testimony from Igarashi that Watec
Japan attended national trade shows where it displayed sam-
ple cameras bearing the disputed marks, and that Watec Japan
sent a few thousand sample cameras bearing the marks to
potential customers nationwide.

   [5] Watec Japan further submitted in evidence pre-1992 let-
ters from customers in Florida, New York, and Pennsylvania,
placing orders, requesting price quotes, and mentioning sam-
ple cameras that they had received or had seen at trade shows,
as well as prior purchases that they had made. Finally, the
president and owner of a company that resells Watec cameras
to local, state, and federal law enforcement agencies through-
out the United States testified that he began purchasing cam-
eras bearing the WATEC and WAT marks before June 1990.
Viewing this record in the light most favorable to Watec
Japan which won the favor of the jury’s verdict, we hold that
there is substantial evidence from which a jury could have
found that Watec Japan had acquired nationwide senior com-
mon law rights in the WATEC and WAT marks by marketing
cameras bearing the marks on a national scale, before Watec
America registered the marks in 1992 and 1993.

                              B

   [6] A person claiming senior rights in a trademark must
establish not only that he or she used the mark before the
mark was registered, but also that such use has continued to
the present. Casual Corner Assoc., 493 F.2d at 712. Watec
Japan argues that it can establish continuous use during the
3846                   WATEC CO. v. LIU
time between Watec America’s formation and Genwac’s for-
mation based on Watec America and Liu’s use because Watec
America and Liu were using the marks as Watec Japan’s
licensees during that time period.

   In cases involving a manufacturer and distributor in an
exclusive distributorship arrangement, courts typically look
first to any agreement between the parties regarding trade-
mark rights. Sengoku Works Ltd. v. RMC Int’l, Ltd., 96 F.3d
1217, 1220 (9th Cir. 1996). Here, Watec Japan contended and
the jury found that Watec Japan licensed Watec America and
Liu to use the WATEC and WAT marks, and that Watec
Japan did not transfer any rights in the marks to Liu when it
sold its shares of Watec America in 1995. Substantial evi-
dence supports the jury’s findings.

   [7] Igarashi testified that Watec Japan orally granted Watec
America a license to use the WATEC and WAT marks in its
capacity as Watec Japan’s exclusive distributor. Watec Japan
also offered various of Watec America and Liu’s own adver-
tisements stating that “WATEC, and WAT, are registered
trademarks for Watec Co., Ltd. (Tokyo, Japan),” and that
“Watec is a registered trademark of Watec Company, Limited
(Tokyo, Japan),” in support of its argument that Watec Amer-
ica and Liu were merely holding the United States trademark
registrations on behalf of Watec Japan. There is substantial
evidence to support the jury finding that the parties entered
into a licensing agreement.

   [8] There is also substantial evidence that Watec Japan did
not relinquish its rights in the disputed marks when it sold all
its shares in Watec America to Liu. Igarashi testified that the
terms of the parties’ original distributorship agreement were
to remain unchanged even following the sale. The Stock Pur-
chase Agreement drafted by Liu is consistent with this testi-
mony because it neither mentions the trademarks, nor
purports to transfer anything other than shares in Watec
America to Liu. We affirm the jury’s finding that the stock
                       WATEC CO. v. LIU                    3847
sale did not affect the parties’ licensing arrangement, and
affirm the jury’s verdict on trademark infringement.

                              VI

  We turn to Watec America and Liu’s arguments seeking a
new trial because of the jury’s assertedly excessive damage
awards for trademark infringement and breach of contract.

                               A

   [9] Watec America and Liu argue that the Supreme Court’s
decision in Minneapolis, St. Paul & Sault Ste. Marie Ry. Co.
v. Moquin, 283 U.S. 520 (1931), mandates a new trial because
the jury’s excessive trademark infringement damages award
demonstrates that the jury was acting under the influence of
passion and prejudice. It is well established that “no verdict
can be permitted to stand which is found to be in any degree
the result of appeals to passion and prejudice.” Id. at 521; see
also Pershing Park Villas Homeowners Ass’n v. United Pac.
Ins. Co., 219 F.3d 895, 905 (9th Cir. 2000) (“A new trial is
necessary where it is found that passion and prejudice tainted
the jury’s verdict.”).

   [10] But it is equally clear that a new trial is not required
even where there is an excessive damages award resulting
from passion and prejudice, unless there is also evidence “that
passion and prejudice affected the liability finding.” Pershing
Park Villas, 219 F.3d at 905. “Where there is no evidence that
passion and prejudice affected the liability finding, remittitur
is an appropriate method of reducing an excessive verdict,”
although the district court still retains the option of vacating
the judgment and ordering a new trial. Seymour v. Summa
Vista Cinema, Inc., 809 F.2d 1385, 1387 (9th Cir. 1987).

  In Seymour, we declined to order a new trial, notwithstand-
ing the district court’s acknowledgment that the jury’s dam-
ages award “far exceeded the amount proved at trial” and
3848                     WATEC CO. v. LIU
might “have resulted from passion and prejudice,” because
the district court did not find, and the record did not show,
that there was any impermissible conduct at trial which might
have tainted the rest of the verdict. Id. We explained that
while the defendant was relying “entirely on the excessive
jury award to prove passion and prejudice,” the mere “fact
that a jury may have been outraged by the defendant’s con-
duct to the point of awarding excessive damages does not
prove that its decision on liability was flawed.” Id.

   [11] The present case is strikingly similar to Seymour. In
ordering a remittitur, the district court recognized that the
jury’s original $5 million trademark infringement damages
award was “not supported by, and in fact completely ignores
and rejects, the evidence,” since the figure calculated by the
damage experts was only $2,156,590. However, the district
court pointed out that a possible “explanation for the jury’s $5
million award is that it awarded the entire gross sales figure
to plaintiff.”12 We find this explanation persuasive. There is
no evidence indicating that there was impermissible conduct
by Watec Japan or any other unusual circumstance that might
have caused the jury’s findings of contract and trademark
infringement liability to become infected with passion and
prejudice. The district court’s use of remittitur was appropri-
ate.

                                  B

   Watec America and Liu also attack the jury’s breach of
contract damages award on the ground that the jury consid-
ered an overly long time period in making its determination;
Watec America and Liu argue that the jury based its award on
the testimony of Watec Japan’s expert who made his calcula-
tions on an allegedly improper timeframe that extended
beyond the date the distribution agreement was terminated.
  12
  Watec Japan’s damage expert testified that the gross revenue Watec
America generated from infringing sales was approximately $5.2 million.
                          WATEC CO. v. LIU                          3849
However, we rejected a similar argument in Del Monte Dunes
at Monterey, Ltd. v. City of Monterey, 95 F.3d 1422, 1435
(9th Cir. 1996), which was an inverse condemnation action
where the jury awarded damages to compensate the plaintiffs
for the delay the defendant-city caused in the plaintiffs’
efforts to develop their property. The defendant in Del Monte
Dunes attacked the jury’s damages award as excessive and
alleged that the jury was permitted to consider an overly long
time period in calculating the amount. In despite of the defen-
dant’s arguments, we upheld the jury award because the dis-
trict court had left the issue of the relevant length of time to
the jury, and the defendant had “no factual basis upon which
to argue what length of the time the jury found relevant” in
making its determination. Id.

   Here, as in Del Monte Dunes, Watec America and Liu have
no factual basis for arguing about the length of time the jury
actually used in assessing contract damages. Although Watec
Japan’s expert testified as to the time period he used in calcu-
lating Watec Japan’s lost profits, Watec America and Liu
were free to counter his estimation of the relevant time period
with their own evidence, and the district court left the ultimate
decision on the relevant time period for damages to the jury.
There was substantial evidence supporting the jury’s contract
damages award.

                                  VII

   [12] Finally we turn to the issue of whether the district
court erred in awarding Watec Japan $300,000 in attorneys’
fees under the Lanham Act. Watec America and Liu attack
the fee award on the ground that this does not qualify as an
“exceptional” case within the ambit of 15 U.S.C. § 1117(a).13
   13
      While a determination that a case is “exceptional” under the Lanham
Act is a question of law subject to de novo review, where a trademark case
is exceptional, we review a district court’s decision to award attorneys’
fees for abuse of discretion. Earthquake Sound Corp. v. Bumper Indus.,
352 F.3d 1210, 1216 (9th Cir. 2003).
3850                    WATEC CO. v. LIU
15 U.S.C. § 1117(a) provides in pertinent part that: “The court
in exceptional [trademark] cases may award reasonable attor-
ney fees to the prevailing party.” A trademark case is excep-
tional where the district court finds that the defendant acted
maliciously, fraudulently, deliberately, or willfully. Earth-
quake Sound, 352 F.3d at 1216.

   [13] “Generally, a district court’s order on attorney’s fees
may be set aside if the court fails to state reasons for its deci-
sion . . . .” Mattel Inc. v. Walking Mountain Prods., 353 F.3d
792, 815 (9th Cir. 2003). Here the district court explained that
it had awarded fees to Watec Japan because “[t]he jury
expressly found that defendant, Watec America, intentionally
infringed on plaintiff’s trademarks, and recommended an
award of fees.” This approach to awarding fees is problematic
because a determination that a trademark case is exceptional
is a question of law for the district court, not the jury, and
because the jury’s finding that Watec America “intentionally
infringed” does not necessarily equate with the malicious,
fraudulent, deliberate or willful conduct that we usually
require before deeming a case exceptional. See Earthquake
Sound Corp., 352 F.3d at 1216-17.

   [14] Although we can affirm a fee award notwithstanding
the district court’s failure to explain the reasons for its award
if the record supports the district court’s decision, id., we con-
clude that the issue of the appropriateness of fees in this case
is best addressed under the proper legal standard by the dis-
trict court in the first instance. Accordingly, we vacate and
remand this issue to the district court to permit it to determine
whether this is a sufficiently “exceptional” trademark case to
warrant the award of attorneys’ fees under 15 U.S.C.
§ 1117(a), and, if so, to make express findings explaining
why.

                              VIII

 We hold that the district court properly denied Watec
America and Liu’s motion for a new trial because Watec
                       WATEC CO. v. LIU                    3851
America and Liu were not deprived of the opportunity to pre-
sent their trademark infringement defense. The district court
also committed no error in remitting the jury’s excessive
trademark damages award instead of granting a new trial
because there was no evidence that the jury’s finding of liabil-
ity was tainted by passion and prejudice. However, because
the district court did not make the requisite finding that this
case is “exceptional” within the meaning of 15 U.S.C.
§ 1117(a), we vacate its award of attorneys’ fees and we
remand this issue to the district court for its further assess-
ment consistent with this opinion.

   We also hold that the jury’s verdict on breach of contract
and trademark infringement must stand because it is sup-
ported by substantial evidence. Likewise, the jury’s contract
damages award must stand because Watec America and Liu
lack a factual basis for challenging the time frame that the
jury used in its calculations.

 AFFIRMED IN PART; VACATED IN PART and
REMANDED.