The Court Giveth, and the Court Taketh Away (Almost $4 million, that is)
In a recent opinion, the Fourth Circuit issued a verdict that reversed in part heavy damages leveled against a paper-towel producer accused of trademark infringement by a paper-towel-dispenser manufacturer. An inflated, original damages award nearing five-million dollars was reduced down to under one-million dollars.
Von Drehle Corporation (Defendant) produces paper towels that fit into Georgia-Pacific Consumer Products’s (Plaintiff) trademarked “enMotion” automatic paper-towel-dispenser, which the company manufactured to use only paper-towels that they themselves produced. Plaintiff brought a multi-state suit against Defendant claiming contributory trademark infringement in violation of the Lanham Act. Plaintiff claimed that Defendant “knowingly and intentionally manufactured the 810-B paper towel specifically and solely for use in Georgia-Pacific’s enMotion towel dispensers and that the practice of stuffing enMotion dispensers with the 810-B paper towel was likely to cause confusion and. . . deceive End-User Customers.” Three trial courts ruled on the merits.
One of the trial courts, located in the Fourth Circuit, found for Plaintiffs and awarded them a total damage amount of almost five-million dollars. The damages included lost profits in the amount of almost eight-hundred thousand dollars, which the court tripled to over two million dollars. The court also added another two-million dollars plus in attorney’s fees and court costs, and issued a nationwide injunction against Defendant precluding them from distributing their paper-towels for use in Plaintiff’s dispenser.
The other two trial courts found for Defendant and the Eighth and Sixth Circuits affirmed those decisions. Defendant then appealed to the Fourth Circuit claiming that (1) the district court used the wrong legal standard to award trebled damages and (2) the contrary findings in the other circuits rendered the district court’s nationwide injunction overbroad. The Fourth Circuit reduced the damages back to the lost profits of just under eight-hundred thousand dollars, and limited the injunction to just the Fourth Circuit’s jurisdiction.
The change in the injunctive relief came simply from the obvious conflict between circuits. One circuit cannot legally enforce an injunction pursuant to its ruling in other circuits that have heard the same claims and refused to apply an injunction of their own. Further, the reason the injunction was not extended to all circuits except the two having held in opposite was that with a circuit split, the legal question remains open, and individual circuits should have the opportunity to hear the merits of the case in their own forums and decide for themselves if injunctive relief is appropriate.
The treble damages were also eliminated because, according to the Fourth Circuit, the lower court mistook the standard in awarding them. Treble damages (or in American English, “triple damages”) can be awarded in certain cases as dictated by statute. The Lanham Act allows a court to award treble damages in trademark infringement cases where the defendant knowingly used a counterfeit mark. In this case, the trial court heard testimony that Defendant purposefully produced paper-towels to fit into Plaintiff’s dispensers. However, the Fourth Circuit noted that the lower court’s reliance on the Larsen case was a misinterpretation, and that the lower court was conflating two separate provisions of the statute. In order to receive treble damages, said the Fourth Circuit, there needed to be a showing that the original jury award was too little or too great, and only to compensate the Plaintiff, not to punish the Defendant. The Fourth Circuit held that in this matter, the original jury award was sufficient and that, therefore, there was no reason for the lower court to apply treble damages.
The striking of the attorney’s fees followed along similar lines. The lower court granted Plaintiffs their attorney’s fees repaid (over $2 million) based on the fact that Defendant acted intentionally in designing its paper-towels for use in Plaintiff’s dispensers. The Fourth Circuit noted that this was also the incorrect standard; the awarding of attorney’s fees can only occur in “exceptional” cases, which require some sort of malice on the part of Defendant. If that maliciousness was not required, any infringement suit would be subject to “exceptional” awards unless the Defendant could prove that it accidently infringed on the Plaintiff’s mark. This, said the Fourth Circuit, is incorrect, and it held that this case did not warrant “exceptional” damages and struck the award of attorney’s fees.
Finally, the dissent in the case took issue mainly with the removal of the nationwide injunction. The dissent argued that the lower court followed the law in issuing the injunction, and that the purpose of the Trademark Act is to protect trademarks nationally, not just circuit by circuit. It argued that Defendant could bring claims in other circuits without preclusion issues without having to limit the scope of the injunction to just the original forum’s circuit.
At the end of the day, damages are everything. Nobody disputed the legal outcome of this case, but almost $4 million dollars were added to the judgment delivered by the jury. That addition was mostly erased, but the case still serves as a good example of the trademark litigation process playing out in the context clients care about most: the money.
 Lanham Act, 15 U.S.C. § 1114(1)(a).