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Skydiving and Trademark Infringement Damages

Posted in Trademark Law

By: James Kachmar

The Ninth Circuit recently addressed the availability of a wide variety of damages in a trademark infringement case. In Skydive Arizona, Inc. v. Quattrocchi  (2012 U.S. App. LEXIS 5100), the Court analyzed the various types of damages that are available to litigants in a trademark infringement action.

Skydive Arizona, Inc. (“Skydive”) operates one of the largest skydiving operations in the world.  Defendants operated an internet and telephone based advertising service which made skydiving arrangements for its customers as well as offered coupons for various skydiving centers.  Defendants operated several internet domain names that were strikingly similar to Skydive’s trademark and apparently falsely advertised that it was the owner of several skydiving centers in Arizona.  In addition, Defendants sold skydiving certificates that allegedly misled customers into believing that Skydive Arizona would accept them for their skydiving center.

After trial, a jury awarded Skydive $1 million in damages for willful false advertising, $2.5 million in actual damages for willful trademark infringement and $2.5 million in lost profits as a result of trademark infringement.   After denying Defendants’ motion for new trial and to reduce the jury award, the court doubled the actual damages awarded for trademark infringement resulting in a $5 million trademark infringement award.

The Ninth Circuit was faced with the issue of whether the District Court abused its discretion and erred in not only upholding the trademark infringement jury award, but also in enhancing it.  As to the award of actual damages, the Ninth Circuit recognized that a court “in its discretion” has the authority under the Lanham Act to award “(1) defendant’s profits; (2) any damages sustained by the Plaintiff; and (3) the cost of the action” as a result of trademark infringement.  The Ninth Circuit held that in reviewing a jury’s award of actual damages, the court was required to “accept `crude’ measures of damages based upon reasonable inferences so long as those inferences are neither `inexorable … [nor] fanciful’.”  The Court continued by observing that the nature of the proof of damages in a trademark infringement case depends on the circumstances:  “The trier of fact must distinguish between proof of the fact of damages and the amount of damages because a mark holder is held to a lower standard in proving the exact amount of actual damages.”  In addition, a jury may also consider the amount of expense incurred by a plaintiff in building its goodwill or business reputation in awarding damages.

In affirming the award of actual damages, the Court noted that the jury considered “an array of customer evidence and three different financial record exhibits” concerning Skydive’s “stellar business reputation” and the significant expense it incurred in building its reputation.  The Court noted that Skydive had offered exhibits showing its advertising expenditures for a period of 10 years as well as evidence of customers who were dissatisfied with Skydive for problems caused by Defendants’ improper issuance of certificates for use at Skydive.

The Court noted that unless the jury’s verdict “is contrary to the clear weight of the evidence,” the Court was largely bound to accept its determination unless it was necessary “to prevent a miscarriage of justice.”  Given that there was sufficient evidence to support the jury’s award, the Ninth Circuit affirmed the award of actual damages.

With regard to the issue of lost profits, Defendants argued that the Court abused its discretion in upholding the award because Plaintiff’s expert had made mistakes in his calculations.  Specifically, Defendants argued that Plaintiff’s expert “did not properly deduct vendor payments or overhead costs and he applied an improper interest rate.”  However, Defendants failed to raise these issues while the expert was testifying at trial.  Because Defendants did not challenge the admissibility of this testimony in a timely manner, the Court held that the lower court did not abuse its discretion in upholding the award of lost profits.

Turning to the issue of the enhancement of damages by the trial court, the Ninth Circuit recognized that the Lanham Act gives a court discretion to award a judgment “for any sum above the amount found as actual damages not exceeding three times such amount.”  The Lanham Act continues: “if the Court shall find that the amount of the recovery based on profits is either inadequate or excessive, the Court may in its discretion enter judgment for such sum as the Court shall find to be just according to the circumstances of the case.  Such sum in either of the above circumstances shall constitute compensation and not a penalty.”  The Court noted that the Lanham Act specifically forbids “the award of damages to punish an infringer.”  The Ninth Circuit reasoned that it was not necessary to determine whether defendant’s conduct was willful infringement, but rather whether the District Court “abused its discretion in enhancing Skydive Arizona’s actual damages to punish [Defendants].”  The Court noted that, in its ruling, the District Court focused on defendants’ “seeming disregard for the people they harmed and the reputation they sullied” and that it was necessary for Defendants to “appreciate” and “accept the wrongfulness of their conduct.”  The Ninth Circuit concluded that it was apparent that the District Court intended to punish Defendants for their infringing misconduct and therefore reversed the District Court’s enhancement of actual damages.

Finally, Defendants argued that given their small corporate size, the significant award of damages against them was “grossly excessive” and should be reduced.  The Court noted that Defendants were unable to cite any authority “allowing a defendant to escape liability for trademark infringement and false advertising damages by claiming, essentially, that it is too small to justify such a large award.”    Given the jury’s refusal to accept Defendants’ challenges to the evidence offered by Skydive in support of its damages, the Court concluded that the damages awards were not improperly excessive.

The Skydive Arizona case makes clear that when a plaintiff in a trademark infringement case offers suitable evidence in support of its damages, a reviewing Court will not strike down or reduce a jury’s award of damages.  Litigants must also be careful in requesting the District Court to enhance their damages under the Lanham Act to ensure that it is a proper exercise of the Court’s authority and not intended to punish the Defendant which can result in an enhancement award being struck down.