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You Must Prove Actual Damages if You Want Punitive Damages in an Infringement Action

Posted in IP, Trademark Law

Imagine litigating an infringement case for two years, and after a nine day jury trial, obtaining a jury’s verdict that says you’ve established infringement and awards your client $5,000,000.  Then you realize that the jury has awarded your client $0 in actual damages, and the entire $5,000,000 sum is for punitive damages.  The Ninth Circuit in an unpublished opinion in Monster Energy Company v. Integrated Supply Network, LLC (July 22, 2020), reiterated that a party is not entitled to punitive damages without a finding of actual damages.

Monster Energy Company is a well-known energy drink giant that does a lot of sponsorship in the motorsports area with its distinctive green M logo.  In 2017, it sued Integrated Supply Network for infringement of its Monster marks.  Integrated Supply is a Florida automotive-supply company that sold various Monster Mobile and ISN Monster lines of goods that Monster Energy Company claimed infringed on its marks.James Kachmar

In November 2018, after a nine day jury trial, Monster Energy Company received a favorable jury verdict that found that ISN had infringed on some of its marks and trade dress, that the infringement was not willful and awarded Monster Energy Company $0 in actual damages. The jury found, however, that Monster Energy Company was entitled to $5,000,000 in punitive damages.  After post-trial motions, the trial court, perhaps in an attempt to fix this defect, awarded Monster Energy Company $1 in nominal damages in addition to the $5 Million in punitive damages.

Both sides appealed various rulings by the trial court to the Ninth Circuit.  This article will focus only on the issue of the interplay between actual damages and punitive damages.

Monster Energy Company appealed the denial of its motion for new trial on actual damages by claiming that the jury’s verdict awarding $0 in actual damages was not supported by the evidence.  The Ninth Circuit rejected this argument and concluded that the “verdict reflects the jury’s determination that [Monster Energy Company] failed to carry its burden of proving the amount of damages if any.”  The Ninth Circuit continued by further rejecting an argument that the award of $5,000,000 in punitive damages showed that the jury must have made a mistake with regard to its finding of $0 in actual damages.  The Ninth Circuit reasoned, “[a]ny tension between the jury’s punitive and actual damages awards does not lead to the conclusion that the actual damages verdict had no reasonable basis.”  Thus, the Ninth Circuit affirmed the lower court’s denial of Monster Energy Company’s motion for a new trial on the issue of actual damages.

The Ninth Circuit later turned its attention to Integrated Supply’s appeal of its motion to vacate the punitive damages award, which was denied by the trial court.  The Ninth Circuit held that the jury’s findings of $0 in actual damages precluded an award of punitive damages to Monster Energy Company: “Because ‘actual damages are an absolute predicate for an award of exemplary or punitive damages’ in California and the jury awarded $0 in actual damages, the punitive damages award should have been vacated.”

The Ninth Circuit continued by recognizing that the trial court’s attempt to fix the issue by awarding $1 in nominal damages to Monster Energy Company was not proper.  The Ninth Circuit concluded, “Moreover, although an award of nominal damages may be mandatory in a 42 U.S.C. §1983 in some circumstances [i.e. civil rights actions], the district court erred in overriding the jury’s $0 damages verdict and awarding $1 in nominal damages in this case.”  The Ninth Circuit ordered that the award of nominal and punitive damages be vacated.  However, given that the Ninth Circuit was remanding the case for the trial court to address other issues raised by Monster Energy Company, specifically its unfair competition law claim and its Lanham Act disgorgement claim, there could be a later basis for an award of punitive damages.  Nevertheless, that would be up to the trial court to determine after further litigation between the parties.

The result in the Monster Energy Company case is a reminder that plaintiffs in infringement actions must focus on establishing actual damages if they have any hope of holding on to an award of punitive damages.  Otherwise, the time and expense incurred in litigating for a number of years could all be for naught.