November–December, 2016 Vol. 106 No. 6

MONETARY RELIEF ISSUE

The Award of Attorneys’ Fees in Exceptional Cases Under 15 U.S.C. § 1117(a) of the Lanham Act Bryan Wheelock, Kara Fussner, and Daisy Manning

Intention: Is It Truly Irrelevant to the Awarding of Damages or Profits in Canada and Abroad? Tony Bortolin

Making the Best Use of Experts to Evaluate Damages in Intellectual Property Disputes Bruce Abramson

Commentary: Glee—Unpicking the Reality of U.K. Monetary Awards Ian Lowe

Commentary: Monetary Remedies in Trademark Matters in Canada Nancy A. Miller

Book Review: Economic Approaches to Intellectual Property. Nicola Searle and Martin Brassell Alfred C. Frawley

Book Review: The Liability of Internet Intermediaries. Jaani Riordan Sheldon Burshtein

INTERNATIONAL TRADEMARK ASSOCIATION Powerful Network Powerful Brands

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OFFICERS OF THE ASSOCIATION RONALD VAN TUIJL .................................................................................................................. President JOSEPH FERRETTI ...........................................................................................................President Elect TISH L. BERARD .............................................................................................................. Vice President DAVID LOSSIGNOL ........................................................................................................... Vice President AYALA DEUTSCH ..................................................................................................................... Treasurer TIKI DARE ............................................................................................................................... Secretary MAURY TEPPER ........................................................................................................................ Counsel ETIENNE SANZ DE ACEDO ................................................................................... Chief Executive Officer

The Trademark Reporter Committee

EDITORIAL BOARD EDITOR-IN-CHIEF, CHAIR STAFF EDITOR-IN-CHIEF KATHLEEN E. MCCARTHY WILLARD KNOX

Senior Editors NEIL WILKOF

JESSICA ELLIOTT CARDON RUTH CORBIN GLENN MITCHELL ELISABETH KASZNAR FEKETE RAFFI V. ZEROUNIAN FABRIZIO MIAZZETTO PAMELA CHESTEK CHIKAKO MORI

Staff Editor Staff Editor BEVERLY HARRIS JOEL L. BROMBERG

Editors TSAN ABRAHAMSON MARIA BARATTA MARTIN J. BERAN DANIEL R. BERESKIN STEFANIA BERGIA LANNING BRYER SHELDON BURSHTEIN IRENE CALBOLI ROBERT CAMERON JANE F. COLLEN THEODORE H. DAVIS JR. ANNE DESMOUSSEAUX MEGHAN DILLON THOMAS F. DUNN SCOT DUVALL CLAUS M. ECKHARTT SHEJA EHTESHAM KAREN L. ELBURG MATTHEW EZELL NEMESIO FERNANDEZ-PACHECO SALVADOR FERRANDIS ALFRED FRAWLEY ALEX GARENS ALEXANDRA GEORGE DANIEL GLAZER ANDREW J. GRAY IV LESLEY MCCALL GROSSBERG ANN LAMPORT HAMMITTE

GUY HEATH ANNE HIARING HOCKING JANET L. HOFFMAN GANG HU DOMINIC HUI AHMAD HUSSEIN BRUCE ISAACSON AGLIKA IVANOVA E. DEBORAH JAY FENGTAO JIANG HE JING MARIA JOSE JIRON SIEGRUN D. KANE SUSAN J. KERI MIKE KEYES ROLAND KUNZE JOI MICHELLE LAKES SCOTT LEBSON NELS LIPPERT MARCUS LUEPKE VINCENT MARTELL J. THOMAS MCCARTHY NANCY A. MILLER GEORGE W. MOXON JOHN M. MURPHY PAUL MUSSELL SADAF NAKHAEI

SAURABH NANDREKAR AMANDA NYE JENIFER DEWOLF PAINE JEREMY B. PENNANT NEAL PLATT MICHIEL RIJSDIJK RACHEL RUDENSKY JEREMY SCHACHTER MATTHEW R. SCHANTZ MARTIN SCHWIMMER JENNIFER SICKLER AARON SILVERSTEIN ALEX SIMONSON GIULIO ENRICO SIRONI DEBBIE SKLAR WENDI E. SLOANE JERRE B. SWANN, JR. SCOTT THOMPSON CHINASA UWANNA ANJALI VALSANGKAR EDWARD E. VASSALLO MARTIN VIEFHUES CHARLES WEBSTER JORDAN WEINSTEIN JOHN L. WELCH JOSEPH WELCH BRYAN K. WHEELOCK JOSEPH YANG

Advisory Board MILES J. ALEXANDER WILLIAM M. BORCHARD CLIFFORD W. BROWNING LANNING G. BRYER SANDRA EDELMAN ANTHONY L. FLETCHER ARTHUR J. GREENBAUM

ROBERT M. KUNSTADT THEODORE C. MAX JONATHAN MOSKIN VINCENT N. PALLADINO JOHN B. PEGRAM ALLAN S. PILSON

ROBERT L. RASKOPF PASQUALE A. RAZZANO SUSAN REISS PIER LUIGI RONCAGLIA HOWARD J. SHIRE JERRE B. SWANN, SR. STEVEN M. WEINBERG

The views expressed in The Trademark Reporter are those of the individual authors and do not necessarily reflect those of INTA. The Trademark Reporter (ISSN 0041-056X) is published electronically six times a year by the International Trademark Association, 655 Third Avenue, New York, NY 10017-5646 USA. INTA, the INTA logo, INTERNATIONAL TRADEMARK ASSOCIATION, POWERFUL NETWORK POWERFUL BRANDS, THE TRADEMARK REPORTER, and inta.org are trademarks, service marks, and/or registered trademarks of the International Trademark Association in the United States and certain other jurisdictions.

The Trademark Reporter®

(USPS 636-080) Copyright 2016, by the International Trademark Association

All Rights Reserved

Vol. 106 November–December, 2016 No. 6

TABLE OF CONTENTS

Editors’ Note: Theme Issue—Monetary Relief .......................... 1007 In Memoriam: Mary McGrane ................................................... 1009

ARTICLES

The Award of Attorneys’ Fees in Exceptional Cases Under 15 U.S.C. § 1117(a) of the Lanham Act Bryan Wheelock, Kara Fussner, and Daisy Manning ............ 1011

Intention: Is It Truly Irrelevant to the Awarding of Damages or Profits in Canada and Abroad? Tony Bortolin ........................................................................... 1037

Making the Best Use of Experts to Evaluate Damages in Intellectual Property Disputes Bruce Abramson ...................................................................... 1094

COMMENTARY

Glee—Unpicking the Reality of U.K. Monetary Awards Ian Lowe .................................................................................. 1113

Monetary Remedies in Trademark Matters in Canada Nancy A. Miller........................................................................ 1121

BOOK REVIEWS

Economic Approaches to Intellectual Property. Nicola Searle and Martin Brassell Alfred C. Frawley .................................................................... 1133

The Liability of Internet Intermediaries. Jaani Riordan Sheldon Burshtein ................................................................... 1135

This issue of The Trademark Reporter (TMR) should be cited as 106 TMR ___ (2016).

Vol. 106 TMR 1007

The Trademark Reporter®

EDITORS’ NOTE:

THEME ISSUE—MONETARY RELIEF

We are pleased to publish another issue of The Trademark Reporter (TMR) directed to a single theme. In this case, the theme is monetary recovery. The articles, commentaries, and book reviews in this issue all address, in one form or another, various topics relevant to monetary relief in trademark disputes in the United States, Canada, and the United Kingdom and, more generally, in common law countries.

Often, as indicated in this issue’s article regarding use of experts generally, the main goal of initiating trademark litigation is to stop the defendant’s conduct by securing injunctive relief. However, when and how damages, plaintiff’s lost profits, defendant’s profits gained from the infringement, or other forms of monetary relief can be recovered is a significant question for litigants everywhere. High litigation costs, particularly in the United States, may not justify filing suit for injunctive relief alone. But proving entitlement to monetary relief and then proving the quantum of relief that should be awarded are not easy tasks. The difficulty of quantifying damages in an infringement and passing off case where the services of the parties are not competitive is explored in a commentary on the U.K. case involving the popular television show Glee. Another article provides an overview of monetary relief available in Canada. We also present an article reviewing the relevance of the defendant’s intention for purposes of awarding significant damages or profits in common law countries, outlining in detail case law addressing the relevance of intention dating back to 1838. When and how defendant’s intention affects awards of monetary relief in trademark cases continues to be a subject of significant debate and conflicting decisions. In fact, the United States Supreme Court is currently considering whether or not to grant certiorari in a case asking the following question:

Whether, under Section 35 of the Lanham Act, willful infringement is a prerequisite for an award of infringer’s profits for a violation of Section 43(a), which prohibits trademark infringement through false representations regarding the origin, endorsement, or association of goods through the use of another’s distinctive mark; . . . .1

1. Romag Fasteners, Inc. v. Fossil, Inc. (U.S. Dkt. No. 16-202).

1008 Vol. 106 TMR

When a successful litigant can expect to recover its attorneys’ fees is also an open question. In the United States, the “American rule,” that each party is responsible for paying its own attorneys’ fees unless a statute or contract provides otherwise, applies. The statute applicable to trademark disputes, the Lanham Act, provides that fees may be awarded to the successful party but only in “exceptional” cases. An article presented here addresses how the courts in the United States are now interpreting the meaning of “exceptional case” in the Lanham Act following a 2014 Supreme Court decision interpreting the same terminology in the Patent Act.

We also offer two book reviews, one addressing the liability of Internet intermediaries and the other reviewing economics for intellectual property lawyers.

While we cover a breadth of topics here, the interest in this theme also produced more contributions than we could process in time to meet our publication deadline. The possibilities for even further exploration of the theme, particularly as it relates to laws of countries not covered here, abound. For example, despite the problems that can be encountered with elements of proof on monetary relief issues, headlines have reported large awards in trademark cases in recent years, with jury verdicts ranging from $13.75 million to $305 million.2 Do these cases represent a trend toward more, and more significant, monetary recovery for trademark owners or are they outliers for one reason or another?

We look forward to publishing additional material regarding monetary remedies as the law continues to develop. Meanwhile, we hope that this theme issue prompts debate, discussions, and further submissions to the TMR. Jessica Elliott Cardon Senior Editor and Theme Issue Co-Chair Kathleen E. McCarthy Editor-in-Chief and Theme Issue Co-Chair

2. Tiffany & Co. v. Costco Wholesale Corp., No. 1:13-cv-01041 (S.D.N.Y. 2016) (jury award of $13.75 million); PODS Enterprises LLC v. U-Haul International Inc., No. 15-11543 (11th Cir. 2016) (settlement of $41 million following jury award of $60.7 million); The Black & Decker Corp. v. Positec USA, Inc. No. 1:11-cv-05426 (N.D. Ill. 2015) (jury award of $53.9 million); Adidas Am. Inc. et al. v. Payless ShoeSource Inc., No. 08-36039 (9th Cir. 2010) (settlement following $305 million jury award).

Vol. 106 TMR 1009

IN MEMORIAM

Mary McGrane

In October of 2016, INTA lost a beloved friend and former

colleague: Mary McGrane. Mary retired on September 30, 2014, after nearly forty years

with INTA. She began her tenure on March 31, 1975, as a communications editor with what was then the U.S. Trademark Association, but she will be best remembered as INTA’s Publications Manager. In that role, Mary was instrumental in developing a stellar publishing program for the Association. Working closely with INTA’s publishing committees, project teams, and staff, she edited, produced, and launched more than fifty titles for INTA. And she was a mentor and dear friend whose guidance helped many volunteers and staff members do their best work.

When Mary retired, Will Pecau, past chair of INTA’s Publications Board, recognized her as “the consummate editor of amateur legal writers. She has the critical judgment and aesthetic sensibility to help mold an uncertain draft into something with structure, a flow of argument, and some style. She made it understandable and readable. But even more, she had the humor, humility, grit and persistence to herd the cats, get out good publications, and make everyone feel good about the effort. And that’s why we all love her.” Another former Publications

1010 Vol. 106 TMR Committee chair, Glenn Mitchell, commented, “From the days of loosely bound Practice Papers through the searchable, comprehensive titles currently on INTA’s website, Mary McGrane has ensured that INTA produces works of relevance and high quality. Mary’s talents are not simply as an editor and publisher, but as a true leader. Under Mary’s leadership, Pubs has inspired loyalty of service and participation and has become the Hotel California of INTA committees—you may roll off the Committee anytime you want, but you can never leave.” Allan Poulter, who has worked with Mary for more than twenty years and is a past chair of the Publications Committee, lauded Mary’s contributions to INTA: “It is impossible to overstate her professionalism and the contribution that she has made to the high-quality publications, both print and online, that have been produced under her watch: INTA is losing one of its true stars!” Another former Publications Committee chair, Virginia Taylor, remarked that “Mary McGrane is amazing. Since I first met her over thirty years ago she has demonstrated an extraordinary ability to recruit, inspire, cajole, and, only when absolutely necessary, subtly reprove, hundreds of unpaid volunteers to produce a steady succession of top-quality, highly useful publications for trademark professionals.” Bob Weston, who co-edits Country Guides and is likewise a past chair of the Publications Committee, succinctly described Mary with characteristic British wit as “the epitome of an erudite, cynical, focused, hard-working publication publisher.” Richard Young, who was the chair of the Publications Committee when Mary retired, said, “I have worked with Mary for almost twenty-five years…. Mary has always set a high standard. We give her our best, in part, because we do not want to disappoint her. She has nurtured us, befriended us, prodded us and inspired us to follow her, always making us feel that we were doing the leading. Mary will be missed, but her legacy of excellence will continue.”

These words continue to resonate with us today as we mourn Mary’s loss; she was truly one of a kind, and we will miss her very much.

Latha Nair Publications Committee Chair William Bryner Publications Committee Vice-Chair Liz Hanellin Editor-in-Chief, Legal Resources, and Publications Committee Staff Liaison

Vol. 106 TMR 1011

THE AWARD OF ATTORNEYS’ FEES IN EXCEPTIONAL CASES UNDER

15 U.S.C. § 1117(a) OF THE LANHAM ACT

By Bryan Wheelock,∗ Kara Fussner,∗∗ and Daisy Manning∗∗∗

I. INTRODUCTION A court in an “exceptional” trademark case brought under the

Lanham Act has the discretion to award attorneys’ fees to the prevailing party.1 However, the Lanham Act does not define “exceptional case.” Over time, each circuit developed its own standard for determining whether a trademark case is exceptional and thus appropriate for fee shifting. In 2014, the U.S. Supreme Court in Octane Fitness, LLC. v. Icon Health & Fitness2 determined the meaning of “exceptional case” for purposes of a parallel attorneys’ fees provision in the Patent Act.3 This decision left many asking: does this new standard for determining whether a patent infringement case is exceptional under the Patent Act control, or at least affect, the determination of whether a trademark infringement case is “exceptional” under the Lanham Act?

This article outlines the Octane Fitness case and its rationale (Part II); evaluates whether Octane Fitness’s definition of “exceptional case” should apply to the Lanham Act (Part III); reviews whether Octane Fitness’s definition of “exceptional case” is currently being applied by the courts under the Lanham Act (Part IV); and examines whether Octane Fitness has affected fee shifting in trademark cases (Part V).

∗ Partner, Harness, Dickey & Pierce, PLC, and Adjunct Professor of Law, Washington University, St. Louis, Missouri. ∗∗ Partner at Harness, Dickey & Pierce, PLC. Kara Fussner represented the successful petitioner, Octane, in Octane Fitness v. Icon Health & Fitness, Inc. ∗∗∗ Associate, Harness, Dickey & Pierce, PLC. Daisy Manning represented the successful petitioner, Octane, in Octane Fitness v. Icon Health & Fitness, Inc. 1. 15 U.S.C. § 1117(a). 2. 572 U.S. ---, 134 S. Ct. 1749 (2014). 3. 35 U.S.C. § 285.

1012 Vol. 106 TMR

II. OCTANE FITNESS LLC v. ICON HEALTH & FITNESS

On April 29, 2014, the United States Supreme Court issued opinions in Octane Fitness4 and Highmark Inc. v. Allcare Health Management System, Inc.5 addressing the proper interpretation and the standard of review under the Patent Act, 35 U.S.C. § 285, which provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”

Prior to Octane Fitness, in order to receive an award of attorneys’ fees in a patent case, the prevailing party had to show by clear and convincing evidence that “there has been some material inappropriate conduct,” or that the litigation was both “brought in subjective bad faith” and “objectively baseless” (quoting Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc.).6 Litigation was deemed objectively baseless only if it was “so unreasonable that no reasonable litigant could believe it would succeed,” and subjective bad faith was found only if the party “‘actually knows’ that [its position in the case] is objectively baseless.”7

In Octane Fitness, however, the Supreme Court held that this standard developed by the Federal Circuit was “unduly rigid” and “impermissibly encumbers the statutory grant of discretion to district courts.”8 The Court articulated the proper standard for an “exceptional” case under the Patent Act as follows:

[A]n “exceptional” case is simply one that stands out from the others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances.9

The Supreme Court also held that the proper burden of proof for an “exceptional” case is proof by a preponderance of the evidence, rather than proof by clear and convincing evidence.10 Because “‘there is no precise rule or formula for making these determinations,’ but instead equitable discretion should be 4. 572 U.S. ---, 134 S. Ct. 1749 (2014). 5. 572 U.S. ---, 134 S. Ct. 1744 (2014). 6. Octane Fitness, 134 S. Ct. at 1754 (quoting Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381-1382 (Fed. Cir. 2005)). 7. Id. at 1754 (quoting iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1377-1378 (Fed. Cir. 2011)). 8. Id. at 1755. 9. Octane Fitness, 134 S. Ct. at 1756. 10. Id. at 1758.

Vol. 106 TMR 1013 exercised ‘in light of the considerations we have identified,’”11 the Supreme Court did not set forth a list of factors that must be considered by courts in determining whether a patent case is exceptional. The Court did, however, cite to its opinion in the copyright case Fogerty v. Fantasy, Inc. for a nonexclusive list of factors that courts could consider in making a fee award decision:

[W]e explained that in determining whether to award fees under a similar provision in the Copyright Act, district courts could consider a “nonexclusive” list of “factors,” including “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.”12 Not surprisingly, the change in the definition of what qualifies

as exceptional conduct has had a significant effect on attorneys’ fees awards in patent cases. In the sixteen months prior to the Supreme Court’s Octane Fitness decision, only 26% of requests for fee awards under the Patent Act were granted, while in the twenty months following Octane Fitness, 41% of such requests were granted.13

III. SHOULD OCTANE FITNESS’S DEFINITION OF “EXCEPTIONAL CASE” UNDER THE PATENT ACT

APPLY TO THE LANHAM ACT? Prior to Octane Fitness, the various circuits used different

tests to assess whether a trademark case is “exceptional” under the Lanham Act. Some circuits even used different tests for prevailing plaintiffs as opposed to prevailing defendants. The pre-Octane Fitness standards are summarized in the chart below:

11. Id. at 1756 (quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 (1994)). 12. Octane Fitness, 134 S. Ct. at 1756 n.6 (quoting Fogerty, 510 U.S. at 534 n.19). 13. 2016 PwC Patent Litigation Study, p. 7.

1014 Vol. 106 TMR

Circuit

Pre-Octane Fitness Standard for Fee Awards Exemplary Case

First Circuit

Prevailing Plaintiff: if after reviewing the totality of the circumstances, the infringer’s actions were “malicious, fraudulent, deliberate, or willful”

Venture Tape Corp. v. McGillis Glass Warehouse, 540 F.3d 56, 64 (1st Cir. 2008)

Prevailing Defendant: conduct that is “something less than … bad faith,” such as a “plaintiff’s use of groundless arguments, failure to cite controlling law and generally oppressive nature of the case”

Ji v. Bose Corp., 626 F.3d 116 (1st Cir. 2010)

Second Circuit

Prevailing Party: only on evidence of fraud or bad faith

Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83 (2d Cir. 2012)

Third Circuit

Prevailing Party: culpable conduct such as bad faith, fraud, malice, or knowing infringement

Basketball Marketing Co., Inc. v. FX Digital Media, Inc., 257 Fed. App’x 492 (3d Cir. 2007)

Fourth Circuit

Prevailing Plaintiff: conduct was malicious, fraudulent, willful, or deliberate in nature

Schwartz v. Rent A Wreck America Inc., 468 Fed. App’x 238 (4th Cir. 2012)

Prevailing Defendant: conduct that is “something less than … bad faith”

Bubba’s Bar-B-Q Oven, Inc. v. Holland Co., Inc., 175 F.3d 1013 (4th Cir. 1999)

Vol. 106 TMR 1015

Circuit

Pre-Octane Fitness Standard for Fee Awards Exemplary Case

Fifth Circuit

Prevailing Party: bad faith or “malicious, fraudulent, deliberate, or willful” acts

National Business Forms & Printing, Inc. v. Ford Motor Co., 671 F.3d 526 (5th Cir. 2012)

Sixth Circuit

Prevailing Plaintiff: infringement is “malicious, fraudulent, willful, or deliberate”

Eagles, Ltd. v. American Eagle Foundation, 356 F.3d 724 (6th Cir. 2004)

Prevailing Defendant: the plaintiff’s action was “oppressive”

Eagles, Ltd. v. American Eagle Foundation, 356 F.3d 724 (6th Cir. 2004)

Seventh Circuit

Prevailing Party: claim or defense was objectively unreasonable

Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, 626 F.3d 958 (7th Cir. 2010)

Eighth Circuit

Prevailing Party: one party’s behavior went beyond the pale of acceptable conduct; bad faith is not required

Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863 (8th Cir. 1994)

Ninth Circuit

Prevailing Party: malicious, fraudulent, deliberate, or willful conduct

Earthquake Sound Corp. v. Bumper Indus., 352 F.3d 1210, 1216 (9th Cir. 2003)

1016 Vol. 106 TMR

Circuit

Pre-Octane Fitness Standard for Fee Awards Exemplary Case

Tenth Circuit

Prevailing Plaintiff: bad faith and (1) lack of any foundation, (2) the plaintiff’s bad faith in bringing the suit, (3) the unusually vexatious and oppressive manner in which it is prosecuted, or (4) other reasons as well

King v. PA Consulting Grp., Inc., 485 F.3d 577 (10th Cir. 2007)

Prevailing Defendant: “something less than bad faith”

National Ass’n of Professional Baseball Leagues, Inc. v. Very Minor Leagues, Inc., 223 F.3d 1143 (10th Cir. 2000)

Eleventh Circuit

Prevailing Party: “fraud or bad faith”

Lipscher v. LRP Publications, Inc., 266 F.3d 1305 (11th Cir. 2001)

D.C. Circuit

Prevailing Party: “uncommon, not run-of-the-mill”

Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521 (D.C. Cir. 1985)

Federal Circuit

Follows the law of the regional circuit

Waymark Corp. v. Porta Systems Corp., 334 F.3d 1358 (Fed. Cir. 2003)

As indicated above, the articulation of the standard varied

considerably among the circuits. None precisely matched the Federal Circuit’s standard set forth in Brooks Furniture for an award of fees in patent cases, but some circuits, including the Second, Third, and Eleventh circuits, required a finding of bad faith before fees could be awarded. The tests used in these circuits were more akin to the heightened standard required in patent cases. On the other hand, other circuits, like the Eighth, Tenth,

Vol. 106 TMR 1017 and D.C. circuits, did not require bad faith, meaning the threshold for fees was lower in those circuits.

Post-Octane Fitness, there are compelling reasons why the prior articulations of the Lanham Act fee standard listed above should be reconsidered, and why the Supreme Court’s definition of “exceptional case” should apply equally to trademark cases under the Lanham Act.

First, in defining an exceptional patent case, the Supreme Court looked to the ordinary meaning of “exceptional,” and not to some special meaning derived from the Patent Act or patent policy. This suggests that the analysis has application outside of the Patent Act, and, of course, the ordinary meaning of “exceptional” is the same whether appearing in the Patent Act or the Lanham Act.

Second, the Supreme Court supported its definition of “exceptional case” with reference to a trademark case from the Court of Appeals for the District of Columbia Circuit: Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant.14 Noxell, written by then-Circuit Judge Ginsburg and joined by then-Circuit Judge Scalia, awarded fees to a trademark defendant based on litigation-related conduct that included the plaintiff’s bringing suit in an inconvenient venue in combination with “more than a hint of ‘economic coercion.’”15 In doing so, the Noxell court interpreted the term “exceptional” in the Lanham Act to mean “uncommon” or “not run-of-the-mill.”16 By using a Lanham Act case as a basis for its Patent Act analysis, the Supreme Court in Octane Fitness signaled a strong endorsement of the same test for Lanham Act fee awards.

Third, and perhaps most important, the attorneys’ fees language in both statutes is identical, and deliberately so, as Congress expressly copied the language from the Patent Act when writing the relevant provision in the Lanham Act.17 In light of these considerations, the rationale for applying the Octane Fitness definition of exceptional case to the Lanham Act is strong, even though Octane Fitness itself was a patent case and only expressly dealt with the fee-shifting provision of the Patent Act.

IV. IS OCTANE FITNESS’S DEFINITION OF “EXCEPTIONAL CASE” BEING APPLIED TO THE

LANHAM ACT? The short answer is yes. Less than five months after Octane

Fitness, the Third Circuit in Fair Wind Sailing, Inc. v. Dempster18

14. 771 F.2d 521, 526 (D.C. Cir. 1985). 15. Id. at 526-27. 16. Id. 17. See S. Rep. No. 93–1400, at 2 (1974), reprinted in 1974 U.S.C.C.A.N. 7132, 7133. 18. Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014).

1018 Vol. 106 TMR was the first circuit to apply the new Octane Fitness definition of exceptional case in a trademark dispute. The Third Circuit held that Octane Fitness “controls our interpretation of §35(a) of the Lanham Act,” identifying three reasons for its decision: (1) “[n]ot only is §285 identical to §35(a), but Congress referenced §285 in passing §35(a)”;19 (2) it has previously looked to the patent statute for guidance in interpreting § 35(a);20 and (3) the Supreme Court looked to a trademark case, Noxell, in reaching its definition of “exceptional case.”21 The Third Circuit said:

We believe that the Court was sending a clear message that it was defining “exceptional” not just for the fee provision in the Patent Act, but for the fee provision in the Lanham Act as well.

Since Fair Wind Sailing, the Fourth,22 Fifth,23 and Ninth Circuits24 have also held that Octane Fitness applies to Lanham Act cases. The Sixth Circuit has indicated that Octane Fitness may apply to trademark cases, and remanded the case for the district court to determine whether it does. The Second Circuit25 declined to decide whether Octane Fitness applies to trademark cases. The issue has not yet arisen before the First, Seventh, Eighth, Federal, and D.C. Circuits. The D.C. Circuit will likely adopt Octane Fitness because it was based in part upon the circuit’s own Noxell decision. The Federal Circuit applies the law of the local circuit where the case originated to issues relating to the Lanham Act.

The below chart shows the current state of the law in each circuit as of November 30, 2016, and relevant cases are discussed thereafter:

Circuit

Status of Whether Octane Fitness Standard Is Applied in Trademark Cases Leading Case

First No decision N/A

19. 764 F.3d 303, 315. 20. Id., citing Securacomm Consulting, Inc. v. Securacom Inc., 224 F.3d 273, 279 (3d Cir. 2000). 21. Id. 22. Georgia-Pacific Consumer Prods. LP v. von Drehle Corp., 781 F.3d 710, 719 (4th Cir. 2015). 23. Baker v. DeShong, 821 F.3d 620 (5th Cir. 2016). 24. SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., Nos. 13-17622, 15-16096, 2016 WL 6156039 (9th Cir. Oct. 24, 2016) (en banc). 25. Penshurst Trading Inc. v. Zodax LP., --- Fed. App’x ----, 2016 WL3249857 (2d Cir. 2016)

Vol. 106 TMR 1019

Circuit

Status of Whether Octane Fitness Standard Is Applied in Trademark Cases Leading Case

Second Reserved judgment on whether Octane Fitness applies to § 1117(a)

Penshurst Trading Inc. v. Zodax LP, --- Fed. App’x ----, 2016 WL3249857 (2d Cir. 2016)

Third Octane Fitness applies to § 1117(a)

Fair Wind Sailing, Inc. v. Dempster, 764 F. 3d 303 (3d Cir. 2014)

Fourth Octane Fitness applies to § 1117(a)

Georgia-Pacific Consumer Prods. LP v. von Drehle Corp., 781 F.3d 710, 719 (4th Cir. 2015)

Fifth Octane Fitness applies to § 1117(a)

Baker v. DeShong, 821 F.3d 620 (5th Cir. 2016)

Sixth Octane Fitness may apply to § 1117(a), remanded for district court to determine applicability of Octane Fitness

Slep-tone Entertainment Corp., v. Karaoke Kandy Store, Inc., 782 F.3d 313 [114 U.S.P.Q.2d 1398] (6th Cir. 2015)

Seventh No decision N/A

Eighth No decision N/A

1020 Vol. 106 TMR

Circuit

Status of Whether Octane Fitness Standard Is Applied in Trademark Cases Leading Case

Ninth Octane Fitness applies to § 1117(a)

SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., Nos. 13-17622, 15-16096, 2016 WL 6156039 (9th Cir. Oct. 24, 2016) (en banc)

Tenth No decision N/A

Eleventh No decision N/A

D.C. No decision, although Octane Fitness relied upon the D.C. Circuit’s interpretation of 15 U.S.C. § 1117(a), suggesting that the existing D.C. Circuit standard is the same as the Octane Fitness standard

Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521, 526 (D.C. Cir. 1985).

Federal No Federal Circuit decision, although the Federal Circuit would apply the law of the regional circuit.

Waymark Corp. v. Porta Systems Corp., 334 F.3d 1358 [67 U.S.P.Q.2d 1303, 1306] (Fed. Cir. 2003).

A. The First Circuit Neither the First Circuit Court of Appeals nor any district

court within the First Circuit has addressed the application of Octane Fitness to the Lanham Act.

Vol. 106 TMR 1021

B. The Second Circuit The Second Circuit has not decided whether Octane Fitness

applies to trademark cases. In Penshurst Trading Inc. v. Zodax LP,26 the Second Circuit affirmed the denial of attorneys’ fees under § 1117(a) to the defendant after the voluntary dismissal of claims by the plaintiff. After noting its preexisting rule that a case is exceptional only where it involves fraud, bad faith, or willfulness, and the intervening Octane Fitness decision by the Supreme Court, the Second Circuit declined to decide whether Octane Fitness applied to trademark cases in the Second Circuit:

We have not yet decided whether this rule applies in the context of the Lanham Act, but we need not do so here. Even assuming, without deciding, that Octane Fitness applies, we nonetheless affirm the district court’s denial of attorney’s fees.

The Second Circuit pointed to evidence in the record suggesting that the plaintiff’s trademark claims were “something more than frivolous or a mere ‘shakedown,’” and held that the district court did not abuse its discretion in finding that the claims were not exceptional.27

In the first lower court trademark case in the Second Circuit to address Octane Fitness, Microban Products Co. v. API Industries, Inc.,28 Judge Failla in the Southern District of New York awarded attorneys’ fees to the prevailing plaintiff, applying the Second Circuit’s definition of “exceptional,” which required a finding of willfulness, fraud, or bad faith. The court noted the Octane Fitness decision in a footnote, finding that the analysis, “while not specifically applicable to Lanham Act cases, dovetails noticeably with the Second Circuit cases discussed in the text.”29 In awarding fees, the court noted that the defendant’s claims in the litigation “bordered on the specious, and evidence little more than an effort to delay its day of reckoning,” and that the defendant had presented “untenable business and litigation positions … before and during this lawsuit.”30

A few months later in Romag Fasteners, Inc. v. Fossil, Inc.,31 Judge Arterton of the District of Connecticut awarded fees to the plaintiff on the patent claim under Octane Fitness, but denied fees for the trademark portion of the case under pre-existing Second

26. 652 Fed. App’x 10, 2016 WL3249857 (2d Cir. 2016). 27. Id. at *1. 28. 2014 WL 1856471 (S.D.N.Y. 2014). 29. Id. at *23, n.28. 30. Id. at *24. 31. 2014 WL 4073204 (D. Conn. 2014). (This case was affirmed on the merits on appeal, without appeal of the fee decision. See Romag Fasteners, Inc. v. Fossil, Inc., 817 F.3d 782, 791 (Fed. Cir. 2016) and a certiorari petition is pending on other grounds).

1022 Vol. 106 TMR Circuit precedent, finding a lack of the required “willfulness, fraud, or bad faith.” The court rejected the plaintiff’s argument that it should apply Octane Fitness to the trademark claims, noting that “the Supreme Court was interpreting only the Patent Act and not the Lanham Act.”32 Thus, the court concluded that “the Second Circuit cases interpreting the fee provision of the Lanham Act remain good law and represent binding precedent on this Court.”33 Notably, while the case was found to be exceptional under “the more lenient Patent Act standard announced in Octane Fitness,” because the defendants did not act fraudulently or in bad faith with respect to trademark infringement, the case was not found to be exceptional within the meaning of the Lanham Act.34

In Beastie Boys v. Monster Energy Co.,35 Judge Engelmayer of the Southern District of New York noted the Second Circuit definition of “exceptional cases” under the Lanham Act as involving fraud, bad faith, or willfulness, and then discussed Octane Fitness. The court also noted two prior cases where the trademark infringement had been found to be willful but fees were not awarded because the plaintiff had not prevailed on all issues, the litigation presented a number of close and contested issues, and the outcome was by no means a foregone conclusion.36 Without explaining which standard it was applying, the court concluded that “notwithstanding the jury’s findings of intentional deception and bad faith, a fee award under the Lanham Act is not merited here.” Fees were awarded to the plaintiffs under the Copyright Act with the court finding that the defendant’s pretrial denial of copyright liability was unreasonable. However, the court did not perceive any unreasonableness to the defendant’s arguments or litigation positions as to the Lanham Act claim of false endorsement, noting that the defendant made “responsible” arguments opposing that claim, and the jury’s verdict for the plaintiff on the false endorsement claim was “no foregone conclusion.”37

In Cross Commerce Media, Inc. v. Collective, Inc.,38 Judge Forrest of the Southern District of New York awarded attorneys’ fees to a prevailing declaratory judgment plaintiff, referencing 32. Id. at *5. 33. Id. 34. Id. 35. 2015 U.S. Dist. LEXIS 77185, at *29 (S.D.N.Y. June 15, 2015). 36. Id., citing Gidatex, S.r.L. v. Campaniello Imports, Ltd., 82 F. Supp. 2d 136, 140, 148-49 (S.D.N.Y. 2000) (plaintiff did not prevail on all issues); Simon & Schuster, Inc. v. Dove Audio, Inc., 970 F. Supp. 279, 302 (S.D.N.Y. 1997) (outcome was by no means a foregone conclusion). 37. Id. 38. 2014 WL 7323419 (S.D.N.Y. 2014), reversed on other grounds and attorneys’ fee award vacated, 841 F.3d 155 (2d Cir. Nov. 7, 2016).

Vol. 106 TMR 1023 both the pre-existing Second Circuit standard requiring willfulness, bad faith, or fraud, as well as the “lower” standard announced by the Supreme Court in Octane Fitness, but refusing to pick between the two, finding:

[T]his was an exceptional case within the standard articulated in this district, as well as within the more lenient standard set forth by the Supreme Court in Octane, to the extent it is applicable.

(emphasis added). In River Light V, L.P. v. Lin & J International, Inc.,39 Judge

Cote of the Southern District of New York awarded attorneys’ fees to the prevailing plaintiff under § 1117(a) (as well as under 15 U.S.C. § 1116(b)). The court found a definition of “exceptional” in the Second Circuit lacking but found “guidance” in the Supreme Court’s construction of the identically worded statute in Octane Fitness, concluding that “[b]y these or indeed any measures this case is exceptional.” The case involved a defendant selling knock-off TORY BURCH products who also filed spurious counterclaims and engaged in fraud and spoliation by fabricating and altering documents, as well as repeated instances of perjury and other dishonest conduct.

In Innovation Ventures, LLC v. Ultimate One Distributing Corp.,40 Judge Matsumoto of the Eastern District of New York awarded attorneys’ fees to the prevailing plaintiff in a case involving sales of counterfeit 5 HOUR ENERGY products. In doing so, the court discussed both Second Circuit precedent and Octane Fitness. Without specifically applying either standard, the court awarded attorneys’ fees against those defendants who were found to be willful infringers.

After some initial disagreement as to the applicable standard in the absence of guidance from their court of appeals, lower courts in the Second Circuit now appear to be adopting Octane Fitness. Most recently in Fresh Del Monte Produce, Inc. v. del Monte Foods, Inc.41 and VIDIVIXI, LLC v. Grattan,42 two judges in the Southern District of New York applied Octane Fitness to awards of attorneys’ fees under the Lanham Act. In Fresh Del Monte, Judge Oetken found that Octane Fitness “provides the governing standard” on a motion for fees pursuant to the Lanham Act.43 In Vidivixi, Judge Koeltl stated, “[u]nder the Octane standard, considering the

39. 2015 U.S. Dist. LEXIS 82940 (S.D.N.Y. 2015). 40. 176 F. Supp. 3d 137, 2016 WL 1273232 (E.D.N.Y. 2016). 41. 2016 U.S. Dist. LEXIS 46513 (S.D.N.Y. 2016). 42. 2016 WL 4367972 (S.D.N.Y 2016). 43. 2016 U.S. Dist. LEXIS 46513 (S.D.N.Y. 2016).

1024 Vol. 106 TMR totality of circumstances, this case is ‘exceptional’ and warrants the award of attorneys’ fees.”44

C. The Third Circuit The Third Circuit was the first circuit to expressly hold that

Octane Fitness applies to awards of fees in trademark cases in Fair Wind Sailing, Inc. v. Dempster.45

Since Fair Wind Sailing, five district courts in the Third Circuit have applied Octane Fitness to the award of fees under § 1117(a). Renna v. County of Union46 was an action for declaratory judgment of non-infringement with respect to the plaintiff’s use of the Seal of the County of Union in New Jersey in connection with the plaintiff’s public access television show critical of county officials. The plaintiff prevailed, and, in awarding attorneys’ fees to the plaintiff, Judge McNulty of the District of New Jersey relied upon Fair Wind’s reference to “an unusual discrepancy in the merits of the positions taken by the parties.”47 The court noted that a party’s position need not be “wholly meritless or frivolous,” and said that “a case that is of exceptionally little merit may expose a party to an award of attorney’s fees.”48 The county had argued that its mark (the county seal) was registrable, a position deemed by the court to be “plainly incorrect.”49 The county also argued that the seal could nevertheless be protectable as an unregistered mark, and, while the court ruled otherwise, the court also noted that this later argument “at least had a tinge of plausibility.”50 However, the court held that a party cannot avoid attorneys’ fees merely because its argument has “a sliver of merit.”51

In Ateliers de la Haute v. Broetje Automation,52 a combined patent and trade dress case, the patentee prevailed at jury trial, but the court found no support for the jury’s verdict of willfulness and denied fees under both the Patent Act and the Lanham Act because there was no willfulness or malicious infringement. The court noted that the defendant’s claim construction positions and invalidity defenses were not unfounded and any improper conduct 44. 2016 WL 4367972 (S.D.N.Y 2016). 45. 764 F.3d 303, 314-15 (3d Cir. 2014) (remanding the case for consideration under Octane Fitness standard). 46. 2015 WL 93800 (D.N.J.) (Report and Recommendation) and 2015 WL 1815498 (D.N.J. 2015) (Opinion adopting recommendation). 47. 2015 WL 1815498 at *1. 48. Id. at *3. 49. Id. at *3. 50. Id. 51. Id. 52. 85 F. Supp. 3d 768 (D. Del. 2015).

Vol. 106 TMR 1025 at trial (relating to violating a court order before the jury, using a translator excessively in a witness cross-examination, and resisting discovery of a redesigned cassette) was dealt with by various orders and sanctions at trial.

In U.S. Soo Bahk Do Moo Duk Kwan Federation, Inc. v. International Tang Soo Do Moo duk Kwan Association,53 the court ruled in favor of the plaintiff but denied attorneys’ fees because “there was at least a colorable basis in law for each of Defendants’ counterclaims” for cancellation of the marks. The court added that it “[did] not see fit to penalize Defendants for trying to make the strongest arguments they could with the facts and law available to them,” and noted that there was no assertion that the defendant litigated in an unreasonable manner.

In Covertech Fabricating, Inc. v. TVM Building Products,54 the court found intentional use of a counterfeit mark and awarded treble damages to the plaintiff, finding the case exceptional: “[T]he manner in which [the defendant] benefitted from the reputation of [the plaintiff’s] marks in the marketplace in order to promote its own mark makes this case stand out from others.”55

In G6 Hospitality Franchising v. Hi Hotel Group,56 a former Motel 6 franchisee continued to use the trademark without permission and then transferred property in a sham transaction to operators that continued to use the mark. This conduct only lasted for three months, but protracted litigation ensued “largely owing to Defendants’ conduct” in, for example, repeatedly changing defense counsel and securing continuances of trial at the last minute. The jury found willful infringement. In turn, the judge found the case to be exceptional based on the totality of the circumstances, including the willful infringement finding and the defendants’ litigation conduct, and awarded attorneys’ fees.

D. The Fourth Circuit Following the reasoning of the Third Circuit in Fair Wind

Sailing, the Fourth Circuit adopted Octane Fitness as the standard for “exceptional” cases under the Lanham Act in Georgia-Pacific Consumer Products, LP v. von Drehle Corp.57 The Fourth Circuit vacated an award of $2,225,782.35 in attorneys’ fees under the pre-Octane Fitness Fourth Circuit standard requiring “malicious, fraudulent, willful or deliberate conduct,” and remanded the case to the lower court to apply the Octane Fitness standard. Noting

53. 2015 WL 4920306 (M.D. Pa. 2015). 54. 2015 WL 7301159 (W.D. Pa. 2015). 55. Id. at *3. 56. 2016 WL 1109216 (M.D. Pa). 57. 781 F.3d 710, 720 (4th Cir. 2015).

1026 Vol. 106 TMR that that language of 35 U.S.C. § 285 and 15 U.S.C. § 1117(a) is identical, the Fourth Circuit concluded that “there is no reason not to apply the Octane Fitness standard when considering the award of attorney’s fees under § 1117(a).”58

Prior to Georgia-Pacific, the district court in Teal Bay Alliances, LLC v. Southbound One, Inc.59 correctly predicted that the Fourth Circuit would adopt Octane Fitness, and utilized Octane Fitness’s definition of “exceptional case.” The court, considering “the totality of the circumstances,” found that the case was “exceptional” as that term is used in 15 U.S.C. § 1117(a). Also before Georgia-Pacific, the district court in Monster Daddy v. Monster Cable Products, Inc.60 denied the prevailing defendant’s motion for attorneys’ fees “even applying the more flexible standard set forth in Octane.”

After Georgia-Pacific, the district court in First Data Merchant Services Corp. v. SecurityMetrics, Inc.61 applied an Octane Fitness-based analysis to determine that the case was not exceptional. The court in First Mariner Bank v. The Resolution Law Group, P.C.62 also followed Georgia-Pacific and applied the “lowered burden for proving that a case was exceptional” from Octane Fitness to award $318,597.50 in attorneys’ fees. The court in Gravelle v. Kaba Ilco Corp.63 similarly followed Georgia-Pacific and applied an Octane Fitness-based standard in granting the prevailing defendant’s motion for attorneys’ fees.

In Reynolds Consumer Products, Inc. v. Handi-Foil Corp.,64 Judge O’Grady of the Eastern District of Virginia, without comment, applied the Supreme Court’s recent “clarification” of what constitutes an exceptional case but rejected the prevailing plaintiff’s request for attorneys’ fees. Judge O’Grady did not explain why the case, under the clarified standard, was not exceptional, but the case involved a mixed jury verdict, partially in favor of the plaintiff and partially in favor of the defendant.

Most recently, in Design Resources v. Inc. v. Leather Industries of America, Judge Osteen of the Middle District of North Carolina applied Octane Fitness in a trademark case and found the case exceptional, warranting a fee award.65 In a lengthy analysis the court noted that while the claims were not unreasonable at the start of the litigation, a plaintiff has a continuing obligation to 58. Id. at 721. 59. 2015 WL 357064 (D. Md. 2015). 60. 2014 WL 2780331 (D.S.C. 2014). 61. 2015 WL 5734413 (D. Md. 2015). 62. 2015 WL 5255275 (D. Md. 2015). 63. 2016 WL 2920208 (E.D.N.C. 2016). 64. 2014 WL 3615853 (E.D. Va. 2014). 65. 2016 WL 5477611 (M.D. N.C. Sept. 29, 2016).

Vol. 106 TMR 1027 assess the strength of its claims, and when discovery did not bear out certain facts, the plaintiff’s continued assertion moved “more into the realm of the exceptional.” The court also separately analyzed arguments relating to “economic coercion, compensation and deterrence” and concluded that “the importance of deterring litigants from pursuing their claims even when the claim has fallen apart following discovery due to a lack of supporting evidence” “reinforce[d]” the decision to award fees.

E. The Fifth Circuit The Fifth Circuit applied Octane Fitness to trademark cases in

Baker v. DeShong,66 finding that although Octane Fitness “directly concerns the scope of a district court’s discretion to award fees for an ‘exceptional’ case under § 285 of the Patent Act, the case guides our interpretation of § 1117(a) of the Lanham Act.” The Baker court reasoned that “[b]ecause § 285 and § 1117(a) are clear ‘statutory equivalents,’ we read their nearly identical language to reflect the fact that the Court ‘think[s] it clear that Congress intended the same language to have the same meaning in both statutes’.”67 The Fifth Circuit, thus, “merge[d]” the Octane Fitness definition of “exceptional” into its trademark fee statute jurisprudence, and remanded the case for the district court to determine whether the case was exceptional under Octane’s definition of an “exceptional case.”

Prior to Baker, two district court cases in the Fifth Circuit also analyzed Octane Fitness. Rolex Watch U.S.A., Inc. v. Zolotukhin68 was a trademark counterfeiting case in which the court found Octane Fitness “controls the court’s analysis” and awarded attorneys’ fees under 15 U.S.C. §§ 1117(a) and (b). TWTB, Inc. v. Rampick69 was a complex trademark and licensing case in which the prevailing plaintiff requested attorneys’ fees, citing Octane Fitness. The court, applying the prior Fifth Circuit definition of an “exceptional” case as “malicious, fraudulent, deliberate, or willful” infringement, denied an award of attorneys’ fees.

Since Baker, two district courts from within the Fifth Circuit—both from the Southern District of Texas–have applied Octane Fitness in a trademark case and both awarded fees. In the first case, the court noted the application of Octane Fitness, but went on to restate the pre-Octane Fitness standard of “malicious, fraudulent, deliberate or willful” and the pre-Octane Fitness clear 66. 821 F.3d 620, 622 (5th Cir. 2016) (“We adopt the Supreme Court's construction of “exceptional” according to its ordinary meaning”). 67. Id. (quoting Commc’ns Workers of Am. v. Beck, 487 U.S. 735, 745–7, 108 S. Ct. 2641, 101 L. Ed. 2d 634 (1988)). 68. 2016 WL 1258479 (N.D. Tx. 2016). 69. 152 F. Supp. 3d 549 (E.D. La. 2016).

1028 Vol. 106 TMR and convincing standard of proof.70 Yet even with this mixed articulation of the law, the court awarded fees, finding that the case was exceptional by virtue of the defendants’ default and continued infringement despite three separate cease and desist letters. In the second case, the court correctly noted the standard and burden of proof from Octane Fitness, and concluded that “[t]he substantive weakness of the Plaintiff’s trade dress claim causes this case to stand out from other trade dress cases.”71

F. The Sixth Circuit Shortly after Octane Fitness, the Sixth Circuit considered fees

in a combined patent and trademark case, Premium Balloon Accessories, Inc. v. Creative Balloons Manufacturing, Inc.72 The court cited Octane Fitness to assess the request for fees under the Patent Act, but maintained the pre-Octane Fitness Sixth Circuit Eagles test to assess the request for fees under the Lanham Act without comment or analysis. Subsequently, a district court from the Southern District of Ohio noted that Octane Fitness “bears at least some relevance” to the prior test but cited Premium Balloons in concluding that Eagles is still the test in the Sixth Circuit.73

In a more recent trademark case, the Sixth Circuit noted Octane Fitness and stated that “statutes using the same language should generally be interpreted consistently,” then remanded the case, stating the district court “should … assess the applicability of Octane Fitness before determining whether it is necessary to reassess if this case qualifies an extraordinary under §1117(a).”74

After that case, at least one district court case from within the Sixth Circuit has considered the issue, noting the Sixth Circuit’s statements about the identical statutory language.75 However, in that case from the Western District of Kentucky, the judge found that it was unnecessary to decide whether Octane Fitness applied to Lanham Act cases, as “even under the lower Octane Fitness standard, [the plaintiff] has not shown that this is an exceptional case sufficient to support a discretionary award of attorney fees.”

70. Laerdal Medical Corp. v. Basic Med Supply, LLC, 2016 WL 6436557 at *4 (S.D. Tex. Oct. 31, 2016). 71. Farouk Sys, Inc. v. AG Global Prods. LLC, 2016 WL 6037231 (S.D. Tex. Oct. 14, 2016). 72. 573 F. App’x 547 (6th Cir. 2014). 73. Wagner v. Circle W Mastiffs, 2014 WL 4417761 at n.5 (Sept. 8, 2014 S.D. Ohio). 74. Slep-Tone Entm’t Corp. v. Karaoke Kandy Store, Inc., 782 F.3d 313, 317-18 [114 U.S.P.Q.2d 1398] (6th Cir. 2015). 75. Caudill See and Warehouse Co., Inc. v. Jarrow Formulas, Inc., 2016 WL 6824401 (W.D. Ky. Nov. 17, 2016).

Vol. 106 TMR 1029

G. The Seventh Circuit The Seventh Circuit has yet to decide whether Octane Fitness

applies to the award of attorneys’ fees under the Lanham Act. However, one district court within the Seventh Circuit recognized Octane Fitness as having elaborated on the definition of “exceptional case” in awarding attorneys’ fees in intellectual property cases and purported to apply Octane Fitness in analyzing fees in trademark dispute. The court then denied fees finding the defenses were not “frivolous” and there was no “bad faith.”76 Thus, while the court indicated it was applying Octane Fitness, it did not use Octane Fitness’s definition of “exceptional”—which does not require evidence of “frivolous” or “bad faith” conduct—in denying fees.

H. The Eighth Circuit The Eighth Circuit has yet to decide whether Octane Fitness

applies to the award of attorneys’ fees under the Lanham Act. However, one district court within the Eighth Circuit at least discussed the issue. In Mountain Marketing Group, LLC v. Heimerl & Lammers LLC,77 the court noted the Eighth Circuit standard for exceptionality under the Lanham Act was whether the plaintiff’s case is “groundless, unreasonable, vexatious, or pursued in bad faith.”78 Put another way, an exceptional case “is one in which one party’s behavior went beyond the pale of acceptable conduct.”79 The court acknowledged the Octane Fitness decision and its adoption in trademark cases by several other circuits but ultimately concluded that it need not resolve whether Octane Fitness applies to trademark cases in the Eighth Circuit because “the standard is substantively similar to the one currently applied by the Eight Circuit.”80 The court concluded that the case before it—a jury verdict for the defendant—was not exceptional under either standard. In reaching this determination, the court noted that there was no evidence that the plaintiff brought its claims in bad faith, and the plaintiff’s claims had survived a summary judgment motion, meaning that while the plaintiff misjudged the strength of its claims, the case was not exceptional warranting fees.

76. 2014 WL 6613342. 77. 2016 WL 2901735 (D. Minn. 2016). 78. Id. at *2, citing Scott Fetzer Co. v. Williamson, 101 F.3d 549, 555 (8th Cir. 1996). 79. Id., citing Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863, 877 (8th Cir. 1994). 80. Id. at *3.

1030 Vol. 106 TMR

I. The Ninth Circuit In SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., the

Ninth Circuit Court of Appeals issued an en banc opinion joining the majority of its sister circuits and adopting the “exceptional” case standard set forth in Octane Fitness and specifically overruling its precedent that a prevailing plaintiff must show that a defendant’s infringement was “malicious, fraudulent, deliberate, or willful” to establish entitlement to attorneys’ fees under the Lanham Act.81 The court also adopted the preponderance of evidence burden of proof established by Highmark Inc. v. Allcare Health Management Systems, Inc.82

This was the first Ninth Circuit decision to directly address the issue. Prior to SunEarth, the Ninth Circuit declined to explicitly adopt or reject the Octane Fitness standard, instead determining that the district courts had not erred in finding the cases unexceptional under either the Ninth Circuit standard or Octane Fitness.83 As a result of the Ninth Circuit’s ambiguity on the issue prior to SunEarth, most district courts applied both the Ninth Circuit and Octane Fitness standards in their fee determinations. For example, in Apple, Inc. v. Samsung Electronics Co., Ltd.,84 the court set forth the Octane Fitness standard, indicating this was the appropriate standard, and then noted that “Ninth Circuit law surrounding the meaning of ‘exceptional’ in the Lanham Act also provides further authority.”85 The court explained that because Octane Fitness overturned the “overly rigid formulation” of the Federal Circuit’s “exceptional case” Patent Act standard as expressed in Brooks Furniture, “the Ninth Circuit’s more flexible formulation of determining what constitutes an ‘exceptional case’ in Lanham Act cases still applies after Octane Fitness.”86 81. No. 13-17622, 15-16096, 2016 WL 6156039 (9th Cir. Oct. 24, 2016) (en banc). Before the en banc decision, the Ninth Circuit panel in the SunEarth case rejected the appellant’s argument that the district court erred in not applying Octane Fitness, holding that the panel was “bound by a post-Octane Fitness panel’s decision applying our definition of exceptional.” SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., 2016 WL 2993958, , 650 Fed. App’x 473, 475 (May 24, 2016), citing Fifty-Six Hope Road Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d 1059 (9th Cir. 2015) (applying Ninth Circuit precedent without addressing Octane Fitness’ applicability to § 1117). 82. Id. at *2, citing Highmark, 134 S. Ct. 1744, 1748-49 (2014). 83. Globefill Inc. v. Elements Spirits, Inc., 640 Fed. App’x 682 (9th Cir. 2016); Memory Lane, Inc. v. Classmates, Inc., 646 Fed. App’x 502 (9th Cir. 2016). 84. 2014 WL 4145499, at *6 (N.D. Cal. 2014). 85. Id. at *6. 86. Id. at *6 n.1; see also Perfect 10, Inc. v. Giganews, Inc., No. CV 11-07098-AB, 2015 WL 1746484 (C.D. Cal. Mar. 24, 2015) (awarding fees under merged Ninth Circuit and Octane Fitness standards); Fitbug Ltd. v. Fitbit, Inc., Case No. 13-1418 SC, 2015 WL 3543116 (N.D. Cal. June 5, 2015) (denying fees under merged Ninth Circuit and Octane Fitness standards); Albrecht v. Tkachenko, Case No. 14-cv-05442-VC, 2015 WL 2227607

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J. The Tenth Circuit The Tenth Circuit has not yet addressed the application of

Octane Fitness to the Lanham Act. However, two district courts within the Tenth Circuit have addressed the issue, both holding that the standard pronounced in Octane Fitness applies to trademark cases.

First, in Orbit Irrigation Products, Inc. v. Sunhills International, LLC,87 the Utah district court entered terminating sanctions and subsequently entered default judgment against one defendant. Relying on the Fourth Circuit’s opinion in Georgia-Pacific Consumer Products LP v. von Drehle Corp.,88 and the Third Circuit’s opinion in Fair Wind Sailing, Inc. v. Dempster,89 the court analyzed the plaintiff’s motion for attorneys’ fees under Octane Fitness, and held that the defendant’s litigation misconduct warranted a fee award.90 In awarding fees, the court rejected the defendant’s argument that sanctionable conduct is not the appropriate benchmark for awarding fees under Octane Fitness, because “the [Octane Fitness] Court expanded, rather than restricted, the ability of courts to award attorney’s fees, even in cases where the parties engaged in conduct that was not independently sanctionable.”91

The second case, Marten Transport Ltd. v. Plattform Advertising, Inc.,92 provided a more detailed analysis of its reasons for applying Octane Fitness to § 1117 of the Lanham Act. Noting that the Tenth Circuit had not yet analyzed its “exceptional” case standard under the Lanham Act in light of Octane Fitness, the court analyzed the Third Circuit’s reasoning in Fair Wind for adopting the Octane Fitness standard.93 The court also cited the Fourth and Fifth Circuits’ explicit adoption of Octane Fitness, and the Sixth and Ninth Circuits’ indication that Octane Fitness may apply to Lanham Act cases, concluding that “[n]o federal appellate court to have considered the question has failed to apply the Octane Fitness standard to the Lanham Act’s fee provision.”94 (N.D. Cal. May 11, 2015) (awarding fees under merged Ninth Circuit and Octane Fitness standards). 87. Case No. 1:10-CV-113 TS, 2015 WL 7740405 (D. Utah Nov. 30, 2015). 88. 781 F.3d 710, 720-21 (4th Cir. 2015). 89. 764 F.3d 303, 314-315 (3d Cir. 2014). 90. Case No. 1:10-CV-113 TS, 2015 WL 7740405 at *3 n.7 (D. Utah Nov. 30, 2015). 91. Id. at *3. 92. Case No. 14-2464-JWL, 2016 WL 4000927 (D. Kan. July 26, 2016). 93. Id. at *20 (referring to the identical language of the statutes, Congress’s reference to 35 U.S.C. § 285 in amending the Lanham Act to allow for fee awards, and the Supreme Court’s reliance in Octane Fitness on Noxell Corp. v. Firehouse No. 1 Bar-B-Que Rest., 771 F.2d 521 (D.C. Cir. 1985)). 94. Id.

1032 Vol. 106 TMR Thus, the court was “confident … that when that opportunity arises, the Tenth Circuit will join its sibling circuits and adopt the Supreme Court’s standard from Octane Fitness for use in applying the Lanham Act’s attorney fee provision.”95 Applying Octane Fitness, the court ultimately denied fees to the plaintiff because the defendant’s positions on the merits were not so weak as to make the case uncommon (the defendant prevailed on summary judgment on some issues and the jury awarded the plaintiff damages in an amount far less than sought), and the defendant did not litigate the case in an unusual manner.96

K. The Eleventh Circuit Although the Eleventh Circuit has not yet addressed the issue

of whether the Octane Fitness definition of “exceptional case” applies to the Lanham Act, almost all district courts within the Eleventh Circuit addressing the issue have held Octane Fitness applies to the Lanham Act’s fee provision. The one notable exception is the recent case of Herstal S.A. v. Clyde Armory, Inc., in which Judge Royal of the Middle District of Georgia reasoned that “[t]hough other circuits, as well as district courts within this Circuit, adopted the Octane Fitness standard in trademark cases, neither the Supreme Court nor the Eleventh Circuit has addressed whether Octane Fitness applies to the Lanham Act. Thus, the Court is bound by the Eleventh Circuit's standard for exceptional cases.”97

The first district court within the Eleventh Circuit to consider the issue determined that, based on the identical language of the Patent Act fee-shifting statute, the ordinary meaning of “exceptional,” and the Supreme Court’s reliance on Noxell, “the Octane analysis [is] applicable in interpreting the identical provision at issue here,” and the Eleventh Circuit’s standard “appears to be modified by Octane.”98 However, when it came to application of the standard, the magistrate judge, in a report adopted by the district court in the Middle District of Florida, determined that fees should be denied under both the pre-Octane Fitness Eleventh Circuit and the Octane Fitness standards. In doing so, the court rejected the plaintiff’s argument that the Octane Fitness standard makes it “easier” to recover attorneys’

95. Id. 96. Id. at 21. 97. Case No. 3:12-CV-102, 2016 WL 5422073 at *2-3 (M.D. Ga. Sept. 27, 2016). 98. BMW of N. Am., LLC v. Cuhadar, Case No. 6:13-cv-40-Orl-37DAB, 2014 WL 5420133, at *2, 5 (M.D. Fla. July 10, 2014); see also BMW of N. Am., LLC v. Eurocar Tech. LLC, Case No. 6:13-cv-1215-Orl-18DAB, 2014 WL 10748119, at *2, 5 (M.D. Fla. July 15, 2014) (same).

Vol. 106 TMR 1033 fees.99 Rather, exercising its discretion, the court declined to award fees where the court had entered default judgment against the defendant in a “routine” trademark infringement case; the defendant did not litigate the case in an unreasonable manner because it “did not litigate the case at all.”100 The court reasoned “[a]ssuming that a Defendant had no legitimate defense to offer, confessing judgment by default is far more appropriate than filing a baseless answer and litigating the suit in bad faith.”101

At least one case in the Middle District of Florida implicitly rejected the reasoning of Cuhadar as it relates to default judgment and the award of fees under Octane Fitness. In High Tech Pet Products, Inc. v. Shenzhen Jianfeng Electronic Pet Product Co., Judge Conway found that although the case terminated upon default judgment, it was clear from the complaint that there was a “significant disparity” in the parties’ litigating positions and this was enough to award fees under Octane Fitness.102

An additional district court decision in the Middle District of Florida addressed a Magistrate’s Report and Recommendation denying fees using the Eleventh Circuit’s old standard, and determined that the Octane Fitness standard should be applied instead, but that fees should still be denied.103 After determining the Eleventh Circuit’s standard under § 1117 “is no longer good law” in light of Octane Fitness, the court went on to find that while the totality of the evidence supporting the validity of the plaintiff’s marks was weak, “[p]laintiffs’ overall case was at least colorable.”104 Moreover, while the plaintiffs and their counsel’s conduct during the litigation “left much to be desired” (they were previously sanctioned for particular discovery violations), there was no evidence their delays prejudiced defendant, and the manner of litigation was not unreasonable.105

Other district courts within the Eleventh Circuit have awarded attorneys’ fees using the Octane Fitness standard. In Donut Joe’s, Inc. v. Interveston Food Services, LLC,106 after noting that no Circuit Courts of Appeals had held that Octane Fitness does not govern the interpretation of “exceptional case” under the Lanham Act, Judge Hopkins in the Northern District of Alabama awarded fees using the Octane Fitness standard, stating “[w]e 99. Id. at *3. 100. Id. at *5. 101. Id. 102. No. 6:14-cv-759-Orl-22TBS, 2015 WL 926023, *2 (M.D. Fla. Mar. 4, 2015). 103. Fla. Van Rentals, Inc. v. Auto Mobility Sales, Inc., No. 8:13-cv-1732-T-36EAJ, 2015 WL 4887550 (M.D. Fla. Aug. 17, 2015). 104. Id. at *3. 105. Id. 106. 116 F. Supp. 3d 1290 (N.D. Ala. 2015).

1034 Vol. 106 TMR believe that the [Supreme] Court was sending a clear message that it was defining ‘exceptional’ not just for the fee provision in the Patent Act, but for the fee provision in the Lanham Act as well.”107 The plaintiff relied solely on the Eleventh Circuit’s pre-Octane Fitness standard to argue its case was not “malicious, fraudulent, deliberate or willful, and that no evidence of fraud or bad faith existed.” However, the court noted that this standard does not relate to the first factor of Octane Fitness—the strength of the party’s litigating positions. The plaintiff’s litigation position was found to be exceptionally weak because the plaintiff failed to raise questions of material fact on each of the first two elements of a trademark infringement action—the possession of a protectable mark and a likelihood of consumer confusion.108

L. The D.C. Circuit As noted, in developing the Octane Fitness standard, the

Supreme Court relied upon the D.C. Circuit’s 1985 decision Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant,109 interpreting “exceptional” in the Lanham Act to mean “uncommon” or “not run-of-the-mill.” Presumably, the Supreme Court’s implicit endorsement of this construction means that the D.C. Circuit will continue to refer to Noxell.

There has been one district court case in the D.C. Circuit on attorneys’ fees in Lanham cases since Octane Fitness. In Green v. Brown,110 the court did not reach the question of whether the case represents exceptional circumstances, finding an award of attorneys’ fees appropriate under the Lanham Act in view of the defendant’s default on the plaintiff’s counterfeiting claim.

M. The Federal Circuit The Federal Circuit has not had a case involving the award of

attorneys’ fees under the Lanham Act since Octane Fitness. Previously, in Waymark Corp. v. Porta Systems Corp.,111 the

107. Id. at 1293. 108. Id. at 1293-94. See also Tobinick v. Novella, Case No. 9:14-cv-80781, 2016 WL 4704945 (S.D. Fla. Sept. 8, 2016) (fees awarded where plaintiff on notice that speech at issue was not commercial speech after one defendant prevailed on summary judgment, but plaintiff nevertheless continued to pursue the same theory against the other defendant); CarMax Auto Superstores, Inc. v. StarMax Finance, Inc., Case No. 6:15-cv-898-Orl-37TBS, 2016 WL 3406425 (M.D. Fla. June 21, 2016) (side-by-side comparison of marks revealed strength of plaintiff’s position, court could not conceive of any “non-meritless defense” available to defendant, and defendant’s indifference to plaintiff’s two years of extra-judicial efforts to resolve the issue, made the case “exceptional”). 109. 771 F.2d 521, 526 (D.C. Cir. 1985). 110. 104 F. Supp. 3d 12 (D.D.C. 2015). 111. 334 F.3d 1358 [67 U.S.P.Q.2d 1303, 1306] (Fed. Cir. 2003).

Vol. 106 TMR 1035 Federal Circuit found that the award of attorneys’ fees under § 1117(a) was not “intimately related to patent law,” and thus it applied the law of the appropriate regional circuit. In that case, after stating the standards for “exceptional case” under Federal Circuit’s pre-Octane Fitness interpretation of the Patent Act and the Eleventh Circuit’s pre-Octane Fitness standard that a court should only award attorney fees in cases characterized as malicious, fraudulent, deliberate, and willful, the district court’s award of fees was reversed as a result of the court’s misunderstanding of the governing law on a standing issue relevant to the patent claims and on an improper requirement that that the plaintiff’s mark had not been registered when the complaint was filed.

V. DOES OCTANE FITNESS MAKE A DIFFERENCE IN THE AWARD OF FEES IN TRADEMARK CASES? In some circuits, Octane Fitness will make less of a difference

because the circuit’s pre-Octane Fitness standard and burden of proof was similar to the Supreme Court’s holdings in Octane Fitness and Highmark. For example, the Supreme Court implicitly endorsed the D.C. Circuit’s definition by relying upon Noxell. Similarly, in the Eighth Circuit, a district court found that the Octane Fitness standard is “substantively similar to the one currently applied by the Eight Circuit.”112 In these circuits fee awards may not significantly increase.

In other circuits, however, and particularly those that previously required bad faith, fee awards are likely to increase, just as they have increased in patent cases. There is at least an intuitive recognition that the Octane Fitness definition of “exceptional case” makes it easier to obtain a fee award. Courts have referred to the “lowered” standard,113 “lowered burden”114 or “more flexible” approach115 under Octane Fitness. Cases like Premium Balloon Accessories, Inc. v. Creative Balloons Manufacturing, Inc.116 also suggest that fee awards are more likely under Octane Fitness: the Sixth Circuit applied Octane Fitness to award fees under the Patent Act, but applied pre-Octane Fitness law and denied fees under the Lanham Act. As reflected in the 112. Mountain Marketing Grp., LLC v. Heimerl & Lammers, LLC, 2016 WL 2901735 (D. Minn. 2016). 113. Cross Commerce Media, Inc. v. Collective, Inc., 2014 WL 7323419 (S.D.N.Y. 2014). 114. First Mariner Bank v. The Resolution Law Grp., P.C., 2015 WL5255275 (D. Md. 2015). 115. Renna v. County of Union, N.J., 2015 WL 93800 (D.N.J. 2015); Monster Daddy v. Monster Cable Prods., Inc., 2014 WL 2780331 (D.S.C. 2014); Romag Fasteners, Inc. v. Fossil, Inc., 2014 WL 4073204 (D. Conn. 2014). 116. 573 F. App’x 547 (6th Cir. 2014).

1036 Vol. 106 TMR cases above, however, this trend toward more fee awards may take some time to materialize, as courts adjust to the new definition and move away from prior requirements of frivolousness and bad faith.

When filing a motion for fees in a Lanham Act case in these circuits, it may help to remind the court that the Supreme Court rejected a requirement that the case be baseless or frivolous before fees could be awarded. Instead, the Supreme Court held that an “exceptional” case “is simply one that stands out from the others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”117 On this latter point, the conduct need not rise to the level of sanctionable conduct in order to justify a fee award. Instead, the focus is on the totality of the conduct—for example, whether there was an aspect of “shakedown” or economic coercion in the case, or whether a party knowingly asserted weak positions or took steps to deliberately increase the costs of litigation, or whether the party persisted in presenting arguments that discovery had proven to be unfounded, and whether the case resolved on summary judgment. No one factor is determinative, so it is important to paint a picture of an exceptional case as a whole. Of course, any evidence of bad faith, frivolous arguments, or malicious conduct should be highlighted in a fee application regardless of where the case is pending.

117. Octane Fitness, LLC v. Icon Health & Fitness, 572 U.S. ---, 134 S. Ct. 1749, 1756 (2014).

Vol. 106 TMR 1037

INTENTION: IS IT TRULY IRRELEVANT TO THE

AWARDING OF DAMAGES OR PROFITS IN CANADA AND ABROAD?∗

By Tony Bortolin∗∗

I. INTRODUCTION Suppose you own a reputable Canadian company that has

innocently selected a mark for a product and worked hard to manufacture, market, and sell the product, only to find out that the mark happens to be registered or previously used by someone else. It is understandable that your company will likely have to stop using the mark in the other party’s domain, but should your company also be stripped of all its profits from such sales and otherwise have to compensate the plaintiff for all of its lost profits?

Like some other countries, Canada provides a cause of action for passing off at common law. It also has a trademark statute that provides for such causes of action as statutory passing off and trademark infringement.1 Unfortunately, again like some other countries, such statutory causes rarely specify whether intention2 is or is not an element of liability; the provisions are often silent, in which case they are open to interpretation.

Even apart from its possible role as an element of liability, the Canadian statute provides a general civil remedy which, since at least 1954, has expressly authorized the court to award damages or profits and certain other relief “as it considers appropriate in the circumstances.”3 Again, it does not expressly provide that intention can or cannot be taken into account as one of those “circumstances.” Arguably, this is also open to interpretation.

Within such area of uncertainty, there have been a number of decisions and commentaries in Canada and abroad indicating that defendant’s intention is “irrelevant” to the awarding of

∗ © 2016 Tony Bortolin (based on research to 2015). ∗∗ MacBeth & Johnson (Ontario law firm) and Dennison Associates (Canadian patent & trademark agency). (Any opinions herein are strictly those of the author.) 1. Canadian Trade-marks Act, RSC 1985, c. T-13 as amended, ss. 7, 19, 20. 2. For purposes of this article, “intention” may refer to a defendant’s “good faith” or “bad faith.” For example, bad faith may describe the intention that may be required as an element of liability while good faith may describe the intention that mitigates the quantum of monetary relief. 3. S. 53.2 (formerly s. 53) Canadian Trade-marks Act, supra note 1.

1038 Vol. 106 TMR substantial4 damages or profits in matters of passing off and trademark infringement.5 Such monetary relief might be awarded despite defendant’s good faith (or its lack of bad faith).

The premise of this article is that those decisions are based on one or more legal “mix-ups”6 and questionable rationales.7 This article thus concludes that the supposed irrelevance of intention should be reconsidered and handled more carefully by the courts and legislators as may be applicable.

The analysis below begins with a collection of judicial decisions indicating that intention is irrelevant.

II. TRADEMARK INFRINGEMENT AND PASSING OFF DECISIONS INDICATING THAT

INTENTION IS IRRELEVANT Within English common law, the earliest and most prominent

decision suggesting that intention is irrelevant within the law of passing off was Millington v. Fox (1838).8 Lord Chancellor Cottenham therein famously stated:

[The Court has] previously come to the conclusion that there was sufficient in the case to shew that the Plaintiffs had a title to the marks in question; and they undoubtedly had a right to the assistance of a Court of Equity to enforce that title. At the same time, the case is very different from the cases of this kind which usually occur, where there has been a fraudulent use, by one person, of the trademarks or names used by another trader. . . . . In short, it does not appear to me there was any fraudulent intention in the use of the marks. That circumstance, however, does not deprive the Plaintiffs of their right to the exclusive use of those names . . . .9

This holding has been considered as having “worked a fundamental change in the theory of trade mark protection.” Specifically, protection was thereafter perceived by some as being

4. This work questions the ability to award “substantial” damages or profits in the sense of an amount significantly greater than a token amount, sometimes referred to as “nominal.” In addition, in focusing on the relevance of intention in respect of such monetary relief, this work does not address the issue of whether intention should be relevant as a factor in assessing the particular issue of likelihood of confusion. Still further, intention must surely be relevant in respect of criminal liability, and punitive and exemplary damages. 5. As discussed in Part II. 6. As discussed in Part III. 7. As discussed in Part IV. 8. 3 Myl & Cr 338 at 352, 40 ER 956 (Ch) per LC Cottenham (acting in first instance). 9. Id. at p. 352 of My & Cr report (emphasis added); 961 of ER report.

Vol. 106 TMR 1039 based upon some sort of property right, rather than upon fraud (which, of course, requires fraudulent intent).10

A few years after Millington, the decision of Sandford V-C in Coats v. Holbrook (1845) contains a dictum that starts by indicating that defendant’s good faith was not “of any consequence.”11

In Coffeen v. Brunton (May 1849), U.S. Supreme Court Justice John McLean, while on circuit, held that, in view of Millington, the requirement of fraud was “much shaken, if not overruled” to the point that “an intentional fraud is not necessary to entitle the plaintiff to protection.”12 This principle was followed in such U.S. cases as Filley v. Fassett (1869)13 which was, in turn, followed in other cases.

The Rhode Island court in Davis v. Kendall (1850) applied the Millington principle in an action-on-the-case, indicating that the defendant is “still liable” whether the trademark is violated “by fraud or by mistake.”14

Page-Wood V-C in Welch v. Knott (1857) stated “[t]hat the defendant would not be entitled to use the plaintiff’s bottles in such a manner as, in fact, to mislead the public, although there might be no intention on his part to mislead, is clear. . . . In this Court the rule is clear, as laid down in Millington v. Fox.”15

Dale v. Smithson (1861)16 has been cited17 as holding that “[a]n action will lie for the piracy of a trade-mark, without regard to the defendant’s intention in using it.”

Many commentators suggest that the decisions of Lord Westbury in the 1860s establish trademarks as property, which, in turn, supports the notion that trademark protection is afforded regardless of defendant’s intention. For example, in Edelsten v. Edelsten (Jan. 28, 1863), Lord Westbury described two of the three issues in the case as: whether the plaintiff “had property” in the trademark and, if so, whether the defendants’ mark was

10. This has been confirmed by various authorities, including many without appreciating the distinction between requirements for injunctions and requirements for monetary relief discussed herein. As an example, see Prof. Grover C. Grismore, Fraudulent Intent in Trade Mark Cases, 27 Mich. L. Rev. 857, 860 (1929). Some other authorities as to the supposed effect of Millington are cited at various points below. 11. 2 Sand. Ch. R. 586 (N.Y.); Cox Am. TM Cases 20, 31 (spools of thread). 12. 4 McLean 516; 7 West Law J. 59; Cox Am. TM Cases 82; 2 Barb. Ch. R. 103; 5 F. Cas. 1184 (Cir. Ct. D. Ind.) (re Chinese Liniment). 13. 44 Mo. 173, 178 (S.C. Miss.); Cox Am. TM Cases 530, 540-41; 8 (N.S.) Am. L.R. 402 at 408 (cooking stoves). 14. 2 Rh. Is. 566; Cox Am. TM Cases 112 (Pain-Killer) (emphasis added). 15. 4 K & J 747, 751 (emphasis added); 70 ER 310, 312. 16. Cox Am. TM Cases 282; 12 Abbott Pr. Rep. 237 (N.Y. Common Pleas). 17. F.C. Brightly, Digest of the Decisions of the Courts of the State of New York, 1875 vol. 2 (Banks & Bros).

1040 Vol. 106 TMR substantially the same such that there was “an invasion” of that “property.” Lord Westbury also stated that the court will act “on the principle of protecting property alone, and it is not necessary for the injunction to prove fraud in the defendant . . . . The injury done to the plaintiff in his trade by loss of custom is sufficient to support his title to relief.”18

W.J. Ritchie C.J. for the majority of the Supreme Court of Canada in Canada Publishing Co. v. Gage (1885) stated that no one has the right to use the plaintiff’s mark in any way calculated to deceive, or aid in deceiving the public, to the detriment of the plaintiff “even when innocent of that purpose.”19

In Lever v. Goodwin (1887), Cotton, L.J. stated: “it is well known that both in trade-mark cases and patent cases, the plaintiff is entitled, if he succeeds in getting an injunction, to take either of two forms of relief” (damages or profits).20

In Cellular Clothing Co. v. Maxton (1889),21 Lord Chancellor Halsbury endorsed the principle allegedly indicated in Millington and stated that “[i]t is not necessary to establish fraudulent intention in order to claim the intervention of the court.”

Both Lever v. Goodwin and Cellular Clothing were cited by Kekewich J. in the passing off case of Saxlehner v. Apollinaris Co. (1897) In particular, he paraphrased Cotton L.J. by stating “the account of profits follows the injunction as a matter of course, as it does when the successful plaintiff asks it in a patent case.”22

Cellular Clothing and Saxlehner, in turn, were cited in a 1903 article on the subject of fraud by E.R. Coffin.23 The author was of the view that, while “[i]t appears that relief will not be given by the United States Supreme Court except in case of fraudulent intent,” the law in the English courts was “settled [that it was] immaterial whether the defendant’s motive be fraudulent or innocent.”24

Similarly, in the trademark infringement case of Boston Rubber Shoe Co. v. Boston Rubber Co. of Montreal (1902), Davies J., for the Supreme Court of Canada, stated “I doubt very much that it is necessary to find ‘fraud or fraudulent intention’ on the defendants’ part in order to grant relief.”25 Injunctive relief was 18. 1 De Gex J & Sm 185, 199, 46 ER 72, 78, at pp. 78‑79; 7 LT (Ch) 768, 769 (emphasis added). 19. 11 SCR 306 at 308-309. 20. 36 Ch D 5, 7; 4 RPC 492, CA Cotton LJ, Lindley LJ and Bowen LJ (emphasis added) affirming Chancery Division Chitty J. (1886), 36 Ch D 1; 4 RPC 492 (soap wrapper) 21. Cellular Clothing Co v. Maxton & Murray, [1899] AC 326 at 334-35. 22. [1897] 1 Ch 893 (emphasis added) (Hungarian bitter water). 23. ER Coffin, Fraud as an Element of Unfair Competition (1903) 16 Harv. Law Rev. 272 at 273 [1903 Coffin article]. 24. Id. at 273. 25. 32 SCR 315 at 328, and see 328-333.

Vol. 106 TMR 1041 granted and damages would have been granted as well except that they did not justify the expense of a reference in that case.26

Spalding v. Gamage (1915) is widely considered to represent a change in the law such that damages could be awarded against an innocent defendant in a passing off case.27 A speech by Lord Parker included the following: “Nor need the representation be fraudulently made. It is enough that it has in fact been made, whether fraudulently or otherwise, and that damages may probably ensue . . . .”28 And also: “It is sufficient to say that the misrepresentation being established, and being in its nature calculated to produce damage, the plaintiffs are prima facie entitled both to an injunction and to an inquiry as to damage . . . .”29

This principle, that intention is irrelevant as to liability, was also suggested by the Supreme Court of Canada in Robert Crean & Co. v. Dobbs & Co. (1930) where Lamont J. stated “[n]o one has a right to use a mark by which another’s goods are known for the purpose of passing off his goods as the goods of the other and, even when he is innocent of that purpose, he must not use it in any way calculated to deceive.”30

Sir Wilfred Greene M.R. in Draper v. Trist (1939) famously stated:

There is one matter which I can get rid of at once . . . I should be prepared myself to hold, if it were necessary to do so, that now, both in claiming damages and in claiming purely equitable relief, whether by way of injunction or by way of account of profits, or both, fraud is not a necessary element in the transaction.31 This dictum was approved in such cases as Sund v.

Beachcombers Restaurant Ltd. (1960)32 and Noshery Ltd. v. Penthouse Motor Inn Ltd. et al. (1969),33 which, in turn, were cited in subsequent cases.

26. Id. at 334. 27. As discussed, e.g., in Damages Against the Innocent Infringer in Passing Off and Trade Mark Infringement (1985) [Can.] IPJ 201, 204 by Catherine P. Best. Also in Damages against the Innocent Infringer [1996] EIPR 204 by R. Kelbrick. Although even these articles did not seem to recognize the mix-ups discussed herein. 28. A G Spalding & Bros v. A W Gamage Ltd (1915), 84 LJ Ch 449, 113 LT 198, 31 TLR 328, [1914-15] All ER Rep 147 at 149, 32 RPC 273 at 283. 29. Id. at 287 of RPC (emphasis added). 30. [1930] SCR 307 at 314 (emphasis added). 31. Draper v. Trist and Trisbestos Brake Linings Ltd, [1939] 3 All ER 513 at 517, [1939] 56 RPC 429 (CA) at 434 (emphasis added). 32. 34 CPR 225, 229 (BC SC). 33. 61 CPR 207, 218 (Ont HCJ) per Addy J (by citing the Sund case, id.).

1042 Vol. 106 TMR

In Saville Perfumery Ltd. v. June Perfect Ltd. and Woolworth & Co. Ltd. (1941), the plaintiff was awarded an election as between damages or an accounting (in a case involving both passing off and trademark infringement) without consideration of any good faith.34

In Parker-Knoll v. Knoll International (1962), Lord Denning stated: “It is not necessary that [the offending mark] should be intended to deceive or intended to cause confusion.”35 Similarly, Lord Guest in the same case stated “proof of intent to deceive is unnecessary” and reiterated the notion that it “was an essential element” only as part of the original doctrine “until the intervention of equity.”36

The Quebec Court of Appeal decision in Hébert & Fils c. Desautels (1971)37 has been cited, and even applied,38 as indicating that bad faith is not required to establish civil liability, again whether for passing off or trademark infringement.

In India, the Delhi High Court observed in Prina Chemical Works v. Sukhdayal & Co (1974) that “[i]t is now well settled that proof of fraud is unnecessary, whether the relief asked for is an injunction or damages.”39

In Marc-Aurele v. Ducharme (1976), Dube J. of the Canadian Federal Court, without citing authority, stated: “We are not concerned here with fraudulent intention on the part of the defendant. . . . Once the Court is satisfied that the goodwill has been interfered with and there has been confusion, then damages are presumed at law.”40

In Stringfellow v. McCain Foods (G.B.) Ltd. (1984), the English Court of Appeal stated that “the cause of action depends on the right of the plaintiff and the injury done to that right, not on the intention or motive of the defendant.”41

34. 58 RPC 147 (HL). 35. [1962] RPC 265, 273 (HL). 36. Id. at 290, and see 289. This case involved both passing off and infringement of a registered trademark. 37. [1971] CA 285, 291 (Qu); the plaintiff obtained a trademark registration after commencing the proceedings but before trial, and thus the decision related to both passing off and trademark infringement. 38. Compro Communications Inc. v. Communications Promo-Phone (1991), 41 CPR (3d) 260 at 272 (Qu S Ct). 39. ILR (1974) Delhi Vol. I 545 at para. 24 (DB Delhi High Court) (emphasis added). The Court applied Draper v. Trist (1939), above note 31, which is discussed further herein. It also cited Oertii v. Bowman (1957), which is discussed in text below at note 236. This feature of Prina Chemical Works was, in turn, approved in such cases as Crayons Advertising Ltd v. Crayon Advertising (2014), IA No. 11898/2013, para. 29 (Delhi High Court) stating: “Hence, actual fraud or damage is unnecessary is an action for passing off.” 40. 34 CPR (2d) 155, 162 (Can FTD) (emphasis added). 41. [1984] RPC 501 at 533-34 (emphasis added).

Vol. 106 TMR 1043

In Consumers Distributing Co. v. Seiko (1984), the Supreme Court of Canada stated:

[T]he passing off rule is founded upon the tort of deceit, and . . . the original requirement of an intent to deceive died out in the mid-1800’s . . . . See: Millington v. Fox (1838), 3 M. & Cr. 338, at p. 352; Perry v. Truefitt (Dec 1842), 6 Beav. 66, at p. 68, 49 E.R. 749, at p. 750; Cellular Clothing Co. v. Maxton & Murray, [1899] A.C. 326, at p. 334.42

In Ciba-Geigy Canada Ltd. v. Apotex Inc (1992),43 the same Court approved that passage. The Court also approved44 a passage from the House of Lords’ decision in Reckitt & Colman Products Ltd. v. Borden Inc. (1990) where Lord Oliver stated that passing off involves a misrepresentation “whether or not intentional.”45 Coincidently, Lord Oliver in Reckitt also stated that intention was “strictly irrelevant to the result”46 and referred to “the issue of fraud” as something “which is now no longer material.”47

In ConAgra Inc v. McCain Foods (Aust) Pty Ltd (1992), Lockhart J. of the Federal Court of Australia stated: “An intention by the defendant to deceive has not been a necessary ingredient in the cause of passing off since 1838 when Millington v. Fox decided that equity concerned itself with the protection of property rights of the plaintiff.”48

In Gillette UK Limited v. Edenwest Limited (1994),49 a relatively recent and prominent decision, the court purported to review the authorities and then expressly declared the principle that substantial monetary relief could be ordered despite innocence in respect of both passing off and trademark infringement in the U.K. Blackburne J. came to this conclusion first regarding trademark infringement.50 He then continued to review dicta regarding the issue in passing off cases such as those mentioned above and stated “those dicta point the way and justify me in the view . . . that dishonesty on the defendant’s part is not necessary before a plaintiff can recover damages (other than merely nominal damages) for passing off.”51 In addition, he stated: 42. [1984] 1 SCR 583 at 601 per Estey J [Seiko] (emphasis added). 43. [1992] 3 SCR 120 at 133 per Gonthier J [Ciba-Geigy]. 44. Id. at 142. 45. [1990] UKHL 12, [1990] 1 All ER 873 at 880 (mid), [1990] 1 WLR 491 at 499, [1990] RPC 341 (lemon juice plastic container shaped like lemons) [Reckitt]. 46. Id. 47. Id. at 881 (top). 48. [1992] FCA 159, 106 ALR 465, at para. 124 (Austr FCA) [ConAgra v. McCain Foods (1992)]. 49. [1994] RPC 279 (HCJ–Ch) Blackburne J. 50. Id. at 291 (of RPC). 51. Id. at 293 (of RPC) (emphasis added).

1044 Vol. 106 TMR “I can see no good reason why, if damages are recoverable from the innocent infringer of a registered trademark, they should not equally be recoverable for innocent passing off.”52

Prof. Wadlow later commented: “Although neither equity nor the common law would award pecuniary remedies against a wholly innocent defendant, [in view of Gillette v. Edenwest] it is doubtful if this partial defence has survived any useful extent in modern law.”53

Kerly’s Law of Trade Marks has taken an even tougher position on innocent defendants subsequent to Gillette v. Edenwest. This prominent long-standing text contains the flat statement that “[a] defendant cannot avoid an order for an inquiry by showing that he infringed innocently. The claimant has a right to damages regardless of the defendant’s state of mind, and that is so regardless of whether the cause of action is infringement of a registered mark, or passing off.”54

In Enterprise Rent-A-Car Co. v. Singer (1996), W. McKeown J. stated that “it is not necessary for a plaintiff to prove bad faith on the part of the defendants in order to prove passing off” and “[i]n passing-off cases intention to pass off is irrelevant.”55

In Kirkbi AG v. Ritvik Holdings Inc. (2005), the Court cited its decisions in Consumers Distributing Co. v. Seiko (1984) and Ciba-Geigy Canada Ltd. v. Apotex Inc (1992) in stating the following regarding passing off: “Misrepresentation may be wilful and may thus mean the same thing as deceit. But now the doctrine of passing off also covers negligent or careless misrepresentation by the trader.”56

In a decision concerning the BARBIE trademark (2006),57 the Court reiterated the above passage in Kirkbi. The BARBIE case also contained a dictum that has been interpreted58 as further supporting the principle that bad faith is not a prerequisite to establish passing off. The dictum includes the following:

[T]he relevant perspective of s. 6(2) of the Trade-marks Act [regarding what constitutes “confusion”] is not that of the respondent [subjective] but rather the perception of the

52. Id. at 291 (of RPC). 53. Wadlow, The Law of Passing-off, 2004. p. 313 (sect 5E; 5-43). 54. Kerly’s Law of Trade Marks and Trade Names (14th ed., 2005) at 19-140 (p 674). 55. [1996] 2 FC 694, 66 CPR (3d) 453 at 482 (emphasis added); aff’d (1998), 79 CPR (3d) 45 (FCA) (Canada). 56. [2005] 3 SCR 302 at para. 68 [Kirkbi] (case involving LEGO blocks) (emphasis added). The case was under s. 7(b) of the Canadian statute for a statutory form passing off. 57. Mattel, Inc. v. 3894207 Canada Inc., 2006 SCC 22, [2006] 1 SCR 772 para. 27 per Binnie J. 58. E.g., in Passing Off Section 7 of the Trade-Marks Act (2010) http://www.robic.com/admin/pdf/892/404E-BGA-2010.pdf.

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relevant mythical consumer [objective]. Mens rea is of little relevance to the issue of confusion: Lexus.59 It has been established since Edelsten v. Edelsten (1863)60 that a trade-mark is a proprietary right. If, as the appellant says, the respondent’s activities have trespassed on the marketing territory fenced off by its BARBIE trade-marks, it would be no defence for the respondent that it did not intend to trespass.61 In Remo Imports Ltd. v. Jaguar Cars Ltd. (2007), the

Canadian Federal Court of Appeal reiterated the notion expressed in Kirkbi that intention is irrelevant.62

In view of the above, trying to defend the innocent infringer from having to pay substantial monetary relief appears to be hopeless. But the above weight of authority is based upon one or more legal mix-ups as discussed below.

III. VARIOUS MIX-UPS IN THE ABOVE DECISIONS Mix-up #1: Not Distinguishing the Requirements That Are Merely Applicable to Injunctive Relief

It appears to be entirely correct that defendant’s intention is irrelevant to the issue of awarding an injunction at trial. This principle is not questioned herein. However, this principle has led to a mix-up in the law as if intention is irrelevant even for the purposes of awarding and assessing substantial monetary relief.

To understand why defendant’s intention can still be relevant to the issue of substantial monetary relief, it needs to be understood why defendant’s intention has been understandably held to be irrelevant to the issue of awarding a permanent injunction (also referred to as a “final” or “perpetual” injunction). The simple explanation is that the defendant is inherently no longer innocent after the defendant becomes aware that its activities are causing public deception (or “confusion”), and that the plaintiff has superior rights (together with any other elements of liability), especially after such issues have been conclusively established at trial. Regardless of the defendant’s good faith prior to trial, any continued use of the same mark after such conclusive pronouncements at trial would obviously be intentional.

59. Toyota Jidosha Kabushiki Kaisha v. Lexus Foods Inc., [2000] FCJ No. 1890, [2001] 2 FCR 15; 9 CPR (4th) 297 (FCA) para. 11. There, the Federal Court of Appeal in Canada strongly indicated: “The decision cannot be based on whether someone knew about the existence of the trade-mark or not. There is no doctrine of mens rea in the field of trade-marks.” 60. Supra note 18. 61. Supra note 57 at para. 90 (emphasis added). 62. 2007 FCA 258 (CanLII), [2007] FCJ No 999 (QL), [2008] 2 FCR 132, 60 CPR (4th) 130, at para. 89.

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As a related matter, the cases stating that defendant’s bad intention is not required did not necessarily indicate that intention is not required for significant damages or an accounting. That is, most of the earlier dicta did not actually indicate that intention was irrelevant even as to the issue of monetary relief, but simply that it was irrelevant for the purposes of obtaining a permanent injunction. Again, the element of intention is understandably imputed for the purposes of the defendant’s actions going forward, and it has thus been properly removed for the purposes of injunctive relief. But such basis for removing it for the purposes of injunctive relief did not provide a basis for removing it for the purposes of monetary relief. Authorities that have subsequently gone that extra step and mistakenly suggested that intention is not relevant to monetary relief have, with great respect, failed to recognize the distinction between injunctive and monetary relief.

Contributing to the mix-up is the fact that the jurisdiction of the English courts until the mid-1800s was divided such that the courts at law could award damages but not injunctions. Injunctions could only be obtained from the courts of equity (chancery). It is true that the courts of equity could also award a form of monetary relief, by way of an accounting of profits, but such monetary relief was not always sought, let alone granted, in the relevant cases.

In view of the above, it is most significant that certain decisions, such as Millington v. Fox and Coffeen v. Brunton, merely addressed injunctive relief.63 Further attention may also be required to the carefully chosen wording within the excerpt above where Cottenham L.C. stated the case before him was “very different from the cases of this kind which usually occur.”64 In context, this phrase means that the case was different from cases seeking monetary relief. In addition, his Lordship held the plaintiffs had a right “to the assistance of a court of equity to enforce that title.”65 Looking again at the context, this phrase means “enforc[ing]” that title by way of enjoining the infringer, rather than awarding monetary relief. Similarly, his Lordship held that the lack of fraudulent intention does not deprive the plaintiffs “of their right to the exclusive use” of their names.66 Again, this phrase does not necessarily go beyond merely enjoining the infringer. Cottenham L.C. even refused to award costs to the plaintiff in that case. As a result, his Lordship was emphasizing 63. In particular, some authorities may not have appreciated that, in Millington, an accounting of profits was originally sought but was dropped by the plaintiff prior to the decision; above note 8 at p. 352, 355 of My & Cr report; 962, 962-3 of ER report. As to Coffeen, see supra note 12. 64. Id. 65. Id. 66. Id.

Vol. 106 TMR 1047 the good faith of the defendants — not to enunciate a new principle that an accounting could be ordered despite good faith but to support the refusal to award costs despite the general practice of awarding costs to a successful party.

The distinction between the relevance of intention for the purposes of awarding damages or profits, and its irrelevance (or being imputed67) for the purposes of awarding injunctions, was set forth expressly in other cases. For example, about four years after Millington, Maule J. in Crawshay v. Thompson (1842) stated that the effect of the decision in Millington was that “the defendants would have been in the wrong if they had continued to use the plaintiff’s marks” after it was “clearly shewn” that the use of this mark would have been an injury to the plaintiffs.68

Millington was also correctly understood in Coats v. Holbrook (1845).69 While, as noted, Sandford V-C stated that good faith was not “of any consequence,”70 a broader extract from that sentence reads that good faith was not “of any consequence in respect of the injunction.”71 In addition, good faith was indeed considered in that decision as a possible “consequence” on the issue of whether to award costs in the same way it was apparently relevant in respect of costs in Millington. So good faith was not of any “consequence” or relevance as to an injunction, but was relevant as to costs. Taking good faith into consideration for the purposes of awarding costs is akin to taking good faith into consideration for the purposes of awarding damages and an accounting of profits. This is distinct from the question of whether to award an injunction, which speaks to the future, where the conduct is inherently no longer innocent. Costs, damages, and profits all address conduct prior to trial which may have been innocent, whereas injunctions address conduct after trial.

In Amoskeag Mfg. Co. v. Spear (Oct. 1849 N.Y.), Duer J. certainly understood the “true explanation” of Millington, when he stated “where no fraud can be justly imputed, where the use of the name or style originated in mistake, and not in design . . . the party may be exempted from damages and cost” although “the continuance of the use may be justly restrained, since it involves a violation . . . that, if persisted in, with a knowledge of the fact, would be fraudulent.”72 Similarly, he stated that “an injunction

67. The possibility that intention is imputed rather than irrelevant is discussed further in Mix-up #5. 68. [1844] 4 Manning & Granger 357, 383-84; 134 ER 146, 157 (emphasis added). 69. Supra note 11. 70. Text supra note 11. 71. Supra note 11 (emphasis added). 72. Cox Am. TM Cases 87 at 94 (emphasis added).

1048 Vol. 106 TMR must be granted whenever the public is in fact misled, whether intentionally or otherwise.”73

This distinction — that bad faith was required for damages rather than for an injunction — was also noted in the U.S. case of Peterson v. Humphrey (1857).74

Cartier v. Carlile (1862) is a case in which profits were awarded against the defendant, and in doing so Sir John Romilly M.R. stated “I am of the opinion that the liability to account for the profits is incidental to the injunction.”75 However, the distinction between injunctive relief and the ability to “recover” (meaning to recover funds, whether in equity or at law) was set forth in the argument on behalf of the defendant76 and Sir Romilly stated “I consider the rule at law and in equity to be the same.”77 At the time, fraudulent intention was still relevant to recover monetary relief at law and in equity. Sir Romilly did not say innocence was irrelevant.

In addition, it needs to be understood that Sir Romilly was addressing the specific situation where there might not be intention in the usual sense but rather in the form of willful blindness. In particular, he held: “[T]he fact of the defendant not knowing to whom the trade mark he copies belongs, does not, in the slightest degree, affect the right of the owner to an injunction and to an account of the profits . . . .”78 Otherwise, as he explained within the same passage, there would be “serious consequences” in that a defendant could escape liability by “carefully abstaining” from inquiring as to who owned the mark.

Such context also helps to explain Sir Romilly’s comments within the decision that intention is to be imputed (only) in “these” cases.79 He indicated that one question in such cases is “whether the mark used by the Defendant is a colorable imitation of a genuine trade mark of the Plaintiff.”80 In context, the term “colorable” meant that the imitation was intentional. This is confirmed by his next comment that “that is what in Crawshay v. 73. Id., n. 72 at 95m (emphasis added). This reading of his decision is further confirmed at p 101 where Duer J. said that, even if he could wholly acquit the defendants of any fraudulent intent, it still remains true they have adopted a similar design, and that the public has been misled and that “the concurrence of these facts is alone sufficient to render it the duty of the court to interfere by an injunction.” (emphasis added). 74. Cox Am. TM Cases 212, 214 and in the headnote; 4 Abb Pr 394; (NY) Mitchell J (a Broadway partnership case). 75. (also spelled as “Carlisle” in the side-note of the report, but spelled as “Carlile” in the body of the report) 31 Beav. 292, 298; 54 ER 1151. 76. Id. at 296-7. 77. Id. at 297. 78. Id. at 298 (emphasis added). 79. Id. at 298. 80. Id. 75 at 297.

Vol. 106 TMR 1049 Thompson (1842) was decided by the jury.”81 One of the questions decided by the jury in Crawshay was explained by Justice Maule as follows:

The question for the jury was, whether such a representation [meaning “whether the mark itself represented that the iron was manufactured by the plaintiff”] was in fact made. It was left to them to say, whether the mark was used by the defendants with an intention to deceive. And that was a proper question to leave . . . .82

That Sir Romilly’s use of “colorable imitation” refers to intentional imitation is confirmed by his subsequent sentence in Cartier where he says: “[I]f it be found that there has been a colorable imitation of a trade mark, it follows that the person making it intended to imitate the genuine trade mark belonging to some individual, though he might not have known his name . . . .”83 Again, he was not saying intention is irrelevant as to monetary relief, but that it could be deduced or imputed in such cases. Sir Romilly’s comments in Cartier are also better understood by appreciating that the defendants were supplied by a customer with a sample of the plaintiff’s cotton and labeling thereof, all with the intention that the defendants prepare an imitation for that customer to then sell; the defendants mindfully prepared an imitation of a label that clearly belonged to someone else. The defendants even imitated the plaintiff’s manner of wrapping and their cross design. Thus, the imitating was quite intentional. The only defense based on good faith was that the defendants did not know who owned those markings. In other words, defendants knew they were copying someone’s markings, they just did not know whose.84

The above reading of Sir Romilly’s decision in Cartier is confirmed by his decision in Moet v. Couston (1864) in which he refused an accounting of profits because the defendants had no knowledge that the champagne they were reselling was not truly made by the plaintiff.85

Some have expressed the view that Cartier and Millington constituted a line of authority supporting the awarding of monetary relief against innocent infringers and thus find it 81. Id. (emphasis added). 82. Supra note 68 at 381 (of Manning & Granger) (emphasis added), p. 146 (of ER). 83. Supra note 75 at 298 (emphasis added). 84. The other defense discussed in the decision was that certain markings were descriptive, but no evidence was discussed within the decision so as to corroborate this. Overall, by no means was this a case where a defendant properly established the good faith belief that the markings were descriptive, or that they had, for example, selected a trademark which happened to be already in use by someone else completely as a coincidence, or where the defendant was simply reselling some goods which they purchased thinking they were genuinely made by the plaintiff, and so forth. 85. 33 Beav. 578; 55 ER 493; 10 LT Rep (NS) 395.

1050 Vol. 106 TMR surprising that Sir Romilly did not apply Cartier in Moet v. Couston even though Cartier had been cited in Moet v. Couston.86 However, Cartier and Millington did not constitute such a line of authority. In addition, Sir Romilly in Moet v. Couston went further than merely cite Cartier; he discussed it, and distinguished it, when he held:

If a man manufactures goods himself and puts upon them the trade-mark of another, though he may not know to whom that mark belongs [precisely as in Cartier], he must at least know that he himself had no right to the mark. That knowledge makes him liable to account for the profits he may have realised by his conduct. But if a man [as in this case, Moet v. Couston] buys goods from a third party, believing them to be genuine, while in fact they are spurious, it is not until he has been told that they are so that he can be considered to be guilty of any fraud, or to be liable to render any account.87 As to the decisions of Lord Westbury in the 1860s supposedly

establishing trademarks as property to be protected regardless of defendant’s good faith, he did not specifically state that intention is not required for the purposes of obtaining monetary relief. On the contrary, his Lordship instead clearly understood the distinction between the requirements for monetary and injunctive relief. For example, in Edelsten v. Edelsten (Jan. 28, 1863), he precisely identified the third of the three issues in the case as “whether the defendants have used the plaintiff’s trade-mark with knowledge of the right of the plaintiff.”88 And when Lord Westbury stated “it is not necessary . . . to prove fraud,”89 a fuller extract from that statement shows that he was very careful in saying “it is not necessary for the injunction to prove fraud.”90 His recognition of the distinction between intention not being necessary for an injunction and it being necessary for a monetary award is also reflected where, still in the same passage, his Lordship stated:

The last question [namely, “whether the Defendants have used the Plaintiff’s trade mark with knowledge of the right of the Plaintiff”] is material with reference to the extent of the relief to be granted. For although it is well founded in reason, and also settled by decision, that if A. has acquired property in a trade mark which is afterwards adopted and used by B. in ignorance of A.’s right, A. is entitled to an injunction; yet he is not

86. James Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Hart Publishing 2002) at 237-238. 87. Supra note 85 (emphasis added). 88. Supra note 18 (LT) at 769 (De Gex J & Sm) at 199 (ER) at 78. 89. As quoted above in text at note 18. 90. Supra note 18 (emphasis added).

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entitled to any account of profits or compensation, except in respect of any user by B. after he became aware of the prior ownership.”91

Such comments indicate that Lord Westbury did not in any of his decisions actually remove the element of fraudulent intention for the purposes of monetary remedies, despite any of his famous comments, in this decision and in others, that trademarks constitute property.92

Such comments by Lord Westbury in Edelsten also help clear up any confusion he may have caused by his comments during the first level of appeal in Leather Cloth Co. v. American Leather Cloth Co. (Dec. 21, 1863). For example, in the opening part of his decision he stated:

[T]he right to give relief to the trader whose trade has been injured by the piracy appears to have been originally assumed by reason of . . . the necessity of protecting property . . .

. . . The court will grant relief, although the deft. has no intention of selling his own goods as the goods of the plt. or of practising any fraud either on the plt. or the public. If the deft. adopts a mark in ignorance of the plt.’s exclusive right to it, and without knowing that the symbols or words so adopted and used are current as a trade mark in the market, his act, though innocently done, will be a sufficient ground for the interference of the court. . . . 93

However, this needs to be understood in context, not only of his rulings in such other cases as Edelsten,94 but even of a larger extract from the above passage in Leather Cloth as follows:

Upon a review of the numerous cases which have been decided in this court on the subject of trade-marks, there appears to be some uncertainty and want of precision in the language attributed to different judges, as to the ground on which a court of equity interferes to protect the enjoyment of a trade-mark . . . At law the remedy for piracy of a trade mark is by an action on the case in the nature of a writ of deceit. This remedy is founded upon fraud . . . In equity the right to give relief to the trader whose trade has been injured by the piracy appears to have been originally assumed by reason of the

91. Supra note 18 (all emphasis added). 92. There are also other reasons as to why Edelsten does not actually support the notion that intention is irrelevant with respect to monetary damages, discussed below, e.g., in text at notes 204-212. 93. 4 De Gex J & Sm 137, 33 LJR (NS) Ch 199, SC 12 WR 289, Cox Am. TM Cases 686, SC 10 Jur (NS) 81; aff’d (1865), 11 Jur (NS) 518, LR 11 HLC 523; 11 ER 1435 (1863) 32 LJ Ch 548; (1863) 8 LT 227 (emphasis added). 94. As just discussed in text at notes 88-92.

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inadequacy of the remedy at law [which remedy was merely monetary at the time], and the necessity of protecting property, of this description by injunction [which remedy at the time could only be obtained in equity].

I]t is not requisite for the exercise of the jurisdiction that there should be fraud or imposition practised by the deft. at all. The court will grant relief [“by injunction” as mentioned in the preceding paragraph], although the deft. has no intention of selling his own goods as the goods of the plt. or of practising any fraud either on the plt. or the public. If the deft. adopts a mark in ignorance of the plt.’s exclusive right to it, and without knowing that the symbols or words so adopted and used are current as a trade mark in the market, his act, though innocently done, will be a sufficient ground for the interference of the court [again “by injunction”], as is plain from the decision of Lord Cottenham in the case of Millington v. Fox, to which I entirely assent. . . .95

He concluded this discussion by stating “the true principle, therefore, would seem to be that the jurisdiction of the Court in the protection given to trade marks rests upon property, and that the Court interferes by injunction. . . .”96

Within this portion of the decision, Lord Westbury also approved the words of Lord Thurlow in Webster v. Webster (1791)97 that, ‘[t]he fraud upon the public is no ground for the plaintiff’s coming to this court.’ But again this was for the purposes of discussing the ability of a plaintiff to come to this court, meaning the court of equity for an injunction. It should also be clear from the larger extract above from Leather Cloth that Lord Westbury was not contesting, but actually confirming, that fraudulent intention was indeed required for the purposes of relief within the courts at law, meaning for damages (“At law the remedy for piracy of a trade mark . . . is founded upon fraud”98).

In view of all the above, there was nothing in the comments of Lord Westbury intended to state that it was unjust that the courts at law required fraudulent intention for the purposes of monetary relief.

It is proposed that the distinction between intention not being necessary for an injunction and it being necessary for monetary relief was also understood in the decision of Page Wood V-C at first instance in Leather Cloth Co. v. American Leather Cloth Co. (Jul. 8, 1863). The Vice-Chancellor referred to Millington as a case

95. 4 De Gex J & Sm at 138-141 (emphasis added). 96. 4 De Gex J & Sm at 142 (emphasis added). 97. (1791), 3 Swanst. 490, 36 ER 949. 98. This is from the passage quoted at supra note 95.

Vol. 106 TMR 1053 where the court “will grant an injunction where no evil intent can be attributed to the Defendant.”99 His Lordship added that the court of equity may hold that the defendant will commit a fraud “if he continue to do the act.”100 This was reiterated by Wood V-C in his decision at first instance in McAndrew v. Bassett (Mar. 4, 1864), where he stated:

I could never understand why the case of Millington v. Fox introduced any difficulty. The principle of Millington v. Fox is this, that although a person has used another man’s trade-mark perfectly innocently, if he continues for one moment after he has been told of it to use another man’s trademark, he does so fraudulently. . . .101

A couple of years later, Page Wood V-C in Ainsworth v. Walmsley (1866) held:

The use of the name of another manufacturer, whether done scienter102 or not, is an interference with his business, which this court will interpose to prevent, on the ground that the Defendant is endeavoring to pass off the goods of his own, or somebody else’s manufacturer, as the manufacture of the Plaintiff.103

In view of the emphasized wording, the dictum reads like another indication that intention is irrelevant. However, such dictum needs to be read in the context of the jurisprudence just discussed. Moreover, even this excerpt itself indicates merely that the court will interpose “to prevent” such conduct, meaning, by way of injunctive relief, not monetary relief. In addition, after this dictum, the Vice-Chancellor proceeded to discuss, as a separate point, how far the defendants were “answerable” (monetarily) for the use of the plaintiff’s name, and he ultimately denied such monetary relief on the very basis of the defendants’ innocence.104 Accordingly, these cases cannot be soundly cited as supporting the notion that monetary relief can automatically be granted as against an innocent infringement.

Singer Manufacturing Co. v. Wilson (Dec. 13, 1877)105 is another case where the distinction between the relevance of 99. 1 Hem & M 271 at 287 (Page Wood V-C) (Ch) (emphasis added), reversed on other grounds. 100. Id. (emphasis added). 101. [1864] 33 LJ Ch 561 at 564 (emphasis added); aff’d, LC Westbury (May 7, 1864), [1864] 33 LJ Ch 566, 4 De Gex J & Sm 380; 10 Jur (NS) 492. 102. Here the term scienter is used as “knowingly” (an adverb). 103. [1866] LR 1 Eq 518, 524-25 (emphasis added) (case cited by the SCC in the BARBIE case). 104. Id. (supra note 103) at 526-27. 105. [1878] 47 LJR (NS Ch D) 481; 3 AC 376; 34 LT Rep (NS) 858; (HL w Lord Cairns); an appeal from (1876), 2 Ch D 435 at 453, (CA per Mellish LJ).

1054 Vol. 106 TMR defendant’s good faith for the assessment of monetary relief and its lack of relevance for injunctive relief is explained by at least some of the justices. The House of Lords was unanimous in indicating that fraudulent intention need not be proved to obtain protection for a trademark, but again this was protection in the form of a perpetual injunction. While Lord Chancellor Cairns prominently indicated that “[i]n this Court, the rule [that defendants’ innocence was irrelevant] is clear, as laid down in Millington v. Fox,”106 he was merely discussing the irrelevance of defendants’ innocence as to the injunction. This is why, in the same passage, his Lordship commented “[h]ow far that doctrine [of ignoring innocence] is capable of being reconciled with the cases at law which the scienter has been held to be essential in order to enable the plaintiff to recover (that is to recover damages), it is not material to consider.”107 He clearly understood the distinction between intention not being necessary for an injunction and it being necessary for monetary relief, especially since he was counsel in such cases as Edelsten, Moet v. Couston, McAndrew v. Bassett, and American Leather Cloth.

Similarly, Lord Blackburn in Singer Manufacturing Co. v. Wilson made it clear:

This is not an action to recover damages for a wrong already committed, but an injunction to prevent a wrong threatened . . . . The injunction should be granted (whatever might be the case as to the account) whether the defendant heretofore meant it to produce that effect or not . . . . I am not as yet prepared to assent either to the position that there is a right of property in a name, or, which seems to me nearly the same thing, to assent, to its full extent, to the proposition that it is not necessary to prove fraud. Neither position has, I think, ever been the ground on which a decision of this House has proceeded.108

Lord Chancellor Cairns further explained in this case that, even if the defendant “was ignorant of the plaintiffs’ right in the first instance, he is, as soon as he becomes acquainted with them, and perseveres in infringing upon them, as culpable as if he had originally known of them.”109 The same point was indicated by

106. Id. at 489 [of LJR]. 107. Id. at 489 [of LJR] (emphasis added). Lord O’Hagan said the same at 491; e.g.: “the law ought not to permit, and will not permit, the continuance of the invasion whatever may have been its origin” (emphasis added). 108. Id. at 493 [of LJR] (emphasis added). 109. Id. at 488 [of LJR] (emphasis added). This decision, and even this very dictum, was cited as if it supports monetary relief despite good faith, in Callmann on Unfair Competition, Trademarks, and Monopolies, s. 23:69, titled Monetary Relief—Wrongful Intent (at note 9, on pp. 23-791 of 2008 rel).

Vol. 106 TMR 1055 Lord Blackburn in this case as follows: “[T]he injunction should be granted, whether the defendant heretofore meant it to produce [passing off] or not; for if he persevered, as he threatened to do in this course, after learning that it does produce this effect, he would (unless in very exceptional cases) do a wrong, injuring the plaintiffs, and should be prevented from doing that wrong.”110

As explained by James L.J. in Johnston v. Orr Ewing (1882): It is not necessary for this case [being for injunctive relief] to decide that a man actually intended to tell a lie . . . . [S]upposing by some accident a man had inadvertently used a ticket [meaning a tag, label, mark] which was so calculated to deceive the ultimate purchasers, and therefore so calculated to injure the Plaintiffs in their legitimate right of property in a trade mark, the moment the attention of the Defendants or any persons in their position is called to the fact of the similarity of the two marks, and to the complaint of the persons who owned the first mark, that it was likely to injure them, it was his duty to immediately discontinue the use of the trade mark complained of; and however honest or inadvertent the original mistake may have been, the continuation of the use of it after that was pointed out is itself sufficient evidence that of a fraudulent intention. The fraud would then consist in continuing to do it, even if there had been an original inadvertence in the use of it.111

Baggallay L.J. in the same proceedings stated the same, in his words: “[E]ven if they had done it through ignorance or through inadvertence they cannot be allowed to continue to use a trade mark of a character which would be calculated to lead to the deceit . . . .”112

The distinction between injunctive and monetary relief was explained, at length, by Lord Esher M.R. of the same court, in Turton v. Turton (1889) where he quoted and discussed113 some of the dicta of Lord Blackburn in Singer Manufacturing Co. v. Wilson.114 For example, Lord Esher stated:

If you were asking for damages for what was passed . . . you have to prove he had intended it. You would have to prove that what he was doing was fraudulent. That is clear. . . . But he [Blackburn L.J.] goes on and says that under those circumstances the plaintiff having shown the facts and what

110. Id. at 493 [of LJR]. 111. 42 LT Rep NS 67 at 69 (emphasis added); LR 13 Ch D 434 at 453-4 (CA); aff’d (1882), LR 7 AC 219; 51 LJ Ch 797 (HL) (yarn). 112. Id. at p. 69 LT, p. 457 Ch D. 113. 42 Ch D 128, 137-39. 114. Text supra note 108.

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was done before would not be called upon to prove the fraud in order to get an injunction. Why? Because he says after the matter had been made clear to the defendant and the injury he had been doing, not by taking his own name but by taking another name, had been pointed out, then if he has persevered as he threatened to do after learning that what he was doing produced these effects, he would, unless in very exceptional cases, do a wrong.115

The distinction was effectively reiterated by Cotton, L.J., also in Turton, in the following passage:

No man must pass off his goods as the goods of another. Of course, that may be done unintentionally; but where there is a manifest and natural meaning in the words used that the goods are the goods of somebody else . . . he would be stopped from doing so as soon as he is aware of the facts which make the prima facie intention and result of what he is doing, passing off his goods as the goods of somebody else.116

Such passages remove the element of intention, or otherwise declare it to be imputed, solely for the remedy of having the activity “stopped.” They expressly do not remove intention from the issue of substantial monetary relief. It is hard to find a single judicial authority or legislative body having acknowledged this, and then nevertheless pronouncing that full damages or an accounting of profits are to be awarded despite innocence.

The recognition of the distinction by the Court, including Cotton L.J., in Turton is especially significant in that it effectively overruled the dictum of Cotton L.J. in Lever v. Goodwin where he had clearly overlooked the distinction and simply assumed it was well known that an accounting could be awarded despite innocence.117

The above overruling of the dictum in Lever v. Goodwin is also significant in that it undermines the reiteration of the dictum in such decisions as Saxlehner (1897).118 In particular, Kekewich J. in Saxlehner (1897) struggled with the issue of whether an accounting automatically follows the granting of an injunction, and held that it did, but only on the basis of being bound by the authority of Lever v. Goodwin. He did not recognize the distinction or the overruling.

Looking now at Cellular Clothing Co. v. Maxton (1889), as mentioned above, Lord Chancellor Halsbury endorsed the principle allegedly indicated in Millington; he quoted a lengthy passage

115. Supra note 113 at 138. 116. Supra note 113 at 141-2 (emphasis added). 117. Text supra note 20 citing p. 7 of 36 Ch D. 118. Text supra note 22.

Vol. 106 TMR 1057 from that decision, and introduced it as if “Lord Cottenham . . . goes out of his way to say very emphatically that [fraudulent intention] is not at all necessary in order to constitute a right to claim protection against the unlawful use of words or things . . . It is not necessary to establish fraudulent intention in order to claim the intervention of the court.”119 However, the references to intention in Maxton (and Millington) were for the purposes of obtaining “protection” and the “intervention” of the Court; Lord Halsbury (as with Lord Cottenham in Millington) did not expressly indicate intention was irrelevant for the purposes of monetary relief. On the contrary, Lord Halsbury strongly agreed “with almost every word”120 of the judgment of the trial judge, who explained that, while it was not necessary to prove fraud, and that while there is a “legal wrong” if the marks are confusing, nevertheless: “innocence of the act, may, of course affect the question of remedy.”121 Accordingly, even Maxton is not strong support for the principle that significant monetary relief can be easily awarded against the innocent defendant. On the contrary, as per the approval of the trial judge’s comment, Maxton may actually support the continued relevance of innocence for the purposes of deciding whether to award damages or profits.

It has been suggested that a statement of Lopes L.J. at the court of appeal level of Reddaway v. Banham (1892) supports the existence of two separate causes of action for passing off, one at law (requiring intention), and the other in equity (supposedly not requiring intention).122 The passage in question is where his Lordship commented:

The law applicable to this case may be stated as follows: [1] If a person sells his goods with the intention of deceiving purchasers, of inducing them to believe his goods are the goods of another, this is actionable, and entitles the latter to recover nominal damages, even though no special damage is proved. [2] If an article has acquired a distinctive meaning in the trade, connecting it with a particular person’s manufacture, and another so advertises, or describes, or makes up his goods as to lead purchasers to believe, or to create a probability of their believing, that they are buying the goods of the former, when in fact they are buying the goods of the latter (and this

119. Supra note 21 (emphasis added). (And recall that the passage in Maxton is important as it was in turn cited, for example, in Consumers Distributing Co. v. Seiko (1984) [text above at note 42], Boston Rubber Shoe (1902) [above note 25 at 329-30] and in the 1903 Coffin article [supra note 23 at 279]. 120. Supra note 21 at 322. 121. (1888), 5 SLT 367 at 369 (emphasis added). 122. See, e.g., see Best article, supra note 27, at 212-213, and see 202-203.

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though there is no intention to deceive, and no special damage proved), a court of equity will grant relief by way of injunction. The fraudulent intention is essential in the first case; it is unnecessary in the second.123

However, in reviewing the overall passage, it appears that insufficient attention has been drawn to the fact that his Lordship described the action at law as being a case where the plaintiff is entitled to seek “damages” (meaning, a form of monetary relief) whereas the claim in equity was described as a case for relief “by way of injunction.” So, when indicating that fraudulent intention was “unnecessary” in equity, Lopes L.J. was discussing that it was unnecessary for the purposes of injunctive relief; he was not discussing the ability of the court in equity to grant monetary relief. Accordingly, he did not actually contradict the distinction between intention not being necessary for an injunction and it being necessary for monetary relief and did not enunciate the principle that fraudulent intention was “unnecessary” in respect of deciding whether to award monetary relief.

To explain this even further, some have seen the two causes of action — the one at law and the other in equity — as being inconsistent in that one has required fraudulent intention and that the other seemingly has not. With respect, there has been no inconsistency; as mentioned above, at least during the relevant years in the 1800s, the cause of action at law could not be for an injunction, and was thus focused on monetary relief (in the form of damages), and thus intention was expressly maintained as an element; meanwhile, injunctive relief was sought pursuant to the cause in equity, in which case intention was imputed as of trial and thereafter. The difference between the two claims was not based so much on the type of court, but the type of remedy, one addressing past activities and the other addressing those in the future.

In a similar vein, L.J. Lindley therein stated: “To obtain an injunction in a case like the present it is not necessary to prove an intention to mislead.”124 This has been cited in such cases as Bow City Delivery Ltd. v. Independent Car Co. Ltd. (1972)125 as if the court should “not be concerned with fraudulent intention” even in a case for damages. However, as explained above, L.J. Lopes did not go that far, and the same can be stated regarding L.J. Lindley. The very excerpt from L.J. Lindley clearly states that intention is not necessary “[t]o obtain an injunction in a case like the present”; this is entirely consistent with the distinction between injunctive 123. 9 RPC 503 at 508 (emphasis added), [1892] QB 639, 67 LT Rep NS 301; appealed [1896] AC 199 (camel hair belting, former employee). 124. Id. at p. 507 (of RPC), p. 644 (of QB) (emphasis added). 125. 10 CPR (2d) 51, 55 (Canada–Alta SC TD).

Vol. 106 TMR 1059 and monetary relief. In addition, this passage in Reddaway clarified this even further, citing Millington as a case for an injunction, and also citing Johnston v. Orr Ewing (1882) where the distinction was enunciated.126 The distinction was echoed by A. L. Smith L.J. in Reddaway.127

In Boston Rubber Shoe (1902), Davies J. did not mention the distinction between injunctive and monetary relief when discussing intention. While Davies J. relied heavily upon Maxton, he did not recognize the subtleties of Maxton or of other cases. Thus, his suggestion that it is unnecessary to find ‘fraud or fraudulent intention’ on the defendant,128 at least as far as monetary relief is concerned, is unsound.129

U.S. Justice Oliver Wendell Holmes understood the distinction. In Straus v. Notaseme Co. (1916)130 the eminent Justice was dealing with a case for “unfair competition” (passing off) and he indicated that the permanent injunction would be maintained as it was “unfair to continue the use of a label so similar . . . But it does not follow that the defendants are chargeable with profits as a matter of course.” Accordingly, the order for profits was reversed because intention was not established.

As to Spalding v. Gamage (1915), a broader extract from the passage partially reproduced above131 reads:

Nor need the representation be fraudulently made. It is enough that it has in fact been made, whether fraudulently or otherwise, and that damages may probably ensue, though the complete innocence of the party making it may be a reason for limiting the account of profits to the period subsequent to the date at which he becomes aware of the true facts.132

In other words, the Court understood the distinction between innocence being irrelevant or imputed for the purposes of an injunction and it being relevant for monetary relief, and this is confirmed by the fact that the Court cited Edelsten v. Edelsten (1863)133 which expressed the distinction clearly.134 This appears to

126. Text at notes 111-112. 127. Supra note 123 at p 509-510 (of RPC). 128. Text above at note 25. 129. The impugned dicta in Boston Rubber Shoe can also be distinguished on the basis that it was not a case where the defendant was actually acting in good faith, as mentioned below in Mix-up #3. 130. 240 U.S. 179, 183 (U.S. Sup. Ct.) (emphasis added). 131. Text above at note 28. 132. Supra note 28 (emphasis added). 133. Supra note 18. 134. Text above at note 29.

1060 Vol. 106 TMR have been overlooked in a number of cases135 relying upon Spalding v. Gamage as if innocence was irrelevant for the purposes of monetary relief.

Still further, the other excerpt of Lord Parker136 from Spalding v. Gamage indicated that the successful plaintiffs are “prima facie” entitled both to an injunction and to an inquiry. The dictum did not foreclose the relevance of good faith. The same can be stated of the dictum of Lord Parmoor when he stated: “A plaintiff who establishes a case of this character is entitled to an injunction and, if necessary, to an inquiry into damages.”137 There was no statement that innocence was fully irrelevant for the purposes of damages or profits, let alone any attempt to support such a notion with any authorities.

In the Supreme Court of Canada in Hurlbut Co. v. Hurlburt Shoe Co. (1925), the decision of Sir Lyman Duff J. contains a lengthy sentence which states: “[N]o man is entitled by the use of his own name or in any other way to pass off his goods as the goods of another . . . even, without the conscious intention of doing so . . . .” But the sentence continues: “and if, when he becomes aware of the fact that such is the effect of his conduct, he persists in that conduct . . . he cannot be said to be using his own name in good faith . . . .”138 In other words, consistent with many of these cases, the infringing conduct is no longer in good faith after the defendant conclusively becomes aware that such conduct is infringing. This indication in Hurlbut effectively overruled any prior indications to the contrary, at least within Canada.

As to Draper v. Trist (1939), all three justices qualified their comments as constituting dicta; the question (as to whether fraud was a necessary element for damages) was unnecessary for that case.139 In addition, both Clauson L.J. and Goddard L.J., as he then was, clearly stated the question was a matter of great difficulty. For example, Goddard L.J. stated there was “a doubt — and a very considerable doubt — as to whether it is the law that damages can be obtained for innocent passing-off.” At most, he went so far as to say that, in such a case, it “may be . . . the plaintiff’s claim would be limited to nominal damages.”140 One can take this to mean that the common law requirement of intention 135. E.g., Henry Heath Ld. v. Frederick Gorringe Ld. (1924), 41 RPC 457 (Ch., Eve J) (sale of hats). 136. Text at supra note 29. 137. Supra note 28 at 289 of RPC (emphasis added). 138. [1925] SCR 141, 142-3 (emphasis added) (per Sir Lyman Duff J., who later became CJ; he was also, at the time, a member of the Judicial Committee of the Privy Council, although not sitting as such in this case). 139. In particular, as a consent order had been entered for an inquiry as to damages, and it also appeared that the defendants’ actions were willful in any event. 140. Supra note 31 at 528 (of All ER) (emphasis added); 443-4 (of RPC).

Vol. 106 TMR 1061 was breached on the theory that, previously, no damages could be awarded without intention. On the other hand, it can be taken to mean that only a small amount of monetary relief can be awarded, something of much less concern, and perhaps something simply as a compromise. In either case, such dictum was weak support for the notion that good faith is irrelevant, given that the distinction was not squarely addressed.

As a related matter, just before Greene M.R. expressed the dictum above,141 he quoted Lord Parker’s dictum in Spalding v. Gamage that “[n]or need the representation be fraudulently made.”142 But Greene M.R. stopped there and did not reproduce Lord Parker’s subsequent sentence referring to the long-standing distinction.143 Again, it seems that none of the Justices in the case understood that all of the earlier indications as to obtaining “relief” in equity regardless of innocence focused on injunctive relief addressing future conduct, and that any innocence of such conduct is lost as soon as the wrongfulness of that conduct is determined at the hearing.

As to Saville Perfumery (1941), it contains no discussion as to any of the above jurisprudence, especially as to the distinction.

In Wilts United Dairies, Ld. v. Thomas Robinson Sons & Coy., LD. (1957-58), the trial judge, Stable J., commented that “whether or not an innocent misrepresentation can be the subject of a claim for damages . . . appears to be at the moment undecided.”144 The appeal was then heard by a panel that included Lord Chief Justice Goddard, and he neither confirmed nor refuted the comment of the trial judge.145 This strongly indicates that the issue was still undecided, and again the distinction was not recognized or otherwise addressed.

Baume v. Moore (1958) is another case where the distinction is not recognized. Romer J., speaking for the Court, stated, for example, that “the defence of innocent and honest user of the manufacture’s name on the watches which the defendants have sold will not avail them as a defence . . . .”146 Romer J. relied upon the comments of Buckley L.J. in Brinsmead v. Brinsmead (1913)147 as if that case supported substantial monetary relief despite good faith. But Romer J. did not recognize that Brinsmead was a case where good faith was dismissed as irrelevant merely for the 141. Text at supra note 31. 142. Text at supra note 28 (emphasis added). 143. Text at supra notes 131–137. 144. [1957] RPC 220 at 229 (QB), decision aff’d, [1958] RPC 94 (CA). 145. [1958] RPC 94 (CA). 146. Baume and Co Ltd v. A H Moore Ltd, [1958] All ER 113, 116-117 (emphasis added); [1958] Ch 907, 917; [1958] RPC 226, 229 (CA) (infringement). 147. 30 RPC 489 (pianos).

1062 Vol. 106 TMR purposes of injunctive relief. Romer J. also overlooked the significance of the comment by Vaughan Williams L.J. in Brinsmead that a defendant may “be liable” for monetary relief if the defendant continues the deceptive representations after the defendant becomes aware that they are deceptive. In any event, the notion in these cases that good faith is irrelevant has been approved in other Canadian and U.K. cases as if the notion were sound.148

Arguably, the distinction was recognized, and properly applied, in La Touraine Coffee Co., Inc. v. Lorraine Coffee Co., Inc. (1946) where the U.S. Second Circuit Court of Appeals held that good faith use without knowledge does not preclude the issuance of an injunction.149

The decision in Seiko contained an extract from a text on the law of torts (Prosser)150 that expressly included similar qualifications as follows:

The older rule was that there must be proof of a fraudulent intent, or conscious deception, before there could be any liability, and this is still occasionally repeated; but the whole trend of the later cases is to hold that it is enough, at least for purposes of injunctive relief, that the defendant’s conduct results in a false representation, which is likely to cause confusion or deception, even though he has no such intention. 151

The idea of ignoring fraudulent intent was therefore just a “trend” and, in any case, this trend did not necessarily apply to any relief other than “for purposes of injunctive relief.” Accordingly, such authority did not conclusively discount good faith intent for the purposes of damages or profits.

The three decisions cited in Seiko (Millington v. Fox (1838), Perry v. Truefitt (1842), and Cellular Clothing Co. v. Maxton (1889)) are discussed above. In particular, the plaintiffs in some of these cases, including Seiko, sought only injunctive relief. Hence, the comments as to the relevance of intention did not necessarily go so far as to discount it for the purposes of whether to award damages or profits.

148. Id. at p. 506, lines 23-43. This notion in both Baume and Brinsmead was approved by Lord Guest in Parker Knoll, although Parker Knoll was a case merely for injunctive relief (as mentioned herein, infra note 187) and thus the notion was approved in respect of injunctive relief. The notion in Baume was also approved in Johnsons Ltd. v. Luscombe (1980), 54 CPR (2d) 80 (Canada–Nfld SC TD) John Mahoney J, as he then was, both for statutory passing off and passing off at common law, although this was another case merely for injunctive relief. 149. 157 F.2d 115, 118, 119, 70 U.S.P.Q. 429, 432-433 (2d Cir 1946). 150. Prosser, The Law of Torts (4th ed) (1978) at pp. 957-58. 151. Supra note 42 at 599 (emphasis added).

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As to Hébert & Fils c. Desautels (1971), even though damages were awarded in addition to an injunction, the damages were only in the amount of $100.152 Thus, the case can be distinguished as one of many cases that appears to express the principle that defendant’s good faith will not prevent an award of monetary relief but in the end does not actually award substantial monetary relief as against an innocent infringer. One can also question whether the principle is actually expressed in the case. It is true that Lajoie J.A. held: “A mon avis, sa bonne foi cessait dès le moment où il réalisait ou devait réaliser le grand danger de confusion entre les deux marques.”153 [“In my opinion, his good faith ceased as soon as he realized or ought to realize the great danger of confusion between the two marks.”] This dictum seems to include as an alternative the objective standard of whether the defendant “ought to realize” the danger of confusion as between the two marks, as if good faith was irrelevant. But the dictum also refers to good faith “ceasing” at that point, rather than being irrelevant from the start. If Lajoie J.A. truly intended to say that good faith was irrelevant to the awarding of substantial monetary relief, surely he would have said so, or at least not bothered with the concept of good faith “ceasing” upon actually realizing the danger of confusion. In addition, the phrase “ought to realize,” in context, could have been intended to be the equivalent of a defendant acting recklessly or with willful blindness (rather than negligently). It is commonly known in other fields of law that acting recklessly or with willful blindness is the equivalent of wrongful intention, rather than of mere negligence.154 Still further, Lajoie J.A. did not discuss the subtleties of the earlier jurisprudence. Accordingly, Lajoie J.A.’s use of the phrase “ought to realize” does not necessarily mean he was stating that good faith is irrelevant to the awarding of substantial monetary relief, let alone stating it soundly.

Similarly, Hyde J.A. in Desautels stated: “I agree with my colleague Mr. Justice Lajoie that regardless of Appellant’s intention [meaning, his original intention or motive] it must have [eventually] been clear to him that the design mark in question would lead to confusion . . . .”155 Hence, Hyde J.A. was looking at whether the good faith ceased (rather than being completely irrelevant), and whether the confusion among purchasers was clear to the defendant; this can be seen as another reference to the state of mind of the defendant (for the purposes of monetary relief)

152. As indicated in the report of the trial decision at 62 CPR 85. 153. Supra note 37 at 289b (emphasis added). 154. E.g., R v. City of Sault Ste Marie, [1978] 2 SCR 1299, at 1309 (Canada); Derry v. Peek (1889) LR 14 AC 337, 58 LJ Ch 864, [1889] All ER 1, esp. Bramwell L discussing a dictum of Cotton LJ. 155. Supra note 37 at 293 (emphasis added).

1064 Vol. 106 TMR rather than simply assessing whether confusion was clear to the court (putting itself in the position of the purchaser). This reading of Desautels is further supported by the fact that both the trial judge,156 and Lajoie J.A. cited the decision of Sir Duff in Hurlbut.157 Thus, overall Desautels hardly approved the ability to award significant damages in a case of good faith passing off.

Looking now at the comment of Lockhart J. in ConAgra v McCain Foods (1992),158 Gummow J.159 agreed that intention was irrelevant for the purposes of statutory passing off in Australia. However, this was without discussing whether the Legislature recognized the distinction. In addition, Gummow J. acknowledged the defense of good faith at common law. That is, among other references, he quoted the dictum of Lord Westbury in Edelsten v. Edelsten (1863)160 that a plaintiff is not entitled to any accounting or compensation in respect of activities before the defendant became aware of the material facts. Gummow J. then concluded that, in a passing-off suit at common law, “if the defendant embarked upon his activities fraudulently, these remedies run from that time.”161

Looking again at the ruling in Gillette v. Edenwest (1994),162 dicta from earlier cases “point[ed] the way” for Blackburne J. to conclude that dishonesty need not be established to obtain significant monetary relief. However, Blackburne J. too did not recognize or address the distinction between intention not being necessary for an injunction and it being necessary for monetary relief. He acknowledged earlier decisions in cases of innocent infringement or passing off that granted injunctive relief while denying monetary relief, but apparently did not appreciate the rationale for that difference.

Remo Imports (2007)163 is yet another case that did not award damages in respect of innocent infringement or passing off. This was a situation where both parties held registrations and sued each other. The registration of the losing party was canceled at trial but, up to that point, given that the registration had not been obtained fraudulently, the registration had provided that party with a statutory right to use the mark.164 Use of the registered

156. 62 CPR 85, 91. 157. Text at supra note 138. 158. Text at supra note 48. 159. As he then was. 160. Text at supra note 88. 161. Supra note 48, at paras. 37-45. 162. Supra notes 49, 51, 52. 163. Cited and discussed at supra note 62. 164. As explained in the decision, Remo Imports, at supra note 62 at paras. 106-114.

Vol. 106 TMR 1065 mark up until the point of cancellation can thus be seen as effectively having been innocent conduct.

In summary, some authorities that indicate that good faith is irrelevant to an award of monetary relief have not recognized the distinction that good faith was deemed irrelevant in earlier cases solely for the purposes of relief in the form of a final injunction. Intention is inherently imputed in respect of future activities after confusion and any other necessary elements of the claim have been established at trial. In particular, if the marks are declared to be confusing at trial, a defendant cannot be acting innocently as to confusion thereafter. Meanwhile, such rationale for removing intention from consideration for injunctive relief does not support removing it in respect of monetary relief, which obviously addresses activities in the past rather than in the future.

In addition to the above mix-up, there are a number of other mix-ups as to why good faith seems to have been ignored inadvertently in relation to the assessment of damages. These other mix-ups are discussed in the following sections below.

Mix-up #2: Not Distinguishing the Cases That Are Merely for Injunctive Relief or Oppositions

Another mix-up is that many cases stating that good faith is irrelevant do not necessarily address the issue of substantial monetary relief but rather, as a matter of fact, address injunctive relief, minimal damages, or the cancellation or opposition to a trademark filing. This mix-up represents a further basis for distinguishing many of the cases cited in Part II above.

Most significantly, as discussed with respect to Mix-up #1 above, Millington v. Fox and Coffeen v. Brunton are cases that only address the issue of injunctive relief. The following are additional decisions that only address injunctive relief, minimal damages or mere cancellation/opposition proceedings.

In Perry v. Truefitt (1842), Lord Langdale M.R. indicated some support for the principle suggested in Millington that proof of intent is not required.165 However, Lord Langdale expressed concern regarding the principle, stating that he “was not aware that any previous case carried the principle to that extent.” In addition, he may have expressed such concern instinctively in view of the fact that, unlike the case in Millington, the plaintiff in Perry v. Truefitt was indeed seeking an actual accounting from an innocent defendant. Moreover, the accounting and even the injunction were not granted. In view of all this, Perry v. Truefitt is another case that does not support the principle that significant

165. 6 Beav. 66, at 68, 73; 49 ER 749, at p 750; Cox Am. TM Cases 644, 646, 648 (Eng CA) (Mexican Balm).

1066 Vol. 106 TMR monetary relief can be easily awarded where the defendant is innocent.

Looking at the decision in the BARBIE case and the Lexus Foods case cited therein, no monetary relief was awarded in either, as both of these cases are merely opposition proceedings to pending trademark applications. As with the granting of an injunction, the granting of a registration speaks to future activities, and thus the intention to cause confusion going forward is imputed upon a determination that the marks are confusing. Damages for past activities are not available in oppositions or cancellation proceedings which are contests, in the case of oppositions, as to whether a registration should be granted, and, in the case of cancellations, as to whether a registration should be maintained. In either case, the registration effectively gives the registrant the right to use a mark going forward, meaning it is the very inverse of an injunction against that party. In view of the distinction between claims for injunctive relief and claims for monetary relief, it is understandable to ignore the good faith of the applicant or registrant for the purposes of determining the merits of an opposition to an application or a proceeding seeking to cancel a registration (on grounds of confusion going forward), and also for determining the merits of an injunction. But these opposition and cancellation decisions indicating that good faith is irrelevant for such purposes should not be taken as having established that good faith is also irrelevant for the purposes of ordering anyone to pay substantial monetary relief to the senior user to address past activities.

This represents a further mix-up found in Bow City Delivery Ltd. v. Independent Car Co. Ltd. (1972). Among other things, the court quoted from Warren v. Excel Petroleum Ltd. (1933)166 to the effect that an order could be made whether the use by the junior user “be made fraudulently and with a deliberate intent to deceive or not.”167 However, the Excel Petroleum case was addressed to canceling a registration obtained by the junior user, and enjoining the junior user from continuing to use the confusing mark.

The judicial comments within Enterprise Rent-A-Car Co. v. Singer168 can also be distinguished in that the focus of the trial decision was not damages but whether there should be a permanent injunction (including destruction of some offending signage).169

166. [1933] Ex CR 131 (Can.). 167. Supra note 125 at 54-55. 168. Supra note 55 at 482. 169. This is because it was determined before the trial that damages would be assessed at a reference, which can be a problem in itself as discussed below in respect of Mix-up #5. In addition, there was no discussion of the distinction of the relevance of good faith for the

Vol. 106 TMR 1067

Other cases that (i) are merely for injunctive relief, (ii) are merely oppositions or cancellations, or (iii) do not actually award substantial monetary relief, include the following:

• Hogg v. Kirby (1803)170 • Snowden v. Noah (1825 N.Y.)171 • Croft v. Day (1843)172 • Taylor v. Carpenter (1844 Mass.)173 • Coffeen v. Brunton (1849)174 together with all the cases

cited therein175 • Welch v. Knott (1857)176 • Dale v. Smithson (1861)177 • McAndrew v. Bassett (1863)178 • Amoskeag Mfg. Co. v. Garner (1869-1876)179 • Wotherspoon v. Currie (1872)180 • Siegert v. Findlater (1876)181 • Metzler v. Wood (1878)182 • Eastman Kodak Co v. Kodak Cycle Co (1898)183 • Robert Crean (1930)184 • La Touraine Coffee v. Lorraine Coffee (1946)185

purposes of monetary rather than injunctive relief. Moreover, the defendant’s actions were apparently not in good faith, as discussed further at infra note 244. 170. 8 Ves Jr 215. 171. Hopkins Ch. R. 347 (N.Y.); Cox Am. TM Cases 1 per Ch. Sandford (newspaper). 172. 7 Beav. 84, 49 ER 994 (Ch.) (blacking). 173. Taylor v. Carpenter (Oct. 1844) 3 Story 458; Cox Am. TM Cases 14 (Mass.) (injunction made perpetual). Effectively aff’d (motion for new trial refused) (Oct. 1846) 2 Wood. & M 1; Cox Am. TM Cases 32, 42-43 (Cir. Ct. Mass.). Damages were awarded as between the same parties by means of separate proceedings in New York, but even that decision is discussed below as hardly supporting such awards against innocent infringers, as discussed on a separate basis in text at infra note 197. 174. Supra note 12. 175. Knott v. Morgan (1836) (“The London Conveyance Company”), Gout v. Aleploglu (1833) (watches), Millington v. Fox (1838), supra note 8, and Bell v. Locke (1840). 176. Supra note 15. (In addition, the injunctive relief was denied.) 177. Supra note 16. 178. 4 De Gex J & Sm 380; 10 Jur (NS) 492, [1864] 33 LJ Ch 561 (contains the decisions of both V-C Wood Mar. 4, 1863, and LC Westbury May 7, 1863). 179. Various reported decisions but the overall proceedings were merely for an injunction. 180. LR 5 E & Ir App 508, 518b, 523t; 27 LT (NS) 303 (HL) (Glenfield Starch). 181. 38 LT Rep (NS) 349, LR 7 Ch D 801, 26 Wky Rep 459 (Angostura Bitters). 182. Infra note 220. 183. 15 RPC 105 (proceedings were for both an expungement and an injunction). 184. Supra note 30.

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• Sund v. Beachcombers Restaurant (1960)186 • Parker-Knoll v. Knoll International (1962)187 • Noshery v. Penthouse Motor Inn (1969)188 • Johnsons Ltd. v. Luscombe (1980)189 • Consumers Distributing v. Seiko (1984)190 (at the appellate

level) • Reckitt & Colman v. Borden (1990)191 • Walt Disney Productions v. Triple Five Corp. (1992)192 • Kirkbi (2005)193

Mix-up #3: Not Distinguishing the Cases Where the Defendant Was Not Necessarily Innocent

In many of the cases cited in Part II, the court actually found or otherwise strongly implied that the defendants acted in bad faith. Accordingly, for this reason alone, the judicial comments in those cases stating that good faith is irrelevant can be considered as dicta194 or otherwise less persuasive. Again, these are not cases where the court actually awarded substantial damages as against an innocent defendant. This aspect of these cases sometimes requires a careful reading of the decisions. These cases are thus discussed individually below, again substantially in chronological order.

In Blofeld v. Payne (1833), intention was clear from the facts.195 This reading is confirmed by the description of those facts during the oral argument in Crawshay (1842) namely, that “it was proved [in Blofeld] that the defendants had obtained some of the plaintiff’s own wrappers, and had wrapped their hones in them; so

185. Supra note 149, 157 F.2d 115, at 118-119 (F.2d). 186. Supra note 32 at 231 (which was cited in Noshery, id.). 187. Supra note 35. 188. Supra note 33 at p. 61, awarding only $1. 189. Supra note 148. 190. Supra note 42. 191. Supra note 45. 192. 130 AR 321 (QB), Dea J (Alta TD). 193. Supra note 56 at para. 7. These proceedings technically included a claim for damages, but such relief was not ultimately granted. (In addition, there was no discussion as to why such relief should be granted in cases of good faith.) 194. Here, “dicta” is used as short for “obiter dicta,” meaning the Court’s incidental or superfluous comments that are not in themselves binding. 195. 4 Barn & Adol 410; 1 Nev & MKB 353; 2 LJKB 68; 110 ER 509; Cox Am. TM Cases 635 (Court of King’s Bench) (wrapping of metallic hones for sharpening razors etc.).

Vol. 106 TMR 1069 that a fraudulent intention was also established in that case beyond all question.”196

Taylor v. Carpenter (Dec. 1844, New York) was an early U.S. case where, in addition to an injunction, an inquiry as to damages was granted. However, it was a case where the defendant acted intentionally. For example, the Chancellor notes: “the defendant admits that he has intentionally pirated the complainants’ name as well as their other marks . . . . After such an avowal, no one can doubt for a moment that he did it for the fraudulent purpose . . . .”197

The decision in Coats v. Holbrook (1845) has already been discussed above (in Mix-up #1) although it can also be included here. V-C Sandford flatly stated the defendants acted in bad faith. They “knew” that someone other than the plaintiff made the goods, and that the sale of such article was spurious. The defendants were “swindling” purchasers. The circumstances were such that “it was not supposable that the defendants were ignorant of the wrong.”198

In Rodgers v. Nowill (1846-47), the defendants’ conduct was also intentional. In particular, within the proceedings at law, Maule J. describes the goods as “spurious.”199

In Patridge v. Menck (1848), the element of intention was not necessarily eliminated as the Chancellor on the first appeal referred to the civil wrong as “piracy.”200

In Davis v. Kendall (1850),201 it is not at all clear from the decision whether the defendant acted innocently.

196. Supra note 68 at 366 (of Manning & Granger), p. 150 (of ER). 197. 19 Paige 292, 298; Cox Am. TM Cases 45, 53-55 (N.Y. Ch.) (sewing thread); aff’d (Dec. 1846) Cox Am. TM Cases 45, 55-67. (The admission may seem surprising, but the defendant instead raised various other defenses, such as whether foreign plaintiffs were entitled to protect their marks in the defendant’s jurisdiction.) 198. Supra note 11 at p. 30-32 of Cox Am. TM Cases. The case report at p. 22 also explains that the defendants copied the plaintiff’s name, figures, color, and general appearance. 199. (1947), 136 ER 816, 823, 5 CB 109, 127 (pocket knives). Similarly, in Chancery, Wigram V-C explained that the defendants effectively sought someone having the same surname as the plaintiffs so that the defendants could have an excuse for having the same trade name (“Rodgers & Sons”). It was also explained that any customer ordering cutlery under such mark obviously had in mind the plaintiffs’ cutlery rather than the defendants’, presumably because the names and goods were so similar, and the plaintiffs name was so well known. It also seems that the defendants mindfully elected not to take the advice of Wigram V-C (which was given to the defendants within that ruling) to take certain steps to distinguish the defendants’ mark going forward, such as by clarifying their place of business or name by inserting the appropriate first name “John” in front of “Rodgers & Sons.” (1946), 6 Hare (Ch) 325, 333, 334. 200. Cox Am. TM Cases 72, 77 (N.Y.). 201. Supra note 14. This decision cited Coats v. Holbrook and Taylor v. Carpenter which, as discussed herein, when properly read, do not properly support the notion that good faith is irrelevant.

1070 Vol. 106 TMR

Dixon v. Fawcus (1861)202 has been cited203 as indicating that an accounting, in addition to an injunction, can be obtained against an innocent infringer. But this case presented an unusual situation. It effectively involved three parties. The first party already successfully sued Dixon for having manufactured infringing goods bearing the name of the first party. So, in Dixon v. Fawcus, it was Dixon now suing the third party for having induced Dixon to have manufactured those infringing goods, and Dixon succeeded in recovering from Fawcus the monies Dixon was ordered to pay to the first party in the first case. Even though the court referred to Millington, Dixon v. Fawcus was a case absolving the more innocent of the two infringers. It also seems likely that such inducer, Fawcus, did not act innocently in having instructed Dixon to manufacture the goods bearing the name of the well-known trademark owner. In addition, there was no discussion within the decision as to the distinction (that innocence might be relevant as to damages even though it might be irrelevant as to a permanent injunction). Thus, the case is not very strong support for the principle that innocence should be irrelevant as to damages.

In Edelsten v. Edelsten (1863), Lord Westbury affirmed the order below that included an accounting of profits. But, in view of his Lordship’s comments mentioned above that a plaintiff is not entitled to any accounting or compensation in respect of activities before the defendant became aware of the material facts,204 it is clear his Lordship must have felt that such awareness was established in that case. In addition, Lord Westbury’s decision includes an actual examination of “the intentional imitation” of the plaintiff’s mark, and finds that such mark was “well known to the defendants” and that the defendants affixed the plaintiff’s Crown and Anchor mark for the very purpose of “hav[ing] the benefit of the reputation which that mark had already acquired.”205 Still further, Lord Westbury commented that “the essential part of the plaintiff’s trade-mark . . . has been deliberately taken by the defendants . . . .”206 He even described such conduct as “a piracy” of the plaintiff’s mark.207 Thus, for this further reason, this was not a case properly supporting the notion that significant damages or profits can necessarily be obtained for good faith infringement.

202. 30 Law J (QB) 137; 3 El & El 537. 203. For example, in Coddington, Digest of the Law of Trademarks (1878) (N.Y. Ward & Peloubet) at § 459 on p. 152. 204. Text at supra note 88. 205. Supra note 18 (De Gex J & Sm) at 201-202. 206. Supra note 18 (De Gex J & Sm) at 202. 207. Supra note 18 (De Gex J & Sm) at 203 (emphasis added).

Vol. 106 TMR 1071

In Wotherspoon v. Currie (1872), Lord Westbury stated that the case at hand “comes within the principle on which the jurisdiction is founded—the principle being to prevent a party from fraudulently availing himself of the trade-mark of another.”208 This means that his Lordship held both that fraudulent intention was necessary and that the defendant in that case came within that principle. Similar comments are found elsewhere among the different opinions of the Lords in that case, namely: it was “clear and manifest” that the confusion was intentional;209 “mala mens” was established toward the secondary purchaser;210 the defendant’s explanation was “false”;211 and the defendant’s mark was a “contrivance” “done malo animo.”212 Alike, at first instance, Malin V-C concluded “I am satisfied that this was a deliberate and fraudulent intention.”213

Derringer v. Plate (1865)214 was later distinguished by the U.S. Supreme Court as a case where “it is implicit in the report that plaintiff’s pistols were on the market in San Francisco, and his trademark known there and imitated by defendant for that very reason. It was such a mark as could not be accidentally hit upon.”215 So, the mark DERRINGER was imitated intentionally, given that it was well known, and the mark was inherently distinctive for pistols. This was not a case of good faith infringement.

In Ford v. Foster (1872), an accounting was ordered but, once again, it is clearly indicated in the decision that this was not a case “where the defendant was a totally innocent person.”216 In addition, rather than award an accounting for the full preceding six years, the accounting was limited to the period since the filing of the claim.217 This conforms to the notion that the filing and serving of a claim sometimes sufficiently makes it clear that the marks are confusing (and that the plaintiff has priority and a basis for a claim) such that any continuation by the defendant is rarely in good faith. 208. Supra note 180 at 522 (emphasis added). 209. Supra note 180 at 516-517. 210. Supra note 180 at 517-518. 211. Supra note 180 at 520. 212. Supra note 180 at 522. 213. (Apr. 1870), 22 LT Rep (NS) 260 at 262. The V-C asked the very question (at p. 261): “Has there been an intention to mislead or not?” 214. 29 Cal. 292 (CA) (1865). 215. Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 418 (1916) (emphasis added). Coincidently, consistent with the theme of this work, the court in Derringer also mentioned that, where the remedy of an injunction is awarded, pecuniary compensation “might” be awarded. Id. at 298. 216. [1871-1872] LR 7 Ch App 611 at 630 per Mellish J (involving The Eureka Shirt). 217. Id. at 633-34.

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In Siegert v. Findlater (1876), the public deception again seems to have been considered to be intentional. For example, it was mentioned that the deceptive name was adopted as part of a “scheme of fraud of which I have found him guilty.”218

In Manufacturing Company v. Trainer (1879), despite Field J. having stated: “Proof of an intention to defraud is not required,” he then added “but it is plain that the respondents acted with a design.”219

Canada Publishing Co. v. Gage (1885) involved a claim for monetary relief. But it was not a case where the defendant was found to be innocent (nor did the decision actually discuss any rationale for not requiring intention). The only case cited was Metzler v. Wood (1878), which did not suggest that intention is not a requirement for monetary relief. On the contrary, both the trial judge and court of appeal in Metzler posed the question as to whether the defendant “dishonestly” passed off his work, suggesting that the issue of dishonesty was relevant, and indicated that such intention was established.220 Moreover, Metzler v. Wood only involved injunctive relief.221

Lever v. Goodwin (1887) is another case where it was effectively found that the defendant was not, in fact, innocent; Chitty J. in the court below explained that, in making the infringing product and supplying it to the middlemen (retail dealers), the defendant put “an instrument of fraud into their hands”222 and that the defendant did so “knowingly.”

In Eastman Kodak Co v. Kodak Cycle Co. (1898), the likelihood of confusion was effectively described as intentional; that is, the defendant’s usage was described by the court as being “for the purpose of connecting themselves in some way with the Plaintiff Company and its business,” and that that was “their real and sole object.”223

As to Boston Rubber Shoe (1902), Davies J.’s suggestion that fraudulent intention was likely irrelevant can be treated as dicta given that it was preceded by his strong suggestion that fraudulent intention was present in that case.224 Once again, it is not actually a case where the court found it just to award significant monetary relief as against a defendant having acted in good faith.

218. Supra note 181 at 354 (of 38 LT Rep (NS)). 219. 101 U.S. 51, 67 (another Amoskeag linen case). 220. 8 Ch D 606 at 608b, 610m, 611b, 613b, 615b. (“b” meaning bottom of the page, and “m” meaning the middle) The case is also reported at CA 38 LT Rep 541. 221. Text above at note 182. 222. Supra note 20 at p. 3 of 36 Ch D. 223. 15 RPC 105, 111 (emphasis added). 224. Supra note 25 at 326-7.

Vol. 106 TMR 1073

In Spalding v. Gamage (1915), Lord Parker stated: “I find it difficult to imagine that the advertisements were not deliberately framed so as to convey” the false character of the goods.225

In Hurlbut (1925), Sir Duff J. took the time to indicate, twice, that it would be “difficult” to reverse the trial judge’s acquittal of the defendant on the charge of dishonesty or deliberateness.226

The general reading of Draper v. Trist (1939) suggests that the court was not at all impressed with the faithfulness of the defendant.227

In La Touraine Coffee v. Lorraine Coffee (1946), the defendant’s claim to innocence was described as an instance of “stretching credulity beyond its breaking point.”228

In Young v. Holt (1947), the court held that the defendant would be acquitted of fraud “in the ordinary sense of the term” but it seems clear that the court considered that he nevertheless acted in bad faith; he was described as having a “closed state of mind throughout the whole of the relevant period” and as not being “in a state of complete innocence.”229

In Treasure Cot Co Ltd v. Hamley Bros (1950),230 there was no indication the defendant acted in good faith (nor was there any express rejection of the distinction as to the relevance of good faith for the purposes of monetary relief rather than injunctive relief).

Wilts United Dairies Ltd. v. Thomas Robinson Sons & Co. (1957–58) is another case in which monetary relief was awarded.231 However, there are indications the defendant acted in bad faith.232 True, at first instance the court found that the defendants did not act maliciously, in the sense of intending to harm the plaintiff;233 but it was also held that the defendants “did know” that the milk they were handling was old,234 and thus they effectively misrepresented such milk willfully.235

In Oertii v. Bowman (1957), it is true the court of appeal referred to the trademark right as a quasi-property right (implying

225. Supra note 28 at 152 of All ER. 226. Supra note 138 at 149, 150. 227. Supra note 31. 228. Supra note 149. 157 F.2d 115, 118 (2d Cir) (1946). 229. [1948] 65 RPC 25, 29-30 (Mendoza sherry). 230. 67 RPC 89 per Harman J (HC Ch) (baby cots). 231. Supra note 144 (QB decision) at 229. 232. Supra note 144 (QB decision) at 237. 233. Supra note 144 (QB decision) at 234. 234. Supra note 144 (QB decision) at 230; point reiterated on appeal, supra note 144 at 96, 98. 235. In addition, the decision can be further distinguished in that the legal principle seemingly was conceded by the defendants that “if in fact there is a passing off ignorance is irrelevant, that the defendants are liable”; supra note 144 (QB decision) at p. 228 ll 47-51.

1074 Vol. 106 TMR that good faith is of little or no relevance) but the headnote of the decision indicated that the passing off was held (at first instance) to be deliberate.236 And, again, there was no recognition of the distinction between the relevance of good faith for the purposes of monetary rather than injunctive relief.

In Sund v. Beachcombers Restaurant Ltd. (1960), the court stated that the defendant, Mr. Porter, “knowingly committed this deception” and that “[i]f he was not aware of the possibility of confusion before he started . . . he was so informed by the letter written on behalf of the plaintiffs before you open the doors.”237

In S. & S. Industries Inc. v. Rowell (1966), Spence J. stated that “[t]here was . . . evidence of malice.”238

As to Noshery v. Penthouse Motor Inn (1969), the decision indicates that the defendant was “amply warned previous to its formal opening” of the fact that the subject mark was used and registered by the plaintiff. In addition, the judge concluded “I am not at all satisfied as to the bona fides of the stated defendant.”239

An inquiry as to damages for passing off was ordered in John Walker & Sons Ltd v. Henry Ost & Co Ltd (1970), but it was held that the evidence showed “conclusively” that at least the first defendant “appreciated the deception” that would occur.240

It could also be stated that the trademark violation in Hébert & Fils c. Desautels (1971) was intentional as the logos bore some striking similarities; anyone comparing the logos and reviewing the other facts can see that the copying was not coincidental.241

Damages were ordered (for passing off) in Bow City Delivery Ltd. v. Independent Car Co. Ltd. (1972), but it was clearly indicated: “There is no doubt that . . . the defendant deliberately proceeded to carry on business under the same name, with an intention to usurp some of the business of the plaintiff.”242

Orkin Exterminating Co Inc v. Pestco of Canada Ltd (1985)243 contains various comments as to the defendant’s bad faith, such as that “it surely must be a relevant factor to take into account in adjusting competing interests.” Bad faith is also clear from the fact that the defendant copied the unusual name Orkin, and maintained a phone listing under that name without any

236. T. Oertii Ag v. E. J. Bowman (London) Ltd et al, [1957] RPC 388, 389 (CA); on appeal from [1956] RPC 282 (TD) (“Turmix” sales). 237. Supra note 32 at 229. 238. [1966] SCR 419, 433; 48 CPR 193. The case is discussed further below in text at note 262. 239. Supra note 33 at 220. 240. [1970] RPC 489, 501-501; [1970] 2 All ER 106. 241. The logos can be compared in the report of the trial decision at 62 CPR 85, 85-86. 242. Supra note 125 at 54. 243. 1985 CanLII 157 (ON CA), 5 CPR (3d) 433 (Ont CA).

Vol. 106 TMR 1075 advertising under that name, such that anyone finding the defendant’s phone listing did so on the basis of the advertising and reputation of the plaintiff.

As to Enterprise Rent-A-Car Co. v. Singer (1996), the Justice found the defendants’ explanation for choosing the offending name was “not credible” and that such actions were “at the very least suspect.”244 This was another case where the defendants’ actions were effectively indicated as being intentional.

Damages were ordered (for trademark infringement) in Source Media Group Corp. v. Black Press Group Ltd. (2014) and in cases cited therein, but the infringements were found to be willful.245

Clearly, all such decisions, and many others that might suggest intention is irrelevant, can be distinguished on the basis that the defendants were not innocent in those particular cases.

Mix-up #4: Not Distinguishing the Presumption That Confusion Causes Damage

It has often been stated that the element of damage is presumed in trademark cases: if the marks are confusing, then there is damage.246 But such presumption that confusion causes damage should not be mixed up with the issue of whether damages or profits should necessarily be awarded (and how much). The presumption that the use of a confusing mark causes damage should not be taken as a presumption that damages should be awarded, as the latter presumption implies that any other equitable issues are irrelevant.

Presuming that the element of damage is established (on the basis of public deception or confusion) is one thing, but going so far as to say that the entitlement to a full award of damages is also established on that same basis is quite another. The latter is an unmindful leap; it inadvertently and unsoundly bypasses the role of good faith and other equitable considerations, such as acquiescence and delay. It also inadvertently bypasses the role of the plaintiff’s own “unclean hands,” as in cases where the plaintiff has been making its own misrepresentations to the public. This mix-up even bypasses other issues such as ownership, validity, and priority.

The potential for a mix-up is especially high considering that the element of damage is often described by the term “damage” in the singular form, whereas the term “damages” refers to the actual monetary relief. Thus, dicta along the lines that “damage is

244. Supra note 55 at 482. 245. 2014 FC 1014. 246. For example, see text below at note 141.

1076 Vol. 106 TMR presumed” (especially for the purposes of injunctive relief) have been mistaken as an indication that “damages are presumed.”

An example of such mix-up is found in Regal Tow Ltd. v. Goodtime Toys Inc. (1974), a case of statutory passing off. Heald J. interpreted Noshery v. Penthouse Motor Inn (1969)247 as having established that “once the Court is satisfied that goodwill has been interfered with and that there has been passing off, then damages are presumed at law.”248

Within the trial judgment of Dea J. in Walt Disney Productions v. Triple Five Corp. (1992), the judge held: “Once elements (1) and (2) [as to Goodwill and Confusion] are shown, damage is presumed. The intention of the defendant is immaterial.”249 Again, this would be sound insofar as “damage” is presumed for injunctive relief but not necessarily for monetary relief.

Recall that Lord Parker in Spalding v. Gamage (1915) stated in dictum: “It is sufficient to say that the misrepresentation being established, and being in its nature calculated to produce damage, the plaintiffs are prima facie entitled both to an injunction and to an inquiry as to damage . . . .”250 However, this dictum merely states that the plaintiffs are “prima facie” entitled to such an inquiry.251

The mix-up may have actually occurred in the prominent decision of Draper v. Trist (1939). Therein,252 Goddard L.J. (and also Greene M.R.) referred to a passage in Rodgers v. Nowill (1847) “in which Maule J. showed that damage was imputed in that case.” In the same paragraph, Goddard L.J. also stated: “I think that Rodgers v. Nowill shows that, once one has established passing off [confusion], there is injury to goodwill, and this court or the jury must assess, by the best means they can, what is a fair and temperate sum to give to the plaintiff for that injury.”253 However, the excerpt does not necessarily establish that the quantum should be 100% of the damages or profits; the wording of the excerpt actually allows merely for awarding what is “a fair and temperate

247. Supra note 33. 248. 19 CPR (2d) 98 at 106 (Canada, FTD, per Heald J, as he then was) (emphasis added). The defendant’s actions were not described as fraudulent, and may have very well been innocent in that the previous owner of the mark was bankrupt, and the defendant did not know such rights had been sold to the plaintiff by the trustee; e.g., at p 102. 249. 130 AR 321 (QB), Dea J at p 329 para. [13] (emphasis added); discussed ambiguously on appeal at 1994 ABCA 120, 17 Alta LR (3d) 225; 53 CPR (3d) 129, paras. 84-86 (Alta CA). 250. Supra note 28 at 287 of RPC (emphasis added). 251. Text at supra notes 136–137. 252. Supra note 31 at p. 527 (of ER) (emphasis added). 253. Id. (emphasis added).

Vol. 106 TMR 1077 sum.” Thus, such excerpt on its own was not necessarily intended to exclude the relevance of good faith.

Secondly, any such suggestion by Maule J. in Rodgers v. Nowill has to be read in light of the fact that Maule J. understood the distinction (namely, that intention may be irrelevant or otherwise presumed for the purposes of a final injunction, but not for the purposes of damages).254

Thirdly, Rodgers v. Nowill is a case where the defendants’ conduct was actually intentional.255

Accordingly, it would be questionable to rely upon such decisions as Draper or Rodgers v. Nowill as holding that intention can be presumed or otherwise ignored for the purposes of awarding substantial monetary relief.

In summary, the presumption that the use of a confusing mark causes damage should not be taken as a presumption that damages should necessarily be awarded.

Mix-up #5: Not Distinguishing Between the Relevance of Intention as an Element of Liability

and as a Mere Factor as to Quantum The next type of mix-up is that intention can be “relevant” or

legally recognized in at least256 two respects: [1] it can constitute a necessary element as to liability,257 or [2] it can constitute a factor as to the quantum of monetary relief.258

These two roles can be mixed up both in legal analysis and in practice. In legal analysis, many of the dicta in Part II state that intention is irrelevant but they are unclear in terms of it being irrelevant as an element, as a factor or both. For example, it has been stated that passing off is founded upon the tort of deceit which requires intent to deceive and that this “requirement” for the purposes of passing off “died out in the mid-1800’s.”259 Even if this view is maintained despite the other mix-ups leading up to it,

254. Text at supra note 68, within Crawshay v. Thompson (1842), which decision was discussed in front of Maule J during Rodgers v. Nowill, as indicated at pp. 819-820, 820-21 (of ER at supra note 199). 255. Text at supra note 199. 256. Intention could also be relevant as a factor in assessing likelihood of confusion, and surely in respect of criminal liability, and punitive and exemplary damages although, again, this work focuses on its relevance in respect of substantial monetary relief in the form of damages or an accounting. 257. In which case it is better described as being “imputed” from the point of the trial (rather than “irrelevant”) for the purposes of injunctive and other and other forward-looking relief as discussed within Mix-up #1. 258. In which case, intention can properly be described as “irrelevant” or “unnecessary” to the issue of liability, albeit not irrelevant as to the issue of quantum. 259. Text at supra note 42.

1078 Vol. 106 TMR the point here is that removing intention as a requirement for liability should not be misread as removing it as a factor as to quantum.

A rare and isolated decision where the distinction was at least recognized in Canada is S. & S. Industries Inc. v. Rowell (1966). The decision dealt with statutory trade libel which, as with statutory passing off, is treated in the Canadian statute as another form of unfair competition.260 The very issue on appeal was whether there was a requirement that false or misleading (libelous) statements be made with knowledge of their falsity (or that they be made maliciously). The court ruled that it was not an element (at least not with respect to injunctive relief and pursuant to the statutory form) but that it is still relevant as a factor as to quantum. In particular, Martland J. for the majority of the court had said: “In my opinion, the natural meaning of s. 7(a)261 is to give a cause of action, in the specified circumstances, in respect of statements which are, in fact, false, and the presence or absence of malice would only have relevance in relation to the assessment of damages.”262

This distinction between these two possible roles of intention provides another basis to consider the comments in Enterprise Rent-A-Car Co. v. Singer (1996).263 It was a case where it was determined before trial that damages would be assessed separately at a “reference,” and thus the focus of the trial itself was whether there should be a permanent injunction. Accordingly, the judicial comments cited from this decision in Part II (to the effect that it is “not necessary” to prove bad faith, and that intention is “irrelevant”264) were either unreliable (on the basis of other mix-ups) or merely directed to the irrelevance of intention for the purposes of “liability.” The comments do not unequivocally deem intention irrelevant for the purposes of assessing the quantum.

In terms of Mix-up #5 occurring in practice, the mix-up can especially occur in cases where, as in Enterprise Rent-A-Car Co. v. Singer (1996), the quantum of monetary relief is bifurcated from the issue of liability; there is a trial as to liability and then a separate proceeding to assess the quantum of monetary relief. Intention might not be taken into account at the trial as to liability (again either on an erroneous view of the law in respect of issue [1] above, or on the assumption that it is only a factor as to the quantum of damages) but then overlooked at the assessment (either on a separate error of law in respect of issue [2], or on the 260. Namely, in s. 7 of the Canadian Trade-marks Act. 261. The subsection in issue regarding statutory trade libel. 262. Supra note 238 at SCR 429 (emphasis added). 263. Text at supra note 55. 264. Id.

Vol. 106 TMR 1079 erroneous assumption that intention has already been taken into account at the trial as to liability).

This also represents a further basis for questioning any indications in the important decision in Draper v. Trist (1939) that intention is irrelevant to damages.265 Prior to the decision on damages, a consent order was made for an inquiry as to damages.266

Again, in a bifurcated proceeding, good faith could easily be overlooked in assessing liability at the trial on the grounds that it is not an actual element as to liability. Such good faith could then easily be overlooked at the reference as to the quantum of monetary relief on the notion that any relevance of any such issue has already been considered at trial and that such reference should simply focus on mechanically assessing the defendant’s profits or the plaintiff’s lost profits.

The same concern also applies to other considerations such as acquiescence and delay; they too should not be overlooked due to bifurcation.

Mix-up #6: Not Distinguishing the Presumption of Intention Where the Likelihood of Confusion Is Strong

Another trademark principle is that intention can be presumed where the likelihood of confusion is strong.267 For example, if the plaintiff’s mark is unusual and is very well known, and the defendant has copied it in detail, and is using it for the same goods and in the same area, there is an obvious presumption or inference that the copying was intentional.

However, the presumption is evidentiary. Evidence of intent is hard to find. This presumption allows for such a finding without the need for the plaintiff to come forth with specific evidence of intent. But because the presumption is evidentiary, the mere existence of the presumption confirms the fact that intention is relevant; intention is something that arguably needs to be proven, whether directly or by such indirect means.

Being evidentiary, the presumption of intention in cases of strong likely confusion should not be treated as if intention is an automatic consequence as a matter of law in every case where confusion is established. It is merely a presumption in the sense that confusion is an indication or factor to be considered as to intention in combination with all the other circumstances of the particular case. This understanding is supported by the fact that a number of early cases, when properly read as discussed within this

265. Such indications are reproduced in the text above at note 31. 266. As mentioned supra note 139. 267. E.g., see text below at 270.

1080 Vol. 106 TMR work, had indicated that intention is relevant rather than irrelevant.268 Thus, a strong likelihood of confusion should certainly not be a presumption of intention in the sense that intention is a foregone conclusion as a matter of law.269 Looking at some dicta that could have easily been misconstrued in this manner, Lord Chelmsford in Wotherspoon v. Currie (1872) stated that “an intention to deceive” can be shown by the resemblance between the markings.270 But his Lordship meant that the resemblance was only a factor to consider in assessing intention. This is revealed by the fact that all three Lords discussed whether intention had been established as a matter of evidence.271

A few years later, such dictum in Wotherspoon was cited and paraphrased, correctly, by Clifford J. in McLean v. Fleming (1877). His paraphrasing could be misread if one focuses simply on his wording that reads: “[P]roof of fraudulent intent is not required . . . as the liability of the infringer arises from the fact that [the infringer] is enabled, through the unwarranted use of the trade-mark, to sell a simulated article as and for the one which is genuine.”272 A broader extract from this sentence reveals other wording to the effect that “Positive proof of fraudulent intent is not required where the proof of infringement is clear.”273 Such emphasized wording is obviously critical to a proper understanding of the phrase “fraudulent intent is not required.” It is simply that “Positive proof” thereof is “not required” in the sense that fraudulent intention can otherwise be proven indirectly (such as, by a presumption arising from a strong likelihood of confusion). In any case, it was understood that, for the purposes of monetary relief, fraudulent intention ought to be proven.

The fact that Clifford J. did not propose to undermine the relevance of intention is confirmed within another passage in McLean v. Fleming where he indicated that, where there is a “want of” fraudulent intent, relief of this kind — an “account of gains or profits” — “is constantly refused” and he cited several authorities,274 including Edelsten, and even Millington.

To further consider the possibility of a mix-up between these two principles, both Wotherspoon and McLean v. Fleming were then paraphrased shortly thereafter by Field J. in Manufacturing

268. Especially as discussed within Mix-up #1. 269. This is in direct contrast to the principle that intention can indeed be presumed automatically in every case for the purposes of enjoining any further infringement after confusion and liability have been pronounced at trial, as discussed within Mix-up #1. 270. Supra note 180 at 519. 271. Text above at notes 208-212. 272. 96 U.S. 245 at 253-54 (liver pills) (emphasis added). 273. Id. (emphasis added) 274. Id. at 258-59.

Vol. 106 TMR 1081 Company v. Trainer (1879).275 The paraphrasing was not ambiguous at first but, later in the decision, the principle was loosely simplified as merely that “[p]roof of an intention to defraud is not required.”276 Again, if not read in context, such latter comments in Trainer can be misunderstood as meaning that proof of intention to defraud is not required. Again, either intention was to be proven by positive proof, or by indirect proof (such as by a strong likelihood of confusion). It also helps to know that Clifford J. participated in the case and, while he dissented, he did so only on other grounds; his comments specifically regarding intention are consistent with Field J.’s comments for the majority, and with Clifford J.’s own comments in McLean v. Fleming.

Within his dissent in Manufacturing Company v. Trainer, Clifford J. cited a passage from Coats v Holbrook277 suggesting that intention is not relevant, but again any such simplified paraphrasing should not be taken out of context.278

Also within his dissent in Manufacturing Company v. Trainer, Clifford J. cited Filley v. Fassett (1869). It, too, contains a dictum worth discussing under this heading. Therein, Currier J.A., for the court, stated: “If the name as used by them is calculated to deceive, the intention to deceive is to be inferred therefrom.”279 This is another bald statement that needs to be read in context. Filley v. Fassett cited Fetridge v. Merchant (1857)280 in respect of that principle, and Fetridge in turn had quoted such a dictum from Crawshay v. Thompson (1842), particularly where Maule J. stated: “If the [device or logo] is calculated to mislead, the intention to deceive would be manifest.”281 As submitted earlier, the suggestion that intention is presumed or “manifest” actually confirms that intention is relevant.

In addition, Maule J. understood that intention was irrelevant (or otherwise presumed) for the purposes of a final injunction rather than for damages.282 Still further, the quoting of such dictum within Fetridge was mere dicta, as Fetridge was yet another case focused on injunctive relief rather than monetary relief, and the injunction (which previously was granted) was

275. Supra note 219 at 66, 64. 276. Supra note 219 at 67 (Clifford J. dissenting). 277. Supra note 11 at 626 (of Sand. Ch. R). 278. Even the passage in Coats can be discounted on two grounds as discussed in Mix-ups #1 and #3. 279. Supra note 13 at 540 (Cox Am. TM Cases) (emphasis added). 280. 4 Abb. Pr. R. 156; Cox Am. TM Cases 194 per Hoffman J. (N.Y.). 281. Supra note 68 at 385 (of Manning & Granger), p. 157 (of ER). 282. Text supra note 68.

1082 Vol. 106 TMR actually lifted within this decision.283 Thus, Fetridge was not a case where an injunction was maintained, let alone where significant monetary relief was awarded as against an infringer who acted in good faith.

Accordingly, returning to the above bald statement in Filley v. Fasset, this should be understood as indicating either of the following principles: (i) “If the name as used is calculated to deceive, the intention to deceive [for the purposes of injunctive relief] is to be inferred therefrom.” or (ii) “If the name as used is [so obviously] calculated to deceive, the intention to deceive [for the purposes of monetary relief might possibly] be inferred therefrom.”

The same comments can be made regarding a dictum in Singer Manufacturing Co. v. Loog (1882).284 Lord Chancellor Selborne for the Court stated that one of the issues in the case was whether the defendant’s documents (which were allegedly causing confusion) “were fabricated with a view to such a fraudulent use of them, or unless they were in themselves of such a nature as to suggest, or readily and easily lend themselves to, such a fraud.”285 At first glance, the second part of that dictum implies that fraudulent intention is not required, as if it can simply be presumed from the confusing “nature” thereof. However, once again such presumption actually confirms that intention is relevant. If his Lordship instead had in mind that fraudulent intention is an automatic consequence of a finding of confusion, there would have been no point to the first part of the excerpt; there would never be a case needing to establish that the usage was fraudulent if fraudulent intent is presumed whenever confusion is established. In addition, it is proposed that the wording of the second part of the excerpt refers to cases involving a high degree of confusion, rather than mere confusion. Again, that second part refers to whether the documents were “in themselves of such a nature as to suggest . . . such a fraud.” He also used the word “suggest” rather than saying fraud was an automatic consequence of confusion. Still further, L.C. Selborne indicated agreement with the principles within the decision of Singer v. Wilson (1877) wherein the distinction between intention not being necessary for an injunction and it being necessary for a monetary award was understood and enunciated.286 Also, later in Loog, Lord Selborne expressed the conclusion that, in the circumstances of that case, the use of certain phraseology by the defendant “is not evidence of any

283. This was due to the mark having already been used by others, and thereby being treated as descriptive. 284. 8 AC 15 (HL). 285. Id. at 21 (emphasis added). 286. Text supra especially at notes 105 to 110.

Vol. 106 TMR 1083 fraudulent purpose or intent.”287 This comment clearly indicates that intention is not presumed from a finding of confusion, but only from a high degree of confusion. This, in turn, confirms that intention is still relevant.

Further examples of dicta which have been, or could be, misconstrued along these lines are found in Cartier v. Carlile (1862) where Sir Romilly stated: “[I]f it be found that there has been a colorable imitation of a trade mark, it follows that the person making it intended to imitate the genuine trade mark belonging to some individual . . . .”288 Similarly, as mentioned earlier,289 he held that, where the defendant’s trademark is found to be a colourable imitation of the claimant’s trademark: “[T]here must be imputed to a person imitating a trade mark a desire to gain the advantages which are attached to the use of that particular trade mark . . . .” But, Sir Romilly was referring to a situation where the defendant purposely imitates someone else’s mark without knowing their name and willfully abstaining from finding it out.290 Understandably that particular lack of knowledge combined with willful blindness does not absolve defendant from liability for monetary relief, and this was the extent of the defense on the basis of good faith. Thus, for this further reason, this dictum is not support for the notion that any other type of good faith is irrelevant.

Another passage that can be defused on the basis of this mix-up is in Saxlehner v. Apollinaris Co. (1897). Kekewich J. therein strongly expressed the presumption that, where confusion is established, “no evidence is required to prove the intention to deceive, nor ought time and money be expended on any such evidence.”291 However, the full statement refers to cases where confusion is established “on the face” of the defendants’ goods, meaning where confusion is so blatant that the defendants intention is obviously based on the surrounding circumstances. In addition, within the same passage, Kekewich J. added: “If, on the other hand, a mere comparison of the goods, having regard to surrounding circumstances, is not sufficient, then it is allowable to prove from other sources that what is or may be apparent innocence was really intended to deceive.”292 The fact that “it is allowable to prove [intention] from other sources” confirms that intention is worth being proven. That is, nowhere did Justice Kekewich actually hold that intention was an automatic 287. Supra note 284 at 26. 288. Supra note 75 at 298 (emphasis added). 289. Text at supra note 75. 290. Id., especially text at supra note 78. 291. Supra note 22 at 900-901. 292. Id. (emphasis added).

1084 Vol. 106 TMR consequence of the marks being confusing; he did not hold that intention can be presumed (from the likelihood of confusion) in the sense of being a foregone, necessary consequence of such likelihood of confusion. He held that intention could either be proven on the basis of a strong likelihood of confusion (“having regard to surrounding circumstances”) or be proven “from other sources,” including any direct evidence thereof. One way or the other, intention is worth being proven.

The possibility of a mix-up when reading Saxlehner is even greater when considering that the above sentence293 was awkwardly intermixed with a different principle that looks the same but is the inverse thereof. In the same way that intention can be inferred on the basis of confusion, Kekewich J. was also mentioning that confusion can inferred on the basis of intention. That is, where an intention to deceive is found, the court can infer that intention has been, or will be, effective in achieving that intention. In particular, Kekewich J. stated:

The sound rule is that a man must be taken to have intended the reasonable and natural consequences of his acts, and no more is wanted. . . . If the intent to deceive be once established, it is but a short step, though it is a step and not an inevitable one, to the conclusion that the intention has been fulfilled and that the goods are calculated to deceive [here meaning confusing].294

Coincidently, some of the authorities indicating that confusion can be inferred on the basis of intention constitute, or can be traced back to, some of the same authorities that indicate intention is irrelevant.295 In any event, the basic point here is that the similarity of the presumptions has added to the overall confusion within the law, particularly the notion that honest intention is irrelevant.

293. Text at supra note 291. 294. Supra note 22 at 900-901 (emphasis added). 295. E.g., Cadbury Schweppes Pty. Limited v. The Pub Squash Co. Pty. Limited (1980), [1981] 1 WLR 193; [1981] 1 All ER 213; [1981] RPC 429 (JC PC NSW) cites Lindley LJ in Slazenger & Sons v Feltham & Co (2) (1889), 6 RPC 531, 538 which, in turn, was an appeal from a decision of Kekewich J. Another example is ConAgra v. McCain Foods (1992 Austr.), supra note 48, at para. 127. See also the BARBIE case (2006) above note 57 at para. 90; Sir Duff in Hurlbut (1925) supra note 138 at 147, 148 (citing Burgess); Parker-Knoll v. Knoll Int’l (1962) supra note 35 at 273, 290; Reddaway v. Bentham (1982), supra note 123 at 507 (per LJ Lindley).

Vol. 106 TMR 1085

Mix-up #7: Not Distinguishing the Irrelevance of the Defendant’s Good Faith View on the

Likelihood of Confusion for the Purposes of Assessing That Likelihood

It is commonly known that confusion (or “deception” etc.) is assessed by the court putting itself in the position of the typical customer. It is not assessed from the point of view of the defendant but this does not mean that the defendant’s belief that its use was not confusing is irrelevant to the issue of monetary relief. Saying that the defendant’s good faith belief as to the likelihood of confusion is irrelevant as to the issue of confusion is not the same as saying that such good faith is also irrelevant as to the issue of monetary relief.

However, there are judicial comments that reflect or otherwise contribute to mixing-up these two concepts. For example, the excerpt reproduced above from the Barbie case296 contained the comment that “the relevant perspective of s. 6(2) of the Trade-marks Act is not that of the respondent but rather the perception of the relevant mythical consumer.” This was then immediately followed by the statement that “[m]ens rea is of little relevance to the issue of confusion.” Again, this may be correct in terms of intention being irrelevant to the issue of confusion but the dictum could easily be misread as if intention is also irrelevant to liability for monetary relief or the quantum of monetary relief.

IV. QUESTIONING SOME GENERAL RATIONALES FOR DEEMING INTENTION TO BE IRRELEVANT

General rationales have rarely been provided to support the notion that good faith is irrelevant to the issue of monetary relief. This is understandable in that so many decisions have indicated that intention is irrelevant simply as a result of one or more mix-ups as discussed above.

The few rationales that have been judicially expressed appear to be open to question, as discussed below.

A. “The Damage is the Same” One of the few rationales given for the irrelevance of intention

is the idea that the damage to the plaintiff is the same whether or not the damage was intended, and thus the plaintiff should be compensated in either situation. This rationale is seemingly expressed in the following cases:

In Draper v. Trist (1939), Sir Green M.R. stated “I must dissent, however, from the view that the only case in which it 296. Supra note 61.

1086 Vol. 106 TMR would be permissible to award damages to the plaintiff would be a case in which it was shown that the middleman had resold fraudulently. . . . [The plaintiff] will suffer precisely the same damage if the ultimate purchaser from the middleman is in fact misled by [the defendant’s] deceptive description, whether or not the middleman is himself fraudulent in his intent.”297

In a similar vein, in Coffeen v. Brunton (1849), McLean J. held that the principle expressed in such cases as Millington (namely, that an intentional fraud is not necessary) was the correct view of the principle “for the injury will be neither greater nor less by the knowledge of the [defendant].”298 His Lordship reiterated this upon a subsequent motion within the same legal action, where he stated: “The injury is not the less, though the false representations be made without a knowledge of such interference.”299

However, there are several responses. Firstly, as mentioned, the statements in both of these decisions suggesting that good faith is irrelevant to the issue of monetary relief can be discounted as being mere dicta or as involving one or more mix-ups.300 The comments within those proceedings were not necessarily intended to provide a rationale as to good faith being irrelevant for the purposes of monetary relief.

The statement in Draper can arguably be further set aside by emphasizing different wording such that it reads: “I must dissent, however, from the view that the only case in which it would be permissible to award damages to the plaintiff would be a case in which it was shown that the middleman had resold fraudulently. . . . [The plaintiff] will suffer precisely the same damage. . . .” In other words, the statement was intended to defeat the supplier’s defense that it cannot be liable unless the middleman has in turn resold fraudulently. This feature of the decision was thus addressed to the issue of the middleman’s innocence being irrelevant to the contributory or indirect liability of the supplier, rather than innocence being irrelevant across the board.

Secondly, the notion that “the damage to the plaintiff is the same” whether intentional or not, represents a “slippery slope.” Anyone causing damage, in the field of trademarks or otherwise, would be liable for potentially substantial payments even if the harm was caused by accident without breaching any standard of care, based on the argument that the damage to the plaintiff is the

297. Supra note 31 (emphasis added). 298. Supra note 12 at 519 of 4 McLean; 136 of Cox Am. TM Cases. 299. Coffeen v. Brunton (2) (1851), 5 McLean 256; Cox Am. TM Cases 132; 5 F. Cas. 1186 (emphasis added). 300. As to Draper, see text supra notes 139, 227, 252. As to Coffeen, see text at supra notes 174-175.

Vol. 106 TMR 1087 same. It would also render irrelevant other equitable factors to be considered in all trademark cases, such as acquiescence or delay.

A similar response is that, while the damage to the plaintiff may be the same (whether the damage be intentional or not), the wrongfulness of the defendant’s conduct is not the same. If the defendant acted in good faith, the injury to the plaintiff was an accident. For example, in some cases the plaintiff may have undertaken the very minimum obligations to obtain a registration or to otherwise establish an enforceable reputation for purposes of statutory or common law passing off, while the defendant may have undertaken significant effort to secure sales — such as marketing, advertising, personalized sales calls, production, product design, logistics, managing employees, assuming the risk of a loss, etc. — and yet the defendant is expected to hand over all of its profits. Arguably, in such cases, the plaintiff is effectively awarded a windfall. If one of the objectives of such laws is to encourage fair, rather than unfair, competition, awarding full monetary relief in such cases may not achieve that objective.

Still further, simply as a matter of precedent, the view that the damage is the same, intentional or not overlooks the jurisprudence discussed herein supporting the principle that innocence should indeed be relevant. In particular, the idea that the damage is the same was expressed within Singer v. Wilson (1877) where Lord Cairns discussed how innocence was irrelevant because, intentional or not, “in all these cases the injury to the plaintiff is just the same.”301 Nevertheless, even with this notion in mind, the overall decision clearly allowed for the possibility that innocence should be relevant as to the issue of monetary relief.302

B. Breach of Property Right Another rationale is that monetary relief should flow

regardless of good faith because the trademark right is a proprietary right. But who said so? And why? Who said trademarks constitute “property,” and did they actually say so for the purposes that significant monetary relief should flow automatically from infringement?

Some judicial statements as to trademarks or goodwill constituting “property” are completely ambiguous as to what, if anything, was intended by that term.

Some of these statements are not ambiguous but are directed to different issues, such as whether such rights are assignable or

301. Supra note 105 at 488. 302. As discussed above, especially within text at notes 105 to 110.

1088 Vol. 106 TMR entitled to protection by injunction.303 Some statements of Lord Westbury in particular have been distinguished.304 That is, it begs to be proven that any of such statements of Lord Westbury or otherwise were directed to the issue of whether a plaintiff could collect substantial damages despite the good faith of the defendant.

Some statements do specifically suggest that monetary relief should flow as a matter of property but they were derived, at least initially, on the basis of circular reasoning as follows: firstly, as mentioned above, Lord Chancellor Cottenham in Millington indicated that intention was not required for the purposes of injunctive relief. It was then stated by others that such rights in trademarks must be a form of property given that generally intention is not required to protect property rights; being a form of property, it was then stated that intention was not required for the purposes of monetary relief.305 In short: intention was not required for injunctive relief, and thus trademarks are property; and thus intention is not required even for monetary relief. However, as discussed in Mix-Up #1, Lord Cottenham did not go that far; the first part of the syllogism was not intended to support the final part.

Not realizing this mix-up, the second and third parts of the syllogism were expressed, for example, by the Delhi High Court in the passing off case of Prina Chemical Works v. Sukndayal (1974).306 The Court first observed that “[i]n general the violation of a right to property is actionable even though it is innocent.”307 Then, the Court quoted308 the famous dictum in Draper v. Trist (1939) where Lord Goddard stated: “In passing-off cases . . . the true basis of the action is that the passing off by the defendant of his goods as the goods of the plaintiff injures the right of property in the plaintiff . . . .”309 Then, the Delhi High Court proceeded to conclude: “It is now well settled that proof of fraud is unnecessary, whether the relief asked for be an injunction or damages.”310

Another example of this circular reasoning is found in Sund v. Beachcombers Restaurant Ltd. (1960). The Court similarly quoted the dictum from Draper to the effect that passing off “exists as a

303. As a statutory example, in India, the Specific Relief Act of 1877 (Act 1) declared that “a trade mark is property” but this was merely directed to obtaining a perpetual injunction. 304. Text above at notes 88-98, 208-212. 305. Some examples are discussed next. See also text supra notes 10, 42, and 48. 306. Supra note 39 at paras. 20–35. 307. Supra note 39 at para. 20 (emphasis added). 308. Supra note 39 at para. 23. 309. Supra note 31 at 526 (All ER) (emphasis added). 310. Supra note 39 at para. 24 (emphasis added).

Vol. 106 TMR 1089 remedy for the protection of a proprietary right” and then proceeded to say: “Since violation of a right to property is actionable even though unintentional . . . it is unnecessary here for the plaintiffs to establish deliberate intent to deceive on the part of the defendants.”311 Nothing here truly explains why trademarks are property, and why the good faith intention is irrelevant. Nothing here explains why it is fair and just to award substantial monetary relief against an innocent infringer.

Saxlehner v. Apollinaris Co. (1897) is another case stating that monetary relief flows on the basis that the trademark right constitutes a species of property. The weakness of this rationale is yet another indication of the unsoundness of the statements in this particular case312 as to good faith being irrelevant to the issue of monetary relief.

In summary, it has not been convincingly established that substantial monetary relief should flow regardless of good faith because trademark rights have, in certain other respects, been treated or referred to as “property.”

V. CONCLUSION: THE RELEVANCE OF INTENTION

SHOULD BE RECONSIDERED A. Reconsidering Its Relevance

as a Matter of Fairness and Justice It has not been clearly and soundly stated that intention is

irrelevant to the awarding of substantial monetary relief. However, there are numerous decisions in Canada and abroad suggesting that defendant’s “intention” is “irrelevant” to the awarding of damages or profits in matters of passing off (unfair competition) and trademark infringement.313 Such indications are based upon one or more legal mix-ups314 and questionable rationales,315 Iand therefore should be reconsidered by the respective courts and legislators.

Very few if any judges in passing off or trademark infringement cases have flatly stated it would be unfair and unjust to take good intention into consideration in deciding whether to award substantial monetary relief. Some judges (and commentators) have clearly indicated it would be unfair and unjust not to do so, thereby suggesting that the dicta in Part II 311. Supra note 32 at 229 (emphasis added). 312. Supra note 22. 313. As discussed in Part II and Part IV.A. 314. As discussed in Part III. 315. As discussed in Part IV.

1090 Vol. 106 TMR should be reconsidered on that ground alone. Some examples are as follows:

In Straus v. Notaseme Co (1916),316 Justice Oliver Wendell Holmes had reversed the order for profits as against a good faith defendant, even in respect of sales after the defendant had been put on notice by the plaintiff. The Justice clearly felt it would be unjust to award significant monetary relief without being able to take into account the defendant’s good faith.

In Marengo v. Daily Sketch & Sunday Graphic Ltd. (1948), Lord duParq noted: “it did not seem right, by the standards of the common law, to make a man pay damages for what amounted to an innocent misrepresentation.”317

In Colbeam Palmer Ltd. v. Stock Affiliates Pty. Ltd. (1968) Windeyer J. agreed with such cases as Edelsten v. Edelsten and Moet v. Couston that, even in a case of infringement of a registered mark, “it lies upon a plaintiff who seeks an account of profits to establish the profits were made by the defendant knowing that he was transgressing the plaintiff’s rights.”318 It was explained therein that the very focus of this particular form of monetary relief is to strip a defendant of profits as to which it would be “unconscionable that he retain.”319 “These are profits made by him dishonestly, that is by his knowingly infringing the rights of the proprietor of the trade mark.”320 This is all in contrast to the questionable notion of automatically stripping a defendant of profits where the defendant has not acted dishonestly and knowingly.

Some commentators reviewing the issue have also expressed similar opinions. For example, E.R. Coffin said the following within his conclusion in his 1903 article regarding the role of fraud in unfair competition:

Even though it be conceded that a defendant who has innocently and inadvertently passed off his goods as plaintiff’s . . . should be restrained from a continuance of such acts, it does not necessarily follow . . . that an innocent defendant must pay damages [or account for profits] for the period prior to notice of the plaintiff’s rights. It is thoroughly consistent and equitable, that a defendant who cannot set up absence of a

316. Supra note 130. 317. 1 All ER 406, 65 RPC 242, 253 (HL) (emphasis added). 318. 42 ALJR 209; [1972] RPC 303 at 310 (Aus HC). (emphasis added) (paint sets) Admittedly, Windeyer J expressed some softness as to the availability of damages for innocent infringement but not as to an accounting. And even as to damages, he acknowledged such cases were “conflicting” on the issue, and certainly did not discuss the issue to the extent set out within this paper. 319. Id. (emphasis added). 320. Id. (emphasis added).

Vol. 106 TMR 1091

fraudulent intent as a bar to an injunction, should be nevertheless allowed to prove it in exemption from damages or an accounting.321

Similarly, author Catherine Best in her 1985 article relating to intention expressed the view that damages should not automatically run from the commencement of the period of infringement, but only from the point at which the infringer knows that it is passing off or infringing (including acting recklessly or with willful blindness, or lacking a reasonable belief as to innocence).322

It is also curious that some authorities and practitioners appear to accept that good faith intention can be taken into account when it comes to awarding monetary relief pursuant to the equitable remedy of an accounting of the defendant’s profits, and yet not for the purposes of awarding monetary relief in the form of compensatory damages. For example, Prof. Grismore in his 1929 article indicated that an accounting of profits should not be awarded against innocent infringers because it amounts to imposing a penalty.323 Meanwhile, within the same article, he supported awarding monetary relief against innocent infringers in the form of damages. With great respect, this appears to be inconsistent given that the amount of damages can be as substantial as the amount of a defendant’s profits.324 Accordingly, awarding such amount in the form of damages would effectively constitute imposing a penalty in the same way it would, as indicated by the Professor, constitute a penalty when such amount is awarded by means of an accounting.325

B. Some Suggestions It is respectfully suggested that the irrelevance of good

intention in respect of substantial damages or an accounting of profits be reconsidered for causes of action such as passing off, trademark infringement, and dilution, in Canada and elsewhere where applicable. The mix-ups identified above should also be avoided. In particular:

321. 1903 Coffin article supra note 23 at 290 (emphasis added). 322. Supra note 27 at 236. 323. Supra note 10 at 867-8. 324. Damages can be as substantial as the defendant’s profits such as where the defendant’s sales price is lower than the plaintiff’s, or where the defendant’s expenses are higher in having innocently developed and promoted its product under a trademark later deemed to be infringing, as in the hypothetical mentioned above in the Introduction. 325. Prof. Grismore had even indicated that, while the two kinds of relief (supposedly) involve fundamentally different principles, the problem is “fundamentally the same.” Supra note 10 at 867-8.

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(1) While good intention might be irrelevant to the awarding of a permanent injunction, it can still be relevant to the awarding of substantial monetary relief. Intention may be “irrelevant” to the awarding of forward-looking relief (such as injunctions, oppositions or delivery-up of offending labels) because bad intention is imputed after defendant becomes aware—or defendant acts recklessly or with willful blindness rather than mere negligence or innocence—that its ongoing conduct is wrongful especially upon such pronouncement at trial. But such imputing of intention does not apply in respect of conduct prior to that point.326

(2) Even when focusing on the relevance of intention with respect to monetary relief, a distinction should be observed between its possible relevance as an element of liability for such relief and its possible relevance as a factor as to quantum. If it is an element, the defendant would presumably not be liable for substantial monetary relief. If it is not an element, it could still be a factor which mitigates or tempers quantum.327

Assessing the relevance of intention with respect to monetary relief involves difficult foundational issues. What is the true rationale for awarding monetary relief in matters of passing off and trademark infringement? The theory based upon property (where intention is irrelevant) has been questioned above.328 But the theory based upon fraud (where intention is relevant) could also be questioned. For example, the theory based upon fraud seems to rely upon an analogy to the law of deceit but despite the review of so many early cases it is difficult to find any that express this analogy. In addition, as many have noted, damages for deceit are awarded to the party deceived rather than the defendant’s competitor.

In assessing the relevance of intention with respect to monetary relief, it would also be valuable to consider how intention is treated in connection with other causes of action and in other jurisdictions to assess the applicability of the rationales for these other decisions and laws to the laws of passing off, trademark infringement and unfair competition.

In the interim, it may be just in many cases to award a simplified discretionary amount, less than full damages or profits but greater than no amount, based upon the overall circumstances, whether under the label of damages or an accounting. The downside of any uncertainty created as a result of such a fee

326. Supra Part III, Mix-up #1. 327. Supra Part III, Mix-up #5. 328. As discussed in Part IV. B.

Vol. 106 TMR 1093 assessment procedure would often be outweighed by the benefits of added flexibility of reducing the difficulty of other issues, such as resolving all of the accounting issues as to what truly constitutes the plaintiff’s lost profit attributable to the defendant’s unlawful conduct or the defendant’s profits attributable to the infringement. This intermediate discretionary amount should also ameliorate the harshness of an innocent defendant having to pay full monetary relief while providing the plaintiff with at least some compensation and also encouraging other traders to exercise greater care in terms of avoiding infringement or passing off.

1094 Vol. 106 TMR

MAKING THE BEST USE OF EXPERTS TO EVALUATE DAMAGES IN INTELLECTUAL

PROPERTY DISPUTES

By Bruce Abramson∗

I. INTRODUCTION Expert witnesses have become ubiquitous in litigation. At

some point in any litigator’s career, he or she will need to find, interview, select, prepare, and deploy an expert witness. The available literature and accessibility to training necessary to excel at these tasks, however, is scant—particularly compared to the literature addressing other areas of the law, lawyering, and the legal profession.

I have written this article as a practitioner’s note, from the atypical perspective of a lawyer who worked his way through law school as an expert witness in computing and economics, and in whose own practice expert testimony has always played a prevalent role. My focus in this article is on selected strategic questions governing the use of damages experts in intellectual property cases, though many of the issues I raise are equally applicable to other types of experts and/or to other types of disputes.

I hope to demonstrate why and how service as a litigation expert (or a non-testifying litigation consultant) is a unique professional skill. While high-quality litigation expert work entails possessing specialized knowledge of at least one discipline relevant to addressing the question posed, it also requires the research training necessary to conduct the relevant analyses and the pedagogical skills necessary to explain results to a lay audience. However, even these skills are insufficient to perform as a litigation expert; the expert must also possess some skills far more common among attorneys than among researchers or academics: a good litigation expert must know how to work with lawyers and how to counsel litigants; be familiar with the litigation environment and litigation strategy; and maintain a grounding in ∗ Current President, Informationism, Inc. Formerly Partner, Rimon, P.C. and Law Clerk, Hon. Arthur Gajarsa, U.S. Court of Appeals for the Federal Circuit. Mr. Abramson is a computer scientist with a law degree, who has experience as a consulting economist, specialized intellectual property knowledge, and has twenty-plus years of experience working as an expert in litigation and/or regulatory settings. He has served as a technical expert in infringement disputes, as a technology industry custom-and-practice expert in licensing disputes, and as a damages expert in a wide range of disputes, testifying in federal and state courts, as well as ADR environments. He may be reached at his website: www.bdabramson.com.

Vol. 106 TMR 1095 the relationship between applicable laws and available facts. Of perhaps most direct relevance to this article, I have come to appreciate that the establishment of expert credentials at the beginning of an expert report is a critical element in convincing anyone weighing decisions in a dispute, whether a jury or a judge, that they should care about the expert’s opinion.

II. EXPERTS The official job of an expert witness is to deploy “scientific,

technical, or other specialized knowledge that will help the trier of fact to understand the evidence or to determine a fact in issue.”1 Like all other witnesses—and unlike counsel—the duty of an expert witness is to the court, as much as, if not more than to a client. Unlike most other witnesses, whose testimony relates relevant facts of which they have personal knowledge, expert witnesses often proffer opinions derived by applying “reliable principles and methods” to case specific “facts or data” in a reliable manner.2 Taken together, an expert’s written, deposition, and trial testimony must be honest, accurate, and reliable.

Although experts are retained and offered to support a client’s legal position, the duty of zealous advocacy that binds counsel to client does not apply in the same manner to witnesses. The discovery rules governing expert communications, deliberations, and notes differ from those applicable to attorneys. More significantly, unlike counsel, expert witnesses must sit for depositions and cross-examinations that opposing counsel can pack with landmines. A witness—expert or otherwise—must provide honest answers to questions about potential weaknesses in the case of the litigant who called him. Counsel often attempt to solicit testimony from the opposing side’s liability and damages experts about the components of the case with which they are less familiar, hoping to get them to contradict each other. Testimonial experience is necessary for the witness to know how to avoid such traps without compromising his or her candor, objectivity, reliability, credibility, or reputation.

As a result, the expert’s duty to the court may, at times, be lost on a jury. It is hardly uncommon for each side in a dispute to call trial experts boasting comparable credentials, applying the same or similar methodologies to the same supersets of facts and data, and presenting wildly different conclusions. Not surprisingly, in nearly all such cases, each party calls an expert witness whose opinion bolsters the case that counsel—employing zealous advocacy—is trying to present. When the opinions of opposing

1. Fed. R. Evid. 702. 2. Id.

1096 Vol. 106 TMR experts merely contradict one another, it may feed a stereotype of expert witnesses as little more than hired guns.3 Like most stereotypes, this one combines a basis in fact with a fundamental unfairness when applied broadly; only some expert witnesses are hired guns.

What may explain this apparent anomaly? One explanation begins with the lawyer’s duty of zealous advocacy. Lawyers are not required to retain the first potential expert they interview; those whose initial perspectives seem unhelpful to the client’s case are unlikely to make the cut.4 Once retained, however, the expert becomes part of the client’s advisory team. By adding a skill set to the team, the expert may contribute to shaping the theory of the client’s case, and can be particularly helpful in forming discovery requests and responses—thereby heightening the appearance that the expert is offering advocacy rather than objective testimony.5

The expert’s skill at digesting, analyzing, and explaining complicated facts and data can be used for far more than assisting the trier of fact during a trial. A good expert should help both counsel and client better appreciate which legal theories the facts can sustain, and provide a realistic assessment of the evidence on both sides of the dispute. When the facts cannot sustain the claims the client would like to make, the legal theories counsel might have planned to assert, or the remedies that the client seeks, the expert’s advice can inform and guide settlement discussions, motion practice, and the overall contours of the case that actually reaches trial. A damages expert in particular can provide information critical in guiding settlement negotiations—or justifying the expenditure necessary to head to trial. The synergy between an advocate’s case and an objective witness’s support is thus never coincidental, but it is not necessarily indicative of impropriety.

Although the focus of this article is damages experts, it is worth noting that liability experts raise many of the same issues. Such experts are particularly important in cases involving intangible assets like intellectual property, where educational expertise that lies beyond training and experience of most trial lawyers is required. The use of liability experts well versed in the technology underlying a patent (and the development history of that technology) dates back at least as far as the Telephone Cases of the late nineteenth century.6 Contemporary copyright cases, 3. See, e.g., Mark R. Patterson, Conflicts of Interest in Scientific Expert Testimony, 40 Wm. & Mary L. Rev. 1313, 1327-36 (1999). 4. Id. 5. See, e.g., Cecil Kuhne, A Litigator’s Guide to Expert Witnesses 4 (American Bar Assoc., 2006). 6. Dolbear v. Am. Bell Tel., Molecular Tel. Co. v. Same, Am. Bell Tel. v. Molecular Tel., Clay Commercial Tel. Co. v. Am. Bell Tel., People Tel. v. Same, Overland Tel. Co. v.

Vol. 106 TMR 1097 which implicate computer, software, Internet, and communications technologies with increasing frequency, can require similar expert explication.7 For decades, trademark disputes have benefited from the testimony of expert witnesses who are able to explain the ways that consumers would perceive the mark, raising issues rooted in psychology, marketing, and survey design.8 Trade secrets can implicate any combination of these issues, along with cybersecurity concerns and forensic computing.9 Licensing disputes can hinge on an appreciation of relevant industry terms and practice, their evolution over time and possibly the relevant policy objectives.10

These areas of expertise all tend to interplay with applicable laws and legal theories to form critical parts of a liability case. To complicate matters even further for counsel, and as noted above, liability expertise and damages expertise can (but do not always) interact in potentially limiting ways. In such cases, counsel may find it beneficial to secure a damages expert possessing at least some familiarity with the underlying technology and a liability expert who understands the damages case.

III. DAMAGES EXPERTS A. The Skill Gap

Fluidity with liability issues is precisely where most lawyers focus their legal training and build their practices. By way of contrast, a quick perusal of law school course offerings and CLE programs shows them to be light on remedies and even lighter on

Same, 126 U.S. 1, 883 (1888) (discussing the testimony of an expert witness named Mr. Park Benjamin). 7. See, e.g., Richard H. Chused, Rewrite Copyright: Protecting Creativity and Social Utility in the Digital Age, 38 Isr. L. Rev. 80 (2005), http://digitalcommons.nyls.edu/cgi/viewcontent.cgi?article=1282&context=fac_articles_chapters; Bruce Abramson, Digital Phoenix: Why the Digital Economy Collapsed and How It Will Rise Again (MIT Press, 2005). 8. See, e.g., Donald L. Thompson, Survey Data as Evidence in Trademark Infringement Cases, 2 J. Mktg. Research 1 (Feb., 1965); Eugene E. Levitt, The Psychologist: A Neglected Legal Resource, 45 Ind. L.J. 82 (1969-70); Jacob Jacoby, Amy H. Handlin, and Alex Simonson, Survey Evidence in Deceptive Advertising Cases under the Lanham Act: An Historical Review of Comments from the Bench, 84 TMR 541 (1994). 9. See, e.g., Bruce A. Olson, Helping an Attorney Prove an Employee Theft/Theft of Trade Secrets Case with Computer Forensic Evidence: Part 1, Forensic Magazine, May 28, 2010, http://www.forensicmag.com/article/2010/05/helping-attorney-prove-employee-thefttheft-trade-secrets-case-computer-forensic; Jim Vaughn, The Use of Digital Forensics in Trade Secret Matters (Part 2 of 3), Trading Secrets, May 23, 2012, http://www.tradesecretslaw.com/ 2012/05/articles/trade-secrets/the-use-of-digital-forensics-in-trade-secret-matters-part-2-of-3/; Editorial Board, Orrick Launches New Cybersecurity Blog, Trade Secrets Watch, Oct. 1, 2015, http://blogs.orrick.com/trade-secretswatch/2015/10/01/orrick-launches-new-cybersecurity-blog/. 10. See, e.g., Bruce Abramson, Preventing and Predicting Software License Disputes, S.R.R.J., Spring 2011, 107.

1098 Vol. 106 TMR damages.11 In many ways, little has changed since 1941, when a book reviewer considering damages casebooks was able to write: “For some time a controversy has existed (one can hardly say that it has raged) as to whether the law of damages has any place in a law school course. These two latest casebooks on the subject do not exactly advance the cause of those favoring its inclusion.”12

The typical resolution of this still-existent controversy is to shoehorn some discussion of remedies into selected substantive courses, typically at the discretion of the professor. Young lawyers can thus be excused if they believe that these topics will play an inconsequential role in shaping their practices. Clients, particularly clients in civil disputes such as those involving intellectual property, often take a different view. To many clients, pursuit of an intellectual property suit, whether as plaintiff or defendant, is a business decision: the minimization of payments (whether as legal fees or damages) or maximization of collections (as damages minus legal fees) is often far more important than the vindication of any underlying rights. This mismatch between legal training and client needs leaves an obvious gap in many legal teams. Once again, an expert is necessary to fill the gap, and as this article showcases, that expert is often a damages expert.

B. Selecting a Damages Expert Perhaps the first critical question with which counsel must

grapple is the identification of the appropriate skill set for a given case. Witnesses may qualify as experts if their “knowledge, skill, experience, training, or education”13 has prepared them to provide helpful opinion testimony. In assessing potential experts, it is common for counsel to look first toward education, placing a primacy on degrees, institutional affiliations, fields of study, certificates, and credentials. This emphasis, though understandable, is frequently misplaced. Skills and experiences amassed outside of academic environments often dwarf in importance those obtained through formal academic credentialing.14

While impressive credentials can certainly play an important role in providing a witness with the gravitas necessary to impress juries (and possibly judges), few if any academic environments

11. See, e.g., F. Andrew Hessick, The Challenge of Remedies, 57 St. Louis Univ. L.J. 739, 739 (2013). 12. J.C. Stedman, Review of Cases on the Law of Damages by Ralph S. Bauer, 8 U. Chi. L. Rev. 810 (1941). Available at: http://chicagounbound.uchicago.edu/uclrev/vol8/iss4/25. 13. Fed. R. Evid. 702. 14. By way of full and fair disclosure, my own academic degrees include a B.A., an M.S., and a Ph.D. in Computer Science from Columbia and a J.D. from Georgetown. I proffer no opinion about their ability to impress.

Vol. 106 TMR 1099 prepare students to navigate the various advisory, testimonial, and preparation roles necessary to serve as an effective witness—much less to operate in an environment constrained by real-world data availability and real-world requirements, rather than by research-oriented laboratory conditions. As a result, “knowledge, skill, and experience” can be far more important than “training or education.” In much the same way that a recent law school graduate requires a good deal of practical experience to become an effective lawyer, impressive educational credentials simply constitute the most common entry point to an appropriate experiential career path. They are neither necessary nor sufficient to be an effective litigation expert.

Still, many lawyers enjoy emphasizing potential mismatches that they detect between the degrees that a witness may have obtained decades earlier and the testimony presented in the case at hand. Many also enjoy emphasizing portions of a witness’s career unrelated to the expertise relevant to the testimony at hand, or defining expertise so narrowly that no person would qualify—in an apparent attempt to downplay the experience and/or training that actually qualifies an opposing expert to testify. They devote significant deposition time to reviewing the witness’s curriculum vitae—drastically reducing the time available to consider substantive testimony. They then reiterate the emphasis in preparing a Daubert motion15—a request that the Court exclude the testimony of the opposing side’s expert witness that has become de rigueur in contemporary litigation.

Daubert motions have become ubiquitous parts of litigation because they can play an important strategic role even when they are baseless. Challenges improperly focused on credentials rather than on methodology and application exemplify the strategy: A trial judge’s decision to grant a Daubert motion is reviewable, subject to an abuse of discretion standard, and even then it is only reviewable if the matter makes its way through a trial without the excluded witness and becomes the subject of an appeal.16 The exclusion of one or more witnesses—particularly damages witnesses—often motivates litigants to settle cases that were headed to trial on terms suddenly unfavorable to the party whose witness was excluded. Thus, any time a judge has expressed exasperation with the litigiousness of the parties or counsel, or surprise that the case had not yet settled, it behooves counsel to provide a mechanism capable of helping the judge further motivate settlement—on newly favorable terms, of course.

Because the courts are supposed to look beyond credentials to overall experiential preparation and even more importantly to the 15. See Daubert v. Merrell Dow Pharms., 509 U.S. 579 (1993). 16. See Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997).

1100 Vol. 106 TMR substance of the testimony, i.e., the acceptability of the expert’s methodology and reasonableness of its application, motions granted excluding a witness on credentialing grounds usually suggest a motivation outside the substance of the expert’s testimony. The ability to deal calmly with attacks—even slanderous attacks—is at least as important a quality in an expert witness as it is in an attorney.

With the importance of experience over credentials in mind, the selection of an appropriate damages expert often comes down to choosing between accounting and economics. Though these fields are closely related (hence the difficulty of the choice), they embody different analytic approaches (hence the need to choose). Perhaps the simplest way to understand the distinction is that “accounting is based on a set of principles, while economics operates on certain assumptions to simplify complex situations.”17 Accounting principles typically specify the model, and look to the accounting expert to fit the data into it. Economic experts, on the other hand, must start with a set of assumptions to build a model appropriate to the question they are addressing and the context in which they are addressing it.

One useful way to think about damages is as a combination of compensable legal harm and economic measurement. This characterization highlights the two tasks central to every good damages report: the modeling of the world as it would have existed “but for” the defendant’s allegedly improper act (discussed in greater detail below), and the measurement of the difference between the plaintiff’s economic position in that but-for world and the world “as is” (or in the less common case of an unjust enrichment claim, the difference between the defendant’s position in those two worlds).

The best experts are thus well versed in both the measurement of damages and the law of damages—a requirement that is heightened in specific legal arenas, like IP law, where the applicable legal standards can be both idiosyncratic and subtle. Economic modeling and accounting analyses both focus on measurement, and in some cases might yield identical results. The specific legal questions at hand, and the availability of relevant data, however, can render one type of approach far more appropriate than the other to a given case.

As a general rule, the closer the facts of a dispute are to a well-understood textbook analysis of profits or cash flows, the stronger the case for an accountant. Similarly, disputes whose resolution hinge upon or require compliance with specific regulatory

17. Investopedia, “What is the difference between accounting and economics?” Investopedia, http://www.investopedia.com/ask/answers/032315/what-difference-between-accounting-and-economics.asp#ixzz4Qkzx7sFH.

Vol. 106 TMR 1101 principles also favor accounting expertise. The further the specifics move from those settings, however, the stronger the case for economic expertise becomes. In particular, damages relating to underdeveloped intangible assets—such as IP—tend to favor the use of economic models. Thus, the more clearly the environment calls for strict adherence to a fixed rule set, and the more the problem at hand meets the assumptions and constraints underlying accounting rules, the greater the propriety of retaining an accountant. The more complicated and atypical the analysis, the greater propriety of retaining an economist. Though the accounting profession has attempted to extend the rules first developed for tangible assets and past performance to the complexity of an intangible asset whose full development was allegedly stunted by a defendant’s act, those extensions nevertheless often fall short.18 In many IP disputes, economic modeling can integrate a far richer set of concerns, more closely aligned to applicable law and case-specific evidence, than can an accounting model.

C. Expert as Advisor Like most aspects of litigation, damages can run the gamut

from extremely straightforward to extremely complex. Depending on the facts of a case and the availability of data, damage calculations can involve little more than the simple manipulation of a few numbers using four-function math, or they can require advanced statistical analyses. As noted, however, a good damages expert should bring more to the table than number-crunching skills, particularly in the sort of complex disputes that typically arise in IP cases.

A damages expert with a solid grounding in the law can benefit counsel and client in several ways. From a substantive perspective, the damages analysis is often critical to a showing of causality, connecting the theory of liability to the measured harm. From a pre-trial settlement perspective, a compelling presentation in either a written report or a deposition can prove invaluable in guiding negotiated resolutions. From a strategic perspective, a damages analysis conducted early (something done far too infrequently) can help ground litigation strategy in a realistic assessment of the amounts truly at stake.

A hard focus on numbers can also help counsel convince a client to take a serious, realistic look at his or her case, providing a bit of objectivity separate from emotion. It is hardly uncommon—in IP disputes or elsewhere—for a plaintiff client to engage an attorney confident that the defendant’s bad act has caused some 18. See, e.g., Michael Pellegrino, BVR’s Guide to Intellectual Property Valuation (Business Valuation Resources, 2nd ed. 2012).

1102 Vol. 106 TMR harm, but unable to articulate (much less to prove) an amount. Nor is it uncommon for clients to arrive unaware: that not all forms of harm are compensable; that speculative damages are unrecoverable; that it is impermissible to assume that the world would have unfolded in some best-case scenario but-for the defendant’s behavior; or that insurance coverage, legal fees, and enhanced damages are available under some but not all legal theories—even given an identical set of facts. From a defense perspective, clients confident that they have done nothing wrong—and that if they did, it was inconsequential—can be resistant to learning how much they may stand to lose. This resistance can be particularly strong in IP infringement cases in which the defendant was completely unaware of the plaintiff’s IP (or even the plaintiff) until receiving word of the suit—a situation hardly uncommon in the patent and trademark worlds.

In short, the best damages experts become invaluable integrated parts of the legal team. Their input can help ground the client in reality, guide discovery and legal strategy, promote realistic settlement, and weave together the strands of the client’s story necessary to play well to judge or jury. It is thus important to review the basic contours and strategic uses of a damages assessment.

1. Damage Modeling Perhaps the sine qua non of all damages work is the

construction of the aforementioned but-for world—whether done implicitly (as might occur in a simple matter) or explicitly (as is common in more complicated cases).19 The contours of this but-for world capture the plaintiff’s contentions about what should have happened, “but for” the defendant’s commission of some allegedly wrongful act. The modeling exercise thus incorporates critical elements of the causal case, linking the specific legal duty for whose breach the defendant is allegedly liable for the harm that the plaintiff suffered.

This but-for world stands in contrast to the “as-is” world, or the world that unfolded given the defendant’s allegedly inappropriate actions. Damages measure the difference between the plaintiff’s financial state in the as-is and the but-for worlds (or in the case of the plaintiff’s pursuing an unjust enrichment claim, the difference between the defendant’s financial state in the two worlds). In an IP infringement case, such damage assessments typically combine differences in the profit pictures derived in the two worlds and considerations of royalties that the defendant

19. See, e.g., Robert E. Hall and Victoria A. Lazear, Reference Guide on Estimation of Economic Losses in Damages Awards, 477-523 (Applied Economics Partners, 1994).

Vol. 106 TMR 1103 should have paid to the rights holder. These measures are known respectively as “lost profits” and “reasonable royalties.”

Because the burden of proof for damages falls on the plaintiff, every plaintiff must forward proof of the amount of damages. In all but fairly simple cases, the vehicle for summarizing and presenting such evidence is the expert’s report. In the face of such a proffer of evidence, defendants have a strategic choice: they can retain experts to build their own damage models; they can retain experts to rebut the plaintiff’s models; they can rely on cross-examination to discredit the plaintiff’s expert; or they can count on winning their liability case and ignore damages altogether. These last two routes can be particularly risky.

In 1985, in what was at the time the largest damages award in history, a jury assessed $7.53 billion in compensatory damages against Texaco for its tortious interference with Pennzoil’s planned acquisition of Getty.20 Pennzoil put forward two damages experts. Texaco, insisting that even if it were liable it caused zero damages, presented no witnesses to refute Pennzoil’s experts and relied entirely on cross-examination to discredit Pennzoil’s witnesses. At trial, that cross-examination failed to convince either the court or the jury that Pennzoil’s models were either methodologically flawed or overstated damages by a significant amount. On appeal, the court found the methodology acceptable, and noted that the jury was within its rights to believe Pennzoil’s witnesses.21

Multi-billion dollar rulings tend to focus attention—in this case, the attention of the defense bar. In the roughly thirty years since Texaco lost that ruling (which drove it to reorganize under the bankruptcy laws), standard practice has changed. Whereas many defense lawyers—and defendant clients—once believed that commissioning a damages report might be seen as a tacit admission of liability, few see it that way today. It is almost unimaginable that the defendant in a contemporary billion-dollar case would fail to call its own damages expert. Without admitting liability then, a damages report submitted on behalf of the defendant typically reiterates the defendant’s contentions vis-à-vis liability, lays out the plaintiff’s allegations, presumes for the sake of the report that the plaintiff will prevail, and then proceeds from that assumption.

2. Defense Strategy Given that defendant damages reports are now standard in

lawsuits of any complexity—and certainly in IP cases—the question is whether defense counsel should commission an expert

20. Texaco v. Pennzoil, 729 S.W.2d 768, 862 (Tex. App. 1987). 21. See id.

1104 Vol. 106 TMR to build a damages model from the ground up or await the report from the plaintiff and retain the services of a rebuttal expert. Each approach has its own merits, and each may be appropriate under different sets of circumstances.

A good expert witness, like a good debater, should know the strongest arguments available to both litigants. Because a defendant forwarding a ground-up model might alert the plaintiff to new arguments, any expert building or evaluating a but-for world on behalf of a defendant should approach the matter cautiously. A plaintiff’s expert who adopts a defendant’s model and methodology, tweaks a couple of assumptions or quibbles with a data source, and derives a much larger number, can create unnecessary headaches for the defendant and defense counsel. Moreover, discovery schedules often compress the timing available between the plaintiff’s and the defendant’s reports (in some cases, even requiring a simultaneous exchange of reports), which may effectively preclude a sufficiently thoughtful rebuttal and necessitate a ground-up report on behalf of the defendant. And discovery schedules can vary widely, depending upon the nature of the case, local rules, specific rules that a trial or magistrate judge has adopted, or agreement of counsel.

When timing permits, the rebuttal-only strategy can have much to commend it, depending on the specifics of the case. Unlike a ground-up report, a rebuttal report minimizes the number of unnecessary disagreements. It is hardly uncommon for a defense expert to accept the data sources and basic methodology that the plaintiff’s expert forwarded as the basis for conversation and debate, even when he or she might have preferred a different approach. While some might disagree, I consider an expert’s primary job to be the provision of information necessary and useful to resolve a dispute—not to increase the range of disputed points. Even those who take a more belligerent approach, however, would likely concede that methodological disputes and/or debates over data sources are unlikely to keep a jury riveted—and can thus detract from the presentation of the witness discussing them.

Of perhaps even greater significance, a but-for world is a model of a reality that does not, by definition, exist. There is no way to construct such a model—whether in litigation or elsewhere—without making a number of assumptions, then tracing through the likely consequences of altered actions (in litigation, a replacement of the defendant’s allegedly bad act with actions the plaintiff deems appropriate) to their logical consequences. Assumptions and consequential logic, however, are rarely if ever unassailable. Any good modeler understands that there is typically a collection or range of assumptions available, some more reasonable than others. The set chosen must be reasonable and defensible. A good rebuttal expert will usually be

Vol. 106 TMR 1105 able to suggest alternatives to any specific set of assumptions that an opposing expert might make.

Given enough time to prepare, a defendant’s rebuttal-only report can thus often seem to give the defendant an unfair advantage—or perhaps more accurately, an advantage borne of the burden of proof of damages falling on the plaintiff. That apparent advantage, however, can reverse itself when discovery and motion practice give way to a trial—particularly a jury trial. Because damages are relevant only if the defendant is liable, and damages experts are often the last witnesses to testify, jurors (and judges) frequently have a good idea about liability before the damages expert even takes the stand (a point that is particularly true in the case of the defense expert, who is often the last witness in the entire trial). For jurors leaning toward the defendant’s liability case, damages are irrelevant. For jurors leaning toward the plaintiff’s liability case, on the other hand, the plaintiff’s expert is helping an aggrieved party seek justice, while the defendant’s damages expert appears to be adding insult to injury. A defendant’s expert restricted to rebutting the plaintiff’s proffered damages model can strengthen that perception—essentially nickel-and-diming the injured party by harping on what might seem like minor omissions, or by insisting upon the less favorable of two assumptions that may sound equally plausible to the jury.

Setting aside the substantive merits and presentation skills of the two experts—which obviously favor neither plaintiffs nor defendants as a matter of abstract theory—the atmospherics at trial tend to favor plaintiffs’ damages experts over defendant’s damages experts much as the mechanics prior to trial favor the defendant’s expert. Rebuttal-only reports can heighten both phenomena. Much as it may benefit the defendant to focus the judge, pre-trial, on the shortcomings of the plaintiff’s damage models (and thus to avoid raising an entirely distinct set of issues in a defense damages model built from the ground up), a jury already inclined to favor the plaintiff over the defendant after hearing the liability case may be more likely to tilt back toward the defendant on damages when given the choice between two distinct models built from the ground up than when forced to choose between the victim’s benefactor and an attacker who does nothing but find fault.

IV. IP DAMAGES A. Types of IP Damages

The rich complexity of a but-for world assessing an intangible asset’s unmet economic potential—without veering into impermissible speculation or a plaintiff’s dreams of fulfilling his or her wildest expectations—attests even more strongly to the need

1106 Vol. 106 TMR for an expert well versed in both the law of damages and in IP law. As noted, few attorneys are remedies specialists and few litigants appreciate the lines drawn between compensable harm that they may have suffered and categories of harm—potentially just as real—for which the law will not provide recompense. Nor, for that matter, are they often aware of the lines between permissible projections based upon reliable assumptions and speculation derived through economically unreliable assumptions that may strike the untrained eye as equally plausible. Finally, while many attorneys are indeed specialists in patent, copyright, trademark, trade secret, and licensing law, the many excellent litigators (and even litigation firms) lacking such specialization can benefit greatly from adding a knowledgeable expert to their team.

The need for a true remedies specialist, always present to some extent, reaches its apex in areas like IP where damages law is both unique and in flux. Precisely because of the complexity inherent in IP-related but-for worlds, courts have developed a preference (if not a requirement) for particular analytic models. The prevailing standard for the admissibility of expert testimony, in fact, amplifies the importance of such legally blessed models and methods. The emphasis on “accepted methodologies” as a guiding determinant of admissibility suggests that wherever the courts have accepted a methodology, continued reliance on that methodology reflects the safest possible course—unless and until, that is, the courts begin to change their minds.

A comfortable majority of IP damages models fall into one of three broad categories: statutory, lost profits, or reasonable royalties. Claims for statutory damages are often relatively straightforward. The key IP statutes all contain provisions dealing explicitly with damages. The Patent Act calls explicitly for “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.”22 The Copyright Act calls for “the copyright owner’s actual damages and any additional profits of the infringer . . . or statutory damages.”23 The Lanham Act calls for recovery of “defendant’s profits, any damages sustained by the plaintiff, and the costs of the action,” or, in selected cases and at the plaintiff’s election, statutory damages.24 All three statutes also contain provisions for enhanced damages.

In copyright and trademark cases, the statutes provide two accommodations to the challenges inherent in constructing a non-speculative but-for world: they split the burden of proving the infringer’s profits, requiring the plaintiff to prove only sales 22. 35 U.S.C. § 284. 23. 17 U.S.C. § 504. 24. 15 U.S.C. § 1117.

Vol. 106 TMR 1107 revenues, with the defendant required to prove costs; and they incorporate statutory damages whose simplified calculation obviates the need for a sophisticated but-for model.25 Other than that nonstandard allocation of the burden of proof, however, models useful in assessing lost profits implicate the same range of issues in IP cases as they do elsewhere. At their core, they require reasonable data concerning the plaintiff’s profits in the as-is world and a but-for model that aligns with applicable legal standards and an accepted modeling methodology. Familiarity with the legal standards in play is crucial, but the assessment of lost profits in many IP cases is often not all that different from the assessment of lost profits in non-IP cases.

B. Reasonable Royalties Reasonable royalties, on the other hand, are an artifact of the

IP world. Outside of litigation, there are relatively few ways to make money from intellectual property—whether patents, copyrights, or trademarks. Stated simply, a rights holder seeking to monetize IP can build an exclusive business around the IP, sell some or all of the IP rights, or license the IP on exclusive or non-exclusive royalty-bearing terms. An IP infringement damages analysis falling into the reasonable royalty category thus attempts to determine what sorts of licensing terms the parties would have negotiated in the but-for world, then apply those terms to the defendant’s sales of allegedly infringing products.26

By far the most common approach to reasonable royalties—in any area of IP law—derives from a 1970 district court patent case from the Southern District of New York, Georgia Pacific v. U.S. Plywood.27 Contrary to a common misconception, Georgia-Pacific does not specify a formal methodology. Instead, it enumerates fifteen nonexhaustive “factors” that might be relevant to the construction of a but-for world in which the rights holder and the defendant (or their respective predecessors in interest) had engaged in a successful hypothetical licensing negotiation shortly before the date of first alleged infringement.

Perhaps the most easily understood (and possibly the most common) methodology employing the Georgia-Pacific framework designates an existing license as a baseline, then uses various factors to argue that the hypothetical license under construction

25. See 17 U.S.C. § 504; 15 U.S.C. § 1117. 26. As a technical matter, a reasonable royalty analysis is merely one approach to assessing lost profits—under the assumption that that IP owner would have profited by licensing but for the defendant’s decision to infringe rather than to take a license. Nevertheless, the unique analytic methodologies employed in the assessment of reasonable royalties are sufficient to warrant a distinct categorical label. 27. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970).

1108 Vol. 106 TMR would bump selected terms in favor of either the plaintiff or the defendant. The resultant construction of a but-for license is structurally similar to the baseline, with specific rates that may be either higher or lower than the baseline rates.

The Georgia-Pacific court explicitly disclaimed the idea that its analysis constitutes a specific analytic methodology, and certainly did not require its widespread replication:

A comprehensive list of evidentiary facts relevant, in general, to the determination of the amount of a reasonable royalty for a patent license may be drawn from a conspectus of the leading cases. The following are some of the factors mutatis mutandis seemingly more pertinent to the issue herein. . . . Both sides agree that this Court has a broad range of judgment in evaluating the relevant factors . . . [b]ut there is no formula by which these factors can be rated precisely in the order of their relative importance or by which their economic significance can be automatically transduced into their pecuniary equivalent.28

Subsequent courts, however, may not have been quite so meticulous. The Second Circuit, which heard the case’s appeal, blessed the fifteen factor framework as an appropriate approach to assessing reasonable royalty damages in patent cases in 1971.29 The Federal Circuit did the same in 1983,30 less than a year after it was founded for the explicit (though not the sole) purpose of unifying patent law.31 The Seventh Circuit condoned the application of the Georgia-Pacific framework (with suitable modifications) to damage assessments for violations of the Lanham Act in 199432—a route toward assessing trademark damages that has since grown increasingly common.33 In copyright law, the Georgia-Pacific factors remain controversial; most courts considering their applicability to copyrighted products (primarily

28. Id. at 1120-21. 29. Georgia-Pacific Corp. v. U.S. Plywood Corp., 446 F.2d 295 (2d Cir. 1971). 30. Deere & Co. v. International Harvester Co., 710 F.2d 1551 (Fed. Cir., 1983). 31. See, e.g., Bruce Abramson, The Secret Circuit: The Little-Known Court Where the Rules of the Information Age Unfold (Rowman & Littlefield, 2007) at ch.1. 32. Sands, Taylor & Wood v. Quaker Oats Co., 34 F.3d 1340 (7th Cir. 1994). 33. See, e.g., R. Charles Henn, Jr., Sabina A. Vayner, and Katharine M. Sullivan, Monetary Recovery in Trademark Litigation, IP Litigator, Nov/Dec. 2010 at 4, http://www.kilpatricktownsend.com/~/media/Files/articles/2010/IPLIT_111210_Henn.ashx; David Drews, Determining an Appropriate Royalty Rate for Reasonable Royalty Trademark Damages a Modified Georgia-Pacific Framework, les Nouvelles, Jan. 2015, http://www.lesi.org/les-nouvelles/les-nouvelles-article-of-the-month/les-nouvelles-article-of-the-month-archives/les-nouvelles-article-of-the-month-january-2015.

Vol. 106 TMR 1109 software), have rejected them because of the way that the experts implemented the analysis, rather than as a matter of principle.34

Taken together, Georgia-Pacific’s fifteen factors are both comprehensive and overly broad. It is hard to imagine (and I have never encountered) an issue that an expert might consider relevant to a hypothetical negotiation that cannot fit into at least one of the factors. Yet it is rare to encounter a case in which more than a handful of the factors inform the analysis in a meaningful way. Nevertheless, experts and counsel are loath to deviate in any way from a widely accepted approach; it is quite common for an expert report to devote numerous pages and calculations to a specific factor, only to conclude that it has no bearing on the but-for license. While such overkill heading into a dead end is hardly a productive use of client resources or expert time, many lawyers and experts consider it insurance against a report being ruled incomplete, or conforming to something other than the accepted methodology, and thus excluded under Daubert.

As I noted in my discussion of Daubert motions above, exclusion of an expert’s testimony due to a failure to mention or discuss irrelevant Georgia-Pacific factors is unjustifiable—both as a matter of law and as a substantive assessment of the analysis. Nevertheless, as I also noted above, judges have broad discretion to exclude expert testimony, and they are unlikely to face appeals when they rest their exclusion on tenuous bases. An incomplete or deficient application of an accepted methodology certainly sounds like valid grounds for exclusion, whether the omitted factors were relevant or not. As a result, lawyers and experts tend to err on the side of overinclusiveness.

Still, and notwithstanding its excellent pedigree, Georgia-Pacific analysis is not a static methodology. Over the past decade, the Federal Circuit has rejected as unsound several “rules of thumb” guiding reasonable royalty assessments that the lower courts (and the Federal Circuit itself) had long accepted, and revisited issues related to apportionment—the allocation of revenues arriving upon the sale of a product that incorporated the allegedly infringed IP as but one of several components or features.35 Other courts have raised similar concerns, and more seem likely to follow.

34. See, e.g., Kevin Bendix, Copyright Damages: Incorporating Reasonable Royalty from Patent Law, 27 Berkeley Tech. L.J. (2012), http://scholarship.law.berkeley.edu/btlj/vol27/ iss4/13. 35. See, e.g., Lucent Tech., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009); Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1319 (Fed. Cir. 2011); LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F. 3d 51, 69 (Fed. Cir. 2012). I discuss these cases, and their net effect on reasonable royalty calculations, in detail in Bruce Abramson, Trolling Around the Patent-Antitrust Interface: The Roots of the NPE Challenge and the Role of Antitrust in Patent Reform, 59 The Antitrust Bull. 2 (2014) at 221-279.

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For the most part, these recent changes have improved the economic logic embodied in court-approved patent damage calculations. Even improvements, however, create a quandary for experts, counsel, and client: How should they approach methodologies that courts have accepted in the past, but whose economic validity (particularly as applied) is questionable? Should they apply the accepted methodology and risk a court—trial or appellate—following the current gestalt to exclude it as economically dubious? Or should they forward an analysis embodying sound economics that no court has previously accepted? While no heuristic can guarantee a successful resolution of this query, an experienced witness who understands the quandary provides the strongest possible chances of surviving a challenge issued on such grounds. After all, no one said that every strategic question was amenable to an easy answer.

C. Damages and Injunctions Monetary damages, of course, are only one of the two forms of

relief available for infringement. The other is injunctive relief. No discussion of IP damages can be complete without at least some consideration given to the interplay between these two critical forms of IP remedies. A comparison of some realities shaping contemporary patent and trademark litigation provides an excellent mechanism for that discussion.

A patent protects an invention that, if valuable, is inherently valuable. The issuance of a patent often requires little more than an idea and the investment of a few thousand dollars; a robust secondary market in patents means that many patent owners have invested only modest capital in their acquisitions. Infringers, on the other hand, typically do build businesses around their ideas and inventions, often unaware that they are infringing. Any infringing “make, use, or sale” of the patented invention confers value on the infringer. Because the patentee was entitled to at least some of that value, past patent infringement always implicates monetary damages, even when an injunction prevents future infringement. Furthermore, the balance between injunctive relief and damages differs across the different areas of IP litigation. Though injunctions are available—at least in theory—to any plaintiff prevailing on a claim of infringement, the realities of IP litigation suggest that plaintiffs with different profiles will express different preferences for different remedies.

Trademarks, by way of contrast, rarely if ever possess intrinsic value upon issuance. They become valuable only after the trademark holder has made a significant investment in associating them with a popular product or service—or branding. Consequently, though neither lack of knowledge nor a good faith belief in noninfringement of either a patent or a trademark is

Vol. 106 TMR 1111 relevant to infringement claims (though they are relevant to the question of willfulness), many patentees can bring infringement suits without having invested in a business; relatively few trademark holders can do the same.

Taken together (and at the risk of overgeneralization), patent litigation tends to provide a richer consideration of damages analysis, while trademark litigation provides deeper insights into injunctive relief. A sizable swath—in recent years at least, a sizable majority—of all patent suits filed pit a small inventor or a non-practicing entity (NPE, often unaffectionately known as a “patent troll”) against a large company. During the first half of 2015, for example, roughly 68% of all patent cases, and a full 90% of high-tech patent cases, involved NPE plaintiffs.36

The plaintiff’s purpose in filing almost all such suits is to collect damages. Injunctions in such cases, when available, are more commonly used as bargaining chips that raise the price of forward-looking licenses rather than as measures designed to shut down the defendant’s product or business. As a result, the Supreme Court moved a decade ago to reduce the number of injunctions granted in such disputes—emphasizing the importance of damages even further.37

Of course, not all patent disputes fit this profile. Many of the most bitterly contested, and highest-profile patent disputes, pit two large companies against each other. In such cases, injunctions designed to reduce competition, damages, and cross-licensing settlements all come into play. The precipitous rise in interest in patent suits over the past decade or two, however, has been powered precisely by the small-inventor or NPE suit against a deep-pocketed big company—and those suits are powered almost entirely by the desire for monetary damages.

By way of contrast, the stereotypical contemporary trademark plaintiff is a large corporation that has invested heavily, typically over the course of many years, in building value into a brand. The typical defendant is perhaps intentionally attempting to free ride on the plaintiff’s accumulated good will, or perhaps inadvertently working to build a brand using marketing that that the plaintiff considers confusingly similar. Though there may be some damages at stake, the primary goal of a trademark plaintiff thus situated is an injunction. 36. Joe Mullin, Patent troll lawsuits head toward all-time high, ArsTechnica, Jul. 10, 2015, http://arstechnica.com/tech-policy/2015/07/patent-troll-lawsuits-head-towards-all-time-high/. See also, FTC, Patent Assertion Entity Activity, Federal Trade Commission, Oct. 2016, https://www.ftc.gov/reports/patent-assertion-entity-activity-ftc-study; Bruce Abramson, Trolling Around the Patent/Antitrust Interface: The Roots of the NPE Challenge and the Role of Antitrust in Patent Reform, The Antitrust Bull. 59:2, Summer 2014. 37. See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

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V. CONCLUSION The discussions that I have presented in this paper merely

scratched the surface of the complexity inherent in conducting a damages analysis in an IP case—any type of IP case—or the professionalism necessary to confer maximum benefit upon the client. Counsel approaching the selection of an appropriate IP damages expert—particularly lawyers approaching this task for the first time—should bear in mind the various considerations that I have raised. As I noted at the outset, I have seen each of these issues arise, in important ways, more than once. A good objective expert, well versed in the applicable area of IP law, the law of damages, and the applicable methodology necessary to measure economic value, can be an invaluable asset to a litigation team. Knowledge of a dispassionate, objective, assessment—coming from an analyst with a duty of candor to the court—should guide the lawyer’s zealous advocacy of the client.

Vol. 106 TMR 1113

COMMENTARY

GLEE—UNPICKING THE REALITY OF U.K. MONETARY AWARDS

By Ian Lowe∗

I. INTRODUCTION Twentieth Century Fox Film Corporation (“Fox”) cannot have

been amused when it was sued by the U.K. comedy business Comic Enterprises Limited (“CEL”) in 2012 for infringement of CEL’s THE GLEE CLUB trademarks and for passing off. In February 2016, the U.K. Court of Appeal upheld1 the holding by the trial judge2 that Fox, the makers of the Glee TV musical comedy series, had infringed CEL’s U.K. trademark3 registered in 2001 (the “Mark”):

Liability having been confirmed, Fox is now said to face a multimillion-pound claim in separate follow-on proceedings to establish the quantum of CEL’s claim for monetary relief. This commentary examines how realistic such a claim is.

II. THE CLAIM By the end of 2009, when Fox launched its musical comedy

television series, CEL, founded in 1994, had used the Mark extensively in connection with its provision of services, including live comedy entertainment, live and recorded music, and nightclub and cabaret entertainment, with a target audience of people who are 18–34 years old. By then, CEL had two entertainment venues in the United Kingdom—one in Birmingham and one in Cardiff—with turnover in 2008 of around £2,400,000. In 2010 CEL opened ∗ Consultant, Intellectual Property Group, Nabarro LLP, London. 1. Comic Enterprises Ltd v. Twentieth Century Fox Film Corp., [2016] EWCA Civ 41. 2. Comic Enterprises Ltd v. Twentieth Century Fox Film Corp., [2014] EWHC 158 (Ch). 3. U.K. registered Trademark No. 2200698.

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two additional U.K. venues—one in Oxford and one in Nottingham.

By the time of the trial in July 2013, Glee, a musical comedy series about a high school singing club at a fictional school in the United States, was in its fourth season. Glee had been very successful and had achieved high ratings in the United Kingdom and abroad. Viewing figures in the United Kingdom for the second season averaged 2.2 million. By the time of the trial, Glee had won six Emmy awards, four Golden Globe awards, and two British Academy of Film and Television Arts nominations.

When the owner of CEL first came across the Glee TV program in 2010, he decided to wait and see where it would go. However, after he opened the two new venues in Oxford and Nottingham, he found the presence and popularity of the Glee TV program was causing CEL what he considered to be real damage. He felt that his brand had been substantially compromised and that, as a result, he would be unable to expand his business.

CEL sued Fox for trademark infringement and passing off. At trial, CEL accepted that it had not used the Mark in relation to a number of services, including the presentation or rental of film and television programs, but the judge decided that the Mark was validly registered in respect of a limited specification of services, namely:

Live comedy services; nightclub and cabaret entertainment; music hall services; provision of live and recorded music; dancing; provision of facilities for comedy and music entertainment; production and presentation of live shows and displays and the presentation of sound recordings. The judge further held that Fox’s activities constituted

infringement of the Mark under Section 10(2) of the U.K. Trade Marks Act 1994 (the “Act”)—on the basis of use of a similar sign in respect of similar services leading to a likelihood of confusion. He also found infringement under Section 10(3) of the Act, which reflects the European Union equivalent of tarnishment or dilution and requires use of an identical or similar sign where the trademark has a reputation in the United Kingdom and where use of the identical or similar sign is without due cause, and is detrimental to the distinctive character or repute of the trademark. The passing-off claim failed.

At trial, Fox had unsuccessfully argued that the registration of the Mark was partially invalid on the basis that the phrase “glee club” was descriptive.4 Fox’s evidence included the entry in the 4. The author has some sympathy for this argument, but must declare his interest. He has sung with the Glee Club at Winchester College and under the baton of Nicholas Wilks, then Master of Music at Winchester College, who gave evidence for Fox that the “Glee Club” at the school was formed in 1864 and, with over 100 members, performs two concerts each year.

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Oxford English Dictionary defining “glee club” as “a society for singing glees and other part songs.” The judge found, however, that this descriptive indication did not have meaning to a significant portion of the public and that CEL’s Mark had, in any event, acquired a distinctive character by the time of the application for registration. The argument was not pursued in the Court of Appeal, which upheld the findings of infringement, and confirmed that there had been no passing off.

The judge subsequently granted a final injunction to restrain Fox from using the word “glee” as the name of the TV series and directed that CEL was entitled to an enquiry as to damages or, at its election, an account of profits. This would involve further, separate proceedings, following some limited disclosure.5 CEL applied for an interim payment on account of those damages or profits of £1.25 million, but despite the judge indicating that he believed that the damage to CEL’s Mark may be substantial, he ordered that Fox should make an interim payment to CEL of just £100,000.

III. MONETARY RELIEF ELECTION A successful U.K. claimant must make an election as to which

of the two alternative measures—damages or an account of profits—he wishes to pursue, typically with the benefit of some disclosure of information and documents to inform his election.

IV. DAMAGES FOR INFRINGEMENT An enquiry as to damages might look at three different bases

for establishing quantum.6 The first basis normally depends on the claimant showing that

the infringement resulted in diversion of sales to the defendant. Given their totally different areas of operation (night clubs

versus television programming), this is clearly not a case where Fox’s use of “glee” resulted in sales that would otherwise have been made by CEL. In confirming the finding of a likelihood of confusion, the Court of Appeal recognized that there was “wrong way round confusion.” Consumers did not believe that the TV program was produced by the U.K. comedy/music venue, but the judge considered there was evidence that potential customers were put off attending CEL’s shows as a result of the “wrong way round” confusion. CEL had testified that it initially had difficulty making a success of the new venues in Nottingham and Oxford, which it attributed to confusion with the TV series. The judge held that this 5. See Comic Enterprises Ltd v. Twentieth Century Fox Film Corp., [2014] EWHC 2286 (Ch). 6. This is explained in relation to patent infringement in General Tire & Rubber Co v. Firestone Tyre & Rubber HL, [1975] 1 WLR 819.

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showed that potential customers changed their economic behavior and that the Mark suffered detriment by being swamped by Fox’s use of “glee” for its TV show. It was on this basis that he held that Fox had also infringed the Mark under Section 10(3) of the Act, in that its use of the sign was detrimental to the distinctive character or repute of the Mark.

CEL might therefore seek to show not that some of its sales were diverted to Fox, but that it simply lost sales as a result of Fox’s activities. But it will surely be difficult for CEL to establish to what extent it suffered financial damage as a result of the confusion. This would require an assessment of what sales it would have made at its new venues in Oxford and Nottingham, in particular, had it not been for the distribution of the TV show. One of CEL’s own witnesses at trial gave evidence that, on seeing an offer for tickets for CEL’s show, she believed it was something to do with the TV program, but even after being told there was no connection, she went ahead and booked tickets. This suggests that CEL likely benefited from “wrong way round” initial interest confusion, in that some customers who would not otherwise have bought tickets were attracted to CEL’s shows, believing the shows to be connected with the TV program. This benefit would need to be weighed against any damages that CEL could establish regarding loss of potential customers.

A second basis for assessing damages is where the claimant is in the business of granting licenses in return for royalty payments, in which case the royalties paid under the licenses would provide a measure. There is, however, no suggestion that CEL carried on this type of business.

The third basis is what has been termed the “user principle,” namely that a person who has wrongfully used another’s property can be liable to pay, as damages, a reasonable sum for such use. This would involve an assessment of what a reasonable payment by Fox would have been in respect of the benefit it gained from the wrongful use.

The primary approach is to consider what would have been arrived at in negotiations between the parties, “had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that notional negotiation should have taken place.”7

This would self-evidently be a fraught exercise. When Fox was informed of CEL’s rights in the Mark, it took the decision to press on regardless. In the hypothetical negotiation, there would be no room for saying that Fox would simply have chosen an alternative name. Fox would have been confronted with a trademark owner 7. Quoted by Arnold J in Force India Formula One Team v. 1 Malaysia Racing Team, [2012] RPC 29.

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with rights in THE GLEE CLUB device, used for entertainment venues, willing to grant a license to Fox to use “glee” with respect to a television program. Fox would have had the strongly held view that “glee” was simply a generic reference to a singing club, but would have to be taken to be willing to enter into a license to use the name, paying a sum reflecting the financial benefit of its acquisition of the right to use the “Glee” name.

In 32Red,8 Newey J undertook an enquiry as to damages for William Hill’s infringement of the 32RED mark through use of 32VEGAS. He noted that there were plainly limits to the extent to which the courts would consider the parties’ actual attributes when assessing “user principle” damages. However, the court did seem to have regard to the circumstances in which the parties were placed at the time of the hypothetical negotiation. Newey J pointed out that the confusion between the 32RED and 32VEGAS brands could potentially have resulted in the claimant gaining customers, as well as losing some.

In 32Red, the claimant had sought an amount equal to 30% of the Net Gaming Revenue for William Hill’s online casino over the relevant period—something in the order of £5 million. Newey J accepted, however, that the claimant “could not insist on being paid a sum out of proportion to the financial advantages that the defendants stood to obtain by using the 32Vegas name rather than rebranding at once.” He concluded that a license fee of £150,000 was likely to have been agreed upon and awarded damages in that amount.

One further possible damages claim by CEL in relation to dilution is the cost of corrective advertising aimed at negating the false assumption that the TV series was associated with CEL. This possible remedy was considered by the House of Lords in AG Spalding v. AW Gamage in 1915.9 For example, CEL might mount a campaign through online publications and social media (and even appropriate printed publications), spreading the word that its comedy clubs had nothing to do with the TV program, perhaps even pointing out that Fox was no longer able to use the “Glee” name, and seek to recoup the costs of the campaign.

V. ACCOUNT OF PROFITS So, if a substantial damages claim would be difficult to

establish, perhaps CEL will instead be tempted to elect for an account of Fox’s profits, bearing in mind the great success of the TV series and the undoubtedly substantial revenue earned by Fox from it.

8. 32Red PLC v. WHG International Ltd, [2013] EWHC 815 (Ch). 9. 32 RPC 273.

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The principle behind entitlement to an account of profits is that, where one party owes a duty to another, the party to whom the duty is owed is entitled to recover from the other party every benefit that that other party has received by virtue of his fiduciary position, if in fact he has obtained it without the knowledge or consent of the party to whom he owed the duty.10

There have been few accounts of profits featured in reported U.K. trademark cases, but it is well established that a claimant is entitled only to such profits as ought to be treated as having been improperly made by the defendant; the purpose being not to punish the defendant but to prevent its unjust enrichment.11 An account is generally refused if the defendant had no knowledge of the claimant’s mark and, when an account is ordered, it is limited to profits generated in the period during which the defendant did have such knowledge.12 Here, the judge accepted that Fox was an innocent infringer and had no actual or constructive knowledge of the claimant’s rights when it adopted “Glee” as the title of its television program and when it arranged to distribute that program in the United Kingdom, but the judge also noted that Fox had continued its infringing activities even after CEL had drawn its trademark registration to Fox’s attention.

During the debate as to the remedies available to CEL, Fox argued that since there were multiple factors contributing to the success of the TV program, it was too difficult to establish the necessary causal connection between the profits earned and the infringement.13 The judge was sympathetic to this view and agreed that the choice of title was only one factor in the program’s success, but considered that this simply meant that the judge conducting the accounting would have to estimate a percentage contribution attributable to the infringement.

How much then should be attributed to the presence of the trademark as opposed to all the other factors that contributed to a successful, high-quality show? In the My Kinda Town case,14 Slade J anticipated that on the taking of an account an analysis would be required of whether particular profits were properly attributable to use by the defendants of the relevant name. So, too, in Colbeam Palmer,15 Mr. Justice Windeyer pointed out that there was “no evidence that the name Craftmaster was associated in the trade in painting sets in Australia with products of the plaintiffs . . .” and 10. Electrolux Ltd v. Electrix Ltd (No. 1), (1953) 70 RPC 158. 11. My Kinda Town Ltd v. Soll, [1983] RPC 15; Celanese International Corp. v. BP Chemicals Ltd, [1999] RPC 203. 12. Colbeam Palmer Ltd v. Stock Affiliates Pty. Ltd, [1972] RPC 303. 13. Comic Enterprises Ltd v. Twentieth Century Fox Film Corp., [2014] EWHC 2286 (Ch). 14. My Kinda Town Ltd v. Soll, [1983] RPC 15. 15. Colbeam Palmer Ltd v. Stock Affiliates Pty. Ltd, [1972] RPC 303.

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that “it seems highly probable that the defendant will be able to show that profits, or a great part of them, which it made by selling painting sets were attributable to the intrinsic qualities and value of the goods and that the sales were not the result of the use of the name Craftmaster as indicative of the goods of the plaintiffs.” The same reasoning might be applied to the CEL case.

Since there is no suggestion that consumers were attracted to the Glee TV show believing it to be the creation of those behind the U.K. comedy venues, Fox would argue that none of its profits were the result of the name “Glee” being taken by viewers to indicate CEL’s comedy and musical venues.

On that basis, it is difficult to see what profit CEL might be entitled to on the taking of the account. Fox would surely argue that by the time it was aware of CEL’s rights in “the glee club,” no element of its profit was attributable to the use of the sign “glee” infringing on CEL’s rights but was all the result of the program’s own quality, reputation, and appeal. If we were concerned only with a Section 10(3) claim for dilution or tarnishment, then this argument would be all the stronger because, without establishing a reputation, CEL would not have proved infringement. So, if CEL’s reputation was critical to the holding of infringement, but CEL’s reputation contributed nothing to the profit made by Fox, why should Fox have to account for any profit?

On the other hand, Section 10(2) infringement required only a finding of a likelihood of confusion between the sign used by Fox and CEL’s registered Mark, taking into account merely a notional and fair use of the Mark in relation to all the goods and services for which it was registered. So, if use of the Mark by CEL was not required to establish infringement, why should awareness on the part of the consumer of CEL’s services be a factor in deciding the profits of Fox attributable to the use of the name?

There is further scope for speculation along these lines since it was clear from the judgment at first instance that the validity of CEL’s registration depended on CEL’s showing that it had acquired distinctiveness in the Mark by the time of the application for registration, so overcoming the U.K. Intellectual Property Office’s initial rejection of the application. Perhaps that fact supports an argument that Fox should only account for profits if the profits could be shown to arise from Fox’s taking the benefit of “glee” distinguishing CEL’s activities—but, of course, Fox would say there was no such benefit.

VI. CONCLUSION Sadly, it is most unlikely that we shall see these questions

resolved, since the final outcome of the case is likely to be a confidential settlement. There are so few reported cases dealing with an assessment of damages or an account of profits in

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intellectual property cases because there is little appetite for an expensive, time-consuming, uncertain court assessment. Little opportunity, then, on any view, for CEL to celebrate publicly with “triumphant or exuberantly displayed delight.”16

16. Oxford English Dictionary (6th ed. 2007), definition of “glee.”

Vol. 106 TMR 1121

COMMENTARY

MONETARY REMEDIES IN TRADEMARK MATTERS IN CANADA

By Nancy A. Miller∗

I. INTRODUCTION In Canada, the most powerful remedy a trademark owner can

hope to achieve in a trademark dispute is ordinarily a permanent injunction. Interlocutory injunctions are rarely available in Canada, particularly from the Federal Court.

Under Canada’s federal constitution, the Federal Court and the provincial courts have concurrent jurisdiction over most matters relating to intellectual property. The Federal Court, however, has developed significant expertise in the field of intellectual property, and subsequently, determines the vast majority of trademark disputes that arise in Canada, with appeals heard by the Federal Court of Appeal. Appeals from both the Federal Court of Appeal and the provincial courts can be heard by the Supreme Court of Canada, but leave must first be obtained. Trademark opposition proceedings and non-use cancellation proceedings are determined by an administrative tribunal within the Canadian Intellectual Property Office, but as no monetary remedies are available in either of those proceedings, the scope of this paper will not include review of these proceedings. (The lack of availability of monetary remedies in those proceedings also extends to legal costs (in some jurisdictions outside of Canada, such as the United States, this term is often replaced with the term “attorneys’ fees”). However, the unsuccessful party in a trademark opposition can appeal the decision of the Trademark Opposition Board to the Federal Court, and the successful party in the appeal would typically be entitled to recover its costs in relation to the appeal.

A permanent injunction is the most common type of relief available in the typical trademark infringement case, other than in a counterfeiting scenario. In 2015, a pre-trial interlocutory injunction was granted1 by the Federal Court in a trademark infringement case for the first time in fifteen years, and interested observers are therefore anxiously watching to determine whether

∗ Partner, Miller IP Law; Associate Member, International Trademark Association, and current member, The Trademark Reporter Committee. 1. Reckitt Benckiser LLC v. Jamieson Laboratories Ltd., 2015 FC 215.

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this will signal an end to the unwillingness of the Federal Court to give appropriate consideration to the granting of this remedy in appropriate trademark disputes.

II. AN OVERVIEW OF THE FOUR CATEGORIES OF MONETARY REMEDIES AVAILABLE IN CANADA

IN TRADEMARK MATTERS Four categories of monetary remedies are available in

trademark matters in Canada: damages, accounting of profits, punitive damages, and recovery of legal costs.

The power to order remedies for trademark infringement derives from Section 53.2 of the Trade-marks Act2 (the “Act”), which provides:

53.2 Where a court is satisfied, on application of any interested person, that any act has been done contrary to this Act, the court may make any order that it considers appropriate in the circumstances, including an order providing for relief by way of injunction and the recovery of damages or profits and for the destruction, exportation or other disposition of any offending goods, packages, labels and advertising material, and of any dies used in connection therewith.

Unlike the Copyright Act, which provides for the granting of statutory damages “in a sum of not less than $500.00 or more than $20,000.00, as the court considers just,” the Trade-marks Act does not include any provision for statutory damages.

A. Damages The Federal Court decides the majority of trademark cases in

Canada, and it has the discretion to grant the plaintiff’s choice of remedies. Generally, the Federal Court will refer the issue of an assessment of profits or damages to a prothonotary or a judge of the Federal Court, appointed by the Associate Chief Judge after the trial on liability issues has concluded. The plaintiff may file a motion seeking such an assessment at any time before trial.

Behind an award of damages is the principle of compensation. An award of damages to a successful plaintiff in a trademark action is calculated to put the plaintiff in the position it would have occupied had the infringement not occurred. The trademark owner’s damages are therefore the difference between its actual position at the date of trial and the position it would have occupied had its trademark not been infringed.

Since the damages remedy measures the loss to the plaintiff caused by the trademark infringement, the defendant’s profits have very little relevance in an assessment of damages. 2. R.S.C., c. T-10.

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There are generally two parts to an award of damages in a trademark matter. The first is the direct loss of sales and consequent lost profits. The second is the depreciation of goodwill, measured by the indirect loss of sales of plaintiff’s products. Courts have noted that it is difficult to correct the effect of a trademark infringement, which continues beyond the time the defendant ceases its infringing activities, sometimes leading to residual confusion among customers as between the ongoing trademark use of plaintiff and the prior infringing trademark use by the defendant.3

The measurement of the plaintiff’s loss of profits is usually conducted by investigating its lost sales. The court must identify and isolate the loss of profits caused by consumer deception for which the defendant is liable from losses caused by mere competition. To calculate lost profits, the court reviews previous accounting periods and determines the percentage basis for the average historical profit margin on sales against the quantum of lost sales. Estimation of lost sales requires the court to ascertain and assess all the circumstances that influenced the plaintiff’s sales or that indicate its probable lost sales, the determination of which is an inexact assessment at best. The circumstances to be examined include the actual deception caused by the infringement, the quality of the plaintiff’s product, the likely success of the plaintiff’s advertising, and the plaintiff’s success with similar products.4

With respect to the damage to the plaintiff’s goodwill, there are also a number of factors that are used by the court to assess whether the goodwill of the plaintiff has been affected by the actions of the defendant. These include the novelty of each party’s line of trade and the respective attractiveness of each to the public; the timing of each party’s entry into the market; whether the defendant knew of the plaintiff’s business and its associated goodwill prior to entry and defendant’s intentions relating thereto; the duration of the infringement, and its effect on the plaintiff’s business even after the infringement stopped.5

If the judge refuses to grant an accounting of profits, then damages will generally be awarded, even if they are nominal. Where no damages can be proven, none will be awarded. The burden of proving damages is borne entirely by plaintiff, and an award of damages must be supported by evidence and must not be based upon assumptions. However, in recognizing that the 3. Pro-C Ltd. v. Computer City, Inc., 1999 CanLII 14926 (ON SC); Stenner v. ScotiaMcLeod, 2009 BCSC 1093. 4. David J.A. Cairns, The Remedies for Trademark Infringement, University of Toronto LLM Thesis, 1986, at p. II-49. 5. Canwest Telephone Co. Inc. v. Canwest Commercial Phone Centre Ltd. (1985), 8 C.P.R. (3d) 360, at p. 365-366 (B.C.S.C.).

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calculation of damages is difficult in many situations, courts have observed that it is better to award the best reasonable estimate than to limit recovery to nominal damages. As Pelletier J. of the Federal Court stated in Ragdoll Productions (UK) Ltd. v. Jane Doe:6

. . . for the court, acting as a jury and applying ordinary business knowledge and common sense, is entitled to consider that there cannot be deceptive trading without inflicting some measure of damage on the goodwill. Difficulty in assessing damages does not relieve the court from the duty of assessing them and doing the best it can. The court is entitled to draw inferences from the actions of the parties and the probable results that they would have. If damages cannot be estimated with exactitude, the best reasonable estimate must be made. (para 40) The Federal Court in Louis Vuitton Malletier S.A. v. Yang7

asserted that, while a damage award cannot include any speculative or unproven damage, the Court is entitled to use ordinary business knowledge and common sense. Where the evidence therefore establishes that the plaintiff has in fact suffered damages to its reputation and goodwill by reason of the defendant’s use of its confusingly similar trademark, the plaintiff will be entitled to at least nominal damages where no specific damages are proven.

The simplest trademark damages cases are cases where a product has no ready competitive products on the market, and the plaintiff sells only one product and derives all of its profits from such product. In this situation, it will be easy for a plaintiff to establish that, in the absence of defendant’s infringement, all of defendant’s sales would have been made by plaintiff (as distinguished from another competitor or group of competitors), and to establish the amount of profits that the plaintiff would have derived from such sales. Most damages calculations are not so simple, however, and a variety of variables need to be addressed.

In the vast majority of cases, it is difficult for a plaintiff to show that the sales are lost merely by reason of the use of the trademark in association with a particular product. There are very few products with respect to which there are not multiple competitive similar products available. It is therefore easier for the defendant to show that a sale it made would not necessarily have gone to the plaintiff, but may have been made by other competitors.

It is also unusual in trademark cases to assess damages on the basis of a “reasonable royalty,” except in cases in which there was 6. 2002 FCT 918 (CanLII). 7. 2007 FC 1179 (CanLII).

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a license agreement between the plaintiff and the defendant, and the defendant continues to sell the goods after the termination of the license agreement.

In counterfeiting cases, calculations of damages are also nearly impossible, because the defendants generally do not produce any financial documentation, shifting the burden of establishing damages to the plaintiff. Further, it is hard for the plaintiff to establish lost sales and damages derived therefrom when it is necessary to show that a person who purchased a knockoff would have purchased the genuine product, particularly, in situations in which copies are sold at a fraction of the price of the legitimate product.

Accordingly, in counterfeiting cases where a lack of records or a failure to defend makes the determination of damages difficult and where the case involves a defendant using fixed retail premises, as opposed to street or flea market vendors, the Federal Court in 1997 estimated the damages owed to the trademark owner for each instance of infringement at $6,000.8 In the years following, numerous awards of this amount per instance were granted. In 2007, in the case of Louis Vuitton Malletier S.A. v. Singga Enterprises (Canada) Inc.,9 the Court raised this standard rate from $6,000 per plaintiff for each instance of infringement to $7,250.

The total award given in the Singga case by the Federal Court of $2.48 million appears to be the highest of its kind granted by the Federal Court in relation to an undefended action for counterfeiting activities. The total of $2.48 million in damages included $1.98 million in damages and $500,000 in punitive and exemplary damages, not including legal fees, which were assessed at a later date. The court in the Singga case recognized that where the evidence shows that there have been acts, or has been an act, which act has or acts have been continuing and repeated over time, the damages should be increased and should be computed on a “per instance of infringement” basis or applying a “per inventory turnover” basis, where the data to evaluate the inventory numbers is available. The “per instance” infringement basis allows the granting of damages for every purchase made, some relating to the delivery of large volumes of counterfeit goods and other instances that involve only small purchases of single items. According to the new “per instance” analysis described above, repeated purchases of counterfeit product over time could therefore lead to enhanced damages against defendants, even where individual purchases were small.

8. Nike Canada Ltd. v. Goldstar Design Ltd., T-1951-95 (F.C.T.D.) (unreported). 9. 2011 FC 776 (CanLII).

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The Singga award reinforces the trend of Canadian courts to denounce the sale of counterfeit goods. Even larger awards have been made since this decision in unreported decisions, virtually all in the area of luxury goods. These cases include Guccio Gucci SPA and Gucci America Inc. v. Bobby Bhatia et al,10 in which $696,000 was awarded to the plaintiff as punitive damages, in addition to $1,392,000 as compensatory damages. Another example is Louis Vuitton Malletier SA and Louis Vuitton Canada Inc. v. Bobby Bhatia et al,11 in which the court awarded the plaintiffs $609,000 in punitive damages, in addition to compensatory damages of $2,436,000 for trademark infringement and passing off, and additional damages for copyright infringement.

B. Accounting of Profits In a trademark case, a defendant may be ordered to make

restitution by means of accounting for its profits and then disgorging them to the plaintiff. The underlying reasons for such restitution are deterrence and the prevention of unjust enrichment. An accounting of profits is an equitable remedy, and is available only at the discretion of the court.

The Canadian courts have emphasized that a court cannot award both an accounting of profits and damages as relief in the same judgment.12

The issue of the relationship between damages and an accounting of profits in intellectual property cases was first addressed, in an attempt to clarify unresolved legal discourse concerning the relationship, in the United Kingdom in a patent case in which the House of Lords held that the successful plaintiff must elect between damages and an account of profits—it could not take both.13 Inquiries as to damages and profits are complex and expensive, and requiring the plaintiff to elect between these remedies is preferable because it lowers the burden on the court to perform only one inquiry rather than two.

When relief is given by way of an accounting of the defendant’s profits, the plaintiff needs only to prove the revenues derived from the infringement. The defendant is then required to prove every element of costs that it claims. If the court is not satisfied that the claimed costs are directly related to the defendant’s infringing activities, the deduction will be disallowed, which will result in an increase of the award for the plaintiff.

10. (Unreported) Federal Court File No T-1556-14. 11. (Unreported) Federal Court File No. T-1536-14. 12. See 3925928 Manitoba Ltd. v. 101029530 Saskatchewan Ltd., 2005 FC 1465, at paragraph 60. 13. Betts v. Neilson (1868) 3 Ch. App. 429.

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If the plaintiff elects an accounting, then the damage suffered by the plaintiff is “completely irrelevant” and cannot be taken into consideration. Also irrelevant is the knowledge, motive, intent, or malice of the infringer.14

There has traditionally been a concern that an accounting of profits is a burdensome inquiry, and the Federal Court has therefore expressed reservations as to the availability of this remedy in all cases.15 For instance, there remains uncertainty as to whether an accounting of profits is available in the case of an innocent infringer. The court, in recognizing that an accounting of profits is an equitable remedy, will often refuse the availability of this remedy against an innocent defendant if an injunction will satisfy the equities between the parties.

The Federal Court now recognizes that while there is no absolute right to an accounting of profits, the plaintiff should not be denied that option in the absence of any compelling reason. It is therefore necessary in cases in which a party requests an accounting of profits for the Federal Court to weigh the relevant factors in light of the equitable purposes of the remedy.16

The leading Canadian authorities on the appropriate means of computing a defendants’ profits are Dubiner v. Cheerio Toys & Games Ltd.17 and Teledyne Industries Inc. v. Lido Industrial Products Inc.,18 a decision of Canada’s Exchequeur Court (the precursor to the Federal Court) and by the Federal Court, respectively.

An accounting of profits involves the calculation of net income, which is calculated by deducting the expenses that are properly attributable to the sale of infringing goods from the sales revenues of the infringing products. The plaintiff bears the burden of proving the defendant’s sales revenues. The defendant bears the burden to demonstrate its expenses, which may be logically divided into variable and fixed costs. In calculating damages, the court will permit the infringer to deduct from its revenue the variable costs of those sales and any increase in fixed costs caused by the infringing sales. The infringer cannot deduct any portion of the remainder of its fixed costs, namely, those costs not related to the infringing sales.

In the Teledyne decision,19 Justice Addy held as follows:

14. 3925928 Manitoba Ltd. v. 101029530 Saskatchewan Ltd., 2005 FC 1465, at paragraph 9. 15. Allied Signal Inc. v. Dupont Canada Inc. (1995), 61 C.P.R. (3d) 417, 444-445. 16. Apotex v. Bristol-Myers Squibb Co., 2003 FCA 263. 17. [1966] Ex CR 801. 18. (1982) 68 C.P.R. (2d) 204 (F.C.T.D.). 19. Id. at 213.

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To summarize, the infringer is entitled to deduct only those expenses, both variable and fixed, which actually contributed to the sums received and for which he is liable to account. It follows that no part or proportion of any expenditure which would have been incurred had the infringing operation not taken place, is to be considered as deductible. After the calculation of net income has been completed, the

second important part of the calculation is the apportionment of profits. Here, the defendant is not required to account for all its net income from the infringing sales. The apportionment of profits involves the separation of the portion of the net income that was derived from the infringed trademark from the portion that was derived from other features of the infringing product, such as its quality or the defendant’s reputation and selling efforts.

In 2015, the Federal Court confirmed,20 in the well-known MARLBORO case, that Imperial Tobacco was entitled to elect an accounting of profits by the infringer Philip Morris, resulting from the infringement of the MARLBORO trademark in Canada. This was the first occasion in decades for the Federal Court (and, in 2016, the Federal Court of Appeal) to assess in-depth the issue of entitlement to an accounting of profits in the trademark context. The Federal Court of Appeal had found that Philip Morris had been infringing the MARLBORO trademark, issued a permanent injunction, and referred a number of issues to the trial judge, including whether Imperial Tobacco was entitled to elect between damages or an accounting of profits. Justice deMontigny noted that both damages and accounting of profits are specifically provided for as alternatives in the Trade-marks Act. The trial judge found that, while the plaintiff had no presumptive right to an accounting of profits, plaintiff should be granted the option in the absence of compelling reasons. The trial judge then reviewed the following considerations to determine whether to allow the plaintiff to elect the accounting:

• Whether the plaintiff was prompt in commencing the proceedings and bringing the matter to trial;

• Whether the plaintiff had clean hands (e.g., had acted equitably); and

• Whether the calculation of damages was likely to be as complex as an accounting for profits, and equally contentious.

The defendant argued that the plaintiff would receive an inequitable windfall from an accounting of profits, as plaintiff could never have earned the profits made by defendant. The judge

20. Philip Morris Products S.A. v. Marlboro Canada Limited, 2015 FC 364 (F.C.T.D.), upheld by Federal Court of Appeal 2016 FCA 55.

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rejected this arguably arrogant argument, however, holding that the claimant’s damages are irrelevant, since the objective of an accounting of profits is to shift improperly received profits to the owner of the infringed mark. In the author’s view, the Court was unimpressed by the argument that the plaintiff could not be as successful as it, the defendant, had been in selling the infringing products.

C. Punitive Damages Punitive damages are relatively uncommon in Canada, and, if

awarded, are typically of a much more modest nature than an award of punitive damages in the United States. Punitive damages are specifically referred to in Section 53.2 of the Trade-marks Act, but it is well-established that punitive damages are available in other types of trademark cases as well.

The objects of an award of punitive damages are retribution, deterrence, and denunciation. Punitive damages are not compensatory in nature, but are instead awarded to punish the infringer and to deter the defendant and others from acting in the same manner.

Punitive (or “exemplary”) damages are an exception to the general rule that damages should be compensatory, not punitive. In Canada, egregious conduct is punished more often by an award of full indemnity legal costs than punitive damages. The decision to award punitive damages is discretionary. Courts, however, have recognized that there is no statutory impediment to assessing punitive damages in addition to profits or damages calculated in the usual manner. In Canada, unlike the United States, treble damages are unavailable for willful infringement. In the leading Canadian case on punitive damages, the Supreme Court of Canada has held that resorting to punitive damages should only occur in exceptional cases and with restraint.21

With respect to the quantum of punitive damages, courts have held that such awards must be sufficiently substantial to serve as a deterrent.22 The Federal Court, provincial courts, and the Supreme Court of Canada have held that in determining the amount to be awarded, punitive damages should be proportional to the gravity of the wrong. Any imbalance in the position between the parties may be considered to ascertain whether the defendant exploited its dominant position. The financial worth of the defendant should also influence the amount of the award.23 The Supreme Court of Canada has held that it is not appropriate to adopt a formulaic approach such as a fixed cap or a fixed ratio 21. Whiten v. Pilot Insurance Co., [2002] 1 SCR 595. 22. Lubrizol Corp. v. Imperial Oil Ltd., 1996 CanLII 4042 (F.C.A.). 23. Whiten v. Pilot Insurance Co., [2002] 1 SCR 595.

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between compensatory and punitive damages. The proper focus is not on the loss suffered by the plaintiff, but on the defendant’s misconduct and ensuring action is taken to deter future misconduct.

Punitive damage awards are designed to punish a party who has engaged in conduct deemed malicious, oppressive, high-handed or egregious. The Federal Court of Appeal has applied the following characterizations to conduct that warrants an award of punitive damages: harsh, vindictive, reprehensible, malicious, oppressive and “so extreme in its nature such that by any reasonable standard is deserving of full condemnation and punishment.”24

In trademark counterfeiting cases, courts have dealt with difficult issues by granting punitive damages in an amount that “may be helpful in leveling the playing field and resulting in a total award that is just.”25 The highest punitive damages award in Canada in a counterfeiting case was justified on the basis of the defendants’ knowing, planned, and deliberate actions, their attempts at concealing their counterfeiting activities, and continuing such activities after commencement of proceedings and after the plaintiff’s application for summary trial.26 The court in that case also relied upon the defendant’s blatant disregard for the court process in calculating an award of punitive and exemplary damages. The Federal Court in that case also observed that an award of $100,000 in punitive damages was well within the range imposed in other intellectual property cases.27

In Bauer Hockey Corp. v. Sport Maska dba Reebok-CCM Hockey,28 the Federal Court of Appeal confirmed that punitive damages are not restricted to cases of litigation misconduct. The Court also clarified the distinction between punitive and aggravated damages. The Court held that punitive damages are designed to punish and therefore constitute an exception to the general rule that damages are designed to compensate the injured, not to punish the wrongdoer. In contrast, aggravated damages will frequently cover conduct that could also be the subject of punitive damages, but the role of aggravated damages remains compensatory and such damages are usually awarded to take account of intangible injuries so as to augment damages assessed under the general rules relating to the assessment of damages. Aggravated damages are thus compensatory in nature and may

24. Lubrizol Corp. v. Imperial Oil Ltd., 1996 CanLII 4042 (F.C.A.). 25. Louis Vuitton Malletier S.A. v. Singga Enterprises (Canada) Inc., 2011 FC 776 (CanLII), at paragraph 44. 26. Id. at paragraph 45. 27. Id. at paragraphs 51–53. 28. 2014 FCA 158.

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only be awarded for that purpose. They may be awarded in cases where the defendant’s conduct has been particularly malicious, arbitrary or reprehensible in departing to a marked degree from ordinary standards of decent behavior. However, the measure of aggravated damages is generally not very well elucidated in the case law in Canada, and generally a lump sum amount is awarded.

Courts have emphasized that the willful infringement of a trademark alone cannot form the basis of an award of punitive damages. The Federal Court has also noted that, in cases where the defendant continued its infringing activities after receiving a cease-and-desist letter and ignored court proceedings, such activity may be characterized as foolhardy but will not be deemed to offend the court’s sense of decency, and no punitive damages will be awarded on grounds of such conduct.29

Where additional factors are present in the case, however, an award of punitive damages may be appropriate. Such factors, which are set out in Whiten v. Pilot,30 include: whether the misconduct was planned or deliberate; the defendant’s intent and motive; whether the defendant persisted in the outrageous conduct over a lengthy period; whether the defendant concealed or attempted to cover up its misconduct; whether the defendant was aware that its conduct was wrong; whether the defendant profited from its misconduct; and whether the defendant knew that the interest violated by its misconduct was deeply personal to the plaintiff.

D. Legal Costs In Canada, a successful litigant is generally entitled to recover

its legal costs (as indicated above, this term is often replaced with the term “attorneys’ fees” in some jurisdictions outside of Canada). The standard costs award in the Federal Court is for “party and party” costs, meaning all the party’s reasonable expenses, including expert fees, and a portion of its lawyers’ fees calculated by reference to a tariff providing a range of amounts for services rendered at each step in the litigation. The successful party is typically entitled to fully recover all reasonable disbursements, although disputes can often arise as to whether the claimed disbursements are reasonable.

Recovery of legal costs can be significant in large cases. In the MARLBORO case referred to above, the successful parties were awarded over $1 million in legal costs and disbursements.31 It is noted that there is a judicial trend in Canada to grant costs on a 29. Clear Sky Enterprises Limited v. 564649 Alberta Ltd., 1998 CanLII 7797 (F.C.). 30. [2002] 1 SCR 595. 31. Philip Morris Products S.A. v. Marlboro Canada Limited, 2015 FC 364 (F.C.T.D.), upheld by Federal Court of Appeal 2016 FCA 55.

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lump sum basis whenever possible, particularly when dealing with sophisticated commercial parties.

In cases where the court has found the unsuccessful party to have engaged in particularly egregious conduct during the litigation, the successful party may be awarded all of its costs on a full indemnification basis, referred to as “solicitor and client” costs. Rule 400 (1) of the Federal Court Rules gives the Federal Court the discretionary power to award solicitor-client costs. Courts have held that such costs should be awarded only in exceptional cases where a party has engaged in reprehensible, scandalous, or outrageous conduct,32 especially in cases where the defendant’s disrespect for court process has increased the plaintiff’s legal fees and disbursements. Solicitor-client costs may fully compensate the successful party for the actual cost of litigation.

Offers of settlement can significantly affect the amount of costs awarded to a successful trademark litigant. For example, if the successful party made a formal written offer that was declined by the other party, and the final judgment is more favorable than the terms of the offer, then under the Federal Court Rules, the successful party is generally entitled to double the traditional “party and party” costs from the date of the offer.

III. CONCLUSION In the absence of interlocutory injunctions being readily

available in Canada, at least at the present time, the availability of permanent injunctions, together with monetary remedies in the form of damages, an accounting of profits, punitive damages, and legal costs, provide assistance to litigants. These remedies may be sufficiently substantial to act as a deterrent to trademark infringements in appropriate cases. If interlocutory injunctions do become more generally available in the future, it remains to be seen whether it will cause any increase in the number of trademark actions that are litigated in Canada, as most litigants are prepared to wait until they obtain the relief they need in the form of a permanent injunction. In addition, given the fact that the courts in Canada are relatively conservative in the granting of the monetary remedies discussed in this paper, litigants are often reminded by their counsel that trademark litigation in Canada is not a money-making proposition, and that the major goal is typically to bring an end to the infringement.

32. 32 Clear Sky Enterprises Limited v. 564649 Alberta Ltd., 1998 CanLII 7797 (F.C.).

Vol. 106 TMR 1133

BOOK REVIEW

Economic Approaches to Intellectual Property. Dr. Nicola Searle and Martin Brassell, FRSA. 2016. Pp. 280. $125. Oxford University Press, Great Clarendon Street, Oxford, OX2 6DP, United Kingdom. Economic Approaches to Intellectual Property takes on big

issues and admirably covers a lot of ground, providing a survey of how economics and intellectual property rights management (“IPRM”) intersect.

The reader will not find all the answers in this directly written, informative work. Rather, Economic Approaches to Intellectual Property acts as a guidebook of key economic principles and applies them to the varied forms of intellectual property that legal practitioners and business people manage, leverage, and value in their daily work. The authors present their mission as providing “a point of reference and a set of inter-related arguments” (Preface at vii) concerning how economic principles can be understood in the context of IPRM. They have admirably achieved that goal.

Others have taken on this task and have found that a study of where economic theory traverses the general categories of intellectual property must necessarily connect the dots at a surface level. Landes and Posner’s 2003 The Economic Structure of Intellectual Property Law took a comprehensive, scholarly approach to the problem but noted (at 10) “[t]he complexity of the subject” and observed that “the degree [of] . . . economic analysis of economic property remains inconclusive, if not indeterminate.” The landscape has not become more defined in the decade and a half since Landes and Posner’s work, but Dr. Searle and Mr. Brassell have encapsulated the issues and provided starting points for the reader to develop her own line of inquiry. This is a sensible approach. Professor William Fisher, of Harvard University, in his essay entitled “Theories of Intellectual Property,” identified (at least) four analytical constructs for categorizing intellectual property. Fisher himself had difficulty harmonizing them but concluded that “intellectual-property theory retains value [because] it can catalyze useful conversations among the various people and institutions responsible for the shaping of the law.” https://cyber.harvard.edu/people/tfisher/iptheory.pdf (at 41).

Dr. Searle and Mr. Brassell have provided a road map for that discussion, so that lawyers and economists alike may share a lingua franca. The authors transform their broad brief and transformed it into a readable, accessible tour of applicable theories, valuation strategies, and economic motivations. The book

1134 Vol. 106 TMR is written as, and should be used as, a tool for accessing the subject matter through a number of waypoints and will be useful as a desk reference to launch the reader deeper into the subject. Dr. Searle and Mr. Brassell are adept at pointing the reader in the direction of further study. Take, for example, Chapter 12, dealing with the representation, or lack of it, of IPR on balance sheets. The authors wryly observe (at 241): “it is . . . fairly common to find ‘no pulse’ for IP and other intangible assets in the balance sheet, where one would expect to find other assets.” Despite this, the authors gamely try to look to relevant accounting standards to revive the IP patient.

To be sure, the social and philosophical underpinnings of protection for trademarks, patents, copyright, trade secrets, and other ephemera of intellectual property are, from time to time, at odds with one another. So, any approach that attempts to harmonize a unified way of looking at these rights through the lens of economics can expect to bump against inconsistencies.

Given this inherent challenge, Dr. Searle and Mr. Brassell’s work is a model of clarity, surveying the field and providing useful insights into how an economist might view an IP issue, or how an IP lawyer might apply economics to a rights issue. The survey approach is most useful, first laying out the basis framework for how economists look at things (‘The Basic Principles of Economics”) and how various economic theories (social contract, innovation) apply generally to IP rights. Having laid out this general economic approach, the authors then apply these principles to individual categories: patents, copyright, trademark, trade secrets, and other rights (in which they include geographic indications). Finally, Dr. Searle and Mr. Brassell address the valuation of IPR, addressing not only how and why value arises, but how it can best be determined.

Dr. Searle and Mr. Brassell have taken their sweeping subject matter and transformed it into a readable, accessible tour of applicable theories, valuation strategies, and economic motivations that can inform and guide IP practitioners and economists alike.

Alfred C. Frawley

Vol. 106 TMR 1135

BOOK REVIEW

The Liability of Internet Intermediaries. Jaani Riordan. 2016. Pp. 639, $295. Oxford University Press, Great Clarendon Street, Oxford, OX2 6DP, United Kingdom. Internet intermediaries—Internet service providers (ISPs),

blogs, websites, and apps such as AIRBNB, AMAZON, EBAY, FACEBOOK, GOOGLE, MATCH, PINTEREST, TWITTER, UBER, YELP!, and YOUTUBE—play an ever-increasing role in communication, business, and consumption. Their services are often the platforms for users’ activities that violate laws or the rights of others.

Even where an intermediary has no active role in an offending activity, the intermediary usually is more easily identifiable and has the deepest pocket in the chain of actors, so that victims of the activity often seek to impose liability on, and obtain a remedy from, the intermediary.

The Liability of Internet Intermediaries is a comprehensive overview of the legal liabilities of intermediaries. The work is authored by Jaani Riordan, an English barrister who has a degree in computer science and a doctorate from the University of Oxford. He practiced in Australia before joining Chambers in England.

The book addresses primary and secondary liability concepts (chapter 5); specific causes of action such as trademark infringement, copyright infringement, and defamation (chapters 6 through 10 and 17); and violations of law (chapter 11).

The work also discusses related procedural issues, such as the identification of potential defendants (chapters 3 and 4); and the remedies available for violations, including injunctive, blocking, and freezing orders (chapters 12 through 16 and 18). However, one procedural topic that is mentioned but deserving of more consideration—perhaps even its own chapter—is jurisdiction.

Helpful features of the book are the numerous explanations of Internet technology and their relevance to legal issues, such as how website-blocking technology functions. Particularly useful is the taxonomy of different types of intermediaries (chapter 2).

For many topics, after a discussion of the underlying law, the author addresses the issues for different categories of intermediaries. By way of example, in the chapter on identity disclosure, the author separately considers blogs and other analogous platforms, hosts, ISPs, search engines, and social networks. This approach is very helpful because not all types of intermediaries have the same roles in activities by their users or the same exposure to potential liability therefor.

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A challenge posed by the subject, and acknowledged by the author in the book’s preface, is the increasingly rapid pace at which platform technology, business models, and the law relating to intermediaries continue to evolve. For this reason, the author expressly attempted to anchor the work with reference to the law of the offline world, where possible.

The focus of the book is British law, with liberal mentions of European law. For some topics, like blocking injunctions, there is a detailed analysis of the law in numerous European countries; for other subjects, there is less treatment of European law.

Although the book makes reference to cases in other Anglo law jurisdictions, the primary criticism of the otherwise comprehensive text is the minimal and uneven treatment of such law. Given the author’s Australian legal roots, it is somewhat surprising that Commonwealth countries are not covered comprehensively. Using Canada as a proxy, the book references only five Canadian decisions that relate to Internet issues.

Similarly, while there is an excellent treatment of the European safe harbor regime for information society services, the book would benefit from more comparison of the parallel immunity under the United States Communications Decency Act (CDA) and the significant body of case law interpreting and applying the CDA. This is all the more the case given that many of the most important global intermediaries are based in the United States and that the CDA has been said to form the basis of the user-generated content-focused Internet we know today.

Although the sheer volume of law of the other jurisdictions might make its inclusion an overwhelming task, such references would be a valuable addition to a subsequent edition.

In light of the growing importance of Internet intermediaries, the treatment of their activities and the well-thought out and comprehensive analysis of their actual and potential liabilities make Mr. Riordan’s work a very welcome and valuable addition to the legal literature and a must-have for the library of any lawyer whose practice involves e-commerce issues.

Sheldon Burshtein

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