Michael A. Einhorn, Ph.D. 973-618-1212

MEDIA, TECHNOLOGY, COPYRIGHT

TRADEMARKS AND FINANCIAL REMEDIES:

STANDARDS IN THE COMMON LAW

+

Michael A. Einhorn, Ph.D.

1. INTRODUCTION

From the vantage of an economic expert, this paper analyzes financial remediation in

trademark law, particularly as it relates to the most common remedy -- disgorgement of

defendant profits. Although profit disgorgement is recognized as a suitable remedy as a

matter of both equity and deterrence, the application of the statute is more circuitous..1

As disgorgement is not a pro forma guarantee for a prevailing plaintiff, I shall review

some possible standards that do impinge – or should impinge – on a court’s decision.

At mae@mediatechcopy.com, http://www.mediatechcopy.com. Complete professional biography can be found in appendix. The author is an economic consultant

and expert witness in the areas of intellectual property, media, entertainment, and product design. He is the author of Media, Technology, and Copyright: Integrating

Law and Economics (2004) and over seventy related professional articles in intellectual property, economic analysis, and damage valuation. He is also a former

professor of economics at Rutgers University. A complete professional biography can be found in the appendix.

1A leading expert, Prof. Thomas McCarthy, now characterizes the relevant case law regarding trademark

damages as “a confusing mélange of common law and equity principles, sometimes guided (and misguided)

by analogies to patent and copyright law, and finding little statutory guidance in the Lanham Act. J.

Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 30:57 (5th ed. 2012)

2

While the Lanham Act permits mark owners to recover actual damages arising

from an infringement, profit disgorgement is the more weight remedy. The intent is both

to compensate mark owners for the lost revenues arising from the transgression and to

deter would-be infringers from future acts of transgression. In deterring infringement, the

law serves to avoid buyer confusion and preserve the incentive to develop new products

and brands.

While reviewing the existing standards in case law that courts have enforced, the

article moves beyond buyer confusion (re Lanham Act) to put some emphasis on dynamic

markets that involve new innovation and communication channels. Competition among

consumer brands directly implicates entrepreneurship;2 research and invention,

3

geographic expansion;4 migration among marketing channels and distribution platforms;

5

2For example, Apple was able to develop its new digital music service (iTunes) into a winning product

because it attracted music listeners to a brand name (Apple) already famous for its style and ease of use, and

a well trademarked moniker (iTunes) that communicated easily both the presence and the features of the

new service.

3Famous for its line of cleaning and personal care products (such as Tide, Cascade, and Head and

Shoulders), Procter & Gamble has a very innovative open innovation program that features crowdsourcing

http://www.pgconnectdevelop.com/home/open_innovation.html) ; the company launched seven of the top

10 most successful non-food products in 2013. http://www.pg.com/en_US/innovation/index.shtml.

4Restaurants or outlets may evolve from one-store operations to regional or national chains that help

transform entirely social dining and shopping habits -- McDonalds (Bakersfied, CA), Wal-Mart (Rogers,

AK), Dunkin’ Donuts, (Quincy, MA), Starbucks (Seattle, WA).

5As bricks and mortars give way to clicks and bit streams enabled through websites, online marketing, and

digital referral. the names and reputations of producers and retailers can now move rapidly from local to

national prominence and general awareness. It is difficult to imagine how Amazon could have devastated

Borders Books without a strong trademark across its national interface.

3

and the growing methods of establishing buyer appeal.6 More than solely a means of

presenting familiarity and presumably higher quality, trademarks can be viewed as

economic instruments for providing the incentive for product improvements that can be

monetized subsequently through brand identification

2. STATUTORY REMEDIES

Per 15 U.S.C. 1116(a), a trademark owner may move first for an injunction when an

infringing use is “likely to cause confusion or mistake or to deceive purchasers as to the

source of origin of such goods or services.”7 Financial remedies appear in the

subsequent 15 U.S.C. 1117(a), which provides that a trademark owner shall be entitled,

upon the finding of an infringement and subject to the principles of equity, to recover (1)

his/her actual damages, (2) defendant’s profits , and (3) the costs of the action.

6I think this is best exemplified by Anheuser Busch (designer of sports stadiums and amusement parks, and

promulgator of equine love). The Busch brand presents general wholesomeness and good American values.

This presentation goes well beyond the attributes of a simple product at hand (i.e., beer) that may have little

to do with the sports, amusements, and horses that famously promote the Busch brand.

715 U.S.C. 1125(a)(1). The legal remedy of injunction under likely confusion implicates the presumption

of irreparable injury from the loss of sales and goodwill. The law protects against the existence or

likelihood of both direct confusion – i.e., when buyers “believe that the trademark owner sponsors or

endorses the use of the challenged mark”, EMI Catalogue P’ship v. Hill Holliday, Connors, Cosmopulos,

Inc., 228 F. 3d 56, 62, (2d Cir. 2000) -- and reverse confusion -- when buyers “believe that the junior user

is the source of the senior user’s goods.” Banff, Ltd. v. Federated Dept. Stores, Inc, 841 F. 2d 486, 490 (2d

Cir. 1988)..

4

With first regard to actual damages, trademark plaintiffs generally attempt to

prove lost royalties suffered from a missed licensing opportunity Lost royalties are

generally based on a percentage of sales volume and can be inferred from available data if

the mark owner can present a previous comparable use – either in its own transactions or

in benchmark exchanges drawn from comparable market situations.8 A royalty based

measure of profits must exhibit a strictly rational correlation between the infringed rights

at issue and the proposed measure of damages.9 This is no small task, as many plaintiffs

do not have a history of licensing their marks, particularly in new brands or products.10

The disgorgement of defendant’s profits is justified for three reasons: (1)

approximating the measure of the plaintiff’s harm; (2) preventing an infringer from

inequitable gain; and (3) deterring a willful infringer from future infringement.11

In the

necessary accounting for the courtroom, the plaintiff must prove defendant's sales only,

while defendant must prove all elements of cost or deduction claimed.

8Ramada Inns, Inc. v. Gadsden Motel Co., 804 F. 2d 1562, 1565 (5

th Cir. 1986). See also Sands, Taylor &

Wood v. The Quaker Oats Company, 34 F. 3d 1340, 1344 ( 7th

Cir. 1994).

9Boston Professional Hockey Association v. Dallas Cap & Emblem Manufacturing, Inc., 597 F. 2d 71, 202

USPQ.

10

Per 15 U.S.C. 1117(a)(3), the court may also enter judgment, according to the circumstances of the case,

for any sum above the amount found as actual damages, not exceeding three times such amount. If the court

finds that plaintiff’s recovery is either inadequate or excessive, the court may also enter judgment for such

sum as the court shall find to be just. In either of the above circumstances, the court’s adjustments must

constitute compensation and not a penalty.

11

See Tamko Roofing Prods., Inc. v. Ideal Roofing Co, Ltd., 282 F.3d 23, 36 (1st Cir. 2002)

5

In presenting the plaintiff’s burden, plaintiff must present only those defendant

gross revenues that have actually been earned from the infringing activity (re the Supreme

Court in Mishawaka v. Kresge.12

) The Ninth Circuit resolutely enforced the Mishawaka

standard in Lindy v. Bic when it denied to the prevailing plaintiff any recovery of

defendant profit because the contestant only presented defendant’s total revenues, rather

than a suitable breakout of the proper revenue elements related to the infringement.13

However, the Seventh Circuit came to an inapposite conclusion, when it allowed the

plaintiff to post gross defendant revenues and placed upon the defendant the need to

prove revenue deductions for non-infringing sales;14

12

Mishawaka Rubber & Wool Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 206-07, 62 S.Ct. 1022, 1024-25,

86 L.Ed. 1381, 1385-86 (1942).

13Lindy Pen Co., Inc. v. Bic Pen Co., 982 F.2d 1400, 1405-7 (9

th Cir. 1993). See also Rolex v. Michel

Company, 179 F. 3d 704, 712 (9th

Cir. 1999); Computer Access Tech. Corp. v. Catalyst Enters. Inc., 273 F.

Supp. 2d 1063, 1074 (N.D. Cal. 2003); Texas Pig Stands v. Hard Rock Café, 951 F.2d 684, 696, reh'g

denied , 966 F.2d at 957-58 (citing Mishawaka, Id.); Maier Brewing, infra note 40 .

14WMS Gaming, Inc. v. WPC Productions and Party Gaming, No. 07-3585 (7

th Cir. 2008). Reversing a

lower court, the Seventh Circuit held that defendant bore the responsibility to break out infringing and

noninfringing unit sales as part of its requirement to prove deductions. The Court based this decision on

dictum from the Supreme Court’s 1916 case, Hamilton-Brown Shoe Co. v. Wolf Bros. & Co. 240 U.S.

251, 262, 36 S. Ct. 269, 60 L.Ed. 629 (1916). (“If one wrongfully mixes his own goods with those of

another, so that they cannot be distinguished and separated, he shall lose the whole, for the reason that the

fault is his; and it is but just that he should suffer the loss rather than an innocent party, who in no degree

contributed to the wrong.”) As a matter of obiter dictum, the reference was inapplicable to the facts before

the Seventh Circuit. The Hamilton-Brown Shoe case implicated three infringing Hamilton products, each

bearing the infringing mark Wolf Brothers and two also bearing the mark of Hamilton. With each product

bearing the infringing mark, the issue before the Court was actually one of the apportionment of infringing

revenues – how to distinguish the respective worth of the marks owned by Wolf Brothers and Brown Shoe

– a matter recognizable from the Copyright Act The Supreme Court’s standard for the plaintiff burden of

non-infringing revenues appears in Mishawaka,.

6

Each circuit may have its own standards for disgorging profits, perhaps

confirming Prof. McCarthy’s complaint in footnote 1. But a considerable list of six

possible factors appears in the Fifth Circuit case of Pebble Beach v. Tour 18:15

(1) The adequacy of other remedies,

(2) Whether the defendant had the intent to confuse or deceive,

(3) The public interest in making the misconduct unprofitable,

(4) Whether sales have been or could be diverted,

(5) Whether it is a case of palming off, and

(6) Any unreasonable delay by the plaintiff in asserting his rights.

The list of factors in Pebble Beach is suggestive and non-exclusive, and the

application of any one factor is entirely at the court’s discretion. These factors appeared

directly in the Fourth Circuit as well,16

while the Second Circuit offered an alternative.17

But the six Pebble Beach factors are a good starting point for a discussion.

15

Pebble Beach Company v. Tour 18 Limited, 155 F. 3d 526; see also Rolex Watch USA, Inc. v. Meece,

158 F.3d 816, 823 (5th Cir. 1998); Seatrax, Inc. v. Sonbeck International, Inc., 200 F.3d 358, 369 (5th Cir.

2000); Quick Technologies, Inc., v. Sage Group PLC, 313 F. 3d 338 (5th Cir. 2002)

16Synergistic Intern, LLC v. Korman, 470 F. 3d 162, 176 (4

th Cir. 2006).

17

W. E. Bassett Co. v. Revlon, Inc., 435 F.2d 656, 664 (2nd Cir.1970). (1) the degree of certainty that the

defendant benefited from the unlawful conduct; (2) availability and adequacy of other remedies; (3) the

role of a particular defendant in effectuating the infringement; (4) plaintiff's laches; and (5) plaintiff's

unclean hands.

7

3. ADEQUACY OF OTHER REMEDIES AND WILLFULNESS

As explained in Section 2, Courts may impose injunctions to stop trademark

infringements that are commonly viewed as irreparable injuries. However, while

injunctions may stop any future harm, they fail to redress plaintiff injury. Moreover, if no

financial penalty were possible, a willful infringer would have an incentive to use a

trademark for as long as possible, confuse buyers, and damage or destroy its competition.

Once compelled to cease, it would simply forego – at no additional cost – a use of a

mark that it never should have practiced in the first place.18

The notion of deterrence thus goes back to Congressional design of the Lanham

Act, whose purposes “can be accomplished by making acts of deliberate trademark

infringement unprofitable ... Such an approach to the granting of accountings of profits

would, by removing the motive for infringements, have the effect of deterring future

infringements.”19

18

In this context, one should here note the Supreme Court’s limiting caveats when applying only a simple

injunction: “considering the lack of actual damages and the lack of an intent to confuse, deceive,

injunctive relief satisfies the equities in this case. [emphasis mine]” Champion Spark Plug Co. v. Sanders,

331 U.S. 125, 130, 67 S.Ct. 1136, 1139, 91 L.Ed. 1386, 1391 (1947); see also Highway Cruisers of Cal.,

374 F 2d. 875, 876 (9th

Cir. 1967); Bandag, Inc. v. Al Bolser's Tire Stores, Inc., 750 F.2d 903, 919 (Fed.

Cir.1984).

19“This bill, as any other proper legislation on trademarks, has as its object the protection of trademarks,

securing to the owner the goodwill of his business and protecting the public against spurious and falsely

marked goods. The matter has been approached with the view of protecting trademarks and making

infringement and piracy unprofitable.” [emphasis mine] S. Rep. No. 1333, 79th Cong., 2d Sess. 1-2 (1946).

8

In addition to deterrence, the motives of the Lanham Act “can be accomplished by

the use of an accounting of profits based on unjust enrichment rationale [i.e., equity].”20

This expressed concept of equity first appeared in the Supreme Court’s 1916 decision of

Hamilton-Brown Shoe. v. Wolf Bros;”the infringer is required in equity to account for and

yield up his gains to the true owner, upon a principle analogous to that which charges a

trustee with the profits acquired by wrongful use of the property of the trust”21

[emphasis

mine] The Supreme Court’s ruling later appeared in landmark rulings in the Second22

and

Ninth Circuits.23

The Ninth Circuit would come to affirm that if a trademark infringement is

willful, a remedy no greater than an injunction "slights the public”.24

Indeed, to do less is

both inequitable and a tacit invitation to other infringement.25

However, while

20

Maier Brewing, infra note 40 .

21

Hamilton-Brown Shoe Co. v. Wolf Bros. & Co; 240 U.S. 251, 259, 36 S.Ct. 269, 272, 60 L.Ed. 629

(1916).

22Monsanto Chemical Co. Perfect Fit Products Mfg. Co., 349 F. 2d 389 (2d Cir. 1965) “[T]he justification

for an accounting is found in the principles of unjust enrichment traditionally applicable where property is

used for profit without the owner's permission … In particular, … it is irrelevant that the plaintiff was not

selling in the market exploited by the infringer. [emphasis mine]” See also First Circuit in Baker v.

Simmons Co., 325 F.2d 580, 582 (1963).

23Maier Brewing, infra note 40

24

Playboy Enterprises, Inc. v. Baccarat Clothing Co., Inc., 692 F.2d 1272, 1274 (9th Cir.1982).

25

Monsanto Chemical Co. v. Perfect Fit Products Mfg. Co., 349 F. 2d 389 (2d Cir. 1965)

9

willfulness may seem to be a necessary condition for disgorgement, it apparently is not

sufficient.26

Moreover, the statute itself nonetheless is ambiguous when it comes to the

necessity of willfulness as a requirement for disgorgement (15 U.S.C. 1125(a)). This is

distinguished from dilution cases, where willfulness is a requirement (15 U.S.C. 1125(c).

Prior to the amendment of the law on August 5, 1999, there were no statutory references

to the term "willful" at all.27

4. THE PUBLIC INTEREST

When drafting the Lanham Act, Congress further established the two fold rule of trademark

protection.28

First, the act protects buyers so that any person may be confident that he/she will get

the product sought or asked for. Secondly, the act aims to preserve the just desserts due to a

trademark owner who has spent energy, time, and money in creating the product.

There is yet one more due consideration for the public interest – preservation of

incentives to create new products. Per Justice Frankfurter,29

trademarks are compact

26

Texas Pig Stands, infra note 35 .

27 See Trademark Amendments Act of 1999, Pub. L. No. 106-43, 113 Stat. 219 (1999) (substituting "a

violation under section 43(a), or a willful violation under section 43(c)," for "or a violation under section

43(a)").

28

S. Rep. No. 1333, 79th

Cong., 2d Sess. (1946), reprinted in 1946 U.S.C.C.A.N. 1274. See also Park 'N

Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 198 (1985).

10

instruments for social communication and memory. With a secure trademark, any market

innovator in a crucible of “creative destruction” can introduce or modify a product and

clearly communicate its presence to a base of potential customers who had been entirely

unaware of the innovation.30

Without trademark protection of an innovation, a buyer

may be entirely devoid of the subsequent opportunity to reach a state of actual confusion

in the final market because the innovation might not have been implemented.

5. DIRECT EFFECTS: SALES DIVERSION AND PALMING OFF

The next two factors in Pebble Beach -- the presence of general sales diversion or

palming off – involve the direct relation between two rivals in identical or similar

markets. As a general rule, neither factor is a necessary condition for an award, but rather

a factor to be considered in the calculus.31

29

Mishawaka, supra note 12, at 205. “A trademark is a “merchandising shortcut which induces a purchaser

to select what he wants, or what he has been led to believe he wants.” The owner of a mark exploits this

human propensity by making every effort to impregnate the atmosphere of the market with the drawing

power of a congenial symbol. Whatever the means employed, the aim is the same -- to convey through the

mark, in the minds of potential customers, the desirability of the commodity upon which it appears. Once

this is attained, the trademark owner has something of value. If another poaches upon the commercial

magnetism of the symbol he has created, the owner can obtain legal redress.”

30

Without such clear signage, “consumers would often pick a good of undesirable qualities, while firms,

unable to transmit to the consumer signals of the unobservable high qualities of their goods, would choose

to produce goods with the cheapest possible unobservable qualities. However, when there exists a way to

identify the unobservable qualities of a good at the time of purchase, consumers are facilitated in their

choices, and firms have an incentive to cater to a spectrum of tastes for variety and quality … Producers

[then] are indirectly prompted to produce what consumers truly desire.” N. S. Economides,

TRADEMARKS, The New Palgrave Dictionary of Economics and the Law, 1997. See also N. S.

Economides, The Economics of Trademarks, 78 TRADEMARK REP. 523 (1988).

11

The Second Circuit heard Maternally Yours, Inc. v. Your Maternity Shop, Inc.in

1956.32

A trial court found that a defendant maternity shop “Your Maternity Shop”

misled buyers, caused confusion, and diverted sales from a plaintiff establishment named

“Maternally Yours”. The defendant apparently had adopted a similar business name,

located its store within two blocks of the plaintiff, imitated plaintiff's script in its

advertising, used similar packing boxes, and adopted confusing telephone listings. The

issue involved direct sales diversion. Trademark rights here necessarily trumped First

Amendment rights to use common phrases found in the English language. The plaintiff

won financial remedies.

In Dad's Root Beer v. Doc's Beverages,33

the Second Circuit considered potential

sales diversion even before direct competition had ensued. The plaintiff produced and

distributed Dad's Old Fashioned Root Beer in the Chicago area and sold franchise rights

and soda concentrate in other parts of the country. The defendant -- a New York

establishment that had initially operated a franchise from the plaintiff – came to market

its own branded product, Doc's Old Fashioned Root Beer, in the New York area.

Although the parties did not directly compete yet in the same urban regions, the district

31

Texas Pig Stands, infra note 35 , at 624.

32

234 F.2d 538 (2nd

Cir. 1956)

33193 F.2d 77, 82-83 (2 Cir. 951).

12

court ordered an accounting of the defendant's profits from such sales, and the Second

Circuit affirmed. Evidently, Doc’s was riding on the franchise name and so diminished

Dad’s prospects of a possible expansion in a new geographic area.34

The plaintiff won

disgorgement.

With a verifiable infringement but no evidence of sales diversion, the Fifth Circuit

case of Texas Pig Stands v. Hard Rock Café was less favorable to the plaintiff.35

Texas

Pig Stands had operated a large chain of barbecue restaurants -- most of which had closed

before the purported infringement -- that featured a trademarked menu item called a “pig

sandwich”. After opening in Dallas (a city that TPS had already vacated), Hard Rock

Café knowingly offered a menu item with the same name. After the jury awarded an

accounting of profits, the lower court dismissed the verdict. The Circuit upheld the

District.36

Given the weakness of the mark and the declining market for TPS, Hard

Rock’s infringing use – though willful -- posed no possibility of sales diversion.37

34

Id. Judge Clark heeded the call for equity elaborated first in Hamilton Brown Shoe: 'it is well settled in

equity that a trademark infringer is liable as trustee for profits accruing from his illegal acts, even though the

owner was not doing business in the consuming market where the infringement occurred”.

35

Texas Pig Stands v. Hard Rock Café, 951 F.2d 684, 696 (5th

Cir. 1992), reh'g denied , 966 F.2d at 957-

58 (citing Mishawaka).

36

The Circuit Court also reversed the lower court’s decision to award to Texas Pig Stands awarded

attorney’s fees of $400,000.

37

Hard Rock Café would have posed a greater threat to reputation if it had infringed upon the brand “Texas

Pig Stands” (which was suggestive) instead of the product name “pig sandwich” (which was descriptive

13

6. DELAY AND PREVENTION

As a final issue in Pebble Beach, the court would seem to reward a trademark plaintiff

who entered ligation at an early stage. The incentive here is questionable, as such an

imposition yet may be costly to a new mark owner who may try other means of resolving

the issue (such as changing the name or trade dress) or deciding carefully about opening a

case in a geographic location where it may or may not choose to compete. It seems that

the statute of limitations and the doctrine of laches are proper means for winnowing out

plaintiffs who may abuse the process to generate more recovery.

Unmentioned in Pebble Beach is a consideration in Polaroid Corp. v Polarad Elecs.

Corp. where the Second Circuit produced a list of factors regarding the strength of the mark.38

It

would follow that a plaintiff may be rewarded with financial remediation for taking

beforehand strong preventive measures designed to strengthen the mark; fanciful and

arbitrary marks are examples of good-faith preventive tactics. By contrast, the strength of

a descriptive mark that is presumably vindicated by secondary meaning is less defensible,

with some very faded secondary meaning). Had Hard Rock infringed the former trademark, the use of the

brand could more apparently have diluted the regional appeal of an existing restaurant chain that

presumably had some remaining cultural charm in the South and a reputation for authentic “down home”

barbecue.

38

287 F. 2d 492 (2d Cir. 1961). The Polaroid factors are strength of the infringed mark, similarity of the

marks, the similarity or relationship of the respective goods and/or services, the commonality of trade

channels and advertising methods, the sophistication of purchasers, whether the accused mark was adopted

in bad faith, and the existence of actual confusion.

14

as secondary meaning can fade in the course of time.39

To encourage some prophylaxis,

courts may rethink disgorgement for weak trademarks.

The Second Circuit also advanced a consideration for commonality of trade

channels and advertising methods. However, while “bricks and mortars” and online

stores are not the same type of retail channel, the competition between them for shoppers

is keen. Moreover, advertising has the capacity to reach overlapping audiences who

spend time on radio, television, and computer. The Second Circuit’s consideration could

perhaps be strengthened to recognize the distinction between general and specialist

markets, as they elsewhere recognized the importance of buyer sophistication (i.e., ,

specialists)

7. REPUTATION

Although reputation effects did not appear among the Pebble Beach factors, the issue is

quite important in the information era where small players (e.g., Amazon) can grow

quickly into national retail leaders. In the Ninth Circuit case of Maier Brewing v.

39

This would be a particularly apt way to protect the names of single outlets determined to engage on a

larger expansion. For example, Starbucks Coffee employed an arbitrary mark based on the name of a

character in Moby Dick. Even if Starbucks continued to operate one shop in Seattle, it would have a

nationally protected trademark if it registered its mark and could so obtain an injunction against use in any

state. In order to recover defendant revenues, Starbucks could reasonably show its intent to minimize the

15

Fleischmann,40

the appellee Fleischmann had successfully marketed for fifty years a

superior brand of scotch whiskey called Black and White. Claiming that the title was

generic, Maier Brewing came later to use the same phrase as the label of one of its beers.

The concern involved reputation more than sales diversion. “It seems obvious that

the infringement of this mark by another alcoholic beverage tends to jeopardize the name

of Black and White Scotch, or at least so diminish the appellee’s ability to control and

therefore sustain the reputation of their scotch.”41

That scotch and beer may be in limited

direct competition with one another did not vacate this concern, as consumers may come

to view two beverages (one upmarket and the other down market)_ to have a common

source of origin.42

The court’s opinion was quite prescient, noting the growing importance of brand

investment “with slight reference to the real utility of the product” and the

“complications of mass communication technologies (such as broadcast television) that

likelihood of preemption by choosing an arbitrary mark. This would more serve to dissipate any copycat

effect and more readily preserve the shop’s option to move into wider regional markets at the right moment

40

Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F. 2d 117, 124 (9th

Cir. 1968).

41

Maier Brewing, supra note 40

42

See also Admiral Corp. v. Penco Inc., 203 F. 2d 517 (2d Cir. 1953) (consumers may confuse origin

when small seller of “Admiral” vacuum cleaners and sewing machines was stopped from using the same

name as the larger manufacturer of washing machines, dryers and refrigerators) .

16

make reputations more vulnerable.”43

[Emphasis mine]. The case for strong remedy is

more acute when mass communication by distant providers may claim an infringing name

to the harm of the trademark owner.44

More generally, the loss of an exclusive trademark

presents to its owner a threat that its name may be misappropriated at any time in the

future. 45

The reputation effect could be also critical even if the parties do not compete in

the same geographic area. For example, a hypothetical first time Starbucks Coffee in

Seattle, or a small chain of McDonald’ Hamburger stands in California, might have

suffered considerably if an alternative Starbucks or McDonald’s in Atlanta were found

guilty of unfair trade practices or unsanitary kitchens. It would then seem necessary to

enforce remedies for reputation concerns even if direct competition is not present, as was

the case in Maier.

43

Maier Brewing, supra note 40.

44

The problem of reputation to franchise and store chains is considerable. For example, if a rival company

were hypothetically to open even one Midas Muffler shop, each no less than fifty miles from an original, no

sales from an existing Midas shop would be predictably diverted to the infringer. Yet the infringing shop

may provide inferior repair services and wind up in the local press for unethical trade practice. The problem

is worsened in the digital era where consumer information is easier to locate on digital bulletin boards and

service referrals.

45

Maier Brewing, supra note 40 . (“No recognition is given to the possibility that customers who believe that

they are buying a product manufactured by the plaintiff -- whether such product is competitive or non-

competitive -- may be so unhappy with that product that they will never again want to buy that product or

any other product produced by the same manufacturer, who they believe to be the plaintiff.”)

17

8. STATUTORY CLARITY

Once a trademark plaintiff proves revenues, a trademark defendant bears the burden to

prove costs and deductions. The eventual financial recovery might not then be

inequitably high as a defendant might first imagine. The trial judge also has the

discretionary authority to mitigate an overstated award.

The statutory language on the defendant’s burden – costs and deductions -- here

differs from the comparable section of the Copyright Act (17 U.S.C. 504), where

defendant bears the formal burden to prove “his or her deductible expenses and the

elements of profit attributable to factors other than the copyrighted work.”46

The second factor in copyright law involves a formal recognition of apportionment

of value between infringing and non-infringing elements that may be commingled in a

work. The same precise wording seems useful in trademark law, as many elements in

merchandise unit may contribute to its sale. As in copyright law, it should be the

defendant’s burden to prove the worth of any non-infringing element that is commingled

with the trademarked product.

. In addition, copyright plaintiffs are often called upon to establish formally a

causal connection between the putative infringement and the defendant’s eventual sales,

46

17 U.S.C. 504(b)

18

or a related reasonable relationship,47

The causal connection seems unrecognized in

trademark law, perhaps because trademarks often directly appear on merchandise for sale,

and are then presumably causally related. But there are instances when this is not true,

and a more indirect effect is at play; e.g., the store titles of Maternally Yours and Your

Maternity Shop, where each shop sold non-infringing babywear.

9. CONCLUSION

Competition in a dynamic economy implicates directly the creative processes of

invention, entrepreneurship, geographic expansion, and migration of marketing channels,

expansion of distribution platforms, and the growing importance of brand appeal. That

said, the potential harm from a trademark infringement can be more than a discernible

glitch in a consumer survey, a verifiable drop in monthly sales, or simple price erosion .

In this respect, confusion, reputation, deterrence, equity, innovation, and early prevention

are critical watchwords to keep in mind.

47

M. A. Einhorn, Copyright, Causality, and the Courts, Journal of the Copyright Society, 61 (4).

19

ABOUT THE AUTHOR

Michael A. Einhorn is an economic consultant and expert witness in the areas of intellectual

property, media, entertainment, technology, trademarks, publicity rights, and product design.

Dr. Einhorn is the author of Media, Technology, and Copyright: Integrating Law and

Economics (Edward Elgar Publishers, 2004). He is also a former professor of economics at

Rutgers University a Senior Research Fellow at the Columbia Institute for Tele-Information,

.and the author of seventy professional and academic articles related to intellectual property and

economic analysis

Trademarks and Advertising: Trademark (Dish Network, The Weather Channel,

Madonna/Material Girl, Oprah Winfrey/Harpo Productions, PML Clubs, Avon Cosmetics,

Miller International, The New York Observer, the Kardashians/BOLDFACE Licensing +

Branding), and advertisers (J. Walter Thompson, Kia Motors, Coca Cola, General Automobile

Insurance Company)

Music: Recording artists (U2, Madonna, 50 Cent, Usher, Rascal Flatts, LMFAO, Aimee Mann,

Nappy Roots, Justin Moore, Xzibit, Nelly Furtado, George Clinton, Notorious B.I.G., D.L.

Byron), record labels (Sony Music Holdings, Universal Music Group, Disney Music, Atlantic

Records), producers (P. Diddy, Timbaland), publishers (Major Bob Publishing, Universal Music

Publishing, Bridgeport Music, Hamstein Music, Chrysalis Music, Kobalt Music), performing

rights organizations (SESAC), radio stations (WPNT in Pittsburgh), and live venues (World

Wrestling Entertainment, Usher, LMFAO).

Video: Movies (Paramount/Dreamworks), cable programs (NBCUniversal), product placement

(Paxson Productions), treatments (Burnett Productions), soundtrack (Warner Bros.

Entertainment), TV programs (Televicentro of Puerto Rico), satellite programming (Golden

Channels Company of Israel), and cable operations (AT&T).

Design and Textiles: Apparel (Target Stores, Carol Anderson,, Forever 21, Crew Knitwear,

Joyce Leslie, Anthropologie), architecture (Sprint PCS, Home Design LLC, Murray

Engineering, Turnkey Associates), medical illustrations (Pearson Education Services),

photography (Harris Publications), sculpture (Marco Domo), cartoons (A.V. Phibes, Melissa

Flock), and commercial marketing (Kaufman Global).

Publicity Rights and Estate Valuations: Names and likenesses (Woody Allen, Rosa Parks,

Arnold Schwarzenegger, Sandra Bullock, Cameron Diaz, Diane Keaton, Zooey Deschanel, Yogi

Berra), estate valuations (Tasha Tudor, Marlon Brando, Bernard Lewis).

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Cyberspace: Music services (Apple iTunes, Napster, MP3.com), proprietary software

(Centrifugal Force, Frogsware), open source software (Jacobsen v. Katzer), electronic publishing

(Pearson), video games (Activision), search engines (eUniverse), and domain names

(eCommerce).

Patents and Technology: Semiconductors (General Electric v. Kodak, Great Lakes v. Sakar,

cellular (Cellebrite v. Micro Systemation), software (Jacobsen v. Katzer, Centrifugal Force v.

Softnet), medical technology (Lemper v. Legacy, Graston v. Graham), and general patents

(DeCordova v. MCG)

Antitrust and Commercial Losses: Antitrust, breach of contract, and commercial injury in

actions involving AT&T, California Scents, Safmor, Inc., Golden Channels Company of Israel,

and St. Joseph’s Regional Hospital (College Station, Texas).

Dr. Einhorn can be reached at 973-618-1212.

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