Pattishall IP Blog

March 14, 2012

Sky Diving for Dollars: Ninth Circuit Upholds Jury’s $6 Million Award to Skydive Arizona for Defendants’ Trademark Infringement, False Advertising, and Cybersquatting

Filed under: Advertising, Litigation, Trademark (General) — Tags: , , , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 11:12 am

by Phillip Barengolts, Trademark Attorney

Skydive Arizona sued a group of defendants, collectively called “Skyride” by the court, for trademark infringement, false advertising, and cybersquatting.  At trial, the jury awarded Skydive Arizona $1 million in actual damages for false advertising, $2.5 million in actual damages for trademark infringement, $2,500,004 in defendant’s profits from the trademark infringement, and $600,000 for statutory cybersquatting damages.  The district court, upon its own initiative, then doubled the two actual damages awards, for a total of $10.1 million.  Finally, the district court enjoined Skyride from operating in Arizona.  Skyride appealed and, except for the doubling of actual damages, lost.[1]  See Skydive Arizona, Inc. v. Quattrocchi, No. 10-16099 (March 12, 2012), available here: http://www.ca9.uscourts.gov/datastore/opinions/2012/03/12/10-16099.pdf.

Trademark and false advertising litigation is different from other commercial litigation in many respects, but what the Ninth Circuit opinion highlights is the difference in precision required to support monetary damages.  Skyride’s appeal focused on the lack of evidentiary support for the jury award.  Specifically, Skyride argued that the district court abused its discretion by:

(1) upholding the jury’s actual damages award, because Skydive Arizona did not present sufficient evidence concerning the amount of damages; (2) upholding the jury’s lost profits award, because the jury failed to deduct SKYRIDE’s expenses and costs based on the “clearly erroneous” testimony of Skydive Arizona’s expert; (3) enhancing the jury’s damages award to punish SKYRIDE; and (4) upholding and enhancing the entire actual damages, lost profits, and statutory damages award, because the judgment was grossly excessive.

Other than (3), the Ninth Circuit found these arguments unpersuasive.

Under the Lanham Act, a court may award the following in its discretion: (1) defendant’s profits; (2) any damages sustained by the plaintiff; and (3) the costs of the action.  15 U.S.C. § 1117(a).  “In assessing profits the plaintiff shall be required to prove defendant’s sales only.”  Id.  A mark holder is held to a lower standard in proving the exact amount of actual damages.  See La Quinta Corp., 603 F.3d 327, 342 (9th Cir. 2010).  Plaintiff’s damages are measured in the same manner as in tort cases: “the reasonably foreseeable harms caused by the wrong.”  A jury award may be supported by “crude” measures “based upon reasonable inferences.”  See Intel Corp. v. Terabyte Int’l, Inc., 6 F.3d 614, 621 (9th Cir. 1993).

The jury had only the following evidence to support the actual damages award: three exhibits showing Skydive Arizona’s advertising expenditure for the years 1997-2007, declarations and witness testimony blaming Skydive Arizona for problems caused by Skyride’s acts, and counsel’s request that the jury consider Skydive Arizona’s need to engage in corrective advertising.

To establish Skyride’s profits, Skydive Arizona presented an expert who calculated Skyride’s revenues by:

calculating the number of Arizona residents identified in SKYRIDE’s records and then increasing that number by 2.131 to account for files missing residence information.  He then multiplied that number by an average transaction amount, and then adjusted for resulting revenue from out-of-state residents who also jumped in Arizona.  Lastly, [he] added an interest factor of 10%, using the prejudgment interest rate applicable under Arizona law.

Skyride argued after trial and on appeal that this expert testimony was clearly erroneous because “he did not properly deduct vendor payments or overhead costs, and he applied an improper interest rate.”  The Ninth Circuit stressed that Skyride did not challenge the admissibility of this expert testimony under Federal Rule of Evidence 702 through a Daubert challenge at any point during the trial and, therefore, upheld the award of profits.  Of course, both courts could also have pointed out that, under the Lanham Act, the burden of deducting vendor payments and overhead was Skyride’s and not Skydive Arizona’s.

Skyride finally won a point on appeal by successfully arguing that the district court doubled the damages awards to punish Skyride.  Lanham Act damages must be compensatory and cannot be punitive. 15 U.S.C. § 1117(a).  The district court’s commentary surrounding the doubling conveyed its distaste for Skyride’s “purposefully deceitful” conduct and need for Skyride to “accept the wrongfulness of [its] conduct.”

Skyride’s last argument was that the overall award of $10 million at trial was grossly excessive and punitive for a company with “only $23 million” in nationwide gross revenues.  The Ninth Circuit easily dismissed this contention that, essentially, Skyride was “too small to justify such a large award.”

So, here is what you need to support a $6 million damages award in a trademark and false advertising case: an unsympathetic defendant, proof of your advertising expenditures, proof of defendant’s revenues, and evidence suggesting the need for corrective advertising.  Your results may vary.

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 Phillip Barengolts is a partner with Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP, a leading intellectual property law firm based in Chicago, Illinois.  Pattishall McAuliffe represents both plaintiffs and defendants in trademark, copyright, and unfair competition trials and appeals, and advises its clients on a broad range of domestic and international intellectual property matters, including brand protection, Internet, and e-commerce issues.  Mr. Barengolts’ practice focuses on litigation, transactions, and counseling in domestic and international trademark, trade dress, Internet, and copyright law.  He teaches trademark and copyright litigation at John Marshall Law School, and co-authored Trademark and Copyright Litigation, published by Oxford University Press.


[1] Skydive Arizona appealed the geographic scope of the injunction as being too narrow and lost, but we won’t address that here.  For further background on this case and the facts at issue, see http://blog.ericgoldman.org/archives/2010/05/geographic_trad.htm.

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January 13, 2012

False Advertising Claim Over Statements In Billing Letter To Patients Not Sufficiently Pled Under Lanham Act

Filed under: Advertising, Litigation — Tags: , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 2:24 pm

by Phillip Barengolts, Trademark Attorney

Ameritox is “the nation’s leader in pain medication monitoring, offering urine drug testing services to help physicians assess medication adherence of patients on chronic opioid therapy.”  Millennium Laboratories is “a national, research-based medication monitoring company whose test offering, technology, customer support, educational resources and experts are specifically focused on clinicians who treat chronic pain.”  Essentially, the companies are urine testing labs that compete in the market for monitoring drug levels in patients who complain of chronic pain because such drugs are very susceptible to abuse.  Ameritox sued Millennium over an alleged scheme to provide improper inducements to physicians to use Millennium’s testing services over those of other companies.  The claims included false advertising under the Lanham Act and a related claim of common law unfair competition.[1]  Millennium moved to dismiss these claims and prevailed (with leave to amend). See Ameritox Ltd. v. Millennium Laboratories, Inc., 8:11-cv-775 (M.D. Fla. Jan. 6, 2012).[2]

As part of this alleged scheme, Ameritox claimed that Millennium provided an “advertisement” to its physician customers that informed patients that they would not be responsible for any additional charges beyond those billed to the patients’ insurance companies or Medicare.  The court identified this “advertisement” as a billing letter, i.e., the letter a patient receives that shows the amounts charged, covered by insurance/Medicare, and owed by the patient.  Ameritox asserted that this letter was misleading because “patients enrolled in Medicare, by law, are not subject to any deductible or co-payments for clinical laboratory services, thus any benefit to a Medicare patient is, in fact illusory.”  It was this letter primarily at issue under the Lanham Act and common law unfair competition claims.

Millennium argued that the letter was not “commercial advertising or promotion,” as required under 15 U.S.C. § 1125(a), because it was sent to patients while the relevant consumers were physicians.  Ameritox countered that: a) the letter was distributed both to patients and physicians; and b) patients also were potential customers.  The court rejected Ameritox’s argument because Ameritox “failed to allege that the Millennium Billing Letter was sufficiently disseminated to the relevant purchasing public.”  Specifically, the court noted that Ameritox’s amended complaint was not clear about who actually was the relevant purchasing public and “how many consumers in the relevant purchasing public Millennium contacted.”[3]

The Court found Ameritox’s factual allegations that the letter was misleading to be sufficient, but at the same time Ameritox had not plausibly pled that the billing letter was likely to deceive potential customers.  The Court did not explain these seemingly contradictory findings beyond stating that Ameritox’s allegation that “Millennium’s statements are…likely to deceive a substantial portion of the targeted customers,” was nothing more than a naked assertion devoid of further factual enhancement – the type of pleading prohibited by the Supreme Court’s decisions in Iqbal and Tombly.  It is not clear what factual enhancement the Court would accept as sufficient to support an allegation of likelihood of deception.  Professor Tushnet wonders whether Ameritox may have to plead that it has a survey in hand. See http://tushnet.blogspot.com/2012/01/pleading-standard-dooms-misleadingness.html.  It seems to this author that explaining how an advertisement is misleading usually would be sufficient to underpin how it is likely to deceive potential consumers.  For example, here (assuming what Ameritox states turns out to be true, as one must on a motion to dismiss), it seems that Ameritox is claiming that patient-consumers are likely to be deceived into believing they are receiving a benefit by having their tests conducted by Millennium because of Millennium’s statements about patients not having to make co-pays, etc.  Perhaps Ameritox needs to be explicit on this point when it amends its complaint, even if such pleading seems above and beyond the notice pleading required by the Federal Rules.

Finally, the Court found insufficient to plead materiality to the purchasing decision Ameritox’s allegation that “Millennium’s false or misleading statements have already, and will continue to, influence materially purchasing decisions to the extent that customers choose Millennium’s services instead of those offered by Ameritox.”  This author sees a pretty direct connection between conveying to a consumer that they don’t have to pay as much when using one company’s service over a competitor’s and the likelihood that the consumer will go with the cheaper provider (essentially, Ameritox alleges that Millennium’s statements convey this type of message).  That is, deception over a price difference seems very material to a consumer’s purchase decision, but maybe that’s just me.  Again, the court may be looking for Ameritox to be more explicit when it re-pleads, but it provided no guidance.

Ultimately, this Court appears to have taken a strict view of the requirements enunciated in Iqbal/Twombly regarding facts that must be pled to support allegations of false advertising under the Lanham Act.  Ameritox was given leave to amend, so we anticipate more specific allegations in the amended complaint.  This decision underscores the need for plaintiffs to be explicit about the impact of an allegedly false advertisement on the target consumers which likely will require more pre-complaint investigation and analysis, as well as artful pleading.  Whether other courts follow this precedent remains to be seen.

*          *          *

Phillip Barengolts is a partner with Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP, a leading intellectual property law firm based in Chicago, Illinois.  Pattishall McAuliffe represents both plaintiffs and defendants in trademark, copyright, and unfair competition trials and appeals, and advises its clients on a broad range of domestic and international intellectual property matters, including brand protection, Internet, and e-commerce issues.  Mr. Barengolts’ practice focuses on litigation, transactions, and counseling in domestic and international trademark, trade dress, Internet, and copyright law.  He teaches trademark and copyright litigation at John Marshall Law School, and co-authored Trademark and Copyright Litigation, published by Oxford University Press.


[footnotes]

[1] Ameritox also asserted claims under the Florida Deceptive and Unfair Trade Practices Act that are not at issue here.

[3] According to the opinion, Ameritox alleged only that “Millennium’s services are offered, advertised, and sold to customers throughout the country.”

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