Question: Venture Tape Corp. v. McGills Glass Warehouse, F.3d 56 (1st Cir. 2008)
McGills Glass Warehouse ("McGills"), an internet-based retailer of stained-glass supplies, and its owner Donald Gallagher, appeal from a district court judgment finding them liable for infringement of the registered trademarks "Venture Tape" and "Venture Foil," and awarding the marks' owner, Venture Tape Corporation ("Venture"), an equitable share of McGills' profits, as well as costs and attorney's fees. We affirm. I. In 1990, Venture, a manufacturer of specialty adhesive tapes and foils used in the stained-glass industry, procured two federal trademark registrations for products called "Venture Tape" and "Venture Foil," respectively. Over the next fifteen years, Venture expended hundreds of thousands of dollars to promote the two marks in both print and internet advertising. Consequently, its products gained considerable popularity, prestige, and good will in the world-wide stained glass market. Through its internet website, McGills also sells adhesive tapes and foils which directly compete with "Venture Tape" and "Venture Foil." Beginning in 2000, and without obtaining Venture's permission or paying it any compensation, McGills' owner Donald Gallagher intentionally "embedded" the Venture marks in the McGills website, both by including the marks in the website's metatags-a component of a webpage's programming that contains descriptive information about the webpage which is typically not observed when the webpage is displayed in a web browser-and in white lettering on a white background screen, similarly invisible to persons viewing the webpage.
Gallagher, fully aware that the McGills website did not sell these two Venture products, admittedly took these actions because he had heard that Venture's marks would attract people using internet search engines to the McGills website. Because the marks were hidden from view, Venture did not discover McGills' unauthorized use of its marks until 2003. It then promptly filed suit against McGills and Gallagher in federal district court, alleging federal trademark infringement, unfair competition, false designation of origin, and trademark dilution [under Massachusetts law]. The district court ... granted summary judgment for Venture on all counts, and requested that Venture submit a motion itemizing any damages, costs, and attorney's fees attributable to McGills' trademark infringement, all of which are potentially recoverable under the Lanham Act. Although Venture adduced evidence that McGills generated almost $1.9 million in gross sales during the period of its infringement from 2000-2003, Venture eventually requested only $230,339.17, the amount that it estimated to be McGills' net profits. Citing McGills' willful infringement and alleging McGills engaged in obstructionist discovery tactics, Venture sought $188,583.06 in attorney's fees and $7,564.75 in costs. After a hearing on Venture's motion, the district court granted Venture's requested recovery. McGills and Gallagher now appeal from the district court's grant of summary judgment to Venture on Lanham Act liability, and from the district court's award of profits and attorney's fees.
II. A. Lanham Act Liability McGills first contends that the district court improvidently granted summary judgment for Venture on appellees' liability under the Lanham Act.4 *** "The purpose of a trademark is to identify and distinguish the goods of one party from those of another. To the purchasing public, a trademark ‘signi[fies] that all goods bearing the trademark' originated from the same source and that ‘all goods bearing the trademark are of an equal level of quality.'" To establish trademark infringement under the Lanham Act, Venture was required to prove that:
(1) it owns and uses the "Venture Tape" and "Venture Foil" marks;
(2) McGills used the same or similar marks without Venture's permission; and
(3) McGills' use of the Venture marks likely confused internet consumers, thereby causing Venture harm (e.g., lost sales).
The parties agree that no genuine factual dispute exists concerning the first two elements of proof.5 Our focus then becomes the "likelihood of confusion" among internet consumers. This inquiry requires us to assess eight criteria:
(1) the similarity of Venture's and McGills' marks;
(2) the similarity of their goods;
(3) the relationship between their channels of trade (e.g., internet-based commerce);
(4) the relationship between their advertising;
(5) the classes of their prospective purchasers;
(6) any evidence of actual confusion of internet consumers;
(7) McGills' subjective intent in using Venture's marks; and
(8) the overall strength of Venture's marks [hereinafter "Pignons factors" or "Pignons analysis"].6 No single criterion is necessarily dispositive in this circumstantial inquiry.
By the conduct of its case below, McGills effectively admitted seven of the eight elements of the Pignons analysis. The record contains numerous admissions that metatags and invisible background text on McGills' website incorporated Venture's exact marks. In his deposition, Gallagher admitted that the parties are direct competitors in the stained glass industry and that both companies use websites to promote and market their products. Gallagher even admitted that he intentionally used Venture Tape's marks on McGills' website for the express purpose of attracting customers to McGills' website and that he chose "Venture Tape" because of its strong reputation in the stained glass industry. These admissions illustrate the similarity (indeed, identity) of the marks used, the similarity of the goods, the close relationship between the channels of trade and advertising, and the similarity in the classes of prospective purchasers. They also support the conclusions that McGills acted with a subjective intent to trade on Venture's reputation and that Venture's mark is strong. Accordingly, only the sixth factor- evidence of actual consumer confusion-is potentially in dispute. On appeal, McGills argues that Gallagher had no way of knowing whether or not his use of the Venture marks on the McGills website had been successful, i.e., whether the marks actually lured any internet consumer to the website. Thus, the company contends that summary judgment in Venture's favor was improper because there was no evidence of actual confusion. However, McGills' various protestations below and on appeal that there is no direct evidence of actual consumer confusion, even if accepted as true, are ultimately beside the point.
Although Venture might have attempted to adduce evidence of actual consumer confusion (e.g., internet user market surveys) in support of a favorable Pignons determination, the absence of such proof is not dispositive of the Pignons analysis. "[A] trademark holder's burden is to show likelihood of confusion, not actual confusion. While evidence of actual confusion is ‘often deemed the best evidence of possible future confusion, proof of actual confusion is not essential to finding likelihood of confusion.'" McGills' admissions regarding the other seven Pignons factors, particularly Gallagher's admission that his purpose in using the Venture marks was to lure customers to his site, permit us to conclude that no genuine dispute exists regarding the likelihood of confusion. As a result, Venture was entitled to summary judgment on the liability issue. B. Award of Profits under the Lanham Act Because Venture established its entitlement to summary judgment on Lanham Act liability, it was potentially entitled-subject to applicable principles of equity-to recover, inter alia, McGills' profits during the period that McGills infringed the Venture marks. McGills argues on appeal that the district court erred in awarding Venture $230,339.17, McGills' net profits for the three-and-a-half-year period of infringement.
McGills raises two substantive objections to the award of profits. First, the company challenges the district court's finding that the infringement here was "willful," asserting that such a finding is a prerequisite to an award of profits under the Lanham Act. We have previously declined to reach the question of whether "willfulness" is required as a foundation for such an award, and we need not decide the issue here. Even assuming that "willfulness" is required, McGills has not demonstrated that the district court's finding of "willfulness" was clearly erroneous. McGills asserts that Gallagher's admittedly intentional use of the Venture marks to lure customers to his site was not "willful" because Gallagher was unaware that such use of the marks was illegal. However, the district court specifically noted that McGills had programmed its website so that Venture's marks were displayed in the same color as the webpage background, concealing them from view. We can find no clear error in the district court's conclusion that such intentional concealment provides strong circumstantial evidence of "willfulness." Second, McGills attacks the award by claiming that it overstates the actual harm to Venture. McGills first complains that Venture did not even attempt to show actual harm, and suggests that this failure means that there was no actual harm. Our case law does not support that inference. When a mark owner cannot prove actual damages attributable to the infringer's misconduct (e.g., specific instances of lost sales), its recovery of an equitable share of the infringer's profits serves, inter alia, as a "rough measure" of the likely harm that the mark owner incurred because of the infringement, while also preventing the infringer's unjust enrichment and deterring further infringement.
The district court explicitly concluded that the profits award here was "sufficiently substantial to serve these purposes without being unduly large or burdensome." We find no fault with this conclusion. McGills' alternative theory is that the award of profits is overstated because the "only possible enrichment" to McGills from the use of the Venture marks would have arisen from its sales of foils and tapes. McGills argues, without marshaling any competent evidence, that its sales of those products amounted to less than one percent of its total sales. McGills complains that Venture should have known this and provided more detailed breakdowns to the court. McGills asserts that Venture "copied over 5000 records," but "carefully chose to show none of it to the Court." This argument entirely misplaces the burden of proof for a profit award under the Lanham Act. We have held that "once the plaintiff has shown direct competition and infringement, the statute places the burden on the infringer to show the limits of the direct competition." This allocation of burdens arises from the language of the Lanham Act itself: "In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed." Here, Venture met its burden by introducing tax returns showing Venture's gross sales over the relevant time period. McGills then had the burden of producing evidentiary documentation that some of those sales were unrelated to and unaided by McGills' illicit use of Venture's marks.
The company produced no such evidence. As a result, there was no clear error in the district court's determination that $230,339.17 represented an equitable share of McGills' $1.9 million in gross sales during the threeand-a-half year infringement period. C. Attorney's Fee Award Finally, McGills challenges the district court's award of $188,583.06 in attorney's fees. The Lanham Act permits the court to award reasonable attorney's fees to the prevailing party in "exceptional cases." * * * The district court has discretion to consider an infringement case "exceptional" if, after reviewing the totality of the circumstances, it finds that the infringer's actions were "malicious, fraudulent, deliberate, or willful." As we noted above, the district court did not err in concluding that McGills' infringement was "willful." Accordingly, it did not abuse its discretion in determining that this is an "exceptional case" where an award of attorney's fees is appropriate. Affirmed.
QUESTIONS FOR DISCUSSION FOR CASE 6.4
1. Did the plaintiff have to show actual consumer confusion or a likelihood of consumer confusion to support its claim? Did the plaintiff succeed in meeting its burden of proof on trademark infringement?
2. How did the trial court calculate damages? Was its calculation correct? Which party has the burden of proof on determination of damages?
3. Under what circumstances may a court award attorneys' fees to a prevailing party under the Lanham Act?