Wednesday, July 25, 2007

Recovering profits in Lanham Act cases: willfulness not required, but it helps

Hipsaver Company, Inc. v. J.T. Posey Co., --- F.Supp.2d ----, 2007 WL 2050861 (D. Mass.) – prior discussion here. Plaintiff failed to disclose “key documents and information relating to causation” until the week before trial. The court sanctioned this behavior by precluding the introduction of the evidence and awarding attorney’s fees. But the remaining evidence was enough to allow a jury to infer causation and injury, so the case proceeds, including plaintiff’s attempt to win disgorgement of defendant’s profits. Though plaintiff’s evidence of harm was thin, it argued that a factfinder could reasonably infer causation and injury because defendant made willful and literally false comparisons. Though it didn’t name plaintiff, the parties are the only two competitors in the market; in such markets, factfinders can find that superiority claims necessarily target the other side.

Profits may be awarded in Lanham Act cases not only as a rough measure of harm to the plaintiff, but also to avoid unjust enrichment and to deter a willful bad actor. The 1999 amendments of the Lanham Act, which provided that plaintiffs could recover defendants’ profits in cases of “willful” violation of the antidilution law (section 43(c)), suggested by negative implication that willfulness was unnecessary to recover profits for violation of section 43(a). When the rationale for disgorgement is deterrence and there is no evidence of actual harm, however, the court concluded that plaintiffs must show willfulness. Other circuits have adopted a rebuttable presumption of causation for willfully false comparative ads, and the court found this appropriate – emphasizing that the presumption could be rebutted.

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