Tuesday, May 15, 2012

One good reason to plead coordinate state-law claims: damages

Belk, Inc. v. Meyer Corp., --- F.3d ----, 2012 WL 1592977 (4th Cir.)

Meyer makes Anolon Advanced cookware and formerly sold to Belk, a retailer that began selling its own private-label cookware in 2007 under the Biltmore House brand. (Design patents were also involved in the case.)  Analon Advanced:


Meyer sued Belk for trade dress infringement and unfair/deceptive trade practices in the high-end cookware market.  After a 9-day trial, the jury found in Meyer’s favor, including a finding that Belk sold cookware that was “deceptively similar” to Meyer’s knowing of Meyer’s designs as well as a finding that Belk caused Meyer damage.  The court trebled the $420,000 in damages found by the jury to $1,260,000 under North Carolina law.  Belk appealed.

The court found that Belk had waived a number of its arguments, including the sufficiency of the evidence of infringement along with challenges to jury instructions.  (For what it’s worth, the designs look a lot alike to me, but they also look like nice pots and pans.) 

In addition, Belk’s challenge to Meyer’s expert was properly rejected.  He’d testified as an expert witness in consumer behavior and marketing in a number of cases, and had analyzed and designed consumer research studies in a variety of settings.  Even though he hadn’t previously conducted trade dress or trademark surveys specifically, he could qualify as an expert.  Cross-examination addressed some of Belk’s concerns; he testified that he’d prepared to address trade dress and infringement issues by consulting “academic and professional sources” and “attorneys and legal practices who practice trade dress/trademark law.”  The court of appeals didn’t consider it dispositive that he failed to consult any survey questionnaires that had been offered and accepted in court in trade dress litigation.  Belk argued that his secondary meaning/likely confusion survey excluded relevant consumers, had an inadequate sample size, was not geographically representative, had leading questions and wrongly used side-by-side exposure.  But this wasn’t the rare case when a survey was so flawed as to be inadmissible; these objections were properly addressed by the trier of fact.

Belk then argued that the district court wrongly sent the state-law UDTPA claims to the jury.  North Carolina’s UDTPA requires conduct that was unfair or had the capacity/tendency to deceive and that proximately causes actual injury.  Whether the conduct was unfair or deceptive is a legal issue, and “a somewhat nebulous concept, … but only practices involving “some type of egregious or aggravating circumstances are sufficient to violate the UDTPA” (citation omitted).  Generally, trade practices can only be unfair when they offend established public policy and are “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.”   An act need not be both unfair and deceptive to be covered.  The actor’s intent or good faith is irrelevant. 

Treble damages are assessed automatically.  The statute doesn’t provide the measure of damages, but North Carolina courts have explained that the measure should further the purpose of damages awards, which is to put the victim back in its original condition.  The 4th Circuit had previously held that disgorgement of profits could be trebled under state law (in a case where the plaintiff didn’t provide notice of its registration and defendant had no actual knowledge of it and thus where 15 U.S.C. § 1111 precluded Lanham Act damages for infringement of a registered mark).

The court of appeals found that, given the jury’s factual findings, Belk engaged in unfair and deceptive trade practices as a matter of law.  Belk sold a cookware line that was deceptively similar to Anolon Advanced; it did so after receiving product, sales, and market information, along with images and samples of Anolon Advanced; and it bought the deceptively similar designs from a third party even after learning that Meyer was selling the third party’s proposed designs.  This “possesses the tendency or capacity to mislead or creates the likelihood of deception” sufficiently to trigger the law.

Belk argued that the legislature didn’t intend the law to cover “unintentional” unregistered trademark infringement claims already addressed by the Lanham Act.  An earlier district court case had so held, reasoning that the law was designed to protect consumers, not mark owners, and that, given that the penalty for infringement of registered marks was $200-$1000 plus actual profits or damages, the legislature wouldn’t have intended mandatory treble damages for innocent infringement of unregistered marks.

The court of appeals disagreed.  Intent is irrelevant, and state and federal claims are often brought together.  Moreover, the N.C. legislature later amended the law to make infringement of a registered trademark a per se violation of the law and thus subject to treble damages.  In addition, the evidence didn’t support Belk’s claim of innocent or unintentional infringement.  Sadly but unsurprisingly (perhaps based on the welter of arguments that weren’t preserved for appeal), the court said that “the inference of an intent to deceive could hardly be stronger on this record,” without considering whether a reasonable seller could have thought that the design of the product was freely copyable, whether because of functionality or lack of secondary meaning.

Finally, the court of appeals held that the award of profits was properly treated as a damage award subject to trebling.  Belk’s profits constituted a proper rough measure of damages.

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