“it appears difficult for a defendant, innocent or not, to defend himself in a claim for disgorgement of profits"

Newborn Bros. Co. v. Albion Engineering Co., No. 12-2999, 2024 WL 887785 (D.N.J. Feb. 29, 2024)

Previously, after a bench trial, the court found Albion liable for falsely advertising its caulk dispensing guns as “Made in the USA.” Now it’s disgorgement time.

After more evidence, the court found that Albion adequately supported its unclean-hands defense—that Newborn had also made false USA origin claims—until early 2007.

Although this wasn’t a two-player market, the evidence (including trade organization membership and Albion’s own offers to distributors) suggested that Newborn and Albion were direct competitors. Many distributors carry just one vender; many parties who sell private label products use only one manufacturer.

Albion saw a strategic advantage in presenting itself as an American manufacturer, e.g., in a meeting with an end-user/owner of a caulking company, its director of marketing noted that Newborn guns were made in China, to which the owner responded “[t]hat’s how we got into this economic mess,” and the marketing director noted in the contract management system that “Made in U.S.A. could become even more important during this economy.” A former Newborn customer switched to Albion based on its claim of US manufacture. After Albion added hard-to-remove country of origin markings, Newborn’s sales increased fifty percent.

In fighting disgorgement, Albion pointed to other factors driving sales. Many Albion caulking guns were priced forty percent higher or more; Albion argued that this was evidence that the products do not compete in the marketplace and cited survey data and testimony that consumers’ American-made preference cannot account for purchases made despite such cost disparities.

Because the court had already concluded that disgorgement was appropriate, it was Newborn’s burden to prove Albion’s sales and Albion’s burden to prove costs and other deductions from that amount.

Newborn’s expert calculated Albion’s total revenue from relevant products to be nearly $32 million, and profits a bit over $15.5 million, meeting Newborn’s burden. Although “it would be inequitable and contrary to [the court’s] responsibility under the Lanham Act to disgorge profits unrelated to Albion’s offending conduct,” the court rejected “any interpretation that places the burden of proof of the sales attributable to specific representations or consumer confusion affirmatively on Newborn.” Indeed, the court cited with approval another court’s statement that “it appears difficult for a defendant, innocent or not, to defend himself in a claim for disgorgement of profits.”

Moreover, this burden shifting

allows for, and in some instances encourages, parties to argue past one another to the collective detriment of themselves and the Court. A plaintiff’s minimal obligation to prove sales and a defendant’s heavier burden to deduct costs, demonstrate a lack of competition or confusion, and make other showings to subtract from the sales figure do not naturally result in apples-to-apples comparisons.

So, Albion didn’t focus on its costs associated with its sales, but rather whether the parties’ products competed and whether there was actual consumer confusion. The court partly agreed: customers who repurchased after the country of origin marking was corrected showed “a disregard for country of origin as a deciding factor.”

However, the court declined to rely on testimony that consumers would only pay a 15% premium for American-made products (meaning that sales of products with a greater premium weren’t attributable to the false country of origin claims).  It was “clear that Albion saw value in representing itself as an American manufacturer and sought to distinguish itself from competitors, particularly Newborn, on that basis. Finding for Albion on this issue would risk, at least in some instances, unjustly giving Albion the benefit of excluding relevant products based on markups.” Without definitive evidence quantifying the value of American manufacture, the court erred on the side of Newborn. The court also included private-label sales, because it couldn’t find that the private-label sales were unrelated to American manufacture.

The court set disgorgement at a bit over $1.6 million plus prejudgment interest. Deterrence couldn’t justify increasing the sum—that would be a penalty.

Injunctive relief was also appropriate. Albion ceased placing markings on the relevant products representing Albion’s eighty-year history of American manufacture after the lawsuit was filed. It added a “Made in Taiwan” label to handles, later replaced by a stamp on the recoil plate. Still, Albion guns stamped or otherwise marked to indicate American manufacture are presently displayed across the country. One distributor continued to advertise a relevant product as American made until October 2023, and there were other scattered similar references online.

Thus, there was continued irreparable harm. (I didn’t see discussion of the TMA’s presumption.)

And legal remedies were inadequate, since they couldn’t prevent future violations. “The inadequacy of compensation for past harm is all the more apparent, in the Court’s view, in light of the continuing misrepresentations and lack of clarity in the market despite Albion’s assertion that it has engaged in corrective efforts for more than a decade.” Thus, the balance of equities and the public interest also favored injunctive relief.

Albion was ordered to mail a letter and a copy of the court’s order to each distributor it has sold a caulking gun to within the past five years requesting that any samples, displays, or other materials referencing “Phila. PA.” or referring to Albion caulking guns being “Made in USA” be returned. Albion had to remove from the inventory of its distributors any B-line guns that bear markings describing Albion’s history as an American manufacturer and offer to replace any returned materials at its own cost. It was also required to provide notices to be displayed at each location at which Albion products are displayed:

A judge of the United States District Court for the District of New Jersey has ruled that Albion Engineering Corp. has previously misrepresented that certain products were “Made in USA,” through product mismarking and statements in advertising, promotional materials, websites, and to customers. Newborn Brothers Co. Inc. v. Albion Engineering Co., No. 12-Civ-2999 (NLH).

The Court has ordered Albion to comply with all applicable country-of-origin marking and disclosure requirements. The Court has ordered Albion to provide to its distributors copies of this notice so that they may be displayed at all distributor sales locations.

Yikes!

Also, “until such time that Albion seeks and receives confirmation from United States Customs and Border Protection as to the marking requirements of its specific manufacturing processes, the packaging of each Albion caulking gun with any foreign component shall list each component of the caulking gun and its country of origin.”