Damages May Not be Used to “Punish” Willful Trademark Infringement
The U.S. Court of Appeals for the Ninth Circuit upheld a jury award of $6.6 million against an internet and phone-based marketer of skydiving services, but rejected the enhancement of the damages, holding that the district court’s doubling of actual damages was improperly punitive rather than compensatory. Skydive Arizona v. Quattrocchi, Case No. 10-16033 (9th Cir., Mar. 12, 2012) (Smith, Jr., J.) (Noonan, J., partial concurrence and partial dissent).
Plaintiff Skydive Arizona, one of the most well known skydiving centers in the world, has used the “SKYDIVE ARIZONA” trademark in commerce since 1986. Skydive Arizona sued multiple defendants for false advertising, trademark infringement, and cybersquatting based on claims that defendants used numerous domain names that referenced Arizona (e.g., phoenixSkydiving.com, arizonaSkyDive.com), alleging that through false advertisements on their websites, the defendants misled consumers into believing that Skydive Arizona would accept defendants’ discounted skydiving certificates at Skydive Arizona’s centers.
The district court awarded partial summary judgment on the false advertising claims, and a jury then found for Skydive Arizona on the trademark infringement and cyber squatting claims. The court awarded Skydive Arizona $1 million in actual damages for false advertising, $2.5 million in actual damages for trademark infringement, $2.5 million in profits and $600,000 for cybersquatting, totaling $6.6 million. The district court then increased the actual damages to $7 million and issued a permanent injunction, which prevented the defendants from using the terms “SKYDIVE ARIZONA,” or similar variations, as well as other references to Skydive Arizona in the state of Arizona. The defendants appealed the summary judgment ruling and the damages award, including the enhancement of actual damages. Skydive Arizona appealed the injunction, believing that it should be applicable nationwide.
Concerning the false advertising claim, the 9th Circuit reviewed a customer declaration stating that he purchased a certificate from the defendants based on their representations that he could redeem the certificate with Skydive Arizona. The statements on the defendants’ websites and advertisements were found to be material and likely to influence consumer purchasing decisions. While the defendants argued that Skydive Arizona needed to provide consumer survey to prove the materiality, the court found that it was not limited to consumer surveys and use of a personal declaration was sufficient.
Concerning the defendants’ appeal of the damages award, the 9th Circuit affirmed the district court on each award with the exception of the enhancement of actual damages. On that issue, the court looked to the plain language of the Lanham Act, which states that treble damages may be awarded, as long as the total is found to be proper compensation rather than a penalty for infringement. Because the district court opinion focused on the defendants’ “purposely deceitful” conduct and disregard for the consumers who were confused, the court believed that such language suggested a “punitive motivation” for the enhancement.
Finally, the 9th Circuit also rejected Skydive Arizona’s cross-appeal for a nationwide injunction, because Skydive Arizona had not proven that the defendants’ conduct outside of the state of Arizona was illegal, and the injunction was affirmed for Arizona only.
Issuing a partial dissent in connection with the jury’s $2.5 million actual damages award, Judge Noonan explained that the evidence submitted by Skydive Arizona concerning its advertising expenditures may have been relevant to the value of the goodwill of its trademark, but that such evidence did not prove any actual damage to that goodwill. He also indicated that the defendants’ profits were not a measure of Skydive Arizona’s actual damages.