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Owners Of Enjoined Company Personally Liable For Monkeying Around With Injunction

The US Court of Appeals for the 11th Circuit affirmed a district court’s finding of civil contempt against a corporate defendant and its two individual shareholders for failing to make all reasonable efforts to comply with an injunction. PlayNation Play Systems, Inc. v. Velex Corporation, Case. No. 18-12828 (11th Cir. Sept 24, 2019) (Marcus, J).

Since 2002, PlayNation sold children’s outdoor playground equipment, including swing sets and attachable rings, ropes and swings, under the trademark GORILLA PLAYSETS. Velex later began to sell doorway pull-up bars and attachable accessories for children under the mark GORILLA GYM. PlayNation sued Velex for trademark infringement. The trial court found that Velex had infringed PlayNation’s trademark, and permanently enjoined Velex from manufacturing, marketing, distributing or selling its products under the GORILLA GYM mark. The 11th Circuit affirmed the injunction in an earlier opinion (IP Update, Vol. 22, No. 6).

After the district court entered the injunction, PlayNation learned that Velex had shipped products bearing the infringing mark to four customers. PlayNation moved for contempt against both Velex and its two individual shareholders/corporate officers. In its defense, Velex argued that it had made substantial efforts to comply, and put forth evidence that two of the infringing shipments were the fault of Velex’s shipping vendor and distributor.

The district court held Velex and its shareholders in civil contempt and ordered them to pay $1,500 in compensatory damages, plus PlayNation’s attorneys’ fees of more than $46,000. Velex appealed.

The 11th Circuit affirmed. While the Court accepted Velex’s argument that it had made “substantial efforts” to comply with the injunction, including adopting a new trademark and building a new website, it had not made “all reasonable efforts” to comply and had not done so in a timely manner. At least one infringing shipment was the fault of Velex’s own employee, who had entered the wrong code into Amazon’s distribution system. This, said the 11th Circuit, violated the injunction and was sufficient to hold Velex and its two shareholders in contempt. The Court concluded that Velex had failed to promptly implement a system to prevent shipment of infringing goods and failed to properly instruct its employees and third parties with whom it worked to comply with that system.

Velex also argued that the award of more than $46,000 in attorneys’ fees—an amount that dwarfed the $1,500 in compensatory damages—was unjustified because Velex had in good faith attempted to comply with the district court’s order. The 11th Circuit rejected that argument, explaining that willful contempt is not a prerequisite to an award of attorneys’ fees. Instead, the ability to recover attorneys’ fees for bringing a successful contempt proceeding is an incentive for the plaintiff to monitor the defendant’s compliance with court orders. Seen in that light, the award of attorneys’ fees to PlayNation was both reasonable and justifiable.

Practice Note: A party that has been enjoined from using a trademark should immediately implement a thorough and defensible strategy to halt all use of the infringing mark by both itself and its distributors and vendors, or risk being held in contempt. The 11th Circuit here agreed that Velex had made “substantial” efforts to comply, but held that it did not make “all reasonable” efforts to comply. Evidence of just a few infringing shipments was enough to hold Velex and its individual shareholders liable.

© 2020 McDermott Will & Emery


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