Maier Brewing Company v. Fleischmann Distilling Corp.

• Decision Date: 21 February 1968
• Docket Number: No. 21312.,21312.
• Citation: 390 F.2d 117
• Parties: MAIER BREWING COMPANY, a corporation et al., Appellants, v. FLEISCHMANN DISTILLING CORP., a corporation et al., Appellees. MAIER BREWING COMPANY, a corporation et al., Appellants, v. JAMES BUCHANAN & CO., Ltd., Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

390 F.2d 117 (1968)

MAIER BREWING COMPANY, a corporation et al., Appellants, v. FLEISCHMANN DISTILLING CORP., a corporation et al., Appellees.

MAIER BREWING COMPANY, a corporation et al., Appellants, v. JAMES BUCHANAN & CO., Ltd., Appellee.

No. 21312.

United States Court of Appeals Ninth Circuit.

February 21, 1968.

COPYRIGHT MATERIAL OMITTED

J. Albert Hutchinson (argued), San Francisco, Cal., for appellants.

Moses Lasky (argued) of Brobeck, Phleger & Harrison, C. E. Hanger, San Francisco, Cal., for appellees.

Before BROWNING and DUNIWAY, Circuit Judges, and BYRNE, District Judge.

BYRNE, District Judge:

This is a trade-mark infringement case arising under the Lanham Trade-mark Act, 60 Stat. 427, 15 U.S.C. §§ 1051-1127 (1946). The parties to this action are not strangers to this court in that this is the fourth time that judgments and orders relating to this cause have been appealed here. The first appeal (Fleischmann Distilling Corp. v. Maier Brewing Company, 314 F.2d 149 (9th Cir. 1963)) reversed a judgment for the defendants because of an error on a point of law by the District Court, and we remanded the case directing the granting of an injunction and consideration of the question of the plaintiffs' right to an accounting. A second appeal taken by the defendants from an order awarding attorney's fees and non-taxable litigation expenses to the plaintiffs was dismissed without opinion as premature. A third appeal, after the District Court had authorized the taking of the appeal before final judgment pursuant to 28 U.S.C. § 1292(b), reversed the award of attorney's fees and nontaxable litigation expenses. (Maier Brewing Company v. Fleischmann Distilling Corp., 359 F.2d 156 (9th Cir. 1966).) This decision was subsequently affirmed by the Supreme Court of the United States. Fleischmann Distilling Corp. v. Maier Brewing, 386 U.S. 714, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967).

The present appeal is from the awarding by the District Court of an accounting by the defendants of their profits ($34,912 from Maier Brewing and $29,849 from Ralph's Grocery Company) accrued from the sale of beer under the name Black & White, the trade name registered to the plaintiffs.

The first contention made by the appellants is that the District Court was without jurisdiction to award monetary recovery in the form of an accounting of profits. Their basis for this contention is their allegation that Black & White Beer was not "in commerce" as required by the Lanham Act, 60 Stat. 427, 15 U.S. C. §§ 1051-1127 (1946). Some confusion is introduced into this jurisdictional challenge by appellants' statement of their argument which is apparently that although they see no "use in commerce" requirement for the granting of an injunction under 15 U.S.C. § 1116, there is such a requirement for a monetary award under § 1117 in light of that section's reference to § 1114, which specifically requires that the infringing goods be "used in commerce". Appellants' position is initially incorrect in that both sections are inapplicable, unless the infringing goods are used "in commerce". Section 1114 provides civil liability for the infringement of a registered trademark by goods used in commerce. Section 1116 gives injunctive powers to "the several courts vested with jurisdiction of civil actions arising under this chapter * * *" Title 28 U.S.C. § 1338(a) states: "The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to * * * trade-marks." Thus, since § 1114, containing the use in commerce requirement, is the only provision for civil liability, the jurisdiction of a district court to grant either injunctive or monetary relief under the Lanham Act is dependent upon the "use in commerce" of the infringing goods.

"Commerce" is defined in Title 15 U.S.C. § 1127 as meaning "all commerce which may lawfully be regulated by Congress." Even if the activities of both Maier Brewing and Ralph's Grocery Company, and therefore Black & White Beer, are solely in intrastate commerce, Congress can regulate such activity if it is "sufficiently substantial and adverse to Congress' paramount policy declared in the Act * * *" Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 234, 68 S.Ct. 996, 1005, 92 L.Ed. 1328 (1948); Drop Dead Co. v. S. C. Johnson & Son, Inc., 326 F.2d 87, 94 (9th Cir. 1963) (cert. den., 377 U.S. 907, 84 S.Ct. 1167, 12 L.Ed.2d 177 (1964); Tiffany & Co. v. Boston Club, Inc., 231 F.Supp. 836 (D.Mass.1964). The Lanham Act, when still in bill form, was described as follows: "This bill, as any other proper legislation on trade-marks, has as its object the protection of trade-marks, securing to the owner the good will of his business and protecting the public against spurious and falsely marked goods." S.Rep. No. 1333, 79th Cong., 2d Sess. 1-2 (1946). Black & White Scotch is a scotch whisky manufactured abroad by appellee, Buchanan, who is the registrant of the trade name and related trade-mark, and imported and sold by appellee, Fleischmann, throughout the United States. It has been sold in the United States for more than 50 years. The trade-mark was registered in the United States Patent Office in 1908 and the registration was renewed under the Lanham Act in 1948. Black & White Scotch is sold in interstate commerce and is concededly a scotch of excellent reputation. It is fairly obvious therefore that the infringement of this mark by another alcoholic beverage tends to jeopardize the good name of Black & White Scotch, or at least so diminish the appellees' ability to control and therefore sustain the excellent reputation of their scotch that it must have substantial effect on that trade-mark and its relation to interstate commerce. We conclude that the sale of Black & White Beer could affect the interstate sale and reputation of Black & White Scotch and was, for that reason, commerce which Congress can regulate; and, therefore, that the District Court had jurisdiction in this case. See Pure Foods v. Minute Maid Corp., 214 F.2d 792, 796 (5th Cir. 1954); and comment on that case, 53 Mich.L.Rev. 745 (1955).

The appellants next contend that even if the District Court had jurisdiction to enter an order for an accounting of profits, the making of such an order in this case was not merited by the facts. Appellants allege that the appellees have claimed, and that the District Court granted, an accounting of profits as a matter of right upon the finding of an infringement and the granting of an injunction. This must be so, they argue, since the appellees have shown no injury to themselves, no diversion of sales from them to the appellants, no direct competition from which injury may be inferable, and no palming off or fraudulent conduct. The equitable limitation upon the granting of monetary awards under the Lanham Act, 15 U.S.C. § 1117, would seem to make it clear that such a remedy should not be granted as a matter of right. Highway Cruisers of Cal., Inc. v. Security Industries, Inc., 374 F.2d 875 (9th Cir., 1967). It therefore becomes appropriate for us to examine the remedy of an accounting of profits as provided by § 35 of the Lanham Act, 15 U.S. C. § 1117, and to determine its applicability to the facts in this case.

Section 35 of the Lanham Act, 15 U.S.C. § 1117, provides that a trade-mark registrant shall be entitled, upon the finding of an infringement and "subject to the principles of equity",

"to recover (1) defendant\'s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. In assessing profits the plaintiff shall be required to prove defendant\'s sales only; defendant must prove all elements of cost or deduction claimed. In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum, in either of the above circumstances shall constitute compensation and not a penalty."

This language, as did its predecessor language in the Trade-mark Act of 1905, § 19, 33 Stat. 729, apparently confers a wide scope of discretion upon the district judge in the fashioning of a remedy for a violation of the Act. The exercise of this discretion is expressly made "subject to the principles of equity" and, although such a limitation would appear easy to implement, it is apparently the source of much of the confusion surrounding the application of section 35 of the Act.

Although the Lanham Act would appear to provide three distinct elements of compensation or recovery to the registrant of the infringed mark, i. e., the defendant's profits accrued from the use of the mark, plaintiff's damages, and the costs of the action, the case law which has developed under this section of the Act has been far from clear in defining the scope of the relief granted by the Act. This is particularly true as to the right of the plaintiff to an accounting of the defendant's profits. See, Note, 34 So.Calif.L.Rev. 283, 288 (1961).

There appear to be two distinct views as to the basis for awarding an accounting of profits. The majority of cases seem to view an accounting of profits by the defendant as a method of shifting the burden of proof as to damages for lost or potentially lost sales from the plaintiff to the defendant. See, Note, Wash.U.L. Q. 243 (1963). The minority view, which is apparently the more recent trend, bases the accounting of profits on the equitable concepts of restitution and unjust enrichment. The rationale behind this view, as expressed in Monsanto Chemical Co. v. Perfect Fit...