Visible Systems Corp. v. Unisys Corp.

• Citation: 551 F.3d 65
• Decision Date: 23 December 2008
• Docket Number: No. 08-1410.,No. 08-1411.,No. 07-2730.,07-2730.,08-1410.,08-1411.
• Parties: VISIBLE SYSTEMS CORPORATION, Plaintiff, Appellant/Cross-Appellee, v. UNISYS CORPORATION, Defendant, Appellee/Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

551 F.3d 65

VISIBLE SYSTEMS CORPORATION, Plaintiff, Appellant/Cross-Appellee, v. UNISYS CORPORATION, Defendant, Appellee/Cross-Appellant.

No. 07-2730.

No. 08-1410.

No. 08-1411.

United States Court of Appeals, First Circuit.

Heard November 3, 2008.

Decided December 23, 2008.

Stephen H. Galebach for appellant/cross-appellee.

William L. Boesch with whom Anthony M. Doniger and Sugarman, Rogers, Barshak & Cohen, P.C. were on brief for appellee/cross-appellant.

Before LYNCH, Chief Judge, BOUDIN and STAHL, Circuit Judges.

LYNCH, Chief Judge.

A jury awarded Visible Systems Corporation ("VSC") trademark infringement damages of $250,000 against Unisys Corporation on a reverse confusion claim. See 15 U.S.C. § 1125(a). The district court also issued a permanent injunction prohibiting Unisys from using the trademarks or service marks 3D VISIBLE ENTERPRISE, 3D-VE, or VISIBLE in the United States in the enterprise modeling or enterprise architecture fields.

VSC appeals, asserting it was entitled to more. Its primary argument is that the trial judge erred in not granting it a jury trial under both the Lanham Act and the Seventh Amendment on its claim for an accounting of Unisys' profits. This court has not considered before the question of whether there is a jury trial right on such a claim. VSC also argues the court erred in tailoring the injunction too narrowly and in denying VSC its attorneys' fees.

Unisys cross-appeals, arguing the evidence was insufficient to support both the jury's finding of infringement and the damages awarded.

We reject all of the challenges and affirm, leaving the parties where they were.

I.

Because the case presents sufficiency of the evidence arguments, we state the facts taking all inferences in favor of the jury verdict. See Valentín-Almeyda v. Municipality of Aguadilla, 447 F.3d 85, 95-96 (1st Cir.2006).

VSC is a small Massachusetts company with less than two dozen employees, founded in 1984, which primarily sells software products in the enterprise modeling and enterprise architecture field. "Enterprise modeling" and "enterprise architecture" involve the diagraming of an entity's business to demonstrate relationships between information flow and business processes and to allow decisionmakers to identify errors or redundancies. VSC provides its customers modeling tools, or software, that diagram their organizations and automatically generate productivity-improving software programs. VSC's modeling tools provide value by aiding clients' decisionmaking and by reducing the need to hand-code productivity-improving software, resulting in decreased costs and errors.

VSC sells its software products to private corporations and government agencies. Purchasing decisions are largely made by sophisticated IT professionals within those organizations. The company's primary marketing channels involve sales of modeling tools through downloads from its website, www.visible.com. VSC's modeling products, by the mid-1990s, were the second most widely used modeling tools in university IT-related courses.

VSC also provided staff-based consulting services from approximately 1985 to 2002. VSC moved in 2002 to using part-time consultants and on-call, temporary subcontractors. Consulting is a much smaller part of VSC's business than the sale of software. Some 80 to 90% of VSC's revenue comes from software sales. Its consulting customers contract with VSC for mentoring and training; significantly, this is only done on VSC's modeling software. Representative clients include the Arizona state court system, which contracted with VSC to upgrade its information technology system.

In 1997, VSC acquired a company started by Clive Finkelstein, known as the father of information engineering. The products and services of his company took on the Visible name, and his association led to greater prominence for the name.

VSC registered the mark VISIBLE SYSTEMS in 1985 for its enterprise modeling software. It registered the additional trademark VISIBLE in 2001 for its software and registered the service mark VISIBLE for its training and consulting services, "namely providing advice in the field of information technology."

Unisys, the defendant, was formed in 1986 by the merger of two leading manufacturers of mainframe computers. Unisys is a much larger company than VSC, employing about 30,000 people worldwide. Since the mid-1990s, Unisys has focused on providing services, particularly consulting, rather than products. Unisys' customers include government organizations and private firms, such as airlines and telecommunications companies. Part of Unisys' consulting methodology involves creating virtual models of clients' information systems to identify problems and solutions.

Although Unisys does not develop software, its consultants use modeling tool software in many of their engagements. Unisys consultants use software from third-party providers, such as IBM and Proforma, and are "tool agnostic," meaning that Unisys' consultants use the software the client desires if the client expresses a preference. Unisys also occasionally sells software products to its consulting clients or to purchasers of its mainframes. These are mainly not Unisys-developed products.

On June 17, 2004, Unisys launched a marketing campaign under the mark 3D VISIBLE ENTERPRISE with an advertisement in the Wall Street Journal. Unisys filed for registration in April 2004. Its attempt to register the mark was put on hold pending resolution of this case. Under the 3D VISIBLE ENTERPRISE mark, Unisys sold consulting services to assist clients with enterprise modeling. The campaign also included sales of third-party modeling software to Unisys' consulting clients as part of its consulting services. In addition to using the term "visible" in its formal 3D VISIBLE ENTERPRISE mark, Unisys used the term in marketing communications that included phrases such as "Visible Breakthrough," "Visible Commerce," and "Visible Advantage."

VSC sued Unisys in federal district court on May 3, 2005, under the Lanham Act and state law, seeking damages, an accounting of Unisys' profits, and injunctive relief.¹ Unisys continued to use marks such as VISIBLE ADVANTAGE after suit was filed.

Before trial, the court denied Unisys' motion for summary judgment. The court then held that there was no evidence that Unisys adopted its mark in bad faith; it later granted Unisys' motion in limine to preclude evidence and argument on the issue of bad faith. At the charge conference after the close of VSC's evidence and just before the end of trial, VSC sought a jury instruction that the jury consider the remedy of an accounting of defendant's profits. The court refused, noting that VSC had "had the option of taking that route, but ... didn't." The court held the issue was for the court and said that in any event, the evidence was insufficient to support such a remedy. The court stated "if [the jury] ever came back with a verdict, I would have to throw it out."

At trial, VSC opted to present its case to the jury on a reverse confusion theory of recovery. VSC's theory was that Unisys had saturated the market with a mark substantially similar to VSC's trademarks, leading potential customers to believe that Unisys had acquired VSC. This confusion resulted in lost sales to VSC of software and services. VSC also presented some damages evidence that the parties competed in the sale of consulting services, and that Unisys' appropriation of the VISIBLE mark for its own services caused VSC harm in the consulting portion of VSC's business. However, a VSC witness testified that while VSC's software sales had declined after Unisys' infringement, VSC's consulting sales had increased.

With no objection from VSC, the court instructed the jury that VSC claimed Unisys had "advertised and promoted the 3D Visible Enterprise name in a way that has so saturated the market that potential customers are likely to be misled into thinking that Visible Systems' goods, in fact, originate from Unisys." The special questions to the jury specifically included VSC's "products and/or services."

Unisys moved for judgment as a matter of law at the close of VSC's case, arguing that the evidence was insufficient to conclude that VSC had a protectable right to use the mark VISIBLE, that there was a likelihood of confusion between Unisys' and VSC's marks, or that VSC was entitled to an accounting of Unisys' profits as a remedy. See Fed.R.Civ.P. 50, 52. The court reserved its ruling.

The jury found in favor of VSC on special questions that:

[1.] Visible Systems Corporation established a right to a trademark in the word VISIBLE[;]

[2.] ... [T]he Unisys 3D VISIBLE ENTERPRISE mark is substantially similar to Visible Systems VISIBLE mark[;]

[3.] Visible Systems established the likelihood that potential customers have been or will be confused into mistakenly believing that Unisys Corporation is the source or sponsor of Visible Systems' products and/or services; ... [; and]

[4.] Unisys Corporation's infringement of Visible Systems' mark [was] willful.

The jury awarded VSC $250,000 in damages.

After the verdict, VSC moved for, among other things, a permanent injunction, attorneys' fees, and a supplementary jury trial to determine an award of Unisys' profits or in the alternative an award of $100 million of Unisys' profits. Unisys filed a renewed motion for judgment as a matter of law, arguing that the evidence was insufficient to support the jury's finding of infringement, its award of damages, or its finding of willfulness. The court denied Unisys' motion. Unisys also filed a memorandum asking the court to adopt injunctive relief which was more limited than VSC's request. The court issued an injunction similar in scope to Unisys' proposal. The court denied VSC's request for attorneys' fees, concluding that the case was not an "exceptional case" within the meaning of the Lanham Act. The court again declined VSC's...