Louis Vuitton S.A. v. Spencer Handbags Corp.

• Decision Date: 26 June 1985
• Docket Number: D,1090,Nos. 1038,s. 1038
• Parties: , 18 Fed. R. Evid. Serv. 837 LOUIS VUITTON S.A., Gucci Shops, Inc., and Fendi Paola N Sorelle SAS Company, Plaintiffs-Appellants, Cross-Appellees, v. SPENCER HANDBAGS CORP., Morris Rand, Pinny Rand and Arie Rand, Defendants, Spencer Handbags Corp., Defendant-Appellee, Morris Rand, Pinny Rand and Arie Rand, Defendants-Appellees, Cross-Appellants. ockets 85-7066, 85-7094.
• Court: U.S. Court of Appeals — Second Circuit

Page 966

765 F.2d 966

227 U.S.P.Q. 377, 18 Fed. R. Evid. Serv. 837

LOUIS VUITTON S.A., Gucci Shops, Inc., and Fendi Paola N Sorelle SAS Company, Plaintiffs-Appellants, Cross-Appellees, v. SPENCER HANDBAGS CORP., Morris Rand, Pinny Rand and Arie Rand, Defendants Spencer Handbags Corp., Defendant-Appellee Morris Rand, Pinny Rand and Arie Rand, Defendants-Appellees Cross-Appellants.

Nos. 1038, 1090, Dockets 85-7066, 85-7094.

United States Court of Appeals Second Circuit.

Argued April 17, 1985.

Decided June 26, 1985.

J. Joseph Bainton, New York City (Susan L. Arinaga, Reboul, MacMurray, Hewitt, Maynard & Kristol, New York City, of counsel), for plaintiffs-appellants.

Stanley A. Teitler, New York City (Amy Adelson, Richard H. Levenson, New York City, of counsel), for defendants-appellees.

Before OAKES, MESKILL and PIERCE, Circuit Judges.

MESKILL, Circuit Judge.

This appeal presents for the first time the question of the retroactivity of the treble damages provisions of the new Trademark Counterfeiting Act of 1984, Pub.L. No. 98-473, Ch. XV, Sec. 1503(2)(B), 98 Stat. 2178, 2182, (to be codified at 15 U.S.C. Sec. 1117(b)) (Act). The United States District Court for the Eastern District of New York, Nickerson, J., ruled that the objectives of the Act would not be served by retroactive application of the treble damages requirement and that prospective application of the Act would avoid potential constitutional concerns. 597 F.Supp. 1186, 1192-95 (E.D.N.Y.1984). We agree. We also find no merit in defendants' cross-appeal.

BACKGROUND

Plaintiffs are Louis Vuitton S.A. (Vuitton), a French corporation, Gucci Shops, Inc. (Gucci), a New York corporation, and Fendi Paola N Sorelle SAS Company (Fendi), an Italian corporation. These firms manufacture a variety of products, including handbags, that are distributed through high quality retail sales outlets in the United States. Defendants are Spencer Handbags Corporation (Spencer) and Morris, Pinny and Arie Rand. Morris Rand operates and substantially owns Spencer, a handbag manufacturer located in Brooklyn, New York. Pinny and Arie Rand, Morris' sons, operate a wholesale handbag business out of the basement of the family home in Brooklyn.

Plaintiffs filed suit in the United States District Court for the Eastern District of New York alleging trademark infringement, false designation of origin, false descriptions, unfair competition, injury to business reputation and dilution of trademark quality. 15 U.S.C. Secs. 1114, 1125 (1982); New York Gen.Bus.Law Sec. 368-d (McKinney 1984). They sought an injunction pursuant to 15 U.S.C. Sec. 1116 (1982) and damages, fees and costs pursuant to 15 U.S.C. Sec. 1117 (1982).

With defendants' consent, the court issued a preliminary injunction. By its terms, defendants were prohibited from infringing plaintiffs' trademarks, using any false designation of origin or false description to suggest that defendants' goods were connected with plaintiffs, or engaging in any other activity constituting an interference with plaintiffs' rights in their trademarks.

The bench trial began on October 23, 1984. Plaintiffs' case was based primarily on a videotape of a meeting in the Plaza Hotel between the Rands, their distributor David Rochman, Melvin Weinberg and an associate of Weinberg's. Weinberg was hired by Vuitton's attorney to investigate various trademark counterfeiting schemes. In this investigation, Weinberg played the undercover role of "Mel West," a casino owner interested in funding a scheme involving the manufacture and distribution of counterfeit trademarked goods. Weinberg, as "West," contacted Rochman, whom Weinberg knew as a distributor of counterfeit bags. Weinberg told Rochman that he was planning to manufacture counterfeit Vuitton bags and that Rochman could be a partner in, and a distributor for, this operation. Rochman arranged to take the Rands, with whom he had been conducting business for some eighteen months, to Weinberg's hotel room where the meeting was covertly videotaped. The district court described the events revealed on the tape as follows:

The Rands' remarks revealed that they were highly knowledgeable about the counterfeit bag business and were intent on impressing Weinberg with their business acumen. They repeatedly stressed that they were anxious to build up a large stock of counterfeit Vuitton merchandise, that they paid their suppliers promptly without giving them any trouble, and that they took many precautions to avoid getting caught. They told Weinberg that they never sold to stores in The tape records, among other things, the Rands stating the following. They had been in business with Rochman for eighteen months. They agreed with Rochman that they had been ordering some 800 to 1,000 counterfeit Vuitton bags per week. On each bag they made a profit of $3.00 to $3.50. They had paid or owed Rochman substantial sums of money for those bags. More specifically, Pinny Rand said that he sent Rochman about $8,000 per week. They were eager to receive from Weinberg large numbers of counterfeit Vuitton bags and were well able to pay for them.

New York but only to loyal "wholesalers" and "hustlers" who would never implicate the Rands. To shield themselves the Rands often took deliveries directly from Rochman's van into their own van and then transported the goods to a well-protected warehouse. The Rands demonstrated their telephone answering device complete with beeper that prevented callers from discovering who or where the Rands were.

They had also been selling counterfeit Gucci and Fendi bags. Pinny Rand said that up until eight months previously he had been doing as much business selling Gucci bags as he had selling Vuitton bags, but that Gucci bags were then harder to sell. He said that he had ordered 3,000 pieces of Fendi goods from Rochman during the week of April 21, 1983.

The tape shows Arie Rand handing over to Pinny Rand some wads of cash that Pinny Rand gave to Rochman in payment for counterfeit Vuitton goods. The tape does not reveal the amount of the cash. From Pinny Rand's statements on the tape the amount appears to have been $13,608.

597 F.Supp. at 1188-89.

Not surprisingly, defendants argued that the events disclosed on the tape were not as they appeared. The Rands testified that their conduct on the tape was an act, performed to help Rochman impress "West." Defendants insisted that the cash exchange was staged; Pinny Rand testified that Rochman had given him several bundles of bills with instructions to return them to Rochman in "West's" presence, representing the cash as payment for handbags. He also testified that the documented shipments of counterfeit handbags were delivered to the Rands' address only at Rochman's insistence and that defendants neither opened the boxes nor sold the handbags.

The district court found defendants' version of the story incredible. 597 F.Supp. at 1189. The court issued a permanent injunction and awarded profits, damages and costs to Vuitton and Gucci pursuant to 15 U.S.C. Sec. 1117.

In determining the amount of damages, the court relied on defendants' statements on the videotape, noting that defendants' failure to produce any records made this reliance necessary. Pinny Rand stated that he paid Rochman $8,000 per week for counterfeit Vuitton bags and that he made a profit of $3.00 on each $18 bag. The court calculated the Rands' weekly profit on Vuitton bags at $1,333.33 and multiplied that amount by seventy-five weeks to cover the eighteen month duration of defendants' relationship with Rochman. Thus, Vuitton's total profit recovery was $99,999.75.

Gucci's recovery was calculated using the same weekly profit ratio, multiplied by 41.67, based on defendants' statements that until eight months before April 1983, profits in counterfeit Guccis had been equal to that in counterfeit Vuittons. The court thus awarded Gucci $55,559.86. The court found the awards of damages for Vuitton and Gucci to be neither inadequate nor excessive. 597 F.Supp. at 1190; 15 U.S.C. Sec. 1117. Ruling that plaintiff Fendi had not proved either damages or profits, the court declined to award any monetary judgment to Fendi. The court also concluded that "defendants' infringement was willful and that they committed perjury." 597 F.Supp. at 1191. Thus, the court awarded plaintiffs $8,000 in attorneys' fees, plus costs.

After the court's opinion was released but before judgment was entered by the court clerk, plaintiffs wrote a letter asking the court to amend its judgment by applying the mandatory treble damages provision of the new Act, Sec. 1503(2)(B), which was enacted eleven days before the start of the trial. Under the old Act, an award of treble damages was discretionary. 15 U.S.C. Sec. 1117. Treating the letter as a motion to amend the judgment under Fed.R.Civ.P. 59(e), the court denied plaintiffs' request in a subsequent opinion. 597 F.Supp. at 1192-95.

The court noted that in an earlier post-trial brief filed prior to their motion to amend the judgment, plaintiffs had argued that the court should, in accordance with the pre-amendment Act, exercise its discretion to award treble damages. That brief reflected plaintiffs' belief that the amendment providing for mandatory treble damages awards should not be applied to this case because the suit was filed before the amendment was in effect. In considering the motion to amend the judgment, the court found plaintiffs' change of position unpersuasive.

The district court relied on the Supreme Court's general statement that "a court is to apply the law in effect at the time it renders its decision" in the absence of manifest injustice or evidence of legislative intent to the contrary. Bradley v. School Board, 416 U.S. 696, 711, 94 S.Ct. 2006, 2016, 40 L.Ed.2d 476 (1974). Finding the words of the new Act barren of any indication of Congress' views on retroactive application, the court examined the legislative history, which revealed...