Avco Corp. v. Turn & Bank Holdings, LLC

Decision Date02 March 2023
Docket Number4:12-CV-01313
PartiesAVCO CORPORATION, Plaintiff-Counterclaim Defendant, v. TURN AND BANK HOLDINGS, LLC, AND PRECISION AIRMOTIVE, LLC, Defendants-Counterclaim Plaintiffs, v. AVSTAR FUEL SYSTEMS, INC., Counterclaim Defendant.
CourtU.S. District Court — Middle District of Pennsylvania

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Matthew W. Brann Chief United States District Judge

I. BACKGROUND

In 2015, Avco Corporation (Avco) filed a second amended complaint in which it sought declaratory judgment holding that AVStar Fuel Systems, Inc. (AVStar) and Avco had not infringed on Turn and Bank Holdings Inc.'s (“TNB”) trademarks, and seeking cancellation of several of TNB's trademarks related to airplane engine fuel injection systems known as “servos.”[1] TNB in turn filed a counterclaim asserting that AVStar and Avco were liable for trademark infringement and unfair competition under the Lanham Act and Pennsylvania common law related to AVStar's use of TNB's “RSA” Marks, which are used on servos produced by Precision Airmotive Corporation (Precision).[2]

Based on the facts underlying this matter, in April 2018, this Court granted TNB's motion for summary judgment and denied Avco's[3] motion for summary judgment.[4] The Court concluded that TNB had established as a matter of law that the RSA Marks are valid and legally protectable, and that AVStar's use of the marks was likely to cause consumer confusion.[5]

Specifically, the Court determined that the primary significance of the RSA Marks is to refer to TNB servos and was not simply a generic descriptor, and the descriptive marks had acquired a secondary meaning associated with TNB's servos.[6]As part of that determination, this Court found that Avco's use of the RSA Marks was intentional and had “resulted in several instances of actual confusion.”[7] The Court further concluded that Avco's use of the RSA Marks produced a likelihood of confusion, as Avco and TNB directly competed in the servo market for the same customers, Avco deliberately used identical model numbers, and there was evidence of actual confusion.[8] Finally, the Court determined that Avco could not establish fair use.[9] To that end, Avco's use of the RSA Marks was not descriptive of its own products rather than TNB's, and was not used in a descriptive sense or in good faith.[10]

The Court therefore entered judgment on the issue of liability as to all counterclaims.[11] Approximately three months later, in the summer of 2018, AVStar ceased using the RSA Marks on its servos.[12] In December 2019, the parties filed competing motions to exclude expert testimony: TNB sought to exclude the testimony of Avco's damages expert, Krista Holt, while Avco sought to exclude the testimony of TNB's damages expert, Dana Trexler.[13] The Court mostly denied those motions,[14] leaving only a jury trial on the question of whether Avco's infringement was willful, and a bench trial on the issue of damages.

A five-day jury trial commenced on October 17, 2022, after which a jury determined that Avco had willfully infringed upon TNB's trademarks by using the RSA Marks.[15] The Court thereafter held a two-day bench trial on the issue of damages, which commenced on November 9, 2022. Set forth below are this Court's findings of fact and conclusions of law regarding damages following the bench trial. In accordance with the following reasoning, this Court holds that TNB is entitled to an award of disgorged profits. Consequently, the Court will enter judgment in favor of TNB and award damages in the sum of $264,818.

II. FINDINGS OF FACT

1. Servos operate by delivering a mixture of fuel and air to aircraft engines. To ensure optimal engine performance, however, the amount of fuel delivered must be precisely regulated. In the middle of the 20th century, a company known as the Bendix Corporation (“Bendix”) created a fuel injection system that accomplished this regulation by measuring the force of the air being pulled into the engine. Bendix eventually assigned servo model numbers to these servos that began the with letters “RSA”-e.g., RSA-5AD1 and RSA-10AD1 (hereinafter RSA Marks).[16]

2. Bendix manufactured servos bearing RSA Marks until it sold the rights to the entire product line to Precision in 1988. Precision, in turn, manufactured those servos until 2013, when it sold all of its assets- including the servo product line-to TNB. Since then, servos bearing the RSA Marks have been manufactured by Precision pursuant to a licensing agreement with TNB.[17]

3. Lycoming Engines (“Lycoming”), a division of Avco, manufactures airplane engines. For decades, Lycoming purchased servos from Precision and its predecessors, including servos bearing the RSA Marks.[18]

4. Around 2004 or 2005, AVStar began to reverse-engineer some of the RSA-labeled servos for possible manufacture and sale. Around that time, the relationship between Avco and Precision became rocky,[19] and Avco later asked AVStar to complete the reverse engineering process to manufacture and sell servos to Avco for use in its engines.[20]

5. Between 2007 and 2008, AVStar and Avco signed a series of agreements codifying an arrangement to create and manufacture the servos, which included an obligation for Avco to pay approximately $2,000,000 to AVStar in furtherance of such servo development and an obligation on the part of AVStar to use the RSA Marks.[21] 6. In 2010, AVStar began selling its servos bearing the RSA Marks to Avco and, in August 2012, Avco sold its first engine containing an AVStar-manufactured servo that bore the RSA Marks.[22]

7. All parties agree that there was a souring relationship between Avco and TNB, but the parties dispute why Avco ultimately decided to buy servos from AVStar that bore the RSA Marks, rather than from Precision.

8. TNB contends that, because Avco mandated the use of the RSA Marks, and because there were only two suppliers of servos with RSA Marks, Avco purchased AVStar servos because of the RSA Marks.[23]

9. Unsurprisingly, Avco asserts that it purchased AVStar servos for reasons unrelated to the RSA Marks-and the evidence presented at trial bears out that assertion.

10. First, Avco grew disillusioned with Precision in part because of pricing issues. The evidence reflects that Avco believed-based on certain indices such as the consumer price index and cost of materials-that Precision requested unreasonable year over year price increases. However, when Avco challenged these price increases, Precision flexed its monopolistic muscle as the sole supplier of servos to Avco and presented Avco with a “take it or leave it proposition.”[24] As of the date of the bench trial, Precision servos cost approximately 49% more than AVStar servos,[25] although at least some of this price differential is due to economies of scale and the fact that Precision now primarily produces and sells to Avco less popular models of servos.[26]

11. Second, Avco encountered quality issues with Precision servos, which frequently created issues when testing newly produced engines and led to customer complaints.[27]

12. Third, Avco employees described Precision as being difficult to work with and “less than cooperative” when issues arose with its servos.[28]

13. Fourth, issues arose around the timely delivery of servos to Avco. Servos were not always delivered on time, which slowed Avco's production and forced the company to change its production procedures to accommodate these late deliveries. Precision had previously stopped supplying Avco with servos during a dispute, which resulted in a shutdown of Avco's engine production.[29] 14. Fifth, Avco believed that having a second supplier of servos would generally be beneficial for Avco. With a single supplier, Avco is reliant on that supplier making timely deliveries to maintain Avco's production schedule and to timely deliver engines to its customers, and there have been instances in the past where a supplier (not Precision) had suffered a fire or worker strike that disrupted Avco's production. Additionally, a single supplier can act monopolistically and issue “take it or leave it” propositions and may fail to work with Avco to make on-time deliveries.[30]

15. The evidence demonstrates that, after AVStar ceased using the RSA Marks on its servos in the summer of 2018 and switched to new model numbers, its sales increased.[31] This increase reflected an increase in both unit sales and revenue.[32]

16. There have been several instances of actual confusion where individuals or companies were confused about the relationship between Precision and AVStar.[33]

17. No evidence has been presented that individuals or entities were confused about the identity of the manufacturer of servos at the time of the purchase of any servo. Avco was not confused about the manufacturer of the servos when it purchased AVStar servos that bore the RSA Marks.[34]

III. CONCLUSIONS OF LAW
A. Standard of Review
1. Lost Profits

Under the Lanham Act, once a trademark violation has been established, a trademark holder is entitled, “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.”[35] When pursuing compensation for profits lost as a result of trademark infringement, [t]he owner [of the trademark] has the burden of proving that lost profits are attributable to the unlawful use of the mark.”[36] Furthermore, plaintiffs are only entitled to recover profits that “the plaintiff would have earned but for the infringement.”[37] “In order to recover actual damages . . . a plaintiff must demonstrate that ‘the violation caused actual confusion among consumers of the plaintiff's product.'[38]

2. Disgorgement of...

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