Broan Mfg. Co., Inc. v. Associated Distributors, Inc.

• Decision Date: 23 January 1991
• Docket Number: 89-6156,Nos. 89-6155,s. 89-6155
• Citation: 923 F.2d 1232
• Parties: , 17 U.S.P.Q.2d 1617 BROAN MANUFACTURING COMPANY, INC., Plaintiff-Appellee, Cross-Appellant, v. ASSOCIATED DISTRIBUTORS, INC.; Republic Manufacturing and Import Company, Inc., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1232

923 F.2d 1232

59 USLW 2526, 17 U.S.P.Q.2d 1617

BROAN MANUFACTURING COMPANY, INC., Plaintiff-Appellee, Cross-Appellant, v. ASSOCIATED DISTRIBUTORS, INC.; Republic Manufacturing and Import Company, Inc., Defendants-Appellants,

Cross-Appellees.

Nos. 89-6155, 89-6156.

United States Court of Appeals,

Sixth Circuit.

Argued Nov. 13, 1990.

Decided Jan. 23, 1991.

John C. Speer, Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Memphis, Tenn., Francis W. Deisinger, Stephen T. Jacobs (argued), Christine L. Thierfelder, Reinhart, Boerner, Van Deuren, Norris & Rieselbach, Milwaukee, Wis., for plaintiff-appellee cross-appellant.

Jef Feibelman (argued), Burch, Porter & Johnson, Memphis, Tenn., Dick Wilson, Jr., Dillard, Greer, Westmoreland & Wilson, Atlanta, Ga., for defendants-appellants cross-appellees.

Before KENNEDY and MILBURN, Circuit Judges; and ENGEL, Senior Circuit Judge.

KENNEDY, Circuit Judge.

Defendants Associated Distributors ("Associated") and Republic Manufacturing and Import Company ("Republic") appeal and plaintiff Broan Manufacturing Company ("Broan") cross-appeals the damages awarded to Broan following a jury trial in this action for trademark infringement, false designation and false advertising under the Lanham Act, 15 U.S.C. Sec. 1125(a). The only issues on appeal are those related to damages.

At trial, the District Court allowed the jury to assess damages for future mistaken product liability claims which Broan claims it will have to pay as a result of the trademark violations by Associated and Republic. The defendants contend that Broan did not prove those damages with the requisite certainty and, therefore, that the District Court erred in allowing the jury to award damages under that theory. The District Court also ruled at trial that Broan could not seek damages for lost profits from lost future sales of Broan products to the defendants. The court reasoned that those damages would be too speculative as a matter of law given the specific facts in this case.

For the reasons that follow we AFFIRM the District Court's allowance of damages for future mistaken product liability claims but we REVERSE the District Court's ruling refusing to allow Broan to present evidence of lost sales to defendant Associated.

I. Background

Broan is a manufacturer of home ventilation products including bathroom fans, lights and heaters. These fans, lights and heaters are marketed under the registered trademark "Nautilus." The defendants are closely related privately held corporations. Associated is a distribution company which essentially acts as the buying entity for products to be sold at "West's" building material stores located in the southeast United States. Republic is a company which arranges for the importation of products from overseas, most of which are sold to Associated for distribution to West's stores.

In late 1984, Broan and Associated reached an agreement whereby Associated agreed to purchase from Broan its Nautilus bath fan line of products for distribution to the West's stores. There was no written agreement and the relationship had no express duration. As part of this agreement, Broan supplied both point of sale displays (on which was prominently displayed the Nautilus trademark) and advertising credits. Broan employees helped set up the displays at the West's stores. Associated began to purchase the Nautilus products, which were then distributed to the West's stores and sold to the public from the Nautilus point of sale displays.

Late in 1986, Broan noticed that its sales of the Nautilus bath fan products to Associated were declining and in early 1987 they stopped entirely. Upon investigation, Broan discovered that the West's stores were selling nearly exact Taiwanese copies of the Nautilus products in packaging nearly identical to Nautilus packaging from the Nautilus point of sale displays. Broan contended that Republic, acting at the direction of Associated, sent authentic Nautilus products to the California agent of the Taiwanese manufacturer, the Commander Electrical Corporation ("Commander"), for the express purpose that they be copied and imported to the United States for distribution by Associated to the West's stores. Associated switched to another supplier in 1987 after selling approximately 5,000 of the Commander copies.

Broan instituted this lawsuit in June 1987, claiming that the actions of Associated and Republic constituted trademark infringement, false designation of origin, and false advertising, all in violation of the Lanham Act, 15 U.S.C. Sec. 1125. The case was tried before a jury which found in favor of Broan on all three theories and awarded damages in the amount of $523,000 against Associated and Republic. ¹

As part of its claim for damages, Broan sought to introduce evidence that it expected to enjoy a long-term relationship with Associated and therefore should be awarded damages resulting from lost future profits it claims would have resulted from future sales to Associated if not for Associated's Lanham Act violations. The District Court excluded proof of these damages, finding them to be too speculative.

Broan also sought damages resulting from future product liability claims that would be mistakenly brought against it for damages caused by defective Commander products. Broan presented evidence that the Commander "knock-offs" would be misidentified as Broan products, that the Commander products were of vastly inferior quality and were likely to cause fires, and that Broan would incur future damages from claims due to the misidentification. Over the objections of Associated and Republic, the District Court allowed Broan to present evidence on this issue, and it appears that a large portion of the jury's damage award consisted of these damages.

After the verdict, both Broan and the defendants moved the court to adjust damages. Both motions were denied and these appeals followed.

II. The Legal Standards Applicable to Damages for Lanham Act Violations

At the trial below, the jury found that Associated and Republic violated section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a). The damages recoverable for a section 43(a) violation are governed by section 35(a) of the Act, 15 U.S.C. Sec. 1117(a). Section 1117(a) provides in part that when a violation of section 1125(a) occurs, "the plaintiff shall be entitled ... to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action." (Emphasis added.)

The general proof and measure of damages in a trademark action is governed by the law of damages of tort actions. See, e.g., Aladdin Mfg. Co. v. Mantle Lamp Co. of America, 116 F.2d 708, 716 (7th Cir.1941). Therefore, "[t]he evidence to be received, the circumstances to be considered and the amount of recovery should follow the rules covering tort actions." Id. Under general tort principles governing compensatory damages, "the infringer-tortfeasor is liable for all injuries caused to plaintiff by the wrongful act, whether or not actually anticipated or contemplated by the defendant when it performed the acts of infringement." 2 J.T. McCarthy, Trademarks and Unfair Competition Sec. 30:27 at 509 (2d ed. 1984) (citing cases).

As a general rule, "damages are not permitted which are remote and speculative in nature." Agricultural Servs. Ass'n v. Ferry-Morse Seed Co., 551 F.2d 1057, 1072 (6th Cir.1977). "This rule serves to preclude recovery, however, only where the fact of damage is uncertain, i.e., where the damage claimed is not the certain result of the wrong, not where the amount of damage alone is uncertain." Grantham and Mann, Inc. v. American Safety Prods., 831 F.2d 596, 601-02 (6th Cir.1987) (emphasis added) (citations omitted); see also Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562-63, 51 S.Ct. 248, 250, 75 L.Ed. 544 (1931). Indeed, in trademark cases courts draw a sharp distinction between proof of the fact of damage and proof of the amount of damage. As the Seventh Circuit pointed out:

When determining damages in an unfair trade practices case, the courts distinguish between the amount of proof needed to show "that some damages were the certain result of the wrong" and the amount of proof needed to ascertain the exact amount of damage. Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 267 [66 S.Ct. 574, 581, 90 L.Ed 652] ... (1946) (Frankfurter, J., dissenting on other grounds). The plaintiff is held to a lower burden of proof in ascertaining the exact amount of damages because, "[t]he most elementary conceptions of justice and public policy require that the wrongdoer shall bear the risk of the uncertainty which his own wrong has created." Id. at 265 .

Otis Clapp & Son, Inc. v. Filmore Vitamin Co., 754 F.2d 738, 745 (7th Cir.1985). Thus, although to set a damage figure "arbitrarily" or through "pure guesswork" is impermissible, Ferry-Morse Seed, 551 F.2d at 1072, "[o]nce the existence of damages has been shown, all that an award of damages requires is substantial evidence in the record to permit a factfinder to draw reasonable inferences and make a fair and reasonable assessment of the amount of damages." Grantham and Mann, 831 F.2d at 602; see also Ferry-Morse Seed, 551 F.2d at 1072 ("A plaintiff 'must present "data from which the amount of probable loss could be ascertained as a matter of reasonable inference." ' " (citations omitted)). These are the principles which must be applied to the damages questions before us.

In this case Broan sought to recover damages for, inter alia, the lost profits which it claims would have accrued from future sales to Associated had it not been for Associated's infringement scheme and costs which Broan would incur in the future to handle product liability claims caused by the infringing products. Since section 35(a) of the Lanham Act (15 U.S.C. Sec. 1117(a)) provides that "any damages sustained by the plaintiff" are recoverable (...