Burger King Corp. v. Mason

• Decision Date: 20 September 1988
• Docket Number: No. 87-5008,87-5008
• Citation: 855 F.2d 779
• Court: U.S. Court of Appeals — Eleventh Circuit
• Parties: BURGER KING CORPORATION, Plaintiff-Appellee, Cross-Appellant, v. Gerald A. MASON, et al., Defendants-Appellants, Cross-Appellee.

Page 779

855 F.2d 779

8 U.S.P.Q.2d 1263

BURGER KING CORPORATION, Plaintiff-Appellee, Cross-Appellant, v. Gerald A. MASON, et al., Defendants-Appellants, Cross-Appellee.

No. 87-5008.

United States Court of Appeals Eleventh Circuit.

Sept. 20, 1988.

Thomas J. Schuchert, Vicki K. Horne, Pittsburg, Pa., Richard J. Rankin, Grand Rapids, Mich., for defendants-appellants, cross-appellee.

Lee N. Abrams, T. Mark McLaughlin, Chicago, Ill., for plaintiff-appellee, cross-appellant.

Appeals from the United States District Court for the Southern District of Florida.

Before RONEY, Chief Judge, CLARK, Circuit Judge, and MORGAN, Senior Circuit Judge.

PER CURIAM:

This action is before this Court for the second time, after nearly ten years of litigation, to determine the appropriateness of a damage award rendered by the district court. The contested judgment arises out of a suit brought by the Burger King Corporation (BKC) against a group of investors, who were Burger King franchisees, collectively referred to as Mason. Mason continued to operate several Burger King restaurants after the plaintiff had given notice of the termination of the franchises. The plaintiff sought damages under the Lanham Act for wrongful use of its trademark. Because the district court properly exercised its discretion in assessing damages under the Lanham Act, the judgment of the district court is affirmed under the established law of this Circuit.

Through an extended business relationship, Mason had acquired the right to establish Burger King restaurants in two major metropolitan areas. Over the years, Mason purchased at least twenty-seven Burger King franchises under separate agreements. The relationship between BKC and Mason apparently began to deteriorate in 1977 after BKC notified Mason of its intention to cancel two exclusive development agreements. As relations soured, BKC brought suit seeking a declaration that it had properly terminated those development contracts. Mason responded with a counterclaim for reinstatement and damages for the revocation. Then in 1979, BKC informed Mason that it was unilaterally terminating all twenty-seven of its Burger King franchises for Mason's failure to comply with the terms of its franchise agreements. Over the course of the ensuing litigation, it has been determined that only thirteen of the contracts were rightfully terminated by BKC. Burger King Corp. v. Mason, 710 F.2d 1480, 1485 (11th Cir.1983), cert. denied, 465 U.S. 1102, 104 S.Ct. 1599, 80 L.Ed.2d 130 (1984). On that previous appeal, this Court remanded the case to the district court for a finding regarding Florida law and for a determination of the appropriate relief under the Lanham Act with respect to Mason's infringement of BKC's trademark at the thirteen restaurants. Both parties now appeal the district court's order.

The damage provision of the Lanham Act entitles a trademark holder to recover, among other things, the profits earned by a defendant from infringement of the mark. ¹ 15 U.S.C.A. Sec. 1117. The Act confers upon the district court a wide scope of discretion to determine the proper relief due an injured party. See, e.g., Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F.2d 117, 121 (9th Cir.), cert. denied, 391 U.S. 966, 88 S.Ct. 2037, 20 L.Ed.2d 879 (1968).

The statute provides that a damage award may be adjusted if the profits prove to be inadequate or excessive. This remedial accommodation clearly commits considerable discretion to the trial judge. Review of the trial court's exercise of its discretion is under the abuse of discretion standard, wherein the decision will not to be disturbed, unless, upon a weighing of relevant factors, there is a definite and firm conviction that the court below committed a clear error of judgment. See Bandag, Inc. v. Al Bolser's Tire Stores, 750 F.2d 903, 917 (Fed.Cir.1984); Playboy Enterprises, Inc. v. Baccarat Clothing Co., 692 F.2d 1272, 1275 (9th Cir.1982).

Contrary to Mason's argument, the law in this Circuit is well settled that a plaintiff need not demonstrate actual damage to obtain an award reflecting an infringer's profits under Sec. 35 of the Lanham Act, 15 U.S.C.A. Sec. 1117. Wesco Mfg., Inc. v. Tropical Attractions of Palm Beach, Inc., 833 F.2d 1484, 1487 (11th Cir.1987). An accounting for profits has been determined by this Court to further the congressional purpose by making infringement unprofitable, and is justified because it deprives the defendant of unjust enrichment and provides a deterrent to similar activity in the future. Maltina Corp. v. Cawy Bottling Co., Inc., 613 F.2d 582, 585 (5th Cir.1980); see Maier Brewing Co., 390 F.2d at 121 (citing S.Rep. No. 1333, 79th Cong., 2d Sess. 1-2 (1946)).

Nor is an award of profits based on either unjust enrichment or deterrence dependent upon a higher showing of culpability on the part of defendant, who is purposely using the trademark. In Wolfe v. National Lead Co., 272 F.2d 867 (9th Cir.1959), cert. denied, 362 U.S. 950, 80 S.Ct. 860, 4 L.Ed.2d 868 (1960), overruled in part on other grounds, Maier Brewing Co. v. Fleischman Distilling Corp., 359 F.2d 156, 165 (9th Cir.1966), the Ninth Circuit rejected good faith as a defense to an accounting for profits. There the trademark infringer contended that he should not be held accountable for the profits he earned after he consulted an attorney who advised him that he was not in infringement. The Ninth Circuit, in rejecting this claim, noted that the defendant

had full knowledge of the facts and [plaintiff's] claim of infringement. Whether he believed himself to be within the law or not, he was knowingly and deliberately cashing in upon the good will of appellee. This is such an infringement as will justify an accounting of profits.

272 F.2d at 871. Wolfe has been cited with approval by this Court in John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 978 (11th Cir.1983).

At the commencement of this litigation in August 1979 before a U.S. Magistrate, BKC sought an injunction against defendants' continued use of its trademark. Prior to a court hearing on injunctive relief, BKC agreed that defendants could maintain the status quo in continuing operation of the restaurants during the litigation, without prejudice to plaintiff's right to claim damages if it prevailed in the lawsuit.

Of the thirteen restaurants found to infringe on BKC's marks, six turned a profit over the period of litigation. The district court concluded that in determining the profits for which defendants would be held accountable, the profits on the six restaurants could not be offset by the losses incurred at the other seven restaurants, which were owned by a different grouping of the defendants. Defendants contend that the thirteen restaurants should be considered as a unit because of the status quo agreement. Mason asserts that absent this status quo agreement, it would have closed down the unprofitable restaurants rather than manage all twenty-seven. A number of reasons support the decision to consider each of the thirteen restaurants as a separate instance of trademark infringement.

First, although the district court noted that BKC had acquiesced in Mason's operation of the restaurants, each individual restaurant was operated according to a separate franchise agreement with BKC and not under any alleged agreement coordinating all twenty-seven.

Second, Mason sought and was denied renewal of the franchise agreement governing Restaurant # 164 in Harrisburg, Pennsylvania because it applied for renewal in an untimely fashion. In the course of this application defendants never made reference to any overarching agreement between the parties that would have mandated renewal.

Third, defendant Donald Szabo's unilateral closing in March 1980 of Restaurant # 1382 in Independence, Missouri further undercuts defendants' argument that all twenty-seven restaurants were being operated as a single unit. Defendant Szabo testified that he closed this restaurant at BKC's request, but made no reference at that time to any perceived need to operate all twenty-seven restaurants as a single unit.

Fourth, throughout the course of the litigation the dispute between the parties was considered on a restaurant by restaurant basis.

Fifth, the ownership interests differed significantly from restaurant to restaurant among the thirteen. For example, Defendant Richard Peterson had substantial ownership interests in profitable Restaurants in Mechanicsburg and Hershey, Pennsylvania (## 285 and 1055) but no ownership interest in the unprofitable Lafayette, Indiana Restaurant (# 1091) where other defendants...