Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 91-5357

• Decision Date: 16 October 1991
• Docket Number: No. 91-5357,91-5357
• Citation: 952 F.2d 44
• Parties: , 60 USLW 2452, 21 U.S.P.Q.2d 1215 FERRERO U.S.A., INC. v. OZAK TRADING, INC.; Doron Gratch, Appellants. . Submitted Under Third Circuit Rule 12(6)
• Court: U.S. Court of Appeals — Third Circuit

Page 44

952 F.2d 44

14 ITRD 1014, 60 USLW 2452, 21

U.S.P.Q.2d 1215

FERRERO U.S.A., INC. v. OZAK TRADING, INC.; Doron Gratch, Appellants.

No. 91-5357.

United States Court of Appeals, Third Circuit Submitted Under Third Circuit Rule 12(6)

Oct. 16, 1991.

Decided Dec. 19, 1991.

Gerard F. Dunne, Wyatt, Gerber, Burke & Badie, New York City, for appellants.

Frank Holahan, Harwood Lloyd, Hackensack, N.J., G. Franklin Rothwell, Raymond A. Kurz, Celine M. Jimenez, Rothwell, Figg, Ernst & Kurz, Washington, D.C., for appellee.

Before SLOVITER, Chief Judge, and COWEN and WEIS, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Chief Judge.

This is the second appeal arising out of a case brought under the Lanham Act by Ferrero U.S.A., Inc. against Ozak Trading, Inc. and its president, Doron Gratch (jointly referred to as Ozak), for Ozak's parallel importation of TIC TAC breath mints manufactured for distribution in the United Kingdom. In this appeal Ozak challenges the district court's award of attorneys' fees and expenses to Ferrero U.S.A. in the amount of $160,997.11. We must consider whether the successful plaintiff made a showing that the case was "exceptional," the statutory predicate for award of attorneys' fees.

I. Factual History and Procedural Posture

Ferrero U.S.A., the exclusive United States distributor of TIC TAC mints, brought suit in the District Court for the District of New Jersey claiming that Ozak's importation of genuine TIC TAC mints that differed in size and calorie content from those imported and advertised by Ferrero U.S.A. constituted trademark infringement and unfair competition under the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a) (1988). After a bench trial, the district court agreed with plaintiff's position that Ozak's importation of these "gray market goods," ¹ which had been manufactured for distribution in the United Kingdom, violated the statute. The court permanently enjoined Ozak from future importation, but declined to award damages "[d]ue to failure of proof." Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 753 F.Supp. 1240, 1241 (D.N.J.1991). Although it awarded no compensatory or punitive damages, the district court stated at the conclusion of its opinion that "because this case is 'exceptional' under the Lanham Act, the Court will award reasonable attorneys' fees and costs." Id. at 1247.

Ozak filed a notice of appeal that stated it contested the district court's judgment on the merits, the injunction, and "the award of attorneys' fees." Thereafter, Ozak moved that we delay submission of the briefs until after the district court calculated the amount of the attorneys' fees awarded. We denied the motion without prejudice to a subsequent consolidation, if feasible, of the original appeal together with any new appeal from the order deciding the attorneys' fees issue. Ozak thereafter briefed the appeal, limiting its arguments to the merits of the district court's grant of permanent injunctive relief.

In a Memorandum Opinion filed on May 29, 1991, this court affirmed the award of injunctive relief, holding that the district court's factual findings that there were differences between the TIC TACs at issue were not clearly erroneous. We also held that the court did not err as a matter of law in concluding that the differences were material. Cf. Weil Ceramics & Glass, Inc. v. Dash, 878 F.2d 659, 671 (3d Cir.) (importation of gray market goods that do not materially differ from goods manufactured for sale in the United States not violation of 15 U.S.C. § 1114(1)), cert. denied, 493 U.S. 853 (1989). We noted that because Ferrero U.S.A.'s TIC TACs had 1 1/2 calorie per mint, contained sugar and were sold in packages labeled with nutritional information that conformed with FDA requirements whereas the TIC TACs imported by Ozak had 2 calories per mint, a fructose sweetener, and were packaged with labeling using European rather than FDA identifiers, there was likely to be consumer confusion. See Original Appalachian Artworks, Inc. v. Granada Electronics, Inc., 816 F.2d 68 (2d Cir.) (affirming permanent injunction against importer of gray market goods, which, while genuine, exhibited sufficient material differences to generate potential customer confusion as to source of product), cert. denied, 484 U.S. 847, 108 S.Ct. 143, 98 L.Ed.2d 99 (1987). Those holdings are the law of the case and, of course, are not before us for review.

While the initial appeal was pending, the district court awarded Ferrero U.S.A. $160,997.11 in attorneys' fees. Ozak's appeal from that order is before us. Ozak challenges the propriety of any award of attorneys' fees, declining to contest the amount. Ferrero U.S.A. argues that Ozak waived its challenge to the award of attorneys' fees and that even if Ozak could address that issue, the district court neither abused its discretion nor otherwise erred in finding that the case was exceptional.

II. Discussion

A. Appealability

Ferrero U.S.A. argues that Ozak waived the issue of the propriety of the attorneys' fee award by failing to raise that issue in its briefs in the first appeal. ² Ferrero U.S.A. is plainly mistaken. It is well established law in this circuit that this court does not have jurisdiction under 28 U.S.C. § 1291 over a fee award until it has been quantified. See Frangos v. Doering Equip. Corp., 860 F.2d 70, 72 (3d Cir.1988) ("It has long been the rule in this circuit that this court lacks jurisdiction to examine the merits of an attorneys' fee award where the award has not been quantified."); Saber v. Financeamerica Credit Corp., 843 F.2d 697, 704 (3d Cir.1988) ("[A]ppeals from awards of attorney's fees may be filed only after the amount of the attorney's fees has been determined by the district court."); Becton Dickinson & Co. v. District 65, UAW, 799 F.2d 57, 61 (3d Cir.1986).

When the briefs were filed in the first appeal, the district court had not yet quantified the fee award. It was only after the amount of the fees were set by the district court that we acquired jurisdiction to review both issues. Ozak cannot have waived an issue that this court had no authority to hear, even though it had purported to raise the attorneys' fee issue in its notice of appeal. This second appeal affords Ozak its only opportunity to challenge the final judgment and order of the district court to award attorneys' fees to Ferrero U.S.A., because subsumed in the court's order was its prior determination that an award of fees was appropriate.

B. The Attorneys' Fees Award

In 1975, Congress amended the Lanham Act to permit the award of attorneys' fees to the "prevailing party," but specified that such an award should be made only in "exceptional" cases. 15 U.S.C. § 1117(a) (1988). The Senate Report stated that attorneys' fees should be awarded where the infringing acts "can be characterized as 'malicious,' 'fraudulent,' 'deliberate,' or 'willful.' " S.Rep. No. 1400, 93d Cong., 2d Sess. 2 (1974), reprinted in 1974 U.S.C.C.A.N. 7132, 7133. The courts have adopted that as the standard. See Standard Terry Mills, Inc. v. Shen Mfg. Co., 803 F.2d 778, 782 n. 7 (3d Cir.1986); see also Knorr-Nahrmittel A.G. v. Reese Finer Foods, Inc., 695 F.Supp. 787, 795 (D.N.J.1988) ("Deliberate and willful infringement can render a case 'exceptional' and, thus, support an award of attorneys' fees.").

Unfortunately, the statute does not define "exceptional" and the legislative history is not informative as to the meaning of the terms "malicious, fraudulent, deliberate, or willful." Courts have differed as to the type of conduct that is to be so viewed. See generally Robin C. Larner, Annotation, Award of Attorneys' Fees Under § 35(a) of Lanham Act (15 USCS § 1117(a)) Authorizing Award in "Exceptional Cases", 82 A.L.R.Fed. 143 (1987); Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521 (D.C.Cir.1985).

We are persuaded by the line of cases holding that a district court must make a finding of culpable conduct on the part of the losing party, such as bad faith, fraud, malice, or knowing infringement, before a case qualifies as "exceptional." See, e.g., Safeway Stores, Inc. v. Safeway Discount Drugs, Inc., 675 F.2d 1160, 1169 (11th Cir.1982) ("An award of attorneys' fees ... should be made only in exceptional circumstances and on evidence of fraud or bad faith."); Brand v. NCC Corp., 540 F.Supp. 562, 565 (E.D.Pa.1982) ("While the statute fails to define 'exceptional,' it has been interpreted to require a finding of intentionality akin to malice or fraud."); Salton Inc. v. Cornwall Corp., 477 F.Supp. 975, 992 n. 11 (D.N.J.1979) ("Costs may be given [under the Lanham Act] only if the conduct of the losing party sinks to the level of being fraudulent or in bad faith."); Vermont Castings, Inc. v. Evans Prods. Co., Grossman's Div., 215 U.S.P.Q. 764, 766 (D.Vt.1981) (exceptional case where defendant copied design of plaintiff's stoves "knowing that the copies would cause confusion and with an intent to benefit from the good will plaintiff had nurtured").

A factor deemed relevant to some courts in declining to award attorneys' fees under section 1117(a) has been the plaintiff's failure to show any damages. See, e.g., Hindu Incense v. Meadows, 692 F.2d 1048, 1052 (6th Cir.1982) ("[Plaintiff] admitted that there has been no loss of sales due to the infringement. Such a finding generally makes the case unexceptional for purposes of awarding fees under § 1117."); VIP Foods, Inc. v. Vulcan Pet, Inc., 675 F.2d 1106, 1107 (10th Cir.1982) (lack of evidence to show that plaintiff suffered monetary damages and lack of finding by district court that defendant intended to deceive or confuse public or willfully infringe plaintiff's trademark made for unexceptional case).

The district court opinion in Jones Apparel Group, Inc. v. Steinman, 466 F.Supp. 560, 564 (E.D.Pa.1979), represents a reasoned exposition of what constitutes an exceptional case. In that case, Judge Pollak stated that bad faith...