International Star Class Yacht Racing Ass'n v. Tommy Hilfiger U.S.A., Inc.

• Decision Date: 29 May 1998
• Docket Number: 97-7799,Docket Nos. 97-7761
• Citation: 146 F.3d 66
• Parties: , 49 Fed. R. Evid. Serv. 719 INTERNATIONAL STAR CLASS YACHT RACING ASSOCIATION, Plaintiff-Appellant-Cross-Appellee, v. TOMMY HILFIGER U.S.A., INC., Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

Page 66

146 F.3d 66

46 U.S.P.Q.2d 1942, 49 Fed. R. Evid. Serv. 719

INTERNATIONAL STAR CLASS YACHT RACING ASSOCIATION Plaintiff-Appellant-Cross-Appellee, v. TOMMY HILFIGER U.S.A., INC., Defendant-Appellee-Cross-Appellant.

Docket Nos. 97-7761, 97-7799.

United States Court of Appeals Second Circuit.

Argued March 5, 1998.

Decided May 29, 1998.

J. Joseph Bainton, New York City (Thomas D. Drescher, John G. McCarthy, Ross & Hardies, of counsel), for Plaintiff-Appellant-Cross-Appellee.

Louis S. Ederer, New York City (Joseph H. Lessem, Cowan, Liebowitz & Latman, P.C.; Steven Gursky, Robert Devlin, Gursky & Associates, of counsel), for Defendant-Appellee-Cross-Appellant.

Before OAKES, NEWMAN and CABRANES, Circuit Judges.

OAKES, Senior Circuit Judge:

The International Star Class Yacht Racing Association ("ISCYRA") appeals from the decision of the United States District Court for the Southern District of New York, Robert P. Patterson, Jr., Judge, denying ISCYRA monetary relief and attorney fees for the infringing use of ISCYRA's mark "Star Class" by Tommy Hilfiger U.S.A., Inc. ("Hilfiger"). The district court held that ISCYRA had failed to demonstrate that Hilfiger used the mark in bad faith. Hilfiger cross-appeals the district court's calculation of damages without considering evidence of Hilfiger's costs or the percentage of profits from sales attributable to Hilfiger's mark rather than ISCYRA's, and its decision to strike the testimony of Hilfiger's lead trial counsel. We vacate and remand the court's findings as to Hilfiger's bad faith because the district court improperly relied on factual findings from an earlier, unrelated antitrust case. We also vacate the district court's determination as to Hilfiger's costs and deductions, but affirm the decision to exclude the testimony of Hilfiger's counsel.

I. BACKGROUND

ISCYRA is a non-profit corporation created to govern and promote the sport racing of a class of sail boats known as "Star Class" yachts. ISCYRA owns the rights to the design of Star Class boats, and monitors the construction, certification, and registration of vessels in this class. One hallmark of a Star Class vessel is that it must display a solid five-point star on its main sail. ISCYRA also uses the star along with the words "Star Class" on hats, clothing, pins, and decals sold to the public. ISCYRA permits yacht clubs hosting regattas to use the star insignia and the term "Star Class" on promotional materials, and collects royalties for the use of these marks on clothing and other marketable materials. ISCYRA has never registered "Star Class" for federal trademark protection.

In March 1994, ISCYRA learned that Tommy Hilfiger, a leading designer and marketer of men's clothing, was manufacturing and selling garments bearing the words "Star Class" with the star insignia. Promotional materials issued with the collection described the clothing as "classic nautical sportswear" with "authentic details taken from the sport of competitive sailing" and "elements and patterns taken directly from actual racing sails." ¹ Hilfiger's name and logo also appeared on most of the garments.

While designing the clothes, Hilfiger had requested from its attorneys a trademark screening search for the words "Star Class." Hilfiger did not specify its intended use of the words, nor did it reveal that it had taken the term from "the sport of competitive sailing." The search was thus limited to registered federal trademarks, with a particular emphasis on trademarks in class 25, a clothing classification. One of Hilfiger's attorneys, Neil A. Burstein, reported to Hilfiger that he had found no competing marks in his search, and stated, "At this point, we would not necessarily rule out your use and registration of this mark, subject to our usual disclaimers regarding the need to first obtain and review a full trademark search." (emphasis in original). Hilfiger did not conduct a full search of all prior commercial uses of the term until after it was sued by ISCYRA, at which point it learned that "Star Class" was a mark in the yachting context.

On April 13, 1994, ISCYRA sued Hilfiger for false designation of origin under the Lanham Act, 15 U.S.C. § 1125(a) (1994), common law trademark infringement, and injury to its business reputation and trademark dilution under New York state law. On April 25, 1995, the district court granted ISCYRA a permanent injunction to bar Hilfiger's use of the mark "Star Class," but declined to award monetary relief or attorney fees because it determined that ISCYRA had not sustained any actual damages and that Hilfiger had not used the mark in bad faith.

ISCYRA appealed to this Court, which affirmed in part and vacated in part. See ISCYRA v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749 (2d Cir.1996). We ruled that the district court had made erroneous and incomplete findings of fact and remanded for further consideration of whether Hilfiger had willfully infringed ISCYRA's mark. In particular, we held that the district court should have considered as evidence relevant to determining bad faith Hilfiger's failure to follow its attorneys' advice to conduct a full search and Hilfiger's continued marketing of the "Star Class" clothing after ISCYRA had filed suit. Id. at 754.

On remand, the district court again determined that insufficient evidence existed to show that Hilfiger had used ISCYRA's mark in bad faith. The district court initially allowed Hilfiger to reopen the record to present additional testimony by Hilfiger's lead counsel, Steven Gursky, relating to the legal advice received by Hilfiger prior to using ISCYRA's mark. However, in its opinion issued on March 4, 1997, the district court rejected this new testimony in toto, reasoning that Hilfiger was on notice in the first trial that bad faith was at issue, and should have introduced all relevant evidence then. The court then considered the two elements deemed important by this Court--the failure to conduct a full search in contravention of the disclaimer contained in Burstein's letter, and the continued sale of garments after the commencement of the suit. As to the failure to conduct a full search, the district court evaluated the disclaimer letter in light of the court's understanding of prevailing industry practice in trademark searches. To establish industry custom, the district court took judicial notice of facts and testimony from Corsearch v. Thomson & Thomson, 792 F.Supp. 305 (S.D.N.Y.1992), an antitrust case that the district judge had tried in 1991 concerning trademark search firms. The court found that standard industry practice was to conduct only "knock-out" or "rule-out" searches of names and symbols in the database of federally registered trademarks before using a contemplated mark, and that comprehensive or more sophisticated searches were reserved, when ordered at all, for marks that were seriously being considered for trademark registration. ISCYRA v. Tommy Hilfiger, U.S.A., Inc., 959 F.Supp. 623, 625-26 (S.D.N.Y.1997) (citing Corsearch, 792 F.Supp. at 311). The court therefore interpreted Burstein's disclaimer as boilerplate cautionary language, referring to the need to conduct a full search only if Hilfiger intended to register the term "Star Class" and use it as a stand-alone trademark. As Hilfiger claimed to use the term "Star Class" only as decoration and not as a stand-alone trademark, the court concluded that "there was no reason for Hilfiger to order its law firm to undertake a full search," and that its failure to do so was not inconsistent with its attorneys' advice. ISCYRA, 959 F.Supp. at 627-28.

Finally, the court found that Hilfiger's continued sale of garments bearing the "Star Class" mark was consistent with the opinion of Hilfiger's attorneys that ISCYRA's non-registered mark was entitled to "rather weak" protection, and thus was also not evidence of bad faith. Id. at 628-29. Anticipating the possibility that this Court might not agree on appeal, the district court determined, as evidence of damages, that Hilfiger shipped $818,419.85 worth of infringing goods after receiving ISCYRA's cease-and-desist letter. The court made no deduction for Hilfiger's costs because "[d]efendant offered no evidence of its costs attributable to these sales." Id. at 629. The court denied both ISCYRA's and Hilfiger's motions for reconsideration on June 5, 1997. This appeal followed.

II. DISCUSSION

On appeal, ISCYRA contends that the district court relied on erroneous conclusions of law and fact in making its determinations. Among other claims, ISCYRA argues (1) that it was improper for the court judicially to notice facts from Corsearch that were outside the record of this case, and (2) that the court erred in not considering all of Hilfiger's profits as evidence of damages, rather than just profits from sales made after receipt of ISCYRA's cease-and-desist letter. Hilfiger cross-appeals the decision to disregard the testimony of its counsel, Steven Gursky, and the court's failure to consider evidence of Hilfiger's costs contained in one of ISCYRA's exhibits, and evidence of sales due to the appeal of Hilfiger's mark in calculating damages.

A. Judicial Notice

The Federal Rules of Evidence provide that courts may only take judicial notice of facts outside the trial record that are "not subject to reasonable dispute." Fed.R.Evid. 201(b). Such facts must either be "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Id.; see also Alvary v. United States, 302 F.2d 790, 794 (2d Cir.1962). Because the effect of judicial notice is to deprive a party of the opportunity to use rebuttal evidence, cross-examination, and argument to attack contrary evidence, caution must be used in determining that a fact is beyond controversy under Rule 201(b). See Fed.R.Evid. 201(b) advisory committee...