Knitwaves, Inc. v. Lollytogs Ltd. (Inc.)
| Decision Date | 13 November 1995 |
| Docket Number | Nos. 1208,D,1392,s. 1208 |
| Citation | 71 F.3d 996,36 USPQ2d 1737 |
| Parties | , 1995 Copr.L.Dec. P 27,485, 36 U.S.P.Q.2d 1737 KNITWAVES, INC., Plaintiff-Appellee-Cross-Appellant, v. LOLLYTOGS LTD. (INC.) d/b/a French Toast, Defendant-Appellant-Cross-Appellee. ockets 94-7968, 94-9024. |
| Court | U.S. Court of Appeals — Second Circuit |
Gerard F. Dunne, New York City (Law Offices of Gerard F. Dunne, P.C., of counsel), for Defendant-Appellant-Cross-Appellee.
Neil M. Zipkin, New York City (Neil S. Goldstein, Amster, Rothstein & Ebenstein, of counsel), for Plaintiff-Appellee-Cross-Appellant.
Before: OAKES, KEARSE and LEVAL, Circuit Judges.
This appeal involves principles of copyright and trade dress as applied to the design of children's sweaters. Specifically, it involves the evaluation of "substantial similarity" of clothing designs under the Copyright Act; the "inherent distinctiveness" of trade dress under the Lanham Act when the dress involved is not packaging or labeling but a product's features; and various issues involving remedies, particularly the award of attorney's fees, under the Copyright Act.
In 1990, Knitwaves, Inc., a manufacturer of children's knitwear, introduced its "Ecology Group" collection of sweaters, consisting of various styles of girls' sweaters and accompanying skirts and pants, presenting "ecology" themes in "fall" colors. It obtained copyrights for the designs of the two sweaters at issue in this litigation--its "Leaf Sweater," a multicolored striped sweater with puffy leaf appliques, and its "Squirrel Cardigan," which has a squirrel and leaves appliqued onto its multipaneled front. In 1992, Lollytogs Ltd., a larger manufacturer which sells children's clothing under the nationally advertised French Toast label, introduced a competing line of fall sweaters, including a similar-looking Leaf Sweater and Squirrel Cardigan admittedly copied from Knitwaves' sweaters. (Photographs of the competing sweaters are reproduced as an appendix to the opinion.) Knitwaves sued Lollytogs in the Southern District of New York for copyright infringement and for unfair competition under the Lanham Act and New York law.
On September 1, 1992, the district court, John S. Martin, Jr., Judge, granted Knitwaves a preliminary injunction. After a bench trial, on June 1, 1994, the court issued a memorandum and order, finding that Lollytogs willfully copied Knitwaves' designs in violation of the Copyright Act, the Lanham Act, and New York law. On September 2, 1994, following post-trial briefing, a permanent injunction was entered against Lollytogs as well as judgment in the amount of $193,681.72, constituting statutory damages, infringing profits and lost profits, and costs and attorney's fees. Lollytogs now appeals, and Knitwaves cross-appeals on the amount of damages.
We hold that: (1) the district court properly found that Lollytogs illegally copied Knitwaves' Leaf Sweater and Squirrel Cardigan, in violation of the Copyright Act; (2) the district court's finding that Lollytogs violated the Lanham Act was erroneous, as was (3) its award of $12,000 in lost profits; (4) the district court did not err in declining to apportion damages, or in (5) finding the copying to be willful; (6) the court awarded excessive attorney's fees; and (7) the court did not abuse its discretion by declining to enhance its award of statutory damages.
Knitwaves has been designing and manufacturing children's knitwear in New York and New Jersey since 1976. According to testimony, Knitwaves is a "design intensive" manufacturer; although the company is relatively small, it spends well over $1 million a year on designing and introducing new products. Knitwaves' designs have resulted in substantial recognition in the clothing trade In 1989, Knitwaves designers began work on the Ecology Group collection of girls' sweaters and matching skirts and pants. Each item in the group incorporated design elements intended to express a "fall" motif, such as leaves, acorns, squirrels, and the like, for introduction for the fall 1990 season. In addition, the sweaters employed what Knitwaves designers describe as innovative color schemes, using "fall" colors, such as mustards and browns, rather than the usually brighter children's tones. The Ecology Group sold well and received some trade attention. The Leaf Sweater and Squirrel Cardigan, in particular, were featured in advertisements by Knitwaves and its retail customers, and in editorial comments by the trade press. Knitwaves obtained copyright registration for the artwork on its Squirrel Cardigan in March 1990, but did not register the artwork on its Leaf Sweater until May 1992.
including several industry awards. Because its goods are designed at its showroom facilities and manufactured domestically, Knitwaves' costs are higher than those of many of its competitors, and its commercial survival remains dependent on its reputation for innovative design and high-quality manufacturing.
In August 1992, Justin Israel, Knitwaves' chairman, noticed girls' sweater sets, closely resembling the Leaf and Squirrel sweaters and bearing the French Toast label, in a Philadelphia department store. After finding the Lollytogs sweaters in several other stores which, like the Philadelphia store, also carried Knitwaves sweaters, Knitwaves brought this action for copyright and trade dress infringement.
Deposition testimony produced the following account by Lollytogs' personnel of Lollytogs' decision to introduce its competing line of fall sweaters.
In 1992, Sam Gindi, a design executive at Lollytogs, informed Cynthia Laino, the manager of Lollytogs' design department, that he wished to produce garments with a fall design motif. He presented her with Knitwaves' Leaf and Squirrel sweaters and instructed her to design sweater sets with the "same feel" as the Knitwaves sweaters. Laino testified that she copied what she considered the "non-original" aspects of the sweaters--the stripes on the Leaf Sweater, and both sweaters' use of fall motifs such as leaves, acorns, and squirrels--but determined to "change what was original" in the sweaters so as to avoid copyright infringement:
I believe the leaves and how they were placed on the garment, how many there were, how many different types of leaves, they were original. So, therefore, I made only two different types of leaves and I arranged them differently. I grouped them, instead of scattering them, I added acorns, and there is only one color stitches on the leaves at a time instead of two.
... I deliberately set out to create new art work with a fall theme. I deliberately set out to make new leaves, new squirrel, new Jacquard pattern.
Transcript of proceedings of Aug. 31, 1992, at 62-63, 67.
Laino admitted that, in designing the Leaf and Squirrel sweaters, she used no reference materials other than Knitwaves' sweaters and produced very little original artwork. When it came time to instruct Lollytogs' foreign manufacturer what the stripes should look like on Lollytogs' Leaf Sweater, Lollytogs merely sent Knitwaves' Leaf Sweater to its supplier and told it to copy the stripes. In addition, while Laino testified that she designed the leaves for Lollytogs' sweaters herself, any differences between the stylized oak and maple leaves on the two companies' sweaters are minimal, at best. Laino's artwork for the leaf appliques contains the notation "two-tone stitching same as sample " (emphasis added), clearly referring to Knitwaves' Leaf Sweater from which she was working.
Knitwaves' director of operations, Robert Israel, testified that as a result of the direct competition from Lollytogs, Knitwaves was required to reduce the price of its Leaf Sweaters and Squirrel Cardigans, and was unable to sell its full Ecology Group inventory, resulting in lost profits of approximately $12,000.
At the preliminary injunction hearing, the court accepted the uncontested testimony of Knitwaves' Anthony Ransola that the Leaf and Squirrel sweaters were created from his original designs. The court did not credit the testimony of Gindi and Laino that they set out to establish a new design. Instead, the court concluded, "I think they set out to knock it off and they clearly did that." Transcript of proceedings of Sept. 1, 1992, at 2-3. Applying this circuit's test for unlawful "substantial similarity"--whether "an average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work," Malden Mills, Inc. v. Regency Mills, Inc., 626 F.2d 1112, 1113 (2d Cir.1980) (quoting Ideal Toy Corp. v. Fab-Lu Ltd., 360 F.2d 1021, 1022 (2d Cir.1966))--the court concluded that both sweaters were unlawful copies, warranting an injunction against Lollytogs' continued sale of its infringing sweaters. In addition, the court found that Lollytogs' copyright violation was willful, entitling Knitwaves to an order requiring an immediate recall of all Lollytogs' infringing sweaters.
Additionally, the district court found that an injunction was also warranted under the Lanham Act and under New York's law of unfair competition. The court found the design of Knitwaves' sweaters inherently distinctive, and it found a likelihood of confusion between the two companies' products: consumers, seeing Knitwaves' and Lollytogs' similar sweaters on the store racks--in some cases, next to each other in the same store--would likely think they were looking at products from the same manufacturer.
On June 1, 1994, after discovery and a bench trial on the parties' submitted affidavits and exhibits, the district court issued its memorandum and order, adopting and reaffirming the findings and conclusions made at the preliminary injunction hearing. The court found that Lollytogs willfully copied Knitwaves' designs and that its conduct constituted a willful violation of the Copyright Act, the Lanham Act, and the New York law of unfair...
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