Monsanto Chemical Co. v. Perfect Fit Products Mfg. Co.

• Decision Date: 28 July 1965
• Docket Number: No. 384,Docket 29179.,384
• Citation: 349 F.2d 389
• Parties: MONSANTO CHEMICAL COMPANY, Successor by merger to The Chemstrand Corporation, Appellee-Appellant (Plaintiff), v. PERFECT FIT PRODUCTS MANUFACTURING CO., Inc., Appellant-Appellee (Defendant).
• Court: U.S. Court of Appeals — Second Circuit

349 F.2d 389 (1965)

MONSANTO CHEMICAL COMPANY, Successor by merger to The Chemstrand Corporation, Appellee-Appellant (Plaintiff), v. PERFECT FIT PRODUCTS MANUFACTURING CO., Inc., Appellant-Appellee (Defendant).

No. 384, Docket 29179.

United States Court of Appeals Second Circuit.

Argued March 17, 1965.

Decided July 28, 1965.

Walter H. Free, New York City (Brumbaugh, Free, Graves & Donohue, and John F. Neary, Jr., Richard A. Lochner, New York City, on the brief), for appellee-appellant (plaintiff).

Jay F. Gordon, New York City (Natanson, Gordon & Reich, and Melvyn Altman, New York City, on the brief), for appellant-appellee (defendant).

Before LUMBARD, Chief Judge, and MOORE and MARSHALL, Circuit Judges.

LUMBARD, Chief Judge:

The issue on this appeal is whether the district court erred in refusing to allow an accounting of the profits gained by the defendant through its deliberate infringement of the plaintiff's trademark on the ground that the parties were not in direct competition. We conclude that the public interest in deterring fraudulent sales practices requires that such an accounting be allowed, and we therefore remand the case for such accounting.

The facts, as found by Judge McLean after a trial at which the defendant adduced no evidence, are undisputed. The plaintiff, Monsanto Chemical Co., produces an acrylic fiber, which it markets under the registered trademark "Acrilan." This mark was registered under the Lanham Trademark Act of 1947, 15 U.S.C. § 1051 et seq. The defendant, Perfect Fit, deliberately infringed this mark by selling mattress pads falsely labeled as Acrilan-filled. The pads were produced for Perfect Fit by the Carolina Manufacturing Co., which was in effect Perfect Fit's manufacturing division.¹

After initial discussion between Perfect Fit and Monsanto concerning manufacture of a 100 per cent Acrilan-filled coverlet, Perfect Fit decided in March of 1958 to market an "Acrilan" mattress pad instead. It ordered some 20,000 pounds of acrilan fiber from Monsanto and 30,000 "Acrilan"-labeled polyethylene bags from a supplier. The first pads were shipped in late April, but Monsanto did not learn of them until late May and then only through a trade publication; all of the prior communications between the parties had concerned the proposed coverlet.

Monsanto tested one of the pads, supplied at its request by Perfect Fit, and found that it contained only 8.5 per cent acrylic fiber, the rest being rayon. When confronted with this finding, Perfect Fit explained that Carolina must have made a mistake, and it promised to send another sample with 100 per cent Acrilan. The second sample never arrived.

Monsanto then purchased a number of the Perfect Fit pads in retail stores. All these pads, labeled as Acrilan mattress pads, contained less than 25 per cent of acrylic fiber and some contained none whatever. The rest of their fill consisted of cotton, acetate, nylon and other fibers, mixed in various proportions. Some of the fibers were second-hand waste material, such as fibers from floor sweepings, which contained considerable amounts of dust.

The labels on the pads claimed that the pads were "completely sanforized to prevent shrinkage" and "allergy — dustproof — mothproof — will not mildew." Each of these claims was false. In addition, the covers for the pads, as the district court found, were made of

"cheap, poor quality cloth, low in thread count and heavily sized with 30 per cent by weight starch and talc to give the appearance of good quality cloth. As evidenced by before and after washing specimens, the sizing rinsed out with a single washing leaving a dust-porous, rough fabric having an inferior appearance."

At a meeting on July 25, Perfect Fit admitted the mislabelling, and, on Monsanto's insistence, supplied what purported to be a list of the customers for the pads. In fact, however, the largest customer was not on the list.

The parties again conferred in August, and Perfect Fit proposed to manufacture a nylon-Acrilan pad, so labeled. Nothing came of this, however, and Monsanto brought suit in November in the Southern District, alleging infringement of its trademark and unfair competition. Jurisdiction was based on 28 U.S.C. § 1338. In December, Perfect Fit consented to a preliminary injunction.

Following a trial without a jury, Judge McLean found that Perfect Fit had infringed Monsanto's trademark, that its acts constituted unfair competition, and that it had acted "wilfully with full knowledge of plaintiff's rights and as part of a pre-conceived plan to trade upon plaintiff's goodwill." He granted a permanent injunction and awarded $15,877.88 legal fees. However, he found that Monsanto had failed to prove that it had sustained any damage, and he concluded that an accounting could not be allowed since the parties are not competitors; this latter conclusion he regarded as being required by our decisions in Admiral Corp. v. Penco, Inc., 203 F.2d 517 (2 Cir.1953) and Triangle Publications, Inc. v. Rohrlich, 167 F.2d 969 (2 Cir. 1948).

Both parties appeal. Perfect Fit objects to the award of legal fees on two grounds: first, since prior to trial it had proposed a consent decree as broad as the injunction ultimately ordered by Judge McLean, Monsanto gained nothing from the trial and was in fact an unsuccessful litigant; and, second, that the award is excessive. Monsanto's appeal attacks both Judge McLean's finding that it has not adequately proved damages and his conclusion that an accounting is unavailable since the parties are not competitors.

We affirm Judge McLean's refusal to award damages. However, we hold that an accounting should be allowed on the facts of this case, and we overrule Admiral Corp v. Penco, Inc., supra, and Triangle Publications, Inc. v. Rohrlich, supra, so far as they are inconsistent with our holding in the present case. We therefore remand for an accounting of the defendant's profits resulting from its infringement of the Acrilan trademark.

With respect to the defendant's appeal, since the relief ultimately granted will go beyond that offered by the defendant in settlement prior to the trial, we do not reach the question whether an award of legal fees would otherwise have been improper. We find that the legal fees awarded for the litigation prior to this appeal are reasonable in amount; we leave for determination by the district court on remand whether a further allowance should be made for the expenses incurred on remand. We also allow Monsanto $1,500 for legal expenses on this appeal.

I. The Rationale for an Accounting.

Consideration of the principles which we think should govern the award of an accounting in the present case must begin with § 35 of the Lanham Act, 15 U.S.C. § 1117, which provides for the award of damages and accounts for the infringement of marks registered under the Act. The trademark plaintiff is entitled under § 35 to recover, "subject to the principles of equity,"

"(1) defendant\'s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action * * In assessing profits the plaintiff shall be required to prove defendant\'s sales only; defendant must prove all elements of cost or deduction claimed. In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstances shall constitute compensation and not a penalty."

On its face, § 35 would seem to give a district court the broadest kind of discretion in tailoring the plaintiff's recovery, whether in damages or by way of an accounting, to the facts of the particular case. Compare Trade-Mark Act of 1905, § 19, 33 Stat. 729. So far as accountings are concerned, however, recourse to this broad discretion has been considered by a number of courts, including this one, to be limited by the nature of the right asserted by the trademark plaintiff.

The more narrow view of the right has been that it is merely a means of protecting a businessman from injury resulting from another's use of his mark. Durable Toy & Novelty Corp. v. J. Chein & Co., 133 F.2d 853 (2 Cir.), cert. denied, 320 U.S. 211, 63 S.Ct. 1447, 87 L.Ed. 1849 (1943). Injunctive relief may be warranted by the mere possibility of such injury, but a monetary award, whether in the form of damages or an accounting, is justified only to the extent that injury is shown already to have been suffered. This has been the conventional view, see Note, 1963 Wash.U.L.Q. 243, and it is the view underlying the decisions of this court relied on by Judge McLean in this case.

There is nothing in this view of the trademark right which entitles the plaintiff to the infringer's profits as such. An accounting has been thought proper only as an indirect measure of the plaintiff's injury, that is, only if some relationship between the infringer's profits and the plaintiff's injury can be inferred. As a result accountings have been limited to cases in which the parties are competing for trade and the defendant's trade may thus be presumed to have been diverted from the plaintiff. This is the rule adopted by the Restatement of Torts, § 747.

An alternative view of the trademark right is that it is a form of property, similar in this respect to a copyright or patent right. Taking this view, the justification for an accounting is found in the principles of unjust enrichment traditionally applicable where property is used for profit without the owner's permission, and, if the view is carried to its logical conclusion, an accounting should be awarded automatically in most cases. In particular, since the accounting is not...