NuPulse, Inc. v. Schlueter Co., 87-2702

• Decision Date: 28 July 1988
• Docket Number: No. 87-2702,87-2702
• Parties: NUPULSE, INC., Plaintiff-Appellant, v. The SCHLUETER COMPANY, Bradley Losching, and Bernard A. Losching, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 545

853 F.2d 545

7 U.S.P.Q.2d 1633

NUPULSE, INC., Plaintiff-Appellant, v. The SCHLUETER COMPANY, Bradley Losching, and Bernard A.

Losching, Defendants-Appellees.

No. 87-2702.

United States Court of Appeals, Seventh Circuit.

Argued March 28, 1988.

Decided July 28, 1988.

Walter Kuhlmann, Boardman, Suhr, Curry & Field, Madison, Wis., for plaintiff-appellant.

Richard E. Rosenberg, Nowlan & Mouat, Janesville, Wis., for defendants-appellees.

Before BAUER, Chief Judge, and CUDAHY and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

The appellant NuPulse, Inc. (NuPulse) prevailed on the merits after a bench trial in an unfair competition suit against The Schlueter Company (Schlueter) and two of its officers. The district court, however, rejected NuPulse's petition for attorneys' fees on the ground that attorneys' fees are not available in actions brought under section 43 of the Lanham Act, 15 U.S.C. Sec. 1125. Schlueter has not appealed from the judgment against it on the merits, but NuPulse appeals from the denial of its petition for attorneys' fees. For the reasons set forth in this opinion, we reverse the judgment of the district court with respect to NuPulse's request for attorneys' fees, and we remand the case for further proceedings.

I Facts

NuPulse has held the exclusive distribution rights for NuPulse milking equipment in the United States and Canada since October 1, 1985. NuPulse acquired those rights from Alfa-Laval New Zealand, Ltd. (Alfa), the owner of the NuPulse trademark and manufacturer of NuPulse equipment. Schlueter sells dairy farm equipment throughout North America. The district court found that Schlueter had purchased NuPulse parts in New Zealand and had combined them with other substituted parts. Schlueter then sold milking units which it verbally identified as "NuPulse" to dairy equipment dealers in North America. Schlueter advised its customers that its milking units were NuPulse units and would function like milking units sold by NuPulse. The district court also found that Schlueter's milking units did not function as well as NuPulse milking units, and that dairy farmers and dealers would be confused by Schlueter's representations. The court concluded that these actions constituted false representations in violation of section 43(a) of the Lanham Act.

The district court concluded that the facts of this case constituted an "exceptional case" within the meaning of that phrase in the Act. The court found that Schlueter's conduct was intentional, and that its actions harmed NuPulse's reputation and ability to maintain customer satisfaction. The court determined that Schlueter intended to interfere with NuPulse's relationship with Alfa, and that Schlueter intended to drive NuPulse out of business. In addition, the court found that the testimony of Schlueter's representatives had been inconsistent.

Although the court found that this was an "exceptional case," the court refused to grant attorneys' fees to NuPulse. Section 35 of the Lanham Act, 15 U.S.C. Sec. 1117 authorizes an award of attorneys' fees in "exceptional cases." The court acknowledged that at least three courts of appeals had concluded that the attorneys' fees remedy in section 35 was available in section 43 cases. Regardless, the court said that section 35 was not ambiguous and that its plain language allowed attorneys' fees only in cases involving infringement of registered trademarks. The court therefore concluded that "without clearer evidence of Congressional intent the gaps left in the Lanham Act should not be filled by the courts." NuPulse, Inc. v. The Schlueter Co., No. 86-C-607-S, order at 5 (W.D.Wis. Sept. 18, 1987).

II Discussion

The issue presented in this appeal is straightforward: whether the attorneys' fees remedy in section 35 of the Lanham Act should also encompass actions brought under section 43 of the Act. Before deciding this issue, we first address Schlueter's contention that the district court erroneously decided that this was an "exceptional case." If this was not an "exceptional case," then we have no occasion to reach the issue of statutory construction.

A. Exceptional Case

An "exceptional case" is one in which the acts of infringement can be characterized as "malicious, fraudulent, deliberate, or willful." Otis Clapp & Son, Inc. v. Filmore Vitamin Co., 754 F.2d 738, 746 (7th Cir.1985); Bittner v. Sadoff & Rudoy Indus., 728 F.2d 820, 828 (7th Cir.1984). In this case, the district court heard the evidence, saw the witnesses, and appraised their motives. Based on its personal observations, the court found that Schlueter's conduct was "certainly intentional" and designed to reduce NuPulse's sales. The court also found that Schlueter "intended to put the plaintiff out of business," that Schlueter intended to interfere with NuPulse's contract with Alfa, and that Schlueter's representatives had testified inconsistently. Schlueter has not identified any evidence to suggest that these findings were erroneous. We cannot overturn the district court's decision that this case was "exceptional."

B. Statutory Construction

1.

Having concluded that this case was properly designated "exceptional," we now examine whether the attorneys' fees provision in section 35 is available in cases brought under section 43. Section 35 of the Lanham Act provides:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. 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. The court in exceptional cases may award reasonable attorney fees to the prevailing party.

15 U.S.C. Sec. 1117(a) (emphasis supplied). Section 43 of the Lanham Act, in pertinent part, provides:

Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce, and any person who shall with knowledge of the falsity of such designation of origin or description or representation cause or procure the same to be transported or used in commerce or deliver the same to any carrier to be transported or used, shall be liable to a civil action by any person doing business in the locality falsely indicated as that of origin or in the region in which said locality is situated, or by any person who believes that he is or is likely to be damaged by the use of any such false description or representation.

15 U.S.C. Sec. 1125(a).

Whether the attorneys' fees remedy in section 35 is available in actions under section 43 is a question that has been addressed squarely by six other courts of appeals. All have concluded that the attorneys' fees remedy in section 35 is available in section 43 cases. ¹ Brunswick Corp. v. Spinit Reel Co., 832 F.2d 513, 528 (10th Cir.1987); Centaur Communications v. A/S/M Communications, 830 F.2d 1217, 1229 (2d Cir.1987); WSM, Inc. v. Wheeler Media Servs., 810 F.2d 113, 116 (6th Cir.1987); Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1026 (9th Cir.1985); Rickard v. Auto Publisher, Inc., 735 F.2d 450, 453-58 (11th Cir.1984); Metric & Multistandard Components Corp. v. Metric's Inc., 635 F.2d 710, 715 (8th Cir.1980); see also Reader's Digest Ass'n v. Conservative Digest, Inc., 821 F.2d 800, 807-09 (D.C.Cir.1987) (applying section 35 remedies in a section 43 case without express discussion). This circuit has never addressed directly the question. In Blau Plumbing, Inc. v. S.O.S. Fix-It, Inc., 781 F.2d 604, 612 (7th Cir.1986), a panel suggested that the issue is more problematic than the foregoing precedent might suggest. While not deciding the issue, the panel noted that the language of section 35 appears to apply only to registered trademark cases, while section 43 broadly applies to trademark and unfair competition cases. This concern about the scope of section 35 led the district court to conclude that the attorneys' fees remedy of section 35 was not applicable to cases under section 43. We also note that several other circuits have found the matter troubling. In Brunswick Corp., the Tenth Circuit, while adopting the majority rule, said, referring to the other circuits' opinions:

Although these decisions completely ignore strict construction of the Lanham Act and are a wholesale judicial creation of remedies that Congress has not expressly provided for, we are not inclined to create a split in the circuit courts, and thus conclude that section 35 remedies apply to section 43(a) provisions.

832 F.2d at 528. An equally doubting tone was expressed in Standard Terry Mills, Inc. v. Shen Manufacturing Co., 803 F.2d 778 (3d Cir.1986), where the court said that "we have doubts whether we should rectify Congress's oversight and hold that attorney's fees are...