Playboy Enterprises, Inc. v. Baccarat Clothing Co., Inc., 82-5010

Citation692 F.2d 1272,216 USPQ 1083
Decision Date22 November 1982
Docket NumberNo. 82-5010,82-5010
PartiesPLAYBOY ENTERPRISES, INC., a corporation, Plaintiff-Appellant, v. BACCARAT CLOTHING CO., INC., a corporation, Meier Caspi and Tchia Caspi, individuals, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

William F. Dudine, Jr., Darby & Darby, P.C., New York City, for plaintiff-appellant.

Michael M. Hatchwell, Hatchwell & Johnson, Los Angeles, Cal., Lewis Anten, Encino, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before ELY, SNEED and ALARCON, Circuit Judges.

ELY, Circuit Judge:

This is a trademark infringement case concerning the appropriateness of the District Court's damages award. The appeal arises from a civil action initiated by Playboy Enterprises, Inc. ("PEI") in the United States District Court for the Central District of California against Baccarat Clothing, Inc. ("Baccarat") and Meier Caspi and his wife Tchia Caspi ("the Caspis") for infringement of PEI's federally registered PLAYBOY and RABBIT HEAD design trademarks (15 U.S.C. Sec. 1051, et seq.). The District Court found for PEI but granted damages of only $12,750. PEI appeals the sufficiency of this award on several grounds.

I. FACTUAL BACKGROUND

Baccarat and the Caspis operate a wholesale and retail jeans business in South Los Angeles and retail jeans businesses from other locations in suburban Los Angeles. Artistic Identification Systems, Inc. ("AIS") is in the business of manufacturing and selling various types of labels, including woven and embroidered labels, for use on wearing apparel. From 1979 through February 1981, when the District Court action was commenced, AIS delivered to Baccarat and the Caspis approximately 43,000 labels bearing the combination PLAYBOY and RABBIT HEAD design mark. A substantial, but necessarily imprecise, number of the labels were used on jeans which were made and sold by the defendants. Neither Baccarat nor the Caspis entered into a licensing agreement with PEI prior to the above actions. On February 6, 1981, PEI filed suit in District Court for trademark infringement and false designation of origin under the Lanham Act (15 U.S.C. Sec. 1117).

On February 9th, Baccarat and the Caspis appeared through counsel and consented to the entry of a preliminary injunction and to the seizure of any counterfeit PLAYBOY goods which PEI might find at any of the Baccarat store locations. On February 10th, PEI attempted to depose the defendants. During the deposition the defendants continually invoked their Fifth Amendment privilege against self-incrimination and refused to provide any information with respect to their manufacture and sale of counterfeit PLAYBOY jeans. They also refused to produce the counterfeit PLAYBOY labels then in their possession. PEI, through third party discovery, determined that Baccarat and the Caspis purchased the counterfeit PLAYBOY and RABBIT HEAD labels from AIS.

In view of their failure to provide proper discovery with respect to the counterfeit PLAYBOY jeans, the District Court prohibited the defendants from testifying or introducing any evidence with respect to matters about which they had failed to provide discovery. Thus, the defendants were precluded from introducing evidence as to the number of infringing jeans sold.

After a one-day trial on October 27, 1981, the District Court announced its decision from the bench. The District Court found that PEI's PLAYBOY and RABBIT HEAD design trademarks are strong and distinctive and have acquired great fame, Baccarat and the Caspis by their unauthorized manufacture and sale of jeans bearing PEI's trademarks willfully and deliberately counterfeited these marks, Baccarat and the Caspis through such counterfeiting confused and deceived the public into believing that the counterfeit jeans originated with PEI, Baccarat and the Caspis ordered 43,000 counterfeit PLAYBOY and RABBIT HEAD labels from AIS and sold 20,000 pairs of jeans bearing such labels, and neither Baccarat nor the Caspis entered into a licensing agreement with PEI prior to taking these actions.

Upon these findings the District Court awarded PEI $12,750 in damages based on the revenue which PEI would have received had the infringing sales been licensed at the standard PEI royalty rate of five percent. The District Court refused to award PEI both its attorneys' fees and the profits earned by the defendants from the sale of the counterfeit jeans. In addition, the court refused to increase the damage award pursuant to 15 U.S.C. Sec. 1117 (permitting treble damages). PEI appeals the above decisions.

II. ANALYSIS

First, PEI's assertion that the District Court erred in failing to award an accounting of profits remedy will be explored. In Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F.2d 117 (9th Cir.1968), we held that where trademark infringement is deliberate and willful both the trademark owner and the buying public are slighted if a court provides no greater remedy than an injunction. Maier stressed that the trial court's primary function should center on making any violations of the Lanham Act unprofitable to the infringing party. In pursuit of this goal Maier reasoned that an accounting of profits would serve as a proper remedy both in those cases involving direct competition between the trademark infringer and the trademark owner and also in those instances where no direct competition exists. Maier justified the accounting of profits remedy in direct competition cases as necessary to secure the return of all profits to the deserving trademark owner and justified the accounting of profits remedy in non-direct competition cases (the case on appeal) as necessary to prevent the unjust enrichment of the infringing party. See also Maltina Corp. v. Cawy Bottling Co., Inc., 613 F.2d 582 (5th Cir.1980) and Monsanto Chemical Co. v. Perfect Fit Products Manufacturing Co., 349 F.2d 389 (2d Cir.1965).

In expanding upon the policy considerations underlying the Maier decision it logically follows that an award of little more than nominal damages would encourage a counterfeiter to merely switch from one infringing scheme to another as soon as the infringed owner became aware of the fabrication. Such a method of enforcement would fail to serve as a convincing deterrent to the profit maximizing entrepreneur who engages in trademark piracy. The judicial penalties imposed under such an approach would be simply factored into the infringer's profit and loss statement. If after deducting this "judicial expense" the entrepreneur still earns a suitable return on his investment he will continue the infringing activities. Under these circumstances the best advice to a counterfeiter would be to plead the Fifth Amendment, provide no documents and if the trademark owner is able to obtain evidence of the counterfeiting activities through third party discovery, simply pay as a "judicial expense" no more than a reasonable royalty on the goods sold. Through the employment of such ineffective remedies the counterfeiter escapes without suffering the economic harm necessary to serve as a deterrent to future infringing activities.

In addition to the harm caused the trademark owner, the consuming public is equally injured by an inadequate judicial response to trademark infringement. Many consumers are willing to pay substantial premiums for particular items which bear famous trademarks based on their belief that such items are of the same high quality as is traditionally associated with the trademark owner. As a result of this trademark infringement the consuming public is denied the benefit of their bargains and the reputation and goodwill of the trademark owner is accordingly harmed. For these reasons, it is essential that the trial courts carefully fashion remedies which will take all the economic incentive out of trademark infringement.

With these policy considerations serving as a background and in light of the abuse of discretion standard, it is next appropriate to analyze the adequacy of the damages awarded to PEI by the trial court. In Faberge, Inc. v. Saxony Products, Inc., 605 F.2d 426 (9th Cir.1979) ...

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