Wolfe v. National Lead Company

• Decision Date: 27 November 1959
• Docket Number: No. 16157.,16157.
• Citation: 272 F.2d 867
• Parties: Bernard M. WOLFE and Frederick J. Dannenfelser, Individuals and Co-partners Doing Business Under the Names and Styles of "Dutch Paint Company" and "Manning-Mitchell Paint Company," Appellants, v. NATIONAL LEAD COMPANY, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

272 F.2d 867 (1959)

Bernard M. WOLFE and Frederick J. Dannenfelser, Individuals and Co-partners Doing Business Under the Names and Styles of "Dutch Paint Company" and "Manning-Mitchell Paint Company," Appellants, v. NATIONAL LEAD COMPANY, a Corporation, Appellee.

No. 16157.

United States Court of Appeals Ninth Circuit.

November 27, 1959.

COPYRIGHT MATERIAL OMITTED

Joseph L. Alioto, Guido Saveri, San Francisco, Cal., for appellant.

Crimmins, Kent, Bradley & Burns, Robert E. Burns, San Francisco, Cal., for appellee.

Before CHAMBERS, HAMLIN and MERRILL, Circuit Judges.

MERRILL, Circuit Judge.

Appellants will hereinafter be designated in the singular as "Wolfe."

Wolfe takes this appeal from judgment of the District Court in the sum of $239,457.86, based upon an accounting of profits and damages as reported by the court following hearing. Wolfe contends that in several specific respects the accounting report gives recognition to accounting methods and considerations which are inappropriate under the facts of this case.

The accounting was ordered for the purpose of ascertaining the extent of profits realized by Wolfe through his use on paint products and in advertising of the words "Dutch," "Dutch Paint" and "Dutch Paint Company," such use having been judicially determined to constitute a deliberate and fraudulent infringement of appellee's trademark "Dutch Boy." The history of the proceedings leading to the judgment below are set forth in the margin.¹

The accounting report covered the entire period of infringement: from May 1, 1946, to January 15, 1956, and, save for the final computation, was based upon annual computations made at the end of each fiscal year (April 30). It showed that, for the years 1947, 1948, 1954, 1955 and 1956, losses rather than profits were realized from the sale of "Dutch" products. For the remaining years, profits were shown totalling $178,657.86. Judgment for the full amount was rendered in favor of appellee.

Wolfe asserts error in the failure of the court to set off the losses against the profits.

It is clear, however that in the making of an accounting an infringer is not permitted such a setoff. Mr. Justice Cardozo, in the case of a patent infringement, Duplate Corporation v. Triplex Safety Glass Co., 1936, 298 U.S. 448, 458, 56 S.Ct. 792, 796, 80 L.Ed. 1274, stated the principle as follows:

"The owner of the patent, in holding the infringers to an accounting, is not confined to all or nothing. There may be an acceptance of transactions resulting in a gain with a rejection of transactions resulting in a loss. Upon a statement of an account, a patentee is not looked upon as a `quasi-partner of the infringers,\' under a duty to contribute to the cost of the infringing business as a whole. McKee Glass Co. v. H. C. Fry Glass Co., 3 Cir., 248 F. 125, 128. He is the victim of a tort, free at his own election to adopt what will help and discard what will harm."

See also National Carbon Co. v. Richards & Co., 2 Cir., 1936, 85 F.2d 490, 492; Coca Cola Co. v. Dixie Cola Laboratories, Inc., Md.1944, 57 F.Supp. 911, 912, 913; Adolphe Gottscho v. American Marketing Corporation, 1958, 26 N.J. 229, 139 A.2d 281, 67 A.L.R.2d 816. The same principle applies in trademark cases. Coca Cola Co. v. Dixie Cola Laboratories, Inc., supra. See 3 Restatement, Torts, 747, comment d (1938).

Wolfe contends that in several respects the District Court erred in fixing the limits of the accounting period and that a shorter period was called for under the facts.

First, it is asserted that the period should have commenced no earlier than May 1, 1949, since before that date the business had been carried on in corporate form by the predecessors of the present partnership. We need not consider whether error was committed in this respect. No prejudice could have resulted since no profit was charged to Wolfe during this period.

Wolfe next asserts that the accounting period should have been held to terminate at an earlier date than January 15, 1956.

On October 1, 1949, Wolfe retained counsel who advised him that he was not in infringement. He asserts that thereafter he acted in good faith and in reliance upon such advice and that an accounting is not proper during that period when infringement was innocent.

Further, on January 5, 1953, by judgment of the District Court (see footnote 1), it was held that Wolfe was not in infringement. Wolfe asserts that, until this judgment was reversed by this Court, he acted in good faith and in reliance upon the judgment of the District Court and that his infringement during this period must be recognized to have been innocent.

It was not innocent, however, in its inception. As has been judicially determined, it was a deliberate and fraudulent appropriation to himself of the good will of appellee. Throughout this period, Wolfe had full knowledge of the facts and of appellee's claim of infringement. Whether he believed himself to be within the law or not, he was knowingly and deliberately cashing in upon the good will of appellee. This is such an infringement as will justify an accounting of profits. Lawrence-Williams Co. v. Societe Enfants Gombault et Cie., 6 Cir., 1931, 52 F.2d 774. This course moreover continued after reversal by this Court and until halted by order of the District Court in response to our mandate. One may view with some skepticism the proposition that the conduct of Wolfe from time to time throughout this continuing and constant course of infringement assumed an aspect of innocence wholly free from the original fraudulent intent.

Under the facts of this case, there was no error in holding the accounting period to continue beyond the District Court judgment in favor of Wolfe. Champion Spark Plug v. Reich, D.C.Mo. 1943, 49 F.Supp. 903; and see Notaseme Hosiery Co. v. Straus, D.C.S.D.N.Y.1913, 209 F. 495, 496, affirmed, 2 Cir., 1914, 215 F. 361, reversed on other grounds, 1916, 240 U.S. 179, 36 S.Ct. 288, 60 L.Ed. 590.

The counterclaim of appellee was filed November 19, 1949, and had reference to matters occurring between 1946 and June, 1949. Wolfe contends that these dates limited the matters at issue and that these issues provide no basis for an accounting beyond June, 1949.

Where accounting is proper, the accounting period should, in our view, be regarded as co-extensive with the period of infringement (see Century Distilling Corporation v. Continental Distilling Corp., 3 Cir., 1953, 205 F.2d 140, 142, certiorari denied, 1953, 346 U.S. 900, 74 S.Ct. 226, 98 L.Ed. 400; Champion Spark Plug v. Reich, D.C.Mo.1943, 49 F.Supp. 903) and the infringer must bear the burden of establishing that the infringement has so changed in character as to justify a relief from accounting. See 2 Wigmore, Evidence, §§ 395, 437 (3rd Ed., 1940); and cf. Mishawaka Rubber & Woolen Mfg. Co. v. S. S. Kresge Co., 1941, 316 U.S. 203, 62 S.Ct. 1022, 86 L.Ed. 1381. There has been no such showing here. We see no good reason for relieving Wolfe from liability for that period during which he persisted in infringement in the face of the formal demands of appellee. An inference of continuing deliberate and fraudulent intent is clearly available.

Wolfe next challenges the manner in which the account and report of the District Court ascertained the administrative and manufacturing costs attributable to "Dutch" products and thus determined the net profits for which Wolfe was liable. During the period in question, Wolfe was not selling "Dutch" products alone. Much of his business had no relation to the infringed trademark. Unlabeled paint was sold, and paint was sold under labels other than "Dutch." It therefore became necessary to apportion costs between "Dutch" and non-"Dutch" products. The records kept by Wolfe and made available to appellee did not contain data from which an accurate apportionment could be made. Appellee, in the District Court, therefore proposed the "sales-ratio" method: applying to the joint expense the ratio of receipts from the sale of infringing goods to the total receipts. Application of this ratio showed 64% of costs to be attributable to "Dutch" products. This method is recognized as proper where a more exact basis of apportionment is not available. National Folding-Box & Paper Co. v. Dayton Paper Novelty Co., C.C.Ohio, 1899, 95 F. 991; Duro Co. (of Ohio) v. Duro Co. (of New Jersey), 3 Cir., 1932, 56 F.2d 313, 315-316; Flat Slab Patents Co. v. Turner, 8 Cir., 1922, 285 F. 257, 277, certiorari denied 1923, 262 U.S. 752, 43 S.Ct. 700, 67 L.Ed. 1215.

In the District Court, Wolfe opposed the application of this method as wholly inappropriate to the type of business operated by him. He testified that, on the whole, throughout the ten-year period he had lost money on "Dutch" products; that 85% would be a fair figure at which to fix "Dutch" administrative costs; that for the first four years 89% would be a fair figure for "Dutch" manufacturing costs and that this figure would be higher for subsequent years.

As a result of the testimony of Wolfe, the District Court refused to accept the sales-ratio method without qualification. At the same time, the court refused to accept the conclusions of Wolfe, finding that, while they were fundamentally sound in general principle, still in their application to the facts they were so far removed from accepted accounting principles as to "present endless problems and require a multitude of adjustments."

The court then struck a compromise. It accepted Wolfe's figure of 85%. To compensate for higher manufacturing costs, it then deducted 20% of the profits as computed by the 85% figure.

Wolfe contends that this manner of determining profits was clearly erroneous.

We must recognize as established law that the burden of proving costs is upon Wolfe. Section 35 of the Lanham Act (15 U.S.C.A. § 1117) provides:

"In assessing profits the plaintiff shall be required to prove defendant\'s sales only; defendant must prove all elements

...