Banff Ltd. v. Express, Inc.
921 F. Supp. 1065, 38 U.S.P.Q. 2d (BNA) 1024, 1995 U.S. Dist. LEXIS 19374 (1995)
Rule of Law:
Under the Copyright Act, actual damages require proof of 'but for' causation, and deductible infringer's profits are limited to overhead demonstrably attributable to the infringement; under the Lanham Act, trade dress protection for product design requires the design to primarily serve as a source identifier, and false designation of origin (reverse passing off) requires an affirmative misrepresentation about the product's creator, not merely the retailer placing its label on a product it sells.
Facts:
- In late 1990, Jeffrey Gray, an employee of Banff's Vanessa Division, designed an Aran-style sweater featuring cabled patterns, traditional stitching, and hand-crocheted roses.
- Banff produced both wool and cotton versions of this sweater and sold it to high-end retailers such as Neiman Marcus, Bergdorf Goodman, and Bloomingdale's.
- Banff advertised its sweater in Bergdorf Goodman's and Bloomingdale's catalogues, and in Glamour magazine, which were read by Express's sweater purchaser.
- In December 1992, a Banff employee noticed a similar sweater in the window of an Express store in Manhattan.
- Herbert Vanefsky, President of Banff's Vanessa division, purchased an Express sweater and concluded its design was identical to Banff's, despite being made of less expensive ramie and cotton.
- Banff and Express operated in different market segments, with Banff selling to high-end stores at a wholesale price of $63.75 per cotton sweater, while Express sold its sweaters at retail for a maximum of $60, averaging $48.51.
- Banff had never conducted business with Express's sweater purchasing division and had only sold about 400 of its cotton sweaters, whereas Express purchased between 39,262 and 40,137 of the allegedly infringing sweaters.
- Banff experienced financial difficulties from the late 1980s, laid off a designer by April 1992, and went out of business in January 1993, during the period Express purchased the infringing sweaters.
Procedural Posture:
- Banff Ltd. (plaintiff) sued Express, Inc. (defendant) in the United States District Court for the Southern District of New York, alleging copyright infringement and violations of § 43(a) of the Lanham Act (trade dress infringement and false designation of origin).
- A six-day jury trial was held.
- The jury returned a verdict for Banff, finding Express infringed its copyright and awarding $200,685 in actual damages and $1,017,240 in Express's profits.
- The jury also concluded that Express violated § 43(a) of the Lanham Act by infringing Banff's trade dress and falsely designating the origin of the copied sweaters, but found no 'willfully deceptive' conduct, thus awarding no damages on these claims.
- Express moved, pursuant to Fed.R.Civ.P. 50(b), for judgment as a matter of law on Banff's claims for actual damages, the amount of infringer's profits, trade dress infringement, and false designation of origin.
- Alternatively, Express moved, pursuant to Fed.R.Civ.P. 59, for a new trial on each of these issues.
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Issue:
1. Did the jury have a legally sufficient evidentiary basis to award Banff Ltd. actual damages under the Copyright Act? 2. Was the jury's calculation of Express, Inc.'s profits from copyright infringement supported by the evidence and law regarding deductible expenses? 3. Was there a legally sufficient evidentiary basis to find Express, Inc. liable for trade dress infringement under the Lanham Act, given the requirement that product design primarily serve as a source identifier? 4. Did Express, Inc.'s practice of placing its own label on the allegedly infringing sweaters constitute false designation of origin (reverse passing off) under the Lanham Act?
Opinions:
Majority - SCHEINDLIN, District Judge
1. No, the jury's award of actual damages under the Copyright Act had a very weak, albeit legally sufficient, basis, but was "seriously erroneous" and against the "weight of evidence," warranting a new trial. Banff failed to prove that it would have made the sweater sales 'but for' Express's infringement. The evidence showed Banff and Express targeted different markets with vastly different price points, with Banff's wholesale price exceeding Express's retail price. Furthermore, Banff lacked the capacity to supply the quantity of sweaters Express required, having sold only about 400 of its cotton sweaters compared to Express's purchase of nearly 40,000 knockoffs. Finally, Banff was experiencing severe financial difficulties during the relevant period, ultimately going out of business, making it highly unlikely it could have supplied Express. The award was deemed an undeserved windfall. 2. Yes, the jury's calculation of Express, Inc.'s profits under the Copyright Act was neither contrary to law nor against the weight of evidence. Express, as the infringer, bore the burden of proving its deductible indirect costs were attributable to the infringing sales. The jury was entitled to accept the incremental accounting approach, which only allows deductions for overhead expenses significantly increased by the infringing sales. Given that the infringing sweaters constituted a tiny fraction of Express's total business, and Express presented insufficient evidence demonstrating a direct relationship between its indirect costs and the production or sale of these specific sweaters, the jury reasonably found that Express did not meet its burden. 3. No, the jury lacked a legally sufficient evidentiary basis to find Express, Inc. liable for trade dress infringement. Following the Second Circuit's clarification in Knitwaves, Inc. v. Lollytogs, Ltd., product design qualifies for trade dress protection only if its 'primary purpose' is to serve as a designator of origin. The evidence in this case clearly indicated that Banff's sweater design, like the plaintiff's designs in Knitwaves, was chosen primarily for aesthetic reasons, not primarily to identify the product's source. Therefore, the design failed to qualify for trade dress protection. 4. No, the jury lacked a legally sufficient evidentiary basis to find Express, Inc. liable for false designation of origin. Under Second Circuit precedent (Kregos v. Associated Press; Lipton v. The Nature Co.), merely placing a retailer's own label on a product it sells, even if the product itself is copied, does not constitute a false designation of origin. Such an action only represents the right to sell the item, not an affirmative misrepresentation about who 'created' or 'originated' the design. This contrasts with cases where there is an explicit false claim of authorship or creation, as seen in Waldman Publishing Corp. v. Landoll Inc., where the defendant attributed copied books to its own authors.
Analysis:
This case clarifies critical distinctions in intellectual property law, particularly the high bar for actual damages in copyright, requiring stringent proof of 'but for' causation. It also underscores the infringer's significant burden in proving attributable overhead for profit calculations. More importantly, it solidifies the evolving standards for trade dress protection of product designs and false designation of origin under the Lanham Act, emphasizing that designs must 'primarily' identify source and that 'reverse passing off' requires an affirmative misrepresentation of the creator, not just a retailer's label on a product. Future plaintiffs asserting trade dress for product design will face difficulty unless they can demonstrate the design's primary function is source identification, and false designation claims will require more than mere labeling.
