E. & J. GALLO WINERY v. Consorzio Del Gallo Nero
92 Cal. Daily Op. Serv. 1635, 22 U.S.P.Q. 2d (BNA) 1227, 782 F. Supp. 472 (1992)
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Rule of Law:
The Lanham Act permits an award of attorneys' fees to the prevailing party in trademark infringement cases only under 'exceptional circumstances,' which are typically present when the infringement is malicious, fraudulent, deliberate, or willful. Willful infringement can be found when a party proceeds with infringing conduct despite clear notice of potential infringement and a failure to reasonably investigate or seek legal counsel.
Facts:
- E. & J. Gallo Winery ("Gallo") produced a wide variety of wines featuring the 'Gallo' trademark in the United States.
- Consorzio del Gallo Nero ("Gallo Nero") was an Italian trade association promoting Chianti Classico wine, formed in 1987, succeeding the Consorzio Vino Chianti Classico (CVCC) formed in 1924.
- In 1984, Gallo Nero’s predecessor, CVCC, applied to register “Gallo Nero” as a mark in Canada, but the Canadian trademark office rejected the application due to likely confusion with Gallo’s existing Canadian trademarks.
- In late 1986, CVCC published a full-page advertisement in the Wine Spectator using “Gallo Nero” to promote its wine in the U.S.
- In early 1987, Gallo sent a cease-and-desist letter to CVCC, asserting trademark infringement and likelihood of confusion due to Gallo Nero's advertisement.
- In response, CVCC stopped its U.S. marketing campaign and amended its bylaws to allow the use of alternative names like 'Black Rooster Consortium' or 'Consorzio Chianti Classico' if it were prevented from using 'Gallo Nero.'
- In 1987, Gallo Nero opposed Gallo’s application to register the “Ernest and Julio Gallo” mark in the United Kingdom, arguing the mark would be deceptive or confusing with its own 'Gallo Nero' mark.
- In 1989, Gallo Nero launched a second U.S. marketing campaign utilizing the words “Gallo Nero” to promote its wine, without consulting legal counsel for an opinion on potential infringement.
Procedural Posture:
- E. & J. Gallo Winery ('Gallo') initiated an action for trademark infringement and dilution against Consorzio del Gallo Nero ('Gallo Nero') in the U.S. District Court for the Northern District of California.
- The District Court granted summary judgment in favor of Gallo on both the trademark infringement and dilution claims.
- On September 13, 1991, the District Court issued a judgment of permanent injunction, prohibiting Gallo Nero from using the word 'Gallo' in promoting and selling its wines in the United States, with limited exceptions.
- On the same day, the District Court issued a separate judgment document which included the statement 'Parties to bear their own costs.'
- On September 23, 1991, Gallo's counsel sent a letter to the Court inquiring as to the significance of the statement that parties were to bear their own costs.
- On October 11, 1991, the District Court issued an Order correcting the single-page judgment pursuant to Fed.R.Civ.Proc. 60(a), stating that the phrase 'Parties to bear their own costs' was included in error and should be omitted, thereby allowing the prevailing party to recover costs.
- Gallo filed a motion for an award of attorneys' fees, claiming that Gallo Nero's infringement was willful.
- Gallo Nero filed motions for discovery and a hearing regarding the amount of attorneys' fees if awarded, and to amend the judgment to restore the deleted 'Parties to bear their own costs' statement, pursuant to Fed.R.Civ.Proc. 59(e).
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Issue:
Does a trademark infringer's conduct, involving prior warnings, use of the mark to its own advantage in other jurisdictions, and failure to seek independent legal advice, constitute 'willful infringement' justifying an award of attorneys' fees under the Lanham Act's 'exceptional circumstances' standard?
Opinions:
Majority - Jensen, District Judge
Yes, a trademark infringer's conduct, involving prior warnings, use of the mark to its own advantage in other jurisdictions, and failure to seek independent legal advice, does constitute 'willful infringement' justifying an award of attorneys' fees under the Lanham Act's 'exceptional circumstances' standard. The Court determined that Gallo Nero's infringement was willful because it had clear notice of potential confusion and infringement but proceeded regardless. Gallo Nero received warnings from Canadian officials who denied its trademark application due to likelihood of confusion with Gallo's marks, and directly from Gallo via a cease-and-desist letter detailing the strength of its mark and potential confusion. Gallo Nero's subsequent actions, such as stopping its initial U.S. campaign and amending its bylaws to use alternative names, demonstrated an awareness of the risk. Crucially, Gallo Nero actively argued to UK officials that Gallo's proposed mark would be confusing with its own 'Gallo Nero' mark, undermining its claim of good faith belief in non-infringement in the U.S. The Court found Gallo Nero's 'in-house' investigation and attempts to distinguish products insufficient, emphasizing that failure to consult trademark counsel before engaging in infringing conduct, when reasonable to do so, supports a finding of willfulness. This pattern of undisputed knowledge of infringement risk, past conduct demonstrating belief in likelihood of confusion, and failure to obtain a legal opinion established willful infringement, making the case 'exceptional' under 15 U.S.C. § 1117(a) as per Sealy, Inc. v. Easy Living, Inc. and International Olympic Committee v. San Francisco Arts & Athletics. The Court also denied Gallo Nero's motion for discovery and a hearing on fees, finding it unnecessary and wasteful, and denied its motion to amend the judgment to restore the costs statement, stating the initial inclusion was an error arising from oversight correctable under Rule 60(a).
Analysis:
This case clarifies what constitutes 'willful infringement' under the Lanham Act's 'exceptional circumstances' standard for awarding attorneys' fees. It highlights that an infringer cannot claim good faith if they have received explicit warnings about potential infringement, have themselves asserted similar likelihood of confusion in other contexts, and have failed to obtain independent legal counsel before proceeding. The decision reinforces the importance of diligent pre-marketing legal review, especially when a party has prior knowledge of potential conflicts. This precedent serves as a strong deterrent against cavalier use of potentially infringing marks, encouraging companies to proactively address trademark conflicts rather than proceed under a self-serving and unsubstantiated belief of non-infringement.
