George Basch Co., Inc. v. Blue Coral, Inc.
968 F.2d 1532 (1992)
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Rule of Law:
Under § 35(a) of the Lanham Act, a plaintiff in a trade dress infringement action must prove that the defendant acted with willful deception to be entitled to an award of the defendant's profits.
Facts:
- The George Basch Co., Inc. (Basch) manufactures and sells NEVR-DULL, a metal polish packaged in a distinctive five-ounce, navy blue cylindrical metal can with white lettering and red and white icons.
- In July 1987, Blue Coral, Inc. became the exclusive Canadian distributor for Basch's NEVR-DULL product.
- In April 1988, Blue Coral approached Basch to produce a wadding metal polish for Blue Coral to market in the United States under its own ESPREE brand.
- Negotiations between Basch and Blue Coral failed in August 1988 due to a disagreement over price.
- Blue Coral subsequently contracted with a different manufacturer to produce a wadding metal polish.
- In July 1988, Blue Coral began selling its own polish, EVER BRITE, in the United States, packaged in a can of the same size and shape as NEVR-DULL's, but with a black base color and different graphics.
- In March 1989, Basch terminated Blue Coral's Canadian distributorship agreement.
- Approximately one year later, Blue Coral began selling EVER BRITE in Canada.
Procedural Posture:
- The George Basch Co., Inc. sued Blue Coral, Inc. in the U.S. District Court for the Eastern District of New York for trade dress infringement under the Lanham Act and other state law claims.
- At trial, the district court ruled that Basch could not recover actual damages because it failed to prove actual consumer confusion or intent to deceive.
- However, the district court allowed the jury to consider awarding Blue Coral's profits to Basch.
- The jury returned a verdict for Basch on the trade dress infringement claim and awarded Basch $200,000 in Blue Coral's profits.
- Blue Coral filed a motion for judgment notwithstanding the verdict (j.n.o.v.), arguing that profits could not be awarded without a finding of bad faith, which the district court denied.
- The district court entered judgment for Basch, including the profits award and an injunction.
- Blue Coral (as appellant) appealed the denial of its j.n.o.v. motion to the U.S. Court of Appeals for the Second Circuit.
- Basch (as cross-appellant) appealed the scope of the injunction and the denial of attorney fees.
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Issue:
Under § 35(a) of the Lanham Act, may a plaintiff in a trade dress infringement action recover the defendant's profits without proving that the defendant engaged in willful deception?
Opinions:
Majority - Judge Walker
No. Under § 35(a) of the Lanham Act, a plaintiff must prove that an infringer acted with willful deception before the infringer's profits are recoverable. The court analyzed the three rationales for awarding profits: unjust enrichment, compensation for plaintiff's damages, and deterrence. For unjust enrichment, the defendant's enrichment must be the fruit of willful deception to be considered 'unjust.' For profits to serve as a proxy for damages, there must be a basis for finding damage, which requires consumer confusion, and the court clarified that bad faith is a prerequisite. The deterrence rationale is explicitly aimed at deterring willful infringers. The court adopted the position of the Restatement (Third) of Unfair Competition, holding that requiring willful deception prevents a potentially draconian windfall for the plaintiff against an innocent infringer. Here, the jury found Blue Coral intended to imitate, but not that it acted maliciously or with intent to deceive, which is a critical distinction. Therefore, an accounting of Blue Coral's profits was not an available remedy.
Dissenting - Judge Kearse
Yes. An award of the defendant's profits was a permissible remedy under the circumstances. The Lanham Act allows for the recovery of profits subject to the principles of equity, and an accounting is appropriate where the defendant has been unjustly enriched. The jury found that Blue Coral intentionally copied Basch's distinctive trade dress, which had acquired secondary meaning, and that this copying created a likelihood of consumer confusion. These findings, combined with the instruction that the jury could find infringement if Blue Coral intended to benefit from Basch's rights, are sufficient to support the conclusion that Blue Coral was unjustly enriched by its infringement. The jury's verdict awarding $200,000 in profits that Blue Coral earned due to the infringement should have been affirmed.
Analysis:
This decision significantly clarifies the standard for monetary relief in the Second Circuit for trade dress infringement under the Lanham Act. By requiring proof of 'willful deception' for an accounting of profits, the court established a high bar for plaintiffs, distinguishing this remedy from an award of actual damages. This holding aligns the Second Circuit with the modern trend reflected in the Restatement, which seeks to prevent punitive or windfall judgments against infringers who did not act with a fraudulent intent. The case draws a sharp line between intentional copying for competitive purposes and intentional copying for the purpose of deceiving consumers, making the infringer's state of mind a critical element for recovering profits.
