Skydive Arizona, Inc. v. Quattrocchi
2012 WL 763545, 673 F.3d 1105 (2012)
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Rule of Law:
Under the Lanham Act, a court may enhance a jury's actual damages award for compensatory purposes, but it constitutes an abuse of discretion to enhance an award for the purpose of punishing a defendant, even for willful infringement.
Facts:
- Skydive Arizona, Inc. has operated a large, well-known skydiving center in Eloy, Arizona under the “SKYDIVE ARIZONA” mark since 1986.
- SKYRIDE operated an internet and telephone-based advertising and booking service, selling certificates for skydiving that could be redeemed at various drop zones.
- SKYRIDE registered and used domain names such as skydivearizona.net and arizonaskydive.com, and operated websites that falsely represented that SKYRIDE owned and operated skydiving facilities in Arizona.
- These websites and advertisements misled consumers into believing they could redeem SKYRIDE's certificates at Skydive Arizona's facility.
- Skydive Arizona had no affiliation with SKYRIDE and did not accept its certificates.
- SKYRIDE's misrepresentation of owning facilities in Arizona was a strategic business decision intended to attract more customers.
- Numerous customers who purchased SKYRIDE certificates became angry when they learned of the deception and blamed Skydive Arizona for the problems.
Procedural Posture:
- Skydive Arizona filed a complaint against SKYRIDE in the U.S. District Court for the District of Arizona, alleging false advertising, trademark infringement, and cybersquatting.
- The district court granted partial summary judgment in favor of Skydive Arizona on its false advertising claim.
- Following a trial on the remaining claims, a jury found in favor of Skydive Arizona and awarded damages for trademark infringement, disgorged profits, and statutory damages for cybersquatting.
- SKYRIDE filed post-trial motions for a new trial, reduction of the jury award, remittitur, and judgment notwithstanding the verdict.
- The district court denied SKYRIDE's motions and, in its order, doubled the jury's actual damages awards for false advertising and trademark infringement.
- The district court also entered a permanent injunction against SKYRIDE's operations in Arizona.
- SKYRIDE appealed the summary judgment, the jury's awards, and the damages enhancement to the U.S. Court of Appeals for the Ninth Circuit.
- Skydive Arizona filed a cross-appeal, challenging the district court’s decision to limit the injunction to Arizona instead of issuing a nationwide injunction.
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Issue:
Does the Lanham Act permit a district court to enhance a jury's actual damages award for the purpose of punishing a defendant's willful infringement?
Opinions:
Majority - M. Smith, Circuit Judge
No. The Lanham Act does not permit a district court to enhance a jury's actual damages award for punitive purposes. The statute explicitly states that any enhanced sum shall constitute compensation and not a penalty. Here, the district court abused its discretion by doubling the actual damages award because its reasoning focused on punishing SKYRIDE's 'purposefully deceitful nature' and its 'disregard for the people they harmed,' which revealed a punitive, rather than compensatory, motivation. However, the court affirmed the jury's underlying awards for actual damages and disgorged profits. The actual damages award was upheld because in cases of intentional infringement, 'crude' measures of damages based on reasonable inferences from evidence, such as advertising expenditures and customer confusion, are permissible. The disgorged profits award was affirmed because SKYRIDE waived its right to challenge the plaintiff's expert testimony by failing to raise a Daubert objection at trial.
Concurring-in-part-and-dissenting-in-part - Noonan, Circuit Judge
While concurring with the majority's reversal of the punitive damages enhancement, the dissent argues that the underlying jury award for actual damages should also be reversed. Judge Noonan contends that the evidence presented, such as advertising expenditures, only establishes the value of Skydive Arizona's goodwill, not the actual monetary harm done to it. He argues there was no evidence in the record to support the jury's $2.5 million calculation for harm to goodwill, and that the district court erred by using a legal standard for harm to a person's reputation rather than the more quantifiable standard for harm to a business's goodwill, which should be assessed with more concrete evidence.
Analysis:
This decision reinforces a critical limitation on judicial power under the Lanham Act: damage enhancements must be compensatory in nature, not punitive, even in cases of blatant, willful infringement. It clarifies that while juries have significant latitude in calculating harm to goodwill using 'crude' but reasonable measures, a judge's subsequent enhancement must be explicitly tied to making the plaintiff whole. The case also serves as a crucial procedural reminder for trial attorneys that Daubert challenges to the admissibility of expert testimony are waived if not raised before or during trial, precluding post-verdict attacks on the expert's methodology.
