The Fourth Circuit recently ruled on several important issues regarding the scope of relief that may be granted for trademark infringement.   The backdrop for the decision in Georgia Pacific Consumer Products LP v. Von Drehle Corp. was a 2012 jury verdict that a North Carolina company was liable for contributory trademark infringement for designing and selling paper towels to fit into the plaintiffs’ trademarked brand of motion sensor paper towel dispensers.  The jury awarded the plaintiffs all of the profits the defendant earned from the sale of its paper towels from 2005 to the trial date, and then the North Carolina district court tripled that amount to nearly $2.4 million.  The district court also awarded the plaintiffs an additional $2.4 million in attorneys’ fees and prejudgment interest, and entered a nationwide permanent injunction prohibiting the defendant from infringing the plaintiffs’ “enMotion” trademark rights.  The Fourth Circuit significantly reduced and limited the district court’s orders in several key ways.

First, “for the sake of comity,” the Fourth Circuit vacated the nationwide permanent injunction and directed that it should be limited geographically to only prohibit infringement in the five states comprising the Fourth Circuit (North Carolina, South Carolina, Maryland, Virginia, and West Virginia).  Although the Fourth Circuit acknowledged, “as a general matter,” that a district court has the authority to issue a nationwide injunction, it found that “equity requires that injunctions be carefully tailored, especially where, as here, questions of inter-circuit comity are involved.”  Specifically, the Fourth Circuit was referring to the “unique circumstances of this case,” where: (i) the Sixth and Eighth Circuits had previously held that, in the eleven states comprising those two circuits, the plaintiffs may not enforce their enMotion mark to prevent the defendant from stuffing its paper towels into the plaintiffs’ paper towel dispensers, and (ii) the 10 other circuits that have yet to rule on the issue “should be free to resolve this question” in light of this “significant split of authority.”

Judge Dennis Shedd dissented only from the injunction part of the opinion, explaining that the majority misapplied the “discretionary” doctrine of comity, which is “not a rule of law” and “its obligation is not imperative.”  He additionally noted that the majority’s decision to narrow the injunction to only five states “runs counter to a fundamental purpose of the Lanham Act, which is ‘to provide national protection for trademarks used in interstate and foreign commerce.’”  He further expressed his belief that vacating the nationwide injunction will permit the defendant to interfere with the plaintiffs’ trademark in 45 states.

The second important ruling issued by the Fourth Circuit was that the district court improperly trebled the jury’s damages award of the defendant’s profits on the paper towels.  The Fourth Circuit found that the district court should not have relied on Larsen v. Terk Technologies Corp., 151 F.3d 140 (4th Cir. 1998), which involved trebling damages under 15 U.S.C. § 1117(b) of the Lanham Act for knowing and intentional use of a counterfeit mark.  In contrast, this case involved recovery of profits under a different section –  § 1117(a) – that only permits the district court to increase a jury’s award if it is “inadequate.”  The jury’s award could not have been inadequate because the plaintiffs had only requested the defendant’s profits, which the jury awarded them.

The Fourth Circuit additionally vacated the district court’s $2.2 million award of attorneys’ fees to the plaintiffs, which the district had based on the facts that the defendant specifically designed the paper towels for use in the plaintiffs’ enMotion dispensers and knew that they would be stuffed in those dispensers.  The Fourth Circuit held that those facts do not make this an “exceptional” case under Section 1117(a), for which attorneys’ fees could be awarded.  “To affirm the district court’s application . . . would mean that every Lanham Act case would qualify as ‘exceptional’ unless the defendant could show that it unintentionally or mistakenly performed the actions later found to be in violation of the Act.”

Additionally, the Fourth Circuit remanded the attorneys’ fees issue with instructions for the district court to apply the Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), which was handed down after the parties had submitted their briefs to the district court, and which construed a parallel and identical provision of the Patent Act.  The Fourth Circuit explained that, in light of Octane, “a district court may find a case ‘exceptional’ and therefore award attorney’s fees to the prevailing party under § 1117(a) when it determines, in light of the totality of circumstances, that (1) there is an unusual discrepancy in the merits of the positions taken by the parties . . . based on the non-prevailing party’s position as either frivolous or objectively unreasonable . . . (2) the non-prevailing party has litigated the case in an unreasonable manner . . . ; or (3) there is otherwise the need to advance considerations of compensation and deference.”

Finally, the Fourth Circuit reversed the district court’s award of prejudgment interest to the plaintiffs.  Although the Court did not “categorically foreclose an award of prejudgment interest under § 1117(a) as an element of a damages award in a trademark infringement case . . . [it ruled that,] in this case, [plaintiffs] did not undertake to prove [their] own damages, claiming instead only a disgorgement of [defendant’s] gross profits” from the sale of the defendant’s paper towels.