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15.29 Trademark Damages—Disgorgement of Defendant’s Profits (15 U.S.C. § 1117(a))

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15.29 Trademark Damages—Disgorgement of Defendant’s Profits 
(15 U.S.C. § 1117(a))
 

           In addition to actual damages, the plaintiff is entitled to any profits earned by the defendant that are attributable to the infringement, which the plaintiff proves by a preponderance of the evidence. You may not, however, include in any award of profits any amount that you took into account in determining actual damages. 

            Profit is determined by deducting all expenses from gross revenue. 

            Gross revenue is all the defendant’s receipts from using the trademark in the sale of a [product]. The plaintiff has the burden of proving the defendant’s gross revenue by a preponderance of the evidence. 

            Expenses are all the defendant’s [operating] [overhead] and production costs incurred in producing the gross revenue. The defendant has the burden of proving the expenses [and the portion of the profit attributable to factors other than use of the infringed trademark] by a preponderance of the evidence. 

            Unless you find that a portion of the profit from the sale of the [specify goods] using the trademark is attributable to factors other than use of the trademark, you should find that the total profit is attributable to the infringement. 

Comment 

            “[D]isgorgement of profits is a traditional trademark remedy.” Jerry’s Famous Deli, Inc. v. Papanicolaou, 383 F.3d 998, 1004 (9th Cir. 2004). The Ninth Circuit has held that the Seventh Amendment does not provide a right to a jury trial on the amount of profits to be disgorged. Fifty-Six Hope Road Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d 1059, 1074-76 (9th Cir. 2015). That is, “disgorgement of profits is an equitable issue ordinarily left to the court.” Harbor Breeze Corp. v. Newport Landing Sportfishing, Inc., 28 F.4th 35, 39 (9th Cir. 2022).Therefore, this instruction is being provided if the trial judge wants to impanel an advisory jury on this question. 

            “[R]ecovery of both plaintiff’s lost profits and disgorgement of defendant’s profits is generally considered a double recovery under the Lanham Act.” Nintendo of Am., Inc. v. Dragon Pac. Int’l, 40 F.3d 1007, 1010 (9th Cir. 1994). 

            Regarding establishing and calculating defendant’s profits, see Jerry’s Famous Deli, 383 F.3d at 1004-05 (9th Cir. 2004) (describing remedy, in enforcement of trademark injunction case, as “akin to an award of the infringer’s profits under trademark law” and noting “[u]nder established law, once gross profits related to the infringement are established, [infringer] has the burden of documenting any legitimate offsets”); 15 U.S.C. § 1117(a) (“In assessing profits the plaintiff shall be required to prove defendant’s sales only; defendant must prove all elements of cost or deduction claimed.”). See also Am. Honda Motor Co. v. Two Wheel Corp., 918 F.2d 1060, 1063 (2d Cir. 1990) (holding that plaintiff is entitled to amount of gross sales unless defendant adequately proves amount of costs to be deducted from it); Louis Vuitton S.A. v. Spencer Handbags Corp., 765 F.2d 966, 973 (2d Cir.1985) (holding that defendant’s own statements as to profits provided sufficient basis for calculation of defendant’s profits under 15 U.S.C. § 1117(a));5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 30.65 (5th ed. 2019) (discussing computation of defendant’s profits from infringing sales).Plaintiff has the burden of proof to show with “reasonable certainty” a defendant’s gross sales from infringing activity. Rolex Watch, U.S.A., Inc. v. Michel Co., 179 F.3d 704, 712 (9th Cir. 1999). 

In addition to the defendant’s burden of proving deductible costs and expenses to offset gross sales, the defendant can also prove that some sales, if any, were not attributable to the infringing activity. See Lindy Pen Co.,982 F.2d at 1408 (“Once the plaintiff demonstrates gross profits, they are presumed to be the result of the infringing activity. The defendant thereafter bears the burden of showing which, if any, of its total sales are not attributable to the infringing activity, and, additionally, any permissible deductions for overhead. 15 U.S.C. 1117(a).” (citation omitted)); Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 206-07 (1942) (“The plaintiff of course is not entitled to profits demonstrably not attributable to the unlawful use of his mark. The burden is the infringer’s to prove that his infringement had no cash value in sales made by him.” (citations omitted)). 

            A district court “has discretion to increase the profit award above the net profits proven ‘[i]f the court shall find . . . the amount of the recovery . . . inadequate.’” Fifty-Six Hope Road Music, 778 F.3d at 1077 (“district court should award actual, proven profits unless the defendant infringer gained more from the infringement than the defendant’s profits reflect”). However, the court “ought to tread lightly . . . because granting an increase could easily transfigure an otherwise-acceptable compensatory award into an impermissible punitive measure.” Id. See also Polo Fashions, Inc. v. Dick Bruhn, Inc., 793 F.2d 1132, 1135 (9th Cir. 1986) (awarding receipts from at-cost sales when a profits calculation was inadequate to “take all the economic incentive out of trademark infringement,” which is the purpose of 15 U.S.C. § 1117(a)). 

When infringing and noninfringing elements of a work cannot be readily separated, all the defendant’s profits from the infringing sales should be awarded to the plaintiff. Nintendo of Am.,40 F.3d at 1012. 

“[A] trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.” Romag Fasteners, Inc. v. Fossil, Inc., 140 S. Ct. 1492, 1497 (2020); Lindy Pen, 982 F.2d at 1406 (“The intent of the infringer is relevant evidence on the issue of awarding profits and damages and the amount.”). However, a plaintiff need not show that a defendant acted with a particular mental state, such as willfulness, to be entitled to an award of profits. Romag Fasteners, 140 S. Ct. at 1497 (noting that willfulness is not an “inflexible precondition” to recover a defendant’s profits); Harbor Breeze Corp., 28 F.4th at 38 (same). 

Revised March 2024