Opinion · Court of Appeals for the Fifth Circuit
Maltina Corporation and Julio Blanco-Herrera v. Cawy Bottling Co., Inc.
Maltina Corp. & Julio Blanco-Herrera v. Cawy Bottling Co., 613 F.2d 582 (5th Cir. 1980)
- Type
- Opinion
- Court
- Court of Appeals for the Fifth Circuit
- Jurisdiction
- Federal
- Date
- 1980-03-14
- Topic
- general
finding unjust enrichment after defendant went ahead and began producing and distributing product under a trademark that had been rejected by the PTO and with full knowledge of plaintiff's rights to the mark | finding willfulness that justified an accounting of profits where the infringer used the infringing mark after the patent office refused to register it based on the confusing similarity of the plaintiff's registered mark | finding willfulness that justified an accounting of profits where the infringer used the infringing mark after the patent office refused to register it based on the confusing similarity of the plaintiff’s registered mark | finding unjust enrichment after defendant went ahead and began producing and distributing product under a trademark that had been rejected by the PTO and with full knowledge of plaintiffs rights to the mark | affirming district court’s unjust enrichment award on the basis of defendant’s willful infringement | “district court properly ordered [defendant] to account to the plaintiffs for the profits it earned from its willful infringement” | "Here, the only valuable property [the plaintiff] had when he arrived in this country was his right to the 'Cristal' mark. [The defendant] used this property, and an accounting is necessary to partially remedy its unjust enrichment." | "This recognition of a trademark as property is consistent with the view that an accounting is proper even if the defendant and plaintiff are not in direct competition, and the defendants' infringement has not diverted sales from the plaintiff."
Citator
- Cited by
- 43 opinions
MALTINA CORP. v. CAWY BOTTLING CO., INC.,613 F.2d 582(5th Cir. 1980)
MALTINA CORPORATION AND JULIO BLANCO-HERRERA, PLAINTIFFS-APPELLEES, v. CAWY
BOTTLING CO., INC., DEFENDANT-APPELLANT.
No. 78-1061.
United States Court of Appeals, Fifth Circuit.
March 14, 1980.
Page 583
Gipple Hale, J. W. Gipple, Washington, D.C., for plaintiffs-appellees.
Before GEWIN, RUBIN and SAM D. JOHNSON, Circuit Judges.
[1]I. The Facts
[2] Cawy Bottling Company (Cawy), defendant below, appeals from the judgment of the district court in favor of the plaintiffs Maltina Corporation and Julio Blanco-Herrera in their trademark infringement action. The district court enjoined Cawy from further infringement, awarded the plaintiffs $35,000 actual damages, and ordered the defendant to account for $55,050 of gross profit earned from the sale of infringing products.[3] Julio Blanco-Herrera fled to this country from Cuba in late 1960 after that country nationalized the company of which he was president and, along with his family, majority stockholder. Before that year, this company was one of the largest breweries and beverage distributors in Cuba. Among its products was malta, a dark, non-alcoholic carbonated beverage brewed similar to beer. The Cuban company distributed malta under the trademarks "Malta Cristal" and "Cristal" in Cuba and in the United States. The Cuban company had registered the marks both in Cuba and the United States. When Blanco-Herrera arrived in the United States, he formed the Maltina Corporation and assigned the "Cristal" trademark to it. He attempted to produce and distribute "Cristal" in this country, but despite his efforts Maltina Corporation was never able to obtain sufficient financial backing to produce more than $356 worth of "Cristal".
[4] Cawy Bottling, however, had an altogether different experience in producing malta. At the outset, it attempted to register the "Cristal" trademark so that it might be utilized in marketing the product. This attempt was rejected by the Patent Office because of plaintiffs' prior registration. After this attempted registration and with the knowledge of the plaintiffs' ownership of the trademark, Cawy began producing and distributing malta under the "Cristal" label in February 1968.
[5] In 1970 the plaintiffs sued Cawy under15 U.S.C. § 1117for trademark infringement and unfair competition. They sought an injunction against further use of their mark, damages, and an accounting. The district court dismissed the suit on the ground that Cuba's confiscation of the assets of Blanco-Herrera's Cuban corporation made Blanco-Herrera's assignment of the "Cristal" mark to the Maltina Corporation invalid. This Court reversed, holding Cuba's confiscation decree did not extend to the "Cristal" mark registered by the United States Patent Office.Maltina Corp. v. Cawy Bottling Co.,462 F.2d 1021(5th Cir.),cert. denied,409 U.S. 1060,93 S.Ct. 555(1972). On remand, the district court determined that the plaintiffs had a valid trademark. Cawy appealed, and we affirmed.Maltina Corp. v. CawyBottling Co.,491 F.2d 1391(1974) (per curiam).
[6] At trial on the merits, from which this appeal is taken, the district court determinedPage 584that Cawy had infringed the plaintiffs' mark and assigned the case to a magistrate for determination of what recovery was appropriate under15 U.S.C. § 1117. Before holding a hearing the magistrate wrote a memorandum to the district court stating that he thought that the plaintiffs were entitled to an injunction but not to an accounting for defendant's profits.
[7] After holding the hearing, however, the magistrate changed his recommendation. He noted that Cawy designed its "Cristal" label to resemble the label used by Maltina's predecessor in Cuba. He found that Cawy intended to exploit the reputation and good will of the "Cristal" mark and to deceive and mislead the Latin community into believing that the "Cristal" once sold in Cuba was now being sold in the United States. The magistrate further found that Cawy wilfully infringed the plaintiffs' mark and had been unjustly enriched to the detriment of plaintiffs' reputation and good will. He recommended that Cawy account to the plaintiffs for the profit it earned from the infringement, and he directed Cawy to report its sales of "Cristal" and associated costs to the plaintiffs for determination of its profits. The magistrate also found Cawy's infringement damaged the reputation and good will of the plaintiffs in the amount of $35,000. He recommended that Cawy compensate plaintiffs in that amount.
[8] The district court, after a complete and independent review of the record, adopted the magistrate's recommendations as its order. As more fully discussed below, the district court eventually found Cawy liable to the plaintiffs for its gross profits from the sale of "Cristal", $55,050. The court entered judgment against Cawy for $55,050 gross profits plus $35,000 damages and enjoined Cawy from any further infringement of the plaintiffs' mark.
[9] Cawy presents three arguments on appeal. First, it argues that an accounting was inappropriate. Second, that if an accounting was appropriate, the district court erred in awarding to the plaintiff Cawy's entire gross profits from the sales of "Cristal". Third, Cawy argues that the award of $35,000 actual damages cannot stand in the absence of any evidence to support it. We accept this final contention, but reject the first two. Cawy does not complain on appeal of the district court's enjoining it from further infringement of the plaintiffs' mark.
[10]II. Was an Accounting Appropriate?
[11] Section 1117, 15 U.S.C. entitles a markholder to recover, subject to the principles of equity, the profits earned by a defendant from infringement of the mark.1The courts have expressed two views of the circumstances in which an accounting is proper under15 U.S.C. § 1117. Some courts view the award of an accounting as simply a means of compensating a markholder for loss or diverted sales. Other courts view an accounting not as compensation for lost or diverted sales, but as redressPage 585for the defendant's unjust enrichment and as a deterrent to further infringement.See Maier Brewing Co. v. FleischmanDistilling Corp.,390 F.2d 117,121(9th Cir.)cert.denied,391 U.S. 966,88 S.Ct. 2037,20 L.Ed.2d 879(1968). In this case, the plaintiffs never sold any appreciable amount of "Cristal" in the United States so they cannot claim that Cawy diverted any of their sales. Accordingly, we must decide whether diversion of sales is a prerequisite to an award of an accounting. We hold that it is not.[12] InMaier Brewingthe Ninth Circuit awarded an accounting to a plaintiff who was not in direct competition with a defendant and who, accordingly, had not suffered any diversion of sales from the defendant's infringement. The court noted that the defendant had wilfully and deliberately infringed. It reasoned that awarding an accounting would further Congress' purpose in enacting15 U.S.C. § 1117of making infringement unprofitable. This Court is in accord with this reasoning.Seealso Monsanto Chemical Co. v. Perfect Fit Products ManufacturingCo.,349 F.2d 389(2nd Cir. 1965) (holding that a trademark holder was entitled to an accounting to protect the public from infringement). The Fifth Circuit has not addressed the issue whether an accounting only compensates for diverted sales or whether an accounting serves the broader functions of remedying an infringers unjust enrichment and deterring future infringement. A recent opinion by this Court, however, recognizes that a trademark is a protected property right.AustinProfessional Hockey Association v. Dallas Cap and EmblemManufacturing, Inc.,597 F.2d 71,75(5th Cir. 1979). This recognition of a trademark as property is consistent with the view that an accounting is proper even if the defendant and plaintiff are not in direct competition, and the defendants' infringement has not diverted sales from the plaintiff. The Ninth Circuit inMaier Brewingnoted that the infringer had used the markholder's property to make a profit and that an accounting would force the infringer to disgorge its unjust enrichment.390 F.2d at 121. Here, the only valuable property Blanco-Herrera had when he arrived in this country was his right to the "Cristal" mark. Cawy used this property, and an accounting is necessary to partially remedy its unjust enrichment.
[13] The district court relied, in part, onW. E. Bassett Co. v.Revlon, Inc.,435 F.2d 656(2nd Cir. 1970), in ordering an accounting. That case held that an accounting should be granted "if the defendant is unjustly enriched, if the plaintiff sustained damages from the infringement, or if an accounting is necessary to deter a willful infringer from doing so again."Id.at 664. Revlon sold a cuticle trimmer embossed with a "Cuti-Trim" mark "in the teeth of the patent office's refusal to register" that mark.Id.at 662. This was willful infringement that an accounting would deter in the future. In the instant case, the district court found that Cawy's "infringement was willful and that such infringement resulted in [Cawy] being unjustly enriched . . . ." Cawy used the "Cristal" mark after the patent office refused to register it. This clearly and explicitly supports the finding of willful infringement.See W. E. BassettCo.,435 F.2d at 662. An injunction alone will not adequately deter future infringement.See Maier Brewing Co.,390 F.2d at 123. In short, we find the district court properly ordered Cawy to account to the plaintiffs for the profits it earned from its willful infringement. This accounting serves two purposes: remedying unjust enrichment and deterring future infringement.
[14]III. Did the District Court Err in Requiring Cawy to Accountfor Its Entire Gross Profit from the Sale of "Cristal"?
[15] The district court ordered Cawy to account to the plaintiffs for $55,050, the entire gross profit (total revenue less cost of goods sold) from the sale of "Cristal". The district court did not allow Cawy to deduct overhead and other expenses. These expenses would have produced a net loss from the sale of "Cristal" and, if allowed, would have enabled Cawy to escape liability to the plaintiffs for its infringement.Page 586[16] Under15 U.S.C. § 1117, the plaintiff has the burden of showing the amount of the defendant's sales of the infringing product. The defendant has the burden of showing all elements of cost and other deductions. In this case, the court ordered Cawy to report its total sales of "Cristal" and associated costs to the plaintiffs. If the plaintiffs objected to Cawy's estimate of its net profits from "Cristal", they were to file their objection with the court. The record on appeal reflects that Cawy submitted three exhibits showing its net loss on "Cristal" sales. These exhibits are set out in the appendix. The plaintiffs filed their objections to Cawy's figures with the court. They accepted Cawy's estimate of gross revenues from the sale of "Cristal" and the cost of goods sold. Thus, they met the burden of proving the amount of sales of the infringing product. The plaintiffs, however, did not accept other deductions claimed by Cawy. Cawy claimed deductions for "EXPENSES SPECIFICALLY IDENTIFIED WITH MALTA CRISTAL", as set out in Exhibit 2. Plaintiffs objected to these claimed deductions because Cawy did not show they were actually spent on "Cristal". Cawy also claimed deductions for general overhead, apportioned to "Cristal" on the basis of the ratio of "Cristal" sales to Cawy's total sales. Exhibit 3 displays these claimed overhead deductions. The plaintiffs objected to the overhead deductions because the infringing product constituted only a small percentage of the defendant's business.
[17] Cawy responded to the plaintiffs' objections by asserting that it did have "specific and detailed figures and corroborating sales slips, invoices and the like to support" its claims of expenses attributable to "Cristal". Cawy failed, however, to submit any of this corroboration to the district court.
[18] The district court, after noting that Cawy had the burden of establishing deductions from gross profits, disallowed Cawy's claims of expenses specifically attributable to "Cristal" as set forth in Exhibit 2. The court stated that it could not determine whether the advertising, sales commissions, legal fees, telephone, and other expenses claimed by Cawy related to "Cristal" sales or to the sales of other products. It then held that Cawy failed to sustain its burden of proof with respect to those claimed expenses. We cannot say that the district court erred in its holding. The record on appeal, like the record before the district court, simply affords no support for the contention that the claimed "EXPENSES SPECIFICALLY IDENTIFIED WITH MALTA CRISTAL" actually related to "Cristal" sales. Furthermore, Cawy's claims of deductions of legal fees, as the district court noted, would not be allowable in any case. While we cannot tell whether these fees related to this suit, if they did, they would not be deductible.
[19] The district court also disallowed Cawy's deductions of a proportionate part of its overhead expenses as set forth in Exhibit 3. Quoting fromSociete Anonyme v. Western DistillingCo.,46 F. 921 (C.C.E.D.Mo. 1891), the district court noted, "It appears that `the unlawful venture increased the gross profits without swelling the gross expenses'." It then held that Cawy failed to sustain its burden of showing the propriety of allowing deductions for overhead. Again, we must agree with the district court that Cawy failed to meet its burden of showing its expenses in the absence from the record on appeal of any evidence that Cawy's production of "Cristal" actually increased its overhead expenses. Furthermore, we note that a proportionate share of overhead is not deductible when the sales of an infringing product constitute only a small percentage of total sales.SeeS.C. Johnson Son, Inc. v. Drop Dead Co.,144 U.S.P.Q. 257 (S.D.Cal. 1965) (disallowing overhead deduction when infringing sales were only 6% of total sales). Here, on the average, infringing sales constituted just over 6% of total sales. Accordingly, we think it unlikely, especially in the absence of any evidence to the contrary, that Cawy's production of "Cristal" increased its overhead expenses.
[20] The district court properly ordered Cawy to account for its entire gross profit fromPage 587the sale of "Cristal". Cawy failed to meet its burden of showing that the overhead and other expenses that it claimed in Exhibits 2 and 3 actually related to the production of "Cristal".
[21]IV. Did the District Court Err in Awarding the Plaintiffs$35,000 as Actual Damages for Cawy's Infringement?
[22] The district court awarded the plaintiffs $35,000 as actual damages from Cawy's infringement. The record, however, is wholly devoid of support for this figure. Accordingly, we must reverse as to this element.See Donsco, Inc. v. Casper Corp.,587 F.2d 602(3rd Cir. 1978).[23] The plaintiffs have never been able to get sufficient financial backing to produce more than a very small amount of "Cristal" in the United States. That inability makes proof of actual damages from Cawy's infringement unlikely. In any event, the plaintiffs have had an opportunity to show their damages and have failed to do so. This Court concludes that plaintiffs should not have another opportunity to show their damages just as Cawy should not have another opportunity to prove its expenses.
[24] In the ten years since the plaintiffs filed their original petition, this case has been before us three times. All litigation must end. We remand only for entry of judgment in accordance with this opinion.
[25] AFFIRMED IN PART, REVERSED IN PART, and REMANDED FOR ENTRY OF JUDGMENT.
APPENDIX
DEFENDANT'S EXHIBIT 1
NET LOSS ON SALES OF MALTA CRISTAL
1969
1970
1971
1972
Revenues from sales of Malta Cristal $40,032 $41,705 $83,861 $60,119
Less cost of goods sold — Malta 31,883 34,059 67,285 46,438 _______ _______ _______ _______ GROSS PROFIT 8,149 7,646 16,576 13,681
Less expenses:
per exhibit 2 8,165 6,479 10,175 17,870
per exhibit 3 6,683 4,250 7,859 6,448 _______ _______ _______ _______ TOTAL EXPENSES 14,848 10,729 18,034 24,318 _______ _______ _______ _______ NET LOSS ( ) $(6,699) $(3,083) $(1,458) $(10,637) ======== ======== ======== =========
1973
1974
1975
TOTAL
$31,099 $14,666 __ $271,482 25,209 11,558 216,432 _______ _______ ______ ________ 5,890 3,108 __ 55,050
17,007 9,353 500 69,549 3,199 1,762 __ 30,201 ______ _______ _______ _______ 20,206 11,115 500 99,750 _______ _______ _______ _______ $(14,316) $(8,007) $(500) $(44,700) ========= ======== ======= =========
CAWY BOTTLING CO., INC.,
[EDITORS' NOTE: SIGNATURE IS ELECTRONICALLY NON-TRANSFERRABLE.]
____________________ Vincent Cossie
DEFENDANT'S EXHIBIT 2
EXPENSES SPECIFICALLY IDENTIFIED WITH MALTA CRISTAL
1969
1970
1971
1972
1973
1974
Advertising $2,277 $1,723 $ 4,299 $13,080 $13,124 $6,510
Sales commissions 3,137 3,172 5,505 4,116 1,732 752
Legal fees 2,130 1,500 200 483 1,988 709
Telephone and Telegraph 43 84 171 191 163 13
Other 578 — — — — 1,369 _______ ______ ______ ______ ______ ______ $58,165 $6,479 $10,175 $17,870 $17,007 $9,353 ======== ====== ====== ======= ======= =======
1975
TOTAL
— $41,013
— 18,414
— 7,010
— 665
500 2,447 _____ _______ $500 $69,549 ===== ========Page 588
DEFENDANT'S EXHIBIT 3
EXPENSES RELATED TO MALTA CRISTAL ALLOCATED BASED ON SALES RATIO
1969
1970
1971
1972
1973
Malta Cristal cases sold 15,139 15,439 30,151 21,471 10,849
Total number of cases sold 176,458 228,000 276,424 288,500 296,590
Ratio of Malta's cases to total cases sold 8.58% 6.77% 10.91% 7.44% 3.66% ======== ======= ======= ======= =======
EXPENSES RELATED TO MALTA:
1. Repairs and maintenance $ 1,323 $ 524 $ 762 $ 1,256 $ 663 2. Rent 6,864 6,864 7,938 — — 3. Building depreciation — — — 3,073 3,073 3. Interest — mostly building — — — 11,958 14,408 4. Taxes other than payroll 4,932 8,065 5,645 12,456 11,964 5. Payroll taxes 7,718 6,282 8,582 6,624 6,859 6. Trucks' expenses 7,238 6,301 12,502 13,083 9,482 7. Utilities 1,620 — 509 — — 5. Indirect labor 23,156 9,360 9,360 11,305 12,480 5. Officers salaries 17,500 13,000 13,000 13,000 13,000 8. Office expenses 403 665 1,046 767 9. Sales promotion 808 95 275 1,513 10. Insurance 3,536 5,031 6,967 6,566 8,722 11. Uniforms 916 926 1,119 1,129 1,180 11. Traveling — 2,613 2,255 324 820 11. Accounting fees 165 970 800 1,485 — 11. Miscellaneous 1,714 2,088 2,320 1,843 3,980 _________ ______ ______ _______ ______ TOTAL EXPENSES 77,893 62,784 72,034 86,661 87,398 __________ ______ ______ _______ ______ MALTA TO TOTAL RATIO 8,582 6,772 10,912 7,447 3,662 __________ ______ _______ _______ _______ $ 6,683 $ 4,250 $ 7,859 $ 6,448 $ 3,199 ========== ======= ======= ======== =======
1974
1975
TOTAL
5,238 -0- 98,287 314,485 -0- 1,580,457
1.67% — 6.22% ======== ======= =========
$ 1,091 $ 5,619 — 21,666 3,073 9,219 13,758 40,124 10,791 53,853 6,787 42,852 8,668 57,274 — 2,129 12,450 78,111 31,750 101,250 1,503 4,384 82 2,773 8,265 39,067 1,483 6,753 2,938 8,950 2,875 6,295 — 11,945 ________ _________ 105,514 292,284 ________ ========= 1,672 ________ $ 1,762 $30,201 ======== ==========
- 15 U.S.C. § 1117provides that:15 U.S.C. § 1117. Same; recovery for violation of rights; profits, damages and costs; attorney fees
When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed. In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If thecourt shall find that the amount ofthe recovery based on profits is either inadequate orexcessive the court may in its discretion enterjudgment for such sum as the court shall find to bejust, according to the circumstances of the case.Such sum in either of the above circumstances shallconstitute compensation and not a penalty. The courtin exceptional cases may award reasonable attorneyfees to the prevailing party.[Emphasis supplied]
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