The 8th Circuit recently "clarified" the showing necessary to recover monetary remedies under the Lanham Act. In Masters v. UHS of Delaware, the court held that evidence of actual confusion is not a prerequisite to the recovery of monetary damages. This recent decision reflects a more fact-specific approach toward the recovery of damages and a move away from bright line damage rules. The decision also recognizes that infringement can impact the overall value of a mark, supporting a monetary award even where the trademark holder has not suffered any identifiable lost sales.
Trademark Infringement under The Lanham Act
Both registered and unregistered trademarks are protected under the federal Lanham Act, which generally prohibits use of any word or symbol that is likely to cause confusion as to the source, sponsorship or affiliation of goods or services. Although injunctive relief is the primary focus of many trademark infringement cases, the Lanham Act provides a variety of monetary remedies for infringement, including recovery of the trademark holder's actual damages and disgorgement of the infringer's profits. All Lanham Act remedies - including monetary remedies - are equitable in nature.
Trademarks are also generally protected by state statutes and common law causes of action. However, in many cases, courts addressing such state law causes of action look to the Lanham Act for guidance.
The Masters & Johnson Mark
The plaintiff in Masters v. UHS of Delaware -- who, along with her deceased husband, was a pioneer in the field of human sexuality--owns the unregistered mark Masters & Johnson. In the early '90s, the plaintiff licensed the mark to the defendant hospital for use in connection with programs designed to treat sexual dysfunction and trauma. Under the license agreement, the mark could only be used to promote authorized treatment programs using the plaintiff's approved methods.
The plaintiff later brought suit alleging that the defendant had violated the terms of the license agreement and had used the mark to promote programs unrelated to sexual treatment, which utilized unauthorized methods as wide-ranging as yoga and expressive dance.
At trial, the plaintiff presented detailed evidence regarding the defendant's use of the Masters & Johnson mark, but did not present any evidence - whether in the form of consumer surveys, direct testimony or otherwise - that any patient or referral source was confused about the nature of the defendants' programs. Rather, the plaintiff's damages evidence focused entirely on the defendants' profits and the opinion of the plaintiff's expert regarding a reasonable royalty for use of the mark.
Following a two-week trial, the jury found the defendant had violated the terms of the license agreement and willfully infringed the Masters & Johnson mark. The jury went on to find that the plaintiff had not suffered any actual damages. Nevertheless, the jury awarded the plaintiff $2,400,000 - reflecting a disgorgement of profits earned by the defendant through its infringement.
Actual Confusion Not A Prerequisite To Recover Damages
On appeal, the defendant argued that a trademark holder is not entitled to recover any monetary relief without proving that the infringement caused actual confusion. The 8th Circuit rejected this argument. The court acknowledged that it had "unequivocally stated by way of a footnote that actual confusion is required to support an award of damages." The court explained, however, that this statement was merely dicta, and the court clarified that neither the Lanham Act nor prior cases require proof of actual confusion to support an award of damages.
The court went on to assert that because the plaintiff did not directly compete with the defendant, "requiring actual confusion would undermine the equitable nature of the Lanham Act's remedial scheme." The court explained that disgorgement exists to deter would-be infringers and to safeguard against unjust enrichment. The court also observed that by using the Masters & Johnson mark to promote unauthorized programs and methods "necessarily adulterates what the mark represents, i.e., a discrete approach for treating sexual dysfunction."
In addition to clarifying that proof of actual confusion is not required to recover money damages in a trademark case, the 8th Circuit's decision in Masters has several other practical implications:
- Evidence of actual confusion remains highly relevant. The court in Masters emphasized that the parties' licensing relationship and lack of competition did not reflect a "typical" trademark dispute. Whether the ruling will be applied to cases involving market competitors remains to be seen. Even though evidence of actual confusion may not be a prerequisite to monetary recovery, evidence of this type remains very important to proving damages. Credible consumer surveys, direct consumer testimony and documentary evidence such as misdirected mail are often highly probative of the harm suffered by a trademark holder, and can be used to prove both infringement and damages.
- Proof of willful infringement can be a game changer. In some circuits, a finding that infringement was willful is necessary to support disgorgement of an infringer's profits - or even any monetary relief at all. In Masters, the 8th Circuit recognized a circuit split on this issue and "assume[d], without deciding, that willful infringement is a prerequisite to monetary relief." Even where willfulness is not a prerequisite, however, proof that an infringer has acted willfully can substantially impact how a court or jury views a case, and can substantially impact damage awards. When assessing potential monetary recovery in a trademark case, never underestimate the importance of evidence regarding the alleged infringer's state of mind.
- Damage awards may cover harm to the mark itself. Cases involving lost profits often focus on losses suffered in connection with discrete transactions. The Masters case, however, underscores the importance of viewing trademarks as a property right, which has a value separate and apart from individual consumer sales. The court in Masters recognized that the defendants' infringement "necessarily adulterates what the mark represents." Such a holistic view of a mark is common in trademark dilution cases, which focus on whether a defendant's conduct is likely to "tarnish" or "blur" a mark in the minds of consumers. But the ability of a mark to clearly convey brand value is not often addressed in trademark infringement cases. The Masters case demonstrates that under the right circumstances, courts and juries may properly award damages based upon harm to the mark itself and its ability to clearly convey a particular brand image.