United States Court of Appeals
For the First Circuit
Nos. 07-2730; 08-1410; 08-1411
VISIBLE SYSTEMS CORPORATION,
Plaintiff, Appellant/Cross-Appellee,
v.
UNISYS CORPORATION,
Defendant, Appellee/Cross-Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Lynch, Chief Judge,
Boudin and Stahl, Circuit Judges.
Stephen H. Galebach for appellant/cross-appellee.
William L. Boesch with whom Anthony M. Doniger and Sugarman,
Rogers, Barshak & Cohen, P.C. were on brief for appellee/cross-
appellant.
December 23, 2008
LYNCH, Chief Judge. A jury awarded Visible Systems
Corporation ("VSC") trademark infringement damages of $250,000
against Unisys Corporation on a reverse confusion claim. See 15
U.S.C. § 1125(a). The district court also issued a permanent
injunction prohibiting Unisys from using the trademarks or service
marks 3D VISIBLE ENTERPRISE, 3D-VE, or VISIBLE in the United States
in the enterprise modeling or enterprise architecture fields.
VSC appeals, asserting it was entitled to more. Its
primary argument is that the trial judge erred in not granting it
a jury trial under both the Lanham Act and the Seventh Amendment on
its claim for an accounting of Unisys' profits. This court has not
considered before the question of whether there is a jury trial
right on such a claim. VSC also argues the court erred in
tailoring the injunction too narrowly and in denying VSC its
attorneys' fees.
Unisys cross-appeals, arguing the evidence was
insufficient to support both the jury's finding of infringement and
the damages awarded.
We reject all of the challenges and affirm, leaving the
parties where they were.
I.
Because the case presents sufficiency of the evidence
arguments, we state the facts taking all inferences in favor of the
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jury verdict. See Valentín-Almeyda v. Municipality of Aguadilla,
447 F.3d 85, 95-96 (1st Cir. 2006).
VSC is a small Massachusetts company with less than two
dozen employees, founded in 1984, which primarily sells software
products in the enterprise modeling and enterprise architecture
field. "Enterprise modeling" and "enterprise architecture" involve
the diagraming of an entity's business to demonstrate relationships
between information flow and business processes and to allow
decisionmakers to identify errors or redundancies. VSC provides
its customers modeling tools, or software, that diagram their
organizations and automatically generate productivity-improving
software programs. VSC's modeling tools provide value by aiding
clients' decisionmaking and by reducing the need to hand-code
productivity-improving software, resulting in decreased costs and
errors.
VSC sells its software products to private corporations
and government agencies. Purchasing decisions are largely made by
sophisticated IT professionals within those organizations. The
company’s primary marketing channels involve sales of modeling
tools through downloads from its website, www.visible.com. VSC's
modeling products, by the mid-1990s, were the second most widely
used modeling tools in university IT-related courses.
VSC also provided staff-based consulting services from
approximately 1985 to 2002. VSC moved in 2002 to using part-time
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consultants and on-call, temporary subcontractors. Consulting is
a much smaller part of VSC's business than the sale of software.
Some 80 to 90% of VSC's revenue comes from software sales. Its
consulting customers contract with VSC for mentoring and training;
significantly, this is only done on VSC's modeling software.
Representative clients include the Arizona state court system,
which contracted with VSC to upgrade its information technology
system.
In 1997, VSC acquired a company started by Clive
Finkelstein, known as the father of information engineering. The
products and services of his company took on the Visible name, and
his association led to greater prominence for the name.
VSC registered the mark VISIBLE SYSTEMS in 1985 for its
enterprise modeling software. It registered the additional
trademark VISIBLE in 2001 for its software and registered the
service mark VISIBLE for its training and consulting services,
"namely providing advice in the field of information technology."
Unisys, the defendant, was formed in 1986 by the merger
of two leading manufacturers of mainframe computers. Unisys is a
much larger company than VSC, employing about 30,000 people
worldwide. Since the mid-1990s, Unisys has focused on providing
services, particularly consulting, rather than products. Unisys'
customers include government organizations and private firms, such
as airlines and telecommunications companies. Part of Unisys'
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consulting methodology involves creating virtual models of clients'
information systems to identify problems and solutions.
Although Unisys does not develop software, its
consultants use modeling tool software in many of their
engagements. Unisys consultants use software from third-party
providers, such as IBM and Proforma, and are "tool agnostic,"
meaning that Unisys' consultants use the software the client
desires if the client expresses a preference. Unisys also
occasionally sells software products to its consulting clients or
to purchasers of its mainframes. These are mainly not Unisys-
developed products.
On June 17, 2004, Unisys launched a marketing campaign
under the mark 3D VISIBLE ENTERPRISE with an advertisement in the
Wall Street Journal. Unisys filed for registration in April 2004.
Its attempt to register the mark was put on hold pending resolution
of this case. Under the 3D VISIBLE ENTERPRISE mark, Unisys sold
consulting services to assist clients with enterprise modeling.
The campaign also included sales of third-party modeling software
to Unisys' consulting clients as part of its consulting services.
In addition to using the term "visible" in its formal 3D VISIBLE
ENTERPRISE mark, Unisys used the term in marketing communications
that included phrases such as "Visible Breakthrough," "Visible
Commerce," and "Visible Advantage."
-5-
VSC sued Unisys in federal district court on May 3, 2005,
under the Lanham Act and state law, seeking damages, an accounting
of Unisys' profits, and injunctive relief.1 Unisys continued to
use marks such as VISIBLE ADVANTAGE after suit was filed.
Before trial, the court denied Unisys' motion for summary
judgment. The court then held that there was no evidence that
Unisys adopted its mark in bad faith; it later granted Unisys'
motion in limine to preclude evidence and argument on the issue of
bad faith. At the charge conference after the close of VSC's
evidence and just before the end of trial, VSC sought a jury
instruction that the jury consider the remedy of an accounting of
defendant's profits. The court refused, noting that VSC had "had
the option of taking that route, but . . . didn't." The court held
the issue was for the court and said that in any event, the
evidence was insufficient to support such a remedy. The court
stated "if [the jury] ever came back with a verdict, I would have
to throw it out."
At trial, VSC opted to present its case to the jury on a
reverse confusion theory of recovery. VSC's theory was that Unisys
had saturated the market with a mark substantially similar to VSC's
trademarks, leading potential customers to believe that Unisys had
1
No claim is made in this case of dilution in violation of
the Federal Trademark Dilution Act, codified at 15 U.S.C.
§ 1125(c), or of cybersquatting under the Anticybersquatting
Consumer Protection Act, codified at 15 U.S.C.
§ 1125(d)(1)(B)(i)(I)-(IX).
-6-
acquired VSC. This confusion resulted in lost sales to VSC of
software and services. VSC also presented some damages evidence
that the parties competed in the sale of consulting services, and
that Unisys' appropriation of the VISIBLE mark for its own services
caused VSC harm in the consulting portion of VSC's business.
However, a VSC witness testified that while VSC's software sales
had declined after Unisys' infringement, VSC's consulting sales had
increased.
With no objection from VSC, the court instructed the jury
that VSC claimed Unisys had "advertised and promoted the 3D Visible
Enterprise name in a way that has so saturated the market that
potential customers are likely to be misled into thinking that
Visible Systems' goods, in fact, originate from Unisys." The
special questions to the jury specifically included VSC's "products
and/or services."
Unisys moved for judgment as a matter of law at the close
of VSC's case, arguing that the evidence was insufficient to
conclude that VSC had a protectable right to use the mark VISIBLE,
that there was a likelihood of confusion between Unisys' and VSC's
marks, or that VSC was entitled to an accounting of Unisys' profits
as a remedy. See Fed. R. Civ. P. 50, 52. The court reserved its
ruling.
The jury found in favor of VSC on special questions that:
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[1.] Visible Systems Corporation
established a right to a trademark in the word
VISIBLE[;]
[2.] . . . [T]he Unisys 3D VISIBLE
ENTERPRISE mark is substantially similar to
Visible Systems VISIBLE mark[;]
[3.] Visible Systems established the
likelihood that potential customers have been
or will be confused into mistakenly believing
that Unisys Corporation is the source or
sponsor of Visible Systems' products and/or
services; . . .[; and]
[4.] Unisys Corporation's infringement of
Visible Systems' mark [was] willful.
The jury awarded VSC $250,000 in damages.
After the verdict, VSC moved for, among other things, a
permanent injunction, attorneys' fees, and a supplementary jury
trial to determine an award of Unisys' profits or in the
alternative an award of $100 million of Unisys' profits. Unisys
filed a renewed motion for judgment as a matter of law, arguing
that the evidence was insufficient to support the jury's finding of
infringement, its award of damages, or its finding of willfulness.
The court denied Unisys' motion. Unisys also filed a memorandum
asking the court to adopt injunctive relief which was more limited
than VSC's request. The court issued an injunction similar in
scope to Unisys' proposal. The court denied VSC's request for
attorneys' fees, concluding that the case was not an "exceptional
case" within the meaning of the Lanham Act. The court again
declined VSC's request for an accounting of Unisys' profits, saying
it considered that the issue was for the court and that, in any
event, the evidence was insufficient to support such an award.
-8-
II.
UNISYS' APPEAL FROM THE VERDICT AND FROM THE DAMAGES AWARD
A. Sufficiency of Evidence to Support the Jury Infringement
Finding
Unisys argues that the facts did not support the jury
finding that Unisys had infringed VSC's marks. Importantly, there
is no challenge to the jury instructions on infringement or to the
jury findings of VSC's right to a trademark and of substantial
similarity.
Unisys contests only the finding of likelihood of
confusion. Our review of the denial of Unisys' renewed motion for
judgment as a matter of law under Fed. R. Civ. P. 50(b) is de novo.
See Valentín-Almeyda, 447 F.3d at 95. The underlying standard for
grant of a Rule 50(b) motion is much more deferential to the
verdict. See id. at 95-96. A motion for judgment as a matter of
law may be granted only if a reasonable person, on the evidence
presented, could not reach the conclusion that the jury reached.
See Attrezzi, LLC v. Maytag Corp., 436 F.3d 32, 37 (1st Cir. 2006).
VSC chose to present this case to the jury as a reverse
confusion case. Under the classic "forward confusion" theory, a
trademark holder alleges customers will purchase goods from the
infringing junior user (here, Unisys) under the mistaken belief
that they are purchasing from the senior user (here, VSC). See
4 J. McCarthy, McCarthy on Trademarks and Unfair Competition
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§ 23:10, at 23-46 (4th Ed. 2006); see also Boston Duck Tours, LP v.
Super Duck Tours, LLC, 531 F.3d 1, 12 (1st Cir. 2008).
By contrast, under a reverse confusion theory, customers
purchase the senior user's goods under the "misimpression that the
junior user is the source of the senior user's goods. . . .
[C]onsumers may consider [the senior user] the unauthorized
infringer, and [the junior user's] use of the mark may in that way
injure [the senior user's] reputation and impair its goodwill."
4 McCarthy, supra, §23:10, at 23-47 (alterations and omission in
original) (quoting Banff, Ltd. v. Federated Dep't Stores, Inc., 841
F.2d 486, 490 (2d Cir. 1988)) (internal quotation mark omitted);
see also Attrezzi, 436 F.3d at 38-39; Pignons S.A. de Mecanique de
Precision v. Polaroid Corp., 657 F.2d 482, 492 n.4 (1st Cir. 1981).
Harm from the reverse confusion may occur because the junior user
"saturates the market" and overwhelms the senior user, causing harm
to the value of the trademark and the senior user's business.2
Attrezzi, 436 F.3d at 39. "A reverse confusion case is proven only
if the evidence shows that the junior user was able to swamp the
reputation of the senior user with a relatively much larger
advertising campaign." 4 McCarthy, supra, § 23:10, at 23-47 to
-48. There is no actionable reverse confusion in the absence of a
showing of likely confusion as to source or sponsorship. See
2
VSC did not advance an argument that Unisys offered
inferior products, an alternate theory of harm from reverse
confusion. Attrezzi, 436 F.3d at 39.
-10-
DeCosta v. Viacom Int'l, Inc., 981 F.2d 602, 609 (1st Cir. 1992).
A trademark holder must show a likelihood of confusion; it need not
show actual confusion, but actual confusion will strengthen the
holder's infringement claim. Borinquen Biscuit Corp. v. M.V.
Trading Corp., 443 F.3d 112, 120 (1st Cir. 2006).
On the evidence, VSC's strongest case for likelihood of
confusion was as follows. VSC was a small company, firmly
entrenched in what was once, in 1985, the new field of enterprise
modeling. Indeed, VSC became associated with the academic
progenitor in the field, Clive Finkelstein, who founded a company
which VSC acquired and who served as VSC's Chief Scientist. The
term "VISIBLE" was VSC's mark, and it was used to denote VSC's
various software products. For many years, VSC's competitors in
the enterprise modeling field were other small companies. That
changed, starting in about 2000, when VSC's small competitors were
acquired by large companies such as IBM, Microsoft, CA, and
Telelogic. Through the use by the large companies of the name and
marks of the small acquired companies, the identities and
distinctness of the acquired former competitors merged into that of
the larger acquirers. Substantially all of the modeling tool names
from the 1990s used by VSC's competitors were acquired and
rebranded, or disappeared altogether.
Thus, when Unisys started using a mark (3D VISIBLE
ENTERPRISE) substantially similar to VSC's VISIBLE mark, that use
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posed the risk that potential customers of VSC would assume VSC had
likewise been acquired by Unisys. This problem was exacerbated
because both companies had extensive websites. A customer
searching for "Visible" and "enterprise modeling" could be led to
Unisys. Given Unisys' large online presence, the use of the term
"Visible" by the junior user, Unisys, threatened to overwhelm the
mark of the senior user, VSC. The risk was that VSC would be
thought to have disappeared into Unisys, to the detriment of VSC's
sales. The question is whether a rational jury could conclude that
there was a likelihood of this sort of reverse confusion.
Our caselaw has long had a non-exclusive list of factors
against which a finding of a likelihood of confusion is assessed.
See Beacon Mut. Ins. Co. v. OneBeacon Ins. Group, 376 F.3d 8, 15
(1st Cir. 2004). In Attrezzi we described one such representative
list, and applied the analysis to a reverse confusion case:
In assessing confusion, this circuit has
resorted to the consultation of a series of
factors . . . [that] includes: (1) the
similarity of the marks; (2) the similarity of
the goods (or, in a service mark case, the
services); (3) the relationship between the
parties' channels of trade; (4) the
juxtaposition of their advertising; (5) the
classes of prospective purchasers; (6) the
evidence of actual confusion; (7) the
defendant's intent in adopting its allegedly
infringing mark; and (8) the strength of the
plaintiff's mark.
Attrezzi, 436 F.3d at 39 (quoting Int'l Ass'n of Machinists v.
Winship Green Nursing Ctr., 103 F.3d 196, 201 (1st Cir. 1996)); see
-12-
also Venture Tape Corp. v. McGills Glass Warehouse, 540 F.3d 56,
60-61 (1st Cir. 2008). The district court expressly incorporated
these factors3 into its instructions to the jury. It cautioned the
jury not to consider any one factor as conclusive.
Using such a list as a check against jury irrationality,
the application of these factors to the facts of record in this
case rationally support a finding of likelihood of reverse
confusion. The jury found the parties' marks were "substantially
similar." Unisys argues they were not so similar as to support a
likelihood of reverse confusion. Both Unisys and VSC use the word
"Visible," even though Unisys used the word primarily as part of
the phrase "3D Visible Enterprise." Unisys argues that the two
marks have different typefaces, backgrounds, and visual cues. Even
so, the dissimilarities are not so great as to render irrational
the finding of likelihood of reverse confusion.
Unisys argues that the two companies have dissimilar
offerings and "are in fundamentally different businesses." While
VSC primarily sells goods, in the form of software, Unisys sells
services, in the form of consulting. A rational finding of reverse
confusion, was possible, even so. Dr. Malcolm Lane, an expert
witness for the plaintiff, testified that Unisys' and VSC's
3
The court did not instruct the jury on the question of
the defendant's intent as a separate factor but rather, instructed
the jury to consider Unisys' intent in deciding whether Unisys
acted willfully, an issue the jury was to address only if it found
infringement. There was no objection.
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offerings were "very similar and have very similar outputs and
results for clients." A jury could conclude that in the field of
enterprise modeling through computer applications, there was a
realistic likelihood of reverse confusion. This is not a case in
which the two companies' offerings are so dissimilar as to make
confusion highly unlikely. See Attrezzi, 436 F.3d at 39.
Similarities between channels of trade, advertising, and
prospective customers are related factors, are often considered
together, see id. at 39-40, and support the jury verdict. Unisys
argues that the two companies differ greatly: (1) while VSC's
product sales occur primarily through downloads from its website,
Unisys' consulting engagements result from longstanding client
relationships; (2) VSC primarily markets through its website, while
Unisys advertises in general business publications, though both
companies market extensively on the internet. Still, the jury
heard testimony that both parties targeted many of the same
customers. In addition, there was evidence of overlap between the
parties' channels of trade. For example, the jury heard testimony
that VSC's clients, such as the Arizona court system, signed
ongoing consulting contracts of the kind Unisys identifies as its
own primary channel of trade.
While VSC presented no evidence of actual confusion at
trial, the jury could have inferred actual reverse confusion from
the company's decline in revenues from the sales of its software
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products. And actual confusion is not a prerequisite to a finding
of likelihood of confusion. See Borinquen Biscuit Corp., 443 F.3d
at 120-21.
In a reverse confusion case, the focus is on the relative
strengths of the marks so as to gauge the ability of the junior
user's mark to overcome the senior user's mark.4 See 4 McCarthy,
supra, § 23:10, at 23-54 to -55 (citing Checkpoint Sys., Inc. v.
Check Point Software Techs., Inc., 269 F.3d 270, 303 (3d Cir.
2001)). A jury could conclude the Unisys mark could overcome the
VSC mark. Unisys had a national advertising campaign for 3D
Visible Enterprise, promoted the 3D Visible Enterprise campaign on
the internet, and built the 3D VISIBLE ENTERPRISE mark through
partnerships with developers of modeling tools. The VISIBLE mark
had been used by VSC for over twenty years, VSC had spent over $2
million to promote the mark since 1987, and VSC had acted in the
past to protect its mark. A jury could reasonably find that these
facts established the identity of VSC's mark, but did not prevent
the mark from being overwhelmed by Unisys' mark.
In sum, the jury could rationally have found a likelihood
of reverse confusion.
4
Both VSC's and Unisys' proposed instructions, as well as
the court's ultimate instructions to the jury, focused on the
strength of VSC's mark rather than the strength of Unisys' mark.
Neither party raised an objection to the court's instructions.
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B. Sufficiency of Evidence To Support Jury Award of $250,000
in Damages
Unisys argues that the evidence is insufficient to
support the damages award, a challenge we review de novo to
determine whether "reasonable persons could not have reached the
conclusion that the jury embraced." Attrezzi, 436 F.3d at 37
(quoting Sanchez v. P.R. Oil Co., 37 F.3d 712, 716 (1st Cir.
1994)). The test for Unisys "is a stringent one," requiring Unisys
to demonstrate a "total failure of evidence to prove plaintiff's
case." Id. (quoting Vázquez-Valentín v. Santiago-Díaz, 385 F.3d
23, 29 (1st Cir. 2004), vacated on other grounds, 545 U.S. 1143
(2006)) (internal quotation marks omitted).
Unisys argues that there was no proof of either actual
harm or of causation, pointing to evidence that VSC's revenues had
been in decline before Unisys' launch in 2004 of the 3D Visible
Enterprise campaign. It argues that the decline in VSC's revenues
immediately following the June 2004 publication of Unisys'
advertisement in the Wall Street Journal represented one of a
normal series of fluctuations in VSC's revenues and was not caused
by the launch of Unisys' campaign.5
5
We do not need to discuss in detail Unisys' argument that
VSC waived any claim to damages based on harm to its goodwill.
VSC's counsel argued for an instruction on damages based on harm to
the company's goodwill and the district court itself later stated
that the colloquy did not constitute a waiver.
-16-
Nonetheless, the jury heard testimony that VSC's revenues
in the quarter immediately following the launch of Unisys' campaign
were "[p]robably the lowest in the history of the company." VSC
introduced into evidence a chart of its quarterly revenues before
and after the infringement as well as its financial statements from
the relevant years. The jury could conclude that Unisys'
infringement reduced VSC's average monthly revenue by approximately
$28,000 in the period immediately following the infringement.
Michael Cesino, VSC's President, testified that a later increase in
revenues was due to VSC's re-hiring of an experienced salesman.
The jury could have reasonably inferred that VSC's revenues would
have been higher but for the infringement.
Cesino's testimony provided a basis for the $250,000
figure. He testified the jury could determine VSC's lost profits
by calculating a profit margin on operations (using VSC's revenues
and operating expenses) and applying that margin to VSC's lost
revenues. By using this method, the jury had a basis for
determining that an award of approximately $250,000 was
appropriate. In fact, VSC argued to the jury that an award of
about $500,000 was appropriate. The award was neither excessive
nor inadequate, itself a sign that the jury did not behave
unreasonably. See Attrezzi, 436 F.3d at 40.
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III.
VSC'S APPEAL FROM THE COURT'S EXCLUSION OF EVIDENCE OF BAD FAITH,
THE REFUSAL TO ISSUE A BROADER INJUNCTION, THE DENIAL OF AN
ACCOUNTING REMEDY, AND THE DENIAL OF ATTORNEYS' FEES
A. Bad Faith
VSC argues that the evidence showed Unisys proceeded in
bad faith and that the court erred in deciding otherwise. It uses
that argument to buttress its other arguments that it was entitled
to other remedies and to attorneys' fees. Because we find no error
in the district court's rulings, we have no need to discuss the
relevance of bad faith to the other issues in the case. See
generally D. Conway-Jones, Remedying Trademark Infringement: The
Role of Bad Faith in Awarding an Accounting of Defendant's Profits,
42 Santa Clara L. Rev. 863, 865 (2002) (proposing that "Congress
did not intend a bad faith requirement be met before an owner of an
infringed mark is able to recover a defendant's profits collected
on the back of the infringed mark").
Bad faith, in trademark law, "refers to an attempt by a
junior user to exploit the good will and reputation of a senior
user with the intent to sow confusion." 4 McCarthy, supra, §
23:113, at 23-357 (quoting Star Indus., Inc. v. Bacardi & Co., 412
F.3d 373, 388 (2d Cir. 2005)). Bad faith differs from
"willfulness," which arises when an infringer proceeds despite
knowledge of the senior user's trademark. See id. § 23:113; see
also Tamko Roofing Prods., Inc. v. Ideal Roofing Co., 282 F.3d 23,
-18-
31 (1st Cir. 2002). The court said it would allow a jury question
on willfulness because the jury's answer might be of use in
evaluating a later request for attorneys' fees.
VSC's argument about bad faith consists of two inferences
it draws from evidence admitted and a subsidiary argument that the
court improperly excluded evidence. Bad faith could be inferred,
VSC argues, from the alleged failure of Unisys' good faith
explanation for how the company developed the 3D VISIBLE ENTERPRISE
mark. VSC also argues that evidence that numerous Unisys employees
had requested information on VSC's products and had downloaded
software from VSC's website supported the inference Unisys knew of
and deliberately intended to benefit from VSC's reputation.
The court correctly ruled at summary judgment that the
proffered evidence did not show bad faith. For example, the
evidence does not provide a basis for the conclusion that Unisys
chose the mark 3D VISIBLE ENTERPRISE in order to take advantage of
VSC's reputation and goodwill in the market. See Aktiebolaget
Electrolux v. Armatron Int'l, Inc., 999 F.2d 1, 6 (1st Cir. 1993).
Unisys' witness John Aaker, a vice president of the Grey Worldwide
advertising agency, testified that it was the advertising agency,
not Unisys, which conceived of the 3D VISIBLE ENTERPRISE mark and
developed it. Grey, in turn, then caused its counsel to conduct a
search for other marks, received advice that Unisys was in a strong
position, and went ahead to present the mark to Unisys. The letter
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from Grey's trademark counsel was admitted into evidence by
agreement.
In rebuttal, VSC offered evidence that Unisys had used
the terms "3D" and "visible," during an internal marketing event in
June 2003 launching its "Business Blueprinting" campaign (a
predecessor of the 3D Visible Enterprise campaign) and that the
advertising agency had reviewed a video of the event. This
evidence is insufficient for a conclusion that Unisys "tried a
scheme to launder its 3D VISIBLE ENTERPRISE mark" through the
advertising agency.
Evidence was admitted of a list of Unisys employees who
had since 1988 requested information from VSC or downloaded
information from its website. The evidence showed that some Unisys
marketing employees and other employees were aware of VSC's mark in
1996, almost a decade earlier, but VSC did not call witnesses or
connect any of the listed employees to the 2004 adoption of the 3D
VISIBLE ENTERPRISE mark. That is not enough to show bad faith.
See Century 21 Real Estate Corp. v. Century 21 Real Estate, Inc.,
929 F.2d 827, 829 (1st Cir. 1991). This is particularly true given
the different slants in the two businesses -- one slanted to sales
of software, the other to sales of consulting services.
VSC also proffered additional evidence on bad faith,
consisting of Unisys' post-suit internal communications, such as
prohibitions on use of the term "visible" in product or service
-20-
marks with the exception of the 3D VISIBLE ENTERPRISE mark, that
VSC argued showed willfulness in Unisys' later deployment of
additional marks that contained the term. The district court did
not abuse its discretion in excluding this evidence.
B. VSC's Request for Broader Injunctive Relief
Our review of the trial court's choice of injunctive
relief is for abuse of discretion. Metro-Goldwyn Mayer, Inc. v.
007 Safety Prods., Inc., 183 F.3d 10, 14-15 (1st Cir. 1999). The
terms of the injunction issued enjoined Unisys "from using the
trademarks or service marks 3D VISIBLE ENTERPRISE, 3D-VE, or
VISIBLE, in the sale, offering for sale, distribution or
advertising in the United States of goods or services in the
enterprise modeling or enterprise architecture fields." The
injunction also ordered Unisys to "remove all uses of the 3D
VISIBLE ENTERPRISE, 3D-VE, and VISIBLE marks from the Internet
website www.unisys.com, and . . . [to] remove and destroy all other
advertising or promotional materials that are within the United
States and within the control of Unisys and that incorporate the
marks 3D VISIBLE ENTERPRISE, 3D-VE, and VISIBLE." The injunction
allowed Unisys to continue using the marks internally and to
continue using "visible" in its ordinary descriptive sense.
VSC argues that the court erred in refusing to bar
Unisys' use of VISIBLE on Unisys' country-specific websites based
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outside of the United States and in allowing Unisys to use
"visible" in its ordinary descriptive sense.
VSC argues that allowing Unisys to use VISIBLE in its
non-U.S. websites contravenes the principle that Lanham Act
jurisdiction may extend to extraterritorial conduct by American
citizens that has a substantial effect on domestic commerce. See
generally McBee v. Delica Co., Ltd., 417 F.3d 107, 116-18 (1st Cir.
2005) (noting that the Lanham Act may reach such conduct but that
"[t]he reach of the Lanham Act depends on context"). There was no
evidence that VSC maintained any overseas websites or that it had
any substantial overseas sales. Its argument to the district court
focused on the possibility that domestic customers could access
Unisys' overseas websites from the United States. There was no
error of law or abuse of discretion; the court's stated reason for
rejecting VSC's broader language was that it found the proposed
injunction "simply so broad . . . as [to be] largely unworkable in
the real world."
VSC's challenge to allowing Unisys to use the word
"visible" in its ordinary descriptive sense also fails. VSC argues
the court's decision was error because the trial record disclosed
no use in the relevant field of "visible" as a descriptive term.
The trial court had "first-hand exposure to the litigants and the
evidence," Rosario-Torres v. Hernandez-Colon, 889 F.2d 314, 323
-22-
(1st Cir. 1989) (en banc), and it acted well within its discretion6
in deciding that a narrower prohibition would be adequate to
prevent future harm.
C. VSC's Claim to an Accounting of Unisys' Profits and for
a Jury Trial on That Issue
There is no dispute that VSC was entitled to and received
a jury trial for VSC's claim of its own damages for infringement,
though the request was joined with a request for equitable relief.
See Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 508-11 (1959);
Attrezzi, 436 F.3d at 36.
VSC argues that it was also entitled under both the Act
and the Seventh Amendment to a jury trial, under Dairy Queen, Inc.
v. Wood, 369 U.S. 469 (1962), on its request for an accounting of
defendant's profits. It had earlier sought $100 million for an
accounting from the court, which was denied. The question of what
role a jury plays as to the remedy of an accounting in a Lanham Act
case is complicated.
VSC argues the Lanham Act gives it a statutory right to
a jury trial on the remedy of an accounting. The Lanham Act
directs that the question of entitlement of plaintiffs to
defendants' profits be subject to "the principles of equity":
6
Unisys argues that because VSC was not entitled to any
injunctive relief at all due to unclean hands, it cannot complain
about the limits on the injunctive relief it did get. There is no
need to address the argument.
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When a violation of any right of the
registrant of a mark registered in the Patent
and Trademark Office, a violation under
section 1125(a) or (d) of this title, or a
willful violation under section 1125(c) of
this title, shall have been established in any
civil action arising under this chapter, the
plaintiff shall be entitled, . . . 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.
15 U.S.C. § 1117(a). The remedial provisions of the Lanham Act
authorize four forms of relief: an accounting of the defendant's
profits, any damages sustained by the plaintiff, the costs of the
action, id., and injunctive relief under § 1116(a). However, even
the monetary relief available under § 1117(a) is "subject to the
principles of equity." Further, "if the court . . . find[s] that
the amount of the recovery based on [defendant's] profits is either
inadequate or excessive the court may in its discretion enter
judgment for such sum as the court shall find to be just, according
to the circumstances of the case."7 Id. The Lanham Act prohibits
the use of such relief as a penalty. Under the Act's language,
even if a jury were to determine the amount of defendant's profits,
a court could in its discretion set the jury award aside if the
7
As McCarthy notes, the remedy of an accounting of profits
has its historic roots in equity jurisprudence. "An accounting of
profits is never automatic. The courts retain the right to
withhold the remedy if, in view of the overall facts and equities
of the case, it is not appropriate." 5 McCarthy, supra, § 30:59,
at 30-138 to -139 (footnote omitted).
-24-
profits were excessive.8 Plaintiff has argued only that there is
an initial right to a jury trial, not that the court lacks power to
set aside an award under the terms set in the Act.
VSC concedes that an accounting is generally described as
an equitable remedy, see 15 U.S.C. § 1117(a); see also Tamko, 282
F.3d at 36, but correctly says that is not dispositive of the
Seventh Amendment question. This court has not directly addressed
the question. We have said generally, in a trademark case not
raising this precise question, that common-law claims are to be
tried to a jury while equitable claims can be tried to a judge.
See Attrezzi, 436 F.3d at 36.
In order to avoid reaching the Seventh Amendment
question, we ask first if the Lanham Act itself provides for a jury
trial, as VSC contends. Under the reasoning of the Supreme Court's
opinion in Feltner v. Columbia Pictures Television, Inc., 523 U.S.
340 (1998), construing similar phraseology in the Copyright Act, it
seems clear that the Lanham Act itself does not create a right to
a jury trial whenever the remedy of an accounting of defendant's
profits is sought.
The Seventh Amendment analysis requires a determination
of "whether the statutory cause of action is more analogous to
8
Of course, even if the accounting is viewed as an
equitable claim for the judge, the judge is bound by the jury's
determination of issues, such as the jury's finding of willfulness,
which affect the disposition of the accompanying equitable claim.
Attrezzi, 436 F.3d at 43 n.5.
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cases tried in courts of law than to suits tried in courts of
equity or admiralty," which in turn requires examination of "both
the nature of the statutory action and the remedy sought."
Feltner, 523 U.S. at 348; see also Markman v. Westview Instruments
Inc., 517 U.S. 370, 376 (1996); Granfinanciera, S.A. v. Nordberg,
492 U.S. 33, 41-42 (1989).
VSC's opening brief provides no argument at all on this
required examination but does cite to commentary in a respected
treatise. See 6 McCarthy, supra, § 32:124, at 32-261 ("[A] claim
for an accounting of defendant's profits is usually treated for
jury trial purposes as the equivalent of a claim for legal
damages."). Its reply brief offers little more.
No federal court of appeals decision which extensively
discusses the issue has been called to our attention by the
parties. One law review article on the topic concludes that the
issue of an accounting of defendant's profits in a trademark action
is for the court, based on its review of the history of the remedy.
M. Thurmon, Ending the Seventh Amendment Confusion: A Critical
Analysis of the Right to a Jury Trial in Trademark Cases, 11 Tex.
Intell. Prop. L.J. 1, 6 (2002).
The power of a trial judge to determine that the evidence
is insufficient to support an award of a disgorgement of the
infringers profits is unaffected by the Dairy Queen rule. To the
extent VSC is arguing that the district court is precluded from
-26-
making this assessment of the evidence either at summary judgment
or after trial, we reject the argument. The court is, at the
least, the initial gatekeeper as to whether the evidence suffices.
See Quick Techs. Inc. v. Sage Group PLC, 313 F.3d 338, 349 (5th
Cir. 2002). The Supreme Court established at least this much in
Champion Spark Plug Co. v. Sanders, 331 U.S. 125 (1947).9 In
Champion Spark Plug, the Supreme Court held that courts must take
equitable principles into account in determining whether to award
an accounting of profits. 331 U.S. at 131. There, the court
upheld the decision of both the trial and appellate courts to deny
an accounting and held the remedy is not automatic as a result of
an infringement finding. Id. at 131-32.
Here, the court ruled that the issue of an accounting is
for the court, not a jury.10 The trial judge also ruled that the
9
Whether the precise holding of Champion Spark Plug
survives the various amendments to the Lanham Act in 1999 is not an
issue we need to address. See B. Banner, Trademark Infringement
Remedies 7-3 (2006). We note McCarthy's view that the purpose of
the 1999 Amendment of Lanham Act § 35(a) was to be clear that in
dilution cases, and only dilution cases, Congress meant to limit
this recovery to instances of willful violation. 5 McCarthy,
supra, § 30:62, at 30-145.
10
Whether there is a jury trial right on the issue of an
accounting of the infringer's profit could affect the standard of
appellate review. If the issue were committed to the discretion of
the court, either because there is no jury trial right or because
the court under the statute may adjust a jury award in light of
equitable considerations, we would review the court's ultimate
finding for abuse of discretion. See Venture Tape, 540 F.3d at 62;
see also Hoult v. Hoult, 373 F.3d 47, 53 (1st Cir. 2004)
(describing abuse of discretion standard). If, however, the issue
of an accounting of damages was ordinarily for the jury, at least
-27-
evidence to support the remedy of an accounting was insufficient to
reach the jury, stating that if the jury made such an award, the
court would be forced "to throw it out." If the evidence was
insufficient to justify an accounting (as we hold), then the
question of whether there is a Seventh Amendment jury trial right
to an accounting becomes academic and can be avoided.
Our review of the sufficiency question is de novo.
Attrezzi, 436 F.3d at 37. This circuit, like others, has
recognized three rationales for awarding to the plaintiff an
accounting of the defendant's profits: "(1) as a rough measure of
the harm to plaintiff; (2) to avoid unjust enrichment of the
defendant; or (3) if necessary to protect the plaintiff by
deterring a willful infringer from further infringement." Tamko,
282 F.3d at 36. The sufficiency of the evidence must be evaluated
against each of the rationales for an award of the defendant's
profits. On this record, we agree with the trial judge's
assessment, under any of the standards of review, that none of
those rationales would be served by an accounting.
The first rationale for an accounting is as a proxy for
legal damages, that is, a rough measure of harm to the plaintiff.11
in the first instance, then appellate review would be for whether
the evidence was sufficient to put the issue to the jury.
11
In our view, this proxy rationale may well present the
strongest argument under the Seventh Amendment; we do not decide
the point. This does not mean that a plaintiff's characterization
of why it is seeking an accounting would control, even under our
-28-
Dairy Queen itself held that "[t]he necessary prerequisite to the
right to maintain a suit for an equitable accounting . . . [is] the
absence of an adequate remedy at law." 369 U.S. at 478. The proxy
rationale has no place in this case on the evidence.
The harm to plaintiff was in fact measured and damages
were awarded. The jury answered a special question, "[p]lease
state, in words and figures, the dollar amount of damages which you
have determined defendant Unisys Corporation should pay to
plaintiff Visible Systems Corporation in order to restore it to the
position it would have been in had the infringement not occurred"
(emphasis added), and awarded $250,000 to VSC, as recompense for
the harm VSC suffered.
Furthermore, the district court concluded12 that the
evidence did not show there were profits which accrued to Unisys as
hypothetical. See Thurmon, supra, at 90-91, 101 (noting that
focusing on the proxy rationale may invite manipulation of the jury
trial guarantee through artful pleading); id. at 107 (noting that
courts of equity historically awarded an accounting of defendant's
profits as a substitute for a damages claim at law); see also Juicy
Couture, Inc. v. L'Oreal USA, Inc., No. 04 Civ. 7203, 2006 WL
559675, at *1-2 (S.D.N.Y. Mar. 7, 2006) (refuting a plaintiff's
strategic attempt to assert a proxy rationale).
12
The court denied summary judgment on this issue but
reconsidered the issue at trial after VSC brought new facts to its
attention and then decided in the chambers charge conference that
the evidence was insufficient to support an accounting. We do not
have the benefit of a full statement of the district court's
reasoning. We reject VSC's criticism of the district court for not
conjuring up some memory of what was said when there was no
documentation. VSC easily could have asked for a reporter to be
present at the charge conference.
-29-
a result of its infringement. Our prior discussion of the
evidence13 supports the district court's conclusion. Indeed, at
trial VSC "[did] not contend that potential customers of Unisys are
likely to make purchasing decisions about its goods and services
under the mistaken belief they are associated with Visible
Systems."
Rather, plaintiff's theory of harm was one of reverse
confusion, and reverse confusion does not lend itself to any
automatic assumption that there is an equivalence between
defendant's profits and plaintiff's diverted sales. See Johnny
Blastoff, Inc. v. L.A. Rams Football Co., 188 F.3d 427, 436-37 (7th
Cir. 1999) (noting that in reverse confusion cases, the infringer
does not seek to profit from the senior user's goodwill but
nevertheless causes indirect harm to the senior user); Big O Tire
Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365, 1374
(10th Cir. 1977); Restatement (Third) of Unfair Competition § 37
13
To recap, VSC primarily sold software, which constituted
approximately 80 to 90% of its revenues, and its consulting sales
in fact increased during the period of Unisys' infringement. By
contrast to VSC's sale of software, Unisys never sold its own
software. Unisys sold consulting services; when, in those
instances of providing consultant services, the client also wanted
software, Unisys consultants were "tool agnostic" and provided
third-party products. While VSC and Unisys targeted similar
customers, VSC's consulting clients primarily sought support in
using VSC's software products; Unisys' consulting clients primarily
sought business advice without regard to which software was used.
VSC's consulting engagements were largely limited to training and
mentoring VSC's clients in using VSC's products. Further, VSC
eliminated the position of Vice President of Client Services and
employed no full-time consultants at the time of the infringement.
-30-
cmt. b (1995) ("The correspondence is clearly imperfect, however,
since in most cases there is no reason to expect that every sale
made by the defendant has been diverted from the plaintiff, or that
the profit margins of the parties are necessarily the same.").
This case is not a suitable candidate for the proxy rationale for
an accounting.
VSC relies primarily on the second rationale for an
accounting -- avoidance of unjust enrichment of the infringing
defendant. We assume that it is possible both for one party to
have suffered lost profits from its own declining sales and for the
infringer to have been unjustly enriched by its infringement.
Still, as we have said, the evidence is that Unisys made no unjust
profits and so was not unjustly enriched.
The third rationale, that an accounting can be justified
if necessary to protect the plaintiff by deterring a willful
infringer from further infringement, also has no place here based
on the evidence. That rationale requires, at a minimum, that the
defendant has acted willfully, as the jury did find here. See
Tamko, 282 F.3d at 36 n.11. Still, willfulness alone is not enough
to justify a remedy of an accounting of defendant's profits where
there is a damages award to the plaintiff, no showing of unjust
enrichment, no bad faith, and an injunction has been entered.
The fact that injunctive relief has been entered does not
alone preclude an accounting, Tamko, 282 F.3d at 35, but it is
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highly pertinent to the adequacy and completeness of the remedy.
The injunction here provides adequate deterrence. It prevents
Unisys from using the VISIBLE, 3D VISIBLE ENTERPRISE, or 3D-VE
marks in the enterprise modeling and architecture fields. The
injunction also provides for a dispute resolution procedure in the
event VSC believes Unisys has violated its terms. The presence of
the injunctive relief also promotes the goal of increasing
confidence in the market economy. Cf. Conway-Jones, supra, at 882.
D. Denial of Attorneys' Fees
The Lanham Act provides for attorneys' fees only "in
exceptional cases." 15 U.S.C. § 1117(a). VSC challenges the
court's order declining to award fees, arguing that the factors
identified in Tamko for deciding whether to award fees weigh in its
favor. Congress left it to the court, not the jury, to consider
whether an award of attorneys' fees is equitable. Tamko, 282 F.3d
at 31 n.5.
We review the legal question of the meaning of
"exceptional cases" de novo and the district court's denial of an
award of attorneys' fees for abuse of discretion. To the extent
that the district court's award rests on factual determinations,
however, we review those for clear error. Id. at 30.
There is no "per se equivalence between 'exceptional
case' and a jury finding of willfulness." Id. at 31 n.5. Among
-32-
the factors we have identified in guiding a court's decision on an
award of fees are whether:
[T]he area of law is unclear and defendants
might reasonably think they did not infringe;
there is a close legal question as to whether
there is any trademark violation; defendant
had no intent to deceive or confuse the
public; the defendant made a concerted effort
to create a non-infringing mark; the plaintiff
suffered no actual damage.
Id. at 32-33 (citations omitted). The district court reviewed
these factors and committed no error of law.
The court did not abuse its discretion in concluding that
"little, if anything, about this case could be appropriately deemed
exceptional or extraordinary." It reasoned that Unisys had a good
faith belief that it was not in competition with VSC, that the
evidence that VSC suffered actual damage was indirect, and that
Unisys' behavior did not rise to the level of deliberate and
willful conduct as was the case in Tamko. Indeed, at the summary
judgment stage, the district court characterized the plaintiff's
case as "thin," a relevant consideration. See Raxton Corp. v.
Anania Assocs., Inc., 668 F.2d 622, 625 (1st Cir. 1982).
IV.
We affirm the judgment of the district court. Each side
shall bear its own costs.
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