Estate of Bishop v. Equinox International Corp.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JUL 20 2001
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

ESTATE OF JAMES S. BISHOP,
formerly JAMES S. BISHOP d/b/a
Essence of Life,

Plaintiff-Appellant,
v. No. 99-5215
EQUINOX INTERNATIONAL CORP., a (D.C. No. 96-CV-6-E)
Nevada corporation, (N.D. Okla.)

Defendant-Appellee.

William S. Dorman, Dorman & Gilbert, P.A., Tulsa, Oklahoma, for Plaintiff-Appellant.

Mack J. Morgan III (D. Kent Meyers with him on the brief), Crowe & Dunlevy,
Oklahoma City, Oklahoma, for Defendant-Appellee.

Before EBEL, BALDOCK, and KELLY, Circuit Judges.

EBEL, Circuit Judge.

This case arises from a trademark dispute between plaintiff-appellant, the Estate of

James S. Bishop (“the Estate”), and defendant-appellee, Equinox International

Corporation (“Equinox”), over Equinox’s infringing use of the federally registered
trademark “Essence of Life.” We resolved a prior appeal in this case in Bishop v.

Equinox International Corp., 154 F.3d 1220 (10th Cir. 1998) (“Bishop I”), in which we

remanded to the district court to determine whether the Estate was entitled to a portion of

Equinox’s profits during the infringing period. Here, the Estate argues that the district

court abused its discretion when it failed on remand to award the Estate a portion of

Equinox’s profits. The Estate further argues that the district court abused its discretion in

failing to grant the Estate’s motion for disqualification of the district court judge.

Because we find that the district court was acting within its discretionary authority on

both issues, we AFFIRM the decision of the district court.

BACKGROUND

In October 1985, the original plaintiff-appellant, James Bishop (“Bishop”), began

making and selling a dietary supplement composed of a mineral electrolyte solution

(“liquid mineral complex”) in both liquid and capsule form. Bishop affixed the trademark

“Essence of Life” to the products’ containers and received a Certificate of Federal

Trademark Registration, No. 1,504, 568, on September 20, 1988. Bishop then filed and

received acceptance of a “Section 8 and 15” Affidavit of Continuing Use under 15 U.S.C.

§§ 1058 and 1065.

In approximately January 1995, Bishop became aware that Equinox was marketing

a product using the phrase “Essence of Life,” which was further described as a “liquid

2
mineral complex.” In a letter dated February 22, 1995, Bishop’s then-attorney notified

Equinox that Bishop considered Equinox’s use of the phrase “Essence of Life” an

infringement on his trademark and requested that Equinox cease and desist in further

infringement. Equinox’s attorney responded with a letter dated June 1, 1995, advising

Bishop’s attorney that Equinox would stop using the phrase “Essence of Life” on its

products. Equinox did not, however, stop using the trademark.

Bishop filed suit on January 3, 1996, and the district court conducted a three-day

bench trial in 1997. The district court held that Equinox had deliberately or willfully

infringed Bishop’s trademark and enjoined Equinox from further use of the trademark.

The district court also found: (1) Equinox’s use of the phrase “Essence of Life” created a

likelihood of confusion due to the identical language being used to sell a nearly identical

product; (2) Equinox did not cease using the mark as promised by its attorney in the

June 1, 1995, letter, at least in part because it perceived Bishop to be without the

resources to sue Equinox; and (3) the case was exceptional enough to warrant an award of

$100,000 in attorney’s fees to Bishop. The district court nevertheless denied Bishop an

award of any portion of Equinox’s profits on the theory that a plaintiff must demonstrate

actual damages before he is entitled to receive a portion of a defendant’s profits under 15

U.S.C. § 1117.

3
 Bishop appealed that decision to this court.1 We held in Bishop I that the district

court erred in requiring Bishop to show actual damages to receive a portion of Equinox’s

profits. See 154 F.3d at 1222-23. We noted that a number of circuit courts of appeals

had upheld awards of defendant’s profits pursuant to 15 U.S.C. § 1117, even absent proof

of actual damage to the plaintiff, under the alternative theories of preventing unjust

enrichment or deterring willful infringement. Id. at 1223. We thus remanded the case to

the district court to determine whether Bishop should be awarded a portion of Equinox’s

profits as part of the overall damage award in the case, with an instruction that the district

court should “fashion a remedy that ‘will satisfy the equities of the case.’” Id. at 1224

(quoting Champion Spark Plug Co. v. Sanders, 331 U.S. 125, 131 (1947)).

On remand, the district court ordered the parties to file simultaneous briefs “on the

issue of whether, on the evidence now before the Court, and taking into consideration

equity and the analyses of the Court of Appeals in this case, the Plaintiff is entitled to

profits as an element of damages.” On February 1, 1999, Bishop filed a brief requesting

that the district court grant an accounting of Equinox’s profits from January 9, 1997,

through the end of 1997. Shortly thereafter Bishop filed a motion for a status conference.

1
Equinox unsuccessfully cross-appealed the district court’s award of attorney’s
fees in favor of Bishop. See Bishop I, 154 F.3d at 1224.

4
 Bishop soon discovered that Equinox was still advertising products on its website

using the “Essence of Life” trademark.2 Bishop responded to this discovery by filing a

motion for a contempt citation on March 16, 1999. Bishop then died and the Estate was

substituted as the plaintiff in this matter. Not having heard from the district court, the

Estate on June 17, 1999, filed a second motion for a status conference and a motion for

additional discovery on the issue of Equinox’s profits. Then, on September 21, 1999, the

Estate filed a motion to disqualify Senior Judge James O. Ellison, the district judge to

whom the case had been assigned, based upon the delay in scheduling a status hearing

and his decision not to allow additional discovery on the issue of Equinox’s profits.

On September 22, 1999, Judge Ellison denied the Estate any portion of Equinox’s

profits, denied the Estate’s motions for a status conference and for additional discovery as

moot, and denied the Estate’s motion for a contempt citation and for Judge Ellison’s

disqualification. In denying an award of profits, the district court stated:

[I]n light of the [Bishop I] Court’s reliance on International Star
Class Racing Ass’n v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749 (2d Cir.
1996), wherein the Court reversed and remanded for additional findings on
an award of profits despite a finding of no intentional deception, this Court
believes that the task before it is to consider all the equities in the case anew
and make a determination on the applicability of an award of profits.

In considering all of the equities in this case, the relative weakness of
the mark, the lack of customer confusion or deception, and that Equinox did

2
The district court had earlier ruled that Equinox would be allowed to market its
available supply of products marked with the trademark “Essence of Life Liquid Mineral
Complex,” but that further marking would not be allowed.

5
 not benefit from Bishop’s mark, the court rejects, as it did in the original
findings, the notion that prevention of unjust enrichment is a sufficient
rationale for awarding profits. In particular, the Court found that Defendant
did not benefit from Plaintiff’s “relatively obscure” mark. Further,
assuming that profits can be awarded in this circuit as a deterrence to willful
infringement, the Court finds that when weighing the equities, particularly
that the bad faith was found in Defendant’s failure to honor the cease and
desist agreement, the award of attorney fees is a sufficient deterrent under
these circumstances.

Estate of Bishop v. Equinox Int’l Corp., No. 96-C-006-E, slip op. at 4 (N.D. Okla. Sept.

23, 1999) (unpublished order) (“Bishop II”).

In regard to the motion to disqualify, the district court noted that his January 5,

1999, Order directed the parties to brief the issue remanded by the Court of Appeals,

which belied the Estate’s contention that he “was trying to avoid the ruling,” and found

that neither that nor the court’s failure to schedule a status conference “provide a

reasonable factual basis for calling the court’s impartiality into question.” Id., slip op. at

1 n.1.

The instant appeal followed. Subsequent to the filing of this appeal but

acknowledged by the Estate at oral argument, Equinox entered into a settlement

agreement in an action initiated by the Federal Trade Commission (“FTC”) and several

states. See Federal Trade Comm’n v. Equinox Int’l Corp., No. CV-S-99-0969-JBR-RLH

(D. Nev. Apr. 20, 2000) (unpublished order). The FTC’s allegations against Equinox

included violations of § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, and

violations of various state statutes dealing with securities, deceptive trade practices, false

6
advertising, pyramid schemes and licensing requirements. See id., slip op. at 2. Pursuant

to the settlement agreement, Equinox is no longer in operation and a receiver has been

appointed to liquidate all of Equinox’s assets for distribution to its creditors. See id., slip

op. at 10, 13, 15-20.

DISCUSSION

A. The Damage Award

1. The Statute

The statute under which damages may be awarded in a trademark infringement

case reads in relevant part:

When a violation of any right of the registrant of a mark registered in
the Patent and Trademark Office, or a violation under section 1125(a) 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. 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. . . .
The court in exceptional cases may award reasonable attorney’s fees to the
prevailing party.

See 15 U.S.C. § 1117(a) (emphasis added).

7
2. Discretionary Remedy

There are three articulated justifications for awarding a portion of a defendant’s

profits to an injured plaintiff, only two of which are at issue in this case: prevention of

unjust enrichment and deterrence of willful infringement. See Bishop I, 154 F.3d at

1222-23. The third justification, actual damages to the Estate, is not at issue in this case

because the record clearly indicates that the Estate suffered no actual damages as a result

of Equinox’s infringing actions. See Bishop II, slip op. at 2-3.

In regard to the unjust enrichment theory of recovery, we have stated that a

plaintiff may recover a portion of a defendant’s profits even where the plaintiff was not

actually injured by the defendant’s unfair use of the disputed trademark. See Bishop I,

154 F.3d at 1223. “The infringer’s use of the marketholder’s property to make a profit

results in unjust enrichment that may properly be remedied through an award of profits,

‘even if the defendant and plaintiff are not in direct competition.’” Id. (quoting Maltina

Corp. v. Cawy Bottling Co., 613 F.2d 582, 585 (5th Cir. 1980) (emphasis added)). This

is because, as we have previously noted, “the courts have now settled on the theory that a

[trademark] infringer is liable as a trustee for profits accruing from his illegal acts, even

though the owner of the mark was not doing business in the consuming market where the

infringement occurred.” Blue Bell Co. v. Frontier Refining Co., 213 F.2d 354, 363 (10th

Cir. 1954).

8
 In regard to the deterrence of willful infringement rationale for awarding a portion

of a defendant’s profits, we have recognized that “several of our sister circuits have

recognized that an award of profits may be proper, absent a showing of actual damage, as

a deterrent to willful infringement,” Bishop I, 154 F.3d at 1223 (citing cases from the

Second, Ninth and Eleventh Circuit Courts of Appeals) (emphasis added), and we have

implied that we would similarly accept this rationale for awarding profits in a trademark

infringement case. See id. at 1223-24.

While we have stated that trademark infringement “may properly be remedied

through an award of profits,” id. at 1223 (emphasis added), so that unjust enrichment of

the defendant may be avoided or so that the defendant will be deterred from future

wrongdoing, we have never stated that a plaintiff must necessarily be so compensated

whenever a defendant wrongfully appropriates the plaintiff’s trademarked property to

make a profit. See id. To the contrary, we have emphasized: “An accounting of profits

is not automatically granted upon a showing of infringement. Rather, the propriety of

such relief is determined by equitable considerations. Consequently, the district court

has wide discretion to fashion an appropriate remedy.” Id. at 1222 (citations omitted); see

also Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1405 (9th Cir. 1993) (stating that an

accounting of profits will be granted only in light of equitable considerations).

In short, we have acknowledged that a showing of actual damages is not required

to recover a portion of an infringing defendant’s profits in a trademark action, and that

9
plaintiffs in such cases may recover the defendants’ profits based upon the alternative

theories of the prevention of unjust enrichment and the deterrence of willful

infringement. We have also instructed the district courts to fashion equitable remedies to

meet the individual needs of each case, carefully weighing the equities on both sides of

the scale to determine whether, in that district court’s judgment and within its wide

discretion, the plaintiff may receive a portion of the infringing defendant’s profits.

3. Standard of Review

We review a district court’s decision whether to award a portion of an infringing

defendant’s profits to a prevailing plaintiff under an abuse of discretion standard. See

Bishop I, 154 F.3d at 1222; BASF Corp. v. Old World Trading Co., 41 F.3d 1081, 1092

(7th Cir. 1994). We have stated:

Under the abuse of discretion standard[] “a trial court’s decision will
not be disturbed unless the appellate court has a definite and firm
conviction that the lower court made a clear error of judgment or exceeded
the bounds of permissible choice in the circumstances. When we apply the
‘abuse of discretion’ standard, we defer to the trial court’s judgment
because of its first-hand ability to view the witness or evidence and assess
credibility and probative value.”

Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994) (quoting McEwan v. City of

Norman, 926 F.2d 1539, 1553-54 (10th Cir. 1991)) (further quotation omitted). We have

further defined an abuse of discretion to be “‘an arbitrary, capricious, whimsical, or

manifestly unreasonable judgment.’” Coletti v. Cudd Pressure Control, 165 F.3d 767,

10
777 (10th Cir. 1999) (quoting FDIC v. Oldenburg, 34 F.3d 1529, 1555 (10th Cir. 1994))

(further quotation omitted).

4. Analysis

Here, we cannot conclude that the district court abused its “wide discretion” when

it weighed the equitable considerations presented in this case and determined both that a

full accounting of profits was not necessary and that the Estate was not equitably entitled

to a portion of Equinox’s profits for its use of the “Essence of Life” trademark.

The record demonstrates that the plaintiff sold an average of only 98 bottles of his

product each year. See Bishop I, 154 F.3d at 1222. Further, the district court found that

the plaintiff did not lose any sales due to Equinox’s infringing use of the trademark, that

Equinox did not benefit from any goodwill associated with the disputed trademark, and

that there was no actual consumer confusion or deception caused by Equinox’s infringing

use of the trademark. See Bishop II, slip op. at 3. These factors are relevant not just in

demonstrating that the Estate suffered no actual damages, but also in considering whether

an award of a portion of Equinox’s profits is appropriate either to prevent unjust

enrichment or to deter future willful infringement. See Bishop I, 154 F.3d at 1223

(“Notwithstanding the existence of these theories of recovery [of preventing unjust

enrichment and deterring willful infringement], we recognize that a finding of actual

11
damage remains an important factor in determining whether an award of profits is

appropriate.”).

Because the Estate never maintained an active business presence of substantial

magnitude or profitability related to the “Essence of Life” trademark, never lost any sales

or customer goodwill related to its “Essence of Life” products, and never encountered any

customer confusion due to Equinox’s infringing use of the mark, it is clear that the Estate

suffered no actual injuries related to Equinox’s infringement of its trademark. Thus it

appears the Estate is simply seeking a windfall based upon the defendant’s willful, but in

no way damaging (either to the Estate or to the public at large), appropriation of the

plaintiff’s trademark. While the defendant is undeniably unsympathetic in that it willfully

infringed upon the Estate’s trademarked property, neither is the Estate itself – which has

already received an injunction and an award of $100,000 in attorney’s fees – a

particularly sympathetic plaintiff.

The district court clearly had this in mind when it determined that the equities of

the case were satisfied, and that Equinox was sufficiently deterred from future willful

infringement, by the $100,000 attorney’s fees award against Equinox:

In considering all of the equities in this case, the relative weakness of the
mark, the lack of customer confusion or deception, and that Equinox did not
benefit from Bishop’s mark, the court rejects, as it did in the original
findings, the notion that prevention of unjust enrichment is a sufficient
rationale for awarding profits. In particular, the Court found that Defendant
did not benefit from Plaintiff’s “relatively obscure” mark. Further,
assuming that profits can be awarded in this circuit as a deterrence to willful
infringement, the Court finds that when weighing the equities, particularly

12
 that the bad faith was found in Defendant’s failure to honor the cease and
desist agreement, the award of attorney fees is a sufficient deterrent under
these circumstances.

Bishop II, slip op. at 4.

In reviewing the district court’s determination that an award of profits was not

appropriate in this case, we find that the district court carefully weighed the equities and

was well within its discretion in finding that the Estate was not entitled to a windfall

judgment awarding it a portion of the defendant’s profits, and that the $100,000 award of

attorney’s fees was a sufficient deterrent to any future willful trademark infringement by

Equinox. Cf. ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 969 (D.C. Cir.

1990) (“[T]his court . . . [has] advised a district court to make an award that would deter

the defendant, yet not be a windfall to plaintiff nor amount to punitive damages.”)

(citations, quotations and emphasis omitted), quoted in Bishop I, 154 F.3d at 1223.

The dissent asserts that the district court’s failure to conduct discovery on the

amount of Equinox’s profits during the infringing period meant that the district court did

not have all the facts necessary to determine whether an award of profits was appropriate

in this case. See post at 4 (“Most troublesome is the district court’s refusal to allow

discovery to accurately determine the amount of Defendant’s profits at issue. Surely, the

amount of profits involved is an equity the district court must consider.”).

We have in the past found an abuse of discretion where the district court has

“fail[ed] to consider the applicable legal standard or the facts upon which the exercise of

13
its discretionary judgment is based.” Ohlander v. Larson, 114 F.3d 1531, 1537 (10th Cir.

1997). But we disagree that the district court failed to consider all the relevant facts prior

to issuing its opinion. The district court knew when deciding whether to award a portion

of Equinox’s profits that Equinox had generated total gross profits $16,233,045 for the

time period of approximately February 1994 through December 1996. There was no

finding as to what portion of these gross profits was attributable to the sale of “Essence of

Life” products, but Equinox estimated the net profit attributable to its “Essence of Life”

products for the relevant time period at $1,447,878.3 The district court was thus aware of

the extent of both Equinox’s gross profits and its estimated net profits for most of the

infringement period when it determined that awarding the Estate a portion of those profits

was neither necessary nor appropriate in this case. Since the district court already had

detailed information regarding Equinox’s estimated profits, which were by all accounts

considerable and at least partially acknowledged by both parties, we find that the district

court’s determination that Equinox was sufficiently deterred from future willful

infringement by the $100,000 attorney fee award in favor of the Estate was based on

sufficient evidence of Equinox’s profits, and was by no means “‘an arbitrary, capricious,

whimsical, or manifestly unreasonable judgment.’” Coletti, 165 F.3d at 777 (quoting

3
The Estate argued to the district court that this number was derived by Equinox
through a serious of questionable deductions, and that “Bishop should be entitled to all of
Equinox’s profits (without deductions) on the sale of its ‘Essence of Life’ products since
the alleged deductions are not properly verifiable.”

14
Oldenburg, 34 F.3d at 1555). That decision was well within the district court’s discretion,

and will not be disturbed on appeal.

Finally, we take judicial notice of the fact that Equinox is now in federal

receivership. As such, Equinox is no longer an operating entity and its assets are being

liquidated for distribution to Equinox’s creditors. Given the practical realities of

Equinox’s current legal status, we believe remanding this case for further accounting of

the profits attributable to Equinox’s appropriation of the disputed trademark would be

both futile and counterproductive. The district court, when faced with a plaintiff who was

not actually injured by Equinox but who nevertheless desired a windfall judgment against

the company, already determined that the Estate was not equitably entitled to a portion of

Equinox’s profits. That determination occurred when the district court believed Equinox

was still a viable business entity. That is no longer the case, and it is impossible to

believe that the equities would be weighed more favorably to the plaintiff when the

district court is asked to weigh the Estate’s request for a windfall judgment against the

existence of claims filed by Equinox’s creditors in the liquidation proceeding. Prolonging

this litigation will simply increase Equinox’s expenses, which will then be paid indirectly

by Equinox’s other creditors in the form of decreased disbursements in the liquidation

proceeding, and would most likely leave the Estate no better off than it is today.

For these reasons, we hold that the district court did not abuse its discretion when

it declined to award the Estate a portion of Equinox’s profits.

15
 B. Motion to Disqualify

The Estate also challenges the denial of its motion to disqualify Judge Ellison. The

Estate argues that the judge should have disqualified himself because he harbors a general

bias against the remedy of unjust enrichment in trademark infringement cases, as

evidenced by his refusal to allow discovery on the question of profits. In addition, the

Estate filed several requests and motions between January and September 1999, but the

district court ruled on none of them until the day after Plaintiff filed a motion to

disqualify, at which point the district court denied them all.

The standard to disqualify a judge is “whether a reasonable person, knowing all the

relevant facts, would harbor doubts about the judge’s impartiality. . . . In applying the test,

the initial inquiry is whether a reasonable factual basis exists for calling the judge’s

impartiality into question.” United States v. Cooley, 1 F.3d 985, 993 (10th Cir. 1993)

(quotations omitted). Because the district court made a record of its reasons for denying

the Estate’s motion, we review the decision for abuse of discretion. Sac & Fox Nation of

Okla. v. Cuomo, 193 F.3d 1162, 1168 (10th Cir. 1999).

Courts nationwide have set forth reasons for which disqualification may be

necessary under 28 U.S.C. § 455(a), which provides that “[a]ny justice, judge, or

magistrate of the United States shall disqualify himself in any proceeding in which his

impartiality might reasonably be questioned.” See 28 U.S.C. § 455(a). “The standard is

purely objective. The inquiry is limited to outward manifestations and reasonable

16
inferences drawn therefrom.” Cooley, 1 F.3d at 993. Factors that do not merit

disqualification include: rumor, speculation, beliefs, conclusions, or other non-factual

matters, see, e.g., United States v. Burger, 964 F.2d 1065, 1070 (10th Cir. 1992); the fact

that the judge has previously expressed an opinion on a point of law, see, e.g., Leaman v.

Ohio Dep’t of Mental Retardation & Developmental Disabilities, 825 F.2d 946, 949 n.1

(6th Cir. 1987); and prior rulings that were adverse to the moving party in this

proceeding, or in another proceeding, solely because they were adverse, see, e.g., Green

v. Dorrell, 969 F.2d 915, 919 (10th Cir. 1992). In addition, in Sac & Fox we noted that

there was no authority for the proposition that the “time and manner of [the judge’s]

ruling creates a reasonable doubt about impartiality, absent any other indicia of bias or

partiality.” 193 F.3d at 1168; see also Kennedy v. Meacham, 540 F.2d 1057, 1060 (10th

Cir. 1976) (noting that delays attributed to the judge are not sufficient grounds for

disqualification.).

Applying these standards, we hold that the district judge did not err in refusing to

disqualify himself. The fact that the court had previously ruled against the Estate cannot

be viewed, without more, as evidence of bias against the Estate. Accord Green, 969 F.2d

at 919. Furthermore, nothing in the district court’s rulings in this case, including the

timing of the final decision or the delay in scheduling a status conference, provides a

reasonable basis from which bias could be inferred. Accord Sac & Fox, 193 F.3d at

17
1168; Kennedy, 540 F.2d at 1060. We therefore find that the district court’s denial of the

motion to disqualify did not constitute an abuse of discretion.

CONCLUSION

For the foregoing reasons, we AFFIRM the district court’s decision in regard to

both the damage award and the motion to disqualify.

18
99-5215, Estate of James S. Bishop v. Equinox International Corp.

BALDOCK, Circuit Judge, dissenting in part and concurring in part:

The Court’s opinion properly emphasizes that district courts have wide

discretion in fashioning a remedy for a violation of the Lanham Act. An

accounting of profits is not automatic but must be granted in light of equitable

considerations. Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1405 (9th Cir.

1993). The district courts, however, must carefully fashion remedies that take all

the economic incentive out of deliberate trademark infringement. Playboy Enter.,

Inc. v. Baccarat Clothing Co., 692 F.2d 1272, 1275 (9th Cir. 1982). For an

infringer to reap the benefits of a trademark it has knowingly and intentionally

stolen, and continued to use despite the lawful registrant’s objection, and then

escape payment of damages because the registrant suffered minimal actual

damages hardly seems equitable. Maier Brewing Co. v. Fleischmann Distilling

Corp., 390 F.2d 117, 123 (9 th Cir. 1968). Accordingly, I respectfully dissent from

Part A of the Court’s opinion addressing the damage award in this case. I concur

in Part B.

I.

Unjust enrichment is a well-established theory of recovery for trademark

infringement in this Circuit. In Bishop I, we explained that “[t]he infringer’s use

of the markholder’s property to make a profit results in unjust enrichment that may
properly be remedied through an award of profits, ‘even if the defendant and

plaintiff are not in direct competition.’” Bishop, 154 F.3d at 1223 (quoting

Maltina Corp. v. Cawy Bottling Co., 613 F.2d 582, 585 (5th Cir. 1980)); see also

Blue Bell Co. v. Frontier Refining Co., 213 F.2d 354, 363 (10th Cir. 1954) (an

infringement can occur although the owner of the mark was not doing business in

the market where the infringement occurred). “‘[A] trademark infringer is liable

as a trustee for profits accruing from his illegal acts.’” Bishop, 154 F.3d at 1223

(quoting Blue Bell Co., 213 F.2d at 362-63). The dollar amount of the recovery in

an accounting for profits under the unjust enrichment rationale bears no relation to

the damages, if any, sustained by the plaintiff in the action. Maier Brewing Co.,

390 F.2d at 124.

With regard to an award of profits based on the theory of unjust enrichment,

the district court rejected “the notion that prevention of unjust enrichment is a

sufficient rationale for awarding profits.” By itself, this is an incorrect statement

of the law. The district court presumably, however, intended this statement to

apply only to the circumstances of this case because the district court referred to

its findings that Plaintiff’s mark is weak, no consumer confusion or deception

exists, and Defendant did not benefit from Plaintiff’s mark. The district court

specifically found that “Defendant did not benefit from Plaintiff’s ‘relatively

obscure’ mark.” In this case, the district court essentially concluded that because

2
Defendant’s actions did not divert sales away from Plaintiff, Defendant was not

unjustly enriched. Yet, the diversion of sales is not a requirement in applying an

unjust enrichment theory. Bishop, 154 F.3d at 1223.

The Court refers to Plaintiff’s request for damages as a “windfall

judgment.” An award of Defendant’s profits cannot be considered a “windfall”

when authorized by statute. See 15 U.S.C. § 1117(a). Clearly, if no competition

exists between the parties, no diversion of customers and sales can exist. We have

previously held, however, that competition is not a prerequisite to recovery of

profits. See Bishop, 154 F.3d at 1223; accord Maier Brewing Co., 390 F.2d at 122

(“those courts which treat an accounting solely as a method of compensating for

the diversion of customers fail to fully effectuate the policies of the Act”).

Defendant has taken Plaintiff’s property as represented by his trademark and

apparently utilized this property to make a profit. If permitted to retain the profit

resulting from the illegal use of Plaintiff’s trademark, Defendant is unjustly

enriched.

II.

In Bishop I, we also established that deterring willful infringement is an

appropriate basis for an award of profits in this Circuit. Bishop, 154 F.3d at 1224.

A finding of willfulness or bad faith is a prerequisite to an award of profits based

on the deterrence theory of recovery. Id. We noted in Bishop I that “[t]he

3
findings of fact recite that Equinox may have acted with the degree of willfulness

necessary for an award of profits.” Id. On remand, the district court held that its

award of $100,000 in attorney fees was a sufficient deterrent and refused to award

profits to Plaintiff.

In its original findings of fact, the district court concluded that Defendant’s

failure to honor the cease and desist agreement “constituted a trademark

infringement which was deliberate or willful.” 1 On remand, the district court

attempted to mitigate this finding, noting that the bad faith was limited solely to

Defendant’s failure to honor the agreement. Defendant’s actions, however, clearly

support a finding of willful infringement especially in light of the district court’s

additional finding that Defendant premised its decision to continue using

Plaintiff’s trademark on “the economic weakness of the Plaintiff.” Moreover, the

district court found that this was an “exceptional case” justifying an award of

attorney fees. An “exceptional case” is “one in which the trademark infringement

can be characterized as ‘malicious, fraudulent, deliberate, or willful.’” Bishop, 154

F.3d at 1224 (quoting VIP Foods, Inc. v. Vulcan Pet, Inc., 675 F.2d 1106, 1107

1
Plaintiff notified Defendant by letter dated February 22, 1995, that Defendant
was infringing upon Plaintiff’s registered “Essence of Life” trademark. In the letter,
Plaintiff requested that Defendant cease and desist from further infringement.
Defendant’s attorney responded by letter dated June 1, 1995, stating that Defendant
would voluntarily refrain from using the name “Essence of Life” on their products.
Defendant, however, continued to market products using the phrase “Essence of Life.”
Plaintiff ultimately filed suit on January 3, 1996.

4
(10th Cir. 1982)). The record reflects that Defendant’s course of conduct

constituted a callous disregard for the rights of a trademark owner. Consequently,

I would require that the district court instruct Defendant to make a full accounting

before deciding whether an award of profits is an appropriate remedy in this case.

III.

Given the evidence of Defendant’s willful infringement of Plaintiff’s

trademark and Defendant’s decision to continue its infringement due to Plaintiff’s

economic weakness, the district court may have abused its discretion by not

awarding some portion of Defendant’s profits to Plaintiff. “[T]he monetary relief

must be great enough to further the statute’s goal of discouraging trademark

infringement but must not be so large as to constitute a penalty.” Sands, Taylor &

Wood v. Quaker Oats Co., 34 F.3d 1340, 1349 (7th Cir. 1994). The Lanham Act,

however, specifically states,

if the court shall find that the amount of the recovery based on 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. Such sum in either of the above
circumstances shall constitute compensation and not a penalty.

15 U.S.C. § 1117 (emphasis added).

The district court reasoned that “the award of attorney fees is a sufficient

deterrent under these circumstances.” I cannot definitively resolve this question,

however, because, in my opinion, the record is not sufficient for us to evaluate

5
properly whether an additional award of profits based on deterrence is appropriate.

Although the district court ordered briefing on the issue of Plaintiff’s entitlement

to profits, the court did not hold an evidentiary hearing to determine the amount of

Defendant’s profits attributable to the sale of “Essence of Life.”

Most troublesome is the district court’s refusal to allow discovery to

accurately determine the amount of Defendant’s profits at issue. Surely, the total

amount of profits involved is an equity the district court must consider. See

Bishop, 154 F.3d at 1224 (directing the district court to “fashion a remedy that

will satisfy the equities of the case”). Although neither party specifically

addresses on appeal the amount of profits at issue, the portions of the record

available to us seem to indicate that very large sums of money could be at stake. 2

We simply cannot determine the amount of an appropriate award of profits, if any,

without specific evidence of Defendant’s profits during the entire time of the

infringement. Additional discovery is necessary regarding the amount of

Defendant’s profits for the entire duration of the infringement. Only after

considering this additional evidence can the district court properly decide whether

an award of profits is appropriate in this case.

2
The record indicates that from 1994 through December 1996, Defendant’s gross
profits resulting from the sale of “Essence of Life” were over $16 million dollars. In
addition, the district court refused to allow further discovery of Defendant’s profits for
1997, so those profits presumably are not included in the $16 million dollar figure.

6
 IV.

Finally, I strongly disagree with the Court’s reliance on Defendant’s current

legal status as a basis for its decision. The fact that Defendant is now in

receivership should not, to Plaintiff’s detriment, insulate Defendant from the

consequences of its illegal actions. The Court notes that “[p]rolonging this

litigation will simply increase [Defendant’s] expenses, which will then be paid

indirectly by [Defendant’s] other creditors in the form of decreased disbursements

. . . .” Our duty, however, is not to protect potential creditors, our duty is to

ensure that this case is handled properly from start to finish in accordance with the

law. Remanding the case back to the district court may not be “practical,” but

expedience does not trump ensuring that established rules of law are followed.

Defendant’s actions were not just “inappropriate,” they were willful, deliberate

and illegal. Accordingly, I would vacate the district court’s order denying an

award of profits and remand for further proceedings.

7