1. Damages for Trademark Claims Under
The Lanham Act: Lessons Learned From
Sands Taylor & Wood v. The Quaker Oats Co.
and Trovan, Ltd. v. Pfizer, Inc.
Susan Somers Neal
Neal & McDevitt®

2. Presentation Highlights
 Overview of damages under The
Lanham Act
 Sands Taylor & Wood v. The Quaker
Oats Co.
 Trovan, Ltd. v. Pfizer, Inc.
 Lessons Learned

3. Overview of damages under
The Lanham Act, 15 U.S.C. §1117
 Four bases for recovery
– Defendant’s profits
– Plaintiff’s damages
– Costs
– Attorney’s fees
 Only in exceptional cases
 Treble damages
 Only if willful/intentional

4. Sands Taylor & Wood v. The
Quaker Oats Co. (Sands I)
 Decided December 18,
1990 by U.S. District
Court Judge Prentice
Marshall
 THIRST-AID registered mark
vs. GATORADE IS THIRST-
AID advertising slogan.
 The court held that there
was a likelihood of
confusion.
 Plaintiff was awarded
nearly $25 million plus
pre-judgment interest,
attorney’s fees and costs.

5. Sands I
 Rationale for award of defendant’s
profits
– Make Infringement Unprofitable
– Prevent Unjust Enrichment
– Deter Future Infringing Conduct
– But Avoid Awarding a Windfall to
Plaintiff

6. Sands I
 Types of Monetary Relief
– Plaintiff's Actual Damages
– Corrective Advertising
– Reasonable Royalties
– Attorney’s Fees
– Prejudgment interest and costs

7. Sands Taylor & Wood v. The
Quaker Oats Co. (Sands II)
 Decided July 9, 1991
by U.S. District Court
Judge Prentice
Marshall
 The court addressed
the terms of the
injunction, the
calculation of costs,
attorney's fees
prejudgment interest
and defendant's post-
trial profits.

8. Sands II
 Defendant’s profits throughout
period of infringement (over $31
million)
 Prejudgment interest (over $10
million)
 Plaintiff's attorneys’ fees and
expenses (over $600,000)
 Defendant’s costs (over $30,000)

9. Sands Taylor & Wood v. The
Quaker Oats Co. (Sands III)
 Decided on September 2,
1992 by the U.S. Court of
Appeals, Seventh Circuit.
 Circuit Judge Cudahy
wrote the opinion of the
court with Circuit Judge
Ripple concurring and
Circuit Judge Fairchild
dissenting in part.
 The court reversed the
district court’s award of
defendant's profits and
remanded for a
recalculation of damages.

10. Sands III
 Reversed of award of defendant's profits
and remanded for redetermination of
damages
 Affirmed award of attorneys’ fees and
expenses
 Affirmed Finding of Bad Faith

11. Sands III
 The Three Bears
– Judge Cudahy: $24 million is a
windfall to Sands (too hot)
– Judge Ripple: reasonable royalty may
not be enough to act as deterrence (too
cold)
– Judge Fairchild (dissent): exercise of
discretion should be affirmed (just
right)

12. Sands Taylor & Wood v. The
Quaker Oats Co. (Sands IV)
 Decided on June 7, 1993
by U.S. District Court
Judge Prentice Marshall
 The case was on remand
from the Seventh Circuit
 The court used a
“reasonable royalty rate”
to calculate damages and
awarded plaintiff over
$26 million in damages
and pre-judgment interest

13. Sands IV
 Calculation of reasonable royalty rate
– Rate previously paid by licensee
– Licensor’s policies
– Nature and scope of licensee’s use
– Special value to infringer
– Profitability of infringing use
– Lack of viable alternatives
– Opinions of experts
– Amount parties would have agreed upon voluntarily
– Rate previously received by licensor

14. Sands Taylor & Wood v. The
Quaker Oats Co. (Sands V)
 Decided on September 13,
1994 by the U.S. Court of
Appeals, Seventh Circuit.
 Circuit Judge Cudahy
wrote the opinion of the
court with Circuit Judge
Fairchild concurring.
 The court affirmed the
base royalty rate but
reversed the doubling of
the base rate and
remanded to the district
court for further
explanation of the basis
for the doubling.

15. Sands V
 Seventh Circuit affirms the base
royalty rate but reverses
enhancement (doubling)
 Remand for further explanation of
the enhancement (doubling)

16. Sands Taylor & Wood v. The
Quaker Oats Co. (Sands VI)
 Decided on April 11,
1995 by U.S. Court
Judge Prentice
Marshall
 The court further
explained its basis for
doubling of the base
royalty rate and re-
entered judgment on
remand for the
amount reversed by
the Seventh Circuit.

17. Sands VI
 “The enhancement is not a penalty. It reflects the
inadequacy of the base royalty award in light of the
"circumstances of the case," the extraordinary
profits defendant realized as a consequence of its
deliberate infringement. As now Chief Judge Posner
observed in Gorenstein, the treble damage provision
of the Lanham Act is ‘properly invoked when, as in
this case, the infringement is deliberate.’ 874 F.2d at
436. Furthermore, I assure the court of appeals that
I did not "double-count" the factors which I used to
determine the base royalty. I can say no more.”

18. Trovan, Ltd. v. Pfizer, Inc.
 TROVAN for transponders
used in animal
identification and
TROVAN for antibiotic
preparations
 Jury awarded $5 million
in compensatory
damages, $3 million in
reasonable royalties and
$135 million in punitive
damages
 The court denied an
award of profits
 Numerous post-trial
motions

19. Trovan
Punitive Damages
– California common law requires proof of
competition and no punitive damages under
the Lanham Act.
– In any event, the amount is excessive.
– The court finds that $1,500,000 (3 times the
value of the mark) is the most that could be
awarded.

20. Trovan
Actual Damages
1. Injury to reputation or goodwill
 Must be direct evidence
 Cannot be inferred
 Analogy to defamation
 Held: Sufficient showing to warrant award
of damages

21. Trovan
Actual Damages
2. Corrective Advertising
 Evidence on this issue was stricken

22. Trovan
 Actual Damages
3. Damage Award Excessive
 “There is something basically unseemly and
grossly uneconomical in an award to a small
company of an amount of money several
times its net worth to use to resuscitate an
infringed trademark”
 Held: Only direct evidence of value was
$500,000 – the most the jury could have
awarded. Court remits $500,000. If plaintiffs
refuse to accept this amount, new trial
granted.

23. Trovan
 Reasonable Royalties
– The Ninth Circuit does not
recognize this as measure of
damages where there is no
evidence that a party intended
the license the trademark (unlike
Sands v. Quaker).

24. Trovan
 The Issue of Willfulness
– The Ninth Circuit has not addressed
“bad faith” in the context of reverse
confusion.
– The Sands decision is in direct
conflict with Trovan
– Held: Vacates jury finding of bad
faith; alternatively, grants new trial.
No bad faith, no punitive damages.

25. Trovan
 New Trial Ordered
– Misconduct of plaintiff’s
attorneys permeated the trial to
such an extent that the Court is
convinced the jury was
influenced by passion and
prejudice in reaching its verdict.

26. Lessons Learned
 Bad Faith/Willfulness Required
 Reasonable Royalties May Not Be
Available
 Be Prepared with Specific Proof of
Damage
and
 Don’t make the judge angry….