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Cyclone USA, Inc. v. LL&C Dealer Services

May 24, 2010

CYCLONE USA, INC., PLAINTIFF,
v.
LL&C DEALER SERVICES, LLC, ET AL., DEFENDANT



The opinion of the court was delivered by: Andrew J. Wistrich United States Magistrate Judge

MEMORANDUM OF DECISION REGARDING CYCLONE USA'S MOTION FOR AN AWARD OF ATTORNEYS' FEES

Background

Following a bench trial, the Court issued a Memorandum of Decision setting forth its findings of fact and conclusions of law as to the twenty-one claims and counterclaims brought by Cyclone USA, Inc. ("Cyclone USA"), LL&C Dealer Services, LLC ("LL&C"), and Sei Kim. Thirteen of the twenty-one claims at issue arose from alleged violations of the Lanham Act. [See generally Memorandum of Decision]. Cyclone USA filed a motion for attorneys' fees based on the Court's findings regarding LL&C and Sei Kim's trademark infringement, counterfeiting, federal unfair competition, and trade name infringement. [Cyclone USA's Motion for Attorneys' Fees ("Cyclone USA's Motion")]. LL&C filed an opposition [LL&C's Opposition to Cyclone's Motion for Attorney Fees ("LL&C's Opposition")]*fn1 , and Cyclone USA filed a reply [Reply to LL&C's Opposition to Plaintiff's Motion for Attorney Fees ("Cyclone USA's Reply")].

Legal Standard

Cyclone USA contends that it is entitled to an award of attorneys' fees pursuant to 15 U.S.C. § 1117. [Cyclone USA's Motion, at 5-7]. Section 1117(a) provides:

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) . . . shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, . . . to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. . . . The court in exceptional cases may award reasonable attorney fees to the prevailing party.

15 U.S.C. § 1117(a). Section 1117(b) further provides, that in assessing damages under subsection (a):

T]he court shall, unless the court finds extenuating circumstances, enter judgment for three times such profits or damages, whichever is greater, together with a reasonable attorney's fee, in the case of any violation of section 1114(1)(a) or this title . . . that consists of intentionally using a mark or designation, knowing such mark or designation is a counterfeit mark . . . in connection with the sale, offering for sale, or distribution of goods or services.

15 U.S.C. § 1117(b).

The Court found that LL&C and Sei Kim violated Cyclone USA's rights under the Lanham Act. [Memorandum of Decision, at 4-31, 49-56]. The Court may award Cyclone USA attorneys' fees it incurred in litigating LL&C's and Sei Kim's infringement of the Tornado trademark, the two valid slogan trademarks ("Don't Drive Without It!" and "Under the Hood!"), and Cyclone USA's unregistered trade name ("Tornado Air Management Systems"), as well as LL&C's and Sei Kim's federal unfair competition under section 11125(a), if the Court finds that this is an "exceptional" case. See 15 U.S.C. § 1117(a). Further, Cyclone USA is entitled to the attorneys' fees it incurred in litigating its counterfeiting claims against LL&C and Sei Kim unless the Court finds "extenuating circumstances" that would preclude such an award. 15 U.S.C. § 1117(b).

Discussion

1. Prevailing Party

LL&C argues that Cyclone USA was not a "prevailing party". [LL&C's Opposition, at 1-2]. In support of its argument, LL&C cites California cases interpreting the "prevailing party" requirement in the context of state law claims. [LL&C's Opposition at 1-3]. However, "[t]he extent of [a] plaintiff's rights under the Lanham Act is a matter of Federal law." Goodyear Tire & Rubber Co. v. H. Rosenthal Co., 246 F. Supp. 724, 725 n.1 (D. Minn. 1965) (citing L'Aiglon Apparel, Inc. v. Lana Lobell, Inc., 214 F.2d 649 (3d Cir. 1954)). In the context of trademark infringement, the prevailing party for purposes of section 1117(a) "is the party succeeding on a significant litigated issue that achieves some of the benefits sought by that party in initiating the suit." Montgomery v. Noga, 168 F.3d 1282, 1304-05 (11th Cir. 1999) (holding that a plaintiff who successfully obtained an injunction and nominal damages on its Lanham Act claim was a "prevailing party" for purposes of section 1117(a)) (internal quotations omitted). See also Audi AG v. D'Amato, 469 F.3d 534, 550-51 (6th Cir. 2006) (holding that a plaintiff who successfully obtained injunctive relief for trademark infringement was a "prevailing party" within the meaning of section 1117(a)). Here, the Court permanently enjoined LL&C and Sei Kim from further use of the Tornado trademark and the valid slogan trademarks [Dismissal of Claims and Permanent Injunction Pursuant to Stipulation; Permanent Injunction], and also determined that Cyclone USA was entitled to an award of LL&C's profits. [Memorandum of Decision, at 22-23, 53; October 28, 2009 Order]. Therefore, Cyclone USA is a prevailing party for purposes of section 1117(a).

2. Exceptional Case Requirement of Section 1117(a)

Whether Cyclone USA may be awarded attorneys' fees under section 1117(a) turns on whether LL&C's and Sei Kim's conduct constituted an "exceptional case" of trademark infringement. "While the term 'exceptional' is not defined in the statute, attorneys' fees are available in infringement cases where the acts of infringement can be characterized as malicious, fraudulent, deliberate, or willful." Derek Andrew, Inc. v. Poof Apparel Corp., 528 F.3d 696, 702 (9th Cir. 2008) (quoting Rio Props., Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1023 (9th Cir. 2002)). See also Earthquake Sound Corp. v. Bumper Indus., 352 F.3d 1210, 1216 (9th Cir. 2003) ("A trademark case is exceptional where the district court finds that the defendant acted maliciously, fraudulently, deliberately, or willfully."). Further, "[w]illfulness short of bad faith or fraud will suffice when equitable considerations justify an award and the district court supportably finds the case exceptional." Tamko Roofing Products, Inc. v. Ideal Roofing Co., Ltd., 282 F.3d 23, 32 (1st Cir. 2002); Earthquake Sound Corp., 352 F.3d at 1217 (rejecting the notion that exceptionality requires egregious culpability such as bad faith or fraud, and stating that "while a finding that the losing party has acted in bad faith may provide evidence that the case is exceptional, other exceptional circumstances may warrant a fee award") (citations omitted).

In evaluating Cyclone USA's trademark infringement claims, the Court determined that the infringement was willful. With respect to LL&C, the Court found that LL&C continued to infringe the Tornado trademark even though it understood that [its actions] were forbidden by the contract between LL&C and Cyclone USA [RT 471, 505, 1323], despite Cyclone USA's demands that it stop [Ex.117; RT 178-80], notwithstanding the provision in the contract between LL&C and Sei Kim drawing LL&C's attention to Cyclone USA's registration and ownership of the Tornado trademark . . ., and despite Sei Kim's urging that LL&C use a different trademark in advertising and selling devices supplied by him. [RT 151-52, 1444]. [Memorandum of Decision, at 7-8]. Remarkably, LL&C even fraudulently attempted to register the term TornadoFuelSaver, "which it knew perfectly well that it did not own, but falsely represented that it did. [Ex. 221; RT 467-71]." [Memorandum of Decision, at 21]. The Court also found that Sei Kim had knowingly and willfully infringed the Tornado trademark. Specifically, the Court noted that:

Sei Kim also knew, or reasonably should have known that LL&C was engaging in trademark infringement. By the time he entered into the contract with LL&C, Sei Kim knew that Cyclone USA had registered the Tornado trademark in its own name. [Ex. 119, ยง 6.1; RT 143-44, 147, 1436]. Sei Kim also knew that LL&C intended to market his devices using Cyclone USA's Tornado trademark or confusingly similar variations thereof, such as TornadoFuelSaver. Despite his knowledge of LL&C's wrongful conduct, Sei Kim continued to supply devices to LL&C. [RT 1425]. Sei Kim even stamped some of the devices he supplied to LL&C with the ...


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