The U.S. Court of Appeals for the Tenth Circuit held that the willfulness required to support an award of profits or attorneys’ fees includes showing the defendant intended to benefit from the goodwill of the trademark owner. Western Diversified Services, Inc. v. Hyundai Motor America, Inc., Case No. 03-2448 (10th Cir. Nov. 1, 2005) (Ebel, J.).
Western owns two trademark registrations for the marks THE ADVANTAGE and THE ADVANTAGE PLUS for extended and aftermarket automobile warranties. Hyundai first cleared and later adopted the mark THE HYUNDAI ADVANTAGE for its manufacturer’s warranty. A month later, Hyundai adopted the marks ADVANTAGE and ADVANTAGE PLUS for its extended warranties.
Western filed suit against Hyundai for its use of the mark HYUNDAI ADVANTAGE (used in connection with the manufacturer’s warranty) and later amended its complaint to include Hyundai's extended warranty plan marks, ADVANTAGE and ADVANTAGE PLUS. In its complaint, Western sought monetary and injunctive relief as well as lost profits and attorneys’ fees. Hyundai filed and was granted motions for summary judgment stating its HYUNDAI ADVANTAGE mark did not infringe and Western was not entitled to recover either the profits or the fees. Western appealed but only as to the ADVANTAGE and ADVANTAGE PLUS marks. The Tenth Circuit reversed.
The court held that in the absence of actual damages, any award of profits must be based on a showing of willfulness and is contained by principles of equity to prevent a windfall in favor of a trademark holder. Even in those instances where willfulness is found, a court may reduce the profits award based on consideration of the equities. Therefore, the court found the grant of the motion to be in error.
With regard to attorneys’ fees, the court noted that such awards are only given in exceptional cases where infringement was found to be "malicious, fraudulent, deliberate or willful." Separating itself from the more lenient stands adopted by other circuits, the court held that, absent a showing of actual damages, willfulness in this type of case required showing the defendant’s intent to benefit from the goodwill or reputation of the trademark holder or that the defendant committed litigation misconduct.
The court also noted that the lower court erroneously evaluated Western’s claims based on facts germane to the selection of the HYUNDAI ADVANTAGE mark, not the ADVANTAGE and ADVANTAGE PLUS marks. Second, it determined Western was not obligated to establish Hyundai’s intent to get its claim to a jury. Rather, to defeat summary judgment, Western was only obligated to raise a genuine factual issue as to Hyundai's intent in selecting the marks for its extended warranty programs.
Lastly, the court held Western should benefit from the usual presumption in trademark cases that the deliberate adoption of a similar mark may lead to an inference that Hyundai intended to benefit from the trademark owner's goodwill, i.e., willfulness. However, Hyundai should be given a chance to rebut such an inference before a jury.
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