KARS 4 KIDS INC. v. AMERICA CAN!; AMERICA CAN! CARS FOR KIDS v. KARS 4 KIDS INC.
Nos. 20-2813, 20-2900
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
August 10, 2021
PRECEDENTIAL. Aрpeal from the United States District Court for the District of New Jersey (D.C. Nos. 3-14-cv-07770, 3-16-cv-04232). District Judge: Honorable Peter G. Sheridan. Argued July 7, 2021.
KARS 4 KIDS INC.
v.
AMERICA CAN!
AMERICA CAN! CARS FOR KIDS
v.
KARS 4 KIDS INC.
KARS 4 KIDS INC., Appellant 20-2813
KARS 4 KIDS INC.
v.
AMERICA CAN!
AMERICA CAN! CARS FOR KIDS
v.
KARS 4 KIDS INC.
AMERICA CAN!; AMERICAN CAN! CARS FOR KIDS, Appellants 20-2900
Before: SHWARTZ, KRAUSE, and FUENTES, Circuit Judges.
OPINION
Christopher Cariello [ARGUED]
Peter D. Vogl
Orrick Herrington & Sutcliffe
51 West 52nd Street
New York, NY 10019
Upnit K. Bhati
Orrick Herrington & Sutcliffe
1152 15th Street, N.W.
Columbia Center
Washington, DC 20005
Eleonore Ofosu-Antwi
Liza M. Walsh
Mark D. Haefner
Walsh Pizzi O‘Reilly & Falanga
Three Gateway Center
100 Mulberry Street, 15th Floor
Newark, NJ 07102
Jonathan Z. King,
Cowan, Liebowitz & Latman
114 West 47th Street
New York, NY 10036
Counsel for Appellant
Aubrey N. Pittman [ARGUED]
Suite 700
100 Crescent Court
Dallas, TX 75201
Karen A. Confoy
Fox Rothschild
997 Lenox Drive
Princeton Pike Corporate Center, Building 3
Lawrenceville, NJ 08648
Allison L. Hollows
Fox Rothschild
101 Park Avenue
17th Floor
New York, NY 10178
Robert S. Tintner
Fox Rothschild
2000 Market Street
20th Floor
Philadelphia, PA 19103
Christopher R. Kinkade
FisherBroyles
100 Overlook Center
2nd Floor
Princeton, NJ 08540
Counsel for Appellee
Kars 4 Kids, Inc. (“Kars 4 Kids“) and America Can! Cars for Kids (“America Can“) used similar trademarks. Each sued the other, alleging violations of state and federal law related to the use of those marks. Because (1) America Can did not preserve its challenge to the District Court‘s denial of summary judgment on its trademark cancelation claims, (2) America Can was first to use its mark in Texas and Kars 4 Kids has waived any challenge to the validity of America Can‘s marks, and (3) the District Court did not abuse its discretion by declining to award enhanced monetary relief or prejudgment interest, we will affirm in part. We will, howevеr, vacate in part and remand for the District Court to reexamine its laches and disgorgement conclusions under the governing law.
I
A
America Can and Kars 4 Kids are charities that sell donated vehicles to fund children‘s programs. America Can began receiving donations in the late 1980s and, in the early 1990s, began using the mark “Cars for Kids” in advertising campaigns. Its campaigns included between two and five radio advertisements per week by Bonnie Curry, a radio personality whose programs reached up to one million people in the Dallas area. Curry‘s advertisements began in 1993 and have continued “pretty consistent[ly]” since then. App. 2135. Between 1995 and 2001, America Can also advertised in the Dallas Morning News, which published several articles discussing the “Cars for Kids” program.
In 2003, America Can noticed Kars 4 Kids’ advertisements in Texas and sent a cease and desist letter, asserting America Can‘s rights to the “Cars for Kids” mark in Texas. After sending that letter, America Can did not notice Kars 4 Kids’ advertisements in Texas for several years. Kars 4 Kids, however, kept advertising.1 For example, in 2005, Kars 4 Kids advertised nationally in Reader‘s Digest. It also used Google advertising, which allowed Kars 4 Kids’ advertisements to appear nationwide—including in Texas—when potential donors used certain search terms. In 2011, Kars 4 Kids procured the URL www.carsforkids.com, which it initially used to solicit donations.2 By 2011, America Can began seeing Kars 4 Kids advertisements and, in 2013, sent
Kars 4 Kids another cease and desist letter, alleging that Kars 4 Kids was unlawfully using “KARS 4 KIDS” in Texas.
B
Kars 4 Kids sued America Can in 2014, bringing federal and state trademark infringement, unfair competition, and trademark dilution claims, and seeking equitable relief. America Can filed its suit in 2015, asserting the same claims and seeking cancelation of Kars 4 Kids’ trademark for 1-877-KARS-4-KIDS under
The District Court denied the parties’ cross-motions for summary judgment, including America Can‘s request for mark cancelation, “[d]ue to the disputed facts with regard to the trademark in this matter.”3 Kars 4 Kids Inc. v. America Can!, No. 14-cv-7770, 2018 WL 5298406, at *8 (D.N.J. Oct. 25, 2018).
Before the liability trial, the District Court determined that America Can‘s request for damages equal to Kars 4 Kids’ profits was “plainly a claim for disgorgement of profits, and not a claim for America Can[]‘s own damages.” Kars 4 Kids Inc. v. America Can!, No. 3:14-cv-7770, 2019 WL 2078670, at *2 (D.N.J. May 10, 2019). Because disgorgement is an equitable remedy, the Court granted Kars 4 Kids’ motion to present disgorgement evidence at a bench trial, if necessary, following the jury‘s verdict on liability. Id. at *2-3.
Following the close оf evidence to the jury, both parties moved for judgment as a matter of law under
The District Court then held a bench trial on the equitable claims and remedies. The Court held that the defense of laches did not apply, finding America Can‘s executive credibly testified that he did not see Kars 4 Kids’ advertisements in Texas from 2004 to 2011 and that Kars 4 Kids seemed to have “pulled back their advertising” following America Can‘s 2003 cease and desist letter. Kars 4 Kids Inc. v. America Can!, No. 3:14-cv-07770, 2020 WL 1550804, at *4 (D.N.J. Apr. 1 2020). The Court found that this lack of advertising “lulled America Can[] into a passive position until 2011” and “preclude[d] a finding of inexcusable delay.” Id. The Court also found that Kars 4 Kids tried to “unscrupulously apply” laches “[b]y waiting to tee-up its laches defense until the remedy stage after litigating for four years.” Id. The Court also stated, without explanation, that Kars 4 Kids did not “show any prejudice” from America Can‘s alleged delаy. Id.
After concluding that laches did not apply, the District Court ordered Kars 4 Kids to disgorge its profits in Texas. To arrive at the disgorgement amount, the Court first examined
Kars 4 Kids’ “gross and net revenues from the donations generated by the sale of vehicles originating from Texas.” Id. at *5. For the years 2008-2019, the parties agreed that the gross revenue was $18,454,452 and net revenue was $16,067,943. The Court deducted $3,447,191 in Texas-specific advertising expenses, $362,210 in national advertising expenses, and $1,011,000 in expenses related
The District Court declined to award enhanced monetary relief because (1) “Kars 4 Kids willfully infringed upon America Can[]‘s mark in Texas only; but not in аny other state,” and (2) “the jury found no fraud in procuring Kars 4 Kids[‘] trademark.” Id. at *9. The Court also explained that, because the case was not “exceptional” under the Lanham Act, America Can was not entitled to attorneys’ fees or prejudgment interest. App. 83.
The District Court enjoined Kars 4 Kids from using its mark in Texas and from using www.carsforkids.com. The Court explained that “[d]ue to consumers’ confusion . . . and the parked domain issues . . . compensatory damages are insufficient, and thus some injunctive relief is necessary to distinguish these charitable corporations.” Id. at *12. The Court declined to cancel Kars 4 Kids’ registered mark, however, because “the jury determined that Kars 4 Kids did not knowingly procure its registration of the 1-877-Kars-4-Kids tradеmark by false or fraudulent means, which suggests that
the jury found that the mark should not be cancelled.” Id. at *13.
Kars 4 Kids renewed its motion for judgment as a matter of law under Rule 50(b), arguing, among other things, that America Can‘s mark is invalid. The District Court held that Kars 4 Kids preserved its invalidity argument, finding “some interconnectedness” between the validity argument in its Rule 50(b) motion and the ownership argument it presented in its Rule 50(a) motion. App. 127. Still, the Court found that there was sufficient evidence from which the jury could have found the mark was either distinctive, or that it established secondary meaning.
Both parties appeal.
II6
A
“[T]o win a trademark claim, a plaintiff must establish that (1) the marks are valid and legally protectable; (2) the marks are owned by the plaintiff; and (3) the defendant‘s use of the marks to identify goods or services is likely to create confusion concerning the origin of the goods or services.”7 Opticians Ass‘n of Am. v. Indep. Opticians of Am., 920 F.2d 187, 192 (3d Cir. 1990).
Ruling on Kars 4 Kids’ motion for judgment as a matter of law under Rule 50(b), the District Court held that the jury reasonably found that America Can owns a valid trademark in Texas.8
1
First, America Can owns its unregistered mark. To determine rightful ownership of an unregistered mark, we generally apply “[t]he first use test . . ., taking account of the well-established common law principle of ‘first-in-time, first-in-right’ that rewards actual and continuous use in commerce as between market competitors.” Covertech Fabricating, Inc. v. TVM Bldg. Prods., Inc., 855 F.3d 163, 170 (3d Cir. 2017). Thus, “[w]ith respect to ownership of an unregistered mark, the first party to adopt a mark can assert ownership so long as it continuously uses the mark in commerce.” Com. Nat‘l Ins. Servs., Inc. v. Com. Ins. Agency, Inc., 214 F.3d 432, 438 (3d Cir. 2000) (citation omitted).
Kars 4 Kids does not dispute that it started using its mark in Texas in 2003 and the evidence shows America Can continuously used its mark before 2003. For instance, Bonnie Curry testified that she has performed between two and five advertisements per week for America Can beginning in 1993 and has done so “pretty consistent[ly]” since then. App. 2135. She testified that America Can used “Cars for Kids . . . in the early days,” App. 2144, and that when she talks about “what they do, it‘s always been part and parcеl of that process. The Can Academies change lives. And to make that happen, you give to Cars for Kids.” App. 2141. Cheryl Podrugach, America Can‘s former public relations manager, further testified that Grant East, founder of America Can‘s predecessor, “came up with” Cars for Kids “in the early []90s,” App. 2148, recalled America Can advertisements using the mark during that period, and explained that America Can‘s use of the mark was in “full force” when she was hired in 2002 and that America Can was still using the mark in its advertisements when she began working with the car donation program in 2007. App. 2153. Finally, Malcolm Wentworth, America Can‘s Chief Operating Officer, testified about various America Can advertisements using the phrase “Cars for Kids.” For instance, between 1995 and 2001, the Dallas Morning News published several articles discussing the “Cars for Kids” program. Based on that evidence, the jury reasonably found that America Can had established continuous use prior to 2003 and hence owned the mark in Texas.
2
Kars 4 Kids argues that America Can‘s mark is invalid because it is descriptive and had not established secondary meaning before Kars 4 Kids’ first use in
“[A] post-trial Rule 50 motion can only be made on grounds specifically advanced in a motion for a directed verdict at the end of plaintiff‘s case . . . .” Kutner Buick, Inc. v. Am. Motors Corp., 868 F.2d 614, 617 (3d Cir. 1989); see also Williams v. Runyon, 130 F.3d 568, 571-72 (3d Cir. 1997) (“[A] defendant‘s failure to raise an issue in a Rule 50(a)(2) motion with sufficient specificity to put the plaintiffs on notice waives the defendant‘s right to raise the issue in [its] Rule 50(b) motion.“). In its Rule 50(a) motion, Kars 4 Kids argued that “America Can[] failed to demonstrate that it has ownership and priority” of the mark. App. 2293. Based on that argument, and viewing “some interconnectedness” between validity and ownership of a mark, the District Court determined that Kars 4 Kids had not waived the validity arguments made in its Rule 50(b) motion. App. 127. Validity and ownership, however, are distinct. See Opticians Ass‘n of Am., 920 F.2d at 192 (noting validity and ownership are separate elements of a trademark infringement claim). Each element requires different showings. Validity turns on whether a mark is inherently distinctive or has acquired secondary meaning, see Parks LLC v. Tyson Foods, Inc., 863 F.3d 220, 230 (3d Cir. 2017) (“A valid and legally prоtectable mark must be ‘distinctive,’ meaning it is ‘inherently distinctive’ or acquired ‘secondary meaning‘“), while ownership turns on which party established “first use,” see Covertech, 855 F.3d at 170 (“The first use test is generally proper [to determine ownership of] unregistered trademarks. . . .“). Because Kars 4 Kids presented no arguments on the validity of the mark in its Rule 50(a) motion, the District Court abused its discretion when it concluded that Kars 4 Kids had not waived its validity arguments. Because Kars 4 Kids waived its validity challenge to America Can‘s mark, we will not review Kars 4 Kids’ validity arguments or its related concurrent use or source-identifier arguments.
B
Following a bench trial on remedies, the District Court declined to apply laches and ordered Kars 4 Kids to disgorge profits tied to its Texas аctivities. The Court also held that neither enhanced monetary relief nor prejudgment interest were warranted. With respect to laches and disgorgement, we will remand for the District Court to reexamine these issues under the governing law. With respect to enhanced damages and prejudgment interest, however, we conclude the Court acted within its discretion in denying both forms of relief.
110
The Lanham Act does not contain a statute of limitations and instead subjects all claims to “the principles of equity,” such as laches. Santana Prods., Inc. v. Bobrick Washroom Equip., Inc., 401 F.3d 123, 135 (3d Cir. 2005) (quoting
The parties agree that “[c]laims under the Lanham Act are properly analogized to New Jersey‘s six year fraud statute.” Kaufhold v. Caiafa, 872 F. Supp. 2d 374, 379 (D.N.J. 2012). Because America Can first discovered Kars 4 Kids’ allegedly wrongful conduct in 2003 and did not bring its counterclaims until 2015, the statute of limitations had run on America Can‘s claims.11 Accordingly, America Can bears the burden of disproving delay and prejudice. See Santana, 401 F.3d at 138-39.12
Appellee Br. at 52; cf. Anheuser-Busch v. Du Bois Brewing, 175 F.2d 370, 374 (3d Cir. 1949) (noting that “a fraudulent infringer cannot expect tender mercy of a court of equity“). In making this argument, America Can relies on the jury‘s finding that Kars 4 Kids willfully infringed. Kars 4 Kids retorts that the jury instructions here allowed the jury to identify willfulness based on recklessness alone, not intent. The District Court stated that the conduct was “willful,” but did not say whether it reached this conclusion because it found that Kars 4 Kids was a knowing infringer or reckless infringer. Because the District Court will be revisiting its laches analysis, we leave it to the Court to decide whether Kars 4 Kids counts as a knowing infringer and whether its finding impacts its laches analysis. America Can also insists that Kars 4 Kids has unclean hands because it waited almost as long as America Can before filing suit. We also leave it to the District Court to determine whether the equities of the case outweigh any finding of delay or prejudice. See, e.g., Waddell v. Small Tube Prods., 799 F.2d 69, 79 (3d Cir. 1986); see also A.C. Aukerman Co. v. R.L. Chaides Const. Co., 960 F.2d 1020, 1033 (Fed. Cir. 1992) (“Where there is evidence of other factors which would make it inequitable to recognize the defense despite undue delay and prejudice, the defense may be denied.“); Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 497 (2d Cir. 1961) (Friendly, J.) (“[W]here both sides failed to press their claims after knowledge of the facts, this Court has reached the conclusion, seemingly far more sensible, that both were barred.“).
A plaintiff is nоt obligated to sue until it knows or should know that the defendant‘s conduct constitutes trademark infringement. See, e.g., Excelled Sheepskin & Leather Coat Corp. v. Or. Brewing Co., 897 F.3d 413, 419 (2d Cir. 2018) (“The laches clock begins to run when the trademark owner knew or should have known, not simply that [the infringer] was using the potentially offending mark, but that [it] had a provable infringement claim against [the infringer].” (quotation marks and citation omitted)); Oriental Fin. Grp., Inc. v. Cooperativa de Ahorro y Credito Oriental, 698 F.3d 9, 21 (1st Cir. 2012) (“[L]aches applies only where the plaintiff knew or should have known of the infringing conduct.“); cf. Covertech, 855 F.3d at 175-76 (noting that “the relevant date for quantifying the ‘delay’ [for purposes of applying the acquiescence defense] is when the trademark owner either knew or should havе known of the existence of a provable claim of infringement“). Thus, we examine delay based upon whether a reasonable person in the defendant‘s shoes would have waited to file suit. See Claussen v. Mene Grande Oil Co., 275 F.2d 108, 111 (3d Cir. 1960).
In examining the delay element, the District Court focused exclusively on the evidence of activity America Can observed or did not observe in Texas. Based on that evidence, the Court concluded that Kars 4 Kids’ apparent inactivity in Texas, as demonstrated by the lack of observed advertisements in Texas and the minimal amount of advertising directed into Texas, lulled America Can into believing the 2003 cease and desist letter was effective and Kars 4 Kids “pulled back [its Texаs] advertising.” Kars 4 Kids Inc., 2020 WL 1550804, at *4. These observations, however, did not account for Kars 4 Kids’ national advertising and whether those advertisements reached Texas. Those considerations are relevant because the delay inquiry hinges on whether a reasonable entity in America Can‘s shoes would have filed suit sooner. We will therefore remand to allow the District Court to consider the evidence of this national activity and whether it nevertheless excused America Can‘s delay in filing suit. See Univ. of Pittsburgh v. Champion Prods. Inc., 686 F.2d 1040, 1044 n.14 (3d Cir. 1982) (“Open and notorious use by the defendant is relevant to the plaintiff‘s knowledge and, thus, whether its delay is excusable.“). The District Court should also explain whether that activity impacts its view concerning prejudice from the delay.
215
Section 35(a) of the Lanham Act provides for the disgorgement of an infringer‘s profits, “subject to the principles of equity.”
The District Court did not consider all of these factors.17 In fact, it focused solely on “the appropriate accounting methodology to determine the disgorgement of net profits,” Kars 4 Kids Inc., 2020 WL 1550804, at *5, which covers only the second Banjo Buddies factor: “whether sales have been diverted,” 399 F.3d at 175.18 Because the Court did not address the other Banjo Buddies factors and thus did not show that it balanced the equities, we will vacate the disgorgement order and remand for the Court to apply the remaining factors. See 4 Pillar Dynasty LLC v. N.Y. & Co., 933 F.3d 202, 214-15 (2d Cir. 2019) (explaining that a district court “must still balance equitable factors in assessing the propriety of a profits award” and concluding that the court adequately did so); Malack v. BDO Seidman, LLP, 617 F.3d 743, 745 (3d Cir. 2010) (“An abuse of discretion occurs if the district court‘s decision rests upon an improper application of law to fact.” (quotation marks omitted)); Synergistic Int‘l, LLC v. Korman, 470 F.3d 162, 174-75 (4th Cir. 2006) (holding that a district court abused its discretion in awarding disgorgement under the Lanham Act where “[t]he court summarily stated . . . that the equities had
been balanced” without “specify[ing] the equitable factors it had utilized in making such an award“).19
320
The District Court acted within its discretion when it declined to award
enhаncement “shall constitute compensation and not a penalty.”
America Can presents no arguments why an enhanced award, let alone an award equal to three times Kars 4 Kids’ profits, is needed to fully compensate it or that such an award more accurately reflects Kars 4 Kids’ true profits. Put another way, America Can offers no non-punitive rationale for enhancing the award.22 Cf. Bos. Pro. Hockey Ass‘n v. Dallas Cap & Emblem Mfg., Inc., 597 F.2d 71, 77 (5th Cir. 1979) (“We would be reluctant to approve increased damages intended solely as punishment for conduct unrelated to . . . the actual damages caused by [the infringement].“). Because America Can has not made such a showing, and the statute precludes punitivе enhancements, the District Court appropriately declined to award enhanced compensation.
423
The District Court also properly declined to award America Can prejudgment interest.
Section 1117 authorizes monetary awards for trademark infringement.
“[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Russello v. United States, 464 U.S. 16, 23 (1983) (alteration in original) (citation omitted). Applying this principle, because § 1117(b) allows courts to award prejudgment interest and § 1117(a) does not provide for prejudgment interest,
prejudgment interest is unavailable under § 1117(a).24 See Georgia-Pacific, 781 F.3d at 721-22. Thus, the District Court correctly denied prejudgment interest on America Can‘s federal trademark infringement claims.
America Can is also not entitled to prejudgment interest under state law. To obtain prejudgment interest on a state law claim, the party must prevail on that claim. As the District Court observed,
Court therefore found that “the jury did not consider the unfair competition as a separate cause of action but instead as an element of the trademark infringement cause of action.” Id. Because America Can did not object to these observations, it has forfeited any right to assert that the jury found in its favor on a state law claim.25 Cf. In re Wettach, 811 F.3d 99, 115 (3d Cir. 2016) (deeming as forfeited arguments not developed in appellant‘s opening brief). Because there was no verdict in its favor on any state law claim, America Can has no basis to seek prejudgment interest under state law.
IV
For the foregoing reasons, we will affirm in part, vacate in part, and remand.