Ty Inc., the manufacturer of “Beanie Babies,” years ago brought this suit for trademark infringement under the Lan-ham Act against Softbelly’s, Inc., and some other defendants that need not be discussed separately. Softbelly’s manufactures a product that looks and feels very much like “Beanie Babies,” which it calls “Screenie Beanies.” They differ from Ty’s product mainly in having chamois bellies and being sold to the public through computer stores for wiping computer screens: hence the chamois.
The case was tried to a jury back in 2002, but rather than allow it to render a verdict the judge entered judgment for Ty as a matter of law. Later he entered a final judgment awarding Ty both injunc-tive relief and $713,000 in damages. Soft-belly’s moved under Fed.R.Civ.P. 60(b)(3) to vacate the judgment in favor of Ty on the ground that Ty Warner, the owner of Ty Inc., had tampered with a prospective witness for Softbelly’s. The judge denied the motion.
We reversed.
On remand, the case was retried (a different judge presiding). The jury found trademark infringement. The judge entered an injunction forbidding Softbelly’s “to sell plush products in connection with the trademarks ‘Screenie Beanies’ and/or ‘The Screenie Beanies Collection,’ and/or any other trademark confusingly similar to Ty’s BEANIE BABIES®, THE BEANIE BABIES COLLECTION®, and/or BEANIE(S) TRADEMARKStm.” But the judge awarded Ty no damages, holding that forfeiture of the $713,000 in damages to which Ty would otherwise have been entitled by virtue of our ruling in the first appeal was the right sanction for what she found to have been Warner’s improper conduct toward the prospective witness. But she awarded Ty the attorneys’ fees that it had incurred in proving Softbelly’s’ trademark infringement, on the ground that the infringement had been willful.
Softbelly’s has appealed, seeking yet another new trial on liability and asking that the award of attorneys’ fees be vacated. Ty has cross-appealed, seeking vacation of the sanction and thus restoration of the $713,000 in damages that the district judge ordered forfeited. But Ty does not object to our subtracting $78,000 from the restored damages, that being the amount of attorneys’ fees that Softbelly’s incurred in litigating the issue of Warner’s misconduct. Ty had asked for $315,000 in prejudgment interest on the damages award, and so contends that the sanction is really more than $1 million. We need not decide whether, if the sanction should be vacated, Ty is entitled to that interest, an issue that the district judge did not reach and that the parties have not briefed.
At the trial, Softbelly’s lawyer asked Warner whether he had told Nizamian not to testify. Ty objected and the judge sustained the objection. We ruled that this was error, as was the judge’s subsequent action in denying without a hearing Soft-belly’s’ motion to vacate the judgment in favor of Ty on the ground of fraud. In support of the motion Softbelly’s had submitted the transcript of a post-trial deposition at which Nizamian had testified that Warner had told him that if he testified at the trial it would cost Warner “a tremendous amount of money” and cause “a lot of problems” since Warner “was involved in the Softbelly’s case and ... if my statement got into the case ... it would be very damaging to him.” Nizamian added that his relation to Ty was “delicate” because he and Warner had recently discussed the possibility of doing business together and “I realized after speaking to Ty that it was a very important matter to him, and even though I didn’t understand all of the particulars, I felt if he felt that strongly about it ... maybe it would be best if I did not go.” Nizamian did not say that Warner had threatened him, but “because of the seriousness in his voice and the importance to him, ... I figured I’d just rather not get involved.”
Testifying at the hearing on remand, Warner admitted that he had telephoned Nizamian in order to inquire whether he was going to testify but flatly denied Niza-mian’s version of the conversation. The district judge deemed Warner’s testimony “incredible and false,” said that he had lied under oath, and concluded that he had engaged in witness tampering. But on reconsideration she decided that she was “not prepared to find that Warner committed perjury. Nevertheless, it [i.e., she, the district court] adheres to the view that Warner was not credible and does not attribute his lack of credibility to memory lapse. As such, this finding, while still consistent with bad faith, may not be alone sufficient to support a conclusion of bad faith” (footnote omitted). We are uncertain what this means. The judge added that she had not found “that Warner ‘corruptly’ persuaded Nizamian not to testify” and so she would not deem him guilty of witness tampering. Nevertheless she ruled that his “sanctionable misconduct” warranted the sanction of forfeiture of damages that she had imposed when she had thought him guilty of perjury and witness tampering. “Although Warner’s actions were not criminal or quasi-criminal in nature, they interfered with Softbelly’s ability to present its defense and thereby impaired an honest and true airing of the real facts.”
This ruling was made before the retrial, at which, though Nizamian was present and willing to testify for Softbelly’s, Soft-belly’s lawyer decided not to call him. The
Ty’s primary challenge to the sanction is that because it was punitive, its appropriateness had to be proved by clear and convincing evidence and not, as the judge thought, by a mere preponderance of the evidence. Indeed it was punitive. Soft-belly’s does not contend that it suffered any harm as a result of Warner’s conversation with Nizamian other than having to pay the attorney’s fees that it incurred in order to litigate the sanction issue. It does not argue that had he testified in the first trial the outcome would have been different. In this regard its failure to call him at the second trial and its abandonment of the defense that “Beanie Babies” is generic are telling.
Trying improperly to influence a witness is fraud on the court and on the opposing party, and the conventional rule, routinely invoked in cases in which a judgment is sought to be set aside under Fed. R.Civ.P. 60(b)(3) (that is, on the basis of “fraud ..., misrepresentation, or misconduct of an adverse party”), e.g.,
Lonsdorf v. Seefeldt,
Rule 60(b)(3) is the lineal descendant of the equity rule that a court may alter or annul, because of fraud or undue influence, a written instrument (such as a contract or patent — -but also a court’s own judgment, see
Hazel-Atlas Glass Co. v. HarbfordEmpire Co.,
The present case, however, involves not a ruling under Rule 37 but an exercise of a federal court’s inherent authority to sanction misconduct in litigation before it; and a number of cases hold that the imposition of such a sanction (when indeed it is punitive and not merely compensatory) requires proof by clear and convincing evidence. See
Shepherd v. American Broadcasting Cos.,
The tripartite division of burdens of proof — preponderance of the evidence, clear and convincing evidence, and proof beyond a reasonable doubt — has a certain logic. In an ordinary civil ease, in which a prevailing plaintiff obtains only money, the consequences of error (which is always a risk in litigation) are symmetric: one party (the party that should have lost) is unjustly enriched, the other unjustly impoverished, by the same amount. At the other extreme, that of a criminal prosecution, the consequences to the contending interests are sharply asymmetric: a person unjustly convicted and sentenced to prison (or executed) incurs heavy costs of punishment, and the penal system incurs heavy costs of implementing punishment, whereas the only consequence of acquitting a guilty person is to reduce, usually rather modestly, the deterrent and incapacitative effects of the criminal law. In the intermediate case, that of a civil judgment for fraud, the consequences of error are slightly asymmetric. A judgment of fraud injures the defendant’s reputation and may drive customers away and otherwise impair his ability to do business, and these costs are not a benefit to the plaintiff. The plaintiff gains a money judgment; the defendant loses a money judgment but incurs additional costs besides — therein lies the asymmetry.
But the asymmetry is attenuated when instead of suffering a judgment for having committed fraud in one’s business activities, a litigant is sanctioned for fraud in the litigation itself. The sanction will often be written off by the larger community containing the defendant’s peers — if the sanction is even noticed — as a mere battle scar of litigation. So we are led to doubt that there is any utility in insisting on proof by clear and convincing evidence in a case such as this, and getting entangled in disputes over whether Warner’s conduct should be described as fraud and if not whether there should nevertheless be a category of litigation sanctions that require a heightened standard of proof.
We need not try to resolve our doubts. For just as the Constitution, while it has been interpreted to require proof beyond a reasonable doubt to convict in criminal case, also imposes (in the Eighth Amendment’s cruel and unusual punishments clause) limitations on the severity of punishment, so the permissible level of sanctions for misconduct in litigation, except when prescribed by statute or rule, is, even when there is no heightened burden of proof, limited by notions of proportionality. E.g.,
Allen v. Chicago Transit Authority,
We turn now to Softbelly’s’ appeal, where we can be brief. Softbelly’s argues that a reasonable jury could not have found trademark infringement and that if there was infringement it was not willful. But it has abandoned the only argument that could have saved the day for it, which is that “Beanies” or “Beanie Babies” is the generic term for soft, plush objects, in the shape of animals, that are filled with bean-like materials to make the objects soft and floppy. If “Beanies” is generic — is, that is, “beanies” — it cannot be a legally protected trademark, and then Softbelly’s is free to call its screen cleaners “Screenie Beanies.” We expressed concern, in our previous opinion that Ty’s competitors might be rendered speechless unless they could call their soft, plush, bean-filled animalcules “beanies,” but the narrowly drawn injunction should leave plenty of room for Soft-belly’s to designate its product crisply and clearly. As Ty’s lawyer acknowledged at argument, Softbelly’s could call its product a beanbag screen cleaner or even a scree-nie bean without infringement. Softbelly’s itself has added “Cleanie Critter” to its lexecon, without challenge by Ty.
Softbelly’s’ abandonment of the argument that “Beanies” is generic leaves this a case in which a seller attaches a popular trademark to a product that is nearly identical to the trademarked one. E.g.,
Attrez-zi, LLC v. Maytag Corp.,
Softbelly’s points out that “Screenie Beanies” are sold through different outlets from “Beanie Babies,” are slightly more expensive, and have, of course, a different use. But the issue is only whether the designation “Screenie Beanies” on a nearly identical-looking product is likely to make a significant number of consumers think that Softbelly’s product is actually a Ty brand; and the jury was entitled to answer the question in the affirmative. This is especially true because an increasing number of children use a computer at home and might wish to graduate from playing with “Beanie Babies” to cleaning their computer screens with the “adult” screen-cleaner version manufactured (they might
Softbelly’s objects to the judge’s having permitted Ty to present evidence of “Beanie” products that Ty marketed after “Screenie Beanies” entered the market. Obviously those products could not be used to show that the “Beanie Babies” trademark was in use before “Screenie Beanies” was, but they could be used as evidence of the likelihood that consumers would be confused about the source of “Screenie Beanies.”
Carnival Brand Seafood Co. v. Carnival Brands, Inc.,
Finally, the judge was on solid ground in finding that the infringement was willful; Softbelly’s had chosen the name “Screenie Beanies” and the design of its screen cleaners with reckless disregard for the likelihood of consumer confusion. Its attempt to trademark “Screeniebean-ies” had been turned down by the Patent and Trademark Office on the ground that it was potentially confusing.
To summarize, the grant of the injunction against Softbelly’s is affirmed, but the case is remanded for the entry of a damages judgment of $713,000 against Softbelly’s minus the attorney’s fees incurred by Softbelly’s in the sanction litigation. Whether the damages judgment should be augmented by prejudgment interest we leave to the district judge to decide in the first instance.
AFFIRMED IN PART, REVERSED IN PART, AND Remanded with Directions.