Multimillion Dollar Trademark Jury Award Upheld by the Ninth Circuit

Skydive Arizona sued defendants collectively doing business as SKYRIDE, alleging trademark claims of false advertising, trademark infringement and cybersquatting.  The district court granted partial summary judgment in Skydive Arizona’s favor on the false advertising claim.  The jury awarded damages to Skydive Arizona:  $1 million for willful false advertising, $2.5 million for willful trademark infringement, $2,500,004 for lost profits and $600,000 statutory damages for six violating domain names.  The district court doubled the false advertising and trademark infringement awards.  SKYRIDE appealed the judgment against it to the Ninth Circuit Court of Appeals.  Skydive Arizona appealed the district court’s grant of an injunction against SKYRIDE limited to Arizona, instead of a nationwide injunction.

Skydive Arizona is one of world’s most well known skydiving centers.  It hosts 145,000 to 160,000 skydives within Arizona each year and provides planes and personnel for skydiving events in 30 other states.  SKYRIDE is a third-party advertising and booking service for skydiving centers, but does not own skydiving facilities.  Customers pay SKYRIDE for a certificate that can be redeemed at drop zones across the country.  SKYRIDE owned and operated a number of website referencing locations in Arizona, such as PhoenixSkydiving and TucsonSkydiving, as well as domain names such as skydivearizona.net.  Both Skydive Arizona and SKYRIDE promote their businesses extensively on the Internet.

Partial Summary Judgment for False Advertising.  SKYRIDE challenged the district court’s finding that SKYRIDE’s false advertising statements were material.  A false advertising claim under Lanham Act Section 43(a) (also known as 15 U.S. C. §1125(a)), contains five elements:

  1. a false statement of fact by the defendant in a commercial advertisement about its own or another’s product;
  2. the statement actually deceived or has the tendency to deceive a substantial segment of its audience;
  3. the deception is material, in that it is likely to influence the purchasing decision;
  4. the defendant caused its false statement to enter interstate commerce; and
  5. the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products.

SKYRIDE argued that Skydive Arizona’s evidence on materiality (No. 3 above) was ambiguous.  The Ninth Circuit disagreed.  At summary judgment on the false advertising claims, Skydive Arizona presented a declaration from a consumer who bought a skydiving certificate online from SKYRIDE, relying on SKYRIDE’s online representations that he could use the certificate for Skydive Arizona, when in fact he could not.  Skydive Arizona also presented evidence about other consumers who contacted Skydive Arizona after being deceived into believing that SKYRIDE and Skydive Arizona were affiliated. 

The Ninth Circuit indicated that Skydive Arizona was not required to present consumer survey evidence to establish its false advertising claim.  Skydive Arizona presented non-survey evidence proving actual consumer confusion and proving that SKYRIDE’s advertisements were both misleading and false.  The Ninth Circuit ruled that the evidence was sufficient to establish materiality and that conducting consumer surveys is not the only way to prove materiality.

Actual Damages.  SKYRIDE argued that Skydive Arizona did not present sufficient evidence on the amount of damages.  Section 43(c) of the Lanham Act (15 U.S.C. §1117(a)) gives the court the discretion to award defendant’s profits, any damages sustained by the plaintiff, and plaintiffs costs.  The plaintiff in a trademark case does not have to prove damages to the penny.  The court stated that

The district court assesses any damages sustained by the plaintiff in the same manner as in tort damages:  the reasonably foreseeable harms caused by the wrong….To support a jury’s actual damages award, there need only be substantial evidence to permit the jury to draw reasonable inferences and make a fair and reasonable assessment.

(Opinion pdf page 11).

Skydive Arizona presented evidence on its “stellar business reputation,” the considerable amount of money it spent to develop that reputation, customers blaming Skydive Arizona for problems that were caused by SKYRIDE, and the need for corrective advertising.  In upholding the actual damages awards, the court ruled that

Section 1117 demands neither empirical quantification nor expert testimony to support a monetary award of actual damages; many sources can provide the requisite information upon which a reasonable jury may calculate damages.

(Opinion pdf page 13).

Lost Profits.  Skydive Arizona’s expert testified regarding lost profits and rebutted the testimony of SKYRIDE’s expert.  SKYRIDE did not challenge the admissibility of Skydive Arizona’s expert before or during trial.  SKYRIDE first challenged the admissibility of Skydive Arizona’s expert in a post-trial motion.   The Ninth Circuit ruled that, by failing to challenge the testimony either before or at trial, SKYRIDE did not challenge Skydive Arizona’s expert testimony in a timely manner and therefore waived the ability to challenge the testimony on appeal.

Damages Enhancement.  Section 1117(a) grants the district court the discretion to enter judgment for any sum above the amount the jury finds as actual damages, not to exceed three times that amount.  However, the amount awarded must be compensation and must not be a penalty.  The Ninth Circuit looked at the language the district court used in doubling the actual damages and determined that the district court intended to punish SKYRIDE, not compensate Skydive Arizona.  For example, the district court “emphasized the purposefully deceitful nature of Defendant’s conduct,” and SKYRIDE’s “seeming disregard for the people they harmed and the reputation they sullied.”  (Opinion pdf page 16).  The Ninth Circuit reversed the district court’s enhancement of the actual damages awarded by the jury.

“Grossly Excessive” Damages and Profits.  SKYRIDE argued that the entire judgment was grossly excessive and punitive.  The entire judgment is the total of the actual damages, profits and statutory damages for cybersquatting.  SKYRIDE argued that because it is not a big company and that because its nationwide revenues since 2003 were only $23 million, it should not have to pay $10 million plus in final damages.  The court disagreed.

SKYRIDE fails to present us with any authority, however, allowing a defendant to escape liability for trademark infringement and false advertising damages by claiming, essentially, that it is too small to justify such a large award.

(Opinion pdf page 17).

The Ninth Circuit refused to vacate the judgment and grant a new trial.

Permanent Injunction on Cross-Appeal.  Skydive Arizona argued that the district court should have issued a nationwide injunction “prohibiting SKYRIDE from falsely stating that they own or operate skydiving centers anywhere in the United States where they do not in fact own or operate such centers.”  (Opinion pdf page 18).  Instead, the district court limited the injunction to Arizona, ruling that Skydive Arizona failed to prove that SKYRIDE’s conduct outside Arizona was illegal. 

The Ninth Circuit affirmed the permanent injunction limited to Arizona.  “An injunction should be tailored to eliminate only the specific harm alleged” and “should not enjoin conduct that has not been found to violate any law.”  (Opinion pdf page 18).

This case is Skydive Arizona, Inc. v. Quattrocchi, 9th Circuit Court of Appeals, No. 10-16099.

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