Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Ill.: Auto parts manufacturer entitled to over $200K for Lanham Act claims, (Mar 23, 2015)

By Greg Hammond, J.D.

A company that designs, manufactures, and services automated shot peening and blast finishing equipment was entitled to over $200,000 in monetary damages and nearly $500,000 in attorney fees after an ex-employee opened a competing business and engaged in false advertising and copyright infringement. The federal district court in Chicago also enjoined the defendants from using the plaintiff’s trademarks and required the defendants to deliver all products and materials in their possession to plaintiff for destruction (Engineered Abrasives, Inc. v. American Machine Products & Service Inc., March 18, 2015, Ellis, S.).

Background. Engineered Abrasives, Inc. (EA) designs and manufactures automated shot peening and blast finishing equipment and provides replacement parts and supplies, installation, maintenance, and repair services. Former employees Edward Richerme and Edward C. Richerme established American Machine Products & Service Inc. in 2011, which directly competed with EA. The defendants represented that they could supply EA parts and service EA machines, often at less cost to the customer. They also sold products not belonging to them as a starting point for their business, selling the products to EA customers while attempting to conceal that they were EA products by sanding off the EA name and part number. The Defendants also advertised their business through a brochure and website, using images of EA products.

EA filed suit against American Machine Products & Service Inc. and its former employees, asserting that the defendants engaged in false advertising and trademark infringement under the Lanham Act; copyright infringement; state law unfair competition; violation of the Uniform Deceptive Trade Practices Act; and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. After default judgment was entered against the defendants, EA moved for monetary damages, injunctive relief, attorney fees and costs, and sanctions for the defendants’ alleged abuses of the discovery process.

Monetary damages. First, the court determined that EA is entitled to monetary damages for its false advertising claims under the Lanham Act. Using the total amount deposited in the defendants’ bank account and subtracting $309,621 in expenses, the court awarded EA $207,257 in damages for its false advertising claim. EA was entitled to the same amount of damages for its copyright infringement claim, but the claims merged to produce only one recovery. EA was not entitled to damages for the trademark infringement claim, however, because it failed to submit evidence that the defendants made profit after the date EA obtained trademark registration in September 2014.

Injunctive relief. In a separate state court action, the defendants were preliminarily enjoined from, in part, using EA’s part numbers; providing hardened metal seat or spacer or a shot peened spring in any valve supplied to any of their customers; contacting any client of EA in any manner, except to complete an outstanding order; and selling or offering any media valve or product containing a metal seat or spacer. The defendants were further required to remove any reference to EA and any hardened seat or spacer from its website, and were ordered to place a disclaimer on each page of their website stating that they are not affiliated with EA.

Because EA’s request for injunctive relief with regard to its false advertising claim was already covered by the state court injunction, the court only enjoined the defendants from using EA trademarks or any confusingly similar marks or imitations thereof. Specifically, it found that the defendants’ actions caused damage to EA’s goodwill and reputation; the balance of hardships favored injunctive relief; and an injunction intended to prevent consumer confusion served the public interest. Further, because the defendants were deemed liable on EA’s Lanham Act claims, they were ordered to deliver all EA materials in their possession, custody, or control to EA for destruction.

Injunctive relief was not awarded for the copyright claim because EA failed to demonstrate why it was entitled to such relief.

Attorney fees, costs, sanctions. Attorney fees were warranted in this case, according to the court, because the defendants continued to violate the Lanham Act by supplying EA parts, representing that they can service EA machines, and seeking workarounds to use their knowledge and EA documents in their possession to obtain business from EA’s customers, despite the existence of this case and entry of default. In considering 67 pages of billing records, the court subtracted certain unrelated time entries and time billed for non-compensable administrative tasks, arriving at a lodestar of $623,767. However, the court reduced this amount by 20 percent, finding that EA overlitigated all phases of the case considering its adversaries and the potential recovery, ultimately awarding $499,088 in attorney fees.

EA only recovered $668 in costs for a filing fee and service of the complaint. Nevertheless, EA’s motion for sanctions for defendants’ violations of the discovery rules was granted. EA was therefore able to recover an additional $12,800, representing the cost of a forensic examination the company was required to conduct after defendants’ evasive and incomplete responses and their failure to produce documents during discovery.

The case number is 13 C 7342.

Attorneys: Joan L. Long (Barnes & Thornburg LLP) for Engineered Abrasives, Inc. Robert J. Leoni (Robert J. Leoni, Ltd.) for Edward C. Richerme and American Machine Products & Service Inc.

Companies: Engineered Abrasives, Inc.; American Machine Products & Service Inc.

Cases: Advertising IllinoisNews