IP Law Daily, TRADEMARK—C.D. Cal.: Vape pen maker ordered to disgorge $10 million in profits in BANG trademark dispute, (Jul 27, 2022)

By George Basharis, J.D.

Continued vape pen sales despite knowledge of consumer confusion warranted award of disgorged profits to BANG energy drink maker.

Energy drink manufacturer Vital Pharmaceuticals, Inc. d/b/a Bang Energy was awarded more than $10 million in disgorged profits in a trademark infringement suit alleging that e-cigarette manufacturer PhD Marketing, Inc., infringed Vital’s BANG trademark and logo. The district court in Los Angeles also entered a permanent injunction against PhD enjoining the company from selling “Bang” electronic cigarettes in the future, but the court denied Vital’s request for attorney fees. Although the court found PhD’s infringement of the BANG trademarks to be willful, PhD’s litigation position was not frivolous, and the court’s award of disgorged profits and a permanent injunction would fully compensate Vital (Vital Pharmaceuticals, Inc. v. PhD Marketing, Inc., July 26, 2022, Lew, R.).

Vital manufactures BANG energy drinks, the third-largest selling energy drink in the U.S. JHO Intellectual Property Holdings, LLC owns the BANG trademarks. Vital also sells other merchandise using the BANG marks, including clothing, coolers, and pens. PhD Marketing runs a cash and carry business, and, up until 2021, imported and sold electronic cigarette devices, or vaping pens, under the name “Bang.”

Vital became aware of “Bang” vaping pens after it received an email from a marketing and distribution company requesting more information about the vaping products, Vital responded by sending cease-and-desist letters to companies it believed were selling vape pens using the “Bang” mark. A short time later, Vital received an email from a customer regarding the perceived poor quality of PhD’s vape pens. The customer mistakenly believed that the vape pen was made by Vital. Similarly, a Vital vendor posted a picture of BANG energy drinks together with Bang vaping pens on social media and notified followers that both were in stock. PhD also received inquiries about its affiliation with BANG energy drinks.

Vital and JHO sued PhD for trademark infringement and unfair competition, claiming the mark used by PhD on its electronic cigarettes was highly similar to the BANG marks. PhD stopped selling Bank vaping pens while the lawsuit was pending. However, the lawsuit was not the only reason why PhD stopped selling its Bang vaping pens. PhD claimed it stopped selling the vape pens because other “copycat” products made it difficult to compete. According to Vital, by the time it stopped selling the offending Bang vaping pens, PhD’s total revenue for its sales of the vape pens was over $10 million.

In 2022, the court entered judgment in favor of Vital. PhD stipulated to liability. The court then considered the equitable remedies sought by Vital: disgorgement of profits, permanent injunction, and attorney fees. It determined that Vital was entitled to disgorged profits and an injunction but not attorney fees.

Disgorged profits. Courts have broad discretion under the Lanham Act in awarding disgorged profits for trademark infringement. A finding of willfulness is not a prerequisite; however, a defendant’s mental state is highly relevant, the court explained. In this case, the court said that PhD’s mental state warranted disgorgement. PhD continued to sell its Bang vape pens long after it became aware of the BANG trademarks. PhD was aware of consumer confusion but continued to sell the vape pens—even after Vital filed its lawsuit—until it was no longer profitable to continue sales. The court concluded that continued sales despite knowledge of confusion with Vital’s nearly identical marks was indicative of improper motive.

Moreover, the court found that Vital had satisfied its burden of proving PhD’s gross sales of Bang vape pens. PhD claimed to have over $9.5 million in cost deductions, but the company failed to offer sufficient evidence to back its claim. The court noted that PhD failed to produce any supporting invoice, receipt, or other original source document. The court also found no evidentiary support for PhD’s claimed deduction for shipping and delivery expenses of over $2 million. According to the court, summary financial documents, even when coupled with testimony, were insufficient to satisfy PhD’s burden to prove costs.

PhD similarly failed to demonstrate which of its total sales were not attributable to the infringing activity. PhD relied on a likelihood of confusion survey conducted by Vital’s expert witness. The survey found that only 20 percent of respondents associated Bank vape pens with the BANG marks. Consequently, PhD reasoned that only 20 percent of its sales should be attributed to its infringement of the BANG marks.

The court did not agree. The court noted that the survey did not narrow respondents to actual purchasers of Bank vape pens. Moreover, the court explained that consumer confusion as to affiliation was not an accurate measure of the importance a consumer places on a brand name when deciding to purchase a product. The court further noted that other courts have rejected the use of likelihood of confusion surveys to apportion profits for similar reasons.

Injunction. The Lanham Act empowers courts to grant injunctions if a trademark owner can show irreparable injury, an inadequate legal remedy, the balance of hardships favors an injunction, and the public interest would be served by the remedy. In this case, irreparable injury was presumed because PhD stipulated to trademark infringement and offered no evidence to rebut the presumption. The court also found no evidence that PhD would never restart the sale of Bang vape pens. The court noted that the company continued to sell the vape pens even while the lawsuit was pending and only stopped when it became unprofitable to continue sales. Moreover, Vital introduced evidence of reputation harm and therefore established that legal remedies were inadequate.

The balance of hardships also favored Vital. Because PhD had already stopped selling Bang vape pens, it would not be harmed by an injunction. Vital, on the other hand, could suffer reputational harm and loss of good will if an injunction was not entered. Injunctive relief would further serve the public interest by preventing consumer confusion, the court concluded.

Attorney fees. The Lanham Act authorizes attorney fees awards in “exceptional cases.” A case in which a court finds intentional infringement is not necessarily exceptional, the court explained. An exceptional case often involves improper motivation or frivolous defenses. The court found PhD’s infringement was willful, but the company’s litigating position and the arguments it made during the case were not frivolous. Moreover, there was no evidence that PhD was aware of the BANK marks when it began to sell its vape pens or that Vital intended to enter the electronic cigarette market. Also, the court’s disgorgement award would fully compensate Vital, and the injunction would sufficiently deter future infringement. Under the totality of the circumstances, the court determined that the case was not exceptional, and an award of attorney fees was not justified.

The Case is No. 2:20-cv-06745-RSWL-JC.

Attorneys: A. Louis Dorny (Gordon Rees Scully Mansukhani LLP) for Vital Pharmaceuticals, Inc. d/b/a Bang Energy. John Shaeffer (Fox Rothschild LLP) for PhD Marketing, Inc.

Companies: Vital Pharmaceuticals, Inc. d/b/a Bang Energy; PhD Marketing, Inc.

Cases: Trademark CaliforniaNews