IP Law Daily, TRADEMARK—W.D. Va.: Trademark infringer not entitled to judgment as matter of law, new trial, or damage reduction, (Aug 30, 2022)

By Deirdre Kennedy J.D.

A rational trier of fact could have reached each of the jury’s conclusions, and the monetary award was appropriate and not punitive.

A business found to have infringed on pottery-maker’s trademark was not entitled to judgment as a matter of law or a new trial, the federal district court in Lynchburg, Virginia has held, finding that a rational trier of fact could have indeed reached each of the jury’s conclusions. The court also opted not to second guess the jury’s damage award, finding that the award was not excessive and did not constitute a penalty. (Emerson Creek Pottery, Inc. v. Emerson Creek Events, Inc., August 26, 2022, Moon, N.).

Plaintiff Emerson Creek Pottery operates a pottery manufacturing facility and retail outlet in Bedford County, VA. Jim Leavitt is the sole owner of Emerson Creek Pottery. In 2001, Defendant Christina Demiduk, along with her then-partner, Ron Wehrli, approached Leavitt about opening a store to sell Emerson Creek pottery in her town of Oswego, Illinois. The parties came to such an agreement, and the exact nature of the agreement became the core dispute in this case. Demiduk argued that they came to a mere sales agreement, not a trademark licensing agreement with respect to the name “Emerson Creek,” and that, although Leavitt allowed Demiduk to use the name “Emerson Creek,” it was merely a “naked license” without conditions attached. Plaintiff argued that the parties came to an oral licensing agreement for Demiduk to use the name “Emerson Creek” (and variations thereof) in addition to the sales agreement.

In 2002, Demiduk opened her store in Oswego doing business under the name “Emerson Creek Pottery.” The shop sold the pottery that Demiduk and Wehrli had purchased from Leavitt, as well as other non-pottery items such as soap, candles, and towels. In the next few years, Demiduk continued to expand her business, and in 2004 opened a tearoom adjoining the shop and began operating under the name “Emerson Creek Pottery and Tearoom.” In 2010, Demiduk began operating a wedding and events business on the Oswego property, operating as a separate business, “Emerson Creek Events, Inc.” During those years, Demiduk continued to buy pottery from Leavitt and kept him apprised of her plans for the business.

In 2012, Leavitt became concerned that Google search results for “Emerson Creek” were returning results for both his and Demiduk’s companies. He asked her to add “& Tearoom” to all of her references to her company’s name, to which she agreed. There were no issues between the parties for the next few years until 2017, when Leavitt again asked Demiduk to add “& Tearoom” when using her company’s name due to continued confusion over online search results.

In July 2017, Demiduk placed their last order with Leavitt. In September 2017, Leavitt, increasingly suspicious, hired a private investigator to go to Demiduk’s store in Oswego. There, the private investigator observed that Demiduk was selling third-party pottery, which Leavitt believed to be in violation of their agreement. In January 2018, Leavitt demanded that she stop using the name “Emerson Creek” categorically.

After Leavitt asked Demiduk to stop referring to her business as “Emerson Creek,” Demiduk asked her website developer to remove references to Emerson Creek Pottery (that is, Leavitt’s Virginia business) from her website and marketing materials but continued to use the name “Emerson Creek” in general. She asked her website developer to purchase the domain names “emersoncreekevents.com” and “EmersonCreek.com” to add to the domain she already possessed, “ecreekpotteryandtearoom.com.” Demiduk expressed that she wanted to purchase those domain names before Leavitt was able to do so. The website developer successfully purchased the domains, and Demiduk began using the address “@emersoncreek.com” for her company email.

Leavitt brought the Complaint for this case in August 2020, and the case proceeded to a jury trial in February 2022. The jury found that Leavitt had a valid trademark in the mark “Emerson Creek,” that the parties entered into an express oral licensing agreement, that the licensing agreement covered all of the variations of “Emerson Creek” in question, and that the licensing agreement extended to all services offered at Demiduk’s businesses. The jury also found that Demiduk breached the licensing agreement and found her liable in the amount of $5,119.51 for the breach. The jury further found that Demiduk was liable for infringing Leavitt’s trademarks in “Emerson Creek” and “Emerson Creek Pottery,” that she acted willfully in doing so, and that the infringement was likely to cause confusion or mistake, or to deceive as to the affiliation, sponsorship, or association between Demiduk and Leavitt. For the trademark infringement claim, the jury found Demiduk liable for $2,000,000 in damages. The jury also found in Leavitt’s favor on Demiduk’s affirmative defenses of naked licensing and acquiescence.

At the conclusion of the trial on February 25, 2022, Demiduk made a renewed motion for judgment as a matter of law. The court denied the motion on the record at that time but permitted the parties to brief the motion.

Motion for judgment as a matter of law. Federal Rule of Civil Procedure 50(a) allows a party to move for judgment as a matter of law, which a court must grant if it finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue. Courts reviewing a jury’s verdict must construe all of the facts in support of the verdict and then must affirm if a “rational trier of fact” could have reached the jury’s conclusion.

Here, the court found that a rational trier of fact could have indeed reached each of the jury’s conclusions. On the breach of licensing agreement claim, the jury found that Leavitt had a valid trademark in the name “Emerson Creek,” that Leavitt and Demiduk entered into an express licensing agreement, that the names “Emerson Creek,” “Emerson Creek Pottery,” “Emerson Creek Pottery & Tearoom,” and “Emerson Creek Events” were covered by the agreement, that the agreement covered gift shop services, restaurant services, and events services, that Leavitt exercised adequate control over the mark, that Demiduk breached the licensing agreement and was liable for damages.

On the issue of adequate control, the jury heard evidence that Demiduk and Leavitt would periodically discuss the progress of Demiduk’s business, and that Leavitt would approve (tacitly or explicitly) each development. The jury also heard evidence that Leavitt exercised his rights in the mark by issuing a cease-and-desist letter soon after he began to believe that Demiduk was infringing the mark. Because the jury had a reasonable basis to find that there was an express licensing agreement, Leavitt did not need to prove—and the jury did not find—that there was an implied licensing agreement.

With respect to the trademark infringement and false suggestion of affiliation or sponsorship claims, the jury found that Demiduk infringed Leavitt’s marks, that she acted willfully in doing so, and that Defendants used the marks in a manner likely to cause confusion, to cause mistake, or to deceive. The jury also found that Leavitt did not acquiesce to Demiduk’s infringement. The jury had a legally sufficient basis for those findings. Especially notable on these counts was the testimony of an expert in search engine optimization who testified about how customers were confusing Leavitt and Demiduk’s businesses during online searches. With respect to willfulness, the jury heard evidence about how Demiduk attempted to obtain certain domain names so that Leavitt could not use them. With respect to acquiescence, the jury heard evidence about how Leavitt communicated with Demiduk about developments with her business and ordered Demiduk to cease-and-desist soon after learning that she was selling third-party pottery.

Because the jury had a legally sufficient basis for each of its findings, the court denied the renewed motion for judgment as a matter of law.

Motion for new trial. A motion for a new trial may be granted, at the court’s discretion, when a verdict is (1) against the clear weight of the evidence, (2) based upon false evidence, or (3) will result in miscarriage of justice. Demiduk moved for a new trial in general as an alternative to their renewed motion for judgment as a matter of law, and specifically on the issue of the existence of an implied license. The court held that the jury had a legally sufficient basis for each of its findings and denied a new trial based on the sufficiency of the evidence. The court also denied a new trial on the issue of an implied license because the jury simply did not need to find whether an implied license existed once the jury found that an express license existed.

Motion for amended judgment on damages. In the alternative to their motion for judgment as a matter of law and motion for a new trial, Demiduk also move for an amended judgment on damages. District courts must consider the following factors when evaluating an award of damages under the Lanham Act: (1) whether the defendant had the intent to confuse or deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off. The court found that four of these factors weighed in favor of the monetary award.

Intent to Confuse or Deceive. The jury found Demiduk’s infringement to be willful. Demiduk admitted that she had sold third-party pottery. The evidence supported that Demiduk continued to sell third party pottery after receiving the cease-and-desist letter. Most clearly, Demiduk communicated with her website manager that they wanted to purchase certain URLs in order to keep Leavitt from obtaining them. The court found that to be plain evidence of intent to confuse or deceive.

The Adequacy of Other Remedies. While there was an injunction in place here, it only prevented future infringement on Leavitt’s trademark. An award of money damages was necessary to make Leavitt whole from Demiduk’s past infringement.

Unreasonable Delay. The evidence at trial indicated that Leavitt asserted its rights soon after discovering that Demiduk was selling third-party pottery in breach of the parties’ agreement. Leavitt notified Demiduk about the issue and sent a cease-and-desist letter a few months later.

Palming Off. Although not all of Demiduk’s profits were from palming off third-party pottery under the name Emerson Creek, the evidence at trial showed that Defendants sold third-party pottery under the banner of that name. Both before and after the cease-and-desist letter, Demiduk stated on her website that “All of our beautiful pottery is created and painted in Bedford, Virginia and is the original source of inspiration for the Pottery Shop and Tearoom that you enjoy today,” even though they sold pottery that was not made by Leavitt.

Monetary damages amount. The court determined that a monetary award was appropriate in this case but found itself caught between two competing circumstances. On one hand, the $2,000,000 jury award constituted a significant portion of Demiduk’s profits, and it is not perfectly clear how much of the profits could be reasonably attributed to her infringement of Leavitt’s mark. On the other hand, Demiduk made little effort at trial to establish her costs or to argue which portions of her profits might or might not be attributable to her use of Leavitt’s mark, nor did she do so in the pleadings on their current motion.

The court also noted that the circumstances of this case were unique. Unlike many trademark infringement cases which involve a competitor selling a product under the mark of a competitor, this case involved a broken licensing agreement where one party, Leavitt, had a trademark (Emerson Creek) and a product that carried the mark (their pottery), and the other party, Demiduk, adopted that mark for her unrelated business ventures—the restaurant and event space. Demiduk emphasized that her pottery sales were a relatively small amount of her overall business, and that her events space was her largest source of revenue in the years for which the jury imposed damages. Leavitt emphasized that every one of Demiduk’s businesses operated under the name “Emerson Creek”, so there was at least a colorable argument that all of Demiduk’s profits are attributable to her infringement.

Taking the 3.8 million number, the jury award constituted 52.6% of Demiduk’s profits for the years in which she infringed Leavitt’s mark. The jury, after hearing all the evidence, decided that was the amount of Demiduk’s profits attributable to the infringement. The court opted to not second-guess the jury, finding that the award was not excessive and did not constitute a penalty under the Lanham Act. Therefore, the court affirmed the jury’s damages award and denied Demiduk’s motion to reduce damages.

The Case is No. 6:20-cv-00054-NKM-RSB.

Attorneys: Garfield Bernard Goodrum (Garfield Goodrum, Design Law) for Emerson Creek Pottery, Inc. Kenneth S. McLaughlin, Jr. (Law Offices of McLaughlin & Associates, PC) for Emerson Creek Events, Inc.

Companies: Emerson Creek Pottery, Inc.; Emerson Creek Events, Inc.

Cases: Trademark VirginiaNews