Jury not given the definition of “willful” $95 million trademark judgement vacated. VARIETY v. WALMART

A trademark is something that tells consumers who produced a product. A trademark can be registered to strengthened the rights associated with the trademark, but registration is not required to begin using a trademark, and the senior user of a trademark still has priority over a junior user that registers a trademark.

If a junior user of a trademark brands goods in a way that causes consumer confusion as to who produced a product, the junior user can be liable for trademark infringement. A senior trademark owner can stop trademark infringement by requesting an injunction and get damages for trademark infringement which has occurred.

The damages that can be awarded to a plaintiff in a trademark infringement lawsuit are broken up into three main categories. The first category is the infringer’s profits, this would include the revenue a defendant made using the infringing trademark minus the cost of the products sold. The second category is actual damages, this includes profits the plaintiff lost to infringing sales, the loss of goodwill associated with the trademark and the cost to correct consumer confusion though advertising. The third category is reasonable royalty, this is calculated based on a hypothetical reasonable value that the defendant would have paid to the plaintiff to license the trademark. Calculating damages in a trademark infringement case typically boils down to a competition of experts, where each side presents testimony from experts in the marketplace to arrive at a number.

When a trademark infringer does something on purpose, intentionally infringing on the trademark, stricter penalties are imposed. The exact reason that willful infringement is punished more harshly is directly stated in the Lanham Act. It can be implied that law makers intended to give innocent infringers leniency and create a steep penalty for those who would consider a trademark infringement lawsuit as a cost of doing business. While the definition of willful may seem obvious, it has a special meaning in the context of trademark law. A jury calculating damages in a trademark infringement lawsuit must be properly instructed on that definition.

VARIETY STORES, INC., v. WALMART INC., 19-1601 (4th Cir. 2021) is an example of a case where the substantial verdict awarded to the plaintiff was overturned because the district court failed to properly instruct the jury on the definition of “willfulness”.

Plaintiff in this case is a retailer that owns the registered trademark “THE BACKYARD”. Plaintiff’s registration covers outdoor furniture and garden accessories, but Plaintiff also applies the trademark to Barbecue grills.

Defendant in this case is a retailer of consumer products known around the world. In 2010 Defendant began selling backyard grills using the trademark “BACKYARD GRILL”. Plaintiff sued Defendant for trademark infringement.

The trial was divided into two parts, one to determine liability, and one to calculate damages. As part of the liability trial, the parties agreed to try the issue of willfulness on an advisory basis. The parties offered competing jury instructions on the proper standard for willfulness. Instead of using either party’s proposed instructions, the court simply instructed the jury to “find whether defendant Walmart’s infringement was willful.” The court did not define “willful” in the trademark context. The jury found, first, that Walmart infringed on Variety’s mark; and, second, that
the infringement was willful. That concluded the liability portion of the trial and the Jurors were dimissed.

Months later the Court set a calendar date for the damages portion of the trial. Normally a new jury would be called, but the court called in the same group of jurors. The jury ultimately awarded Plaintiff $50 million in disgorged profits on an advisory basis and $45.5 million in royalties 5 percent of Defendant’s nationwide sales revenue. Defendant then appealed to the Court of Appeals for the Fourth Circuit.

The Fourth Circuit noted that infringement must be more than “merely volitional” to be willful. The correct inquiry is whether there has been a willful infringement on the trademark rights of the plaintiff, or whether the defendant has acted in bad faith. The Fourth Circuit found that without a proper jury instruction giving the definition of willfulness in the context of trademark law that the jury was completely ignorant of controlling legal principles. Based on this finding the Fourth Circuit vacated the jury’s willfulness finding and monetary damages. The case was remanded back to the district court to do it all over again.

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