Massive damages awarded over BACKYARD trademark. Variety v. Walmart

A trademark is something that tells consumers who produced a product. Traditionally a trademark is thought of as a symbol, word or phrase, but anything that signals to consumers who produced a product can be protected as a trademark. In the United States, the first person to use a trademark in commerce is given priority over people that subsequently use the trademark. The first person to use a trademark is generally referred to as the senior user and a subsequent user is the junior user. 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 several categories. The first main 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 main 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 main 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. The analysis can be imprecise and based on how trustworthy the court finds each side’s expert witnesses. Even though the method used to calculate damages can be imprecise does not mean that the judgement will be small, indeed trademark damages can quickly accumulate into significant figures.

A case that illustrates how significant the damages in a trademark infringement lawsuit can be is VARIETY STORES, INC., v. WAL-MART STORES, INC., 5:14-cv-00217 (E.D.NC 2014). The plaintiff in the case is Variety owns and operates retail stores throughout the southern United States that feature an extensive assortment of retail merchandise, including grills, lawn and garden equipment and related supplies. Since 1993, the trademark THE BACKYARD has been used by the plaintiff continuously in commerce in connection with retail store services in the field of lawn and garden equipment and supplies. In 1994 the plaintiff registered THE BACKYARD as trademark with the United States Patent and Trademark Office.

In July 2012, the plaintiff became aware of use of the term BACKYARD GRILL + Design by Defendant in an advertisement for connection with grills and grill accessories. On August 17, 2011, Defendant had filed Application Serial No. 85/400,391 seeking registration of the mark BACKYARD GRILL + Design as a trademark. The plaintiff filed an opposition proceeding in the Trademark Trial and Appeal Board on July 18, 2012 to prevent registration of Defendant’s infringing mark. In April 2014, the plaintiff filed a complaint in North Carolina Federal Court of trademark infringement. The plaintiff requested a damages award of, defendant’s profits, damages for loses as well as a reasonable royalty for use of the trademark.

The jury in the case found for the plaintiff and the judgment was entered in February 2019. The jury awarded $50 million for the defendant’s profits on the sale of infringing goods as well as a reasonable royalty of $45.5 million. The reasonable royalty worked out to about 5% of the gross sales of infringing profits.

It is important to note that awards for trademark infringement are intended to compensate the plaintiff, not penalize the defendant. It is likely the defendant will appeal the judgment on that ground and also appeal the methods used to calculate the damages.

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