WILLIAM S. DUFFEY., JR., District Judge.
This matter is before the Court on (1) Defendant's Motion for Partial Summary Judgment [78], (2) Defendant's Motion to Exclude Testimony of Michael B. Mazis, Ph.D. [76], (3) Plaintiffs' Motion for Partial Summary Judgment as to Damages [70], (4) Plaintiffs' Motion to Exclude the Opinions of Robert A. Hutchins, CPA, as to a Reasonable Royalty [69], (5) Defendant's Motion to Exclude Testimony of Robert N. Yerman [75] and (6) Defendant's Motion to Exclude Certain Testimony of Philip G. Hampton, II[77].
Plaintiff ITT Corp. ("ITT") is a "global multi-industry high-technology engineering and manufacturing organization with operations in more than sixty countries" which provides products and services in the "global defense and security; water technology; and highly engineered industrial products" markets. [1, ¶ 2].
Plaintiff Xylem, Inc. is an ITT subsidiary that was created and spun off in 2011 to own and operate ITT's water-technology business. [Id. ¶ 3; 184-1, ¶ 4]. Xylem, Inc. is an S & P 500 company with annual revenue of approximately $3.8 billion, over 60% of which derives from operations outside the United States. [171, ¶ 5; 184-1, ¶ 5]. Xylem, Inc. sells to wholesale plumbing distributors and retail chain stores including Ferguson and Home Depot. [78-2, ¶¶ 130-36; 173, ¶¶ 130-36]. As part of its rebranding and marketing process, Xylem, Inc. spent $15 million in the third quarter of 2011 and the first quarter of 2012. [230-3, at 33; 230-1, at 13].
Defendant Xylem Group, LLC, ("XG" or "Defendant") is a Georgia limited liability company in the business of designing and selling bathroom furniture and fixtures. [13, ¶ 4]. Its products include vanities, sinks, faucets and fittings. XG has fourteen (14) employees and had sales revenue of $8,075,836.53 in 2011. XG pays to be listed in plumbing trade publications, attends tradeshows and spent roughly $46,000 on marketing and public relations in 2011. [78-2, ¶¶ 1-3, 18-20, 22; 173, ¶¶ 1-3, 18-20, 22]. XG's total equity was valued at approximately $3 million in 2009. (June Weinstein Dep., 171:22-172:16).
XG sells to wholesale plumbing distributors, including 39 distributors who also purchase from Xylem, Inc. (the "Overlapping Customers"). In particular, XG sells to Ferguson, which operates showrooms in common buildings with separate sections for commercial and residential products and customers.
Sales to the Overlapping Customers constitute only a small portion of Xylem, Inc.'s sales in the United States. From November 1, 2011, through July 31, 2012, Xylem, Inc.'s sales to the Overlapping Customers totaled $8,280,116.32, approximately 1.4% of its United States sales for that period. [78-2, ¶ 137; 173, ¶ 137] [171, ¶ 170; 184-1, ¶ 170].
XG first began using the name "Xylem" in interstate commerce in 2005. On December 12, 2006, XG obtained Registration No. 3,183,362 from the United States Patent and Trademark Office for the XYLEM mark. In November 2011, XG obtained four registrations for the XYLEM mark in the State of Georgia. [78-2, ¶¶ 4-10]. Plaintiffs do not dispute the validity of XG's trademark registrations. [173, ¶¶ 4-10].
On January 12, 2011, ITT announced its intention to separate itself into three separate publicly-traded companies: a manufacturing company, a water-technology company, and a defense and security company. [78-2, ¶ 23; 173, ¶ 23].
In March 2011, ITT hired Lippincott, a brand consulting company, to consult with ITT regarding the naming of its water-technology company. Lippincott recommended seventeen possible trade names and trademarks. ITT's executives narrowed the proposed names to seven, including "XYLEM." ITT had Baker & McKenzie, an international law firm which served as ITT's outside trademark counsel, conduct a worldwide trademark search for each of the seven marks it intended to consider to identify any legal issues associated with any of the seven proposed names. [78-2, ¶¶ 25, 27-31; 173, ¶¶ 25, 27-31].
On May 26, 2011, Baker & McKenzie presented ITT's executives with its trademark search results and provided its opinion regarding the registrability of each of the seven marks in the countries where ITT's water-technology company expected to do business. (Hampton Report ¶ 16; Gardner Report at 3-4). Baker & McKenzie reported that there may be "high difficulty" in obtaining trademark protections for the "Xylem" mark in the United States because the "XYLEM" mark was owned by XG for use in the United States, and that the mark was for a water-technology business similar to ITT's business. (Hampton Report ¶¶ 18-19; Gardner Report at 3-4).
A few days later, on June 2, 2011, Lippincott presented to ITT's executives a "summary of full legal, linguistic and URL evaluations" using information from the Baker & McKenzie report along with information from other sources (the "June 2nd Lippincott Report"). (Hampton Report ¶ 20).
On July 14, 2011, after discussions with ITT's executives and its counsel, and after ITT's review of the June 2nd Lippincott Report, ITT announced its new water-technology company would be named Xylem, Inc. (Hampton Report ¶ 21); [78-2, ¶ 100; 173, ¶ 100].
On July 20, 2011, XG sent a cease-and-desist letter to ITT alleging that its use of "Xylem" would infringe on XG's registered XYLEM mark. XG also objected to ITT's use of the new Xylem mark for its new water-technology company. (Gardner Report at 5); [78-2, ¶ 106; 173, ¶ 106].
On October 26, 2011, Plaintiffs filed their Complaint [1] seeking a declaratory judgment that their use of the Xylem name and mark does not infringe on XG's registrations,
On December 12, 2011, XG filed its Answer and Counterclaim [13]. In its counterclaim, XG alleges that ITT and Xylem, Inc. engaged in tradename and trademark infringement and unfair competition and had diluted XG's tradename and trademarks. XG's claims were asserted under the Lanham Act, Georgia state law and New York state law. [13, ¶¶ 73-87]. On September 23, 2012, XG filed its Amended Counterclaim [67]. XG removed its dilution claim and New York state-law claims in its Amended Counterclaim. XG, in its Amended Counterclaim, seeks injunctive relief, damages, attorney's fees and costs, prejudgment interest and punitive damages. [67, at 13-15].
On October 1, 2012, XG filed its Motion for Partial Summary Judgment on the issue of infringement [78]. In support of its motion, XG presents evidence that Plaintiffs' use of the Xylem name and mark has infringed the Xylem registrations. XG alleged, among other evidence, that Plaintiffs' use of "Xylem" caused actual customer confusion in the United States. For example, between November 2011 and September 2012, XG received (i) at least 58 checks intended for Xylem, Inc., (ii) at least 38 phone calls regarding Xylem, Inc.'s products, and (iii) 23 emails and faxes intended for Xylem, Inc. In the same period, Xylem, Inc. received at least 8 checks intended for XG. [78-2, ¶¶ 138-164]. Plaintiffs do not dispute that these instances of actual confusion occurred, but contend they are de minimis. [173, ¶¶ 138-164; 172, at 11-14].
Plaintiffs also present survey evidence from Mazis purporting to show there was little likelihood of customer confusion regarding its use of the Xylem name and mark. [170-8]. XG moves to exclude Mazis's expert opinion on the ground that it is not reliable, including because the surveyed population was not representative of the relevant market. [76, at 1-2; 177, at 6-8].
XG also seeks payment of a reasonable royalty, and in doing so, presents the expert opinion of Robert A. Hutchins, CPA. Hutchins opines that a reasonable royalty based on a hypothetical licensing agreement between XG and Plaintiffs would have resulted in a minimum royalty amount to XG of $45 million. [230-3, at 34]. Plaintiffs offered the rebutting expert opinion of Robert N. Yerman. Yerman opines that a hypothetical licensing agreement would have resulted in a royalty worth no more than $3.3 million plus a control premium, which he claims is equivalent to the approximate value of XG's total equity. [218-1, at 14] The parties moved to exclude each other's expert opinions on damages [69][75].
In a separate expert opinion supporting Plaintiffs' valuation of a reasonable royalty between XG and the Plaintiffs, Philip G. Hampton, II opines that the value of a licensing agreement between XG and Plaintiffs "would have been significantly less than $250,000" because ITT had paid Novedades Agricolas, a Spanish company, only $250,000 to avoid a conflict with what Hampton considers to be a "stronger" mark than the mark at issue in this litigation. [77-2, at 10-11]. XG moves to exclude that portion of Hampton's expert opinion [77].
On October 1, 2012, Plaintiffs filed their Motion for Partial Summary Judgment against XG on the issue of damages [70]. Plaintiffs allege that "XG cannot recover damages for lost sales," that they "cannot recover damages measured by a reasonable royalty", and that "there is no legal basis for punitive damages." [70-1 at 5-16]. XG opposes the motion and estimates that its lost sales in November 2011 and December 2011 were at least $93,790.85. [145-2, ¶¶ 1-2].
A court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Parties "asserting that a fact cannot be or is genuinely disputed must support that assertion by... citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed.R.Civ.P. 56(c)(1).
The party seeking summary judgment bears the burden of demonstrating the absence of a genuine dispute as to any material fact. Herzog v. Castle Rock Entm't, 193 F.3d 1241, 1246 (11th Cir. 1999). Once the moving party has met this burden, the non-movant must demonstrate that summary judgment is inappropriate by designating specific facts showing a genuine issue for trial. Graham v. State Farm Mut. Ins. Co., 193 F.3d 1274, 1282 (11th Cir.1999). Non-moving parties "need not present evidence in a form necessary for admission at trial; however, [they] may not merely rest on [their] pleadings." Id. at 1282.
The Court must view all evidence in the light most favorable to the party opposing the motion and must draw all inferences in favor of the non-movant, but only "to the extent supportable by the record." Garczynski v. Bradshaw, 573 F.3d 1158, 1165 (11th Cir.2009) (quoting Scott v. Harris, 550 U.S. 372, 381 n. 8, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007)). "[C]redibility determinations, the weighing of evidence, and the drawing of inferences from the facts are the function of the jury...." Graham, 193 F.3d at 1282. "If the record presents factual issues, the court must not decide them; it must deny the motion and proceed to trial." Herzog, 193 F.3d at 1246. But, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party," summary judgment for the moving party is proper. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
XG requests the Court to find as a matter of law that Plaintiffs have (1) infringed Xylem Group's trademark pursuant to 15 U.S.C. § 1114 and O.C.G.A. § 10-1-450, (2) engaged in unfair competition pursuant to 15 U.S.C. § 1125 and O.C.G.A. § 23-2-55, and (3) violated the Georgia Deceptive Trade Practices Act pursuant to O.C.G.A. § 10-1-372(a)(2)-(3). Xylem Group also seeks an injunction preventing Xylem, Inc.'s further use of the Xylem mark within the United States. [78, at 2].
Plaintiffs oppose the motion, arguing that "there are many genuine issues of material fact as to liability." [172, at 3]. First, Plaintiffs argue that "XG's trade name and mark are weak," entitling XG to "only a narrow scope of protection."
To prove infringement under 15 U.S.C. § 1114 of the Lanham Act,
"The likelihood of confusion is a question of fact." Welding Services, Inc. v. Forman, 509 F.3d 1351, 1361 (11th Cir. 2007). To award summary judgment in a case where these factors are required to be weighed, the Court must consider the evidence in a light most favorable to the non-moving party and must conclude that no reasonable jury could reach a contrary result. See Caliber, 605 F.3d at 935. Determining whether a likelihood of confusion exists "entails more than the mechanistic summation of the number of factors on each side; it involves an evaluation of the `overall balance.'" Custom Mfg. & Eng'g, Inc. v. Midway Servs., Inc., 508 F.3d 641, 649 (11th Cir.2007). "[T]he district court must evaluate the weight to be accorded the individual subsidiary facts and then make its ultimate fact decision." Jellibeans, Inc. v. Skating Clubs of Ga., Inc., 716 F.2d 833, 840 n. 17 (11th Cir. 1983). Even in a case where the "type of mark and evidence of actual confusion are the most weighty of considerations," and the seven likelihood-of-confusion factors "typically inform a court's determination of the likelihood of confusion," a court must still "take into account the unique facts of each case." Custom, 508 F.3d at 650 (internal quotation marks omitted) (citing Hi-Tech Pharms., Inc. v. Herbal Health Prods., Inc., 132 Fed.Appx. 348, 350 (11th Cir.2005)). That is because "each case presents its own complex set of circumstances and not all of these factors may be particularly helpful in any given case.... The ultimate question remains whether relevant consumers are likely to believe that the products or services offered by the parties are affiliated in some way." Id. at 650 (quoting Homeowners Grp., Inc. v. Home Mktg. Specialists, Inc., 931 F.2d 1100, 1107 (6th Cir.1991)) (internal quotation marks omitted).
With this analyticial framework, the Court evaluates the seven likelihood-of-confusion factors.
"There are four recognized types of mark, ranging from weakest to strongest: generic, descriptive, suggestive and arbitrary. The stronger the mark, the greater the scope of protection accorded it." Caliber, 605 F.3d at 938 (quoting Aronowitz v. Health-Chem Corp., 513 F.3d 1229, 1240 (11th Cir.2008)). "An arbitrary or fanciful mark bears no logical relationship to the product or service it is used to represent, [e.g., Kodak]. A suggestive mark refers to some characteristic of the goods, but requires a leap of the imagination to get from the mark to the product, [e.g., Penguin Refrigerators]. A descriptive
Important in gauging the strength of a mark is "the degree to which third parties make use of the mark." The less third parties use the mark, "the stronger it is, and the more protection it deserves." Frehling, 192 F.3d at 1336 (citing John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 974-75 (11th Cir.1983)).
XG argues that its registered XYLEM mark is "at least suggestive, if not arbitrary" because the mark has become incontestable, and because "Xylem is a real word referring to a type of tissue in plants that moves water from the roots to the leaves." XG acknowledges that its products-vanities, sinks and faucets "are part of the process of moving water from its source to the end user," but argues that the characteristics of the products "require an effort of the imagination by the consumer to be understood," supporting that it is at least suggestive. [78-1, at 4-5].
Plaintiffs generally argue that XG's trademark is "weak." Plaintiffs acknowledge that XG's XYLEM mark "is the subject of a now-incontestable registration" and that registration "creates a presumption of strength." Plaintiffs argue, however, that XG's trademark enjoys only "conceptual strength" rather than "commercial strength." Plaintiffs cite third-party use by Kohler Company, which "has been using XYLEM for three years as a trademark for floor tile," as support for their argument that XG's XYLEM mark's commercial strength is "abysmal at best." [172, at 5-6]. Plaintiffs did not respond to XG's argument that its XYLEM mark is "at least suggestive" and requires "an effort of the imagination by the consumer" to connect the products to the trademark.
The Court finds that the XYLEM mark is at least suggestive, because it takes a leap of the imagination to connect the plant tissue "xylem" to XG's products, even though the two share a water-transport function.
Similarity of mark is determined by "the overall impression created by the marks,
XG argues that the words of the marks, the sound, and the "dominant focus" of the marks are "identical." [78-1, at 5-6]. Plaintiffs do not contest the similarity of the words contained in the marks but argue that "the graphic rendering[s]" of the marks are "distinguishable." They argue that Xylem, Inc.'s mark always appears in conjunction with its product-line names, e.g., Goulds or Bell & Gossett, and that the mark is only used by itself when in reference to Xylem, Inc. as a corporate entity. [171, ¶¶ 184-85; 172, at 7-8].
The Court finds, after considering their appearance, sound and the totality of impression, that the marks used by Xylem, Inc. and XG are substantially similar. Both marks prominently contain the word "Xylem." Even though the smaller, captioned words underneath "Xylem" are different in the two marks, the overall impression of the two is so similar that a customer not familiar with the distinction would likely attribute both marks to the same source. See [78-2, ¶ 11; 171, ¶¶ 184, 193]. The use of product-line names in conjunction with "Xylem" in Xylem, Inc.'s mark does not discredit the overall impression that both are Xylem products. This factor also weighs in favor of XG.
Whether there is a similarity of products requires the "determination as to whether the products are the kind that the public attributes to a single source, not whether or not the purchasing public can readily distinguish between the products of the respective parties." Caliber, 605 F.3d at 939-40 (quoting Frehling, 192 F.3d at 1338). In our circuit, the test is "not whether the goods could be distinguished, as they could be by any [consumer], but whether the goods are so related in the minds of consumers that they get the sense that a single producer is likely to put out both goods." Frehling, 192 F.3d at 1338.
XG argues that "it is reasonable for a consumer to believe that some of Xylem, Inc.'s goods would be produced by a manufacturer of vanities, sinks, faucets, and fittings" because Xylem, Inc. produces "circulator pumps," "valves" and "products relating to the treatment of water and wastewater." [78-1, at 7].
Plaintiffs argue that the products are not similar because Xylem, Inc. produces "highly engineered" products whereas XG produces "bathroom vanities, sinks, faucets, and fittings." [172, at 8-9].
The Court finds that the distinction between "highly engineered" and bathroom products is a distinction of the products. The proper test is whether consumers could attribute the products to a single source. Frehling, 192 F.3d at 1338. The two companies make some subset of products that are functionally similar. Even though Xylem, Inc. specializes in highly engineered and industrial products and XG specializes in home bathroom products, the functional similarity of some of the products could mislead consumers into attributing both types of these subset products to a single source. These are, however, differences in a large portion of the products manufactured by XG and Xylem, Inc., making it unclear in which party's favor the similarity-of-products factor weighs.
The similarity of the parties' retail outlets and customers "takes into consideration where, how, and to whom the parties' products are sold." Caliber, 605 F.3d at 940 (quoting Frehling, 192 F.3d at 1339).
The Court finds that there is overlap to some degree, of retail outlets and regular retail customers. Plaintiffs concede the existence of sales overlap but argue that it is not significant. This factor, like the previous one, cannot conclusively be found to weigh in favor of any of the parties.
The "similarity of advertising" factor "looks to each party's method of advertising." Caliber, 605 F.3d at 940. XG argues that "both parties have appeared in [certain] trade journals ... [and] other magazines, participate[d] in trade shows, [maintained] a web presence, and distribute[d] small promotional products." [78-1, at 11-12]. Plaintiffs argue that "XG's president and majority owner [has] admit[ted]" that "XG does not advertise and never has" at a deposition. They argue further that XG began advertising "at nominal cost" to "bolster [XG]'s position in this litigation." [172, at 14-15].
The record shows that XG spent roughly $46,000 on marketing and public relations in 2011, and that Plaintiffs spent $15 million in two quarters in rebranding and marketing. The evidence is consistent with both parties' contentions that there is overlap in advertising, even if small. See [171, ¶¶ 22, 129-39; 184-1, ¶¶ 22, 129-39]. The Court concludes that this factor weighs slightly in favor of XG.
The intent factor looks to whether the allegedly infringing party "adopted a plaintiff's mark with the intention of deriving a benefit from the [trademark holder's] business reputation." Caliber, 605 F.3d at 940. While the record shows that Plaintiffs knew of XG's trademark and the possibility of infringement prior to their decision to adopt and use the new Xylem mark, the Court cannot find that Plaintiffs intended, to any material degree, to derive a benefit from XG's business reputation. From the third quarter of 2011 to the first quarter of 2012, Plaintiffs spent $15 million in rebranding and marketing to promote Xylem, Inc.'s brand after it was established as a separate subsidiary. [230-3, at 33; 230-1, at 13]. These marketing expenses exceed, and are nearly double, XG's entire U.S. sales revenue in 2011. [78-2, ¶ 3; 173, ¶ 3]. The Court finds that Plaintiffs intended, albeit to some slight degree, to benefit from XG's reputation and goodwill by confusing XG customers and inducing them to buy Xylem, Inc.'s products. The Court concludes that this factor slightly favors XG.
Actual consumer confusion is "the best evidence" of likelihood of confusion. "All potential consumers of the relevant product or service, including middlemen, can inform the inquiry, and the ultimate consumers deserve special attention." Caliber, 605 F.3d at 936-37 (citations omitted). The rule courts usually apply is that infringement occurs when "there is a likelihood of confusion in the mind[s] of an appreciable number of `reasonably prudent' buyers." John H. Harland Co., 711 F.2d at 979 n. 22 (quoting 2 McCarthy, supra, § 23:27, at 87-88 (1973)). "Short-lived confusion or confusion of individuals casually acquainted with a business is worthy of little weight, while confusion of actual customers of a business is worthy of substantial weight." Safeway Stores, Inc. v. Safeway Discount Drugs, Inc., 675 F.2d 1160,
The Court finds that a level of actual confusion of customers resulted from Xylem, Inc.'s adoption of the Xylem name and its use of its Xylem mark. XG documented at least 127 instances in which actual confusion occurred: XG received (i) 58 checks intended for Xylem, Inc., (ii) 38 phone calls regarding Xylem, Inc.'s products, and (iii) 23 emails and faxes intended for Xylem; Xylem, Inc., on the other hand, received 8 checks intended for XG. [78-2, ¶¶ 138-164]. Plaintiffs do not dispute that these instances of confusion occurred. [173, ¶¶ 138-164]. Plaintiffs argue, instead, that the actual confusion is de minimis and the confusion that occurred is insufficient to support a "likelihood of confusion" in a trademark-infringement analysis. See [172, at 11-14].
In our circuit, "very little proof of actual confusion would be necessary to prove the likelihood of confusion." World, 438 F.2d at 489; see Roto-Rooter Corp. v. O'Neal, 513 F.2d 44, at 46 (5th Cir.1975) (confusion by four individuals held to be significant evidence of actual confusion). In Safeway, the Court considered the "kinds of issues confused and degree of confusion" involved and the weight to be given to the actual confusion shown. Safeway, 675 F.2d at 1167. The Safeway court concluded that where the incidents of actual confusion were small, and a supplier and a customer were confused, the confusion was deemed significant because customers and suppliers are the type of people who ought not to be confused. Id. at 1167. Here, XG has documented over 100 instances of actual confusion resulting from misdirected checks, phone calls, faxes and emails. They come from people who ought not to have been confused, including customers and others with whom Defendant conducts its business. The Court finds that this actual confusion among the people weighs in XG's favor.
The Court, having considered each of the seven factors, now considers the overall balance of them. Custom, 508 F.3d at 649. It does so based on the undisputed facts of this case. The Court finds that while the factors may tip in favor of XG on whether Xylem, Inc.'s use of the Xylem name and mark created confusion, including actual confusion, the facts here are unique in that the market and product overlap is limited, and the marketing activity disparate. While XG appears, based on its registration and an analysis of the seven factors, to have a stronger factual and legal argument in favor of "likelihood of confusion," in viewing the evidence in the light most favorable to Plaintiffs, the Court cannot find that no reasonable juror would find there is no confusion created by Xylem, Inc.'s use of the Xylem name and
It is well-established that "liability for trademark infringement can extend beyond those entities that actually perform the acts of infringement." Mini Maid Services Co. v. Maid Brigade Systems, Inc., 967 F.2d 1516, 1522 (11th Cir. 1992) (citing Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 853-54, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982)); see Optimum Technologies, Inc. v. Henkel Consumer Adhesives, Inc., 496 F.3d 1231 (11th Cir.2007) (finding a distributor liable for trademark infringement committed by merchant distributees); Bauer Lamp Co., Inc. v. Shaffer, 941 F.2d 1165 (11th Cir. 1991) (finding contributory infringement where manufacturing is done by a third party). "To be liable for contributory trademark infringement, a defendant must have intentionally induced another to infringe a trademark." Suntree Technologies, Inc. v. Ecosense International, Inc., 693 F.3d 1338, 1345 (11th Cir.2012) (quoting 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 25:18 at 25-54 (4th ed.2012)). "Any liability for contributory infringement will necessarily depend upon whether or not the contributing party intended to participate in the infringement or actually knew about the infringing activities." Suntree, 693 F.3d at 1345 (quoting Mini, 967 F.2d at 1522).
The Court next decides whether ITT may be held liable for Xylem, Inc.'s use of the Xylem name and mark. The record here shows that ITT and its management knew that the XYLEM mark had been registered by XG as XG's trademark in the United States. ITT was warned by its outside counsel, Baker & Mackenzie LLP, that it was unlikely that ITT could successfully register the Xylem name in the United States because of XG's prior registration. Despite these warnings, ITT chose to name its subsidiary Xylem, Inc. and allowed Xylem, Inc. to embark on its business activities, including the sale of Xylem, Inc.'s products, which bear the Xylem mark, to the Overlapping Customers. [173, ¶¶ 33-58, 86-95]. Even if ITT believed that ITT was legally allowed to use the Xylem name and mark, it did so knowing of XG's registration. [173, ¶¶ 86-87]. If Xylem, Inc. is found to have infringed on XG's trademark rights, ITT would be liable for contributory infringement. See Suntree, 693 F.3d at 1345; see Mini, 967 F.2d at 1522.
To prevail on a claim for federal unfair competition under 15 U.S.C. § 1125(a),
XG registered its XYLEM mark under the Lanham Act and has enforceable rights in the mark and the Xylem name. See Jellibeans, 716 F.2d at 835 (enjoining the use of "Lollipops" as a trade name because it infringes on the "Jellibeans" service mark); Citibank, N.A. v. Citibanc Grp., Inc., 724 F.2d 1540 (11th Cir.1984) (enjoining the use of "Citibanc" as a trade name and mark because they infringe on Citibank's trade name and mark). The first prong of the 15 U.S.C. § 1125(a) analysis is therefore satisfied.
The "likelihood of confusion" analysis under 15 U.S.C. § 1125(a) is the same as that under 15 U.S.C. § 1114. See Custom, 508 F.3d at 648; Wesco Mfg., Inc. v. Tropical Attractions of Palm Beach, Inc., 833 F.2d 1484, 1488 (11th Cir.1987).
Because the Court finds that a "likelihood of confusion" under 15 U.S.C. § 1125(a) is in genuine dispute and required to be decided at trial, summary judgment of XG's claim for unfair competition under the Lanham Act is required to be denied.
Registration of a service mark or trademark is a prerequisite for relief under O.C.G.A. § 10-1-450.
Trademark-infringement claims under O.C.G.A. § 10-1-450 adopt the same "likelihood of confusion" analysis as federal trademark-infringement claims under the Lanham Act. See Ackerman Security Systems, Inc. v. Design Security Systems, Inc., 201 Ga.App. 805, 412 S.E.2d 588, 589 (1991).
XG has registered its trademark in the State of Georgia, and the fact is not disputed by Plaintiffs. [78-2 ¶¶ 7-10; 173 ¶¶ 7-10]. Because the Court finds that whether there is a likelihood of confusion is required to be determined at trial, summary judgment on XG's trademark-infringement claim under Georgia law also is required to be denied.
Georgia unfair-competition claims under O.C.G.A. § 23-2-55
The record shows that Plaintiffs adopted the Xylem name and mark with full knowledge of XG's registered trademark in the United States and continued with their use despite having received a cease-and-desist letter from XG. [173, ¶¶ 33-58, 86-95, 106]. Because the Court finds that a "likelihood of confusion" is in genuine dispute and required to be decided at trial, summary judgment of XG's claim under O.C.G.A. § 23-2-55 also is required to be denied.
To obtain relief under Georgia Deceptive Trade Practices Act, O.C.G.A. § 10-1-372,
Whether confusion occurs under Georgia Deceptive Trade Practices Act, O.C.G.A. § 10-1-372, requires the same "likelihood of confusion" analysis found in trademark-infringement claims under the Lanham Act. See Ackerman Sec. Sys., Inc. v. Design Sec. Sys., Inc., 201 Ga.App. 805, 412 S.E.2d 588, 589 (1991); Amstar Corp. v. Domino's Pizza, Inc., 615 F.2d 252, 265 (5th Cir.1980).
Because the Court finds that a "likelihood of confusion" is in genuine dispute and required to be decided at trial, summary judgment of XG's claim under O.C.G.A. § 10-1-372 also is required to be denied.
ITT and Xylem, Inc. move for partial summary judgment on the issue of damages. Plaintiffs argue that, as a prerequisite to a recovery for trademark infringement, XG must prove that it is entitled to recover the infringer's profits attributable to the infringement, any damage sustained by the trademark owner and the cost of the action. See Ramada Inns, Inc. v. Gadsden Motel Co., 804 F.2d 1562, 1564 (11th Cir.1986). Plaintiffs allege that XG seeks "damages for lost sale" and "damages measured by a reasonable royalty," which, according to Plaintiffs, are not proper recoveries for an alleged trademark infringement as a matter of law. Plaintiffs argue that they are thus entitled, as a matter of law, to summary judgment on damages XG alleges. To the extent XG is entitled to recover based on a reasonable royalty, Plaintiffs alternatively allege that XG cannot prove the amount of the royalty claimed because the opinion offered by XG's expert, Hutchins, is inadmissible. Plaintiffs further allege that "there is no legal basis for punitive damages." [70-1, at 4-5, 13, 15].
Plaintiffs claim that the "only theory of damages that XG ... advance[s] is based on a reasonable royalty." [70-1, at 5]. Plaintiffs argue that the "reasonable royalty" damage theory, while common in patent cases, "has been atypical" in cases for trademark infringement. A & H Sportswear v. Victoria's Secret Stores, Inc., 166 F.3d 197, 208 (3rd Cir.1999) (en banc).
Plaintiffs claim, without pointing to any binding authority in this circuit, that a reasonable royalty may not be used as a measure of damage award because it is not possible to determine the amount of a reasonable royalty with "reasonable certainty." [70-1, at 8]. Fundamental to Plaintiffs' theory is that a trademark owner who refuses to license its trademark may never recover damages based on royalty rates that are not established.
XG claims that a reasonable royalty is a valid and permissible basis for awarding damages under the Lanham Act. It offers an expert opinion on what a reasonable royalty would have been between XG and the Plaintiffs. XG also claims it presented evidence of actual damages in the amount of $93,790.85 apart from its reasonable-royalty theory.
Damages for trademark infringement under the Lanham Act may include (1) the infringing party's profits, (2) any damage sustained by the trademark holder and (3) the cost of the action. 15 U.S.C. § 1117(a)
Damages for trademark infringement under the Lanham Act may include any damage actually sustained by the trademark holder. 15 U.S.C. § 1117(a); Aronowitz, 513 F.3d at 1241; Ramada, 804 F.2d at 1564. Plaintiff argues that "there is no evidentiary basis for such damages" because XG "cannot show any decline in its sales or foregone sales that were caused by the alleged infringement." [70-1, at 5]. Those claims are not supported by the record. The record evidence here is that XG lost sales in November 2011 and December 2011 in an amount that XG estimates to be $93,790.85. [145-2, ¶¶ 1-2]. The Court cannot conclude that no reasonable juror would find that actual damages were incurred by XG as a result of lost sales in this amount, and there is a genuine issue of material fact whether XG suffered actual damages due to lost sales. For this reason alone, Plaintiffs' Motion for Partial Summary Judgment as to Damages is required to be denied.
The more interesting and significant issue in this case is whether XG can claim and recover damages based on a reasonable royalty.
Plaintiffs do not contest that the Eleventh Circuit has relied on a "reasonable royalty" theory to determine damages under the Lanham Act. See [70-1, at 5-6]. Plaintiffs argue, however, that a "reasonable royalty" theory of damages is available only when the royalty amount is "sensible, non-speculative, and grounded in commercial reality," requiring "use of the mark by persons other than the owner [to]... demonstrate[] market value." [70-1, at 6]. Plaintiffs claim that those conditions are not met here because the royalty claimed in this case is too speculative and is based only on a hypothetical royalty rate that cannot be verified based on an established, historical royalty rate. See [70-1, at 8-10]. The Court disagrees.
The Supreme Court, in Dowagiac Manufacturing Co. v. Minnesota Moline Plow Co., 235 U.S. 641, 35 S.Ct. 221, 59 L.Ed. 398 (1915), discussed when a reasonable royalty may be used as a basis for a damage award resulting from patent infringement. In Dowagiac, a monopolist inventor refused to license an improvement on grain-drills to third parties and, to maintain its monopoly, sued other manufacturers who copied the inventor's design. The Supreme Court, recognizing that "there was no established royalty," held that "the only measure of damages" in those cases of infringement was "such sum as under all the circumstances, would have been a reasonable royalty for the defendant to have paid." 235 U.S. at 648-49, 35 S.Ct. 221. The "reasonable royalty" theory has, from its inception, been a method to estimate hypothetical royalty amounts in the absence of an established royalty. The Supreme Court, in Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390, 60 S.Ct. 681, 84 L.Ed. 825 (1940), extended the "reasonable royalty" theory of damages to copyright cases. In Sheldon, the Supreme Court noted that "what is required is not mathematical exactness but only a reasonable approximation," and that "the testimony of those who are informed by observation and experience may be not only helpful but ... indispensable." 309 U.S. at 408, 60 S.Ct. 681.
The methodology for hypothesizing a licensing arrangement and arriving
Our circuit has not considered whether a prior license is required to determine a reasonable royalty as the basis for an award of trademark-infringement damages. The Court has critically considered the history of the "reasonable royalty" theory and its purpose in determining whether the theory can apply in a case that does not involve a holdover license or where a license was not previously granted to a third party. The Court concludes that it may.
A careful reading of Dowagiac and Sheldon compel the conclusion that the "reasonable royalty" theory of damages is a viable, if not necessary, measure of protecting the property rights afforded a trademark holder under the Lanham Act. In Dowagiac, the Supreme Court evaluated the royalties due to the holder of intellectual property rights — a patent — which were infringed by a defendant. The Supreme Court found that the patent holder was entitled to use the profits obtained by the infringer as a result of the infringement. Dowagiac, 235 U.S. at 646, 35 S.Ct. 221. In discussing the reasons for allowing the patent holder a recovery for the infringement, the Supreme Court held that "the result to be accomplished is a rational separation of the net profits so that neither party may have what rightfully belongs to the other, and it is important that the accounting be so conducted as to secure this result, if it be reasonably possible." Id. at 647, 35 S.Ct. 221. The Supreme Court stated "it may well be that mathematical exactness [is] not possible," noting that "degree of accuracy is not required but only reasonable approximation, which usually may be attained through the testimony of experts and persons informed by observation and experience. Testimony of this character is generally helpful and at times indispensable." Id. The Supreme Court, recognizing that a patent right was a form of property and that the "infringement was a tortious taking," ruled that "the normal measure of damages was the value of what was taken." Id. at 648, 35 S.Ct. 221. Because the patent holder had elected not to license its patent, it was "permissible [for the plaintiff] to show the value [of its intellectual property rights] by proving what would have been a reasonable royalty." Id.
In Sheldon, the Supreme Court addressed the same issue in a case involving infringement of another type of intellectual property — copyrights. Justice Hughes presented the case question as follows: "The questions presented are whether, in computing an award of profits against an infringer of a copyright, there may be an apportionment so as to give to the owner of the copyright only that part of the profits found to be attributable to the use of the copyrighted material as distinguished from what the infringer himself has supplied, and, if so, whether the evidence affords a proper basis for the apportionment decreed in this case." Sheldon, 309 U.S. at 396, 60 S.Ct. 681. Adopting the reasoning of Dowagiac, the Sheldon court held that the damages may be measured by the value of the intellectual property taken. Id. at 408-09, 60 S.Ct. 681.
Plaintiffs here try to distinguish the reasoning of these cases and argue that their
The reasoning and rationale in Dowagiac and Sheldon apply in this trademark case. If XG can prove infringement, XG argues it may seek damages based on the value of the infringed trademark. Plaintiffs ultimately concede that a reasonable royalty is a viable measure of damages in trademark-infringement cases, but seek to limit it to the narrow set of cases where a plaintiff can point to an established royalty based on an actual license agreement. Plaintiffs' narrow interpretation is not consistent with the Supreme Court's reasoning in Dowagiac and Sheldon or with the generally accepted use of a reasonable royalty for damage calculations. Accordingly, the Court finds that Plaintiffs' Motion for Partial Summary Judgment as to Damages is denied. The Court now turns to whether XG's and Plaintiffs' expert opinions on the value of a reasonable royalty are admissible in this case.
Expert testimony is admissible if (1) the expert is qualified to testify on the topic at issue, (2) the methodology used by the expert is sufficiently reliable, and (3) the testimony will assist the trier of fact. See Fed.R.Evid. 703; Club Car, Inc. v. Club Car (Que.) Imp., Inc., 362 F.3d 775, 780 (11th Cir.2004); Quiet Tech. DC-8 v. Hurel-Dubois UK, Ltd., 326 F.3d 1333, 1340-41 (11th Cir.2003); see also Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).
In assessing reliability, a deciding court may look to (1) whether the expert's methodology has been tested or is capable of being tested, (2) whether the technique has been subjected to peer review and publication, (3) the known and potential error rate of the methodology, and (4) whether the technique has been generally accepted in the proper scientific community. McDowell v. Brown, 392 F.3d 1283, 1298 (11th Cir.2004); Kumho Tire Co. v. Carmichael, 526 U.S. 137, 149, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999); see Daubert, 509 U.S. at 593-94, 113 S.Ct. 2786. "A district court has considerable leeway in deciding in a particular case how to go about determining whether particular expert testimony is reliable." McDowell, 392 F.3d at 1299 (internal quotation marks omitted) (citation omitted); Kumho, 526 U.S. at 151-152, 119 S.Ct. 1167.
Expert testimony will assist the trier of fact "if it concerns matters that are beyond the understanding of the average lay person." U.S. v. Frazier, 387 F.3d 1244, 1262 (11th Cir.2004). "This condition goes primarily to relevance." Daubert, 509 U.S. at 591, 113 S.Ct. 2786. Expert testimony "generally will not help the trier of fact when it offers nothing more than what lawyers for the parties can argue in closing arguments." Frazier, 387 F.3d at 1262-63.
Plaintiffs move to exclude Robert A. Hutchins's expert opinion on the reasonable royalty XG is entitled to based on Plaintiffs' alleged infringement. Plaintiffs offer three arguments why Hutchins's testimony is "unreliable and unhelpful to the trier of fact." [69, at 1].
First, Plaintiffs argue that the comparable transactions Hutchins used to derive the range of reasonable royalty amounts are not comparable to a hypothetical licensing of XG's trademark. [230-1, at 4, 9-13]. Hutchins, acknowledging there are no "comparable licensing transactions" to be used as a basis for a royalty calculation, arrived at his estimates by using three separate transactions in which ITT acquired another company's trademark through a merger and acquisition. [230-3, at 16-17]. Hutchins then "reverse engineer[ed]" a range of "implied royalty rates" for a hypothetical licensing of XG's trademark to Plaintiffs, assuming that the hypothetical transaction would be comparable to ITT's previous acquisitions of three other trademarks. [Id. at 18-19]. Hutchins acknowledges that the "companies acquired by [Plaintiffs] had significantly larger revenue bases and had been in existence for longer periods of time relative to [XG]," and "[Plaintiffs] would be undertaking the cost and risk of developing and building the Xylem name on a global scale." [Id. at 20]. As a result, Hutchins adopted the lower-end of his range of estimates and adjusted the royalty rate downward to reach a conservative estimate. He calculated the range of royalty rates to be "between 0.63 and 1.50 percent" and ultimately "set the maximum rate for the hypothetical negotiations at 0.60 percent." [Id. at 33].
Second, Plaintiffs argue that to the extent Hutchins accounted for the incomparability of the trademarks by adopting a lower-end estimate of a reasonable royalty (and then discounting the royalty rate further), the adjustment was insufficient. [230-1, at 21]. "[L]ike estimating the weight of a fourth grader by weighing a group of NFL linemen," Plaintiffs argue, "the complete lack of comparability between the subject and the reference group is scarcely resolved by selecting a value a bit below the weight of the lightest lineman." [Id. at 21]. Plaintiffs essentially claim the royalty rate selected was too random.
Third, Plaintiffs argue that Hutchins used false assumptions to arrive at a minimum royalty amount that was too high. [230-1, at 13-14]. Hutchins set a minimum value of XG's trademark by looking at how much Plaintiffs had spent on "rebranding and marketing" the Xylem brand. [230-3, at 33]. Plaintiffs argue that Hutchins unreasonably chose October rather than July as the ending month of the rebranding effort, causing the minimum royalty amount to be inflated. [230-1, at 13-14].
The Court has considered the opinion offered by Hutchins in light of the incomparability of data, the downward adjustment of estimates and the unreasonable use of negotiation dates alleged by the Plaintiffs. The Court has performed the analysis set out in Rule 702 of the Federal Rules of Evidence and the reliability analysis set out in Daubert and Kumho. Plaintiffs do not challenge Hutchins's qualification or the methodology of comparable analysis. They also do not argue that his
XG moves to exclude Robert N. Yerman's expert opinion on the reasonable royalty that would have resulted from a hypothetical negotiation between the parties. XG bases its motion on two grounds.
First, XG argues that Yerman's estimate lacks reliability because Yerman "starts with an accepted methodology" but "reaches an unsubstantiated conclusion that cannot be tested or duplicated through peer review." XG argues that Yerman "never identifies why" the negotiated amount "would be no more than $400,000" after he started with "monetary values ranging from approximately $284,000 to $3.3 million." [75-1, at 3, 8]. An examination of Yerman's report reveals that he based his number on XG's total equity value and an actual licensing agreement ITT entered into with Novedades Agricolas, a Spanish company, regarding the Xilema trademark. [218-1, at 14, 29].
Second, XG argues that Yerman's estimate "will not assist the trier of fact" because what he did to arrive at the estimate is "no different than what the jury will be asked to do." XG essentially argues that Yerman offered no expert insight and formed his estimate as any layman would. [75-1, at 8-9]. Expert testimony will assist the trier of fact "if it concerns matters that are beyond the understanding of the average lay person." Frazier, 387 F.3d at 1262. The requirement "goes primarily to relevance." Daubert, 509 U.S. at 591, 113 S.Ct. 2786. Yerman's estimate was based on an actual licensing agreement between ITT and Novedades Agricolas. His estimate was proffered to rebut Hutchins's estimate relied upon by XG, and it is relevant to the jury's determination of what a reasonable royalty would have been between Plaintiffs and XG. XG does not challenge Yerman's analytical method. XG argues only that Yerman's conclusions are not subject to verifiable testing and have not been subject to peer review. The arguments are unpersuasive. It is for the trier of fact to determine, after considering the opinion and other evidence, what amount of damages should result in recovery. The defects alleged by XG affect the weight of Yerman's opinion rather than its admissibility. See Quiet, 326 F.3d at 1341; Daubert, 509 U.S. at 596, 113 S.Ct. 2786. XG's Motion to Exclude Testimony of Robert N. Yerman is denied.
XG next moves to strike a paragraph of Philip G. Hampton, II's expert opinion on the valuation of a hypothetical coexistence agreement
An examination of Hampton's report shows that he is not testifying to the absolute value of a hypothetical coexistence agreement between Plaintiffs and XG. Hampton instead opines on the relative value of a coexistence agreement in light of another existing coexistence agreement between ITT and Novedades Agricolas, which he understood to have had a value of "about $250,000." Based on his determination that "Novedades had (and has) a much stronger trademark position vis-a-vis a Xylem trademark than Xylem Group," Hampton concludes that XG's hypothetical coexistence agreement, if based on Novedades Agricolas's coexistence agreement, would have been valued at an amount "significantly less than $250,000." [77-2, at 10-11].
The relative strength of a trademark position is a subject-matter on which Hampton is qualified to testify based on his experience at the United States Patent and Trademark Office. The Court, however, having considered the opinion and the basis for it, determines that it would not be helpful to the trier of fact and would tend to mislead the jury. See Fed.R.Evid. 403. XG's Motion to Exclude Certain Testimony of Philip G. Hampton, II is granted.
Plaintiffs argue that XG is not entitled to punitive damages under Georgia state law. To the extent Plaintiff argues that XG is not entitled to punitive damages under the Lanham Act, the issue is premature. The Court "may, in its discretion, reduce or enhance the resulting award up to three times the amount of profits or damages" under 15 U.S.C. § 1117(a). Such a discretionary award "may not be punitive, and must be based on a showing of actual harm." Babbit Elecs., Inc. v. Dynascan Corp., 38 F.3d 1161, 1183 (11th Cir.1994).
If Plaintiffs argue that XG is not entitled to punitive damages under Georgia state law, O.C.G.A. § 51-12-5
Accordingly, for the foregoing reasons,
15 U.S.C. § 1114(1).
15 U.S.C. § 1125(a). The statute authorizes injunctive relief, as follows:
Id. § 1125(c)(1).
O.C.G.A. § 10-1-450.
O.C.G.A. § 10-1-372(a)-(b).
15 U.S.C. § 1117(a).
