ROBERT S. LASNIK, District Judge.
This matter comes before the Court on "Plaintiff's Motion for Summary Judgment" (Dkt. # 28) and "Defendants' Cross-Motion for Partial Summary Judgment (Dkt. # 37). Summary disposition of a claim is appropriate when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine issue of material fact that would preclude the entry of judgment as a matter of law. The party seeking summary dismissal of the case "bears the initial responsibility of informing the district court of the basis for its motion" (
Having reviewed the memoranda, declarations, and exhibits submitted by the parties and taking the evidence in the light most favorable to the non-moving party, the Court finds as follows:
Plaintiff Seattle Pacific Industries, Inc. ("SPI") is the owner of the UNIONBAY and UB trademarks for apparel and footwear. In 2014, SPI licensed its marks to defendant S3 Holding LLC ("S3") in connection with the manufacture and sale of footwear pursuant to a Trademark License Agreement. Under the Agreement, S3 was obligated to make periodic guaranteed minimum royalty payments ("GMRP") and to pay the greater of 2% of net sales or 2% of the guaranteed minimum net sales for advertising and public relations expenses. Defendant Olivia Miller, Inc., guaranteed prompt payment of every obligation and liability S3 incurred under the License Agreement. S3 was required to submit labels, designs, products, advertising materials, and anything bearing plaintiff's trademarks to SPI for approval. SPI had ten working days from submission to approve or disprove the item: if no decision was made within the time allowed, the submission was deemed approved.
It is undisputed that neither S3 nor Olivia Miller, Inc., made the $30,000 GMRP and $10,000 advertising payments that were due on January 1, 2017. SPI provided written notice of default to S3 in May 2017. To the extent the notice was based on the failure to make the required installment payments, the License Agreement terminated as of May 26, 2017, when S3 failed to cure the default.
S3 asserts that it was unable to reach the minimum net sales numbers anticipated under the Agreement because, at the end of 2016, SPI reversed its approvals of many of S3's designs for shoes that were to be sold in 2017. According to S3's President, "[a]t the time of SPI's reversals of its approvals, S3 Holding had already manufactured a substantial volume of shoes based upon the designs which SPI had approved and had sold many of these shoes to retailers for distribution. S3 Holding took these actions in direct reliance upon SPI's approvals of their shoe designs." Dkt. # 38 at ¶ 18. S3 asserts that SPI is equitably estopped from seeking relief under either the License Agreement or trademark law because it previously stated that the 2017 designs were approved.
S3 also argues that SPI's trademark claims are barred by the economic loss doctrine.
Defendants' economic loss/independent duty argument fails for a number of reasons. First, this case does not arise in the real property or construction contexts, and there is no indication that the state Supreme Court has extended or would extend the doctrine to statutory remedies that protect intellectual property. Second, the rights, duties, and obligations imposed by the Lanham Act arise independently of the terms of the License Agreement. Third, the damages SPI seeks under the contract are distinct from those it seeks under the Lanham Act. Default and termination of the contract stripped S3 of its contractual right to use the marks, triggered certain obligations regarding inventory and other items, and accelerated the due date of the year's GMRP and Advertising payments (discussed below). SPI seeks to enforce those provisions through its breach of contract claim. Once the License Agreement was terminated, the relationship of the parties was again governed by the Lanham Act, and S3's unlicensed use of the trademarks caused non-contract injuries that are remediable pursuant to the terms of the Act. Finally, S3 has not identified, and the Court has not found, any case in which the existence of a license authorizing the use of intellectual property for a certain term and under certain conditions precluded a statutory claim of infringement under federal law for infringing activities occurring after the breach or termination of the licensing agreement. The Court declines to adopt such an expansive and unwarranted rule. Injuries arising from a violation of the Lanham Act following termination of the contract trace back to duties arising independently of the terms of the contract and are therefore remediable in this action.
Upon termination of the License Agreement, S3 relinquished all right to use the UNIONBAY and UB trademarks except as provided in paragraph 11(d) of the Agreement. Under paragraph 11(d), S3 could continue to sell accumulated inventory for 180 days following termination if it provided a detailed schedule of the inventory and its location within fifteen days of termination and refrained from selling any defective or unapproved products. Any product remaining at the end of the 180 day sell-off period had to be turned over to SPI at no charge. Because the termination resulted from S3's default, the termination did not relieve S3 "from any obligations which accrued prior to the date of termination" and "the unpaid balance of the GMRP and Advertising Payment" were accelerated and became immediately due and payable. Dkt. # 26-2 at ¶ 11(c)(1) and (4).
It is undisputed that S3 owed, and Olivia Miller, Inc. guaranteed, payment of the GMRP and Advertising payments. The unpaid balance for 2017, in the amount of $160,000, was accelerated and became due and payable upon termination of the License Agreement on May 26, 2017. Those damages are liquidated and therefore subject to an award of prejudgment interest at 12% under RCW 19.52.010.
S3 does not dispute that it failed to satisfy the conditions that would trigger the benefits of the 180 day sell-off period provided in paragraph 11(d) of the License Agreement. Thus, its sales of trademarked products after May 26, 2017, were not authorized by the contract. There is also no genuine dispute as to plaintiff's ownership of the mark or the fact that S3's continued use of the mark likely confused consumers regarding its relationship with SPI and/or the source of the products. The Court finds that S3 infringed SPI's trademarks under the Lanham Act.
Under the Lanham Act, the owner of the mark "shall be entitled . . . subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action." 15 U.S.C. § 1117(a). In addition, the Court has the discretion to treble the actual damage award and, in exceptional cases, to award reasonable attorney's fees to the prevailing party.
Under the Lanham Act:
Using S3's sales records, SPI calculates that S3's net sales were $552,278 and requests a damage award on that amount of $31,136. Dkt. # 28 at 5.
SPI further requests that the Court treble its Lanham Act damages. In order to recover enhanced damages, plaintiff must show that the additional sum "constitute[s] compensation and not a penalty." 15 U.S.C. § 1117(a). The only evidence of loss is the statement of SPI's President that S3's unauthorized use has (1) deprived SPI of the ability to exercise control over S3's use of the marks and (2) deceived consumers regarding the source of the post-termination products. Dkt. # 29 at ¶ 22. An unauthorized use that is likely to cause consumer confusion is the sine qua non of an infringement claim, however, for which actual damages are deemed an adequate remedy. In its reply memorandum, SPI suggests that S3's infringement was particularly damaging because the designs and styles it was selling post-termination had not been approved, were inconsistent with the quality consumers expect of the brand, and therefore adversely impacted the goodwill associated with the brand. There is no evidence in support of this conclusion, however. It is unclear why certain designs and styles were not approved by SPI in late 2016, there is no evidence that the products manufactured to the disapproved specifications were inconsistent with consumer expectations, and there is no evidence regarding the impact on SPI's goodwill. Even if the Court were inclined to believe that the sale of non-conforming goods would damage the company's goodwill, there is no indication of the proportion of disapproved versus approved product sold in 2018 making it impossible to calculate a compensatory award. The fact finder will not be permitted to speculate regarding all of these facts in an attempt to come up with a multiplier that compensated, without penalizing, S3.
For all of the foregoing reasons, plaintiff's motion for summary judgment (Dkt. # 28) is GRANTED in part and defendant's cross-motion for partial summary judgment (Dkt. # 37) is DENIED. SPI is entitled to judgment as a matter of law on its breach of contract claim, including damages arising from the breach in the amount of $160,000 plus pre-judgment interest at the rate of 12% per annum. SPI may, within fourteen days of the date of this Order, submit a fee petition noted for the third Friday after filing that seeks the reasonable fees and costs incurred in enforcing its rights under the License Agreement. Olivia Miller, Inc., is jointly and severally liable for all amounts awarded under the contract.
SPI is also entitled to judgment as a matter of law on its trademark infringement claim and has established actual damages in the amount of $31,136. SPI is not entitled to an award of actual damages associated with products that were not sold and therefore generated no net sales to which the royalty rate could attach, nor is it entitled to treble damages.
S3 shall, within seven days of the date of this Order, contact the judicial assistant, Teri Roberts, at 206-370-8810, and inform her whether its pending "Motion to Clarify" (Dkt. # 48) needs to be resolved by the Court.