On June 10, 2022, the US District Court for New Jersey issued its decision on remand from the US Court of Appeals for the Third Circuit directing it to re-examine the issues of laches and disgorgement, wherein an award of $10,637,135 was given for trademark infringement. On appeal, the Third Circuit did not disrupt the jury’s verdict of infringement, but it was critical of the District Court’s application of the law on laches and disgorgement. The primary issue addressed on remand by the District Court related to the application of laches (in the case Kars 4 Kids Inc v America Can!, Case 3:14-cv-7770-PGS-LHG, 3:16-cv-4232-PGS-LHG, District of New Jersey, 10 June 2022).
The District Court provided a synopsis of the Third Circuit’s remand, as follows in part. The appellate court summarized the law of laches noting that the Lanham Act does not contain a statute of limitations and instead subjects all claims to the principles of equity, such as laches. In particular, laches consists of two elements: a party’s inexcusable delay in bringing suit; and prejudice to the defendant as a result of this.
When reviewing the first element, one examines the length of delay against the most analogous state statute of limitation. In this case, it was against New Jersey’s six-year fraud statute. Further, a trademark owner is not obligated to sue until it knows (or should know) that the defendant’s conduct constitutes trademark infringement. The Third Circuit emphasized that since the trademark owner, America Can!, first discovered wrongdoing by Kars 4 Kids in 2003, but did not sue until 2015, the statute of limitations had expired. Once the analogous statute of limitations expires, the burden of disproving delay shifts from the alleged infringer to the trademark owner.
In particular, the Third Circuit directed the District Court to review Kars 4 Kids’ national advertising and whether it reached Texas. On remand, the District Court addressed this issue by noting that it is more refined than merely whether the advertisements reached Texas. The issue is whether there was open and notorious use by the defendant in Texas, such that it was so conspicuous as to impute notice to the alleged infringer. Against this context, the District Court engaged in a lengthy review of each portion of Kars 4 Kids’ advertising campaign.
The District Court relied on the following findings of fact in deciding that laches did not apply.
- Kars 4 Kids’ early advertising prior to 2003 only reached Texas in a negligible manner, if at all.
- The number of advertisements grew and their type of outlet diversified between 2003 and 2013, but most of them failed to reach Texas in an open and notorious manner.
- In March 2013, Kars 4 Kids began openly advertising via radio in Texas, a clearly open and notorious infringement that a reasonable entity in America Can!’s shoes would be expected to act upon, and America Can! promptly issued a cease-and-desist letter in response.
- America Can! understandably delayed filing suit because the character of Kars 4 Kids’ advertising changed substantially over the years; that is, in Texas, advertising present in 2003 more or less disappeared until 2011 when it returned in a limited way on the Internet, and then openly reappeared in 2013 with a burst of radio advertisements.
- There was a delay between the appearance of clear infringements in 2013 and America Can!’s responsive claims in 2015, but this is excusable because America Can! sought to resolve or settle the dispute prior to litigation.
Ultimately, the District Court noted that laches focuses on how excusable the delay was, not the length of the delay per se, and held that there was no inexcusable delay by America Can! between 2003 and 2013. Further, the District Court ruled that Kars 4 Kids was not prejudiced by America Can!’s delay because it assumed the risk of its advertising campaigns. In addition, Kars 4 Kids’ advertising in Texas in the years after 2013 skyrocketed commensurate with the course of the litigation, from which the District Court inferred the company’s clear assumption of risk. Finally, the court also concluded that Kars 4 Kids’ conduct over the years constituted unclean hands that precluded invocation of laches.
The District Court also re-examined its earlier findings, made additional findings of fact and affirmed its previous ruling that disgorgement of profits was the appropriate remedy. However, in light of its finding that infringement re-commenced between 2011 and 2013, the court ordered the parties to each submit a letter indicating if and how the court should adjust the total amount to be disgorged, given that its original calculation relied on Kars 4 Kids’ gross and net revenue amounts between 2008 and 2019.
This article originally appeared in World Trademark Review Weekly on June 23, 2022 and is reprinted with permission.