Seventh Circuit Reverses $2.67M Award to WMS Gaming, Orders Lower Court to Reassess Damages to Include All Profits of PartyGaming

Holding:

In this controversy relating to the "Jackpot Party" and Super Jackpot Party" marks, the U.S. Court of Appeals for the Seventh Circuit reversed the district court's award of $2.67 million in damages to WMS Gaming, Inc. (“WMS”). The U.S. District Court for the Northern District of Illinois had earlier issued a default judgment for trademark infringement against defendant PartyGaming. But WMS still appealed, claiming that the district court did not properly account for profits in determining relief. On appeal, the Seventh Circuit found that the district court erred in assuming that revenues earned from infringing sales are separate from legitimate revenues in determining the amount of damage awards. The proper rule to apply, according to the Seventh Circuit, is that the infringer had the burden of proof to establish that certain portions of its sales were not derived from infringement of a plaintiff's mark. Here, PartyGaming failed to discharge such burden. Hence, WMS may be entitled to an award equal to all profits earned by PartyGaming during the infringing period.

Detailed Summary:

This appeal involved a trademark infringement dispute between gaming companies. Opinion, p. 1. It began when WMS, sued WPC Productions Ltd. and its parent corporation, PartyGaming PLC (collectively, “PartyGaming” or “the defendants”), for PartyGaming’s unapologetic infringement of WMS’s registered trademarks JACKPOT PARTY and SUPER JACKPOT PARTY.

By way of background, PartyGaming is based in Gibraltar, but the electronic gaming services that it provides span the globe. Id., p. 2. After several failed attempts to persuade PartyGaming voluntarily to cease its infringing uses of WMS’s marks, WMS filed this suit district court seeking injunctive relief, damages, and an equitable accounting of the profits PartyGaming reaped from its use of WMS’s marks in the United States. Id.

Despite receiving proper notice, the defendants opted to ignore WMS’s lawsuit entirely. The result was a default judgment for both monetary and injunctive relief entered in WMS’s favor. The damages awarded was in the amount of $2,673,422.10. Id., pp. 4-5.

Believing that it was entitled to additional relief, however, WMS appealed, arguing that the district court applied the wrong standard to its claim for an accounting of profits. Though the district court granted relief to WMS, the monetary award that WMS had sought was exponentially larger than the one it got: WMS had requested $287,391,140.70. It arrived at this figure by determining the total amount of revenue that PartyGaming had earned as a result of its business in the United States in 2004, 2005, and 2006. WMS obtained that data from PartyGaming’s website, which featured links to its public financial statements and annual revenue reports. Id.

WMS maintained that its central claim was for an accounting, not for damages, and so the district court committed reversible error when it failed to recognize that distinct standards apply to each type of claim, which in turn led it to conflate the standards for damages with those that govern an equitable accounting of profits. Id., p. 8.

In reversing the district court’s finding, the Seventh Circuit cited the rule laid down in Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251 (1916). This rule states that “[t]he burden is the infringer’s to prove that his infringement had no cash value in sales made by him. If he does not do so, the profits made on sales of goods bearing the infringing mark properly belong to the owner of the mark.” Id., p. 13.

Here, the burden was therefore on PartyGaming to show that certain portions of its revenues—which for purposes of the award after its default judgment WMS established by using PartyGaming’s own public financial statements and Reports—were not obtained through its infringement of WMS’s marks. There was no evidence in the record that would have helped PartyGaming to meet that burden. Id., pp. 14-15.

Similarly, in this case PartyGaming has not come forward with any evidence suggesting that deductions are warranted from the revenues that its own annual reports reflect. Courts consistently find that when a trademark plaintiff offers evidence of infringing sales and the infringer fails to carry its statutory burden to offer evidence of deductions, the plaintiff’s entitlement to profits under the Lanham Act is equal to the infringer’s gross sales. Id., p. 15, referring to Tex. Tech. v. Spiegelberg, 461 F. Supp. 2d 510, 526 (N.D. Tex. 2006).

Here, WMS was able to provide evidence of the profits that PartyGaming earned from its U.S. sales. In the absence of evidence from PartyGaming showing that deductions are warranted, WMS was entitled to the revenues supported by its evidence.

Based on the foregoing, the Seventh Circuit reversed the district court’s judgment, and ordered a remand to assess WMS’s claim for an accounting in accordance with the proper legal standard for that claim.

Also See:

USPTO Issues TEAS 4.9 Release

Bicameral, Bipartisan IP Protection Bill That Will Not Break the Net Filed in Both Chambers

Additional Courtesy Electronic Mail Addresses Now Permitted for Trademark Correspondence

USPTO Expands Consistency Initiative

European Union Court Issues Ruling in Trademark Dispute between Google and Louis Vuitton