Seventh Circuit reverses trademark damages award in default judgment because wrong standard appliedSeptember 22, 2008

The Seventh Circuit recently reversed the amount of damages in a district court's entry of default judgment in a trademark infringement dispute. At issue was whether the Plaintiff was entitled to additional relief on the grounds that the district court applied the wrong standard to its claim for an accounting of profits. The district court found the plaintiff's damage request to be "clearly excessive" and that it could not "be ascertained with reasonable certainty."The Seventh Circuit reversed, finding that the claim at issue was a request for an equitable accounting of profits. The proper standard for this type of damages claim placed the burden on the defendant to prove any reduction in damages, and the plaintiff's burden was only to show gross income on goods and services bearing the infringing mark. Because the district court applied the wrong standard, the court reversed and remanded for a redetermination of the proper award.More on WMS Gaming Inc. v. WPC Gaming Prods. Ltd. after the jump.

The plaintiff, WMS Gaming, has manufactured, sold, and leased gaming devices, including slot machines, for many years. WMS has used the JACKPOT PARTY trademark (U.S. Reg. No. 2,283,967) since as early as 1998. It has also used SUPER JACKPOT PARTY (U.S. Reg. No. 2,952,924) since October 5, 2004. WMS's rights to the underlying marks date back to the filing dates of the applications, December 9, 1997 and February 22, 2002 respectively.WPC Gaming, and specifically its parent corporation PartyGaming, are based in Gibraltar. PartyGaming's business involves online gaming, including slot machines, poker, bingo, sports betting, and other casino games. During the years 2004, 2005, and 2006, PartyGaming frequently and persistently used exact reproductions of WMS's marks throughout the world and in the United States. According to PartyGaming's 2005 Annual Report, the company earned $977.7 billion in total revenue for that year, of which 84% came from U.S. customers. PartyGaming attempted to register the mark PARTYJACKPOT in 2005. The PTO rejected this application because it was confusingly similar to WMS's JACKPOT PARTY mark. PartyGaming continued to pursue its application, ultimately forcing WMS to oppose that application before the Trademark Trial and Appeal Board. While the opposition was pending, Congress passed the Unlawful Internet Gambling Enforcement Act which purports to prohibit gambling business from receiving proceeds or monies in connection with online gambling. PartyGaming subsequently decided to cease its operations in the U.S. market sometime in late 2006. PartyGaming did not, however, cease its use of WMS's trademarks.Efforts by WMS to resolve the dispute ended in failure and as a result the present suit was filed in the Northern District of Illinois. WMS sought injunctive relief, damages, and an equitable accounting of profits. PartyGaming decided to boycott subsequent proceedings despite proper service of process.Because PartyGaming did not appear, the district court entered default, and granted WMS's motion for default judgment. WMS requested $287,391,140.70 in damages. WMS based this request on the defendant's annual reports found on PartyGaming's website. The district court awarded damages in the amount of $2,673,422.10. In determining its damage figure, the district court agreed with WMS's damage estimate for 2004 of $891,140.70. The district court disagreed, however, on the WMS's figures for 2005 and 2006 and found that these figures could not "be ascertained with reasonable certainty" and were "clearly excessive." Accordingly, the district court used the "reasonable" 2004 figure of $891,104.70 to calculate the total award. WMS was somewhat underwhelmed with this damage award, and filed a Rule 59(e) motion, arguing the district court applied the wrong standard to its claim. The district court reasserted that the WMS's request was for "damages" and the amount requested was clearly excessive and could not be ascertained with reasonable certainty, and denied the motion. WMS appealed.In analyzing the district court's decision, the Seventh Circuit noted that the plaintiff had clearly requested in its pleadings both actual damages and an equitable accounting of profits, and upon entry of a default judgment was entitled to both. The district court, however, had applied the standard for actual damages to the plaintiff's equitable accounting of profits claim. Under the appropriate standard, the court noted burden was on PartyGaming:WMS has provided 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 is entitled to the revenues supported by its evidence. A remand is necessary so that the district court can assess WMS's claim for an accounting in accordance with the proper legal standard for that claim.The court highlighted the fact that PartyGaming had chosen to boycott the proceedings and consequently put forth no evidence supporting deductions from WMS's damage estimate. Thus, WMS would be entitled to a windfall. The court thought such a result was justified based on Supreme Court's decision in Hamilton-Brown Shoe Co. v. Wolf Bros. & Co. According to the Court in Hamilton-Brown Shoe, it is more desirable that the windfall go to the trademark owner when it is impossible to isolate profits attributable to the use of the infringing mark. To hold otherwise would mean that wrongdoer would be entitled to a windfall. The court could justify such a result given PartyGaming's "persistent, pervasive, knowing, and willful infringement" of WMS's marks. PartyGaming had repeatedly refused to cease and desist after receiving several forms of notice of its unlawful activity. Accordingly, the court reversed the district court's judgment, and remanded for a redetermination of the correct amount in light of the proper standard.To read the full opinion in WMS Gaming Inc. v. WPC Gaming Prods. Ltd., click here.