Trademark Infringement: Accounting of Defendant's Profits in Absence of Direct

Competition with Plaintiff

Source: Columbia Law Review, Vol. 66, No. 5 (May, 1966), pp. 983-987
Published by: Columbia Law Review Association, Inc.
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1966] RECENT DEVELOPMENTS 983

seems
seemsparticularly
particularly
unwise.
unwise.
In the In
light
theof light
the broad
of the
limits
broad
of constitutional
limits of consti
permissibility,
permissibility, a finding
a finding
of delegation
of delegation
in the general
in thelanguage
general
of the
language
preamble
of the pre
to a statute should not be used as a substitute for the resolution of difficult
policy conflicts, particularly when a detached and comprehensive view of the
state-wide implications of a particular exaction is unlikely to be undertaken at
the municipal level.

TRADEMARK INFRINGEMENT: ACCOUNTING OF

DEFENDANT'S PROFITS IN ABSENCE OF
DIRECT COMPETITIION WITH
PLAINTIFF

Technological advances in the communications media have led t

increase in the power of a trademark to control consumer preferenc
same time, there has been a marked trend towards product diversificati
the use of trademarked components in composite items. The combin
these two factors has made deceptive use of infringing marks both less
and conspicuously successful. Yet, the trademark owner's weapons t
or eradicate infringement have been seriously limited by rigid appli
the equitable rules governing the availability of a particular remedy
an injunction may be granted only after an infringement has been d
and litigated, the profit resulting from the fraudulent action is normal
in the hands of the wrongdoer. Moreover, the impact of the damage
has been vitiated by difficulties in proving the nature of economic loss
nexus between injury and infringement. The remedy with the
potential for deterrence-the award of an accounting of the infringer
to the trademark owner-has been limited by a majority of courts t
which there is direct product competition between the infringer and th
of the mark.1 However, a recent re-examination of the law of infr
remedies may result in abandonment of the technical rules limiting the
tiveness of an accounting to deter fraudulent commercial conduct.
Plaintiff, Monsanto Chemical Company, produces an acrylic fibe
it markets under the registered trademark "Acrilan." Defendant, Pe
Products Manufacturing Company, sold mattress pads filled primar
cotton, nylon, acetate and other fibers, including some waste mater
the label "Acrilan-filled." Suing for trademark infringement pursua

1. See Morgenstern Chem. Co. v. G. D. Searle & Co., 253 F.2d 390
cert. denied, 358 U.S. 816 (1958); Admiral Corp. v. Penco, Inc., 203 F.2d 517
Cir. 1953); Triangle Publications, Inc. v. Rohrlich, 167 F.2d 969 (2d Cir. 1948);
Horlick's Malted Milk Corp. v. Horluck's, Inc., 59 F.2d 13 (9th Cir. 1932); National
Dryer Mfg. Corp. v. National Drying Mach. Co., 136 F. Supp. 886 (E.D. Pa.), aff'd,
228 F.2d 349 (3d Cir. 1955).

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984 COLUMBIA LAW REVIEW [Vol. 66

provisions of the Trademark Act of 1946,2 the plaintiff sought, inter

award for damages and an accounting of the defendant's profits. The
district court, holding that the defendant's use of the "Acrilan" tradem
poor quality mattress pads constituted an intentional trademark infringem
granted a permanent injunction and awarded plaintiff legal fees. Ho
the plaintiff's failure to prove that it had sustained any economic inju
to the defendant's infringement led the court to refuse to award dama
to hold, as a matter of law, that the absence of competition preven
awarding of an accounting. On appeal to the Court of Appeals for the
Circuit, held, reversed in part. The absence of direct product competit
tween the parties does not, as a matter of law, preclude an accounting of p
when the defendant has intentionally infringed the plaintiff's trademark.
santo Chem. Co. v. Perfect Fit Prods. Mfg. Co., 349 F.2d 389 (2d Cir.
petition for cert. filed, 34 U.S.L. WEEK 3228 (U.S. Dec. 28, 1965) (No.
Like its predecessor,3 Section 35 of the Trademark Act of 19464 g
the courts seemingly wide latitude in framing remedies for trademark inf
ment: "subject to the principles of equity," the registrant may recov
"defendant's profits" and "any damages sustained." Despite such broa
guage, however, a significant number of cases have followed the earlier law
unfair competition and required that the infringer's product directly com
with that of the trademark owner before awarding an accounting of p
Judicial reluctance to award an accounting in the absence of competit
pears to be based on the notion that the trademark owner's right to re
should be limited to actual damages suffered as a result of the infring
Thus, the courts will dispense with proof of damages and substitute
counting only when the presence of product competition makes plaus
inference that damage has, in fact, been incurred. In Triangle Publica
Inc. v. Rohrlich,6 for example, the Second Circuit refused to grant th
lishers of seventeen magazine an accounting of the profits realize
defendant manufacturer from the sale of girdles labeled "Miss Seventeen";
absence of competition rendered the award inappropriate "as an equi
measure of a loss sustained by plaintiff."7
Cases in which an accounting of profits has been awarded despite
absence of direct product competition have not, however, been infreq
2. Trademark Act of 1946 (Lanham Act), 60 Stat. 427 (1946), as amended,
U.S.C. §§ 1051-1127 (1964).
3. Trademark Act of 1905, 33 Stat. 724, 729 (1905).
4. Trademark Act of 1946 (Lanham Act) § 35, 60 Stat. 439 (1946), as amended, 15
U.S.C. § 1117 (1964).
5. See note 1 supra.
6. 167 F.2d 969 (2d Cir. 1948).
7. Id. at 974.
8. See, e.g., Baker v. Simmons Co., 325 F.2d 580 (1st Cir. 1963); Maternally Yours,
Inc. v. Your Maternity Shop, Inc., 234 F.2d 538, 545 (2d Cir. 1956); Blue Bell Co. v.
Frontier Ref. Co., 213 F.2d 354, 362 (10th Cir. 1954); Dad's Root Beer Co. v. Doc's
Beverages, Inc., 193 F.2d 77, 82 (2d Cir. 1951); Admiral Corp. v. Price Vacuum Stores,
Inc., 141 F. Supp. 796 (E.D. Pa. 1956).

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1966] RECENT DEVELOPMENTS 985

Relying on dictum expressed by the Supreme Court in Hamilton-Brow

Co. v. Wolf Bros. & Co.,9 courts granting such awards have adopt
equitable theory of unjust enrichment, treating the infringing party as a
of the profits it has acquired through its wrongful use of the trademark.
theory of recovery seems premised on a view that a trademark consti
property right which can be converted. The Second Circuit, although rejec
this rationale,10 has in at least two cases awarded an accounting in the
of product competition.1l In Dad's Root Beer Co. v. Doc's Beverages, I
the defendant infringer, a former franchisee of the trademark owner, wa
quired to account for profits earned in the New York area althou
plaintiff's nearest sales region was Newark, New Jersey. Although q
with approval the language from the Hamilton-Brown decision embody
unjust enrichment rationale, Judge Clark seemed to rest his decision
careful review of the relative equities arising from the relationship
parties; the plaintiff's loss of franchise commissions and the deteriora
advertising effectiveness occasioned by the appearance on the marke
similarly named product of the same basic composition made it "inequ
to allow defendants to retain their profits.13 Thus, rather than restin
unjust enrichment theory, the position taken by the Second Circuit
appear to require at least some basis for a presumption of injury
trademark owner as a prerequisite to authorization of an accounting.
Beginning its analysis of the instant case with an exhaustive revie
the precedents, the court, in an opinion by Chief Judge Lumbard, ide
two distinct lines of reasoning established by its prior decisions. On
granted an accounting only when the presence of competition made it
able to infer that a diversion of sales had occurred, while the other consid
that the relief to be awarded in a given case was to be in "the tradit
discretion of a court of equity . . . adapting its relief to the case befor
The court noted that the latter line of reasoning better accorded with
the language of Section 35 of the Trademark Act and the dual purpo
trademark legislation in general-protection of the public from product
tion and protection of the trademark owner's investment from "misappro
tion by pirates and cheats."'5 The court thought it "doubtful" that the
of protection for the trademark owner was "adequately served by a rule w

9. 240 U.S. 251, 259 (1916).

10. See Durable Toy & Novelty Corp. v. J. Chein & Co., 133 F.2d 853, 854 (2d Cir.
1943); Industrial Rayon Corp. v. Dutchess Underwear Corp., 92 F.2d 33, 35 (2d Cir.
1937).
11. Maternally Yours, Inc. v. Your Maternity Shop, Inc., 234 F.2d 538, 545 (2d Cir.
1956); Dad's Root Beer Co. v. Doc's Beverages, Inc., 193 F.2d 77, 82 (2d Cir. 1951).
12. 193 F.2d 77 (2d Cir. 1951).
13. However, the case was decided on the basis of state law, not under the Lanham
Trademark Act. Id. at 82.
14. Instant case at 395.
15. Ibid.

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986 COLUMBIA LAW REVIEW [Vol. 66

would allow accountings only where the parties directly compete."16 Altho
the plaintiff had proven no direct injury, it was considered "obvious that
must have been some economic injury to Monsanto" involving both l
sales to legitimate producers and loss of the goodwill of retail purcha
the improperly marked products.17 Moreover, the narrow line of rea
was "entirely inadequate to protect the interest of the public" ;18 since the
of an individual purchase of an infringing product is small, the publi
depend on private actions by trademark owners to "deter future infringem
by imposing a money judgment on the defendant."19 A rule which req
showing of direct competition before awarding an accounting allows
fendant who is not in direct competition with the trademark owner to "re
its profits" if the registrant cannot offer satisfactory proof of injury-a b
which is difficult to sustain. Denouncing the defendant as a "comme
racketeer," the court found that his consistent record as an infringer of p
tiff's trademark, as well as that of other fiber producers, left "no doubt a
the need for deterrence" in this particular case.20 Although the ques
whether the parties were in direct competition was not held irrelevan
court specifically overruled two cases21 which had made the presence of di
competition a prerequisite to an accounting remedy; to restrict account
the single purpose of providing compensation for lost profits "fails to tak
count of the other purposes served by the trademark law."22 Judge Moore
senting in part, agreed with the majority that nothing in the Tradema
premised recovery upon the existence of direct product competition.
theless, he found unacceptable the court's limitation of recovery to th
fendant's profits, insisting that "the trial court should be free to en
judgment upon such equitable basis as may be warranted by the proof."
The decision in the instant case may not constitute the unique depa
which would seem to be required by the increasing problem of infring
To be sure, the absence of direct product competition will no longer b
trademark owner's access to the accounting remedy. Nevertheless, the
apparent adherence to the view that relief in infringement suits sho
compensatory of reasonably inferrable damages suggest vestigial unwilling
to make effective use of the remedy; the court appears to require th
possibility of actual damage to the trademark plaintiff be inferrable from
facts.24 On the other hand, the emphasis placed by the court on the role o

16. Ibid.
17. Id. at 396.
18. Ibid.
19. Ibid.
20. Ibid.
21. Id. at 395. The cases were Admiral Corp. v. Penco, Inc., 203 F.2d 517 (2d Cir.
1953), and Triangle Publications, Inc. v. Rohrlich, 167 F.2d 969 (2d Cir. 1948).
22. Id. at 397.
23. Ibid.
24. It is unclear whether the instant court would permit an accounting remedy

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1966] RECENT DEVELOPMENTS 987

accounting in protecting the public from deception by depriving the infr

of his profits could be read to indicate that, even if no damage to the trad
owner is reasonably inferrable, the interest in public protection would be
ficient to justify award of the remedy. The willingness to permit the acco
remedy in all cases of intentional infringement, implicit in this recogniti
the need for greater public protection, seems to better comport with the
poses of the Trademark Act. Forcing the infringer to disgorge his profits
both discourage infringement and compensate the trademark owner f
damage he might suffer.
It is, of course, arguable that a more restrictive approach to use o
accounting remedy may be dictated by consideration of equitable facto
rounding a particular instance of infringement; otherwise, an accounting
permitted a trademark owner to recover the profits of an infringer who
factured a non-competing good of excellent quality could result in compen
for damages which were never suffered. Indeed, the fear of permittin
windfalls was apparently the motivating factor behind the imposition
competition prerequisite discarded in the instant case. However, the possib
of windfall seems fundamental to any use of the accounting remedy
when the remedy is limited to situations in which competition exists, the
will approximate the trademark owner's actual damages only when the
margin of the competing sellers is identical and it is assumed that all sales
by the infringer would have been made by the plaintiff-surely an un
concurrence of factors in a complex industrial setting. In fact, implici
use of the accounting remedy is a fundamental lack of concern for the
of the plaintiff's injury, the focus being primarily on the reprehensible a
of the wrongdoer and the necessity for public protection. An apprecia
the impact of brand names and advertising on consumer preference would
to indicate that these goals are desirable. The use of an established bran
on a new product will encourage the consumer to associate with this
product his satisfaction with the existing product. When the purchaser is
misled into purchasing a shoddy product, damage to the established pr
is obvious. On the other hand, if the new product is of high quality,
fringer both confuses the public and takes unfair advantage of advertising
promotional expenditures of the mark's owner. Such activity should b
doned only if it is innocent in origin. In all cases of intentional infringem
the availability of an accounting to the trademark owner should serve to d
conduct both detrimental to the public and condemned in the comm
marketplace.

when the infringing product is non-competitive and of good quality. The continued
to recognize any property right in a trademark suggests that, unless the trademark
could establish foreclosure from an anticipated product market by the infringem
accounting remedy would be awarded.

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