Case: Skydive Arizona, Inc. v. Quattrocchi, Nos. 10-16099, 10-16196 (9th Cir. Mar. 12, 2012).
Skydive Arizona sued Skyride, claiming false advertising (15 U.S.C. § 1115(a)), trademark infringement (15 U.S.C. § 1125(a)), and cybersquatting (15 U.S.C. § 1125(d)). Skydive Arizona operates a popular skydiving business that has become “one of the most well known skydiving centers in the world” through use of its “SKYDIVE ARIZONA” mark. Slip Opinion at 2921. Skyride, on the other hand, advertises and arranges skydives for its clients through various websites and domain names with references to various cities in Arizona. Skydive Arizona, which never used Skyride’s services, claimed that Skyride mislead consumers and traded upon its goodwill.
Below, the jury had awarded Skydive Arizona $1M in actual damages for willful false advertising; $2.5M in actual damages for willful trademark infringement; $2.5M in lost profits; and $600K in statutory cybersquatting damages. Additionally, the district court had doubled the amount of actual damages awarded to Skydive Arizona, raising the amount of willful false advertising and willful trademark infringement damages to $2M and $5M, respectively.
On appeal, Skyride challenged the district court’s grant of partial summary judgment, the jury’s award of damages, and the district court’s enhancement of the same. Skydive Arizona sought to broaden its injunction beyond Arizona. The 9th Circuit reversed the district court’s enhancement of damages, but affirmed both the jury’s award of damages and the scope of the injunction.
Partial Summary Judgment. The district court granted partial summary judgment on Skydive Arizona’s false advertising claim. One element of false advertising is materiality: A defendant’s false statement must be “likely to influence the purchasing decision.” Id. at 2924 (citing 15 U.S.C. § 1125(a)(1)(B)). The 9th Circuit rejected Skyride’s arguments that the consumer declaration testimony that Skydive Arizona admitted as evidence of materiality was ambiguous. According to the court, the declaration testimony stated that the consumer had purchased coupons from Skyride based upon its representations that the coupons were redeemable at Skydive Arizona. The court stated that this evidence proved that Skyride’s representations caused actual confusion. The court also refused to hold that consumer surveys are the only way to prove materiality. Because the declaration testimony and other admitted evidence supported the district court’s grant of partial summary judgment, the 9th Circuit affirmed.
Actual Damages (15 U.S.C. § 1117(a)). Skyride argued that Skydive Arizona presented insufficient evidence to support the amount of actual damages awarded by the jury to Skydive Arizona for harm to its goodwill and reputation because the jury did not use a “specific mathematical formula” in its calculations. Id. at 2928. According to the court, Skydive Arizona’s evidence of the original value of its goodwill, the expenditures in building its goodwill, customers’ angry reactions, and the need for corrective advertising was sufficient. The court explained that “neither empirical quantification nor expert testimony” is required. Id. at 2929. Rather, a “crude” measure of damages suffices so long as the jury’s calculation is based upon “reasonable inferences” and reflects a “fair and reasonable assessment.” Id.
Lost Profits. The 9th Circuit rejected Skyride’s argument that the district court’s upholding of the jury’s award of $2.5M in lost profits constitutes an abuse of discretion. Skyride argued that Skydive Arizona’s damages expert’s testimony failed to “deduct vendor payments or overhead costs” and “applied an improper interest rate.” Id. at 2931. The 9th Circuit, however, rejected that argument. First, according to the court, Skyride’s arguments hinge on the “substance and credibility” of the expert’s testimony. Id. Second, Skyride never challenged the admissibility of the testimony before or during trial under FRE 702. Skyride, thus, had waived its ability to challenge the expert’s testimony, and the district court did not abuse its discretion.
Damages Enhancement. Under 15 U.S.C. § 1117(a), a court may, in its discretion, enhance “the amount found as actual damages” by up to three times to compensate the mark holder—not to punish the infringer. Id. The 9th Circuit looked at the district court’s rationale for enhancing the jury’s awards of actual damages and Skyride’s actual profits and found an “apparent intent to punish.” Id. at 2932. The district court had discussed Skyride’s “deceitful” and “willful” conduct, “disregard for the people [it] harmed,” and need to “appreciate . . . the wrongfulness of [its] conduct.” Id. The 9th Circuit viewed the district court’s rationale as a discussion that “reveals its punitive motivation” and reversed. Id.
Grossly Excessive. Skyride also challenged the entire judgment. Skyride specifically argued that the size of the damages award is grossly excessive relative to the small size of its business and its gross revenues. According to Skyride, because such a grossly excessive award of damages must have been motivated by the jury’s desire to punish or its unbridled discretion, the district court abused its discretion in denying the defendants’ motion for a new trial and the entire judgment should be vacated. The 9th Circuit, however, rejected the defendants’ arguments because the defendants cited no authority for its position and failed to persuade the court.
Nationwide Injunction. Skydive Arizona argued that the district court erred by failing to issue a nationwide injunction. Skydive Arizona sought to prohibit the defendants from “falsely stating that they own or operate skydiving centers anywhere in the United States where they do not in fact own or operate such centers.” Id. at 2934. Because Skydive Arizona only proved that the defendants’ conduct is illegal in Arizona—and not in other states—the 9th Circuit held that the district court did not abuse its discretion in denying Skydive Arizona’s motion for a nationwide injunction.
Dissent. Judge Noonan dissented. According to Judge Noonan, the evidence below did not support the jury’s award of actual damages in the amount of $2.5M because neither a company’s expenditures in building goodwill nor a defendant’s profits should be considered evidence of harm to a company’s goodwill.