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Life Services Supplements, Inc. v. Natural Organics

December 12, 2007

LIFE SERVICES SUPPLEMENTS, INC., AND KETO, LLC, PLAINTIFFS,
v.
NATURAL ORGANICS, INC., DEFENDANT.



The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.

OPINION AND ORDER

Plaintiffs Life Services Supplements, Inc., and Keto, LLC (collectively, "Life Services"), having prevailed at trial on the issue of liability in this action against Natural Organics for the unauthorized use of the "Keto" trademark, now move pursuant to Rules 59 and 60 of the Federal Rules of Civil Procedure to amend this Court's August 30, 2006 judgment in order for Life Services to recover Natural Organics' profits from the sale of infringing products. While the Lanham Act, 15 U.S.C. § 1117(a), permits prevailing plaintiffs to recover an infringer's illicit profits, such profits are available in the Second Circuit only when the trademark violation is found to be willful. Because the jury in this action determined that Natural Organics did not commit any willful deception in connection with its use of the "Keto" mark, Life Services cannot recover defendant's profits, and therefore plaintiffs' motion is denied.

I. BACKGROUND

Life Services commenced this action against Natural Organics for trademark infringement arising from the unauthorized use of the mark "Keto" on various Natural Organics products. At the conclusion of a seven-day trial, the jury ruled in favor of Life Services. The jury's verdict included the specific findings that (1) "Keto" was descriptive, (2) "Keto" had obtained secondary meaning in the market, (3) Natural Organics' use of "Keto" was likely to cause confusion, and (4) Natural Organics did not use "Keto" "intentionally, knowing it was an infringement and acting with willful deception." (Jury Verdict dated Nov. 3, 2004.) The jury rejected both of Natural Organics' counterclaims. (Id.)

On the basis of that verdict, this Court entered a declaratory judgment in favor of Life Services, finding that Life Services had a valid trademark for "Keto" and that Natural Organics had engaged in (1) unfair competition and false designation of origin in violation of 15 U.S.C. § 1125(a), (2) trademark infringement under New York and New Jersey common law, and (3) unfair competition under New Jersey law. (Declaratory Judgment dated Aug. 30, 2006 ¶¶ 1, 4.) This Court also ordered the Director of Patents and Trademarks to cancel Natural Organics' trademark "Ketoslim" and enjoined Natural Organics from engaging in further infringement of Life Services' "Keto" mark. (Id. ¶¶ 5-6.) On the issue of damages, the judgment provided as follows: "Because the jury found that Natural Organics did not use the "Keto" mark intentionally, knowing it was an infringement and acting with willful deception, Life Services is not entitled to recovery of Natural Organics' profits or to an accounting of those profits." (Id. ¶ 10.)

Life Services subsequently moved to amend the August 30, 2006 judgment to permit the recovery of Natural Organics' profits. Shortly thereafter, Natural Organics filed a notice of appeal from the judgment to the U.S. Court of Appeals for the Second Circuit. That appeal has been stayed pending determination of Life Services' motion.

II. PROCEDURAL POSTURE

As a general rule, the filing of a notice of appeal "confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal." Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58, 103 S.Ct. 400, 74 L.Ed. 2d 225 (1992). Pursuant to Fed. R. App. P. 4(a)(4)(B)(i), however, "[i]f a party files a notice of appeal after the court announces or enters a judgment -- but before it disposes of any motion listed in Rule 4(a)(4)(A) -- the notice becomes effective to appeal a judgment or order, in whole or in part, when the order disposing of the last such remaining motion is entered." See Hertzner v. Henderson, 292 F.3d 302, 303 (2d Cir. 2002). The motions listed in Rule 4(a)(4)(A) include, inter alia, motions "to alter or amend the judgment under Rule 59" and "for relief under Rule 60." Rule 4(a)(4)(A) encompasses, therefore, Life Services' motion to amend the judgment pursuant to Fed. R. Civ. P. 59 and 60, which was filed before Natural Organics' notice of appeal. Accordingly, the notice of appeal is not effective at this time and will not divest this Court of jurisdiction until Life Services' motion to amend the judgment is resolved.

III. DISCUSSION

Life Services' motion raises the question of whether a plaintiff who prevails on a false designation of origin claim under the Lanham Act, 15 U.S.C. § 1125(a), may then recover profits pursuant to 15 U.S.C. § 1117(a) from a defendant who did not engage in "willful deception." While courts in this district have expressed conflicting views on this issue, this Court finds that absent authority to the contrary from the U.S. Court of Appeals for the Second Circuit, profits cannot be awarded in false designation of origin suits unless willful deception is established. Because the jury in this action specifically found that Natural Organics did not use the "Keto" mark "intentionally, knowing it was an infringement and acting with willful deception," plaintiffs' motion to reconsider the judgment is denied.

A. Life Services Contends that the 1999 Amendments to the Lanham Act Eliminated the Willfulness Requirement

In its motion to amend this Court's August 30, 2006 judgment, Life Services contends that profits can be awarded for a section 1125(a) violation irrespective of whether the violation was willful because the willfulness requirement was eliminated by amendments to the Lanham Act enacted in 1999. Prior to 1999, the Lanham Act, in relevant part, read:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, or a violation under section 1125(a) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. 15 U.S.C. § 1117(a) (1998). Following the statute's mandate to take equitable considerations into account when awarding monetary remedies, the Second Circuit held that "a plaintiff must prove that an infringer acted with willful deception before the infringer's profits are recoverable by way of an accounting." George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir. 1992).

In 1999, section 1117(a) was amended to read as follows: When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, or a violation under section 1125(a) of this title, or ...


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