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Court Uses Walmart's Opinion of Counsel Against it in Affirming $95 Million TM Damages Award

On February 19, 2019, a federal judge in the Eastern District of North Carolina Western Division approved a $95,536,847 jury verdict against Walmart for willfully infringing Varsity Stores, Inc.’s “Backyard” trademarks in the sale of products bearing the BACKYARD GRILL+ Design mark. The case is Varsity Stores, Inc. v. Wal-Mart, Inc.

The jury considered the following evidence:

  • the amount of Walmart's sales
  • the value of Variety’s trademarks
  • the value that Walmart placed on its brands
  • the royalties that Walmart paid to license other brands
  • the opportunity that Variety had to license its Backyard brand
  • third-party uses of Backyard
  • Walmart's attempts to argue that its profits were not attributable to the infringing mark
  • Walmart’s costs to be deducted from profits, and
  • the geographic areas of competition

The jury determined that a five-percent royalty on Walmart's infringing sales was appropriate, and awarded $45,536,847 in royalties. The jury then determined that $50 million of Walmart's ill-gotten profits from the willfully infringing products should be disgorged. Walmart asked the District Court to review this $95 million jury award to determine whether it was equitable, as required by the Fourth Circuit.

In affirming the jury verdict, the court considered six equitable factors set forth in Synergistic Intern., LLC v. Korman, 470 F.3d 162, 174-75 (4th Cir. 2006) that govern whether a damages award under the Lanham Act is equitable: (i) whether the defendant had the intent to confuse or deceive; (ii) whether sales have been diverted; (iii) the adequacy of other remedies; (iv) any unreasonable delay by the plaintiff in asserting his rights, (v) the public interest in making the misconduct unprofitable; and (vi) and whether this' is a case of palming off.

Of these six factors, the District Court placed the greatest reliance on the first – whether Walmart adopted the BACKYARD trademarks with an intent to confuse or deceive – which the Court said encompasses bad faith adoption of the trademarks. The District Court noted that Walmart adopted the trademark against the advice of counsel and saw this as persuasive evidence of Walmart’s bad faith. While the other five factors were considered, this evidence of willful infringement and bad faith weighed heavily on the Court’s analysis and seems to have let the Court conclude that the $95 million was indeed equitable.

Perhaps the most important lessons to be drawn from this case are the importance of not adopting a trademark against the advice of counsel, and of protecting privileged opinions of counsel from discovery – neither of which seems to have happened here.
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