Sixth Circuit defines criteria for assessing profits awards in restaurant dispute

In La Bamba Licensing LLC v La Bamba Authentic Mexican Cuisine Inc, nka La Villa Rica Mexican Cuisine Inc, the US Court of Appeals for the Sixth Circuit affirmed the district court’s award of profits, costs and attorneys’ fees in favour of the trademark holder following the district court’s finding of infringement on summary judgment (case 22-5853, Gilman, Larsen, Nalbandian, JJ).

Case background

La Bamba Licensing operates a series of Mexican restaurants in the Midwest under the name La Bamba and obtained various federal trademark registrations in 1998. Almost 20 years later, La Bamba Authentic Mexican Cuisine (now La Villa Rica) opened a Mexican restaurant under the name La Bamba Authentic Mexican Cuisine with a single location in Lebanon, Kentucky.

Shortly after learning of this, La Bamba Licensing sent a cease-and-desist letter to La Villa Rica, demanding that it cease use of the LA BAMBA mark. La Villa Rica responded but refused to alter its conduct because it did “not see any basis for [La Bamba Licensing’s] demands”. Three months after sending the cease-and-desist letter, La Bamba Licensing filed suit in the Western District of Kentucky alleging trademark infringement and unfair competition. Over one year later, La Villa Rica changed the name of its restaurant to La Villa Rica Authentic Mexican Cuisine, Inc.

The district court ultimately granted summary judgment in favour of La Bamba Licensing on all pending claims, and permanently enjoined La Villa Rica from using the LA BAMBA mark. La Bamba Licensing subsequently filed a motion seeking profits, costs associated with bringing the action and attorneys’ fees. Following an evidentiary hearing, the district court granted the motion and awarded all three forms of relief. La Villa Rica appealed the decision to award profits and attorneys’ fees but did not appeal the award of costs or the court’s calculations.

Sixth Circuit’s ruling

The Sixth Circuit commenced its analysis of the profits award by identifying the factors that courts should consider, which included:

• the defendant’s intent to deceive;
• whether sales were diverted;
• the adequacy of other remedies;
• any unreasonable delay by the plaintiff in asserting its rights;
• public interest in making the misconduct unprofitable; and
• ‘palming off’ (ie, whether the defendant used its infringement of the plaintiff’s mark to sell its own products to the public through misrepresentation).

The Sixth Circuit noted that the district court relied on two factors – the defendant’s intent and public interest in making the misconduct unprofitable – plus the defendant’s “wilfulness” in determining that an award of profits was appropriate. The Sixth Circuit credited the district court’s reasoning, noting that:

[e]ven after La Villa Rica received a cease-and-desist letter containing notice of La Bamba’s registered mark, and ‘in the face of [its] attorney’s advice that [it] might have a problem,’ La Villa Rica continued to use the LA BAMBA mark for a year and a half and ‘offered no legally sufficient explanation or support for its actions.’

La Villa Rica argued that a profits award could not be sustained because it was punitive in nature and punitive awards are not allowed under the Lanham Act. It pointed to the district court’s determination that “La Villa Rica did not divert sales from La Bamba or engage in palming off”, meaning that any award of profits was not to compensate La Bamba Licensing for any actual loss. The Sixth Circuit remained “skeptical” of this argument in view of prior decisions, ultimately deciding that La Villa Rica’s infringement significantly deprived La Bamba Licensing of the intended benefit of the trademark process and therefore fit within the commonly recognised non-punitive theories of trademark recovery. Accordingly, the Sixth Circuit affirmed the district court’s award of profits.

Upon reviewing the attorneys’ fees award, the Sixth Circuit noted that attorneys’ fees are appropriate for “exceptional” cases, the standard for which is set forth in the Supreme Court’s 2014 decision in Octane Fitness v ICON Health & Fitness. The district court did not apply the Octane standard, instead relying on the 1991 Sixth Circuit decision in Wynn Oil v Am Way Serv, which proposed a more rigid rule than that articulated in Octane. While the Sixth Circuit acknowledged that Wynn Oil was not the proper standard, it found that there was no reversible error because both parties presented the Wynn Oil standard to the district court. As a result, La Villa Rica waived any objection to the legal standard that it might otherwise have raised. The Sixth Circuit further credited the district court’s conclusion that La Villa Rica’s conduct was sufficiently wilful to constitute an exceptional case that warranted the award of attorneys’ fees and affirmed the decision.