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Finding that one of its own precedents has been overturned by Congress, the U.S. Court of Appeals for the 3rd Circuit has ruled that a showing of willful infringement is no longer a prerequisite to an accounting of a trademark infringer’s profits. In Banjo Buddies Inc. v. Renosky, the court concluded that Congress’ 1999 amendments to the Lanham Act had effectively superseded the 3rd Circuit’s 1999 decision in SecuraComm Consulting Inc. v. Securacom Inc.“We conclude that SecuraComm’s bright-line willfulness requirement has been superseded by statute,” Judge Jane Roth wrote. The ruling comes in a dispute over the marketing of a successful line of fishing lures in which the lower court awarded more than $1.5 million. According to court papers, Joseph Renosky was on Banjo Buddies’ board of directors from February 1996 until May 1999. Banjo Buddies’ main product was a fishing lure called the Banjo Minnow, which Renosky helped develop. The Banjo Minnow sold very well for about a year, but sales then dwindled. Renosky presented the board an idea for a “new and improved” lure called the Bionic Minnow. When the board took no formal action, Renosky said he intended to develop the new lure independently. Soon after, he began developing the Bionic Minnow through his company, and ultimately marketed it starting in February 1999. When Renosky failed to comply with a cease-and-desist letter, Banjo Buddies sued in U.S. District Court for the Western District of Pennsylvania, alleging that Renosky violated the Lanham Act by marketing the Bionic Minnow in such a way that customers would believe it was a Banjo Buddies product. Judge Donetta Ambrose concluded that Renosky was liable for “false designation of origin” under Section 43(a). Ambrose also found that Renosky had breached his fiduciary duty of loyalty to Banjo Buddies. She concluded that he should be forced to disgorge his net profits, and ordered that he produce “verified financial records.” Renosky never produced the records, but did submit an independent financial analysis that showed the Bionic Minnow project had suffered a net loss. Ambrose rejected that conclusion. She found that the project had earned profits equal to 16 percent of gross sales and entered judgment in March 2003 against Renosky for $1,589,155. On appeal, Renosky’s lawyers challenged the accounting of profits because Renosky did not intentionally or willfully confuse or deceive customers. They argued that SecuraCommclearly held that “a plaintiff must prove that an infringer acted willfully before the infringer’s profits are recoverable” under Section 35(a). Now the 3rd Circuit has rejected that argument, finding that SecuraCommis no longer good law. ” SecuraComm‘s bright-line rule was the dominant view when [it] was issued in January 1999,” Judge Roth wrote. “In August 1999, however, Congress amended Section 35″ � by replacing the phrase “a violation under section 43(a)” with “a violation under section 43(a), or a willful violation under section 43(c).” Roth found that “the plain language of the amendment indicates that Congress intended to condition monetary awards for Section 43(c) violations, but not Section 43(a) violations, on a showing of willfulness.” Congress, Roth said, must have been aware that most courts had consistently required a showing of willfulness prior to disgorgement of an infringer’s profits in Lanham Act cases. “By adding this word to the statute in 1999, but limiting it to Section 43(c) violations, Congress effectively superseded the willfulness requirement as applied to Section 43(a),” she wrote. Roth found that the 5th Circuit � the only other federal appellate court to address the issue � had reached the same conclusion in Quick Technologies Inc. v. Sage Group PLC(2002). Applying the new test, Roth found that willfulness remains “an important equitable factor” in deciding whether to order an accounting of profits, but is “not a prerequisite to such an award.” Shannon P. Duffy ( [email protected]) is the U.S. courthouse correspondent forThe Legal Intelligencer , an ALM newspaper, where this article first appeared.

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