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Finding that one of its own precedents has been overturned by Congress, the 3rd U.S. Circuit Court of Appeals 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In Banjo Buddies Inc. v. Renosky, the court concluded that Congress’ 1999 amendments to the Lanham Act had effectively superseded the 3rd Circuit’s 1999 decision in SecuraComm Consulting Inc. v. Securacom Inc. “We conclude that SecuraComm‘s bright-line willfulness requirement has been superseded by statute,” U.S. Circuit Judge Jane R. Roth wrote in an opinion joined by Circuit Judge Thomas L. Ambro. The ruling comes in a dispute over the marketing of a highly successful line of fishing lures in which the lower court awarded more than $1.5 million. According to court papers, Joseph Renosky was a member of the board of directors of Banjo Buddies Inc. from February 1996 until May 1999. Banjo Buddies’ principal product during that time 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 considerably. BBI introduced several derivative Banjo Minnow products in 1998, but none approached the success of the original. Renosky presented an idea to the BBI board for a “new and improved” Banjo Minnow called the Bionic Minnow. When the board took no formal action on the proposal, Renosky said he intended to develop the new lure independently. Soon after, he began developing the Bionic Minnow through his own company, Renosky Lures, and ultimately marketed it via infomercial beginning in February 1999. When Renosky failed to comply with a “cease and desist” letter, BBI filed suit in U.S. District Court for the Western District of Pennsylvania alleging that Renosky violated �43(a) of the Lanham Act by developing and marketing the Bionic Minnow in such a way that customers would believe it was a Banjo Buddies product. U.S. District Judge Donetta W. Ambrose held a five-day bench trial in May 2002 and later concluded that Renosky was liable for “false designation of origin” under �43(a). Ambrose also found that Renosky breached his fiduciary duty of loyalty to Banjo Buddies by pursuing a corporate opportunity without fully disclosing his actions to the board or forcing the board to accept or reject the project. As a remedy, Ambrose concluded that Renosky should be forced to disgorge the net profits of the Bionic Minnow project, and ordered that he produce “verified financial records.” Renosky never produced the records, according to court papers, but did submit an independent financial analysis that showed the Bionic Minnow project had suffered a net loss. Ambrose rejected the report’s conclusion that the project had earned no profits, and instead found that it had earned profits equal to 16 percent of gross sales. As a result, Ambrose entered judgment in March 2003 against Renosky in the amount of $1,589,155. On appeal, Renosky’s lawyers argued that Ambrose should not have ordered an accounting of profits because Renosky did not intentionally or willfully confuse or deceive customers. Attorneys John J. Richardson and C. James Zeszutek of Thorp Reed & Armstrong in Pittsburgh argued that the 3rd Circuit’s decision in SecuraComm clearly held that “a plaintiff must prove that an infringer acted willfully before the infringer’s profits are recoverable” under �35(a) of the Lanham Act. Now the 3rd Circuit has rejected that argument, finding that SecuraComm is no longer good law. “ SecuraComm‘s bright-line rule was the dominant view when [it] was issued in January 1999,” Roth wrote. “In August 1999, however, Congress amended Section 35.” The 1999 amendment replaced 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, despite the absence of the word “willful” in the statutory text prior to 1999. “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),” Roth wrote. Roth found that the 5th Circuit — the only other federal appellate court to address the question — had reached the same conclusion in its 2002 decision in Quick Technologies Inc. v. Sage Group PLC. As a result, Roth concluded that the SecuraComm test cannot stand. “We now hold that SecuraComm has been superseded by the 1999 amendment,” Roth wrote. 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.” Ambrose did not abuse her discretion in ordering a disgorgement of profits, Roth found, because it was premised on her finding that Renosky’s marketing for the Bionic Minnow was confusingly similar to that of the Banjo Minnow, and her conclusion that Renosky was “palming off” the Bionic Minnow as a Banjo Buddies product. Roth also found Ambrose was correct in holding that there were no other adequate remedies. “If Renosky’s profits are not assessed, Banjo Buddies will be wholly uncompensated for Renosky’s infringing actions,” Roth wrote. Judge Michael Chertoff heard oral argument in the case, but resigned from the 3rd Circuit to take a post as head of the Department of Homeland Security before the court’s opinion was filed. BBI was represented in the appeal by attorneys Todd S. Holbrook of Bernstein Shur Sawyer & Nelson in Portland, Maine, and Mark A. Willard of Eckert Seamans Cherin & Mellott in Pittsburgh.

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