L.A. Gear, Inc., Plaintiff/cross-Appellant v. Thom McAn Shoe Company and Melville Corporation and Pagoda Trading Company, Inc.

Although color is not part of the patented design, the colors used on these shoes and their placement are part of the trade dress for which L.A. Gear claims protection from unfair competition.

In the summer and fall of 1987 L.A. Gear exhibited the Hot Shots line of shoes to retailers at trade shows, and announced that these shoes had been selected as L.A. Gear's "hero" or featured shoe line, on which major promotion and advertising would be focused for the ensuing year. There was evidence at trial that L.A. Gear concentrated over seventy percent of its advertising expenditures on these shoes, including television commercials, billboards, and advertisements in magazines and newspapers, at a cost of over five million dollars in 1988. The district court found that the advertising was in color and prominently featured the design of the shoe. A L.A. Gear Hot Shots shoe is pictured:NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Substantial similarity is not disputed; indeed, copying is admitted. However, Melville complains that the district court's treatment of the issue of patent infringement was "cursory", in that the court referred, in the part of its opinion relating to patent infringement, to its findings on likelihood of confusion relative to the trade dress issue.

In discussing trade dress, the district court had found that the L.A. Gear shoes and the accused shoes were substantially similar in design, such that the ordinary observer would confuse one with the other. Although design patent analysis requires comparison of the claimed design with the accused articles, Melville has not argued that the patent drawing differs from the embodiment in the L.A. Gear shoe, and has offered no reason why the finding of substantial similarity between the actual shoes was not applicable to the infringement analysis. When the patented design and the design of the article sold by the patentee are substantially the same, it is not error to compare the patentee's and the accused articles directly, Lee v. Dayton-Hudson Corp., 838 F.2d at 1189, 5 USPQ2d at 1627; indeed, such comparison may facilitate application of the Gorham criterion of whether an ordinary purchaser would be deceived into thinking that one were the other. It was in this context that the district court analyzed likelihood of confusion. No methodological error has been shown in this analysis.

Design patent infringement relates solely to the patented design, and does not require proof of unfair competition in the marketplace, see Unette Corp. v. Unit Pack Co., 785 F.2d 1026, 1029, 228 USPQ 933, 934 (Fed.Cir.1986), or allow of avoidance of infringement by labelling. The district court did not confuse the criteria relevant to these causes of action. Although Melville argues specific differences in features of the four models that were found to infringe the '081 patent, the district court found that "the placement of all the major design elements is the same, creating the same distinctive overall look", and recognized that the novelty resided in the overall appearance of the combination. The court found, in the terms of Gorham v. White, that the four infringing models were confusingly similar to the patented design, as viewed by an ordinary observer.

Reversible error has not been shown. The district court's holding of design patent infringement is affirmed.

Willfulness of Infringement

The district court concluded that Melville's patent infringement was not willful, and denied L.A. Gear's request for enhanced damages and attorney fees. Willfulness of infringement is a question of fact, and the district court's finding thereon shall be sustained unless it is clearly in error. Rite-Hite Corp. v. Kelley Co., 819 F.2d 1120, 1126, 2 USPQ2d 1915, 1919 (Fed.Cir.1987); Shatterproof Glass Corp. v. Libbey-Owens Ford Co., 758 F.2d 613, 628, 225 USPQ 634, 644 (Fed.Cir.), cert. dismissed, 474 U.S. 976, 106 S.Ct. 340, 88 L.Ed.2d 326 (1985).

Melville relied on its counsel's obligations under Rule 112 to support its assertion that it had a good faith belief in the invalidity and unenforceability of the '081 patent. L.A. Gear points out, correctly, that a defensive pleading of invalidity or unenforceability may pass muster under Rule 11, yet not provide adequate defense to the charge of willful infringement. Indeed, in this case the pled defense of unenforceability was not pursued at trial; and the only ground asserted for patent invalidity (i.e., functionality) did not present a close question of fact or law.

Melville introduced no evidence of whether it obtained an opinion of counsel that the '081 patent was not valid or not infringed, or any other support for a good faith belief that it was entitled to perform the infringing acts. Although a party to litigation may indeed withhold disclosure of the advice given by its counsel, as a privileged communication, it will not be presumed that such withheld advice was favorable to the party's position. We have held that the assertion of privilege with respect to infringement and validity opinions of counsel may support the drawing of adverse inferences. See Kloster Speedsteel AB v. Crucible, Inc., 793 F.2d 1565, 1580, 230 USPQ 81, 91 (Fed.Cir.), modified in part, 231 USPQ 160 (Fed.Cir.1986), cert. denied, 479 U.S. 1034, 107 S.Ct. 882, 93 L.Ed.2d 836 (1987) (the accused infringer's silence as to the existence of an opinion of counsel contributed, with other factors, to the ruling that infringement was willful).

Melville presented no evidence to counteract the evidence of copying of the patented design. Indeed, Melville admitted copying, offering as its only justification the proposition that copying is prevalent in the fashion industry, an issue not relevant to patent infringement. The '081 patent issued several months after the complaint for unfair competition under § 43(a) was filed by L.A. Gear. L.A. Gear warned Melville of the impending issuance of the patent. In Avia Group, 853 F.2d at 1566-67, 7 USPQ2d at 1555-56, the defendant was given similar warning of impending patent issuance, yet continued the accused activities after patent issuance. See Pacific Furniture Mfg. Co. v. Preview Furniture Corp., 800 F.2d 1111, 1114-15 n. 9, 231 USPQ 67, 69 n. 9 (Fed.Cir.1986) (fact that infringement started before patent issued does not bar award of increased damages). The law imposes an affirmative duty of due care to avoid infringement of the known patent rights of another. See Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389-90, 219 USPQ 569, 576-77 (Fed.Cir.1983).

In Avia Group, as here, the accused infringer presented no probative evidence of a good faith belief in non-infringement. As in Avia Group, Melville's deliberate copying was strong evidence of willful infringement, without any exculpatory evidence to balance the weight. Indeed, the factual situations are not distinguishable on the issue of willfulness. Principles of stare decisis require similar rulings on similar facts, and thus it was error to fail to follow Avia Group.

The district court's ruling that Melville's infringement was not willful is reversed.

Damages

The district court had assessed damages based on trade dress infringement, and did not assess separate damages for patent infringement. In view of our holding that § 43(a) has not been violated, see Part II infra, on remand the district court shall assess damages based on patent infringement.

The district court had measured damages in accordance with § 43(a) of the Lanham Act which, like § 289 of the Patent Act,3 provides for recovery of the infringer's total profits. To facilitate that determination on remand, we have reviewed L.A. Gear's objections to the district court's accounting methodology. The question is whether Melville was entitled to deduct, in calculating its net profit, certain payments made by Melville to K Mart. The court held that since K Mart was not a party to this litigation, Melville could deduct the sums that it paid to K Mart as K Mart's profit on the sale of the infringing shoes.

L.A. Gear states, without contradiction, that it did not join K Mart as a party to this suit because of requests and representations from both Melville and K Mart, stating that Melville could provide complete recompense to L.A. Gear. Melville stated that it was obligated to indemnify K Mart for patent and trademark infringement and that it would serve no legitimate purpose to join K Mart as a party. K Mart threatened to seek Rule 11 sanctions should L.A. Gear join K Mart despite these assurances that Melville could provide any and all relief. L.A. Gear did not join K Mart as a party. Melville now asserts that because K Mart was not a party, L.A. Gear can not recover any sums attributed to K Mart's profits, and therefore that Melville can deduct from its gross profits the sums it paid to K Mart.

The representations here involved were made by lawyers in the context of litigation. They are not asserted to be puffery or posturing or negotiating ploys, or that they were not expected to be believed. The record contains relevant correspondence, including the indemnification contract between Melville and K Mart. Actions induced by attorney representations can not be disclaimed by their instigator. Reliance by L.A. Gear was sought and obtained, and was not unreasonable. Having induced reliance, Melville can not now renounce the consequences.

The only issue raised with respect to the measure of damages due to K Mart's activities pertains to the deductibility of the amounts that Melville paid to K Mart. These amounts shall not be deducted by Melville in its accounting of profits, if recovery is calculated under 35 U.S.C. § 289.

L.A. Gear's choice of remedy for infringement, and the amount of recovery, shall be determined upon remand.

Attorney Fees

Attorney fees in patent cases may be awarded in "exceptional cases". 35 U.S.C. § 285. Willfulness of infringement is a sufficient basis for finding a case exceptional, S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201, 228 USPQ 367, 369 (Fed.Cir.1986), although not every exceptional case warrants the award of attorney fees. Id.

Whether a case is exceptional is a factual determination, and is reviewed for clear error. See Reactive Metals and Alloys Corp. v. ESM, Inc., 769 F.2d 1578, 1582-83, 226 USPQ 821, 824 (Fed.Cir.1985). Although the district court found that this case was not exceptional, our determination that Melville's patent infringement was willful has changed the factual premises.

The trial judge is in the best position to weigh the factors "that may contribute to a fair allocation of the burdens of litigation as between winner and loser", S.C. Johnson, 781 F.2d at 201, 228 USPQ at 369, in view of the entirety of the litigation circumstances. We remand to the district court for redetermination of the issue of attorney fees.

II

UNFAIR COMPETITION--TRADE DRESS

The issue was whether Appellants had violated § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a),4 based on the appearance trade dress of certain models of Appellants shoes: the four models that were found to have infringed the '081 patent, and two additional models, viz. a women's low top AEROBIX shoe model no. 79404 and a women's low top MacGREGOR shoe model no. 16816. The district court held that these six shoe models misappropriated the trade dress of L.A. Gear's Hot Shots shoes. The court found that despite the relatively short time that the L.A. Gear shoes had been on the market, the Hot Shots design had acquired secondary meaning in that consumers had come to recognize the design as the product of L.A. Gear. The court held that there was a likelihood that consumers would be confused as to the source of the Appellants' shoes or as to the relationship between the sources of the shoes.

The protection of trade dress is of common law origin. It is based upon recognition that the packaging of goods can serve as an indicator of source, and that similar packaging may confuse, mislead, or deceive the consumer. See generally 1 T. McCarthy, Trademarks and Unfair Competition, § 8.1 (2d ed. 1984). The assorted legal theories that have arisen in the development of the law of trade dress have been summarized as follows:

Attempts to incorporate protection for a product's overall design or appearance into § 43(a) have come under a variety of guises. Some courts have found an unregistered trademark in the product's trade dress, overall design, combination of features, or appearance. Others simply find that copying a product's overall trade dress or design is unfair competition. Still others have found such copying to be trade dress infringement without attempting to link it to trademark infringement or designating it a sub-category of unfair competition.

American Greetings Corp. v. Dan-Dee Imports, Inc., 807 F.2d 1136, 1140 n. 2, 1 USPQ2d 1001, 1004 n. 2 (3d Cir.1986) (citations omitted).

Trade dress protection is not limited to the exterior packaging of a product, for "the design of a product itself may function as its packaging, serving to distinguish it from other products, and hence be protectable trade dress under § 43(a)". Wallace International Silversmiths, Inc. v. Godinger Silver Art Co., 916 F.2d 76, 78-79, 16 USPQ2d 1555, 1557 (2d Cir.1990),5 cert. denied, --- U.S. ----, 111 S.Ct. 1622, 113 L.Ed.2d 720 (1991). In Stormy Clime, Ltd. v. Progroup, Inc., 809 F.2d 971, 974, 1 USPQ2d 2026, 2028 (2d Cir.1987), the court explained that trade dress of a product "involves the total image of a product and may include features such as size, shape, color or color combinations, texture, [or] graphics" (quoting John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 980 (11th Cir.1983)). Trade dress is thus viewed as the overall combination and arrangement of design elements into the total image by which the product is perceived by the consuming public.

The protection of trade dress has been liberally construed for, as discussed in LeSportsac, Inc. v. K Mart Corp., 754 F.2d 71, 77, 225 USPQ 654, 658 (2d Cir.1985), "[t]rade dress associated with a product that has accumulated goodwill ... will almost always be 'an important ingredient' in the 'salability' of the product". The Second Circuit has recognized that trade dress, while partaking of the attributes of a trademark, is particularly concerned with product presentation: its "total image".

Appellants argue that L.A. Gear's Hot Shots shoe design is not protectable under § 43(a) because it is functional, because it lacks secondary meaning, and because the labelling on the shoes makes confusion unlikely.

Functionality

Appellants state that the design of L.A. Gear's Hot Shots shoes is utilitarian and not ornamental, and also that the design, if deemed ornamental, is "aesthetically functional". Functionality of trade dress must be proved by the party asserting the defense. LeSportsac, 754 F.2d at 76, 225 USPQ at 657.

Applying Second Circuit law as we perceive it in this evolving area, an action for unfair competition under § 43(a) will not lie if the product design is essential to the use of the device, and not primarily directed to its appearance. Stormy Clime, 809 F.2d at 977, 1 USPQ2d at 2030. See Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 2187 n. 10, 72 L.Ed.2d 606, 613 n. 10, 214 USPQ 1, 4 n. 10 (1982) (defining functionality as essential to the use or purpose of the article or affecting its cost or quality). If products having the same utility can not be made without duplicating the design, the product design is deemed essential to the function and is not protectable as a matter of trade dress. The court explained in Warner Bros. Inc. v. Gay Toys, Inc., 724 F.2d 327, 331 (2d Cir.1983) that "[a] design feature of a particular article is 'essential' only if the feature is dictated by the functions to be performed; a feature that merely accommodates a useful function is not enough". See LeSportsac, 754 F.2d at 77, 225 USPQ at 658.

The Second Circuit has narrowed or rejected, depending on the particular case, the theory of aesthetic functionality as stated in Pagliero v. Wallace China Co., 198 F.2d 339, 95 USPQ 45 (9th Cir.1952). In Pagliero the Ninth Ci