Gucci America, Inc. v. Daffy's, Inc. John Does 1-10

Gucci America, Inc. appeals the district court's decision to deny Gucci's request for an order compelling defendant Daffy's, Inc. to recall counterfeit "Jackie-O" handbags. Gucci also appeals the district court's denial of Gucci's request for an accounting of profits and other injunctive relief. For the reasons that follow, we will affirm.

Daffy's is a chain of retail clothing stores specializing in selling popular brands of goods and apparel at discount prices. In late May 2000, Daffy's acquired three sizes of a handbag that appeared to be a particular Gucci model known as the "Jackie-O". Daffy's purchased 594 of these handbags from its supplier, Sara's Collection, Inc., for prices ranging from $238 to $250 depending on size. Sara's Collection, Inc. was recognized as a reputable supplier, and Daffy's had previously purchased products from it.

The events leading to the purchase began when a representative of Sara's approached Daffy's regarding some Gucci handbags that were being diverted to the United States from a merchant in the Far East. Although Daffy's representatives were confident that the bags were genuine, Daffy's nevertheless attempted to authenticate the bags by taking them to a Gucci outlet store in Secaucus, New Jersey before offering them for resale. There, a Daffy's employee presented one of the bags to the Gucci clerk and informed the clerk that she had received the bag as a gift and was not certain of its authenticity. The employee asked the clerk to examine the bag and confirm that it was genuine. The clerk did so, and informed the Daffy's employee that the bag was authentic. That conclusion was based on certain indicia of authenticity including the quality of fabric and leather, the storage bag the handbag came in, and the Gucci label and appropriate codes on the bag. The clerk also compared the bag with another Gucci bag in the store.

Daffy's also sent one of the bags it had purchased that was damaged to the Gucci repair center in New York for repair. Gucci repaired the bag and returned it without comment or further inquiry. Based upon its experience with its reputable supplier, the corroboration of the Gucci clerk, and the unquestioned repair and return of one of the bags from Gucci's own service center, Daffy's concluded that the bags it had purchased from Sara's were genuine Gucci bags. That conclusion was incorrect. The bags were actually counterfeit, although they were of exceptional quality, expensive, and virtually indistinguishable from genuine Gucci bags.

Daffy's proceeded to sell a total of 588 of these bags for $298.99, $339.99 and $398.99 depending on size. The sales continued through the summer of 2000. Daffy's remained unaware of any problem until counsel for Gucci sent Daffy's a letter dated September 5, 2000, demanding that Daffy's immediately cease selling the bags and that Daffy's disclose its supplier to Gucci. Daffy's responded by informing Gucci that the bags had been obtained from a legitimate parallel importer outside of Gucci's authorized chain of distribution and it believed the bags were genuine Gucci bags. Nevertheless, despite its belief that the bags were genuine and that it had done nothing improper, Daffy's immediately withdrew the handbags from its stores and has since adopted a policy of not buying any Gucci merchandise in order to avoid the possibility of purchasing counterfeit Gucci goods.

Despite the steps Daffy's took after being informed of the counterfeit nature of the Gucci bags it was selling, Gucci sued seeking an Order to Show Cause why Daffy's should not be preliminarily enjoined from infringing Gucci's trademark through the sale of counterfeit "Jackie-O" handbags.1 The requested relief was denied, and the court also denied Gucci's motion for expedited discovery directed at Daffy's supplier. In the court's view, Gucci had not demonstrated a sufficient likelihood of success on the merits to justify the equitable relief it requested. In an effort to avoid unfair prejudice to any party, the district court severed the factual issue of the authenticity of the Daffy's handbag and proceeded to a bench trial on the merits of that issue. See Gucci America, Inc. v. Daffy's, Inc., No. 00-4463, 2000 WL 1720738 (D.N.J. Nov.14, 2000) (denying preliminary injunction and severing authenticity issue for trial).

Gucci's head of quality control testified extensively at the ensuing trial. Based upon that testimony, the court concluded that the bags Daffy's sold as genuine Gucci product were, in fact, counterfeit bags not manufactured by Gucci. However, as the district court made clear in its fourth written opinion in this case, "the Daffy's handbag was an extremely high-quality product, capable of fooling even a very discriminating examiner. It should be apparent... that the quality of the counterfeit and the difficulty in distinguishing it from a true Gucci has colored every step of this litigation." Gucci America v. Daffy's Inc., No. 00-4463 slip. op. at 2 (D.N.J. Nov. 16, 2001) ("Gucci IV").

The district court then moved to the remedy phase of the trial. Gucci first requested an order compelling Daffy's to contact those consumers who had purchased the counterfeit bags and offer them a refund. As detailed below, this requested recall was denied, and Daffy's and Gucci then filed cross-motions for partial summary judgment. We are concerned here with Gucci's cross-motion for partial summary judgment. Gucci sought an injunction preventing Daffy's from using the Gucci trademark, a finding that Daffy's willfully infringed that trademark through the sale of the counterfeit Gucci bags, and an award of profits based upon that allegedly willful infringement. Daffy's insisted that Gucci was not entitled to profits because there had been no willful infringement, and Daffy's also argued that Gucci was not entitled to an injunction because it could not establish the necessary harm.

The district court explained its denial of the requested recall in its November 14, 2001 Memorandum Opinion. Gucci IV at 2. The court stated that it had considered whether:

(1) the defendant acted in a willful or otherwise egregious manner

(2) the risk of confusion to the public and injury to the trademark is greater than the cost and burden of recall to the alleged infringer and

(3) there is substantial risk of danger to the public resulting from the defendant's infringing activity.

Id. at 4. After concluding that Daffy's had not acted willfully, and recognizing that Gucci failed to establish a genuine issue of fact as to whether Daffy's acted intentionally or with willful blindness in selling counterfeit handbags, the court undertook the balancing encompassed by the second prong of its inquiry. Id at 5-8. In doing so, the court first considered the low risk of public confusion due to the high quality and price of the bags and low risk of injury to the Gucci trademark. Id. at 8-9 The court then weighed the benefits Gucci might derive from a recall against the negative impact a recall could have on Daffy's goodwill, as well as the difficulties of obtaining the necessary consumer information for a recall. Id. at 10-11. The court concluded that the balance tipped in favor of Daffy's and therefore denied Gucci's motion for a recall. Id. at 12.

The district court agreed that Daffy's had infringed Gucci's trademark, Gucci America v. Daffy's Inc., No. 00-4463 slip. op. at 3-4 (D.N.J. Sept. 3, 2002) ("Gucci V"), but denied Gucci's request for an award of Daffy's profits based on the absence of the willfulness required under SecuraComm Consulting Inc. v. Securacom Inc., 166 F.3d 182 (3d Cir.1999). Id. at 10-12. The court also rejected Gucci's request for a permanent injunction because Gucci could not demonstrate irreparable injury. Id. at 13. In doing so, the court noted Daffy's attempts to minimize damage to Gucci by voluntarily withdrawing the offending merchandise from Daffy's shelves,2 and the court concluded that Daffy's was therefore highly unlikely to infringe Gucci's trademark again. Id. at 14. Thus, in the court's view, balancing hardships weighed in favor of Daffy's and against granting Gucci's requested relief. Id. at 15. This appeal followed.

The intent of [the Lanham] Act is to regulate commerce within the control of Congress by making actionable the deceptive and misleading use of marks in such commerce; to protect registered marks used in such commerce from interference by State, or territorial legislation; to protect persons engaged in such commerce against unfair competition; to prevent fraud and deception in such commerce by the use of reproductions, copies, counterfeits, or colorable imitations of registered marks; and to provide rights and remedies stipulated by treaties and conventions respecting trademarks, trade names, and unfair competition entered into between the United States and foreign nations.

15 U.S.C. § 1127 (2003). The Senate Report on the Lanham Act reinforces the congressional intent behind the legislation noting that Congress enacted it to:

protect the public so that it may be confident that, in purchasing a product bearing a particular trade-mark which it favorably knows, it will get the product which it asks for and wants to get. Secondly, where the owner of a trade-mark has spent energy, time and money in presenting to the public the product, he is protected in his investment from its misappropriation by pirates and cheats.

Weil Ceramics v. Dash, 878 F.2d 659, 672 n. 17 (3d Cir.1989) (quoting S.Rep. No. 1333, 19th Cong.2d Sess., reprinted in 1946 U.S.Code. Cong. Serv. 1274).

As noted above, Gucci brought this suit for trademark infringement under Sections 32(1) and 43(a) of the Lanham Act. Section 32(1) provides in pertinent part:

(1) Any person who shall, without the consent of the registrant —

(a) use in commerce any reproduction, counterfeit, ... of a registered mark in connection with the sale, ... or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or

(b) reproduce, counterfeit, copy, or colorably imitate a registered mark ... shall be liable in a civil action by the registrant for the remedies hereinafter provided. Under subsection (b) hereof, the registrant shall not be entitled to recover profits or damages unless the acts have been committed with knowledge that such imitation is intended to be used to cause confusion, or to cause mistake, or to deceive.

15 U.S.C. § 1114 (2003) (emphasis added). Section 43(a) further provides as follows:

(1) Any person who, on or in connection with any goods or services,.. uses in commerce any ... symbol, ... or any false designation of origin,.. which —

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the... origin, ...

* * * * * *

(B) shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125(a) (2003). Section 34(a) of the Lanham Act, 15 U.S.C. § 1116(a), is critical to our analysis. That section authorizes courts to issue injunctions for trademark violations "according to the principles of equity and upon such terms as the court may deem reasonable ...". Recovery of lost profits is governed by § 35(a) of the Lanham Act which provides in relevant part:

(a) When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 43(a) or (d) [15 U.S.C. § 1125(a) or (d)], or a willful violation under section 43(c) [15 U.S.C. § 1125(c)], shall have been established in any civil action arising under this Act, the plaintiff shall be entitled, subject to the provisions of sections 29 and 32 [15 U.S.C. §§ 1111, 1114], and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

15 U.S.C. § 1117(a) (2003).

With these statutory parameters in mind, we turn to the precise issues raised in this appeal.

We review the district court's denial of Gucci's request for recall of the counterfeit handbags for an abuse of discretion. See Jacquin Et Cie, Inc. v. Destileria Serralles, Inc., 921 F.2d 467, 472 (3d Cir. 1990); see also Perfect Fit Industries v. Acme Quilting, 646 F.2d 800, 807 (2d Cir. 1981). "[A] district court has abused its discretion if it has rested its decision on a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact.'" Jacquin, 921 F.2d at 472 (quoting International Union, UAW v. Mack Trucks, Inc., 820 F.2d 91, 95 (3d Cir.1987)).

Both Daffy's and Gucci agree that the propriety of the court's recall decision is governed by:

1. the willful or intentional infringement by the defendant;

2. whether the risk of confusion to the public and injury to the trademark owner is greater than the burden of the recall to the defendant; and

3. substantial risk of danger to the public due to the defendant's infringing activity.

See Theodore C. Max Total Recall: A Primer on a Drastic Form of Equitable Relief, 84 Trademark Rep. 325, 327 (1994) (listing these factors); see also Perfect Fit Industries v. Acme Quilting Co., 646 F.2d 800, 807 (2d Cir.1981) (weighing the first two factors in decision to order recall).

Gucci first argues that the district court failed to give "heavy weight" to whether the public would benefit from a recall. Appellant's Brief at 29. Gucci also argues that the court underestimated the harm the company may suffer due to the infringement and that it erred in evaluating the hardship Daffy's would face in effectuating a recall.3 Daffy's, on the other hand, argues that the district court accurately considered all the equities in its proper exercise of discretion.

Gucci does not argue that Daffy's conduct created a substantial risk of danger to the public, nor does Gucci contest the district court's conclusion that Daffy's was "an innocent infringer," Gucci V at 10, or that Daffy's was unaware of the counterfeit nature of the bags it was selling. Therefore, we may focus our discussion on the court's resolution of the balancing of harms required under the second factor set forth above.

Gucci's contention that the district court failed to afford the public interest "heavy weight" is simply without merit. The argument rests entirely on the fact that Daffy's customers did not get genuine Gucci handbags. The district court did consider the benefit the consuming public would receive from recalling the counterfeit bags. The court explained that it had "given serious consideration to the fact that denying a recall will leave Daffy's customers under the continued misapprehension that they own a real Gucci product." Gucci IV at 11-12. The court simply concluded that the benefit did not justify the concomitant harm a recall would have upon Daffy's, an innocent infringer. We therefore find Gucci's attack upon the district court's analysis unconvincing.

Gucci does not explain the difference between the "heavy weight" it argues the district court should have afforded the public benefit of a recall, and the "serious consideration" the district court gave it. Moreover, we agree with the district court's determination that the public benefit of a recall does not outweigh the equities counseling against it. A recall would have a financial impact upon Daffy's. It would also likely injure the company's goodwill as consumers may well assume that Daffy's was guilty of intentional wrongdoing no matter how carefully Daffy's explained the circumstances leading to any recall. Since the counterfeit bags were virtually indistinguishable from Gucci manufactured bags, the district court quite reasonably concluded that "a recall would harm Daffy's with little real benefit to Gucci," Gucci IV at 12, or the public.

Gucci invokes a post-sale confusion theory, which presumes that "the senior user's potential purchasers or ongoing customers might mistakenly associate the inferior quality work of the junior user with the senior user and, therefore, refuse to deal with the senior user in the future." Acxiom Corp. v. Axiom, 27 F.Supp.2d 478, 497 (D.Del.1998); see also Payless Shoesource v. Reebok International, 998 F.2d 985, 989 (Fed.Cir.1993) (describing post sale confusion as that which occurs when "a consumer observes someone wearing a pair of Payless accused shoes and believes that the shoes are Reebok's. As a consequence, the consumer may attribute any perceived inferior quality of Payless shoes to Reebok, thus damaging Reebok's reputation and image."). Yet, Gucci does not challenge the district court's conclusion that, given the quality of the counterfeit bags, third party observers would not perceive anything inferior about them. Accordingly, consumers would not attribute substandard merchandise to Gucci. Gucci does, however, claim that the district court gave short shrift to its concerns over ongoing confusion of Daffy's consumers who unknowingly possess a counterfeit "Gucci."

Although this position has some initial surface appeal, it does not withstand scrutiny. As we noted above, the district court considered the dangers of customer confusion. It gave "serious consideration to the fact that denying a recall will leave Daffy's customers under the continued misapprehension that they own a real Gucci product." Gucci IV at 11-12. However, the court was convinced that this did not justify a recall because the quality of the counterfeit bags and the relatively high price Daffy's customers were willing to pay for them undermined claims of a tarnished Gucci trademark.4 Finally, in the absence of sufficient evidence regarding the comparative durability of Daffy's bags and Gucci's bags, Gucci's conclusion that counterfeit bags would require greater maintenance rests upon pure speculation. Accordingly, the district court stated the following in explaining why the equities precluded ordering a recall:

The potential for damage to Daffy's goodwill with its customers is too obvious to be belabored. Daffy's marketing niche, distress sales of designer goods at significant discounts, would mean nothing if the consumer lacked confidence that the goods were what they purport to be. Daffy's also points out that a recall would require credit card records available only from the issuing banks.

Gucci IV at 10. Following a brief discussion of the exceptions to federal privacy laws which would allow for the release of customer information from banks, the court continued:

Notwithstanding, the affront to the privacy of Daffy's customers, extending the customer's ill-feeling engendered by the counterfeiting to the wholly unrelated credit card issuers, is unmistakable. This adds an additional counterweight in the balance of the hardships against ordering a recall.

Finally, there is the real possibility that consumers notified of this action will decline to come forward.5 Gucci does not contend that the Court should compel Daffy's customers to surrender their handbags. An underpinning of Gucci's post-sale confusion argument is that Daffy's customers are posing as true Gucci wearers, free-riding on Gucci exclusivity at a Daffy's price. But this theory would hold regardless of whether the consumer herself knew that the handbag was a counterfeit. Thus, under Gucci's own construct of the consumer mind-set, a Daffy's customer informed of the counterfeiting might well decide that she is content with her bargain and decline to return the handbag. Lastly, with the passage of time there is a real possibility that the Daffy's handbags have been discarded, were given away as gifts, or are otherwise unavailable.

Gucci IV at 11. The court's factual conclusions are not clearly erroneous. Given the careful application of the correct equitable standard to the evidence before it, it is clear to us that the district court did not abuse its discretion in refusing to order a recall.6

B. Summary Judgment-Injunctive Relief and Award of Profits

We review the district court's decision to grant or deny an injunction for an abuse of discretion. Ameristeel Corp. v. Int'l Brotherhood of Teamsters, 267 F.3d 264, 267 (3d Cir.2001). That same standard applies to the court's refusal to award Gucci lost profits. See SecuraComm, 166 F.3d at 189 (reviewing award of profits for abuse of discretion).

At the outset of our discussion of Gucci's challenge to the district court's refusal to order an injunction, we note that Gucci's concerns were substantially satisfied by Daffy's voluntarily enacted policy of not dealing in Gucci products. Daffy's counsel confirmed this policy at oral argument, though some confusion about the precise parameters of that policy remains.7 Gucci nevertheless contends that the district court erred by considering an injunction that was broader than Gucci was seeking. More specifically, Gucci argues that it requested injunctive relief prohibiting Daffy's from future infringement, while the court considered an injunction "to prohibit Daffy's from ever using the Gucci's trademark in the future." Gucci V at 13. Gucci further argues that the court incorrectly required Gucci to prove that it would be irreparably injured by the denial of injunctive relief rather than placing the burden of proving absence of harm on Daffy's. Finally, Gucci argues that the district court erred by focusing only on the danger of future intentional infringement and ignoring what it labels "evidence of substantial danger of future unintentional infringement."

An examination of the district court's opinion reveals that the court correctly considered an injunction to prevent future infringement. Although the court mentioned that the injunction requested was to prevent Daffy's from ever using Gucci's trademark again, it also made clear that Daffy's efforts to minimize the damage to Gucci before the bags proved to be counterfeit "undermines any inference that Daffy's intends to infringe Gucci's trademarks in the future." Gucci V at 14. We understand that Gucci maintains that Daffy's presale inquiry was not adequate. Indeed, the dissent suggests that Daffy's effort "was simply a superficial effort to cover itself in the event of a lawsuit." Dissent at 244. However, the sufficiency of the inquiry does not suggest that the district court erred in considering Daffy's presale inquiries in assessing the likelihood of future infringement or the need for an injunction.8 Moreover, the court's statement shows that it knew the injunction was being requested to stop trademark infringement, as Gucci requested.

The dissent argues that Gucci established irreparable harm and that the district court should therefore have granted an injunction against future infringement. Dissent at 249. According to the dissent, infringement constitutes irreparable injury as a matter of law and therefore Daffy's had the burden "to prove that the injury will not recur in the future." Id.

In deciding whether to grant a permanent injunction, the district court must consider whether: (1) the moving party has shown actual success on the merits; (2) the moving party will be irreparably injured by the denial of injunctive relief; (3) the granting of the permanent injunction will result in even greater harm to the defendant; and (4) the injunction would be in the public interest.

Shields v. Zuccarini, 254 F.3d 476, 482 (3d Cir.2001). Although we have said that "`trademark infringement amounts to irreparable injury as a matter of law,'" dissent at 243 (quoting S & R Corp., 968 F.2d at 378), the irreparable injury we referred to was not intended to swallow the remaining prongs of the permanent injunction inquiry.

Grounds for irreparable injury include loss of control of reputation, loss of trade, and loss of goodwill. Lack of control amounts to irreparable injury regardless of allegations that the infringer is putting the mark to better use. Irreparable injury can also be based on the possibility of confusion. Finally, and most importantly for this case, trademark infringement amounts to irreparable injury as a matter of law.

968 F.2d at 378 (citations omitted). We cited Opticians Assoc. of America v. Indept. Opticians of America in support of our pronouncement that trademark infringement constitutes irreparable injury as a matter of law. A closer look at Opticians will therefore further inform our analysis of the district court's denial of injunctive relief here.

In Opticians, we concluded that infringement constitutes a per se injury "[e]ven if the infringer's products are of high quality, ..." 920 F.2d 187, 196 (3rd Cir.1990). This is because infringement inhibits the owner's "ability to control its own Guild marks, which in turn creates the potential for damage to its reputation. Potential damage to reputation constitutes irreparable injury for the purpose of granting a preliminary injunction in a trademark case." Id. However, as we noted above, Gucci argued injury from loss of control for the first time on appeal, and that aspect of irreparable injury was therefore been waived. See supra at n. 3. Accordingly, the district court correctly focused on the actual injury to Gucci's reputation and goodwill in finding that Gucci had not established irreparable harm for purposes of injunctive relief.

Gucci primarily cites two cases in support of its claim that the burden shifts to defendant to demonstrate the impossibility of future harm once the plaintiff establishes that the defendant infringed plaintiff's trademark. See Appellant's Brief at 44-46.9 However, neither case advances Gucci's claim given the circumstances here.

Levi Strauss & Co. v. Shilon, 121 F.3d 1309, 1314 (9th Cir.1997) involved an egregious case of a dealer counterfeiting Levi jeans. The court concluded that the defendant's conduct demonstrated that the defendant could not be trusted and an injunction was therefore necessary to protect plaintiff's trademark.

Lyons Partnership v. Morris Costumes Inc., 243 F.3d 789, 800 (4th Cir.2001) does offer Gucci a bit more support given this record. There, the court held that the defendant was not a willful infringer. The defendant was renting three costumes resembling characters in the popular children's television show, "Barney." Apparently, the costumes bore such a strong resemblance to characters on the show that many children mistakenly associated the wearer of the costumes with the real purple dinosaur they saw on television. The court described the situation as follows:

Lyons Partnership, L.P., ..., a Texas limited partnership, owns all of the intellectual property rights to the character "Barney," the well-stuffed Tyrannosaurus Rex with a green chest and stomach, friendly mien, green spots on its back, and yellow "toeballs." Barney is readily recognizable to young children, who repeatedly parrot his song, "I Love You,"10 often testing the patience of nearby adults.

243 F.3d at 795 (footnote in original).11 The court considered the defendants' claim that they would voluntarily stop renting the costumes and hand them over to "Barney," once litigation ended. Id. at 800-01. However, that concession did not prevent the court from granting injunctive relief. Rather, the court concluded that in an infringement case, assertions alone are not enough to eliminate the "plaintiff's `reasonable expectation that the alleged violation will recur' in the absence of a court order." Id. at 801. However, we think it significant that one of the defendants continued to claim that it was not infringing plaintiff's trademark by renting the costumes even after plaintiff informed the defendant of the infringement and filed suit to stop it. That defendant also argued that the plaintiff could not establish that continuing infringement was possible. Id. at 800. Accordingly, the court was not convinced that plaintiff's trademark would be honored absent an injunction. However, the fact that the court in Lyons Partnership concluded that the circumstances there required an injunction does not mean that the district court here abused its discretion in concluding that an injunction was not necessary given Daffy's conduct.12 We believe that conclusion was reasonable, and that the district court did not abuse its discretion in denying Gucci the injunction given this record and the inquiry properly undertaken under Shields.

Finally, Gucci argues that the district court erred by relying on SecuraComm in conditioning an award of profits upon a finding of willful infringement. SecuraComm involved a trademark infringement action brought by a Pennsylvania security systems consulting firm against its New Jersey competitor. SecuraComm, 166 F.3d at 184-86. At the close of trial, the district court awarded the plaintiffs 10% of the defendant's gross profits after finding that an award of profits was necessary to "'deter[] ... the kind of conduct in which all three defendants... engaged.'" Id. at 186 (quoting SecuraComm Consulting v. SecuraCom Inc., 984 F.Supp. 286, 303 (D.N.J.1997)). On appeal, the defendants contested the award of profits, which was largely based on the court's finding that the infringement was willful. Id. The court began by pointing to § 35(a) of the Lanham Act [15 U.S.C. § 1117(a)], which then provided:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, or a violation under section 43(a), shall have been established in any civil action arising under this Act, the plaintiff shall be entitled, subject to the provisions of sections 29 and 32 and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

Id. (emphasis added). In SecuraComm, we noted the importance of the intent to an award of profits, stating that "[t]hough the standards for (1) awarding profits; (2) determining whether such an award should be enhanced; and (3) awarding attorneys' fees under the Lanham Act differ somewhat, the issue of willful infringement is central to each." Id. at 187 (citations omitted). Willful infringement was viewed as having a central role in each type of relief "because of the relevance of equitable factors in determining their appropriateness on a given set of facts." Id. at 187 n. 1. We clearly stated that "[k]nowing or willful infringement consists of more than the accidental encroachment of another's rights. It involves an intent to infringe or a deliberate disregard of a mark holder's rights." Id. at 187.

After examining whether the district court's finding of willful infringement was clearly erroneous, we concluded that the award of profits was inappropriate. Id. at 190. SecuraComm acknowledged that:

[t]he Lanham Act permits courts to award monetary damages to trademark owners as compensation where it is equitable to do so regardless of the willfulness of the defendant's infringement. Here, however, the District Court awarded profits to deter defendant's assuredly egregious misconduct; a plaintiff must prove that an infringer acted willfully before the infringer's profits are recoverable.

Id. (citing George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1537 (2d Cir.), cert. denied, 506 U.S. 991, 113 S.Ct. 510, 121 L.Ed.2d 445 (1992); 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 30:62, at 30-102 (4th ed.1996)).

Gucci contends that the bright line we recognized in SecuraComm has been undermined by subsequent amendments to the Lanham Act and that case is therefore of limited application here. The Trademark Amendments Act of 1999, in § 35(a), substituted "a violation under section 43(a), or a willful violation under section 43(c)," for "or a violation under section 43(a)." See Pub.L. 106-43 § 3b (1999) (amending § 35(a)). Therefore, the relevant language of § 35(a) now reads:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 43(a) or (d) [15 U.S.C. § 1125(a) or (d)] of this title, or a willful violation under section 43(c) [15 U.S.C. § 1125(c)] of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 29 and 32 [15 U.S.C. §§ 1111 and 1114] of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

15 U.S.C. § 1117(a) (2003). (emphasis added). Gucci argues that this change signaled Congress's intent to remove willfulness as a condition precedent to awarding an accounting of profits under § 35(a). The House Report on the Trademark Amendments Act of 1999 stated in its section by section analysis that the Amendments Act:

amends section 35(a) of the Lanham Act, which provides for recovery of profits, damages and costs, and attorneys fees for violations of rights, by clarifying that recovery of profits, damages and costs, and attorneys fees are also available for a willful violation under section 43(c), which provides holders of a famous mark the right to obtain relief for dilution.

Trademark Amendments Act of 1999, H.R. Rep. 106-250 at 1