Diesel S.p.A. v. Diesel Power Gear, LLC

Background

Plaintiffs Diesel S.p.A. and Diesel U.S.A., Inc. sued Diesel Power Gear, LLC, alleging that Defendant’s use of the DIESEL POWER GEAR and DIESELSELLERZ marks infringed Plaintiffs’ DIESEL trademarks. In an earlier liability decision, the Court granted Plaintiffs partial summary judgment and held Defendant liable for trademark infringement, trademark dilution, and federal unfair competition. The Court had also found that Defendant’s infringement was willful because Defendant acted with reckless disregard of Plaintiffs’ trademarks. Plaintiffs’ state-law unfair competition claim had been dismissed as moot.

The pending cross-motions for summary judgment concerned only damages. The parties agreed that no genuine dispute of material fact required a trial on damages and that Defendant’s profits were the proper measure. Defendant did not file the required formal notice of motion, but the Court treated its submission as a summary-judgment motion.

Legal framework

Under Section 1117(a) of the Lanham Act, once trademark liability is established, a plaintiff may recover the defendant’s profits, the plaintiff’s damages, and the costs of the action, subject to equitable principles. The plaintiff initially must prove the defendant’s sales. The defendant then bears the burden of proving costs or deductions and showing that those costs are attributable to the unlawful sales. Courts may adjust a profits-based recovery if the amount would be inadequate or excessive, but the resulting award must be compensation rather than a penalty.

Profits as the damages measure

The Court held that Defendant’s profits were an appropriate basis for damages. Defendant did not oppose Plaintiffs’ request to use profits and itself sought summary judgment using that measure. The Court also independently concluded that an award based on profits was justified. It relied on Defendant’s willful infringement, its continued sales of infringing products after receiving a cease-and-desist letter, and its continued sales even after the Court found it liable. The Court also found that the remaining equitable factors supported a profits award.

Gross sales

Plaintiffs sought profits from apparel and wearable accessories sold on Defendant’s website from 2013 through mid-October 2022. The parties’ undisputed facts established gross sales of $65,057,856.53 for those products during that period.

Defendant argued that the sales base should be limited to apparel displaying the word “diesel” on the exterior. The Court rejected that argument. It found that the prior liability decision covered Defendant’s use of the infringing marks on or in connection with apparel and accessory products, online retail services, websites, social media, advertising, promotions, labels, and hang tags. The Court also concluded that Defendant’s argument was an improper attempt to reargue liability.

Costs and expenses

The Court deducted $5,939,999.70 for discounts and returns, resulting in net sales of $59,117,856.83. It rejected Defendant’s request to deduct additional costs and expenses, including a flat percentage of company-wide expenses.

The Court found that Defendant had not adequately identified expenses attributable to the infringing products. Defendant’s submissions did not sufficiently connect costs such as shipping, marketing, warehouse space, personnel, support vendors, or truck giveaways to the unlawful sales. The financial spreadsheets also covered broader business activity, included questionable or inconsistent figures, and did not reliably distinguish infringing-product costs from costs associated with other products or physical-store sales.

The Court further held that Defendant’s proposed flat-rate formula was overinclusive and unsupported. Defendant had not shown a sufficient connection between each expense category and the infringing sales, nor had it provided a reliable method for allocating expenses to those sales. Because Defendant failed to meet its burden, the Court made no further deduction for those claimed costs.

Reduction of the award

Although the Court found that full disgorgement would deter infringement and prevent unjust enrichment, it concluded that awarding the entire $59,117,856.83 would be excessive. The Court considered that the infringement, while willful, was not the most egregious type; there was no evidence of actual consumer confusion; the connection between infringement and profits varied among products; Plaintiffs presented no direct evidence of business losses; and Defendant submitted some, though inadequate, evidence of costs. The Court also considered Defendant’s business model and the size of the requested award.

The Court therefore applied an 80 percent reduction to the $59,117,856.83 net-sales figure. That calculation produced an award of $11,823,571.37.

Disposition

Judge Rochon ruled that Plaintiffs’ motion for summary judgment was GRANTED in part and DENIED in part, and Defendant’s motion for summary judgment was GRANTED in part and DENIED in part. Plaintiffs were granted an award based on Defendant’s net profits in the amount of $11,823,571.37. The parties were ordered to file a joint letter within 21 days proposing any remaining steps in the case.