Cesari S.R.L. v. Peju Province Winery L.P.

Background

Cesari S.R.L. brought a trademark-infringement action against Peju Province Winery L.P. (PPW), Peju Family Operating Partnership L.P. (PFOP), and Peju Province Corporation. Cesari’s registered “LIANO” trademark was used for wine, while Peju sold wines under the “LIANA” name. The Trademark Trial and Appeal Board had previously found the marks likely to confuse consumers. In earlier rulings, the court applied that finding to PPW and later extended it to PFOP. The court also found that Peju had acted in bad faith and resolved liability in Cesari’s favor. Peju Province Corporation was later dismissed from the case by agreement.

After those rulings, the only remaining issue was disgorgement of profits—the amount of money Peju had earned from sales connected to the infringement. Cesari sought profits rather than lost-profit damages or an injunction. The court held a four-day bench trial from July 10 through July 13, 2023, receiving testimony from business witnesses and financial experts.

Legal standard

Under the Lanham Act, a trademark owner may recover an infringer’s profits, subject to equitable principles. The trademark owner must prove the infringer’s sales; the infringer must prove costs or deductions. The court applied the Second Circuit’s “full absorption” approach, which permits deductions for direct production costs and certain overhead costs tied to the infringing goods. Because the court had already found bad faith, it applied heightened scrutiny to Peju’s proposed overhead deductions.

Sales findings

The court accepted Peju’s business records as the appropriate evidence of sales. It included sales of wines bearing “LIANA” on the front or back of the bottle and included $8,191 in revenue from by-the-glass pours. It did not include sparkling wines that did not bear the “LIANA” name, revenue for bottles that were produced but not shown to have been sold, or tasting and event fees. The court found that tasting and event records did not show what portion of those fees was attributable to infringing wine.

The court generally limited recoverable sales to those recorded through July 2018, when Peju stopped selling wines with the infringing labels. It found that later sales using the same stock-keeping-unit numbers generally involved relabeled wines. The court made one exception for eight bottles of a wine that had not been relabeled and were sold after July 2018.

The resulting revenue totals were $330,002 for Peju-branded infringing wines and $740,877 for Liana Estates-branded infringing wines, for total recoverable revenue of $1,070,879.

Cost findings

The court allowed $396,053 in direct costs. That amount included $21,594 for Peju-branded infringing wines and $374,459 for Liana Estates-branded infringing wines. The court found that the cost-of-goods calculations were supported by testimony and ordinary business records, including costs for grapes or bulk wine, processing, storage, bottling, labeling, and related production expenses.

The court rejected Peju’s proposed overhead deductions. Peju’s expert relied on broad categories such as salaries, supplies, general expenses, consulting fees, and travel, but did not adequately explain how those costs were connected to producing or selling the infringing wines. The court therefore found that Peju had not met its burden to prove those deductions.

The court also allowed an $8,612 deduction for excise taxes because those taxes were directly related to sales of the infringing wines.

Ruling and disposition

Subtracting the permitted costs and taxes from the recoverable revenue, the court awarded Cesari $666,214 in profits. It declined Peju’s request for a further equitable reduction, reasoning that Peju continued selling infringing wines after receiving a cease-and-desist letter and after the lawsuit began, and that the infringement had been found to involve bad faith.

Judge Naomi Reice Buchwald ordered that Cesari could file a motion for attorneys’ fees and costs by October 20, 2023. The opinion’s opening states that the profits award is “plus interest,” while its conclusion expressly awards $666,214 and a footnote says it was unclear whether prejudgment interest was warranted; the text therefore does not clearly establish a separate interest award.