NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________
Nos. 23-1609 & 23-1705 _____________
AVCO CORPORATION Appellee/Cross-Appellant in No. 23-1705
v.
TURN AND BANK HOLDINGS, LLC; PRECISION AIRMOTIVE, LLC Appellants/Cross-Appellees in No. 23-1609
v. . AVSTAR FUEL SYSTEMS, INC. Appellee/Cross-Appellant in No. 23-1705 ____________
On Appeal from the United States District Court for the Middle District of Pennsylvania (Case No. 4:12-cv-01313) District Judge: Honorable Matthew W. Brann ____________
Argued: June 4, 2024 ___________
Before: CHAGARES, Chief Judge, CHUNG and FISHER, Circuit Judges.
(Opinion filed: July 17, 2024) Carmelle F. Alipio Richard T. Matthews [ARGUED] Andrew R. Shores Robert C. Van Arnam Williams Mullen 301 Fayette Street Suite 1700 Raleigh, NC 27601
Christopher R. Healy Troutman Pepper Hamilton Sanders LLP 3000 Two Logan Square 18th and Arch Street Philadelphia, PA 19103
Justin G. Weber Troutman Pepper Hamilton Sanders LLP 100 Market Street P.O. Box 1181, Suite 200 Harrisburg, PA 17108
Counsel for Appellants/Cross-Appellees
Alexander Gazikas Amy M. Saharia [ARGUED] Janae N. Staicer Williams & Connolly 680 Maine Avenue SW Washington, DC 20024
Counsel for Appellees/Cross-Appellants ____________
OPINION* ____________
* This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not constitute binding precedent.
2 CHAGARES, Chief Judge.
These appeals arise from protracted trademark infringement litigation. After the
District Court determined that Avco Corporation and AVStar Fuel Systems, Inc.
infringed upon Turn and Bank Holdings, LLC and Precision Airmotive, LLC’s
(collectively, “Precision”) trademark as a matter of law and a jury found they did so
willfully, the District Court held a bench trial for remedies. The District Court awarded
Precision only a small portion of its requested damages. Precision appeals that remedies
judgment. Avco and AVStar bring a conditional cross-appeal as to the District Court’s
trademark infringement ruling; if we are to disturb the remedies judgment, they appeal
the trademark infringement liability judgment. We will affirm the District Court’s
remedies judgment and, therefore, will not address the conditional cross-appeal.
I.
Because we write for the parties, we recite only the facts pertinent to our decision.
Precision and its predecessors-in-interest have produced fuel-injection servos for aircraft
engines, among other products, since the 1960s.1 These servos are engine parts that
control the delivery of a combustible fuel-air mixture to general aviation aircraft engines.
Precision manufactures and sells servos to two main classes of purchasers: (1) aircraft
engine manufacturers and (2) aircraft owners and servicers who perform maintenance and
1 Precision’s predecessor-in-interest filed for bankruptcy following the initiation of the underlying litigation, out of which Turn and Bank Holdings, LLC purchased the relevant product lines of fuel-injection servos and other assets and licensed their use to Precision Airmotive, LLC. 3 engine overhauls in an aftermarket. Appendix (“App.”) 261. Precision’s servos display
marks of either “RS” or “RSA.”
Avco, an aircraft engine manufacturer, was Precision’s biggest customer of RSA-
type servos. In fact, Precision was Avco’s sole supplier of these servos, selling them to
Avco’s unincorporated division, Lycoming Engines, located in Pennsylvania. But the
companies’ relationship eventually deteriorated and Avco sought a new servo supplier.
Avco approached AVStar, a company that overhauled and repaired aircraft fuel systems,
and asked whether AVStar could develop and provide servos and other parts for Avco.
Avco and AVStar entered into a series of agreements under which Avco agreed to pay
AVStar for the development and manufacturing of these servos. AVStar ultimately
succeeded and sold servos to Avco bearing the same “RS” or “RSA” marks found on
Precision’s servos.
Avco initiated this litigation against Precision in 2012, shortly after Avco sold its
first engine using an AVStar servo with the RSA marks. Precision impleaded AVStar
and asserted federal and state counterclaims for trademark infringement against both
Avco and AVStar. The parties then cross-moved for summary judgment. The District
Court granted Precision’s motion for summary judgment and denied Avco and AVStar’s
in 2018. It held that Precision’s RSA marks were protectible trademarks, that Avco and
AVStar infringed upon Precision’s trademark, and that Avco and AVStar could not make
out a fair use defense.
The District Court then presided over a jury trial in 2022 for willful infringement.
The jury found that Avco and AVStar had willfully infringed Precision’s trademarks.
4 The District Court conducted a bench trial on remedies immediately following the
jury trial. It considered Precision’s requests for lost profits, disgorgement of Avco and
AVStar’s profits, and other relief including attorneys’ fees, enhanced damages, and
punitive damages. The District Court declined to award Precision any of its claimed
$8,929,582 in lost profits. It disgorged only $264,818 of the $10,980,278 in profit that
Avco and AVStar made from servos and airplane engines containing servos bearing the
RSA marks. Finally, it declined to award Precision any attorneys’ fees, enhanced
damages, or punitive damages. Precision timely appealed this judgment. Avco and
AVStar then timely cross-appealed the summary judgment liability ruling in the event
that this Court were to reverse the remedies judgment.
II.
The District Court had subject matter jurisdiction over the federal and state
trademark and unfair competition claims pursuant to 28 U.S.C. §§ 1331, 1367. Our
appellate jurisdiction is authorized by 28 U.S.C. § 1291. We review a District Court’s
decisions on equitable remedies under the Lanham Act, including those for lost profits,
disgorgement, and attorneys’ fees, for abuse of discretion. See Covertech Fabricating,
Inc. v. TVM Bldg. Prods., Inc., 855 F.3d 163, 169-70 (3d Cir. 2017); Banjo Buddies, Inc.
v. Renosky, 399 F.3d 168, 173 (3d Cir. 2005) (citing Gucci Am., Inc. v. Daffy’s Inc., 354
F.3d 228, 242 (3d Cir. 2003)). We review the District Court’s factual findings following
a bench trial for clear error and its legal conclusions de novo. Covertech, 855 F.3d at
169-70; Banjo Buddies, 399 F.3d at 173.
5 III.
The Lanham Act creates federal causes of action for trademark infringement and
unfair competition. See 15 U.S.C. §§ 1114, 1125(a). This Court analyzes both types of
claims in the same manner.2 See A & H Sportswear, Inc. v. Victoria’s Secret Stores, Inc.,
237 F.3d 198, 210 (3d Cir. 2000). Under the Lanham Act, a plaintiff whose trademark is
infringed upon may be entitled, “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). “The court in exceptional cases may award reasonable
attorney fees to the prevailing party” and enhance the actual damages awarded “not
exceeding three times.” Id. Although punitive damages are not available under the
Lanham Act, they may be available under operative state law.3 See Caesars World, Inc.
v. Venus Lounge, Inc., 520 F.2d 269, 274 (3d Cir. 1975); J. Thomas McCarthy, 4
McCarthy on Trademarks and Unfair Competition § 30:96 (5th ed. 2024, Westlaw)
[hereinafter McCarthy on Trademarks and Unfair Competition]. We address the three
categories of damages the District Court considered — lost profits, disgorgement, and
other damages — in turn.
2 Although Precision also asserted a Pennsylvania unfair competition counterclaim. this state claim is analogous to the Lanham Act claims, so we analyze them together. See Standard Terry Mills, Inc. v. Shen Mfg. Co., 803 F.2d 778, 780 n.4 (3d Cir. 1986). While we limit our discussion to the federal claims, the same analysis applies to both state and federal claims. See id. 3 The parties agree that Pennsylvania law applies, as do we. 6 A.
We see no abuse of discretion in the District Court’s decision to award Precision
no lost profits. A trademark plaintiff may recover the profits it lost from the infringer’s
use of the trademark. See 15 U.S.C. § 1117(a); see also Gucci Am., 354 F.3d at 242.
The plaintiff bears the burden of proving both causation and the amount of lost profits.
See Gucci Am., 354 F.3d at 242 n.15 (“The [trademark] owner has the burden of proving
that lost profits are attributable to the unlawful use of the mark.”); 4 McCarthy on
Trademarks and Unfair Competition § 30:72. Although this Court has never held which
type of causation the plaintiff seeking lost profits must prove, some of our sister Courts of
Appeals, the leading trademark treatise, and the parties agree that a plaintiff must prove
the profits he would have made but for the defendant’s infringement. See Jason Scott
Collection, Inc. v. Trendily Furniture, LLC, 68 F.4th 1203, 1220 (9th Cir. 2023); Rite-
Hite Corp. v. Kelley Co., 56 F.3d 1538, 1545 (Fed. Cir. 1995); 4 McCarthy on
Trademarks and Unfair Competition § 30:59. While the plaintiff has this burden, “it does
not have to negate every conceivable intervening factor which might have caused a
decline in sales.” 4 McCarthy on Trademarks and Unfair Competition § 30:79.
Precision argues that the District Court improperly applied the but-for causation
standard and held it to a higher standard, erroneously requiring Precision to prove that
Avco and AVStar’s infringement was the “sole cause” of the lost profits. Precision Br.
42. It points to record evidence that purportedly shows that Avco required AVStar to
include the RSA marks on its servos to demonstrate that it proved causation. But we
detect no legal error in the District Court’s causation analysis and no clear error in its
7 factual determinations. Contrary to what Precision argues, the District Court applied a
but-for causation standard. See App. 83. Applying this standard, it considered that Avco
required AVStar to use the RSA marks on its servos. See App. 82; see also App. 72 ¶ 5.
The District Court determined that Precision did not carry its burden of showing that
Avco purchased AVStar’s servos because of the RSA marks and that to the contrary, the
evidence showed that Avco purchased AVStar’s servos for a litany of reasons other than
the RSA marks, including Precision’s high prices, unreliability and delivery issues, its
ability as Avco’s sole supplier to make negotiation ultimatums, and Avco’s general
preference to have multiple servo suppliers. See App. 83, 87. Moreover, the District
Court chose to credit Avco’s expert witness in damages over Precision’s, finding that
Avco’s economic data showing that AVStar’s servos sales increased after it removed the
RSA marks from its products belied Precision’s argument that the sales were motivated
by use of the marks. See App. 83-89.
Put simply, the District Court appropriately considered the fact that Avco asked
AVStar to use the RSA marks. It did not find that the RSA marks were a cause of
AVStar’s servo sales to Avco at all. Nor did it require Precision to prove the use of the
marks was the sole reason for the sales. And its factual findings and credibility
determinations underpinning these conclusions are all supported by the record. So we
detect no error and will affirm.
8 B.
We also see no abuse of discretion in the District Court’s decision to disgorge only
a portion of AVStar’s servo sales. Disgorgement of the defendant’s profits is available in
three circumstances: “if the defendant is unjustly enriched, if the plaintiff sustained
damages, or if an accounting is necessary to deter infringement.” Banjo Buddies, 399
F.3d at 178. This Court has “emphasized the ‘or’ in this construction—noting that
because [t]hese rationales are stated disjunctively; any one will do.” Marshak v.
Treadwell, 595 F.3d 478, 495 (3d Cir. 2009) (alteration in original) (quotation marks
omitted). A plaintiff’s “actual damages” are thus sufficient, but not necessary, for the
availability of disgorgement of a defendant’s profits because the remedy may still be
available on the basis of deterrence or the defendant’s unjust enrichment. Id. at 495; see
also 4 McCarthy on Trademarks and Unfair Competition § 30:59.
In addition to determining whether disgorgement is available, courts must consider
whether equity supports disgorging the defendant’s profits. Courts must balance the
equities and consider “(1) whether the [infringer] had the intent to confuse or deceive, (2)
whether sales have been diverted, (3) the adequacy of other remedies, (4) any
unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in
making the misconduct unprofitable, and (6) whether it is a case of palming off.” Kars 4
Kids Inc. v. Am. Can!, 8 F.4th 209, 223 (3d Cir. 2021) (quoting Banjo Buddies, 399 F.3d
at 175) (alteration in original).
If the disgorgement remedy is available and supported by equity, “the plaintiff
shall be required to prove defendant’s sales only.” 15 U.S.C. § 1117(a). The burden then
9 shifts to the defendant to “prove all elements of cost or deduction claimed.” Id.; see also
Covertech, 855 F.3d at 177 (“[T]he trademark owner is tasked with proving the
infringer’s sales before the burden of proof shifts to the defendant to show costs and
deductions.”). The defendant may accomplish this by “demonstrat[ing], if [it] can, that
profits were not derived from the infringing use.” Williamson-Dickie Mfg. Co. v. Davis
Mfg. Co., 251 F.2d 924, 927 (3d Cir. 1958); see also Gucci Am., 354 F.3d at 242.
The District Court misstated the law when conducting its disgorgement analysis,
but we will affirm because it still did not abuse its discretion in disgorging only some of
AVStar’s profits. See Kos Pharms., Inc. v. Andrx Corp., 369 F.3d 700, 712 (3d Cir.
2004) (“Although a district court’s application of an incorrect legal standard would
normally result in a remand, we need not remand if application of the correct legal
standard could support only one conclusion.” (quotation marks omitted)); see also TD
Bank N.A. v. Hill, 928 F.3d 259, 270 (3d Cir. 2019) (“[W]e may affirm on any basis
supported by the record, even if it departs from the District Court’s rationale.”).
In its discussion of how much of Avco and AVStar’s profits are subject to
disgorgement,4 the District Court stated that “[m]ore importantly, disgorgement is
warranted under equity only where [Precision] has suffered actual harm.” App. 95. It
cited no authority for this statement. This is not a correct statement of law. See Marshak,
595 F.3d at 495 (“[Plaintiff] did not need to establish actual damages to justify the
4 Given that the District Court discussed “actual harm,” App. 95, at this stage of its analysis, the District Court may have been using “actual harm” to communicate that disgorgement was limited to compensating Precision and could not be awarded as punitive damages. 10 imposition of an accounting of profits—she needed only to show that an accounting was
necessary to deter infringement or that [the defendant] and his associates were unjustly
enriched.”); 4 McCarthy on Trademarks and Unfair Competition § 30:59 (“[T]he inability
of plaintiff to prove actual damages does not preclude an award of the infringer’s
profits.”).
Nonetheless, the District Court still determined that disgorgement was available to
Precision and supported by equity. See App. 97-100. It awarded Precision $264,818 of
the $10,980,278 in profit that Avco and AVStar made from servo and airplane engine
sales that used the infringing mark. App. 93, 97, 100. This legal error caused Precision
no harm; the District Court agreed with Precision that it was entitled to seek
disgorgement and that disgorgement was supported by equity.5 Thus, even if the District
Court had erred, is not clear how vacating and remanding would redress this error
because the District Court already ruled in favor of Precision on these issues.6
5 Although Precision argues that disgorgement is necessary to deter infringement and to remedy unjust enrichment, see Precision Br. 52-56, these arguments concern the availability of disgorgement, which the District Court already held was available. To the extent that Precision argues that the District Court’s error somehow diminished Avco and AVStar’s burden, by requiring them to disprove only that the profits from third-party sales were not derived from the infringing use, we reject that argument. The District Court explicitly analyzed whether Avco and AVStar met their burden as to the entire $10,980,278 at issue, as discussed below. 6 Nor do we find Precision’s argument that the District Court’s misstatement of law “infected” its balancing of the equities convincing. Precision Br. 57; see also id. at 58. The District Court balanced all six factors and held that equity did support disgorgement. See App. 100. It ruled in Precision’s favor on this issue. To remand this issue to the District Court for rebalancing would be a wheel-spinning exercise. 11 We similarly see no error in the District Court’s holding that Avco and AVStar
carried their burden to discount most of their profits from disgorgement. The District
Court first held that Precision met its burden of demonstrating Avco and AVStar’s
profits. It then shifted the burden to Avco and AVStar to demonstrate that their profits
did not result from use of the infringing mark. App. 92. The District Court concluded
that Avco and AVStar largely, but not totally, succeeded. App. 93. It held that most of
the disgorgement Precision requested was not, as required, compensation for any harm
suffered, see 15 U.S.C. § 1117(a), for the same reason it provided in its lost profits
analysis: that is, Avco would have purchased AVStar servos no matter whether the RSA
marks were on the servos because Avco was motivated by a litany of unrelated factors
supported by the record. See App. 93-94. This accounted for 98% of AVStar’s total
sales. App. 93. The amount it did disgorge (AVStar’s remaining profits from sales to
third parties) were the profits that Avco and AVStar failed to demonstrate did not result
from use of the infringing mark. The District Court held this because Avco and AVStar
offered no evidence that these third-party sales were obtained for reasons other than the
use of the RSA marks. App. 94-97; App. 101 n.131.7 The District Court did not err in
7 Precision cites two decisions to support its argument: Marshak v. Treadwell, 595 F.3d 478 (3d Cir. 2009), and W.E. Basset Co. v. Revlon, Inc., 435 F.2d 656 (2d Cir. 1970). But neither decision controls our analysis. Both cases concerned different procedural postures and much more egregious conduct by the trademark infringer. See Marshak, 595 F.3d at 482, 495; W.E. Basset, 435 F.2d at 663-64. Here, the District Court never issued an injunction that Avco and AVStar could have attempted to evade, Avco and AVStar promptly ceased use of the RSA marks after the District Court’s summary judgment ruling, and Precision points to no bad faith conduct by Avco and AVStar similar to that in these cases. 12 finding that AVStar only failed to meet its burden as to these sales and did not abuse its
discretion in awarding these disgorged profits to Precision.
In sum, the District Court’s error was in its explication of the availability analysis,
not in its calculation analysis. And despite the error, the District Court still held in favor
of Precision on the availability of a disgorgement remedy. This error had no bearing on
the calculation of disgorgement. And reviewing the District Court’s disgorgement
calculations, we detect no error for similar reasons as stated above. So we will affirm.
C.
We see no abuse of discretion in the District Court’s decision to award no
attorneys’ fees, enhanced damages, or punitive damages.
1.
“The court in exceptional cases may award reasonable attorney fees to the
prevailing party.” 15 U.S.C. § 1117(a). The statute does not define such exceptional
cases, but our caselaw provides some guidance. Courts determining attorneys’ fees
awards under the Lanham Act must engage in a two-step inquiry. See Fair Wind Sailing,
Inc. v. Dempster, 764 F.3d 303, 314 (3d Cir. 2014). The test is as follows:
First, the District Court must decide whether the defendant engaged in any culpable conduct. We have listed bad faith, fraud, malice, and knowing infringement as non-exclusive examples of the sort of culpable conduct that could support a fee award. Moreover, the culpable conduct may relate not only to the circumstances of the Lanham Act violation, but also to the way the losing party handled himself during the litigation. Second, if the District Court finds culpable conduct, it must decide whether the circumstances are “exceptional” enough to warrant a fee award.
13 Id. (quoting Green v. Fornario, 486 F.3d 100, 103 (3d Cir. 2007)). Under the second
step, a case may be “exceptional” when “(a) there is an unusual discrepancy in the merits
of the positions taken by the parties or (b) the losing party has litigated the case in an
‘unreasonable manner.’” Id. at 315 (citing Octane Fitness, LLC v. ICON Health &
Fitness, Inc., 572 U.S. 545, 554 (2014)). Precision offers no independent reason why this
Court should vacate and remand the District Court’s attorneys’ fees decision. It instead
argues that we should vacate the District Court’s decision not to award attorneys’ fees
because its ruling was “predicated on the court’s antecedent decisions not to award
Precision its lost profits or disgorge AVStar and Avco’s ill-gotten gains.” Precision Br.
59. It does not point to any record evidence of Avco and AVStar’s purportedly culpable
conduct, nor does it argue that the circumstances are sufficiently exceptional to warrant
an award. See id. at 59-60. Because we will affirm the District Court’s decisions on lost
profits and disgorgement and Precision offers no independent argument as to entitlement
to attorneys’ fees, we will affirm the District Court’s decision.
2.
If a court awards enhanced damages, “such an enhancement ‘shall constitute
compensation and not a penalty.’” Kars 4 Kids, 8 F.4th at 224 (quoting 15 U.S.C.
§ 1117(a)). Again, Precision offers no independent reason why we should vacate and
remand for a new consideration of enhanced damages. And the District Court considered
the fact that the $264,818 it disgorged “likely represents an overestimate of any profits
gained from AVStar’s use of the RSA Marks.” App. 101. Therefore, we will affirm the
District Court’s decision on enhanced damages.
14 3.
Finally, we will affirm the District Court’s decision not to award punitive damages
for similar reasons. Under Pennsylvania law, “[p]unitive damages may be awarded for
conduct that is outrageous, because of the defendant’s evil motive or his reckless
indifference to the rights of others.” Hutchinson v. Luddy, 870 A.2d 766, 770 (Pa. 2005)
(quoting Feld v. Merriam, 485 A.2d 742, 747 (Pa. 1984)); see also Tunis Bros. Co., Inc.
v. Ford Motor Co., 952 F.2d 715, 740 (3d Cir. 1991) (discussing Pennsylvania law); Coll.
Watercolor Grp., Inc. v. William H. Newbauer, Inc., 360 A.2d 200, 208 (Pa. 1976)
(affirming a trial court order awarding punitive damages for trademark infringement).
Punitive damages are “penal in nature” and “proper only in cases where the defendant’s
actions are so outrageous as to demonstrate willful, wanton[,] or reckless conduct.”
Hutchinson, 870 A.2d at 770; see also Tunis Bros., 952 F.2d at 740. The “size of a
punitive damages award must be reasonably related to the State’s interest in punishing
and deterring the particular behavior of the defendant and not the product of arbitrariness
or unfettered discretion.” Brown v. End Zone, Inc. 259 A.3d 473, 487 (Pa. Super. Ct.
2021) (quoting Hollock v. Erie Ins. Exch., 842 A.2d 409, 419 (Pa. Super. Ct. 2004)).
Pennsylvania courts consider “(1) the character of the act; (2) the nature and extent of the
harm; and (3) the wealth of the defendant.” Id.; see also Tunis Bros., 952 F.2d at 740.
Just as Precision failed to offer an independent reason or produce an argument as
to entitlement to attorneys’ fees or enhanced damages, it fails to do so for punitive
damages. Precision points to no record evidence showing that Avco and AVStar’s
conduct was outrageous, evinced an evil motive, or displayed reckless indifference. Nor
15 does it make any argument addressing the character of the act, nature and extent of the
harm, or the wealth of the defendant. We also see no abuse of discretion with the District
Court’s analysis of the issue. Therefore, we will affirm the District Court’s decision not
to award punitive damages, as well.
IV.
For the foregoing reasons, we will affirm the District Court’s judgment. Because
we do not disturb this judgment, we will not reach Avco and AVStar’s conditional cross-
appeal and deem it moot.