Variety v. Walmart: Dire Consequences For Intentionally Infringing Trademarks

Takeaway: Walmart was found to be willfully infringing on a trademark against the warnings of its legal counsel and now is paying the price, which could be around $100 million.

Intellectual property litigation can be expensive, and large companies sometimes take advantage of this fact to bully smaller entities out of exercising their intellectual property rights. A recent case shows that, despite the defendant’s massive size (2,200,000 employees), a smaller company (3,000 employees) can still prevail in intellectual property litigation.

On July 6, 2017, U.S. District Judge Terrence W. Boyle ordered Wal-Mart Stores, Inc. to pay attorneys’ fees resulting from the ongoing Variety Stores, Inc. v. Wal-Mart Stores, Inc.  case, in which Walmart was ordered to disgorge $32.5M of profits from the sale of products that the court found infringed upon Variety’s Backyard™ brand.

On November 21, 2016, Judge Boyle stated that the case demonstrates “a willful and knowing violation by a larger corporation of a smaller company’s established and registered trademark.” He decried Walmart’s choice to use the infringing mark as “deliberate” and “done over repeated warnings from its own legal counsel.” Therefore, he ruled in favor of disgorgement of Walmart’s profits in light of this willful infringement of Variety’s trademark rights.

Following this judgement, Variety moved for an award of attorneys’ fees and associated costs. According to the Trademark Act of 1946 (Lanham Act), attorneys’ fees may be awarded in “exceptional” cases.  As interpreted by the Supreme Court, “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of the party’s litigating position… or the unreasonable manner in which the case was litigated.”

The court opined that this case is indeed exceptional, with the judge citing Walmart’s decision to use the BACKYARD mark even after its own counsel warned twice against doing so and in spite of its knowledge of the existence of Variety’s trademark registration.  Walmart’s “remarkable contentions” that the BACKYARD mark was worth “zero” were rejected by the court, and the judge ordered Walmart to pay Variety  for 5,276 hours of legal work, amounting to $1.96M for attorneys’ fees and costs.

Prior to the award of attorneys’ fees, both parties filed appeals with the United States Court of Appeals for the Fourth Circuit. Variety sought treble damages and pre-judgment interest, while Walmart wanted the decision to be overturned. If Variety gets their way, Walmart would be compelled to pay a total of around $100M to Variety.

In determining the amount of the award for both the attorneys’ fees and the disgorgement order, Judge Boyle articulated the importance of balancing the two goals: deterring trademark infringement and avoiding unjustly enriching the plaintiff with a windfall.  In essence, the court should award an amount that adequately compensates a victim while avoiding over-punishing the infringer.

In Variety’s pending case at the appellate court level, Variety is hoping that a non-punitive doctrine will not apply. They are seeking treble damages, which permits a court to triple the award of compensatory damages in order to punish a willful infringer or one that acts in bad faith. If the judges at the appellate court share Judge Boyle’s sympathies, Variety might get their way.