Petition — Western Pharmacal Co. v. AMFAC Distributing Corp.

IN THE

Supreme Court of the United States

October Term, 1977

WESTERN PHARMACAL COMPANY,

a Utah corporation,

Petitioner,

Vv.

AMFAC DISTRIBUTING CORPORATION,

a California corporation, dba

WESTERN DRUG SUPPLY CO.,

Respondent.

PETITION FOR A WRIT OF CERTIORARI FROM

THE UNITED STATES COURT OF APPEALS FOR

THE TENTH CIRCUIT

LYNN G. FOSTER

602 East Third South

Salt Lake City, Utah S4102

(‘ounsel for Petitioner

July 14, 1977

Page

Opinions Below ....................-..---++ 1

SRS ERE AS Oe Sn ee 2

Questions Presented for Review ......................-.sss-0+-+-e0++ 2

Statutory Provisions Involved ........ — 4

> IEEE ie Oe Ds Oar Ts cee eNO 5

I ici cetleiiinesinainaitiarintininnamdonipeats 9

NS acide cdl ochcesiechceati nedavetlichicb Sanndelincihatipcbinenes seithens 19

APPENDIX A — Opinion of Court of Appeals,

I i a sestemereianeneeenant Al

APPENDIX B — Opinion of Court of Appeals,

NON | Dh AST SATE Ore A6

APPENDIX C — Opinion of Court of Appeals,

SR ED Tile CTO iceeiitesidihscncniticinisetailhigietenaatnncinasis Al18

CASES CITATIONS

Adam Hat Stores, Inc. v. Lefeo, 134 F 2d 101,

56 USPQ 393, 33 TMR 189 (3d C. 1943) .................... 17

Aladdin Mfg. Co. v. Mantle Lamp Co. of America,

I I BE virrentccctitiecetnicnemmnnesimemmnteaeen 18

Ambrosia Chocolate Co. v. Ambrosia Cake Bakery, Inc.,

165 F 2d 693, 76 USPQ 157, 38 TMR 183

EE Re Se ay Se a La a Oe SO 17

Anheuser-Busch, Inc. v. DuBois Brew. Co.,

175 F 2d 370, 81 USPQ 423, (3d C. 1949) -....0.. 17

Atlas Building Products Co. v. Diamond Block & Gravel

Co., 269 F 2d 950, 958 (CA 10 1959)............................ 7

Blue Bell Co. v. Frontier Oil Refining Co.,

fa ST EAE ee aE errr 3

Clifford Vaughn v. N. J. Atkinson, etc., et al.,

369 US 527, 8 L Ed 2d 88, 82 S Ct. 997, reh den

370 US 965, 8 L Ed 834, 82 S Ct 1578 (1962) ............ 17

INDEX — (Continued)

Page

Dunleavy v. Koeppel Steel Products, Inc.

(Koeppel Metal Furniture Corp., assignee,

substituted) (Com. Patents, 1957) 114 USPQ 43 ... 9

Dwinell-Wright Co. v. White House Milk Co., Inc.,

132 F 2d 822, 56 USPQ 120, 33 TMR 2 (2d C. 1943).. 17

F’. D. Rich Co., Inc. and Transamerica Insurance Co.

v. United States For the Use of Industrial Lumber

Co., Ine., 417 US 116, 40 L Ed 2d 703, 94 S Ct 2157

| REST Ay ae cents SENIOR SN MET Toe 17

Hedrick et al v. Perry, 102 F 2d 802, 806, 807

tt BB eR RU RE ONS re ee 7

Landers, Frary & Clark v. Universal Cooler Corp.,

85 F 2d 46, 30 USPQ 248 (2d C. 1936)... 17

Mishawaka Rubber and Woolen Mfg. Co. v. Bata

Narodni Podnik (by change of name, Svit Narodni

Podnik) (C.C.P.A. 1955) 105 USPQ 432 .. 9

Mishawaka Rubber and Woolen Mfg. Co. v. 8.S. Kresge

Co., 316 US 203, 86 L Ed 1381, 62 S Ct 1022 (1941)... 2

Schilling et al v. Schitzer-Cummins Co.,

fe 5 fal y 35g SRC caery Smee eeaee 11

Stoody Co. v. Clady Royer, et al, 374 F 2d 672,

Fe edt Seah Sua chats ACE ae 7

United States of America v. Dale P. Ewing,

d/b/a Action Publishing Company, 445 F 2d 945,

ey) RRS IIR SA oe 8

United States v. E] Paso Natural Gas Co. et al.,

376 US 651, 12 L Ed 2d 12, 84 S Ct 1044 (1964) _...... 3

STATUTES

15 United States Code, Section 1117 2200.00.00. cece ceeeee eee 4

28 United States Code, Section 1254 00.0. 4

28 United States Code, Section 1651 —.............. ‘ips 4

RULES

Supreme Court Rules, Rule 19 2.02..0...0...ececececececeseeeeeeneeeee 5

IN THE

Supreme Court of the United States

October Term, 1977

No.

WESTERN PHARMACAL COMPANY,

a Utah corporation,

Petitioner,

V.

AMFAC DISTRIBUTING CORPORATION,

a California corporation, dba

WESTERN DRUG SUPPLY CO.,

Respondent.

PETITION FOR A WRIT OF CERTIORARI FROM

THE UNITED STATES COURT OF APPEALS FOR

THE TENTH CIRCUIT

Petitioner, WESTERN PHARMACAL CO., prays

that a writ of certiorari issue to review the judgment of the

United States Court of Appeals for the Tenth Circuit

entered in the above case on March 17, 1977. Petition for

Rehearing was denied on April 22, 1977.

OPINIONS BELOW

The three unreported opinions of the Court of Appeals,

filed March 17, 1977, October 6, 1975 and April 22, 1974

are appended hereto, infra, at pp. A-l through A-25. There

is no opinion of the District Court below.

2

JURISDICTION

The judgment of the United States Court of Appeals

was dated and entered March 17, 1977. Petition for Rehear-

ing was denied on April 22, 1977. Jurisdiction of this Court

is invoked under 28 USC Section 1254(1).

QUESTIONS PRESENTED FOR REVIEW

A national trademark policy needs to be established by

this Court in respect to the following:

1. Whether the decision of the Court of Appeals is in

conflict with and in disregard of this Court’s controlling

decision in Mishawaka Rubber and Woolen Mfg. Co. v.

S.S. Kresge Co., 316 US 203, 86 L Ed 1381, 62 S Ct 1022,

(1941), which case holds that the profits of a trademark

infringer may be awarded to a trademark owner by the

trial court unless the infringer proves that some or all of

said profits are not attributable to the infringement.

2. Whether the decision of the Court of Appeals on

March 17, 1977, reversing the District Court’s award of

profits, is in conflict with an earlier decision (October 6,

1975) by the same Court affirming the District Court’s

award of profits, and whether the reversal of March 17,

1977 may stand where (a) the decision of October 6, 1975

was law of the case and treated as such by both parties,

(b) said reversal was not sought by either party, (c) no

ground appeared for reversal, (d) said reversal undertakes

to avoid or overturn the law of Mishawaka, supra, without

apparent justification, and (e) said reversal appears to be

a perpetuation of an open and long standing controversy

and feud between the Tenth Circuit and the trial court

rather than a review on the merits of the case.

3

3. Whether the Court of Appeals rejected the findings

of fact by the District Court “out of hand” and in conflict

with this Court’s decision in United States v. El Paso

Natural Gas Co. et al., 376 US 651, 12 L Ed 2d 12, 84 S Ct

1044, (1964) which holds that Findings of Fact prepared

by the prevailing party and adopted verbatim by the Dis-

trict Court must be reviewed on the merits.

4. Whether the decision of the Court of Appeals in

this case is in conflict with its decision in Blue Bell Co. v.

Frontier Oil Refining Co., 213 F.2d 354 (CA 10 1954), hold-

ing that the goodwill generated by a trademark infringer

inures to the benefit of the trademark owner and the

infringer’s profits in respect to said goodwill are attrib-

utable (within the meaning of Mishawaka, supra) to the

infringement; and whether it is, or should be, the national

policy in trademark infringement cases that goodwill gen-

erated by a trademark infringer should inure to the benefit

of the trademark owner and profits made by the infringer

respecting said goodwill are attributable to the infringe-

ment within the meaning of Mishawaka, supra.

5. Is an impecunious trademark owner [who is re-

quired by law to purge an infringement of its trademark

(or thereafter be estopped from doing so)], also required

to endure a perpetual, willful and deliberate infringement,

endure threats by the financially strong infringer and

carrying out of threats, absorb a heavy economic burden

in resisting the threats and in enforcing the trademark

rights, forego plans to expand its business without any

entitlement to compensation for lost profits and attorneys

fees proximately caused by the infringer’s mentioned acts

of deliberate infringement, prolonged litigation, and eco-

nomic oppression.

4

STATUTORY PROVISIONS INVOLVED

1. 15 United States Code, Sec. 1117:

“When a violation of any right of the registrant

of a mark registered in the Patent and Trademark

Office shall have been established in any civil action

arising under this Chapter, the plaintiff shall be

entitled, subject to the provisions of sections 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. The court shall assess such profits

and damages or cause the same to be assessed under

its direction. In assessing profits the plaintiff shall

be required to prove defendant’s sales only; de-

fendant must prove all elements of cost or deduction

claimed. In assessing damages the court may enter

judgment, according to the circumstances of the

case, for any sum above the amount found as actual

s, not exceeding three times such amount.

If the court shall find that the amount of the recov-

ery based on profits is either inadequate or exces-

sive the court may in its discretion enter judgment

for such sum as the court shall find to be just,

according to the circumstances of the case. Such

sum in either of the above circumstances shall con-

stitute compensation and not a penalty. The court

in exceptional cases may award reasonable attor-

nevs fees to the prevailing party.”

. 28 United States Code, Section 1651:

“Writs.

(a) The Supreme Court and all courts estab-

lished by Act of Congress may issue all writs

necessary or appropriate in aid of their respective

jurisdictions and agreeable to the usages and prin-

ciples of law.”

3. 28 United States Code, Section 1254:

“Section 1254 Courts of appeals; certiorari; appeal ;

certified questions”

5)

“Cases in the courts of appeals may be reviewed by

the Supreme Court by the following methods: (1)

By writ of certiorari granted upon the petition of

any party to any civil or criminal case, before or

after rendition of judgment or decree.”

4. Supreme Court Rules, Rule 19:

1. A review on writ of certiorari is not a matter

of right, but of sound judicial discretion, and will be

granted only where there are special and important

reasons therefor. The following, while neither con-

trolling nor fully measuring the court’s discretion,

indicate the character of reasons which will be con-

sidered: ...

(b) Where a court of appeals has rendered a

decision in conflict with the decision of another

court of appeals on the same matter, or has decided

an important state or territorial question in a way

in conflict with applicable state or territorial law;

or has decided an important question of federal law

which has not been, but should be, settled by this

court; or has decided a federal question in a way

in conflict with applicable decisions of this court;

or has so far departed from the accepted and usual

course of judicial proceedings, or so far sanctioned

such a departure by a lower court, as to call for an

exercise of this court’s power of supervision.”

STATEMENT OF THE CASE

Petitioner, Western Pharmacal Co., prays in its Peti-

tion to this Court for review and reversal of the mandate of

the United States Circuit Court for the Tenth Cirenit filed

March 17, 1977. Said order reversed an award of damages

and profits by the United States District Court, District

of Utah.

On July 9, 1973, following trial, the United States

District Court, District of Utah, held that the Respondent,

AMFAC Distribution Corp., dba Western Drug Supply,

6

had infringed Petitioner’s trademark “Western Pharma-

eal.” Said court awarded Plaintiff $10,000.00 in damages

and ordered an accounting of AMF'AC’s Salt Lake profits.

On appeal to the U.S. Court of Appeals, Tenth Circuit, the

District Court was affirmed on April 23, 1974 on the issues

of liability. The award of $10,000.00 in damages was

reversed, said award having been based on an admission

by AMFAC (made for jurisdictional purposes) that Peti-

tioner’s damages amounted to at least $10,000.00. Further

proceedings were ordered by the Tenth Circuit to determine

Plaintiff’s damages.

A dispute arose as to whether AMFAC was entitled

to thereafter submit evidence that some of its profits

(as opposed to damages) were not attributable to its

infringement. The Tenth Circuit held on October 6, 1975

that AMF'AC was so entitled and further held that at any

hearing had on said issue that Petitioner could also submit

proof of its actual damage. In respect to the question of

determining the magnitude of AMFAC’s profits to be

awarded, the Court of Appeals held (a) Western Pharmacal

at said hearing had the burden of establishing AMFAC’s

gross sales during the infringement period and (b) that

AMFAC had the burden to show (1) all expenses properly

allowable against gross sales (in order to arrive at the

resulting profit) and (2) which of AMFAC’s resulting

Salt Lake profits were not attributable to the infringement.

A hearing was held February 19, 20, 1976 pursuant

to the Tenth Circuit’s order of October 6, 1975. At that

hearing, Petitioner introduced evidence of both actual dam-

age and Respondent's gross sales in Salt Lake City.

7

Petitioner’s evidence of damage comprised (a) evi-

dence of substantial expenditures of attorneys fees in

connection with the prosecution of the infringement action

and (b) the unchallenged testimony of an expert witness

that Petitioner lost profits from expected business expan-

sion made impossible by the economic burden of purging

infringement by means of this litigation. Petitioner’s uncon-

tradicted evidence showed that Respondent had threatened

to, had the financial capacity to, and did, make the infringe-

ment litigation prolix and as financially burdensome on

Petitioner as possible. On the mentioned evidence, the Dis-

trict Court made appropriate findings of fact and awarded

damages entirely consistent with the findings. The Court

of Appeals reversed the award of damages on the ground

that the award was prospective in nature and was not

allowed hy law. The Appeals Court cited no supporting

case or statutory authority. The District Court had relied

on the foliowing Tenth Cireuit cases as support for said

award: Stoody Co. v. Clady Royer, et al, 374 F 2d 672, 677

(CA 10 1967); Hedrick et al v. Perry, 102 F 2d 802, 806,

807 (CA 10 1939); Atlas Building Products Co. v. Diamond

Block & Gravel Co., 269 F 2d 950, 958 (CA 10 1959). In

Atlas, an award of future profits was made which profits

would have resulted via business expansion but for the tort

of the Defendant. This is precisely the situation here.

In response to Petitioner’s evidence of gross sales,

Respondent introduced evidence of the cost of goods sold.

The resulting figure then constituted Defendant’s Salt Lake

“gross profits.” Respondent failed to introduce admissible

evidence of any further expense legally allowable against

said gross profits. Respondent’s (and Petitioner’s) evi-

dence showed that all of Respondent’s sales during the

infringement period were made in response to the goodwill

represented by, and generated in connection with, the

infringing name “Western Drug.” Because of the nature of

Respondent’s proof (and lack of proof) the consequent

award of profits wus high. Even if the award is considered

a windfall it is proper under this Court’s holding in Mish-

awaka, supra. The Court of Appeals, however, ignored

this Court’s holding in Mishawaka. The Court only ob-

served that the amount of the award offended the Court’s

sense of fairness. The Court of Appeals thereupon reversed

(a) the District Court’s award of profits and (b) the Court

of Appeals’ affirmance on October 6, 1975 of that award.

Said reversal was effected in spite of the fact that Re-

spondent had not assigned the award of profits as error.

[The Court of Appeals has held that an assignment of

error is a prerequisite to obtaining an issue on appeal.

United States of America v. Dale P. EWING, d/b/a Action

Publishing Company, 445 F 2d 945, 949 (CA 10 1971).] Said

reversal was effected without any examination by the Court

of Appeals of and determination that the findings of fact,

made in respect to the evidence, were clearly erroneous.

The reversal by the Court of Appeals, in the last analysis,

was simply an outright refusal to follow this Court’s hold-

ing in Mishawaka respecting an award to be made to a

trademark owner. :

Petitioner’s trademark “Western Pharmacal” was reg-

istered in the U.S. Patent Office prior to the infringement.

Registration of the mark at one time lapsed through inad-

vertence but said registration was thereafter re-obtained.

Neither the Respondent nor either of the Courts below have

at any time claimed or asserted that the principles announc-

ed by this Court in Mishawaka, supra, were inapplicable

in the present case because of such lapse. Additionally,

it has been held that failure to promptly renew the registra-

9

tion has no adverse effect on the rights of the trademark

owner. Dunleavy v. Koeppel Steel Products, Inc. (Koeppel

Metal Furniture Corp., assignee, substituted) (Com. Pat-

ents, 1957) 114 USPQ 43; Mishawaka Rubber and Woolen

Mfg. Co. v. Bata Narodni Podnik (by change of name, Svit

Narodni Podnik) (C.C.P_ A. 1955) 105 USPQ 432.

ARGUMENT

In 1941 this Court decided the trademark infringement

ease of Mishawaka Rubber and Woolen Mfg. Co. v. SS.

Kresge Co., supra.

The trademark in issue in that case comprised a red

circular plug embedded in the center of heels attached to

shoes and boots. The trademark had been registered with

the U.S. Patent Office. Plaintiff contended that Defendant

infringed Plaintiff's trademark by selling heels with similar

red plugs embedded in the center thereof. There was no

evidence of actual confusion between the marks. But the

trial court found that a “reasonable likelihood” of confu-

sion existed. The trial court granted relief in the form

of an injunction, damages and an order to Defendant to

account for profits made from sales “to purchasers who

were induced to buy because they believed the heels to be

those of Plaintiff and which sales Plaintiff would otherwise

have made.”’

Plaintiff appealed to the Sixth Cireuit Court of

Appeals contending that said criterion for determining

profits was improper. The Court of Appeals affirmed and

the Plaintiff then sought, and obtained, certiorari.

The case’ was disposed of by the Supreme Court by

a divided court. The majority opinion, written by Justice

Frankfurter, made no challenge to the form of relief

10

granted. The majority held that the question of infringe-

ment was not at issue. In respect to the burden of the

parties on the issue of profits, this Court held the trade

mark owner had the initial burden of proving the gross

sales of the infringer. The burden then shifted to the

infringer to prove (a) all elements of costs claimed [in

order to establish the resulting profit] and (b) what por-

tion of the resulting profit was not attributable to the

infringement by Defendant. This last question was to be

decided in this case by resolving the issue as to whether

Kresge’s heels having a red plug were purchased by the

public in response to the diffused appeal of the red plug

trademark of Mishawaka or the —— appeal of De-

fendant’s trade name, Kresge. Furthermore, the Court held

that if the infringer failed to meet its burden ‘of proof and

the resulting award amount to a windfall to the trademark

owner, the infringer would not be heard to complain. a

Justice Black dissented on the ground that: (1) no

substantial probability existed that Defendant had taken

sales away from Plaintiff, and (2) there was no direct proof

that any purchaser had been misled into believing that heels

of Defendant were the product of Plaintiff. Or, as the

dissenting opinion noted in different language, there had

been no palming off of Defendant’s goods as being the

goods of Plaintiff and it had not been shown that Plaintiff

sustained any injury as a result of the infringement. Jus-

tice Black’s dissent concluded that an injunction alone

would have been a sufficient remedy. [The majority opin-

ion had held that infringement (likelihood of confusion)

having been established, the trademark owner had no

burden to establish actual confusion by proving palming off

or by proving loss of specific sales. |

11

On October 6, 1975 the Court of Appeals here instructed

the parties that at the hearing to be held on the issues of

the amounts of damages and profits to be awarded, the

burden of proof devolving on tie parties was to be that

which was outlined in Mishawaka, supra. The award of

the District Court, which was entered in complete conforn-

ity to the principles announced in Mishawaka, supra, as

applied to the evidence, was high, but was clearly within

the “windfall” provision of Mishawaka.

The Court of Appeals, when faced with the dollar

amount of that award, announced that it was offended

because the numbers were high and summarily undertook

to substitute itself for the trial court. The Appeal Court

did not examine the adequacy of the proofs which the same

Appeals Court had earlier directed the parties to submit.

Instead, it rejected the District Court’s findings of fact out

of hand on the ground that they had been prepared by

counsel for Plaintiff and adopted by the Court without

change. As a matter of fact, the District Court had held a

hearing to settle the finding of fact. At that hearing,

Respondent made no argument opposing any of Petitioner’s

proposed findings and it submitted no proposed findings

of its own. Even if it be assumed that Respondent did not,

by its silence, consent to Petitioner’s proposed findings,

or waive its right to thereafter object, the action by the

Court of Appeals is clearly in conflict with this Court’s

holding in United States v. El Paso Natural Gas Co., supra.

The correct test on appeal is whether the findings are

supported by the evidence. Schilling et al. v. Schwitzer-

Cummms Co., 142 F 2d 82 (CA DC 1977).

In respect to the award of profits, the Court of Appeals

(under the authorship of Justice Hill) [Justice Tom Clark,

12

who wrote the opinion in the two prior appeals, was ill and

unavailable for the hearing ef the third appeal] applied the

reasoning of Justice Black’s dissent in Mishawaka. Circuit

Judge Hill challenged for the first time, and without assign-

ment of error, the initial award of profits. He concluded,

like Black, that an injunction was sufficient. Thus, the

Tenth Circuit (on its own Motion) during the third appeal

reversed what had become the law of the case. Inconsist-

ently, the Court of Appeals had clearly acknowledged in its

opinion of October 6, 1975 the propriety of the award of

profits by “emphasizing’’ that t)> burden was on Re-

spondent “to clearly demonstrate that the profits it enjoyed

during the period of infringement are not attributable to

its unlawful use of | Petitioner’s] name” and by then noting,

in support thereof, that Respondent “was not an unwitting

infringer; it deliberately used [ Petitioner’s] name knowing

full well the consequences of its act.”

The basis on which the Tenth Cireuit now challenged

the award of profits was that the equities more clearly

appeared on this third appeal, citing specifically, first, that

there was no proof of palming off, no proof of lost sales

and no proof of injury to Plaintiff’s reputation. It is noted

that Justice Black in his Mishawaka dissent challenged the

award of profits on the basis of two of those elements, i.e.

no proof of palming off and no proof of loss of specific

sales, Again, it must be kept in mind that the majority —

opinion in Mishawaka held that the award of profits was not

in issue and the two elements relied on by Justice Black

had no bearing on the infringer’s burden to prove which

profits were not attributable to the infringement. The same

result should obtain in the case sub judice.

13

The third “equitabie” factor cited by the Court of

Appeals (injury to Petitioner’s reputation) was not a factor

in Mishawaka, either in the majority opinion or in the

dissenting opinion. Had such injury been proved, it is true

that it would have been one additional factor favoring

Petitioner. The absence of this element in no way mitigates

the equities heavily favoring Petitioner, viz, the infringe-

ment was deliberate and the infringer (a financial giant)

had threatened to spend as much as $100,000.00 in litigation

costs, and did, to render the infringement an economic mill-

stone about the neck of the Petitioner (a relatively small

company of limited financial means). These equitable fac-

tors are significantly stronger than those which favored

the trademark owner in Mishawaka. Yurthermore, the

record on October 6, 1975 (when the Court of Appeals

affirmed the award of profits and solemnly reminded

Respondent to clearly demonstrate which profits were not

attributable to the infringement) was just as devoid of

proofs of palming off, loss of specific sales and injury

to reputation as it was on March 17, 1977 (when the Court

of Appeals pointed to these failures of proof as justifica-

tion for entering its unsolicited reversal of the award of

profits).

Finally, the Court of Appeals pointed to a fourth

factor. The Court noted AMFAC’s relatively constant level

of sales before, during and after the infringement and

concluded that AMFAC made no profits during the in-

fringement period which were attributable to the infringe-

ment. Yet the Court of Appeals had noted through Justice

Tom Clark’s opinion of October 6, 1975 (page 7): “By

assuming that all of Rocky Mountain’s customers are not

attributable to the infringement AMF AC may be supposing

14

too much.” Rocky Mountain was AMFAC"’s Salt Lake

predecessor.

Respondent did not rely on relatively constant sales

volume to satisfy its proof of non-attribution. Instead

Respondent offered testimony of several of its pharmacist

customers who testified that they did business with Re-

spondent in Salt Lake City because said customers associ-

ated the infringing name, Western Drug, with good service,

variety of producta, and quality products. Respondent's

proof of non-attribution erroneously presumes that it is

entitled to reap the benefit of goodwill established by

Respondent in connection with the infringing name,

Prior to Respondent's purchase of the Salt Lake City

wholesale drug outlet, that outlet had done business under

the name Rocky Mountain Drug Supply. Upon purchase by

Respondent, the name was immediately changed to the

infringing name, Western Drug Supply. Thus, Respondent

started from scratch insofar as its reputation in Utah was

concerned. Respondent's only means of building goodwill

for itself was to educate potential Utah customers that the

name Western Drug Supply stood for something desirable.

Respondent, by its own representation, expended upwards

of $100,000.00 to educate Utah pharmacists that the new

company, Western Drug Supply, stood for good service,

variety of products and quality products, Through that

effort, Respondent admittedly built up substantial goodwill

with Utah pharmacists and that goodwill was associated

solely with the infringing name “Western Drug.” If Re-

spondent had not sold a variety of products, or had not

offered quality products or had not given good service,

Utah pharmacists, upon learning those facts, would have

certainly concluded that they had little interest in the new

15

company operating under the name “Western Drug Sup-

ply.’ [In such an event, because of the actual confusion

which did exiat between Petitioner's trademark and the

infringing name, proof of injury to Petitioner's reputation

could easily have been established, |

The critical question (where a new company comes to

town and deliberately adopts an infringing name and, with

full knowledge of the fact that such name infringes the

name of a long established local business, proceeds to

build up goodwill in connection with the infringing name)

ia whether the resulting goodwill should inure to the benefit

of the infringer or to the benefit of the legitimate owner

of the trademark, It seems to be elementary that it should

inure to the benefit of the trademark owner.

The Court of Appeals for the Tenth Cireuit so held

in Blue Bell Co, v, Frontier Refining Co., supra, In that

case, the Defendant had licensed the trademark “Frontier”

from Plaintiff for use in connection with the aale of gas

and oil at Defendant's service stations, After the license

terminated, Defendant continued to use the trademark,

(Defendant did not do business at any time in the same

trading area under ita trademark “Frontier”,) The goodwill

which Defendant had built up for ita service stations was

built up by Defendant's efforts and in connection with the

name “Frontier” which it was now infringing, Profita were

awarded by the Distriet Court, and affirmed by the Tenth

Cireuit, on all salea made in connection with the infringing

name. The holding of Blue Bell in sound policy which

merits adoption on a national basia to govern the business

right of all as they relate to trademarks. The decision in

the present case is in conflict with Blue Bell,

16

The Court of Appeals reversed the District Court’s

award of damages. Aside from that portion awarding

attorneys fees, the award was based on unchallenged expert

testimony that Petitioner lost profits from planned business

expansion rendered impossible because of the economic

burden placed on Petitioner to purge the infringement.

Under controlling law, Petitioner was legally obligated to

purge the infringement. [Respondent threatened and made

good its threat to cause the infringement litigation to be

as financially burdensome to Petitioner as possible. ]

Reversal of lost profits was premised on two princi-

ples: (1) such profits were prospective in nature and,

thus were not lawfully recoverable {no caSe authority was

cited) and (2) such profits resulted from expenditures of

operating capital for attorneys fees and said expenditures

did not come within any of the recognized exceptions to

the general rule that recovery for attorneys fees may not be

had unless based on contractual or statutory authority.

The award of attorneys fees was reversed on this same

ground.

Reversal of the damage award is contrary to the Tenth

Cireuit case of Atlas Building Products Co. v. Diamond

Block & Gravel Co., supra, wherein the Court affirmed an

award of future profits which would have occurred via

expansion of the business but for the tort of the Defendant.

In that case proof of future profits was made by testimony

of an accountant as in the case sub judice, as to what those

profits would have been. Said reversal is also in conflict

with Stoody Co. v. Clady Royer, supra, p. 677, and Hedrick,

et. al. v. Perry, supra, pp. 806, 807, which cases approved

awards of prospective profits.

17

The reversal by the Court of Appeals of the District

Court’s award of damages is also in conflict with this

Court’s holding in Clifford Vaughn v. N. J. Atkinson, etc.

et. al., 369 US 527, 8 L Ed 2d 88, 82 S Ct 997, reh den 370

US 965, 8 L Ed 834, 82 S Ct 1578 (1962). See also F. D.

Rich Co., Inc. and Transamerica Insurance Co. v. United

States For the Use of Industrial Lumber Co., Inc., 417 US

116, 40 L Ed 2d 703, 94 S Ct 2157, (1974). The Vaughn

case approves the awarding of attorneys fees where the

Respondent had willfully forced Petitioner to hire an attor-

ney to commence litigation in order to obtain what was

rightfully his.

The equities in Petitioner’s case sub judice, for the

awarding of attorneys fees and the damages caused as a

result of litigation expenditures are stronger than those

of the Petitioner in Vaughn, supra.

Here, Petitioner was required by law to purge the

infringement of its trademark or thereafter be estopped

from so doing. Ambrosia Chocolate Co. v. Ambrosia Cake

Bakery, Inc., 165 F 2d 693, 76 USPQ 157, 38 TMR 183

(4th C. 1947) ; Adam Hat Stores, Inc. v. Lefco, 134 F 2d 101,

56 USPQ 393, 33 TMR 189 (3d C. 1943); Anheuser-Busch,

Inc. v. DuBois Brew Co., 175 F 2d 370, 81 USPQ 423, (3d

C. 1949) ; Dwinell-Wright Co. v. White House Milk Co., Inc.,

132 F 2d 822, 56 USPQ 120, 33 TMR 2 (2d C. 1943);

Landers, Frary & Clark v. Universal Cooler Corp., 85 F 2d

46, 30 USPQ 248, (2d C. 1936). Here, the infringement was

willful and deliberate. Here, the infringer, an affluent

major corporation, threatened to use, and did use, its eco-

nomic strength to render Petitioner’s duty to purge as

economically burdensome as possible. Petitioner had no

alternative but te purge the infringements. Under that

18

duty, Petitioner had no way to escape the economic burden

(and its consequences) intentionally inflicted by Respond-

ent. The loss of profits was the proximate result of that

economic burden and should be sustained under the general

principle of damages as applied to trademark infringement.

See Aladdin Mfg. Co. v. Mantle Lamp Co. of America, 116

F 2d 707 (CA 7 1941); 87 Corpus Juris Secundum, Trade-

marks, Trade Names, etc. Sec. 216(b) p. 617, 618. These

authorities approve all damages proximately resulting

from the infringer’s wrongful acts. It is certainly as wrong-

ful to persist in a deliberate infringement, thereby requir-

ing expensive litigation and to deliberately proceed to make

the litigation financially burdensome to Petitioner, as it is

to deliberately infringe in the first place. In such a case,

the resulting damages should be compensable.

One possible explanation for the Court of Appeals

unusual action in this case is that the Tenth Circuit judges

have developed a certain prejudice against the Trial Judge,

who, incidentally, authored the original Blue Bell decision

which has been law in the Tenth Circuit for over twenty

years. The freque:.y of the Tenth Cireuit’s reversal of the

trial Judge’s decisions has increased in past years to the

point that it appears that, the trial judge cannot in any way

please the Tenth Cireuit. Coincidentally, the oral argu-

ment on the third appeal in this case was heard in Kansas

City before two judges because the third, the author of

the opinion, was in Denver reversing the trial Judge’s

eleventh hour stay of execution in the nationally publicized

Gary Gilmore case. Whether or not personal animosity has

developed between the Circuit and the District Judge,

Petitioner cannot say. But what clearly appears to be an

ongoing and intensified conflict between the two Courts

19

should have been placed to one side. The rights of Peti-

tioner should be resolved on the law and the facts as to

whether any abuse of discretion had occurred and/or if

the trial Court was clearly erroneous in its award. It is

clear from a mere reading of the opinion that this was not

done.

CONCLUSION

For the reasons stated, a Writ of Certiorai should

issue to review the third mandate of the Tenth Circuit.

Respectfully submitted,

LYNN G. FOSTER

Counsel for Petitioner

602 East Third South

Salt Lake City, Utah 84102

APPENDIX

APPENDIX A

Not for Routine Publication

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

TERRY E. FRANK and DENNIS W.

FRANK, a co-partnership, d/b/a Western

Pharmacal Co.,

Plaintiffs-Appellees,

Ve No. 76-1414

AMFAC DISTRIBUTION CORPORA-

TION, a California corporation, d/b/a

Western Drug Supply,

Defendant Appellant.

APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE DISTRICT OF UTAH,

CENTRAL DIVISION (D.C. No. C-350-72)

Roland N. Smoot (Robert M. Taylor, Jr., Los Angeles, Cali-

fornia, and L. R. Gardiner, Jr., Salt Lake City, Utah, on the

brief), Los Angeles, California, for Defendant-Appellaut.

Lynn G. Foster (Rulon R. Price, on the brief), Salt Lake

City, Utah, for Plaintiffs-Appellees.

Before HILL, McWILLIAMS and DOYLE, United States

Cireuit Judges.

HILL, Circuit Judge.

This is a diversity action for trademark infringement.

The trial court found that use by appellant Amfac Dis-

tribution Corporation of the trade name “Western Drug

Supply” infringed upon appellee Franks common law

right in the trade name “Western Pharmacal Company.”

Upon that determination of liability, which is not here

contested, the trial court ordered relief in the form of

A-2

injunction, damages, and profits. As in the two previous

appeals in this case, the primary issue here is the monetary

relief to be granted.

Upon the original finding of liability, the trial judge

ordered injunctive relief and damages in the amount of

$10,000 for Amfac’s infringing use of the trade name in

Utah. On appeal, we found that the amount violated our

sense of fairness, and we reversed the award of damages.

Frank v. Amfac, No. 73-1676 (Apr. 24, 1974). On remand,

the trial court awarded Frank approximately $144,000, rep-

resenting Amfac’s profits during the period of infringe-

ment. We found our sense of fairness violated “even more

egregiously” by that order and remanded for still further

proceedings. Frank v. Amfac, Nos. 74-1596, 74-1644, and

74-1674 (Oct. 6, 1975). On remand, the theory of recovery

for damages was distinguished from that for profits, and

evidence of each was taken. The order from which this

appeal is taken awards damages in the amount of $500,000

and profits of $2,336,047. Our sense of fairness is once

again violated.

The trial court’s findings of fact and conclusions of

law are of limited value in that they were adopted verbatim

by the court from Frank’s submissions. We have previ-

ously expressed disapproval of this practice as violative

of F.R. Civ. P. 52(a). G. M. Leasing Corp. v. United States,

514 F.2d 935 (10th Cir. 1975), rev'd in part on other

grounds, .... U.S. .... (1977).

There are two bases for monetary recovery in the

present case: actual damages and accounting for profits.

The first is a legal theory; the second is an equitable theory

of unjust enrichment. Upon a finding of infringement,

A-3

a trademark owner is entitled to recover damages for all

provable injury to his business proximately caused by the

infringement. Elements of injury may include profits on

lost sales, loss from reduction in price of goods due to

infringing competition, damage to the reputation of a trade-

mark owner’s goods or business, and expenses incurred in

preventing purchasers from being deceived by an infringer’s

wrongful conduct. The trademark owner bears the burden

of proving these elements of damage, and no presumption

of law or fact that he would have made the sales made by

the infringer operates to aid his proof. Obear-Nester Glass

Co. v. United Drug Co., 149 F.2d 671 (8th Cir. 1945).

Frank was awarded damages for two elements of

injury: attorneys’ fees and loss of profits from expected

business expansion rendered unfeasible by the economic

burden of resisting infringement through this litigation.

It is well established that the expenses of litigation,

with the exception of ordinary court costs, are not recover-

able as an element of damages absent an express statutory

or contractual provision allowing them. Carter Electric Co.

v. Travelers Indemnity Co., 382 F.2d 567 (10th Cir. 1967) ;

B & R Supply Co. v. Bringhurst, 503 P.2d 1216 (Utah 1972) ;

Blake v. Blake, 412 P.2d 454 (Utah 1966). Although there

are exceptions, as expressed in the ease of Alyeska Pipeline

Serv. v. Wilderness Society, 421 U.S. 240 (1975), neither

the facts nor the equities of the present case necessitate a

divergence from the rule. The inclusion of $55,681.11 for

attorneys’ fees in the award of damages was improper.

The balance of the $500,000 award of damages repre-

sents the profits Frank allegedly would have made but for

the economic burden of resisting the infringement by means

A-4

of the present action. Although Frank originally alleged

that the infringement resulted in confusion, injury to his

reputation, dilution of his trademark, and loss of sales,

proof that he was thereby damaged fell short of his allega-

tions. He testified that he knew of no sales lost by virtue

of the infringement, with the obvious exception of sales to

Amfac that he had previously enjoyed. Although he did

put on evidence of misdirected telephone calls as a result

of the similar names used by the parties, he made no proof

of economic loss as a result of the confusion. There was

no evidence of either reduction in prices by Frank to meet

increased competition by the infringer or injury to his

business reputation. We noted the rule that expenses of

litigation are not compensable damages. Frank seeks to

go beyond even the prohibition of that rule, praying to

recover not only his litigation expenses but also the profits

he forewent due to the economic burden of maintaining this

suit. He argues that he found it unfeasible to pursue both

his plans for expansion and vindication of the infringement.

Such a prospective loss is not compensable in an action

at common law for trademark infringement.

As Frank failed to prove any element of compensable

injury to his business by virtue of the infringement, the

award for damages was improper. We need not discuss

the question Amfac raises as to the competency of Frank’s

evidence of damages.

”

The remainder of the monetary recovery allowed was

on an accounting for Amfac’s profits during the period of

infringement. The theory of such recovery is unjust enrich-

ment. Blue Bell Co. v. Frontier Refining Co., 213 F.2d 354

(10th Cir. 1954). It is not in every case of trademark

infringement that profits are awarded. Where injunctive

A-5

relief satisfies the equities of a case, an accounting will be

denied. Friedman v. Sealy, Inc., 274 F.2d 255 (10th Cir.

1960); Radio Shack Corp. v. Radio Shack, 180 F.2d 200

(7th Cir. 1950); J. C. Penney Co. v. H. D, Lee Mercantile

Co., 120 F.2d 949 (8th Cir. 1941). Although on the second

appeal we remanded for a determination of Amfac’s attrib-

utable Utah profits, we noted that an inequitable result

would not be tolerated. Frank v. Amfac, Nos. 74-1596, 74-

1644, and 74-1674 (Oct. 6, 1975). Upon further proceedings,

the equities of the present case have become more manifest.

Frank made no claim that Amfae palmed off any of its

merchandise as that of Frank, nor was there proof of lost

sales or injury to Frank’s reputation. Amfac’s relatively

constant level of sales before, during, and after the period

of infringement belies any inference of substantial gain

resulting from the infringing use. The purpose of an

award of profits is to prevent unjust enrichment rather

than to cause it, and we do not believe that such an award

is called for in the present case.

We need not consider Amfac’s allegations of error

regarding rulings by the trial judge on matters of discovery

and admission of evidence.

The order of the trial court is reversed insofar as

it awards Frank damages, profits, and interest thereon and

is otherwise affirmed.

Reversed in part and affirmed in part.

APPENDIX B

Not for Routine Publication

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

TERRY E. FRANK and DENNIS W.

FRANK, a co-partnership, d/b/a Western

Pharmacal Co.,

™ Nos.

Plaint nd Appellees,

- iffs a ppellees 74.1596

74-1644

AMFAC DISTRIBUTION CORPORA- 74-1674

TION, a California corporation, d/b/a

Western Drug Supply,

Defendant and Appellant.

APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE STATE OF UTAH,

CENTRAL DIVISION (No. C-350-72)

Roland Smoot (Robert M. Taylor, Jr., Lyon & Lyon, Los

Angeles and L. R. Gardiner, Jr., Salt Lake City, Utah, on

the brief) for Defendant-Appeilant.

Lynn G. Foster and Rulon R. Price, Salt Lake City, Utah,

for Plaintiffs-Appellees.

Before CLARK,* Associate Justice, Retired, HILL and

MeWILLIAMS, Circuit Judges

*Honorable Tom C. Clark, United States Supreme Court, Retired, sitting

by designation.

CLARK, Associate .lustice, Retired:

This common law trademark infringement and unfair

competition suit is here on a return engagement’ for a

determination of the appropriate measure of damages. The

"See No. 73-1676, Frank v. Amfac Distribution Corp., unpublished

opinion, decided April 22, 1974.

A-7

district court has previously determined that Amfac, a large

concern based in California, improperly used the name

“Western Drug Supply”’ in its Utah operations resulting

in an infringement of the Frank tradename, “Western

Pharmacal Company.” In our previous unpublished opinion

dated April 22, 1974, we affirmed the judgment as to the

infringement but reversed “for further proceedings on the

resulting damages.”

On remand, the district court construed our action as

reversing only that part of the judgment that granted

Frank $10,000 in actual damages. The court assumed that

we affirmed the award of “damages equal to the gross

profits of Amfac from its Utah operations,” none of which

had been ascertained at the time of that appeal. We note

the ambiguity in our opinion and regret the resulting con-

fusion. Our reason for reversing the award of the $10,000

damages was because the award ran counter to our “sense

of fairness”; the award was based upon Amfac’s affidavit

in support of removal of the suit of the federal court and

Amface’s admission of diversity of citizenship and jurisdic-

tional amount. We concluded that “the integrity of the

judicial system requires that such a windfall not be used

for such a purpose.”’

However, the present judgment allowing recovery of

“damages equal to the gross profits of Amfac from its

Utah operations” violates our “sense of fairness” more

egregiously than even the former one. Amfac has never

been given an opportunity to show what portions of those

gross profits are attributable to its infringement of the

Frank tradename. As the Supreme Court has stated: “The

plaintiff, of course, is not entitled to profits demonstrably

not attributable to the unlawful use of his mark.” Mish-

A-8

awaka R. € W. Mfg. Co. v. 8. S. Kresge Co., 316 U.S. 203,

206 (1942). Still, the district court in this case has allowed

such a recovery. When proven through the accounting

provided for in the judgment, the sum to be awarded will be

on the order of $144,000. Such a result contrasts sharply

with the amount prayed for by Frank in the amended com-

plaint which was “on the order of $9,000.”

Frank says that this plight of Amfac is the result of

Amfac’s failure to do its homework and of errors it made

in its trial strategy. Frank insist that whatever evidence

Amfac now wishes to introduce, showing that some of its

profits were not attributable to its infringement of the

Frank tradename, should have been presented at trial in

any one of several appropriate methods. Frank says that

such evidence could have been given during the actual trial

as was done in Blue Bell v. Frontier Refining Co., 213 F.2d

354 (10th Cir. 1954); Amfac could have requested at trial

that the determination of attributable profits be referred to

a Master under Fed. R. Civ. P. 53(b), as was done in Cover

v. Chicago Eye Shield Co., 136 F.2d 374 (7th Cir. 1943);

finally, Amfac could have sought and, on proper eviden-

tiary foundation, obtained an order from the district court

allowing the inclusion of any evidence of attributable pro-

fits in the report of the auditor, as was done in Williamson-

Dickie Mfg. Co. v. Davis Mfg. Co., 149 F.Supp. 852 (E.D.Pa.

1957), aff'd, 251 F.2d 924 (2d Cir. 1958). Frank insists that

Amfac failed to take steps to implement any of these

methods at the trial and accordingly should now be fore-

closed from “reopening” its first accounting. We cannot

agree with such a hard-nosed position.

A-9

1. The Amfac Profits Due Frank:

In our view of the record, the present confusion on

whether we affirmed the award of profits in the first

appeal was occasioned by the unfortunate language of both

the original complaint and the July 9, 1973, judgment of the

district court which was drawn by Frank. The complaint

used only the term “damages.” Paragraph 9 of the judg-

ment granted Frank an award of damages using the words

“damages in the amount of $10,000, the amount of said

damages having been admitted by the Defendant.’’ In the

succeeding paragraph, the judgment reads: “In addition

to damages awarded in paragraph 9, above, Plaintiff is

awarded damages equal to the gross profits of the De-

fendant from its Utah operation . . .” (emphasis supplied).

In discussing the total recovery of Frank, both actual

damages from the infringement and profits of Amfac

attributable to the infringement, the judgment of the dis-

trict court used the same term, “damages.’’ We used the

same terminology in our remand, thinking it would avoid

confusion. On remand, however, our use of the term “dam-

ages” was construed to mean only the actual damages, the

$10,000 item, and not the entire recovery in the judgment.

The award that had been made to Frank of the Amfac gross

profits was construed to be in a different category, under

the heading of “gross profits’? rather than “damages.”

Thus the district court determined that its earlier award

of gross profits was «ffirmed by our finding of frivolous-

ness as to a series of errors raised byAifac in that earlier

appeal.? We can understand the confusion and take full

?Although Amfac had provided an accounting to Frank on October 8,

1973, it did not file it with the court because the order read: “provide

Plaintiff.” Frank would have us put some sinister connotations on this, but

we note that Frank drew the order, was thus aware of the language, and

yet made no effort to file the accounting itself.

A-10

responsibility for it. We hope that our reversal and remand

for further proceedings in this appeal will not suffer from

similar misunderstanding. With this in mind, we instruct

that on remand Frank is entitled only to those profits

attributable to Amfac’s infringement of the Frank trade-

name. We instruct that Frank, if necessary, be permitted

to withdraw its “forebearance” and put on proof of its

actual damages, if any.

Additional confusion exists concerning the various

accountings that have and have not been filed. Para-

graph 11 of the original judgment provided that: “De-

fendant shall withtn 90 days of the order provide Plamtiff

with a full certified accounting showing gross income,

expenses, amortized cost and gross profit...” (emphasis

supplied). On October 8, 1973, Amfac gave Frank such an

accounting in a statement and certification by Amfac’s

controller, Jeffrey I. Breslaw. That accounting listed

Amfac’s gross profits in Utah for the period of the infringe-

ment up to the date of July 1, 1973, but did not attempt to

define the amount attributable to the infringement. Frank

did not file the October 8, 1973, accounting with the district

court; apparently Frank believed that Amfac had filed

Breslaw’s original certification because Frank was given

only a copy.

After our mandate issued in the previous appeal,

Frank filed a document entitled “Forebearance,’’ by which

Frank withdrew its attempt to prove actual damages.

Instead, Frank sought a supplemental order to require that

Amfae pay over its gross profits within ninety days. Amfac

responded by seeking further proceedings on damages and

by filing two affidavits by Bresiaw. The affidavits cor-

rected the earlier figures given to Frank on the gross

A-24

Western Pharmacal complained to Western Drug without

A-ll

profits and set forth the amount of those profits that

Amfae felt were attributable to its infringement of the

Frank tradename — no more than approximately $11,000.

In support of its claim that at least a portion of its sales in

Utah during the period involved were not attributable to

its infringement of Frank’s tradename, Amfac cited its

purchase of Rocky Mountain Wholesale Drug in Utah and

claimed that the bulk of its Utah customers came from this

source. Amfac further claimed that the remaining cus-

tomers could be easily canvassed as to their reasons for

patronizing Amfac. In conclusion, Amfac noted that Frank

did not really dispute Amfac’s right under the authorities

to show that its sales were attributable to something other

than the use of the infringing name. In its view, Frank’s

argument was only that Amfac had its chance but missed it.®

Frank then moved to strike the Breslaw affidavits and

expunge them from the record. Amfac then moved for

further proceedings on the issue of damages and an evi-

dentiary hearing to determine the amount of profits prop-

erly attributable to the infringement.

When the dust had settled,* the district court entered

*While it is true that the issue of gross profits was before this Court

in the prior appeal by Amfac and dismissed with other frivolous points of

error made by Amfac, we found the issue premature at that time. No

accounting had been filed and no money judgment thereon had been entered.

Frank argues that the previous appeal settled the question. Frank would

explain the confusion by noting that the use of the word “damages” in

paragraph 9 of the original judgment was “in the conventional sense to refer

to actual loss.” On the other hand, according to Frank, the word “damages”

was used in paragraph 10 to loosely mean “recovery.” But by the same token

then, our use of the phrase, “resulting damages” would include both “actual

loss” and “gross profits.”

*It is unnecessary for us to recuunt the complex and drawn out pro-

ceedings and bickering that the parties engaged in between the filing of the

mandate from the earlier appeal and the orders that resulted in this one

Let it suffice to note that the docket shows a flurry of activity involving

no less than sixty separate entries.

A-25

2. We conclude from a careful examination of the

avail and filed this suit some 18 months later. During this

period some five to six hundred misdirected telephone calls

had been made to Western Pharmacal, with the occurrences

increasing after the yellow page listing in the telephone

book. Some of the calls concerned specific pharmaceutical

products, while others were directed to specific employees

of Western Drug. It is reasonable to assume that the latter

were made for the purpose of placing an order or transact-

ing other official company business, rather than personal

matters. The former were for drug products made by other

manufacturers. The calls included some placed by pur-

entire record that the name Western Pharmacal Company

has acquired a secondary meaning through the efforts of its

successive owners and in the State of Utah has become

exclusively associated in the minds of their customers with

those owners and their products. The trial court so found

and we find that its conelusion is not clearly erroneous.

Budget Systems, Inc. v. Budget Loan and Finance Plan,

supra, at page 516. Our further examination of the record

also reveals substantial evidence present showing that the

parties are in competition with one another in the pharma-

ceutical business and that there is substantial public confu-

chasing agents and sought products not available from sion in Utah over the use of their respective names. The

Western Pharmacal, but handled by Western Drug. Many findings by the trial court in this regard are not clearly

calls came for Don Kennedy, Manager of Western Drug erroneous. :

Supply; others to Mels Dissel, an employee of Western

Drug; a freight bill intended for Western Drug from

Wycoff Company was directed to Western Pharmacal by

__ mistake. While these calls came from parties apparently

having considerable expertise in the drug business, they too

were confused.

3. We have difficulty with the finding of $10,000 dam-

ages. This sum is based upon a concession made by Amfac

on March 23, 1973, ostensibly to protect its removal of the

case; and, more important, when the cause of action was

based on nationwide sales. The latter was reduced to sales

in Utah at the time of the trial. It is true that Amfac

should have moved to withdraw the concession at that time,

Rule 36(b), Fed. Rules Civ. Proc., but to permit the judg-

ment to be entered on this basis violates our sense of

fairness. The integrity of the judicial system requires that

such a windfall not be used for such a purpose.

In addition to this proof of confusion a comparison of

the words “Western Drug” and “Western Pharmacal’”’

evokes the same response. Indeed, “pharmacal’’ and “drug”

have the same meaning and could only be more similar when

identical. Dawn Donut Company v. William T. Day, dba

Daylight Donut Flour Company, 450 F.2d 332 (10 Cir.

1971). Also see, Pioneer Savings and Loan Assn. v. Pioneer

Finance and Thrift Company, 18 Utah 2d 107, 417 P.2d 121

(Utah 1966); Security Title Insurance Agency, etc. v. Se-

curity Title Insurance Company, 15 Utah 2d 93, 387 P.2d

691 (Utah 1964); Budget Systems, Inc. v. Budget Loan and

Finance Plan, 12 Utah 2d 18, 361 P.2d 512 (Utah 1961). It is so ordered.

The judgment is, therefore, affirmed as to the liability

of Amfac. The judgment as to the $10,000 resulting dam-

ages is vacated and the cause is remanded for additional

proceedings on this phase of the case.

A-12

a supplemental order striking the Breslaw affidavits and

ordering Amfac to commence the payment of gross profits.

As a result, we have in the record on appeal neither the

original accounting given to Frank and never filed by either

party nor the subsequent Breslaw affidavits. Upon remand,

if the Breslaw affidavits, including the accounting set out

therein, are probative, they may be used. However, we have

serious doubts that they are conclusive of the matter. They

seem to eliminate all of the profits of Rocky Mountain

Drug Supply, an acquisition of Amfac upon entering busi-

ness in Utah. Breslaw then comes up with a gross profit

on “new” customers of only about $11,000, which Breslaw

seems to concede is attributable to Amfac’s infringement.

But such a defense appears too theoretical. The burden is

on Amfac to prove that its Utah profits during the period

of the infringement are not attributable to the infringe-

ment, rather than merely alleging that they may not be so

attributable. By assuming that all of Rocky Mountain’s

customers are not attributable to the infringement, Amfac

may be supposing too much. We believe, and the holding

in Mishawaka, supra, at 207, requires, that Amfac bear the

burden of proving by positive evidence that the infringe-

ment of Frank’s tradename had no cash value in sales made

by Amfac during the infringement.

3. No Proof of Actual Damages or Gross Profits Yet

Introduced:

From the chronology of the case outlined above, we

note that Frank has yet to offer either proof of actual

damages or proof of Amfac’s gross profits in Utah during

the period of the infringement. The confusion about the

meaning of our previous opinion was partly responsible for

this fact, but we note that the seeds of that confusion were

A-13

first planted at the close of the trial in the district court.

On that date, June 30, 1973, the trial judge observed from

the bench that no proof of profits had been offered. Frank,

thereupon, advised the court that: “[WJe do not have to

introduce evidence on the question of profits. We could

ask for an accounting if you saw fit for that to be the

measure of damages.”’ The trial judge then announced:

“Judgment in this case is for the plaintiffs, and I am going

to order an accounting of the profits.”

On remand from the first appeal in this case, Frank

still refrained from offering proof of profits and filed a

“forebearance” that indicated that it wished to forego

proving actual damages. Thus, Frank sought a supple-

mental accounting for the period between the date of the

original judgment and the date of our affirmance of

Amfac’s liability for the infringement. That accounting

was granted and Amfac filed one for the period. Frank’s

objections are to the correcting affidavits of Breslaw which

were filed with the supplemental accounting. It is Frank’s

view that Amfac should be foreclosed from making any

showing that certain amounts of the profits were not

attributable to the infringement of the tradename.’ Amfac,

it is alleged, already missed its chance.

Frank’s arguments, however, fall of their own weight.

While objecting to Amfac’s offer of proof, Frank relies on

an accounting that Frank has yet to file and upon which the

district court is awaiting in order to make a final judgment.

*On this appeal, Frank does not make the contention that as an

ordinary matter it could recover all gross profits, recognizing that both the

United States Supreme Court and the Tenth Circuit have held to the

contrary, limiting recovery to those profits attributable to the infringement.

See Mishawaka R. @ W. Mfg. Co. v. S. S. Kresge Co., 316 U.S. 203 (1941)

and Blue Bell Co. v. Frontier Refining Co., 213 F.2d 354 (10th Cir. 1954).

A-14

The order for that accounting, drafted by Frank itself,

clearly stated that the accounting be given by Amfac to

Frank, rather than to the court: “Defendant shall within

90 days of the order provide Plaintiff with a full certified

accounting ...”’ It, therefore, appears that Amfac was

timely when it offered its supplemental accounting and the

corrections raising the offset of those profits not attrib-

utable to the infringement. The refusal of the district court

to permit the filing of the correcting affidavits of Breslaw

was plain error and unjustly deprived Amfac of its oppor-

tunity to prove what portions of its gross profits are not

attributable to the infringement.

The award of profits, the equitable remedy that Frank

seeks, was intended to render deliberate trademark infringe-

ment unprofitable. However, it is not applied as a matter

of course and “will be denied where an injunction satisfies

the equalities of a case .. .” Williamson-Dickie Mfg. Co. v.

Davis Mfg. Co., supra, at 927. As has been noted, the

rule that profiis not attributable to the infringement be

denied was an important corollary to the principle of award-

ing profits so that the courts could avoid “a truly harsh

result.” Maier Brewing Co. v. Fleischmann Distilling Corp.,

390 F.2d 117, 123-4 (9th Cir. 1968). We will not allow the

awarding of all the gross profits on such a flimsy excuse

as Frank offers. We prefer to let Amfac present its de-

fenses and, if it affirmatively demonstrates that some of

its Utah profit are not attributable to its infringement,

to nse the same as an offset to its total gross profits. To do

otherwise under the facts here would be unconscionable and

result in the very type of undue enrichment which equity

abhors.

However, we emphasize that the burden of proof is on

Amfac to clearly demonstrate that the profits it has enjoyed

A-15

during the period of infringement are not attributable to

its unlawful use of Fraak’s name. Furthermore, Amfac

was not an unwitting infringer; it deliberately used Frank’s

name, knowing full well the consequences of its acts. It is,

therefore, up to it to show that its profits in Utah cannot be

traced to its appropriation of Frank’s name. This is not

to say that Frank should receive such a windfall, $144,000,

an amount that on its face would be “a truly harsh result.”

The record displays much irascibility present among

the parties and counsel as well; tempers have flared with

accusations flying back and forth. It appears that it will be

difficult for Amfac to meet its burden of proof; yet the

cases teach us that a really harsh result must not be per-

mitted. Our previous reversal was predicated upon a wind-

fall award of $10,000 actual damage awarded Frank solely

on a jurisdictional concession that such amount was in-

volved in the case. We hold that this action violated “our

sense of fairness.”’ And now on this reversal we find that

to award Frank all of Amfac’s Utah profits — $144,000.00,

without deducting those that Amfae can prove were not

attributable to its infringement would be “unconscionable

and result in the very type of undue enrichment which

equity abhors.”~And so we again caution against the entry

of “a truly harsh result” of either actual damage or gross

profit in Utah, attributable to Amfac’s infringement. In

this regard, we call the attention of the trial judge to the

nominal profits made by Frank both before and during

the infringement period down to August 15, 1974; the sale

price the owner of the tradename received for the mark

prior to the litigation; the readiness of Frank to forego any

actual damages on the first remand; and the effectiveness

of the injunctive relief granted in protecting the mark in

the future.

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4. The Attorneys’ Fees Arising Out of the Contempt

Proceedings:

The contempt preceedings arose out of the discovery

by Frank of three envelopes bearing the name Western

Drug Supply that were used by Amfac as return envelopes

in letters to its customers. The use of these envelopes was

a technical violation of the injunction then in effect against

Amfac. This naturally aroused much suspicion on the part

of Frank and led to a hurried and extensive investigation

by its counsel. After a hearing, the court found Amfac

guilty of contempt but allowed it to purge itself of the

contempt by destroying all papers, etc. bearing the name of

Western Drug Supply then in its possession save old busi-

ness records. It appears to us that this action on the part

of Amfac at a time when acrimony between the parties was

at a fever heat reached the level of gross negligence, even

if totally innocent. We cannot say that the award of the

$3,780 to the attorney handling the contempt proceeding

for Frank was an abuse of discretion. The record shows

that he expended some 54 hours on the matter at $70 per

hour, not including court time. We therefore affirm the

award of the $3780 attorneys’ fees, and it is not to be

deducted from any award for damages or profits in Utah

attributable to Amfac’s infringement.

5. Motions:

The motions of Frank for damages incurred in defense

of this appeal including attorneys’ fees therefor (but not

including the contempt proceeding), are denied. The mo-

tions to consolidate the appeals in Nos. 74-1596, 74-1644,

and 74-1674 are granted; all other motions are denied.

A-17

The judgment of the district court is reversed (1) as to

the actual damage in order to afford Frank an opportunity,

if Frank elects, to prove the same, and (2) as to the gross

profits of Amfac in Utah for the periods of the infringe-

ment down to August 15, 1974, and the case is remanded for

further proceedings in accordance with this opinion, includ-

ing costs of court which are to be assessed against Amfac.

It is so ordered.

APPENDIX C

Do Not Publish

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

TERRY E. FRANK and DENNIS W.

FRANK, a co-partnership, d/b/a Western

Pharmacal Co.,

Plaintiffs-Appelles,

v. No. 73-1676

AMFAC DISTRIBUTION CORPORA-

TION, a California corporation, d/b/a

Western Drug Supply,

Defendant-A ppellant.

APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE DISTRICT OF UTAH,

CENTRAL DIVISION (D.C, No. C-350-72)

Lynn G. Foster (Rulon R. Price on the brief) for Plaintiffs-

Appellees.

Robert M. Taylor, Jr., (Lyon & Lyon, James W. Geriak

and L. R. Gardner, Jr., on the briefs) for Defendant-

Appellant.

Before Mr. Justice CLARK*, and HILL and MeWIL-

LIAMS, Circuit Judges.

MR. JUSTICE CLARK.

*Associate Justice Tom C. Clark, United States Supreme Court, Retired,

sitting by designation.

This diversity action was originally filed on November

15 ,1972, by Terry E. and Dennis W. Frank, doing business

as Western Pharmacal Company, against Amfac Distribu-

tion Corporation, a California corporation, in the District

Court of Salt Lake County, Utah. The complaint alleged

that Amfac, through the use of the name Western Drug

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Company, was guilty of common law trademark infringe-

ment and unfair competition with the trade name Western

Pharmacal Company owned and used by the Franks. Amfac

removed the case from the state court to the United States

District Court. On June 30, 1973, immediately before trial,

Western Pharmacal Company, a corporation, was substi-

tuted for the Franks and the cause of action was limited

to the State of Utah. The District Court found for Western

Pharmacal, ordered an accounting and entered judgment

for $10,000 damages against Amfac upon its earlier admis-

sion on March 23, 1973, that if liability actually existed

against it the damages suffered would be in excess of

$10,000. We affirm the judgment on liability, but reverse

for further proceedings on the resulting damages.

Amfac raises ten points of error, but we find all of

them to be without merit save two which we shall now

consider:

1. Amfac says that the trial court had a fundamental

misapprehension of the nature of, ard the recognized legal

requirements for, the acquistion of exclusive rights by

reason of secondary meaning in a name and the standards

to be applied to determine the likelihood of confusion.

While the findings are not expressed in the fine distine-

tions and niceties of verbiage that counsel delineates, still

they are distinctions without a difference which appear to

be clear and understandable to us. It is well first to treat

of the facts.

Back in the mid-twenties when Western Pharmacal

Company began business in the manufacture of pharma-

ceuticals, it was a corporation of the State of Utah with

headquarters in Salt Lake City. In its operations it had

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certain trademarks for which it had registrations with the

State of Utah. The corporation was dissolved on December

21, 1939, by order of the court (Liber E 209 page 188) and

all of its property, assets, goodwill, trade names, and all

patents and trademarks were assigned to Karl M. Pack

(Id. at 190). Mr. Pack continued the operation under the

name of Western Pharmacal Company, and on June 1, 1948,

to further fortify his claim to the trade name, filed an

application with the United States Patent Office for regis-

tration of the name Western Pharmacal Company as a

trademark,’ and such trademark was registered by the

Commissioner of Patents on January 17, 1950, under the

Trade Name Act of 1946. The registration lapsed after

six years. On January 1, 1948, Mr. Pack assigned the busi-

ness together with its trademarks, trade names, etc., to a

partnership of the same name, Western Pharmacal Com-

pany, composed of himself and Winifred L. Rees, the latter

having a 20 per cent interest therein. Mr. Pack died on

June 15, 1949, and his widow, Valeria C. Pack, and Miss

Rees continued to operate the business in the name of

Western Pharmacal Company until June 30, 1952, when

Mrs. Pack acquired Miss Rees’ interest and continued to

operate the business under the name Western Pharmacal

Company. A record of this was placed in the office of the

*The pharmaceuticals named in the application included: “Granular

effervescent blood salts having antacid, diuretic, and alkalinizing properties,

granular effervescent salts useful as a nerve sedative, granular effervescent

salts for relief of pain from simple headache, neuralgia, and common colds,

granular effervescent salts for relief of minor muscular aches and pains,

granular effervescent salts used as a urinary antiseptic, an analgesic and

antispasmodic tablet for symptomatic relief of primary dysmenorrhea, an

antiseptic and prophylactic jelly, an inhalant useful to shrink congested

membranes and promote drainage of the nose and sinuses, a liquid vitamin

compound of vitamin B factors, an anti-sunburn lotion, an anti-sunburmn

cream, a liniment for the relief of neuralgia and myalgia, in Class 18,

Medicines and pharmaceutical preparations, . . .”

A-21

United States Commissioner of Patents on November 23,

1954, including a list of the “trademarks and registrations”

claimed, including “No. 519,996 for Western Pharmacal

Company.” On October 24, 1969, Mrs. Pack, as sole owner

and proprietor of Western Pharmacal Company, sold the

drug manufacturing business and all of the business related

thereto of Western Pharmacal Company “and all other

property or assets of Western Pharmacal Company” to a

limited partnership of Alf M. Engen, Evelyn P. Engen

(Mrs. Pack’s daughter) and J. Reed Tuft, trading as

Western Pharmacal Company. The consideration was

$10,000 and the transfer included “the right to use the

name ‘Western Pharmacal Company’ and the goodwill asso-

ciated therewith ;” and “registered trademarks, the formu-

las they represent and the goodwill associated therewith ;”

and bound Mrs. Pack “to execute assignments of all reg-

istered trademarks presently owned or used by Western

Pharmacal Company to the buyer for filing in the U. S.

Patent Office and the State of Utah.”* A record of such

transfer was filed in the United States Patent Office on

July 12, 1972. On March 1, 1971, the Engens and J. Reed

Tuft sold Western Pharmacal Company to Terrance E.

and Dennis W. Frank for $15,000.

During all this period — almost half a century — the

business was continuously operated in Salt Lake City at all

times under the name Western Pharmacal Company, and

with that label on each of its sales: First, by Mr. Pack for

over 20 years, during which period he employed “detailers,””

*Amfac construes this instrument as not including the trade name,

trademarks, etc.; our reading of it is to the contrary.

*One who calls on physicians for the purpose of demonstrating the

usage of certain pharmaceuticals in prescribing cures; distributes literature

as to the same, as well as samples of products; all in an effort to sell the

same or secure future orders therefor.

A-22

ran some advertisements of Western Pharmacal products

in pharmaceutical journals and solicited prospective cus-

tomers. He built the business to a peak of $28,000 to

$30,000 a year in gross sales. Next, by Mrs. Pack and Miss

Rees until June 30, 1952, when Mrs. Pack bought out

Miss Rees and thereafter continued to operate the business

under the same name and with the assistance of pharma-

cists and her daughter, Mrs. Alf M. Engen. During this

period the use of detailers, plus some advertising and

soliciting, was continued much the same as was done by

Mr. Pack. While the business was not as affluent as it was

under Mr. Pack’s guidance, it did earn Mrs, Pack a liveli-

hood. Third, Mrs. Engen and her husband, with J. Reed

Tuft, paid $10,000 for the business on October 24, 1969,

and operated it until the sale to the Franks on March 1,

1971. The potential of the business is indicated by the fact

that they netted a 50 per cent profit on the sale in less than

18 months, despite the fact that gross sales only averaged

$4,000-$5,000 annually. During the final phase of the West-

ern Pharmacal Company operations, under the Franks,

sales quickly doubled and in a two-year period were some

five times higher than during the Engen-Tuft period. Mr.

Terrance E. Frank, one of the purchasers and a registered

pharmacist, had been a regular customer of Western

Pharmacal Company for 10 years prior to his purchase of

the business with his kinsman, Dennis W. Frank. The

Franks spent some $3,000 in advertising; made personal

calls on physicians, and sent out three mailings to physi-

cians and druggists; one mailing to all hospitals in the

United States and to plastic surgeons; together with weekly

advertising in the Tribune and Deseret News.

During the 44-year continuous use, ownership and pro-

motion of the name Western Pharmacal Company, no other

A-23

business in Utah used the name “Western,” either alone or

in conjunction with other words respecting the manufacture

or the wholesale distribution of pharmaceuticals, and the

testimony is uncontradicted that its reputation for excel-

lence of products in the pharmaceutical field had over all

these years been excellent. Moreover, these products over

all these years had borne the name of Western Pharmacal

Company and had enjoyed a common identity therewith

continuously, exclusively, and had enjoyed the protection

of registration in both the federal and state agencies.

Despite this long and uninterrupted use of and promo-

tion of the trademarks and name of Western Pharmacal

Company, Amfae began doing business in Utah in 1971,

purchased a concern known as Rocky Mountain Wholesale

Drug, changed its name to Western Drug Supply, and began

distributing drugs in Utah. Jack W. Rodda, President of

Western Drug Supply, testified that he had been acquainted

with Western Pharmacal Company “as far back as 1949-

1950, in Sacramento” where Western Drug “had some of

their (Western Pharmacal) products in our inventory. ...”

Mr. Rodda further testified that he made no investigation

of the availability of the name “Western Drug” in Utah

before appropriating it. The yellow pages of the telephone

directory for Salt Lake City under the listing “Pharmacen-

tical Products — Wholesale and Manufacturing” included

Western Drug Supply and Western Pharmacal Company,

in that order, but the Branch Manager of Western Drug

denied any knowledge of how “it came about.” However,

nothing had been done to minimize the resulting confusion

which Western Pharmacal claimed.

The record shows that the confusion in the respective

names began soon after Amfac’s change in the name of

Rocky Mountain Wholesale Drug to that of Western Drug.