International Star Class Yacht Racing Association v. Tommy Hilfiger U.S.A., Inc., 1999 U.S. Dist. LEXIS 2147, 1999 WL 108739 (S.D.N.Y. 1999), aff'd without opinion, 205 F.3d 1323 (2d Cir. 2000), cert. denied, 531 U.S. 873 (2000).

Upon second remand from the Second Circuit, and acting as a finder of fact, this Court finds that plaintiff has not shown that defendant acted in bad faith when it determined to use the plaintiff's unregistered mark "Star Class" as a decoration on certain of its garments. According to the unrebutted evidence at trial, the sales of defendant's garments were driven by the prominent use of defendant's name, initials and crests, which identified the garments as defendant's products, and not the words "Star Class." In view of the manner of display and labeling, and the prominent use of the Hilfiger marks, there would be little, if any, motivation for bad faith appropriation of plaintiff's mark by defendant.

The evidence does not demonstrate that Hilfiger willfully intended to cause confusion or deception or to profit from plaintiff's reputation. Tommy Hilfiger U.S.A., Inc. ("Hilfiger") may have had knowledge that it was drawing "authentic details from the sport of competitive sailing," but it had ordered a trademark search of the mark by its attorneys which did "not reveal any identical federal trademark registrations or applications in class 25 [a clothing classification] which would bar your proposed use of this mark." There is no showing that Hilfiger had knowledge of the existence of the International Star Class Yacht Racing Association (the "ISCYRA") or of the mark's association with any entity at all, let alone any commercial use of the designation Star Class. [Footnote: Hilfiger's designer admitted at trial to examining books and other materials on sailboat racing which referred to Star Class racing and Star Class boats. This evidence may give rise to an inference that Hilfiger copied the Star Class mark, but it does not prove that the marks were known by Hilfiger or its agents to be trademarks of the ISCYRA or any other entity. The Star Class mark is a descriptive mark, and there is insufficient evidence to show that when Hilfiger imitated the mark it intended to copy a trademark.] Even knowledge of another's mark does not automatically give rise to an inference of bad faith. As in George Basch Co. v. Blue Coral, Inc., in which the defendant's intention to imitate the plaintiff's trade dress was found insufficient, in itself, to support of bad faith, Hilfiger's knowledge that it was copying details from the sport of sailing does not show that it engaged in willful deception.

Furthermore, it is not dispositive that Hilfiger failed to conduct a more extensive search than a Federal Registration and Application screening within class 25. The Court finds that Hilfiger did not have an obligation, at the relevant time in 1994, to do a more extensive search in view of the holdings in Sands, Taylor & Wood Co. v. Quaker Oats Co., Zazu Designs v. L'Oreal S.A., and Hasbro, Inc. v. Lanard Toys, Ltd. This Court finds that defendant's intent to use the Star Class mark as a decoration, not as a trademark, was consistent with the advice of Mr. Burstein, its attorney, who stated, "At this point, we would not necessarily rule out your use and registration of this mark subject to our usual disclaimers regarding the need to first obtain and review a full trademark search." "Use and registration" are the requirements for obtaining a federal registration for a stand alone mark, and use of the Star Class mark as a decoration without a full search — as opposed to "use and registration" — was not in disregard of the advice of defendant's attorneys. Defendant's attorneys indicated only that if defendant was seeking to protect this mark as its own, it should have a full trademark search. Defendant had no intention of using the mark in this fashion. In any case, Ms. Luparello, a non-lawyer who was an assistant to Hilfiger's CEO, and who had responsibilities for interfacing with Hilfiger's attorneys, was told that a search had been conducted and there was no bar to defendant's use of the mark. Mr. Burstein's later language was not shown to have had the significant effect on Ms. Luparello that plaintiff has argued for.

Furthermore, Mr. Burstein's letter had advised defendant: "STAR CLASS would be a rather weak trademark. This is because the words "STAR" and "CLASS" are non-distinctive terms used extensively in other fields by third parties." This conclusion was not unreasonable. Indeed, as the Court noted in its decision after trial, it was a "close question" whether or not plaintiff had any trademark rights. While defendant's efforts to ascertain whether Star Class was, in fact, a trademark must be evaluated in conjunction with its awareness that it was copying details from the sport of sailing, they also must be considered in light of Mr. Burstein's advice that any entity's claim to the Star Class mark would be weak. Even had defendant conducted a full trademark search and acquired actual knowledge of prior use of the Star Class mark by plaintiff, a finding of bad faith would not be required if defendant had relied on the advice of counsel in choosing the mark and not intended to promote confusion or appropriate plaintiff's good will. Further casting doubt on the proposition that defendant acted in bad faith is the minimal value the Star Class mark added to defendant's sales, and the improbability that defendant would choose the mark in the hope of deceiving consumers or capitalizing on plaintiff's reputation. In sum, even considering defendant's knowledge that it was copying details from sailing, the facts suggest that it is unlikely defendant acted in bad faith.

Nor does the continued sale of goods bearing plaintiff's marks after this Court denied Hilfiger's motion for summary judgment indicate bad faith. In its denial of the motion for summary judgment, the Court merely held that whether plaintiff had trademark rights in "Star Class" was an issue of fact. It did not reject defendant's argument that plaintiff had no trademark rights in Star Class. Indeed, as aforementioned, the Court found it a "close question" whether or not plaintiff had any trademark rights at all. Although this Court found the plaintiff's unregistered mark should merit protection in its opinion and order of April 26, 1995, this Court does not find that defendant's conduct in light of Mr. Burstein's advice was so unjustified as to support a finding of bad faith. In many cases, courts have disagreed with counsel's opinion in trademark infringement matters, but not found defendants to have acted in bad faith.

In view of the fact that (1) Hilfiger was only using the Star Class mark as an embellishment on its Nantucket line of clothing, which was exceedingly well trademarked with the Hilfiger name designating the source of the goods, (2) there is no showing that Hilfiger intended to copy a trademark, (3) Hilfiger's conduct was consistent with the advice of its attorneys concerning when a full search would be required, and (4) Hilfiger was reasonably advised by its attorneys that the Star Class mark was weak, the Court finds that the evidence is insufficient to support a finding of bad faith.

The Second Circuit's opinion remanding the case also requested this Court to make determinations as to (1) whether defendant should account to plaintiff for all of its profits from sales of clothing using plaintiff's mark, or merely for profits from sales made after receipt of plaintiff's cease and desist letter; (2) the propriety of deducting defendant's costs of sales; and (3) whether some portion of the sales of nautical sportswear was attributable to the appeal of Hilfiger's well known mark and reputation.

Accordingly, since the Second Circuit may not agree with this Court's finding of insufficient evidence of bad faith or willful misconduct and may make findings of its own, the following findings are made:

  1. Defendant's profits from sales of clothing bearing plaintiff's mark made prior to receipt of plaintiff's cease and desist letter need not be disgorged in order to deter future misconduct, particularly because there is no showing that defendant knew that plaintiff existed or that anyone owned the Star Class mark, or that defendant intended to copy a trademark.
  2. According to Exhibit 9, defendant's sales following commencement of this action are $818,419.85, and the cost of such sales is $368,288.93, or 45% of sales. Thus, Hilfiger's profits on those sales amounts to $450,130.92.
  3. The evidence shows that the defendant's profits flowed overwhelmingly from the presence on the clothing of "TOMMY HILFIGER" in big letters, the initials "T.H.," and the Hilfiger flag design mark. Zwerner, a buyer for Burdinee's, a leading chain of department stores, testified, "The bigger, the more prominent the Tommy Hilfiger designation, crest or name on the garment the better it sells." Zwerner testified that, in contrast, the words "Star Class" on garments "didn't mean anything except 'He's high class.'" To the extent it is pertinent, defendant's witness Leeds testified that license fees for use of a trademark license range from 2- 1/2 to 6% of gross sales.

In this Court's judgment, the entry of an injunction against use of plaintiff's trademark was sufficient to deter any further infringement of plaintiff's unregistered mark. As shown by the Zwerner testimony, the use of the Star Class mark conferred little benefit on Hilfiger. Though this Court does not award damages, if it is necessary to make such an award, the Court finds that in light of the small benefit Hilfiger derived from use of the Star Class mark, those damages would be 2-1/2% of $818,419.85, the gross sales of the infringing product after the suit commenced, or $20,460.50.

Prepared by Jefferson Scher for Law 227: Trademarks & Unfair Competition. Substantial portions of the original opinion have been omitted.